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Section 1

Deciding to Save. Economists define savings as the setting aside of income for a period of time so that it can be used later. A person receives interest on a savings plan for as long as the funds are in the account. Section 1. Deciding to Save (cont.).

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Section 1

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  1. Deciding to Save • Economists define savings as the setting aside of income for a period of time so that it can be used later. • A person receives interest on a savings plan for as long as the funds are in the account. Section 1

  2. Deciding to Save (cont.) • Saving benefits the economy as a whole: • It provides funds for others to invest or spend. • It allows businesses to expand, which provides increased income for consumers and raises the standard of living. Section 1

  3. Deciding to Save (cont.) • Some savings plans allow immediate access to your funds but pay a low rate of interest. • Others pay higher interest and allow immediate use of your funds, but require a large minimum balance. Section 1

  4. Savings Accounts and Time Deposits (cont.) • Options for saving: • A savings account pays interest, has no maturity date, and allows funds to be withdrawn at any time without penalty. • Money market deposit account(MMDA) pays relatively high rates of interest, requires a minimum balance of $1,000 to $2,500, and allows immediate access to funds. View:Savings Basics Section 1

  5. Savings Accounts and Time Deposits (cont.) • Time deposits require savers to leave their funds on deposit for certain periods of time, or maturity. • Time deposits are often called certificates of deposit (CDs), or savings certificates. View:Savings Choices Section 1

  6. Savings Accounts and Time Deposits (cont.) • After the stock market crash of 1929, the Federal Deposit Insurance Corporation (FDIC) was created to protect peoples’ funds. • The National Credit Union Association (NCUA) is another federal agency that insures most banks and savings institutions. Section 1

  7. A B Which type of account will pay you more in the long run? A.A regular savings account B.A CD Section 1

  8. Stocks and Bonds(cont.) • Corporations are formed or can expand business by selling shares of stock. • The person who buys this stock, becomes a stockholder, and is entitled to part of the future profits and assets of the corporation. Section 2

  9. Stocks and Bonds(cont.) • Stockholders benefit from stock in two ways: • Earn dividends or a return based on theamount of stock invested. • Can sell stock for more than they paid for it. Section 2

  10. Stocks and Bonds(cont.) • Profits made on the sale of stock is referred to as acapital gain. • A decrease in value on the sale of the stock is referred to as acapital loss. Section 2

  11. Stocks and Bonds(cont.) • Similar to stock, a bond is a certificate issued by a company or the government in exchange for borrowed funds. • Bonds promise to pay a stated rate of interest over a stated period of time, in addition to repaying the borrowed amount in full at the maturity date. • A bond does not make a bondholder part owner of the company. Section 2

  12. Stocks and Bonds(cont.) • Tax-exempt bonds are sold by local and state governments: interest paid on the bond is not taxed by the federal government. • Interest that you earn on bonds your own city or state issues is also exempt from city and state income taxes. View:Differences Between Stocks and Bonds Section 2

  13. Stocks and Bonds(cont.) • Savings bonds are issued by the federal government as a way of borrowing money. Are purchased at half the face value and increase every 6 months until full face value is reached • These are safe. • Interest earned is not taxed until the bond is turned in for cash. Section 2

  14. Stocks and Bonds(cont.) • The Treasury Department of the US Government sells several types of larger investments. They include: • Treasury bills (T-bills) certificates $1,000 and maturing in a few days up to 26 weeks • Treasury notes (T-notes) certificates $1,000 and maturing in 2 to 10 years • Treasury bonds (T-bonds) certificates $1,000 and maturing in 30 years Section 2

  15. A B Is the following description of a stock or a bond?These represent ownership, do not have a fixed dividend rate, and do not have a maturity date. A.Stock B.Bond Section 2

  16. Stock and Bond Markets (cont.) • Stocks are bought and sold through brokers or through Internet brokerage firms. • Brokerage houses communicate with the busy floors of the stock exchanges. • The largest stock exchange, or stock market, is the New York Stock Exchange (NYSE). Others include the Chicago Exchange, London Exchange and Tokyo Exchange. Section 2

  17. Stock and Bond Markets (cont.) • Stocks can also be sold on the over-the-counter market, an electronic marketplace. • The largest volume of these smaller company stocks are quoted on the National Association of Securities Dealers Automated Quotations (NASDAQ) national market system. Section 2

  18. Stock and Bond Markets (cont.) • Nearly every weekday, news is given about the activity to thestock market indexes. • Dow Jones Industrial Average or “The Dow” is the most well known index. • The New York Exchange Bond Market and the American Exchange Bond Market are the two largest bond exchanges. Section 2

  19. Stock and Bond Markets (cont.) • Many people invest in the stock market by placing savings in amutual fund. • Mutual fund is investment company that pools the funds of many individuals to buy stocks, bonds, or other investments • The long-run return from index funds is higher than can be expected from almost any other investment. Section 2

  20. Stock and Bond Markets (cont.) • Money market fundis one type of mutual fund that uses investors’ funds to make short-term loans to businesses and banks. • The investor can write checks (above some minimum amount) against their account. Section 2

  21. Stock and Bond Markets (cont.) • Banks and savings and loan associations offer money market deposit accounts (MMDA). • The advantage to MMDAs is that the federal government insures them against loss. Section 2

  22. Government Regulations (cont.) • The Securities and Exchange Commission (SEC) is responsible for administering all federal securities laws. • It also investigates any dealings among corporations. Section 2

  23. Government Regulations (cont.) • Congress passed the Securities and Exchange Act after the stock market crash of 1929. • The SEC requires any institution issuing stocks or bonds: • To file a registration statement with the federal government • Give a prospectus (brief description) to each potential buyer of stocks or bonds Section 2

  24. Government Regulations (cont.) • States also have securities laws which protect small investors. Section 2

  25. Investing for Retirement (cont.) • It is important for a person to save for and invest in his or her own retirement. • Retirement savings plans can include: • Apension planis a company supported retirement plan like a 401(k) that is not taxed until used. • AKeogh planis a retirement plan for self-employed individuals. • Save a maximum of 15% of their income (tax deductible) Section 3

  26. Investing for Retirement (cont.) • Anindividual retirement account (IRA) is a private retirement plan for individuals or married couples. • Contributions tax deductible • Taxed when taken out. Section 3

  27. Investing for Retirement (cont.) • A Roth IRAis a private plan for individuals. • Taxes income before it is saved. • Does not tax interest on that income when funds are used upon retirement. View:Retirement Plan Options Section 3

  28. Investing for Retirement (cont.) • Buying real estate, such as land and buildings, is another form of long term investing. Section 3

  29. How Much to Save and Invest? (cont.) • The higher the promised return on an investment, the greater the risk. View:Savings Considerations Section 3

  30. How Much to Save and Invest? (cont.) • When you have very little income, you should probably put your savings lower risk accounts. • It is important to practice diversificationto lower your overall risk. • Diversification – spreading investments out to lower risk View:Risk and Return Section 3

  31. Saving some of your income allows you to earn interest and put away funds for future purchases. VS 1

  32. After you have accumulated savings funds, you may want to invest some of it to try to earn greater returns. VS 2

  33. It is important to diversify your saving and investing, especially when looking toward retirement. In general, the greater the risk involved in any venture, the greater the potential return. VS 3

  34. Figure 1

  35. Figure 2

  36. Figure 3

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  38. Figure 5

  39. Figure 6

  40. DFS Trans 1

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  42. DFS Trans 3

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