1. PERSONAL FINANCE ECONOMICS

2. ECONOMICS STANDARDS
SSEPF1 The student will apply rational decision making to personal spending and saving choices.
a. Explain that people respond to positive and negative incentives in predictable ways.
b. Use a rational decision making model to select one option over another.
c. Create a savings or financial investment plan for a future goal.
SSEPF2 The student will explain that banks and other financial institutions are businesses that channel funds from savers to investors.
a. Compare services offered by different financial institutions.
b. Explain reasons for the spread between interest charged and interest earned.
c. Give examples of the direct relationship between risk and return.
d. Evaluate a variety of savings and investment options; include stocks, bonds, and mutual funds.
SSEPF4 The student will evaluate the costs and benefits of using credit.
a. List factors that affect credit worthiness.
b. Compare interest rates on loans and credit cards from different institutions.
c. Explain the difference between simple and compound interest rates.
SSEPF5 The student will describe how insurance and other risk-management strategies protect against financial loss.
a. List various types of insurance such as automobile, health, life, disability, and property.
b. Explain the costs and benefits associated with different types of insurance; include deductibles, premiums, shared liability, and asset protection.

3. Key terms
Return – the amount of money your investment “yields’ or makes for you. Interest – the cost of borrowing money or the money a financial institution pays you to ‘use’ your money. Interest Rate – the amount charged or paid on money borrowed or deposited Capital Gain - buy low/sell high – gain is the profit you make. Capital Loss – loss you have when you sell stock for less than you paid. Bull Market - strong market – good time to buy stocks Bear Market – “run from the bear” – bad market

4. BENEFITS TO SAVING MONEY
Security – For retirement or emergency
Make MORE money – from interest
FDIC – guaranteed from loss to $250,000
Big Purchases – houses, cars and COLLEGE

5. Why is a student with $500 in a savings account participating in the American financial system?
Banks loan deposits to people and businesses.
Borrowers use money to invest in financial and real assets.
Investment provides jobs and economic growth.
Financial intermediaries (banks) channel funds from savers to borrowers.

6. FINANCIAL INSTITUTIONS
COMMERICIAL BANKS – most common
Lend money, accepts deposits, and transfers money among businesses and other banks and individuals
Make 40% of all mortgage loans
50% of all other type loans

7. FINANCIAL INSTITUTIONS (con’t)
CREDIT UNIONS
Businesses form for members or employees only
Members deposits are interest bearing shares in the union
Pay higher interest rates on deposits and charge lower rates on loans
FINANCE COMPANY
Loans to high risk borrowers/Pay day loans
HIGH interest rates
Collect bad debts
CONSUMER FINANCE COMPANY –
Highest possible interest rates - LAST RESORT
Here is the description of the table. You may change or delete this text as you wish. This table is compatible with PowerPoint 97 to 2007.

8. A = p x (1 + r)
A = 30,000 X ( )
$ 337,017.88

9. TITLE PAWNS & PAY DAY LENDERS
ARE NOT REGULATED
BY USRY LIMIT OF 33%
CAN CHARGE AS MUCH AS
400%
ANNUALLY

10. SAVINGS ACCOUNTS Regular savings Accounts:
Very liquid (you can easily get your money)
Some have minimum balance
Low interest rates
Interest Bearing Checking Account:
Very Liquid
ALWAYS have minimum balance
Low interest rate
Money Market Deposit Accounts
Variable interest rates – more interest the larger the daily balance
Withdrawal can be restricted

11. TIME DEPOSITS Certificates of Deposit
Money deposited for a specific time period, usually 6 mos., 1, 3 or 5 year
Interest paid only at end of term
HEAVY penalty for early withdrawal – NOT liquid
BUT higher interest than demand deposit accounts

12. KEY CREDIT TERMS Principal – amount borrowed
Interest – payment to use the money
Collateral – assets guaranteeing repayment – lender sells them if you don’t pay!
Installment Credit – principal plus interest monthly – car loan, credit card
Long Term Loan – principal plus interest over a long term – mortgage, farm

13. What are 4 factors that influence the credit worthiness of an individual?
Capacity – your ability to repay
Capital – your income plus savings
Character – your willingness to repay
Collateral – property used to secure a loan

14. You have $500. What are 3 questions concerning risk, return and liquidity would you ask a financial advisor before investing your savings?
What is the risk in this investment? Can I lose money?
What is the return? Return is the money an investor receives above the sum initially invested.
Liquidity – how quickly can I convert my investment to cash?

15. INVESTMENTS Stocks and bonds Consider risk versus return
Key is diversification – do not put ‘all of your eggs in one basket’ – spread the risk among savings and investments

16. RISK VERSUS RETURN
Investments that offer the chance to earn a lot of money tend to be more risky
Certificate of deposit – low risk/low return
Your friend’s successful pet sitting service – higher risk/higher return
Stock in Starbucks – moderate risk/moderate return
Stock in Coca Cola – moderate risk/moderate return
A U.S. Savings bond – low risk/low return
A junk bond – high risk/high return
The higher the risk the higher the potential return positive…and negative

17. STOCK Stock (write under ‘stock market’) Purchase shares of companies
Stock Market – institution where stocks and bonds are bought and sold on the open market (free trade)
Stock (write under ‘stock market’)
Purchase shares of companies
No insurance
No government insurance - no guarantee against loss
Mutual Funds are a group of stocks sold together

18. INVESTMENTS
Over time, return is higher than bank deposits (10% versus 1%)
But risk is also higher than a FDIC insured account
Stocks pay dividends – companies pay share of profit to the shareholders
Bond – loan to a government or company with promise to pay back in future with interest

19. What are 2 benefits and 2 risks of buying stock?
dividends – amounts paid regularly on investment
capital gains – profits made on a stock when it is sold
Risks
Dividends may be small
Stocks are not insured – you can lose money
Identify 2 stock exchanges and describe the differences between them.
New York Stock Exchange (NYSE) – largest and handles trading of largest companies
Nasdaq – slightly riskier stocks for smaller less established companies
Describe 2 noted indexes of stock performance.
Dow Jones (DJIA) – 30 representative companies
Standard & Poor’s 500 – 500 stocks as a indicator of market performance

20. What is the difference in a bull market and a bear market
What is the difference in a bull market and a bear market? How is the market described today?
Bull market – stock market rises steadily over time
Bear market – stock market falls steadily over time
Today’s market is described as a ‘bull market’
What are 3 questions you would ask a stockbroker before buying a stock?
Remember risk versus return
Has the stock value gone up or down in the last 3 years?
What is the dividend?
What is the return?

22. Analyze the economic impact of investing in the stock and bond markets.
Investment and savings are important for the economy and for you. You build wealth and stability and your investments and savings help the economy grow.
How does the risk and return of the bond and stock markets differ from investing in savings instruments such as bank accounts and certificates of deposit?
Savings bonds – low risk
Treasury bonds – low to medium risk
Corporate bonds – low to high risk
Junk Bonds – high risk
CDs and savings accounts are insured by the FDIC

23. BONDS 3 components of bonds are: maturity, coupon rate and par value.
Bond – an IOU from a government or business. You are paid back your principal amount plus interest at maturity.
Coupon rate – interest rate that a bond issuer will pay to the bondholder
Maturity – the time at which payment to a bondholder is due
Par value – amount that an investor pays to purchase a bond and that will be repaid to the investor at maturity
Yield – annual rate of return on a bond if the bond were held to maturity

24. Describe 2 ways in which investors can earn money from bonds
Investors earn interest on the bonds they buy.
Investors can earn money by buying bonds at a discount and cashing them in at maturity.
Bond Ratings:
Identify 2 bond rating firms – Standard & Poor’s and Moody’s
What does a rating mean? – indicates bond quality and issuer’s ability to repay
Why are ratings useful to investors? Give investors an indication of the quality or degree of risk in their investment including if the issuer can pay the IOU back.
Give an example – AAA is the highest rating – D is the lowest

25. 5 TYPES OF BONDS
Savings bonds – low denomination (amount)issued by US government. Little risk.
Treasury Bonds – issued by Treasury Dept. – little risk – interest paid is state and local tax exempt.
Municipal bonds (“munis”) – issued by state and local governments to help pay for local improvements (roads, water, schools) – interest paid is federal tax exempt.
Corporate bonds – issued by companies to raise large sums of money – moderate risk.
Junk bonds – lower rate, potentially higher interest paying bonds issued by companies

26. Savings bonds, Treasury Bonds and Municipal Bonds
Sold by government
Fixed rates and maturities
Get more interest if you keep it beyond maturity
Safe – guaranteed by government

27. How do capital and money markets differ?
Capital market – market where money is lent for longer than 1 year
Money market – market where money is lent for less than 1 year

28. KEY INSURANCE TERMS Risk Management– manage your liability
Liability – amount you owe if a loss
Car Insurance, Home Insurance
Deductible– amount you pay in a loss
Premium – amount you pay for insurance
Higher the deductible the lower the premium