1. HOW TO FINANCE YOUR LIFE Financial Literacy

2. Savings Accounts Saving – The process of setting money aside for a future date instead of spending it today. Not intended to be used for every day purchases Intended to be a safe place to keep money to be used at a later date for a major purchase. Gives a little EXTRA return on money deposited

3. Savings Accounts The goal of saving is to provide funds for:  Emergencies  Short-term goals  Investments Save first, then invest with a sufficient amount of $.

4. Savings Accounts Investing – The process of setting money aside to increase wealth over time and accumulate funds for long-term financial goals such as retirement. Have you ever tried to save up money for something?

5. Savings Accounts Deposit – Money you put into your savings account Withdrawal – Money taken out of your saving account

6. Savings Accounts Interest – Money paid back to you by the bank for being able to use your money Interest is that something EXTRA, that is a larger benefit than a checking account. Interest is a result of the banks using your money while it is in your account

7. Savings Accounts The bank pays interest on the amount of money in your savings account Interest Rate – percentage you are paid for your money. Rates may vary from month to month Interest can be paid:  Annually– once a year12%  Semi-annually – twice a year6%  Monthly – once a month 1%  Quarterly – four times a year3%

8. Savings Accounts Account Balance – Total amount of money that is in your account Account Balance =  Amount deposited + Interest payment Interest Payment =  Interest Rate x Beginning Account Balance Beginning Account Balance =  Ending account balance from the previous month

9. Savings Accounts If you had $1000 in a savings account. The annual interest rate is 7% Compounded Monthly What is the monthly Interest Payment? What is the Account Balance?

10. Bell Ringer 1. If you had $1000 in a savings account with an annual interest rate of 12% compounded monthly. What is the monthly Interest Payment? What is the Account Balance? 2. If you had $1800 in a savings account with an annual interest rate of 7% compounded quarterly. What is the Interest Payment? What is the Account Balance? 3. What is the monthly interest rate if the annual interest rate is 24%

11. Savings Accounts Compounding of Interest – When money is earned on the total amount in the account.  Including the initial deposit and interest already credited to the account The more often the interest is compounded, the more money is gained through interest payments

12. Savings Accounts You have $100 in your savings account at the beginning of the month. The bank pays you 6% interest on this account each year; interest is paid each month. Assuming you make no deposits or withdrawals over the next month, how much interest will you earn during the month?  Monthly rate = 6/12 = 0.5% =.005  Beginning Balance = $100  Interest Payment = $100 x.005 = $0.50  Account Balance = $100 + $0.50 = $100.50

13. Savings Account How much money will be gained after Month 2, 3… Month 2  Beginning Balance = $100.50  Monthly rate = 6/12 = 0.5% =.005  Interest Pmt = $100.50 x.005 = $0.51  Account Balance = $100.50 + $0.51 = $101.01 Month 3  Beginning Balance = $101.01  Interest Pmt = $101.01 x.005 = $0.51  Account Balance = $101.01 + $0.51 = $101.52

14. Savings Account You have the opportunity to put your money in one of two savings accounts. $100 dollars in each account. Account 1 compounds interest monthly at a rate of 4%. Account 2 compounds annually at a rate of 4%. Account 1  Beginning Balance = $100  Interest Rate = Monthly = 4/12 =.33% =.0033  Interest Pmt = $100 x.0033 = $0.33  Account Balance = $100.33 Account 2  Beginning Balance = $100  Interest Rate = annual = 4% =.04  Interest Pmt = $100 x.04 = $4  Account Balance = $104

15. Savings Account Account 1 will compound throughout the year. We will start Microsoft Excel in February.

16. Savings Accounts Future Value – how much a set amount of money will be worth in the future  Think back to interest payments  $1000 today is worth $1040 in one year with 4% interest compounded annually.  FV = PV x interest rate  FV = $1000 x.04  FV = $1040

17. Savings Accounts Present Value – The value of money right now, today  $1040 in one year is still worth $1000 today at a rate of 4% annually.  PV = FV / rate  PV = $1040 /.04  PV = $1000

18. Checking Accounts Learning to maintain a checking account is a necessary skill to master before living independently. Checking Accounts are meant to be a place to keep money for short times before it is spent. Typically banks offer little to NO interest on checking accounts.

19. Checking Accounts Checks – Written order specifying the amount of money to be paid and the name of the person or company who should receive the funds. Should be written in pen so no changes can be made

20. Checking Accounts Checks may be written to pay for:  Utilities  Rent  Mortgage Payments  Food  Clothing  Other expenses Each box of checks will be deducted from the checking account total.

21. Checking Accounts Checking Account Balance may be recorded on the check register.  May be changed in two ways;  Increase – Deposit/Credit  Decrease – Debit  Deposit/Credit is money put into your account  Debit is a withdrawal from your account

22. Checking Accounts Check Register  For credits/deposits  Record the date and amount of deposits  For checks/debits  Record the date, check number, payee, and amount of each check written

23. Checking Account You should balance your checkbook frequently.  Balance – compare the amount of money in an account, to the net of credits and debits against the account at that time. Account Balance =  Start of month account balance + Total amt of deposits made during month – Total amt of checks/debits during month.

24. Checking Accounts At the end of the month, the bank will send you a banking statement, which includes the:  statement balance – how much money you have in your checking account as of the statement date  All debits and credits made before statement date

25. Checking Account If your beginning balance was $1000 dollars. You wrote 3 checks for $100 each. You wrote 4 checks for $50 each. You deposited a check for $500 into your account. What is your ending balance?

26. Checking Accounts Beginning Balance = $1000 $1000 - $100(3) - $50(4) +$500 $1000 - $300 - $200 +500 = $1000 Ending Balance = $1000

27. Checking Accounts Instead of writing a check, people may prefer to use a debit card :  A card that allows the user to withdraw money from a bank account to get cash or make a purchase When using a debit card, you will be asked to enter a Personal Identification Number (PIN)  Four digit code required to use the debit card to verify identity

28. Checking Accounts Electronic Funds Transfer (EFT)  The movement of funds using the computer systems, telephones, or electronic terminals Examples  Direct Deposit - Automatic transfer of your paycheck from your employers account to your checking account.  Automatic payment of an ongoing monthly bill such as power or cable bill

29. Checking Accounts Online Banking  Allows account holders to access their account information, view transaction history, and perform banking transactions via the internet  62 % of people bank online. Advantages  Available 24 hrs a day, 7 days a week regardless of bank hours.  No checks have to be written  Transactions are automatic  Service is free to account holders

30. Checking Accounts What will happen when you write a check and there is not enough money in your account to cover it?  Online banking could save you from forgetting a transaction and overdrawing. What will be the result?

31. Checking Accounts Overdrawn  Having a negative balance in your account resulting in a BOUNCED CHECK  Check written without available funds to cover the amount Overdraft Penalty  A fee to cover the cost of processing your bounced check  Commonly $20-$25 at most banks

32. Checking Accounts Overdraft Protection  Arrangement with the bank to cover checks so they will not bounce Examples:  Automatically transferring money from another account at the same bank to cover the short account  Setting a specific limit to overdraft to  Lending you the amount of money you have overdrafted In all of these cases, the bank may still charge a fee for this service.

33. Checking Accounts Read all the fine print when selecting a checking account Look out for accounts that have  Hidden fees  a high minimum account balance  The amount of money you must keep in the account to avoid service charges or qualify for interest on an interest bearing account An account that earns interest Usually a high minimum account balance and a low interest rate

34. Checking Accounts Look for accounts that offer:  Free checks  ATM fee reimbursement  Online Bill Pay  Email Statements  Overdraft Protection  Special Account starters for Students

35. Monday Assignment Check register Figure interest payments with annual payments compounded monthly