Financial Literacy BCS-FL-8 Students will evaluate savings and investment options to meet short-term and long-term goals.

3 reasons why You should save Short-term needs Can’t always predict these-need to have money in savings Emergencies Vacations Social Events Major purchases

3 reasons why You should save Long-term needs Home ownership Down payment Education High cost=more $ Retirement SS never enough Investing- bonds, mutual funds, real estate

3 reasons why You should save Financial security This is “peace of mind” knowing that you have enough money to cover day to day expenses and emergencies. The amount of Money you save will vary based on several factors Discretionary income Importance you attach to savings Your anticipated needs and wants Your will power or ability to give up present spending in order to provide for your future.

How Your Money Grows Principal Interest Compound interest The amount of deposited Interest The amount the bank pays the saver Compound interest The interest calculated on the original “principal” plus additional interest. The more often interest is compounding the more you make…. Hence daily compounding will make you more money than monthly or yearly. Annual Percentage yield Required by law

How Your Money Grows Rate of return=Yield Annual Percentage yield The percentage increase in the value of your savings due to earned interest. Annual Percentage yield Required by law Calculated the same way by all financial institutions You can use APY to easily compare the yields on different accounts.

Compounding Interest Annually Beginning Interest Ending Year Balance Earned (5%) Balance 1 $100.00 $5.00 $105.00 2 105.00 5.25 110.25 3 110.25 5.51 115.76 © South-Western Educational Publishing

Compounding Interest Quarterly Quarterly Compounding Annual Interest Rate = 6% Beginning Quarterly Quarterly Interest Ending Year Balance Interest Q1 Q2 Q3 Q4 Balance 1 $100.00 .015 $1.50 $1.52 $1.55 $1.57 $106.14 2 106.14 .015 1.59 1.62 1.64 1.66 112.65 3 112.65 .015 1.69 1.72 1.74 1.77 119.57 © South-Western Educational Publishing

Compounding Interest and Making Additional Deposits Beginning Interest Ending Year Balance Deposits Earned (5%) Balance 1 $ 0.00 $100.00 $ 5.00 $105.00 2 105.00 100.00 10.25 215.25 3 215.25 100.00 15.76 333.01 4 331.01 100.00 21.55 452.56 © South-Western Educational Publishing

Where You Can Save Commercial banks Savings banks Savings and loan associations Credit unions Brokerage firms © South-Western Educational Publishing

Commercial banks Wide variety of banking services Most are insured through the Federal Deposit Insurance company FDIC. Up to $250 000 (used to be $100 000) Ex Wells Fargo, BOA © South-Western Educational Publishing

Savings Banks Also known as Mutual Savings Banks Only about 500 in the US Provide savings accounts and mortgages and home improvement loans. © South-Western Educational Publishing

Savings and Loans Associations Lend mortgage money and offer savings accounts at a little bit higher rate Insured by FDIC © South-Western Educational Publishing

Credit Unions Not for profit organizations Created by “groups”. Ex teachers credit union Lower rates on loans NCUA can insure up to $250 000 © South-Western Educational Publishing

Brokerage Firms These companies buy and sell different securities (EX Stocks, bonds) You use a stockbroker who works for the firm to buy things from them Ex. Merrill Lunch Brokerage firm © South-Western Educational Publishing

Lesson 10.2 Savings Options, Features, and Plans Explain the features and purposes of different savings options. Discuss some factors that influence the selection of a savings plan. Explain at least two ways to save regularly. © South-Western Educational Publishing

Savings Options Regular savings account Certificate of deposit (CD) Money market account

Savings Options Regular savings account Higher liquidity Lower interest rate May pay fee if you make to many withdrawals or if it falls below a certain set amount.

Savings Options Certificate of deposit (CD) Earns fixed interest rate for a fixed amount of time Requires a minimum deposit Usually slightly higher interest rate than regular savings account Maturity date Penalty for early withdrawal

Savings Options Money market account Combination savings-investment plan Money can be withdrawn without a fee Money is used to purchase safe liquid investments Money market accounts with Brokerage firms are not insured by FDIC Money market accounts with some banks are FDIC insured Usually require minimum balance Variable interest rate which goes up and down with the stock market.

Selecting a Savings Plan Liquidity How quickly you can convert to cash Safety How safe is your money (FDIC) Convenience How easy is it for you to get to your bank?

Selecting a Savings Plan Interest-earning potential (yield) Earn as much interest as possible while maintaining liquidity, safety and convenience your looking for. Fees and restrictions Withdrawal Restrictions Minimum Balances Service Charges Fees

Saving Regularly Ways to make saving easier: SAVE as MUCH as you can as FREQUENTLY as you can!!!!!! Ways to make saving easier: Direct deposit Automatic payroll deductions Taken out of paycheck and deposited in savings account. Payroll savings Plan $ taken out of each paycheck and deposited into an account to buy government savings bonds.