Today’s Schedule – 11/2 PPT: Saving & Investing Part 1 WS: Calculating Interest Rates...

Today’s Schedule – 11/2

• PPT: Saving & Investing Part 1• WS: Calculating Interest Rates• Homework–Read 21.1

Importance of Saving

At 5% interest rate in 10 years:$7/wk = $4,366$14/wk = $8,732$21/wk = $13,098$28/wk= $17,464$35/wk = $21,830

Doubling Your Money- Rule of 72

72/Interest Rate= Years to Double Your Money

72/Years to Double Money = Interest Rate Needed

Investing• The act of redirecting resources from

being used today to create benefits for the future–Use of assets to earn income/profit

• Creates wealth and economic growth–Business investment -> profits ->

business growth ->job growth -> higher income ->more $ to spend

Some Definitions

• Financial System- Savers & borrowers; allows transfers between them• Financial Assets- Claims of

property/income• Financial Intermediary- Institution that

moves money between saver and borrower

Types of Financial Intermediaries• Banks, Savings & Loans, Credit Unions–Take deposits from savers and lend them

out• Finance Companies –Lend money to individuals and businesses–High risk = High interest rate

• Mutual Funds–Pool savings of many people to invest in a

variety of financial assets

Types of Financial Intermediaries• Life Insurance Companies–Provides financial protection–Individuals pay “premiums” which is

loaned out• Pension Funds–Income received once retired–Contribution made by both employee

and employer–Money is invested to make profit

Risk

• Important to diversify your investments–Spread it out to reduce the risk

• Financial intermediaries help you to do this

Information

• Financial intermediaries provide information on:–Portfolios- tells you how financial assets

are performing–Prospectus- contains the portfolio and

provides information to potential investors

Liquidity

• Investing with a financial intermediary makes it easy to move your money around

Return

• The money received above and beyond the sum of money initially invested• Savings account or CD?–Which would have higher interest rate?–Which would have most fluidity?

• Typically, the higher the potential return, the higher the risk