Today’s Schedule – 11/2 PPT: Saving & Investing Part 1 WS: Calculating Interest Rates Homework – Read 21.1

Importance of Saving At 5% interest rate in 10 years: $7/wk = $4,366 $14/wk = $8,732 $21/wk = $13,098 $28/wk= $17,464 $35/wk = $21,830

Doubling Your Money- Rule of 72 72/Interest Rate= Years to Double Your Money 72/Years to Double Money = Interest Rate Needed

Investing The act of redirecting resources from being used today to create benefits for the future – Use of assets to earn income/profit Creates wealth and economic growth – Business investment -> profits -> business growth ->job growth -> higher income ->more $ to spend

Some Definitions Financial System- Savers & borrowers; allows transfers between them Financial Assets- Claims of property/income Financial Intermediary- Institution that moves money between saver and borrower

Types of Financial Intermediaries Banks, Savings & Loans, Credit Unions – Take deposits from savers and lend them out Finance Companies – Lend money to individuals and businesses – High risk = High interest rate Mutual Funds – Pool savings of many people to invest in a variety of financial assets

Types of Financial Intermediaries Life Insurance Companies – Provides financial protection – Individuals pay “premiums” which is loaned out Pension Funds – Income received once retired – Contribution made by both employee and employer – Money is invested to make profit

Risk Important to diversify your investments – Spread it out to reduce the risk Financial intermediaries help you to do this

Information Financial intermediaries provide information on: – Portfolios- tells you how financial assets are performing – Prospectus- contains the portfolio and provides information to potential investors

Liquidity Investing with a financial intermediary makes it easy to move your money around

Return The money received above and beyond the sum of money initially invested Savings account or CD? – Which would have higher interest rate? – Which would have most fluidity? Typically, the higher the potential return, the higher the risk