1. American Finances Saving and Investing Ch. 11

2. Snapshots According to a poll taken in 2009, 61% of Americans “always or usually” live paycheck to paycheck. (Up from 49% in ’08 and 43% in ’09) In 1929 only 2% of the homes in America had a mortgage against them, and by 1962 only 2% did NOT have a mortgage against them. Consumer Reports Money Book says the typical household has $38,000 in debt and the total consumer debt has tripled since 1980. In 1980 the total consumer debt was $1.3 trillion and now is over $3.3 trillion.

3. Snapshots Continued A poll published in USA Today stated that 55% of Americans “always” or “sometimes” worry about money. Nearly half (46%) of Americans have less than $10,000 saved for retirement Student loan debt in the U.S. is climbing at a rate of approximately $2,843.88 per second

4. More snapshots According to Automatic Data processing, Inc., 20% of workers would NOT be able to make a mortgage, utility or credit card payment if they missed a paycheck. At 36%, USA Today reports personal finance as the number one personal stress factor in the workplace. 1.41 million Americans filed for personal bankruptcy in 2009—a 32% increase over 2008

5. What does it mean to be happy? Think about the things that bring you contentment? Is money attached to any of them?

6. True or False? “Money doesn’t always equal happiness.” “You spend as much as you make.” “I don’t need to save, I can rely on Social Security.” Teenagers do not need to save. Saving money is easy.

7. Saving… MUST BE A PRIORITY!!!! Saving is about EMOTION and CONTENTMENT. Money is neither good or bad. –It can be used in good and bad ways. –Would you say debt is money used in a good way or bad way?

8. Dave Ramsey says… You should save for THREE things: –Emergency fund (start with $1000) –Purchases ($2000 TV at 25% interest) –Wealth building (discipine, consistently) –YOU NEED TO START SAVING NOW!!!!!

9. Ask yourself… Why are people NOT saving today? Name some ways you can cut spending. Do you need an emergency fund now? Explain.

10. Savings & the Financial System (Ch. 11 Section 1) Saving money creates capital for other investors to borrow or use. Financial system: Savers, Intermediaries and Borrowers Circular Flow of Funds Joe (saver) puts $ in a bank (intermediary). Jim (borrower) receives a loan from the bank to start a business.

11. Compound interest is POWERFUL! What is compound interest? Compound interest is interest on interest Example…say you deposit 100$ in the bank. At the end of the year you earn 10% on your deposit. So now you have 110.00 in the bank. The next year you earn 10% on 110.00 and now you have 121.00. And it keeps growing! Check out Ben and Arthur’s story to see how compound interest is GOOD for an investor.

12. Investment Objectives Why are you saving? Considerations –Time –Income –Pay off debts first –tax considerations

13. Things I should know as an investor/saver… Never invest with borrowed money (risk) –Buying on the margin is investing in the stock market with borrowed money Diversify (“spread around”) your investments, it reduces the risk Consider liquidity (time factor) What is return or yield?

14. What are mutual funds? Mutual funds are like “baskets” of stock You invest in a Mutual fund along with thousands of other investors and then the company invests the money for you and your mutual fund owners. Diversification is greater Risk is lower Experts do the work for you

15. Economics in Practice (page 329) InvestmentRisk: lowRisk: highReturn: lowReturn: high $1,000 CD 100 shares of a mutual fund 100 shares of stock Corporate bond Regular savings account

16. Ch. 11 Matching exercise 1.Savings 2.Financial system 3.Financial assets 4.Pension 5.Mutual fund a.Regular payment to provide income security to someone who has worked a given number of years b.The dollars that become available in the absence of consumption c.Company that sells stock in itself to individual investors and invests this money other stocks and bonds d.Network of savers, investors, and financial institutions that work together to transfer savings to investors e.Claims on the property and the income of the borrower

17. Matching Key 1. b 2. d 3. e 4. a 5. c

18. More questions from Ch. 11 1.Saving is necessary for a.A traditional economy b.Mutual funds c.Financial assets d.Capital formation

19. #2 The financial institutions that bring together funds that savers provide and then lend those funds out to others are called a.Mutual funds b.Financial systems c.Financial assets d.Financial intermediaries

20. #3 All of the following are examples of financial assets EXCEPT a. Bonds b. Savings books c. Mutual funds d. Certificates of deposits (CDs)

21. #4 All of the following are examples of NON- Bank financial institutions EXCEPT a.Credit unions b.Finance companies c.Life insurance companies d.Real estate investment trusts

22. #5 What sector(s) of the economy provide the most saving(s)? a.The federal government b.The public sector c.The state and local governments d.Households and businesses

23. Answer Key 1.D 2.D 3.C 4.A 5.D