BELL RINGER USING A CIRCLE MAP, brainstorm a list of ways that you can save and invest wisely. Be ready to take notes after a brief class discussion…

Financial Services and Investment Plans (ECON-U1-L3) SSEPF1c; SSEPF2a-b IF YOU’RE SO SMART, WHY AREN’T YOU RICH?

INTRODUCTION Deciding how to save or invest money is important and exciting. But because there are many different saving and investment possibilities, understanding and evaluating the options can be confusing. The purpose of this lesson is to introduce students to some basic saving and investment options and vocabulary. Students apply The Decision Grid introduced in Lesson 2 to evaluate the trade-offs involved in five different saving or investment opportunities.

CONCEPTS Capital Investment Savings Opportunity cost Securities: stocks, bonds, mutual funds Savings accounts, certificates of deposit Risk versus return Liquidity

CONTENT STANDARD In every economic system, consumers, producers, workers, savers, and investors seek to allocate their scarce resources to obtain the highest possible return, subject to the institutional constraints of their society.

OBJECTIVES Review and discuss different meanings for the terms “investment” and “capital.” Discuss basic rules for wise investing. Demonstrate understanding of five different investment options using a decision grid.

ECONOMICS  INVESTMENT: spending by businesses on capital goods such as factories, tools, and machinery. Sometimes called “real investment.” Investment in this sense results in capital formation and leads to economic growth.  CAPITAL: goods produced by people to help them make other goods. Sometimes called “capital goods” or “real capital.” The economic definition of capital refers to things such as factories, machines, and tools.

PERSONAL FINANCE DEFINITIONS INVESTMENT: buying assets such as stocks or bonds with the expectation of earning interest or income, or making a profit. CAPITAL: an asset such as money owned or used by a person or a business. Using personal finance definitions, capital is used to invest in something to try to produce more money or wealth for the investor.

IN THIS LESSON… The personal finance definitions of capital and investment differ from the economics definitions. In this lesson, investment will be used in the personal finance sense.

SAVINGS Define savings as refraining from consuming (after paying taxes). The opportunity cost of saving: when people save,they give up current consumption.

SO WHY SAVE? Why do people save, since they are giving up the opportunity to consume now?

MORE DISCUSSION… People save in order to meet future needs. What are some different ways to save and invest? After looking at Activity 1, discuss the investment advice given.

PRACTICE Which of the following statements BEST describes the operation of banks? A. Banks take in deposits, for which they pay a relatively small rate of interest; they then hold a small amount aside and loan out the rest at a higher rate of interest. B. Banks borrow money from the government at low interest rates, and they loan that money to customers at higher interest rates. C. Banks, under the license from the government, print money that they then loan out to businesses and households. D. Banks take in deposits, which they use to pay their employees and other costs.

PRACTICE Banks take in deposits, for which they pay a relatively small rate of interest; they then hold a small amount aside and loan out the rest at a higher rate of interest.

GROUP ACTIVITY Get into groups of 5. Get a copy of Activity 2. Teacher will read introductory paragraph. Each student will assume a role. Take a few minutes to practice. Then each student will read their parts to the group.

DECISION GRIDS As a class, discuss some advantages and disadvantages of the different investment options. A good way to evaluate the options would be to use a decision grid. Students complete the grid in their groups. Possible criteria include liquidity (ease of converting into cash), ease of opening the account or making the investment, and ease of understanding the investment. The safety of the investment (lack of risk) is another important criterion.

CLOSURE Each group to summarize their decision grids to the class. What would your group decide, if they were in David’s place? Understand that there is no one correct decision for David; his choice depends on his goals and priorities. Students should think for themselves and seek additional information before they act on any investment advice, even from relatives.

EXIT TICKET In your JOURNALS, answer the following essential questions: How would you create a savings or investment plan for a future goal? How do services differ among the different financial institutions?

HOMEWORK OPTIONS Research and write up other investment options. Report on common investment fraud schemes, or the prospect of “investing” in a lottery. Assume that you had invested $1,000 twenty years ago. Research how various investments fared over the past twenty years.