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Splash Screen. Chapter Introduction Section 1: Why Save? Section 2: Investing: Taking Risks With Your Savings Section 3: Special Savings Plans and Goals Visual Summary. Chapter Menu. Governments and institutions help participants in a market economy accomplish their financial goals.

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Splash Screen

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  1. Splash Screen

  2. Chapter Introduction Section 1:Why Save? Section 2:Investing: Taking Risks With Your Savings Section 3:Special Savings Plans and Goals Visual Summary Chapter Menu

  3. Governments and institutions help participants in a market economy accomplish their financial goals. Chapter Intro 1

  4. In this chapter, read to learn about reasons for saving, as well as various investment possibilities and the risks associated with them. Chapter Intro 2

  5. Chapter Preview-End

  6. Section Preview In this section, you will learn about the benefits of saving and the types of savings accounts available to you. Section 1-Main Idea

  7. Deciding to Save Savings consist of income set aside for future use. Section 1

  8. Deciding to Save (cont.) • 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

  9. 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

  10. 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

  11. Savings Accounts and Time Deposits Savings accounts and time deposits offer a variety of maturities and are insured by agencies of the federal government. Section 1

  12. 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 • Options for saving: • A savings account pays interest, has no maturity date, and allows funds to be withdrawn at any time without penalty.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

  13. 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

  14. 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

  15. Section 1-End

  16. Section Preview In this section, you will learn about different types of investments and the risks that they carry. Section 2-Main Idea

  17. Stocks and Bonds Stockholders are owners of a corporation, and bondholders are creditors of a corporation. Section 2

  18. 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

  19. 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

  20. 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

  21. 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

  22. 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

  23. Stocks and Bonds(cont.) • Savings bonds are issued by the federal government as a way of borrowing money. • These are safe. • Interest earned is not taxed until the bond is turned in for cash. Section 2

  24. Stocks and Bonds(cont.) • The Treasury Department of the US Government sells several types of larger investments. They include: • Treasury bills (T-bills) • Treasury notes (T-notes) • Treasury bonds (T-bonds) Section 2

  25. Stock and Bond Markets Ownership of stocks and bonds can be transferred on centralized exchanges or in decentralized markets. Section 2

  26. 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

  27. 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

  28. 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

  29. Stock and Bond Markets (cont.) • Many people invest in the stock market by placing savings in amutual fund. • The long-run return from index funds is higher than can be expected from almost any other investment. • A managed mutual fund is one in which the managers adjust the mix of stocks and move in and out of the market to try to generate the highest total return. Section 2

  30. Stock and Bond Markets (cont.) • Money market fundis one type of mutual fund. • The investor can write checks (above some minimum amount) against their account. Section 2

  31. 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

  32. Government Regulations Securities markets are heavily regulated to protect investors. Section 2

  33. 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

  34. 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

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

  36. Section 2-End

  37. Section Preview In this section, you will learn about special types of investment plans and how to decide what portion of your income to save and invest. Section 3-Main Idea

  38. Investing for Retirement Retirement is a major reason for saving and investing. Section 3

  39. 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 plan like a 401(k) that is not taxed until used. • AKeogh planis a retirement plan for self-employed individuals. Section 3

  40. Investing for Retirement (cont.) • Anindividual retirement account (IRA) is a private retirement plan for individuals. • Contributions are deductible from taxable income. • Taxed when taken out. Section 3

  41. 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

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

  43. A B C D Which type of plan would you feel most comfortable with? A.401(k) B.Keogh C.IRA D.Roth IRA Section 3

  44. How Much to Save and Invest? How much to save and invest is determined by each individual’s income, risk tolerance, and values. Section 3

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

  46. 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. View:Risk and Return Section 3

  47. How Much to Save and Invest? (cont.) • Your values may also determine where you invest your savings. • You might want to invest locally, choose to invest in environmentally responsible companies or choose to invest in companies that have aggressive equal opportunity programs. Section 3

  48. Section 5-End

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

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

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