1. Unit 2 Understanding Finance Unit 2

2. Learning Outcomes At the end of this unit, students should be able to:  Understand the history of money  Investigate examples of opportunity cost  Understand the term “saving” and how it works in credit unions

3. Learning Outcomes (continued) At the end of this unit, students should be able to:  Define compound interest and show how to calculate it  Understand the term “DIRT” and show how to calculate it Unit 2

4. What is Barter? Before money, how did individuals exchange goods or services? BARTER “Barter is a medium in which goods or services are directly exchanged for other goods and/or services, without the use of money…”

5. Unit 2 Examples of Barter  Long ago farmers used livestock for barter, then crops  Nowadays we have moved onto electronic money (paying for goods over the internet)

6. Unit 2 What is Money? “Money is anything that is generally accepted as payment for goods and services and repayment of debts…” What forms are available? Can you think of a few examples…

7. Unit 2 Opportunity Cost ”Opportunity cost is the economic cost of using a resource for a specific activity is equal to the income foregone by not using it for an alternative activity”

8. Unit 2 Opportunity Cost For example the opportunity cost of using an acre of land in your faming operation is the income foregone by not renting it to a neighbouring farmer. Can you think of any more examples?

9. Unit 2 What are Savings? “Savings are the process of setting aside money until a future date instead of spending it today. The goal of saving is provide funds for emergencies, short term goals and investments” OR “A fund of money put as a reserve for the future” Do you have a savings ( share) account in your credit union?

10. Unit 2 Uses of Money Students understand 4 main uses on money from communion to birthday presents: 1. Saving (10%) 2. Giving (10%) 3. Investing (10%) 4. Spending (70%) Example: allowance €/£ 10 per week but put €/£1 in savings for Christmas, holidays, birthdays, college, debs etc.

11. Unit 2 Savings: Why save in the Credit Union?  You become a member and have a vote  Your savings are insured  No transaction fees

12.  Your Credit Union declares a dividend at AGM and each share you hold you are entitled to dividend i.e. €1=1 share  You can access savings as long as the shares are not held as security against a loan  All members have a common bond, your local community or place or type of work  Savings in Credit Unions are called SHARES Unit 2 Savings: Why save in the Credit Union?

13. Unit 2 1. Contact your local Credit Union and open a share account 2. The Credit Union pays you a dividend on the money/shares in your account 3. The Credit Union loans that money out to other people, but charges a slightly higher interest rate on the loan How do savings work?

14. A depositor / investor will look at the options on how interest is calculated and credited? He / she will assess the A.E.R. ( Annualised Equivalent Rate of Return) Unit 2

15. Compound Interest This is the interest added to the principal so you get interest on interest. The COMPOUND ANNUAL RATE ( c.a.r.) is the rate you get when calculating your interest. Example: how much will you receive if you invest €/£500 @ 4% per annum for two years? (see worksheet for solution and additional questions including D.I.R.T.)

16. Unit 2 Deposit Interest Retention Tax (DIRT) Deposit Interest Retention Tax This is a tax paid on the interest you receive on your savings. It is calculated as a % of the interest you received e.g. 30% Gross Interest€/£ 200 DIRT 30%€ /£ 60 Net interest received€/ £ 140

17. Savings and lending for CU  When you save you become a member with your shares or savings  You get a share of any profit the Credit Union makes  You may pay DIRT on interest received  If a member dies, insurance will add to the values of shares Unit 2

18. Savings and lending for CU  Loans up to ‘x’ times the value of shares held (savings)  If a member dies, insurance usually pays off the remaining loan  Interest rate charged may be lower than banks as its charged on the reducing balance  Interest earned is called a dividend and decided at AGM Unit 2