Presentation on theme: "Making Money Work for You"— Presentation transcript:
1Making Money Work for You In Units 1 & 2 students have learned some powerful tools for reaching financial goals, including a financial plan to help map a route of spending to achieve goals. You’ve been talking about “Pay Your self first” in Unit 2 and that is carried forward into Unit 3.In this unit more powerful tools- saving and investing-putting your money to work are introduced. The focus of unit 3 is investing. Students might not know that they can in vest their money and earn income from it as well.The difference between saving and investing is a key topic.Please open your Teaching Guide to Unit 3Unit 3 - Investing:Making Money Work for You
2Agenda Overview of Unit 3- Investing Activity from the curriculum Optional activities, supplementary materialsWebsite suggestionsQuestions
3Unit 3 Target Competency Propose a personal saving and investing plan
4Learning Objectives Differentiate between saving and investing Assess the time value of moneyCompare investment optionsCompare the relationship between risks and returns related to saving and investmentsRecommend ways to integrate savings and investing strategies into financial planning
5Savings and Investments UniqueSavingsFeaturesUniqueInvestmentFeaturesCommonFeaturesThis is a PowerPoint slide from the NEFE website to guide students in discussion comparing saving and investing.What's the difference between saving and investing?Unique features:Savings is setting aside money for short-term goalssaving accountsCDsMoney Market funds- not insuredReadily available-liquidMany FDIC insuredInvesting is setting aside money for long term goalslong term parking/goalsstocks, real estate, mutual fundsMay not be readily available / liquidPotential for higher rate of returnHigher riskCommon features: PYF, a basic principle that is reinforced is that the amount saved is not nearly as important as simply developing the saving habit by “paying yourself first”, a them introduced in unit 2.While savings generally involves less risk and one of the safest investment around, it is subject to the risk that that earnings won’t keep pace with inflation, thereby reducing the investors’ future purchasing power.Help us reach financial goalsPYF- principle appliesBasic principles of in vesting- time value of money more money, more time, more interest the greater your investment will growWhat are some features common to both investments and savings?3-A
6In Unit 3 Time Value of Money Key Investments Principles Saving and Investment Choices3 addition key concepts in Unit 3Time Value of MoneyKey Investments PrinciplesSaving and investment Choices
7Time Value of Money page 30 Student Manual Compounding--Albert Einstein“Compounding is the 8th wonder of the world”Exercise 3B: The Power of CompoundingCompounding is making money work for you, it grows in value or compounds.Earning interest on interestAlbert Einstein “compounding the 8th wonder of the world”Assignment in the Student workbook on page 30 figuring compound in interest- Hand held calculators nice.Some inexpensive “Dollar Store” Have figure compound interest
8Investing Weekly at 5% Interest Amount SavedPer WeekValue After10 Years$ 7.00$ 4,720$ 14.00$ 9,440$ 21.00$ 14,160Time value of Money from the NEFE PowerPoint Slides –can run as an overhead.Is a dollar always worth a dollar? May seem like a silly question but as we know is not always worth a dollar. The value of a dollar changes dramatically depending on when you get it and whet you do with it. Time is a critical variable in the exact value of a dollar. Time value of money refers to the relationship among time, money and rate of interest.Here’s an example- if you save $7 a week at 5% in 10 years you’d have $4720.If you save$14 you’d have $9,440$21--$14,160$28--$$18,880$35--$23,600$ 28.00$ 18,880$ 35.00$ 23,6003-B1
9Rule of 72 72 = 72 = Years Needed to Double Investment Interest Rate Required=Years Needed toDouble InvestmentAnyone heard of the rule of 72?Time Value of MoneyRule of 72- How long it takes money to double in valueDivide 72 by the interest rate to determine the number of years it will take your money to doubleHow long will it take money to double at 6%- 12 yearsOn the other hand, you have a set period of time in mind. You can figure our what interest rate you will need to double your money.If you need money to double in 8 years what interest do you need? 9%Page 32- Student Manual3-H
10Key Investment Principle Time is moneyMore timeMore moneyMore interestMore MoneyTime is money. 3 factors that determine how much money will be available to meet your financial goalsThe more time you have to save, the more money you will have at the end of the period.The higher the rate on interest you can earn, the more money you will have at the end of the time period.
11Page 67 of the Teacher Manual Page 29 of Student ManualPage 67 of the Teacher ManualTouched on time and then expanded and on this key point. The more time you have to reach your savings goal, the more money you will have at the end of that time. This example is very graphic and illustrates the impact of time.Assume you start investing $2000 every year when you are 18. You put it into an account that grows by 7% each year, and continue to invest the same amount for 10 years. Then you stop and just let the money sit for the next 38 years, where it continues to grow at 7% a year, until you’re 65.Now your sister decides to invest at age 31 and puts $2000 a year into an account that also earns 7% a year— and does it for the next 35 years, until she turns 65. Who will have the most money?Even though you sister invested more than twice as much as you did, you end up with $84,944 more. Why? You took advantage of time , by started to save earlier.Who has the most?
12Key Investment Principle Diversification Don’t have all your eggs in one basketPeople feel differently about how much risk they should take on. Some of us are conservative and want to keep money in a safe place. Others are more aggressive and are willing to invest in some place riskier, like the stock market.Regardless of your risk tolerance every wise investor knows that diversification is a critical element of any investment plan.Diversification is spreading your invested dollars among several different investments. It is simply spreading your money around. Not having all your eggs in one basket.
13Financial Planning Pyramid PennyStockCommo- ditiesCollectiblesSpeculativeStock / Bonds /Mutual FundsRealEstateBlue-ChipCommonGrowthMutualFundsHigh-GradeConvertibleBondsPreferredBalancedCorporate Bondsor Mutual FundsMunicipal BondsMoney MarketAccountsCertificatesof DepositU.S. SavingsInsured Savings /Checking AccountsTreasuryIssuesFinancial Planning PyramidHighest RiskHighest EarningsLower RiskLower EarningsAnother one of the PowerPoint slide to use in teachingFigure 3-2 and page 33 of the student workbook.Another key investment principle is the relationship of risk and rewardWhen many people hear the word stock they immediately think of the risks that go with it.But with the higher risk comes the potential to earn higher rewards on your investment.The risk-to- return relationship is another key investment principleToday when people hear the word stock market they think of 20013-J
14Activity Exercise 3D: Risk vs. Reward Page 78 Instructor Manual Page 34 Student ManualPage 79 Answer key Instructor ManualLet’s take a minutes and do Exercise 3D: Find a partner.In the exercise we have 2 people that have different investment strategies. Read about their situation and then follow directions to compare their investment portfolios.Carrie Montgomery, age 22 and single, has an emergency fund in an insured savings account. Her other investments include a balanced mutual fund, a growth mutual fund, and collectibles in the form of baseball cards. Sixty percent of the money in these investments is in a growth fund, and 20 percent of the money is in each of the other two investments.Darren Miller is 22 and also single. He has an emergency fund in U.S. savings bonds. The remainder of his investment program includes equal amounts of money invested in a money mutual fund, high-grade preferred stock, and blue-chip common stock.Directions:Use the information provided and refer to the Financial Planning Pyramid to compare and contrast Carrie’s and Darren’s investments.The answer key is on page 79 of the instructor manual
15An Array of Investment Options Income InvestmentsLendersThe High School Financial Planning Program approaches income investments as lenders and growth as ownership-owning a piece of the company.Income investments- referred to as lenders include savings accounts, us saving bonds,CD’s, Money Market accounts Corporate and government bonds.With the low rates of return, it is hard to stay ahead of inflation with these saving vehicles.Savings at 4% vs.Investments at 7.5%
16An Array of Investment Options Growth InvestmentsOwnershipStocksReal EstateCollectiblesGrowth investments include stocks or ownership. These investment represent ownership in a company.When a company first issues stock, it does so to raise money for itself. The company then puts the money to work to produce products and services. The investor who buys stock actually own a part of the company.Stock sell for a price and increases over time and ideally the owner will sell high and buy low. This difference between the purchase price and the selling price is called capital gainReal Estate-pieces of property, land or a building, apartments, undeveloped land, commercial buildings, farmland.Collectibles- art, coins, cars, stamps
17An Array of Investment Options Mutual FundsIncomeGrowthIf you want professional help with your investing, may want to buy mutual funds.Mutual funds pools money form investors and uses the money to buy a particular type investment such as stocks. A fund manger, who is an investment expert, makes all the buy and sell decisions for the investments in the fund. Because mutual funds own a variety of investments, investors enjoy the benefits of diversification, which we discussed earlier. For these reason mutual funds can be a great choice.Mutual funds are created for several different purposes or objectives. Some are to produce income and invest in bonds, cds and other income producing items.Some are designed for growth and invest in stocks and real estate.Mutual funds invest in about every segment of the business world. Technology, food, energy, medical,, precious metals and so on
18Dollar-Cost Averaging One-Time InvestmentDollar-Cost AveragingAmountInvestedSharePrice ($)SharesPurchasedAmountInvestedSharePrice ($)SharesPurchased$1,000.00$20.0050.00$100.00$20.005.00$100.00$19.505.13$100.00$19.255.19$100.00$19.755.06$100.00$19.205.21$100.00$18.905.29100/19.78 = 5.06 shares, not 5.08 (second to last row on the right)Total shares purchased then becomes 51.66, not 51.68We talked about PYF and learned that a little money can build quickly thanks to the power of compounding and choosing the right investments.Another way to take advantage of time even if you don’t have a lot of money is Dollar Cost Averaging. This is the practice of investing a fixed amount in the same investment at regular intervals, regardless of what the market is doing. It’s another key investment principle to know because it eliminates having to worry about investing at the “right” or “wrong time”New in this version: this slide shows the difference between a one time investment of $1000, purchasing 50 shares at $20 each vs. dollar cost averaging- investing $100 a month for 10 months and buying at different share prices. This example shows that the average share price was lower and you purchased more shares$100.00$18.005.56$100.00$18.605.38$100.00$19.785.06$100.00$20.904.78$1,000.00$20.0050.00$1,000.00$19.39*51.663-L* Average Share Price1234
19Optional Activities Instructor Manual Unit 3SM3-1-Dollars and SenseSM3-2-Are You a Risk-Taker?Students talk with an adult about investment experiencesIn the instructors manual and on the website, a variety of optional activities are outlined to supplement learning. No all teachers will have time to have you complete in class.
20Taking It Home Students take home a newsletter ( on CD) to read Students will ask their parents what they've learned about investingThere are suggestions for “Taking It Home” and involving parents with the process.
21http://hsfpp.nefe.org Student site http://hsfpp.nefe.org/home/ Reminder- no www in the website addressStreet Sweeper Game
22Websites U.S Securities Exchange Commission The new website is in the process of being developed and websites are not up yet. I’ve added some sites to the PowerPoint that were included on the old website.
23Teacher and student information sections Interactive quizCalculators
24Another popular financial teaching tool is the Stock Market Game.
25www.tcalc.com www.tcalc.com/millionaire-calculator.html Time Value website ties to the millionaire theme so popular now. There is a millionaire calculator but it takes into account taxes. You might want to use the monthly savings calculator.
267% $183.55 a month If we have a starting balance of 0 Invest at 7% for 50 year and our goal is $1,000,000We will have to save $ a month$ a month
2710% $57.72 a month or $14.43 weekly or $2.06 a day But if you have a 10% return, 50 years and a goal of $1,000,000 you only need to save $57.72.The stock market has averaged 10.2% over the last 20 years
28Assessment 3-1: My Investing Plan Create a personal savings and investing planStudent's are asked in the final activity of unit 3 to synthesize what they learned in Unit 3 and to create a personal saving and investing plan.The required criteria is on page 77 of the instructors manual.Use the decision-making process to select at least two investing products for your investment planOutline your investment strategy- amount of invest, how often and when to investPredict the potential value of your investments three years from nowClassify investments as income or growth investmentsDescribe your potential risks and reward of the chosen investmentsBalance the diversity of investmentsExplain how your investing plan aligns with your intermediate and long term financial goals