Personal Finance Wisdom: Savings Tips and Decision-Making Strategies

1. Warm Up #37 Give 5 things that you will or have saved for. Explain how long it took to receive the item that you were saving 5 minutes

2. SSEF1You will be able to apply rational decision making to personal spending and saving choices.A. Explain that people respond to positive and negative incentives in predictable ways. B. Use a rational decision making model to select one option over another.C. Create a savings and financial investment plan for a future goal. Determine and define vocabulary. Identify key terms within the standard. Define each term. ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________

3. Scaffold understanding of the standard(s) and/or element(s). Paraphrase the standard(s) and/or element(s).Rewrite the standard including synonyms or brief definitions in parentheses and in a different color following the key terms found in step 1. A. Explain (clarify) that people respond to positive and negative incentives in predictable (expectable) ways. B. Use a rational (sensible) decision making model to select one option (choice) over another.C. Create a savings and financial (monetary) investment plan for a future goal.

4. Personal Finance and Financial Markets Rational Decisions for Personal Spending and Savings Choices SSEPF1

5. Is this a legitimate complaint and is someone able to sue for $100 million?

6. Is this a legitimate complaint and is she able to sue for $100 million? Lindsay Lohan Sues Over TV Ad ACTRESS LINDSAY LOHAN HAS SUED AN ARM OF E*TRADE FINANCIAL CORP., THE OPERATOR OF A POPULAR ONLINE BROKERAGE, ALLEGING THE COMPANY MISAPPROPRIATED HER NAMEAND PERSONALITY IN A RECENT TELEVISION ADVERTISEMENT. THE LAWSUIT ALLEGES THAT THE DEPICTION OF THE SECOND GIRL "DISREGARDED AND VIOLATED" MS. LOHAN'S RIGHT "TO THE EXCLUSIVE CONTROL OF THE COMMERCIAL USE OF HER LIKENESS, NAME, CHARACTERIZATION AND PERSONALITY." IT ALSO ALLEGES VIOLATIONS OF TWO SECTIONS OF NEW YORK'S CIVIL-RIGHTS LAW. MS. LOHAN'S LAWYER, STEPHANIE OVADIA, SAID SHE HAS HEARD FROM MANY PEOPLE WILLING TO HELP HER PROVE HER CASE. "THEY'VE SAID THAT LINDSAY [LOHAN] WAS THE FIRST PERSON THEY THOUGHT OF WHEN THEY SAW THE COMMERCIAL," MS. OVADIA SAID. "PEOPLE SEEM VERY WILLING TO HELP." A CALL TO AN E*TRADE REPRESENTATIVE WASN'T RETURNED.

7. What motivates people to act in a particular way? Incentives Two types: Positive Incentives A reward that a person is likely to receive if they behave in a certain manner. i.e. 10% raise if Joe sells 80 pairs of shoes this month Negative Incentives A punishment or negative consequence that one wants to avoid for failing to behave in a certain manner. i.e. being fired if Joe fails to sell 80 pairs of shoes this month

8. Needs Things necessary to survive Wants Our desires

9. Rational Decision Making Model Define the problem List the alternatives State the criteria (most important to you) Evaluate the alternatives Make a rational decision

10. How do you decide on what to buy and when to buy it? Create a savings or financial investment plan for a future goal. Long-term goal A want that takes a year or more i.e. good used car, vacation, retirement Short-term goal A want that is achievable in 6 months i.e. prom dress, concert

11. A Financial Plan • When I Can • Get it • What I Can • Do • What I Want • What it Costs • 10 weeks • Earn and save • $30/week from • baby sitting • Short-Term • Goal • Prom Dress • $300 • 1 year • From • now • Long-Term • Goal • Save $10/ • week • From allowance • And get • after-school • Job; save • $30 week • Used Car • $2000

12. Closure Activity #32Your Financial Plan for 2 items • When I Can • Get it • What Can I • Do • What I Want • What it Costs • Short-Term • Goal • Long-Term • Goal

13. The End. Any Questions? Any Questions? Any Comments? Any Comments? Any Concerns? Any Concerns?

14. Warm Up #38 Look at the overhead for and answer the 3 questions on TT58 Barriers in Real-World Trade Trade Barriers in 2006

15. SSEPF2 You will be able to explain that banks and other financial institutions are businesses that channel funds from savers to investors.C. Give examples of the direct relationship between risk and return.D. Evaluate a variety of savings and investment options; include stocks, bonds and mutual funds. Determine and define vocabulary. Identify key terms within the standard. Define each term. ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________

16. Scaffold understanding of the standard(s) and/or element(s). Paraphrase the standard(s) and/or element(s).Rewrite the standard including synonyms or brief definitions in parentheses and in a different color following the key terms found in step 1. C. Give examples (samples) of the direct (non-stop) relationship between risk and return.D. Evaluate (Assess) a variety (diversity) of savings and investment options (choices); include stocks, bonds and mutual (joint) funds.

17. Personal Finance and Financial Markets Financial Institutions for Saving and Investing SSEPF2

18. What are the ways that people see their money grow? Savings Money deposited in a bank or other financial institutions, for later use Interest Money earned for the use of your savings Investments Money you pay into a business with the expectation, but NOT the guarantee, of future rewards.

19. What kinds of Financial Institutions can I place my money? Commercial Banks Receive deposits of money, extend credit, and provide loans. FOR A PROFIT. Credit Unions A not-for-profit, that is owned and controlled by its members, offer checking, savings, and grant loans. Savings and Loans Lend money out for mortgages

20. Who insures the money that you put into banks? Federal Deposit Insurance Company (FDIC) Protects deposits up to $250,000, if the bank goes bankrupt, you will not lose your money.

21. When and where do you invest money? In a business or the government for a specified time, in return for interest. But you are taking a risk of losing money as well.

22. Risks and Returns Risks The greater the risk you are willing to take the higher the potential rewards you can earn Returns The lower the risk you are willing to take the lower the potential rewards you will earn

23. Risk and Return • What Kind of Risk Are You Willing to Take? • Risk usually means loss of part initial investment, or principal • no-risk investments: insured savings and CDs, U.S. government bonds • Safe investments risk interest rate may not keep up with inflation • Return on riskier investments depends on how profitable company is • bonds less risky than stocks; bondholders paid off first

24. Risk and Return • What Kind of Return Do You Want? • Safe investments have lowest return through fixed interest rates • Stocks, bonds—noguaranteed rates; stocks—higher return over time • If investing over a long period, can risk losses in stock some years • if less time and money, may want safer investment • Diversification gives better chance of offsetting a loss with a gain

25. Three most important kinds of investments are: Lending money to a firm, government (state/local), or public construction project. It pays you interest periodically and then repays the cost of your bond + interest years later, when it “matures”. A. Bonds

26. B. Stocks Buying shares in the ownership of a corporation, earning a dividend from the corporation’s profits, but is the riskiest with the highest potential rewards. Capital Gains When you earn a profit

27. C. Mutual Fund Pools money from many investors and uses it to buy a variety of stocks and bonds called a Portfolio. Usually combines low-risk with high-risk stocks so investors can never lose all their money.

28. Why Buy Bonds? • Types of Bonds • U.S. government issues Treasury bonds, notes, bills; very safe • Safety of foreign government bonds depends on the country • State, local governments issue bonds; no federal income tax • Corporate bonds higher risk than government, pay higher coupon rate • Junk bonds are high-risk, high-yield corporate bonds

29. The Stock Market • Why Buy Stock? 1. Buy to earn dividends, share of company profits • investors who want income, want dividends 2. Buy to earn capitalgains through resale of stock • investors who want growth look for potential for capital gains

30. The Stock Market • Types of Stock • Common Stock—gives shareholders votingrights, share of profits • one vote per share owned to elect board of directors • Preferred Stock—gives shareholders share of profits, no voting rights • investors get guaranteeddividends, paid off first if company closed • dividends do not increase if stock increases in value

31. Trading Stock • KEY CONCEPTS • Most people buy stock to earn capital gains • Stock prices determined by demand and supply; influencing factors: • company profits or losses, technological advances, overall economy • Stockbroker—buys and sells securities for customers, earns commission

32. Trading Stock • Organized Stock Exchanges • New York Stock Exchange (NYSE) on Wall Street; oldest, largest in U.S. • traditionally, each stock auctioned from trading post on exchange floor • today, hand-held computers used to execute many trades • 2006 merger with Archipelago Exchange allowed electronic trades • American Stock Exchange (AMEX) companies smaller than on the NYSE

33. Trading Stock • Electronic Markets • Over-the-counter (OTC) market for stocks not traded on NYSE or AMEX • NASDAQ is centralized computer system for OTC trading • secondlargestexchange in world in number of companies, shares traded • companies from many sectors of U.S. economy, most in technology • OTC Bulletin Board is electronic market for smaller companies

34. Measuring How Stocks Perform • Tracking the Dow • Bull Market—prices rise steadily over a relatively long period • 1972 to 2000 longest bull market in history; most last two to three years • Bear Market—pricesdecline steadily over a relatively long period • Dow affected by the previous close also the Fed, foreign indexes, and trade balance.

35. Mutual Fund

36. Closure Activity #33Mellody Hobson: Investing in the Future p. 326 • Why does Mellody Hobson want to make more people aware of investing? • _________________________________________________ • _________________________________________________ • _________________________________________________

37. The End. Any Questions? Any Questions? Any Comments? Any Comments? Any Concerns? Any Concerns?

38. Warm Up #39Answer the Following: Julio had $20,000 in his savings account when his bank declared bankruptcy. What happens to his money?________________________ Which investment offers the highest chance to make the most money?______________________________ Which investment offers the lowest?__________________ Which investment is the safest to put your money?______ If a bank pays 3% interest on savings, how much interest will it charge for loans to people? ____________________ If Antonio has $260,000 in his money market account at the bank, and the bank declared bankruptcy. What happens to his money?_____________________________

39. SSEPF4You will be able to evaluate the costs and benefits of using credit.A. List the factors that affect credit worthiness.B. Compare interest rates on loans and credit cards from different institutions.C. Explain the difference between simple and compound interest rates. Determine and define vocabulary. Identify key terms within the standard. Define each term. ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________

40. Scaffold understanding of the standard(s) and/or element(s). Paraphrase the standard(s) and/or element(s).Rewrite the standard including synonyms or brief definitions in parentheses and in a different color following the key terms found in step 1. List the factors (causes) that affect credit (obtain goods and pay later) worthiness (value). Compare interest (charge for borrowing money) rates on loans and credit cards from different institutions (organizations). Explain (clarify) the difference between simple (pay on the principal) and compound (pay on the principal and on accrued) interest rates.

41. Personal Finance and Financial Markets Using Credit SSEPF4

42. What is Credit? Credit The ability to obtain goods and services now, and agree to pay for them later.

43. What are some factors on how you receive credit? Credit Worthiness Are you able to pay the money back? Are you likely to pay it back? Where do you work, how much do you make, do you save, your expenses, etc? • “THANK YOU, I shall always be in your debt.”

44. What if you do not pay it back? Collateral Property you own that the bank could take away from you. Credit History Companies called credit bureaus collect financial information on everyone, and they give you a score based on that information. The higher the score the more likely you are to receive a loan.

45. How do you keep a good credit history? Pay Bills on Time! Have a steady work history. Open a checking account (don’t bounce any checks!) Open a savings account *Because your credit history follows you for your whole life!

46. Looking at the Making wise credit decisions. Take your monthly income, minus deductions taxes, Social Security, and health insurance. Variable Expenses The amount you usually spend every month (food, entertainment, clothes, etc.) Fixed Expenses The amount you must pay every month (rent, utilities, car etc.) *Do you have enough to take on more debt?

47. Interest Rates:Loans vs. Credit Cards Loans Usually a fixed annual rate of simple interest Credit Cards Usually charge different types of interest such as: Annual Fee COMPOUND INTEREST Finance Charges Much higher rates • How are simple and compound interest rates alike?

48. What is the difference between SIMPLE and COMPOUND interest? Simple Means that you are charged interest ONLY on the original amount of the loan. $1000+ (10% X 1000)= $1,100 Compound Means you pay on the principal (original amount) + any interest added to the bill. It could be added every month. Month 1: $1000+ (10% X 1000)= $1,100 Month 2: $1000+ (10% X 1,100)= $1,200

49. Closure Activity #34 Tyler’s family wants to buy a DELL computer that costs $2000. They could get a 3 year personal loan from Bank of America at a fixed rate of 10% simple interest. They could also get a 3 year loan from a finance company that charges 9.5%, compounded annually. Calculate the total cost of each loan after 3 years and then decide which credit offer the family should accept. 3 minutes

50. The End. Any Questions? Any Questions? Any Comments? Any Comments? Any Concerns? Any Concerns?