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Saving and Investing

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... two fast food meals or one movie ticket (and a candy bar) ... the economy as a whole benefits because savings provides money for others to invest or spend. – PowerPoint PPT presentation

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Title: Saving and Investing


1
Chapter 7
  • Saving and Investing

2
Focus Questions
  • Why should you save?
  • What is the difference between saving and
    investing?

3
pay yourself first (a little can add up)
  • Save this each week at interest in 10
    years youll have
  • 7.00 5 4,720
  • 14.00 5 9,440
  • 21.00 5 14,160
  • 28.00 5 18,880
  • 35.00 5 23,600
  • You can buy two fast food meals or one movie
    ticket (and a candy bar) or save 7.00 this
    week.
  • You can buy two small cheese pizzas or one
    large pepperoni pizza, delivered or one new
    CD or save 14.00 this week.
  • What can you give up to save for your
    financial goals?

teens lesson 12 - slide 12-A
4
What is Saving?
  • Savingthe setting aside of income for a period
    of time so that it can be used later.
  • Results of saving?
  • When an individual saves, the economy as a whole
    benefits because savings provides money for
    others to invest or spend.
  • FDR created the FDIC (Federal Deposit Insurance
    Corporation) to protect all savings after the
    Depression.

5
Interest is returned to saver/depositor
People deposit savings to get interest.
Businesses pay interest to financial institutions
Businesses use to expand and improve
Financial Institutions loan to businesses
Computers
Trucks
Plant
Equipment
6
Where Do You Save?
  • Some people save at home
  • Financial Institutions
  • Savings Plans
  • Something with interest.
  • Interest is the payment people receive when they
    lend money or allow someone else to use their
    money.

7
Savings Account
  • Passbook Savings Account
  • Account for which a depositor receives a booklet
    in which deposits, withdrawals, and interest are
    recorded.
  • Statement Savings Account
  • Account similar to a passbook except that the
    depositor receives a monthly statement showing
    all transactions.
  • Money-Market Deposit Account
  • Account that pays a higher interest rate and
    allows you to write checks. The trade-off is
    that you must keep a higher minimum balance.

8
Time Deposits
  • Time Deposits
  • Savings plans that require savers to leave their
    money on deposit for a certain amount of time.
    The period is known as maturity.
  • CDsCertificate on Deposit

9
How simple and compound interest are calculated

  • simple interest calculation
  • Dollar Amount x Interest rate x Length of Time
    (in years) Amount Earned
  • example
  • If you had 100 in a savings account that paid 6
    simple interest, during the first year you would
    earn 6 in interest.
  • 100 x 0.06 x 1 6
  • At the end of two years you would have earned
    12.
  • The account would continue to grow at a rate of
    6 per year, despite the accumulated interest.
  • compound interest calculation
  • Interest is paid on original amount of
    deposit, plus any interest earned.
  • (Original Amount Earned Interest) x Interest
    Rate x Length of Time Amount Earned
  • example
  • If you had 100 in a savings account that paid
    6 interest compounded annually, the first year
    you would earn 6.36 in interest.
  • 100 x 0.06 x 1 6
  • 100 6 106
  • With compound interest, the second year you
    would earn 6.36 in interest.
  • The calculation the second year would look
    like this

teens lesson 12 - slide 12-E
10
Relating Saving to the Economy
  • How can saving benefit the economy?

11
Investing
  • Taking risks with your savings
  • Types of investing
  • Stocks
  • Bonds
  • Mutual Funds
  • Real Estate

12
Stocks
  • Corporations are formed by selling shares of
    stock (also called securities).
  • A stock gives you ownership of a corporation.
    Thus you are called a stockholder.
  • Stockholders make money by dividends and
    speculation.
  • A dividend is money paid to each stockholder
    during a time of profit.
  • Speculation is the money earned by selling your
    stock back during a profit time.
  • Money gained or lost during a stock holding time
    is known as capital gains and capital loss.

13
Capital Gain/Loss
  • Capital Loss Example
  • On December 1, you buy 100 shares of Best Buy _at_
    45 per share.
  • You hold on to the shares until July 15 at which
    time they are selling for 42 per share.
  • What is your capital loss?
  • 45 x 100 4500
  • 42 x 100 4200
  • Capital loss 300
  • Capital Gain Example
  • On December 1, you buy 100 shares of Best Buy _at_
    45 per share.
  • You hold on to the shares until July 15 at which
    time they are selling for 52 per share.
  • What is your capital gain?
  • 52 x 100 5200
  • 45 x 100 4500
  • Capital gain 700

14
Bonds
  • A bond is a certificate issued by a company or
    the government in exchange for borrowed money.
  • In return it promises to pay a stated rate of
    interest over a stated period of time, and then
    to repay the borrowed amount (principal) in full
    at the end of that time.

15
Types of Bonds
  • Tax-exempt bonds
  • Sold by local and sate governments without
    federal, state, or local tax.
  • Interest is not taxable
  • Savings bonds
  • Sold by the federal government.
  • You receive interest updates every 6 months
  • Interest is Taxable
  • T-Bills
  • Minimum 10,000matures in 3 months to 1 year
  • Interest is only taxable by federal govnt
  • T-Note
  • Minimum 1000-5000matures in 2-10 years.
  • Interest is only taxable by federal govnt
  • T-Bond
  • Minimum 1000-5000matures in 10 or more years.
  • Interest is only taxable by federal govnt

16
Difference Between Stocks and Bonds
Stocks Bonds
All corporations issue or offer to sell stock. That is what makes them a corporation Corporations are not required to issue bonds
Stocks represent ownership Bonds represent debt
Stocks do not have a fixed dividend rate (except preferred stocks) Bonds pay a fixed amount of interest
Dividends on stock are paid only if the corporation makes a profit Interest on bonds must always be paid whether there is a profit or not
Stocks do not have a maturity date Bonds have a maturity date
Stockholders can elect a board of directors who control the corporation Bondholders usually have no voice in or control over how the corporation is run
Stockholders have a claim against the property and income of a corporation Bondholders have a claim against the property and income of a corporation that must be met before claims of any stockholders
17
How do you buy stocks and bonds?
  • Stocks are bought and sold through brokers on a
    stock exchange either at a brokerage firm or on
    the internet.
  • A broker is a go between for buyers and sellers
  • NYSENew York Stock Exchange
  • Stocks can also be acquired on your own. These
    are called over-the-counter stocks.
  • NASDAQ has the largest volume of over-the-counter
    stocks
  • Bonds
  • Bonds are sold over-the-counter and on the
    Internet

18
Mutual Funds and Money Market Funds
  • Mutual Funds
  • Investing in the stock market where your money is
    pooled with many other individuals to buy stocks,
    bonds, or other investments.
  • Usually a diversified portfolio of stocks and
    bonds.
  • Most are invested into one of two indexes.
  • DJIA
  • SP
  • Money Market Fund
  • A type of mutual fund used to buy the short term
    debt of businesses and banks
  • You may write a check against the amount you have
    in that fund.

19
Government Regulations
  • SEC
  • Securities and Exchange Commission
  • Regulates brokerage firms, stock exchanges, most
    businesses that issue stock.
  • Investigates any dealings among corporations that
    affect the value of stock
  • Mergers

20
Is property the route to wealth?
21
Special Savings Plans and Goals
  • Retirement

22
Special Savings Plans and Goals
  • Investing for retirement
  • Pension plans are the most popular of the
    retirement income plans.
  • 401K is the most popular
  • A portion of your check is withheld and a company
    matches that amount to be paid with interest upon
    retirement or buyout.

60 Minutes The 401K Fallout
23
Special Savings Plans and Goals
  • Investing for retirement
  • Pension plans are the most popular of the
    retirement income plans.
  • 401K is the most popular
  • A portion of your check is withheld and a company
    matches that amount to be paid with interest upon
    retirement or buyout.
  • Individuals can set up their own plans
  • Keogh Plan15 of your income, deductible for
    yearly taxes
  • Traditional IRASet up for people earning less
    than 30,000 a year. You can contribute up to
    5000 a year and deduct that amount from your
    taxes.
  • Roth IRAYou can contribute up to 5000 a year.
    This amount is not tax deductible now, but rather
    later the interest earned is tax deductible.

24
IRAs an example of a return on investment
  • contributions made only between ages of 2230 (9
    years)
  • 2,000 contributed each year
  • Total investment of 18,000
  • At an interest rate of 9, by age 65 will have
    579,471
  • contributions made only between ages of 3165 (35
    years)
  • 2,000 made contributed each year
  • Total investment of 70,000
  • At an interest rate of 9, by age 65 will have
    470,249

teens lesson 12 - slide 12-N
25
Real Estate as an Investment
  • ways to invest
  • Buy a house, live in it, and sell it later at a
    profit.
  • Buy income property (such as an apartment house
    or a commercial building)and rent it.
  • Buy land and hold it until it rises in value.
  • advantages
  • Excellent protection against inflation.
  • disadvantages
  • Can be difficult to convert into cash.
  • A specialized type of investment requiring study
    and knowledge of business.
  • capital gains profits from the sale of a capital
    asset such as stocks, bonds, or real estate.
    These profits are tax-deferred you do not have
    to pay the tax on these profits until the asset
    is sold. Long-term capital gains occur on
    investments held more than 12 months. Short-term
    capital gains occur on investments held lessthan
    12 months.

teens lesson 12 - slide 12-L
26
How Much Do You Save?
  • Evaluate your amount of risk
  • If investing, spread your investments
    outdiversification
  • How much do you value now or later?

27
the rule of 72
  • How many years will it take to double my money?
  • 72 DIVIDED BY
  • YEARS TO DOUBLE A SUM OF MONEY
  • INTEREST RATE
  • At what interest rate will my money double in a
    set number of years?
  • 72 DIVIDED BY
  • INTEREST RATE REQUIRED
  • YEARS TO DOUBLE
  • INVESTMENT

28
Relating Investing to the Economy
  • How does investing play a part in the economy?

29
Career Opportunity
  • Stock Broker
  • Job Description
  • Relay investors stock orders to the floor of a
    securities exchange
  • Offer financial counseling and advice on the
    purchase or sale of particular securities.
  • Qualifications
  • College Degree
  • Pass a state licensing exam and the General
    Securities Registered Representative Exam
  • Median Salary38,800
  • Job Outlook Above Average
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