Money & Banking

What is money…  Medium of Exchange  It is accepted in buying and selling goods and services.  Easier than barter  Store of value  It can be set aside for the future and still have value  Measure of Value  How much is something worth? Allows for easy comparison. A$500 laptop computer is worth more than a $100 printer

Characteristics of Money  Durability – won’t wear out or break  Portability – easy to carry or move  Divisibility – can divide in to practical sizes  Uniform- each unit is exactly the same (is a new pencil the same as a used pencil?)  Limited Supply/Hard to Counterfeit- the law of supply and demand – if anyone can get it, it has no value.  Acceptability- sellers agree to accept it in exchange for their product.

How does money get its value?  Commodity – has value in and of itself  Wheat – I can use it to make bread or trade it to someone else who wants to make bread.  Specie – Coins made of silver and gold or IOUs that can be traded for silver and gold  Fiat – legal tender – government orders or decrees that the money has value

Your Turn  Evaluate a commodity as a form of money…

Where to keep the money safe??? Bank vs Credit Union A Bank is a for profit company that makes money from charging fees and lending money to its customers. Banks pay taxes. Advantages - more locations, more financial products. A Credit Union is a non-profit cooperative owned and controlled by its members. It serves groups that have something in common, profession, neighborhood… Advantages – lower fees and better interest rates.

How do banks make $$$$  Fees charged for service  Loans to its customers  House  Mortgage  Home equity  Car/boat  Credit Cards

So how about those fees?Choosing an Account  FDIC insured  Minimum balance  Monthly fees  Free ATMS (the account provider's ATMS)  Check Card  Free online banking  Ability to set-up direct deposit  24/7 customer service

Pick your account….  Review the two documents  Fill in Appendix A  Choose an account and explain why

Overdraft protection  $100 balance  Withdrawals of $120, $15, $5, $3  What would these cost you with overdraft allowed?  What would this cost with overdrafts linked to a savings or credit card?

Accessing your money…  Filling in a check…  Keeping your check register…  On-line Bill Pay…

Debit v Credit cards  Quick read and questions…  What are the advantages of using cash, credit, check, debit card?  What are the disadvantages of each?

Protecting your identity  How do they do it?  How can you protect yourself?

Brainstorm  What kinds of loans can you get…

Types of loans…  Open – ended loans  Can borrow money over and over (credit card)  Closed-ended loan  Have ending date – 5 year, 15 year…  Mortgages and car loans  Secured loans  Require and asses to be used as collateral – if you default, they take your collateral  Unsecured loans  No collateral is required – generally has a higher interest rate

Calculating Interest Calculating on a savings account for each year… (see packet) Buying a car: $15,000 car 6% APR 5 year loan What is the Interest?

Who gets the best interest rates?  Your Credit score determines your interest rate…