Unit 5 and 6 Financial Markets, Consumer/Personal Finance, Economic Indicators and Measurements

Savings and Investment Savings-income not used for consumption. 1st step in creating a savings: Set financial goals Financial Institutions- Primary function is provide access to capital for people and businesses. Banks, stock markets, insurance markets, and bond markets.

Insured vs. Uninsured bank accounts Insured bank accounts- traditional types of bank accounts - checking, savings, and certificates of deposit (CDs) - that are insured by the FDIC. Uninsured bank accounts- Investments in mutual funds, stocks, or bonds

Retirement Accounts Individual retirement account- most secure retirement plan. Mutual fund- receives money from individual investors and purchases a range of financial assets. Mutual funds are not insured.

Retirement Accounts Public bond- A bond is a debt security, similar to an “IOU.” Credit risks and Interest rate risk. 401k- offered as a benefit of employment to which eligible employees may make salary reduction contributions toward retirement. rises and falls with the stock market.

Investing in a Market Economy One effect of an increase in the amount of savings in an economy is an increase in financial resources for business investment.

Banks – Different Loans Secured loans - Secured loans are those loans that are protected by an asset or collateral of some sort. Unsecured loans - include things like credit card purchases or education loans. More risky for lenders.

*Risk & Return Risk-the possibility for loss on an investment Return- is the profit or loss made on an investment Diversification- distributing investments among different financial assets to maximize return and limit risk.

Risks of Investments Risk “Free”- Savings deposits, CDs, and bonds back by the U.S. government. Higher degree of risk investments include: stocks and corporate bonds. Risk from investing in stock market is the loss of purchasing power. Bonds are paid off before stockholders Higher risk=Higher return

Credit Buying goods or services now and paying for them in the future. Open-ended credit- allows a borrower to repeatedly use it within a certain monetary amount (Like a credit card.) Closed-ended credit is like mortgages and car loans. If you don’t repay, they take it back.

2008 Financial Crisis https://www.youtube.com/watch?v=GPOv72Awo68&list=PL8dPuuaLjXtPNZwz5_o_5uirJ8gQXnhEO&index=12

Credit Card Advice The most effective way to manage credit card debt is by paying off the balance each month. An easy way to improve your credit score is to pay off all debts.

Mortgages & Home Ownership Mortgage a loan used to purchase a residence. In order to qualify for a mortgage a loan officer will consider an applicant’s net worth. Assets – Liabilities = Net Worth Benefits of owning a home: builds equity, costs are predictable and more stable than renting.

Annual Cost of Owning a Home Paying property taxes Keeping up with repairs and maintenance Making payments on principal, interest, and insurance.

Insurance Benefit of having insurance is for when an unexpected need for repair or services arises.

Bankruptcy: Pros and Cons Cons- Can ruin your credit for up to 10 years. You lose all credit cards, can’t get a mortgage on a house, and you still have to pay back some debts like student loans and alimony. Pros-Filing bankruptcy can help a person by discarding debt.

**Business Cycle A business cycle is a series of growing and shrinking periods of economic activity, measured by increases or decreases in GDP.

Stages of a Business Cycle Expansion: economic growth & low unemployment Peak: GDP reaches its peak, and starts to decline Contraction or Recession: High levels of unemployment/inflation Trough: GDP and employment stop declining.

Evidence of Economic Growth Increased free trade agreements Increased productivity If businesses can decrease the amount of labor needed to increase inventories Example: the introduction of new manufacturing technologies

Fiscal Policies Fiscal Policy- uses taxes and government spending to affect the economy. Expansionary- plan to increase aggregate demand and stimulate economy Contractionary- plan to reduce aggregate demand and slow economy (battle inflation: decrease the amount of money in circulation) Discretionary- actions selected by the government to stabilize the economy.

OSHA The Occupational Safety and Health Administration (OSHA) is an example of a government agency that regulates businesses.