Savings and Investment

When looking at this picture, what thoughts come to mind?

Consumption What does this word mean to you?

Consumption What role does consumption play in our society?

Consumption Is it something that can take hold of some people?

Hedonic Treadmill

Saving and Investing This is your way out! How do your saving and investment choices affect your future? What are the risks and benefits of saving and investing?

Key Vocabulary Terms, Ch.11 Sec 1 Investment Financial Intermediaries Diversification Liquidity Return and Risk

Should you Invest? Why do you come to school today? Besides having a burning desire to learn economics, you expect to get some benefit (or return) for your investment of time and energy. Return is the money an investor receives above and beyond the sum of money initially invested. You came to school because you know that graduating significantly increased the chances of getting a well-paying job . People invest their money for similar reasons Example: If you invest $10 a week at 15% rate of return, you would have $100,000 by the time you are 40

Why are some investments more profitable? Return and Liquidity Savings accounts have greater liquidity, but in general have a lower rate of return. Certificates of deposit usually have a greater return but liquidity is reduced. Return and Risk Investing in a friend’s Internet company could double your money, but there is the risk of the company failing. There is a clear relationship between risk and return…

Risks vs. Rate of Return Nearly all investments share one characteristic… …the less risk, the less return. …the greater the risk, the greater the return.

Types of Investments

Most bonds are low risk, which means… …low returns (4-5% Returns) Bonds are basically loans, or IOUs, that represent debt that the government or a corporation must repay to an investor. Ex: War Bonds During World War II The person who writes the IOU is the issuer The person who gets the IOU is the holder Most bonds are low risk, which means… …low returns (4-5% Returns)

How do bonds work? Bonds have three basic components: 1. The coupon rate is the interest rate that the bond issuer will pay to the bondholder. 2. A bond’s maturity is the time at which payment to the bondholder is due. 3. A bond’s par value is the amount that an investor pays to purchase the bond and that will be repaid to the investor at maturity.

Types of Bonds High or Low Risk? High or Low Returns? There are several different types of bonds (pg 280) High or Low Risk? High or Low Returns?

Types of Bonds High or Low Risk? High or Low Returns? There are several different types of bonds (pg 280) High or Low Risk? High or Low Returns?

Types of Bonds High or Low Risk? High or Low Returns? There are several different types of bonds (pg 280) High or Low Risk? High or Low Returns?

Types of Bonds High or Low Risk? High or Low Returns? There are several different types of bonds (pg 280) High or Low Risk? High or Low Returns?

Types of Bonds There are several different types of bonds (pg 280) High or Low Risk? High or Low Returns?

Savings Account Long Term Investments Value of regular savings accounts is dwindling, but great liquidity. Average interest rates for opening a new savings account is less than 1% Check out this savings calculator. Savings Account Calculator

Certificates of Deposit CD account – risk free and insured. Liquidity is a little more limited. Often have set time frames, after the time period, you may withdraw all of your funds, beforehand, you have limited access. CD interest rates tend to match inflation rates. Average CD interest rate is about 2-4% CD Interest Rate Calculator

Mutual Funds Investment scheme that pools together in one portfolio a number of investments from multiple investments. Variety of stocks, bonds, and other finances. Diversification is a safe bet when investing. Mutual funds are safe and you can expect decent growth. Liquid investment. Mutual Fund Calculator

Pension A fixed sum paid regularly to a person following retirement from service. Set up by employers or insurance companies. Paid over your entire career and saved for you by your employer. Retirement plan.

Individual Retirement Account I.R.A. Fantastic way to plan for your retirement. Illiquid, must wait until you retire to access your funds. If you begin investing in a Roth IRA when you’re 18, you can retire as a millionaire. IRA Calculator

Life Plans How important is a savings/investment plan for your future? What are your plans after the information you’ve seen? How does college play a role in these decisions? What are your goals? When should you start saving?

Homework! Talk to your parents about your financial future! Get informed! Ask what they have planned. Ask what they recommend that you do. When did they start?