Chapter 19 Managing Money American Civics 4/14/2017 Chapter 19 Managing Money Section 1: Money and Credit Section 2: Banks and Banking Section 3: Saving and Investing Section 4: Insurance Against Hardship Chapter 19

Section 1: Money and Credit The Main Idea In addition to using dollar bills and coins, individuals and businesses use checks, debit cards, and credit to pay for their purchases. Reading Focus What are the three basic characteristics of currency? Why do people and businesses accept checks as payment? How is credit important to individuals and families? How is business credit useful to the economy as a whole?

Four basic characteristics of currency: Section 1: Money and Credit Four basic characteristics of currency: Must be easy to carry and take up little space Based on system of units easy to multiply and divide Must be durable Must be in a standard form and guaranteed by the government

Why do people and businesses accept checks? Section 1: Money and Credit Why do people and businesses accept checks? Much of the U.S. money supply is in the form of bank deposits. A check is a promise of funds sufficient to cover stated amount. Insufficient funds and overdrafts are punished with fines or criminal penalties.

The Importance of Credit Section 1: Money and Credit The Importance of Credit Credit allows wholesalers to buy a larger quantity of goods at once. Families use credit for emergency purchases and large purchases. Credit enables consumers to buy when production is high and goods are being sold. Consumer spending encourages economic growth.

SECTION 1 Question: How is credit good for families and the economy as a whole? Importance of Credit In the Family In Business In the Economy large purchases on long-term credit large purchases on short-term credit products or services needed immediately used for emergency expenses used in most sales of large amounts of goods allows wholesalers to buy larger quantities than they have money for wholesaler can make money to repay debt makes it possible for consumers to buy whenever there are goods to be sold, even if money supply is low when production slows, banks can slow consumer spending by extend-ing less credit and raising interest rates on loans

Section 2: Banks and Banking The Main Idea Banks provide a safe place to keep money and help businesses and individuals by making loans. Reading Focus How and why were the first banks established? What is the purpose of banks and the banking system? How and why does the U.S. Federal Reserve System regulate the amount of money in circulation? How does a person get a bank loan?

The FDIC: Section 2: Banks and Banking FDIC—Federal Deposit Insurance Corporation A government agency Insures accounts in commercial and savings banks for up to $100,000

The savings and loan crisis: Section 2: Banks and Banking The savings and loan crisis: 1980s—many of the banks involved in risky loans, bad investments, and fraud Hundreds of the banks failed The FSLIC ran out of money, and debt was passed on to the FDIC. The Resolution Trusts Corporation was established to sort out the crisis. 1999—cost to taxpayers estimated at $165 billion

The Federal Reserve System regulates the money in circulation: Section 2: Banks and Banking The Federal Reserve System regulates the money in circulation: Regulation prevents bank failure. The Fed controls money circulation to keep the economy healthy. The Fed buys government bonds from banks and individuals to increase circulation and speed economic growth. The Fed sells government bonds to take money out of circulation when economy grows too fast. Member banks can borrow money from the Fed to increase their reserves.

Savings and Loan Crisis SECTION 2 Question: What were the causes and effects of the savings and loan crisis in the 1980s?? Causes Effects risky loans bad investments fraud The FSLIC runs out of money. The Resolution Trust Corp. (RTC) is formed. The total cost to taxpayers is nearly $165 billion. The FDIC takes on FSLIC’s obligations. Savings and Loan Crisis

Section 3: Saving and Investing The Main Idea There are many ways to save money. Saving helps the economy by providing banks with money to make loans to others. Reading Focus Why is it important to save money? What are some ways people save and invest their money? How does saving money help the U.S. economy? How does the government protect savings and investments?

The importance of saving money: Section 3: Saving and Investing The importance of saving money: People save for education, emergencies, retirement, and large purchases. Credit purchases often require a down payment in cash. Ability to make a large down payment reduces monthly payments and the total interest on a loan.

Ways of saving and investing: Section 3: Saving and Investing Ways of saving and investing: Purchasing items that may increase in value Regular installments to a savings account that is earning interest Certificates of deposit (CDs)—interest is paid when CD matures Stocks—common and preferred stock; mutual funds; money market funds Bonds—low risk; money and earned interest is returned when bond matures

Saving money helps the U.S. economy: Section 3: Saving and Investing Saving money helps the U.S. economy: Expansion of the economy requires capital; money in savings is used for expansion. Money saved is also money invested in the economy. Companies’ ability to raise capital promotes the country’s prosperity. Banks use money in savings to make loans to businesspeople. Businesses that save are able to reinvest in themselves.

SECTION 3 Question: What are the different ways of saving and investing money? Pay Bills & Expenses Savings savings accounts Stocks Bonds preferred common mutual funds government corporate regular savings NOW accounts CDs money market Savings Used for children’s education emergencies retirement large purchases

Section 4: Insurance Against Hardship The Main Idea Insurance companies offer policies to protect people from possible financial hardships. The federal government also has several programs to help protect people from risks and uncertainties. Reading Focus How are insurance companies able to protect you? What are some forms of insurance provided by the government?

Insurance companies cover many people: Section 4: Insurance Against Hardship Insurance companies cover many people: Premiums are collected from millions of policyholders. Money is held in a reserve fund. Laws specify how much must be held in the fund. Claims are paid from the fund. Relatively few policyholders make claims each year. Other moneys are invested and profits are used to run the company.

Private Insurance and Social Insurance Section 4: Insurance Against Hardship Private Insurance and Social Insurance Private insurance—voluntary insurance paid by individuals and companies: life insurance, health insurance, property and liability insurance Social insurance—government programs meant to protect individuals from future hardships: Social Security Social Security includes old age, survivors, and disability insurance, unemployment compensation and workers’ compensation

Social Security and Its Future Section 4: Insurance Against Hardship Social Security and Its Future Social Security Act of 1935—part of the New Deal; intended to protect citizens from future hardships Retirement population is growing while birthrate is dropping. Fewer workers will be supporting growing group of retirees. Critics argue the tax will continue to rise and prefer to abolish the program.

SECTION 4 Question: What are the different types of services and coverage available under private and social insurance? Social Insurance Old Age, Survivors, and Disability Insurance Private Insurance Life Insurance Unemployment Insurance Disability Income Health Insurance Workers’ Compensation Property Insurance Liability Insurance Medicare and Medicaid

Chapter 19 Wrap-Up 1. Why are checks not considered legal tender, and why do people accept them for payment? 2. How do charge cards differ from credit cards? 3. What caused the savings and loan crisis of the 1980s? 4. What are the duties of the Federal Reserve System? 5. How does saving money help the economy grow? 6. What options does an individual have if he or she wants to save or invest money? 7. What enables insurance companies to stay in business while still charging the premiums that they do?