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Building Wealth

Building Wealth. Assets-Liabilities = Net Worth Assets—anything an individual or business owns that has commercial or exchange value Liabilities—Money an individual or organization owes; same as debt Net Worth—The difference between the total assets and total liabilities of an individual.

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Building Wealth

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  1. Building Wealth Assets-Liabilities = Net Worth Assets—anything an individual or business owns that has commercial or exchange value Liabilities—Money an individual or organization owes; same as debt Net Worth—The difference between the total assets and total liabilities of an individual

  2. The Value of Assets • Wealth-creating assets are possessions that generally increase in value over time or provide a return • Depreciation is the decrease in an asset’s value over time. Items that wear out or have a falling price depreciate.

  3. Equity • the difference between the market value of the home and the amount of the mortgage on the home • How much your home is worth compared to how much you owe on your home BOTTOM LINE: Your net worth is your wealth

  4. Choose one item from the following list and answer these three questions: 1. A specific description of your goal ($,item,etc.) 2. Time frame for achieving your goal 3. Financial resources required to achieve your goal (savings and income) Buy a new vehicle Rent an apartment Go to college Take a trip Buy a used vehicle Buy a house Go to the prom Buy a new Big Screen TV

  5. BONUS: • Find an article from a newspaper or magazine that deals with the results of Hurricane Sandy. • Explain how this will affect the supply or demand for a good or service. • Your report should be a minimum of 100 words. • Attach a copy of the article to your paper. • DUE DATE: Tuesday, 4/2

  6. What comes to mind when you see the word “interest?”Write down the first 5 things that come to mind.

  7. Simple Interest ChartHow much interest will a saver receive each year on a $100 deposit that earns 5% simple interest?

  8. Compound Interest ChartHow much interest is earned?

  9. Saving and Investing INTEREST—is a fee for the use of money over time. Simple Interest—the interest payment is computed as a percentage of the original deposit amount or principal Compound Interest—interest that is paid on both the principal and also on any interest from past years

  10. Compound vs. Simple Interest • After 4 years, the difference is only $1.55 • After 10 years though, the difference is $12.90 • After 20 years, the difference is $65.33 • If your original investment was $500, after 20 years the difference would be $326.00

  11. Think about compound interest and answer the following question: Would you rather receive $100,000 today or 1 cent with a promise that if you hold all of the money that you are given, the amount will be doubled each day for a month (30 days)?

  12. Questions on Savings True or False? • The more money people save, the less money there is available for investments. • The rule of 72 refers to the amount of time it takes to save for a 72 Corvette. • People should choose to save when the interest rate on savings is 3 percent and the cost of living is rising by 4.5 percent. • Inflation does not influence saving or investment decisions.

  13. For the following question, include ideas of risk and return in your answer: If you were to receive $10,000, how would you invest the money?

  14. Banks • Banks are businesses, but they do not manufacture products or grow crops • Banks make money by selling financial services • Car/truck loans, home mortgage loans, business loans

  15. People come to banks looking for a safe place to keep their money (Savers) • Or they come to banks looking to get money to buy a house, start a business, pay for college (Borrowers)

  16. How do Banks make money? • Banks take the money they have in deposits (savings) and loan it to those who want to buy things (borrowers) • They make a profit with the difference between the interest rates they charge

  17. What factors should a saver consider in choosing a bank? • The interest rate • Fees including: ATM, NSF, withdrawal • Monthly balance if required What factors do banks consider before lending $? • How much debt do you have • What type of credit (credit cards, vehicle loans, mortgages) • Do you have a history of repaying your loans • How promptly you pay your bills (have you ever been late!)

  18. List 7 markets that you participated in over the last month. (EX: Wal-Mart.) Thinking about these markets, write down 3 answers to the following: “We couldn’t have markets unless we had _________ “ Just as there is a market for music (iTunes), jeans (department stores) or food (Wendy’s) there is also a market for stocks.

  19. Stocks • a share of ownership in a company • People buy stock expecting the company to do well, which will increase the price of the stock

  20. You make money two basic ways: • The price increases and you sell it at a higher price • This is called a capital gain • CG is the difference between the purchase and the sale price of a share of stock

  21. 2. Dividends a.) If the company does well, they can issue their stockholders a dividend b.) This is a percentage of the company’s profits

  22. Where do you buy stocks?New York Stock Exchange

  23. NASDAQ--Computer based trades processed by a mainframe computer

  24. What is the Dow Jones? • The Dow Jones Industrial Average (DJIA) is the oldest measuring index for the Stock Market • It takes an average of the 30 most actively traded industrial companies

  25. Bulls and Bears A bull market means that people are optimistic and believe the market will increase. A bear market means that people are pessimistic and believe the market will decrease.

  26. How does the stock market affect your life? • An increase in stock prices causes an increase in wealth, and consequently an increase in consumer spending. • As the stock market goes up and down, it can cause companies to be optimistic about the future. • They may decide to increase production or offer new products

  27. Investment BasicsBasics: Risk/Return The RISKIER the Investment The HIGHER the Return

  28. Types of investments: • Insured Savings Accounts • Savings Bonds • Certificates of Deposit • Treasury Bonds • Corporate Bonds • Mutual Funds • Stocks • Collectibles • Commodities

  29. You have $5,000 to invest, which would you choose and why? • Mattress • Passbook savings account • CD • U.S. Government Savings Bond • Money market mutual fund • Stocks • Stock mutual fund

  30. Why use Credit? Advantages • Use a good today and pay for it later • Acquire assets: car, house, college • Help with an emergency • Take advantage of a unique opportunity to buy • Pay back with cheaper dollars in a time of inflation Disadvantages • Loans have to be repaid with interest • Convenient credit might encourage impulse buying • People may use too much credit compared to their income • Poor credit use can harm credit ratings • A poor credit rating can make credit more expensive in the future

  31. Consumer Credit Information • Credit cards allow people to “buy now, pay later” • Credit cards enable people to obtain instant loans from banks, gasoline companies, department stores, etc.

  32. Most credit cards come with limits as to how much a person can borrow • Most allow for cash advances and most charge a fee for these advances

  33. Interest charges on credit cards can be as high as 26% • The average American has 1-3 credit cards and owes credit-card balances of approximately $8,000 • Most Americans save very little of their disposable income • The credit card debt of low-income families continues to rise

  34. If credit card companies can get you in debt early, they may be able to keep you in debt for life.  • You're either paying interest or making interest, and the paying side is worse in more ways than one. • $1000 invested at a productive rate of 10% would turn into $17,450 over thirty years, but in the same time $1000 debt at 23.99% credit card interest would become $633,285 !

  35. The 4 C’s of Credit 1. Character—refers to the financial history of the borrower..Do you pay your bills on time? Have you had credit before? 2. Capacity—ability to pay back the loan..Do you have a job or another income source?

  36. 3. Collateral—an item of value pledged against the debt; car or house. With credit cards, the collateral could be the money in your savings. If it is a car loan, the car could be the collateral 4. Conditions—how you plan to use the money, What is the purpose of the loan? Vehicle? Education? Business? Home?

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