Savings Introduction The Essentials to Take Charge of Your Finances Family Economics & Financial Education

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona What Can People Do With Money? Spend itSave it Invest itDonate it

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona People usually spend money before they save, invest, or donate it For example: –The average adolescent spends about $264 per month –How much of this are they saving? The amount saved is most likely much less than the amount spent What Can People Do With Money?

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Goals What is a goal? –Something a person intends to acquire, achieve, do, reach, or accomplish –Goals help people focus on items that are most important

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Types of Goals There are 3 main types of goals –Short-term goals Can be achieved in less than one year –Long-term goals Can be achieved in a time period of more than one year –Financial goals Specific objectives to be accomplished through financial planning

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Why are goals important? Short-term and long-term goals are a necessary component of an effective financial plan In order to reach short-term and long-term saving goals, individuals may need to change their spending habits

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Savings What is savings? –A portion of income that is not spent to purchase necessary or wanted items Saving should be viewed as an expense –Use the motto “pay yourself first” –Pay yourself first - set aside a portion of money for saving each time a person is paid before using any of the money for spending

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Why should people save? For unexpected events and emergencies –Without savings, unexpected events may become huge financial problems –Examples: the car breaking down or having a medical emergency To purchase expensive items –Examples: a new car or a family vacation

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona How should people save? Should use an account with a financial institution –A financial institution is a business that holds and protects money for people Examples of accounts… –Savings Account –Money Market Deposit Account –Certificate of Deposit (CD)

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Savings Account An account with a financial institution Keeps money safe until the owner needs it Opening a savings account –Deposit, or put money into the account –The financial institution will pay interest, or additional money, which is calculated by taking a percent of the total amount of money deposited in the account –Money can be withdrawn, or taken out, at any time

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona SIMPLE INTEREST & COMPOUND simple interest calculation Dollar Amount x Interest rate x Length of Time (in years) = Amount Earned example –If you had $100 in a savings account that paid 6% simple interest, during the first year you would earn $6 in interest. $100 x 0.06 x 1 = $6 –At the end of two years you would have earned $12. –The account would continue to grow at a rate of $6 per year, despite the accumulated interest. compound interest calculation Interest is paid on original amount of deposit, plus any interest earned. (Original $ Amount + Earned Interest) x Interest Rate x Length of Time = Amount Earned example If you had $100 in a savings account that paid 6% interest compounded annually, the first year you would earn $6.00 in interest. $100 x 0.06 x 1 = $6 $100 + $6 = $106 With compound interest, the second year you would earn $6.36 in interest. The calculation the second year would look like this: $106 x 0.06 x 1 = $6.36 $ = $112.36

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Money Market Deposit Account Another type of account with a financial institution Pays a higher interest rate than a savings account Money can be withdrawn from the account a limited number of times every month

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Certificate of Deposit An account that pays interest on a lump sum of money Money is required to stay in a CD for a specific period of time –The money and interest earned can be withdrawn at the end of the time period

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Summary What can people do with money? –Spend, save, invest, or donate What is a goal? –Something a person intends to acquire, achieve, do, reach, or accomplish What are the three main types of goals? –Short-term, long-term, and financial

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Summary Continued Why are goals important? –They are a necessary component of an effective financial plan What is savings? –A portion of income that is not spent to purchase necessary or wanted items

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Summary Continued Why should you save? –For emergencies, unexpected events, or to purchase expensive items How can you save money? –Savings Account, Money Market Deposit Account, and Certificate of Deposit

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Matching Game Divide into groups of three and designate one person as the referee The referee should shuffle the matching activity cards and place them answer side down into rows Try to match the term with the definition by flipping over two cards at a time Ask the referee if the match is correct –If so, keep the cards and take another turn! –If not, turn the cards back over and wait for the next turn. Good luck!

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Note taking guide What do people do with money? –Spend it –Save it –Invest it –Donate it

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Note taking guide Goals –The definition of a goal is something a person intends to acquire, achieve, do, reach or accomplish –Short term goals can be achieved in less than one year –Long term goals can be achieved is more than one year –Financial goals is a specific objective that is to be accomplished through financial planning

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Note taking guide Savings –The definition of savings is a portion of income that is not spent to purchase necessary or wanted items –One follows the motto of paying yourself first by setting aside a portion of money for saving each time a person is paid before using any of the money for spending

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Note taking guide Why should people save? –Answers may vary however may include: Medical emergencies Appliances such as a dishwasher leaking Transportation problems such as a car breaking down

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Note taking guide How should people save? –Savings Account: this is an account with a financial institution –Money Market Deposit Account: this is a type of account that pays a higher interest rate than a savings account –Certificate of Deposit: this is an account that pays interest on a lump sum of money

G1 © Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Note taking guide When opening a savings account at a financial institution an individual will deposit or put money into the account. Once the account is open, the owner can take our or withdraw money at any time. The money will then increase in value or earn interest.