Savvy Savers. Teacher instructions: Print the lesson, Display slide 2 with Procedure step 2 in the lesson. Display slides 3 through 6 with Procedure step 3. Display slides 7 through 12 with Procedure step 4. Display slides 13 through 15 with Procedure step 5. Display slides 16 through 24 with Procedure step 6. Display slide 25 with Procedure step 9. Display slide 26 with Procedure step 10. Savvy Savers.

the part of a person’s income that is not spent or used to pay taxes saving the part of a person’s income that is not spent or used to pay taxes

non-interest-bearing account an account in which no interest is paid on the principal – also called a zero-interest account

principal the original amount of money deposited or invested, excluding any interest or dividends

the price of using someone else’s money interest the price of using someone else’s money

compound interest Interest computed on the sum of the original principal and accrued (accumulated) interest

Maria’s Savings Decision Problem 1 Principal = $1,000 Interest Rate = 5% Interest paid semiannually

Principal = $1,000 Interest Rate = 5% Interest paid semiannually Step 1: Convert annual interest rate (5%) to decimal (.05)

Principal = $1,000 Interest Rate = 5% Interest paid semiannually Step 2: Divide annual interest rate (stated as decimal) by two to change it to semiannual. (.05/2=.025)

Principal = $1,000 Interest Rate = 5% Interest paid semiannually Step 3: Multiply the principal by the interest rate to get the interest paid in dollars. ($1,000 x .025=$25.00)

Principal = $1,000 Interest Rate = 5% Interest paid semiannually Step 4: Add principal and interest to get new amount of principal. ($1,000 + $25.00=$1,025)

Principal = $1,000 Interest Rate = 5% Interest paid semiannually Step 5: Record new level of principal and repeat the process from Step 3.

What is a non-interest bearing account? an account or deposit that does not pay interest on the principal What could Maria have bought with the $50.62 of interest she might have earned on her savings?

Would you classify Maria as a saver or a savvy saver? Why? She didn’t save her money in a way that would giver her a return on her investment, i.e. an account that pays interest on the principal.

Why would anyone leave the $1,000 in a non-interest bearing account rather than putting it in an interest-bearing account? He or she may not understand the importance of compound interest or may be financially lazy.

Imagine that instead of $1,000, Maria’s grandmother had given her $10,000. After three years, how much interest would $10,000 have earned on a 5 percent compounded semiannually account? $1,597.10

Why is time, i.e., the number of months you have your money in an interest-bearing account, a very important factor in accumulating savings? The sooner you start saving, the sooner you start earning interest not only on your principal but also on accrued interest. Money works for you over time.

4% (72 4)

36 years 4% (72 4) 18 years 12 years 9 years 6 years