Banking, Finance, and Bitcoin: Exploring Financial Institutions and Services

1. Do Now • 1) What is a bank? • 2) What services do banks provide?

2. Theme 3: Banking and Credit

3. Finance • What is finance? What is its purpose? • What are the tools (products) that they create?

4. Theme 3: Section 1 Types of Financial Institutions and Services

5. Short Term • Financial Services for Short-Term Needs (daily purchases, Emergency Funds)

6. Long-Term • Financial Services for Long-term Needs (Major purchases, Long-term financial security)

7. Effects on Currency • Banks and Financial Services create a number of tools (their products) available to the public. But not all for investments/loans: • One of the newest is the ability to pay without having any physical money on hand. • Debit Cards, Direct Deposit, The Square, Bitcoin, Paypal, Credit Cards, Apple Pay, Stored Value Cards

8. Bitcoin Video Questions • 1) What is a bitcoin? • 2) What are some of the advantages of bitcoin? • 3) How does bitcoin work? Where/how can you get bitcoins? • 4) What was the most interesting fact you learned about bitcoin? • 5) Based on what you learned from the video, would you use bitcoin? Why or why not?

9. Financial Institutions • Commercial Banks: • For-Profit institution owned by private or public investors that provides specific services: checking, savings, and lending Person (w/money) uses service => Bank (provide services with customers money => Money is transferred to persons (w/out money) • Credit Unions: • Non-Profit financial institution owned by members (traditionally a labor union: teachers, welders,…). Since it is not for profit, the interest rates on loans for its members are lower and, sometimes, the rates on their investments are higher. • Investment companies: • For-profit institutions which combine your investments in bonds and stocks with others, and manage these investments to garner greatest return on investments. (they try to predict the marketplace and when and where to invest) • Others: Savings and Loans and Mutual Savings Banks

10. Opportunity Costs of Financial Services • It’s important to find a balance between your short-term needs and your needs for future financial security. Think about the following examples: • Is a higher interest rate on a Certificate of Deposit (CD) worth giving up liquidity (the ability to easily convert your financial resources to cash)? • Would you trade the convenience of getting cash from the ATM near your office/school for lower ATM fees? • Is it worth opening a checking account that has no fees but doesn’t earn interest if you have to keep a minimum balance of $500?

11. Failure • Can a bank “fail” or run out of money? • How do banks fail? • Run on the bank (Great Depression) • If their investments fail

13. FDIC • What does FDIC Insurance mean and why should my bank be FDIC insured?’ • FDIC stands for Federal Deposit Insurance Commision • Started after the Great Depression • Federal government insures deposits up to $250,000 • How does FDIC insurance protect us from bank failures/runs on the bank?

14. Selecting a Financial Institution • Questions to ask yourself when selecting a financial institution: • 1) Where can you get the highest interest rate for your savings? • 2) Will you be able to borrow money from the institution-credit card, mortgage or car loan, student loans- when you need it? • 3) Is the institution FDIC insured?

15. Podcast: Choosing a Financial Instituion • We are going to listen to a podcast from the FDIC (what does FDIC stand for again?) which discusses three types of financial institutions. • Your job is to use the information provided to fill in the chart which discusses the different institutions. When we finish, we will discuss the pros and cons of each institution

16. Activity: Banking Options • Read the story of Ethan and use the information from today’s notes, video and podcast to help Ethan make a decision about which bank he should use. • Step 1: Create a graphic organizer to compare the three options in your notebook • Step 2: Select which option you think is the best choice for Ethan. • Step 3: Write a paragraph justifying which choice you made for Ethan and explain why the choice you made is the best for him and his specific circumstances.

17. HOMEWORK: Banking and Credit Research Project • Your project for this unit will be to research 3 banks and 3 credit cards and select one of each based on your research. You will create a spreadsheet where you track specific information about each bank and credit card that you research. Once you’ve researched, you will write a paragraph analyzing which bank and credit card you choose and why. • ACE vocabulary chapter 5.1 • $500 deposit challenge

18. Do Now • 1) What does the term “investment” mean? • 2) What are some different ways people can “Invest” their money?

19. Saving vs Investment Savings Investment

20. Theme 2: Section 2 Savings and Investment Options

21. Savings and Investment Tools and Services • Savings Account: traditionally low interest rate (rate of return), but a safe place to keep money and make withdrawals and deposits. (incentives?) • Certificate of Deposits (CDS): Money is left in a deposit for a stated period of time at a specific rate of return. The money becomes available to you on its maturity date (incentives?). Three criteria to consider: • You will have to leave your money in the CD for a given amount of time. • You will pay a penalty if you take it out early. • You will have to pay a minimum amount. • Beware of rollovers: once your “one-year” CD has matured, the bank will automatically place it in a new “one-year” CD if you don’t claim it.

22. Continued… • Money Market Account: savings account that requires a minimum balance and earns interest that varies from month to month • U.S. Savings Bonds: Lend the federal government money which they will pay back with interest at a later date.

23. Continued… • IRA: A traditional individual retirement account (IRA) allows individuals to direct pretax income towards investments that can grow tax-deferred; no capital gains or dividend income is taxed until it is withdrawn. • Roth IRA:  a special retirement account where you pay taxes on money going into your account and then all future withdrawals are tax free.

24. Evaluating Investment Options • 1) Rate of return • 2) Does the investment have compounding interest? • 3) Fees on deposits (service charges) • 4) Inflation • 5) Tax considerations (is it taxed or not, and at what rate) • 6) Liquidity (access and change in value) • 7) Restrictions (delays and regulations)

25. Checking Accounts (Service, Not Investment) • Usually require no minimum balance, but also usually give no interest (why?) • Beware: Overdraft Fees- Overdraft protection is an automatic loan given to your account if the balance does not cover expenditure. • Best to waive overdraft protection • Checking is important for liquidity: a measure of how quickly you can convert resources into cash without a loss in value. • Writing a check?

26. Check You owe restaurant Lord of the Fries $112.27 (you really like fries) .

27. Practice: Writing Checks • Using the Checks Provided to you write a check to the following: • 1) JimminyCricket’s Fried Chicken for $67.35 • 2) Ol’ Red’s Car Loan Company for $478.86 • 3) University of Louisiana for $6809.98 but we don’t want them to cash it until December 1, 2016

28. Activity: Save and Invest Scenarios • Work with a partner through the variety of saving and investing opportunities. Read through the choices you have to make and make a choice based on the “Evaluating Investment Options” section of your notes’

29. Homework • ACE Vocabulary 5-2

30. Theme 3: Section 3 Credit

31. Credit • Credit: the use of someone else’s money, borrowed now with the agreement to pay it back later. • The debtor v. creditor • Open-end Credit: enables a borrower to use credit up to a stated limit. • Revolving account: option to pay the balance in full or pay a minimum (the minimum payment required to not endure a late penalty or default). If the balance is not paid, interest is applied to the remaining balance. • Standard Interest on Credit Cards is between 14%-22%. • Standard Minimums are between 1%-3%. • $2200 balance with a minimum of 2% and an interest rate of 17%. If you pay the minimum this month, what will you owe next month BASED on this month alone.

32. Sources of Credit • Credit Card companies • Retail stores (Macy’s, Gap, Walmart) • Banks and Credit Unions • Finance Company (high-risk loans at maximum agreed upon rates) • Usury law: a state law that sets a maximum interest rate that may be charged for consumer loans. • Pawnbrokers: high-interest loans based upon valuable possessions as collateral (property pledged to assure payment of a loan). • Pay day loans: small loans at high interest rates • Insurance companies

33. Traps! • Low Introductory Rate: the rate will rise from a low rate (as low as 0%), but make sure to know the final rate. • Adjustable rate: the rate can change with the markets (to be determined by the creditor). • Closed Account Rate: High rate to close an account. (as high as 20%-30%) • Others- Late Fees, Over-the-limit Fees, Transaction Fees

34. Credit Records/Scores • Credit History: the complete record of your borrowing and repayment performance. • Performed by a Credit Bureau: a business that is paid by borrowers to track credit information. • Credit report: a written statement of a consumer’s credit history • Point system: the credit bureau assigns points based off of different criteria (FICO score- 300 is lowest and 850 is highest) • What is the purpose of one’s Credit History?

35. Ways to Build a Credit History (now) • Savings Account • Checking Account • Store Credit Account • Small Loan • Credit Card • Can even get added to a parent’s account. (Piggybacking)

36. Frontline-The Secret History of Credit Cards

37. Theme 3: Section 4 Paying Off Debt

38. Paying Off Debt You have $200/month to pay for Credit Cards. What do you have and do? Priorities? Strategies?

39. Considerations • Do you go after the lowest payments first? • Do you go after the highest interest rates? • Can you use one credit card to help pay off another? Limits? • Do you calculate only in $ or must you consider psychology? Consider Visa #2 • $450 with APR 22.9% • DPR (Daily Periodic Rate) 22.9/365 = .063% • 30 days $450 X .00063 X 30 = $8.51 • 450 + 8.51 = 458.51 X .00063…... Consider Visa #1 • $850 with APR 18% • DPR: .049% • 30 Days $850 X .00049 X 30 = 12.50 • $862.50 X .00049 .....