2. Put Savings to Work SELECT SAVINGS OPTIONS THAT WORK FOR YOU

3. What Does it Mean to be Wealthy? ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work2

4. Preview Today we will answer these questions: What is the difference between saving and investing? What are the different ways I can invest money? How do I get started with investing? Use what you learn today to weigh the risks and rewards of investing. 3©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work

5. Meet Whitney and Justin Whitney– senior Works part-time Spends most of her money on clothes and going out with friends Doesn’t stick to her savings plan Justin– 8 th grader Earns money from occasional odd jobs in neighborhood Father was recently laid off from job Is saving money for college ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work4

6. Save vs. Invest ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work5 Alike Plan to use money later Keep ownership ? Save Store money somewhere to avoid spending now Original amount always available (unless stolen, lost, or destroyed) Insured if kept in a bank account Invest Use money with expectation that it will make a profit (Ex: stock, rental property, business) Not all investments are insured No guarantee that original amount will be available if value of investment drops (except bank accounts) Alike ? Save ? Invest ?

7. Millionaire Myth #1 – True or False? Millionaires usually work in sports, entertainment or lead gigantic Fortune 500 companies.  Athletes and entertainers are notorious for squandering their money until they’re broke. Actually, half of all millionaires are self- employed or own a business. Source: Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D. The Millionaire Next Door: The Surprising Secrets of America's Wealthy, 1996 ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work6

8. Millionaire Myth #2 – True or False? Millionaires made their fortunes the easy way— inheriting it.  Only 20 percent of millionaires inherited part of their money. And half of those inherited less than 10 percent of their assets. 1  In fact, 76 percent of millionaires said “smart investing” is one of the top three factors contributing to their financial success. The other two critical elements are hard work and education. 2 1 Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D. The Millionaire Next Door: The Surprising Secrets of America's Wealthy, 1996 2 Spectrem Group, 2012 Affluent Market Insight www.millionairecorner.com/article/smart-investing ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work7

9. Millionaire Myth #3 – True or False? Millionaires spend a lot of time managing their finances and trading stocks.  Most spend less than six minutes per day on finances. 1 They’re too busy making more money to invest! And they invest for the long-term. About 75 percent buy and hold stocks more than five years. Nearly 40 percent hold them 10 years or more. 2 1 Ric Edelman, Ordinary People, Extraordinary Wealth: The 8 Secrets of How 5,000 Ordinary Americans Became Successful Investors--and How You Can Too, 2000 2 Chuck Carlson, 8 Steps to 7 Figures: The Investment Strategies of Everyday Millionaires and How You Can Become Wealthy Too, 2001 ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work8

10. Millionaire Myth #4 – True or False? Millionaires spend tons of money on cars, boats, and other luxury items.  Wealth is not what you make—it’s what you keep. True millionaires focus on acquiring assets that will make them money, such as real estate, investments, and their businesses. That’s why so many drive Fords and Toyotas. Source: Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D. The Millionaire Next Door: The Surprising Secrets of America's Wealthy, 1996 ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work9

11. Millionaire Myth #5 – True or False? Millionaires never have to worry about having enough money.  Nearly 42 percent of millionaires still don’t feel wealthy. They say they’d need investing assets of $7.5 million to feel truly wealthy and stop worrying. The more you have, the more you seem to need to feel financially secure. Source: Fidelity, Millionaire Outlook, March 2011 www.fidelity.com/inside-fidelity/individual-investing/millionaire-outlook-2011 ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work10

12. 3 Ways to Build Wealth ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work11 1. Make enough money to cover essential expenses and have something left to save and invest. 2. Have a plan to save and use part of your income to invest. 3. Invest to put money to work for you.

13. Sources of Income for Teens ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work12 Sources of Income AllowanceJob Sell Something ? Gift Money Earned Interest ?

14. Windfalls What are your windfalls? Use unexpected increases in cash to save and invest. ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work13

15. Savers are Related to Borrowers Savers Deposit money Credit Union Bank Store money Lend money Borrowers Borrow money ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work14

16. Simple Interest ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work15

17. Compound Interest ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work16

18. Watch it Grow Let’s say you have $1,000 saved in an account that earns 3 percent interest once a year. What is the balance and the compounded interest earned each year over five years? ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work17 The Mighty Power of Compounding Year Interest Earned Ending Balance Beginning$1,000.00 1$30.00$1,030.00 2$30.90$1,060.90 3$31.83$1,092.73 4$32.78$1,125.51 5$33.77$11,59.28 Without any physical effort on your part, your money has “worked” to earn you how much interest? The Mighty Power of Compounding Year Interest Earned Ending Balance Beginning$1,000.00 1?? 2?? 3?? 4?? 5??

19. Interest-Earning Savings Options Bank or Credit Union Savings Account Money Market Deposit Account (MMDA) Certificate of Deposit (CD) www.treasurydirect.gov U.S. Savings Bond ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work18

20. Challenge Assignment 4-A It Pays to Shop Around Use the DECIDE steps to compare and select savings options that fit your current situation. ©2012 National Endowment for Financial Education | Lesson 4-1: Put Savings to Work19

21. How Investing Works START INVESTING NOW TO REAP THE BENEFITS

22. It costs how much? I remember when ____ used to cost only $____. 21©2012 National Endowment for Financial Education | Lesson 4-2: How Investing Works

23. Preview Today we will answer these questions: When should I start investing? What are some guidelines to follow when investing? How do I buy stock? Use what you learn today to make decisions about stock investments. 22©2012 National Endowment for Financial Education | Lesson 4-2: How Investing Works

24. Inflation 23©2012 National Endowment for Financial Education | Lesson 4-2: How Investing Works

25. Time Value of Money (TMV) Yesterday’s  T oday’s  Tomorrow’s 24©2012 National Endowment for Financial Education | Lesson 4-2: How Investing Works

26. Pay Raise for Whitney Whitney currently earns $7.25 an hour working part time. During her performance review meeting her supervisor informed her that she has earned a $.50 increase in hourly pay. Is Whitney’s wage increase enough to keep up with inflation? What is the minimum increase per hour she needs to at least match the average annual rate of inflation at three percent? ©2012 National Endowment for Financial Education | Lesson 4-2: How Investing Works25

27. Pay Raise for Derrick Justin’s older brother, Derrick, now earns an annual salary of $28,080. He wants to ask about a raise at his next performance review. What is the minimum amount of salary increase Derrick should request to keep up with the average annual rate of inflation? ©2012 National Endowment for Financial Education | Lesson 4-2: How Investing Works26

28. Invest Now or Later? Which is better? A. Start investing a little now. B. Wait a while to invest more later. 27©2012 National Endowment for Financial Education | Lesson 4-2: How Investing Works

29. Reasons to Invest An income investment provides expected earnings, usually in predictable amounts. Earned interest – payment received in return for use of your money Dividends – share of profits some companies pay to their stockholders Rent payments – received from people or companies in return for using your property Growth investments are purchased because of the potential that the value will increase over time; an unpredictable amount of money is received when the investment is sold. Real estate Business Crops Precious metals ©2012 National Endowment for Financial Education | Lesson 4-2: How Investing Works28

30. Stock Talk Businesses sell shares of stock to raise money to run the business. Someone who buys stock owns a portion of a business, depending upon how many shares are bought. A shareholder doesn’t take on responsibilities of running the company, but a company employee might happen to be a shareholder. A shareholder is allowed one vote per share when electing board members at shareholder meetings. Company management might decide to share part of the profits by paying dividends to shareholders (cash or shares of stock). The price of stock shares varies based on what people are willing to pay. Each stock has a unique ticker symbol (abbreviated name for lists). 29©2012 National Endowment for Financial Education | Lesson 4-2: How Investing Works Guess the name of these four companies: GE  NFLX  F  DPS

31. How to Buy Stock 30©2012 National Endowment for Financial Education | Lesson 4-2: How Investing Works Select Broker Deposit Cash to open a brokerage account Decide what you want to buy (or sell) Place bid (or ask ) order with broker to buy (or sell) quantity at a certain price. Place order for broker to complete trade through an exchange Pay transaction fee to broker at time of buy (or sell) Pay attention to stock news and price Keep record of buy (or sell) for tax reporting

32. Pick a Stock to Study 31©2012 National Endowment for Financial Education | Lesson 4-2: How Investing Works What do you like? Buy? Use? What products and industries are familiar to you? What do consumers need and use? What are industry trends?

33. Stock Study Do your own homework. Know what you are buying. Study company data and news to answer these questions: – What is the current “state of affairs”? – Are there any “red flags” that indicate the company has issues? – Does the company have a record of consistent growth? (earnings per share, revenue, dividends) – Is the company making money? – Can the company cover its debt? – How does the company compare with competitors? – How does the company compare with industry trends? – How does the current price compare with recent trends? Disclaimer: The basic guidelines offered here are presented to help get you started on your own stock study and do not guarantee positive results. You are encouraged to continually learn more about investing and seek professional guidance as you engage in investing decisions. 32©2012 National Endowment for Financial Education | Lesson 4-2: How Investing Works

34. Choosing Investments ESTABLISH INVESTING RULES 33©2012 National Endowment for Financial Education | Lesson 4-3: Choosing Investments

35. Nike Shoes or Nike Stock? Year Air Jordan XVIII Shoes Nike Stock Price Hypothetical Nike Stock Portfolio (15 shares) January 2003 $175 new$11.53/share$172.95 January 2013 $60-$250 Market Price estimates $51.84/share $777.60+ (does not include quarterly dividends) ©2012 National Endowment for Financial Education | Lesson 4-3: Choosing Investments34 + If the dividends paid each quarter had been reinvested, the total number of shares owned would be greater that 15 shares after 10 years.

36. Preview Today we will answer these questions: Are there other ways to invest other than buying stock? Isn’t investing risky? How much risk am I willing to take when investing? Are there ways to reduce the possibility that I’ll lose money on my investments? Use what you learn today to set up rules for investing. 35©2012 National Endowment for Financial Education | Lesson 4-3: Choosing Investments

37. Justin’s Investors Which investor is a “shareholder” in Justin’s business venture? Is the shareholder guaranteed any return on his investment? What is the role of Justin’s dad? What do you think are the chances that either of the investors will earn a return on his investment? Would you have invested in Justin’s business venture either as a stockholder or a bondholder? Why or why not? ©2012 National Endowment for Financial Education | Lesson 4-3: Choosing Investments36

38. Risk Meter ©2012 National Endowment for Financial Education | Lesson 4-3: Choosing Investments37 Certificate of Deposit Start-Up Stock

39. The Language of Investing Asset  something of value that can be turned into cash Examples: stock, home, lake-front property, business Liability  something owed to another person Examples: loan, rent Rate of Return  degree to which an asset gains (or loses) value over a given period of time Examples: APY interest on savings, stock value increase/decrease Risk  uncertainty of achieving a desired result ©2012 National Endowment for Financial Education | Lesson 4-3: Choosing Investments38

40. Investment FAQs Bonds Mutual Funds Real Estate Collectibles Business Futures Index Funds Precious Metals How do I invest in __? Why would someone want to invest in __? What are the costs to invest in __? What is the typical return (range) on this type of investment? Is this considered a low, medium, or high investment risk? Why? ©2012 National Endowment for Financial Education | Lesson 4-3: Choosing Investments39

41. Take the Risk Your risk tolerance depends on … – When you need the money (short-term or long-term) – Your financial goals – Your ability to live with any investing decisions with unpleasant consequences Tame the risk – Be sure you can cover your necessary financial needs – Know what you are getting into before you invest – Invest in different types of investments ©2012 National Endowment for Financial Education | Lesson 4-3: Choosing Investments40

42. Diversify to Tame Risk Don’t put all your eggs in one basket. Invest in a combination of asset categories: – More than one asset (Example: not all Facebook stock) – Variety of assets (Example: not just Certificates of Deposit) Mix investments within an asset category: – Different industries (Example: not all retail) – Different-sized companies (Example: not all small) Divide investments among several “baskets”. ©2012 National Endowment for Financial Education | Lesson 4-3: Choosing Investments41

43. Assignment Create your own investment policy statement that reflects your personal values and risk tolerance for saving and investing. Write your statement as a tweet message in 140 characters or less. ©2012 National Endowment for Financial Education | Lesson 4-3: Choosing Investments42

44. Investing Strategy SET GOALS FOR SAVING AND INVESTING 43©2012 National Endowment for Financial Education | Lesson 4-4: Investment Strategy

45. 3 Steps to Build Wealth ©2012 National Endowment for Financial Education | Lesson 4-4: Investment Strategy44 1. Make enough money. 2. Have a plan to save and invest. 3. Invest.

46. Preview Today we will answer these questions: What are the basic guidelines for investing? Don’t I need a massive amount of money to invest? When I finally have my own investments, I can just sit back and watch my assets grow in value, right? Use what you learn today to set goals for saving and investing. 45©2012 National Endowment for Financial Education | Lesson 4-4: Investment Strategy

47. Wealthy Habits 1. Take on an “earn to invest” mentality. 2. Focus on your lifestyle and financial goals. 3. Persevere—Don’t be a quitter. 4. Let your mistakes be lessons. 5. Look for value. ©2012 National Endowment for Financial Education | Lesson 4-4: Investment Strategy46

48. Wealthy Habits 6. Be the one who controls your money. 7. Avoid unnecessary fees. 8. Believe in yourself. 9. Make strategic risks. 10. Be generous. ©2012 National Endowment for Financial Education | Lesson 4-4: Investment Strategy47

49. Build Wealth … Step #1 ©2012 National Endowment for Financial Education | Lesson 4-4: Investment Strategy48 1. Make enough money - have something left over to save for investing - cover your essential and necessary expenses - plug the spending leaks - take advantage of matching funds from employers - evaluate your situation every year

50. Build Wealth … Step #2 ©2012 National Endowment for Financial Education | Lesson 4-4: Investment Strategy49 2. Have a plan to save and invest. - set long-term saving and investing goals - decide your best investing options and strategies - include saving and investing in spending plan - take advantage of payroll savings plans - contribute to tax-advantage savings plans

51. The Oracle of Omaha Famous Investor, Warren Buffet’s investment philosophy: Invest in top quality, profitable companies with products you understand, good managers, and lots of cash to reinvest in the company… and hold them forever. ©2012 National Endowment for Financial Education | Lesson 4-4: Investment Strategy50

52. Build Wealth … Step #3 ©2012 National Endowment for Financial Education | Lesson 4-4: Investment Strategy51 3. Invest to put money to work for you. - know what you are investing in - think long term - take some risk to beat inflation - pay attention to your risk tolerance - take advantage of compound interest - diversify your investments - reinvest all earnings - dollar cost average

53. Dollar Cost Average Activity 4.8 Dollar Cost Averaging Is the current value of Whitney’s investment more (>) or less (<) than what she paid? ©2012 National Endowment for Financial Education | Lesson 4-4: Investment Strategy52 Invest a set amount of money at regular intervals. Start receiving benefits of compounding. Stop worry about investing at high or low prices. Lower the cost per share.

54. 7 Paths to Pure Trouble ©2012 National Endowment for Financial Education | Lesson 4-4: Investment Strategy53 Trusting others blindly Falling for fairy tales Relying on past performance Borrowing to invest Holding only one investment Flipping stocks Getting emotional about investments

55. Rights and Responsibilities of Investing You have the right to … Select your own or change your advisor or brokerage firm. Know if your advisor has a conflict of interest. Receive timely and accurate information. Receive the best recommendation based on your stated investing goals. Be treated ethically. Report investing problems regarding brokers or brokerage firms. Have your financial data protected. You have the responsibility to … Be informed. Read all literature, including the investment prospectus before making decisions. Verify the credentials of the person or firm who will handle your investments. Read and keep your statements. Set and communicate your investing goals. Report any unauthorized trades. Promptly report problems to regulators. Protect your financial data. Pay taxes on any earnings. Carefully consider risks, fees, and objectives before making decisions. ©2012 National Endowment for Financial Education | Lesson 4-4: Investment Strategy54

56. Who’s Got Your Back? The Cops Securities and Exchange Commission (SEC) Financial Industry Regulatory Authority, INC (FINRA) state securities regulators The Clean-Up Crew Federal Deposit and Insurance corporation (FDIC) Securities Investor Protection Corporation (SIPC) ©2012 National Endowment for Financial Education | Lesson 4-4: Investment Strategy55

57. Challenge 4-B Set personal savings and investing goals: - short-term - medium-term - long-term ©2012 National Endowment for Financial Education | Lesson 4-4: Investment Strategy56