Finance Issues in the News

Economic Indicators Inflation: Overall rise in prices Inflation: Overall rise in prices -The Consumer Price Index averages the prices for various commodities and tries to track overall inflation Unemployment: Tracks people out of work and looking for work but not those who have given up Unemployment: Tracks people out of work and looking for work but not those who have given up

Why is too much inflation bad? Prices too high-people can’t buy things- Prices too high-people can’t buy things- Factories stop producing as much- Factories stop producing as much- Factories start laying people off- Factories start laying people off- Laid-off people can’t buy things- Laid-off people can’t buy things- Life isn’t good for a lot of people Life isn’t good for a lot of people RECESSION! RECESSION!

Recession Six months of: People buying less stuff People buying less stuff Decrease in factory production Decrease in factory production Growing unemployment Growing unemployment Slump in personal income Slump in personal income An unhealthy stock market An unhealthy stock market

Can inflation be good? If your income goes up at the rate of inflation then it doesn’t hurt you too much If your income goes up at the rate of inflation then it doesn’t hurt you too much If you owe money and there is high inflation then the real value of your debt goes down, which is good for you and bad for the people you owe. If you owe money and there is high inflation then the real value of your debt goes down, which is good for you and bad for the people you owe.

Economic Indicators Housing starts Housing starts Gross National Product: The total value of final goods and services produced in a year by a country's nationals (including profits from capital held abroad). Gross National Product: The total value of final goods and services produced in a year by a country's nationals (including profits from capital held abroad). Gross Domestic Product: The total value of final goods and services produced within a country's borders in a year. Gross Domestic Product: The total value of final goods and services produced within a country's borders in a year.

Economic Indicators Dow Jones Industrial Average: Average of major stock market corporation’s stock value Dow Jones Industrial Average: Average of major stock market corporation’s stock value NASDAQ: Tech stock average NASDAQ: Tech stock average These aren’t officially economic indicators These aren’t officially economic indicators There are other, more boring indicators like “factory orders”. There are other, more boring indicators like “factory orders”.

Budget Deficit and National Debt Budget Deficit: How much the U.S. spends vs. how much it makes (through taxes) each year. Currently about $250 billion. Budget Deficit: How much the U.S. spends vs. how much it makes (through taxes) each year. Currently about $250 billion. National Debt: The total amount of all of our deficits added up. Currently about $9 Trillion. National Debt: The total amount of all of our deficits added up. Currently about $9 Trillion.

Who Do We Owe That Money To? Our country sells Treasury Bonds Our country sells Treasury Bonds (T-Bills) to raise money. These bonds are guaranteed to be paid and the interest you earn on them is tax free so people like to buy them. T-Bills are mostly bought by banks, corporations, or rich people. Many are from foreign countries. T-Bills are mostly bought by banks, corporations, or rich people. Many are from foreign countries.

Federal Reserve Board (The Fed) The Fed regulates the banking industry and, to some degree, our economy The Fed regulates the banking industry and, to some degree, our economy The Fed influences our economy by raising and lowering interest rates and controlling the money supply. The Fed influences our economy by raising and lowering interest rates and controlling the money supply. This allows them to regulate inflation and avoid recession This allows them to regulate inflation and avoid recession

The Fed Balancing Act The Fed regulates the money supply by buying and selling T-Bills. The Fed regulates the money supply by buying and selling T-Bills. When it sells T-bills, it takes money out of circulation. When it buys them, it puts money back When it sells T-bills, it takes money out of circulation. When it buys them, it puts money back

The Fed Balancing Act The Fed also raises and lowers interest rates because the amount of money in supply determines how much it is worth. The Fed also raises and lowers interest rates because the amount of money in supply determines how much it is worth. If there is more money in supply then it costs less to borrow it (rates go down). If there is more money in supply then it costs less to borrow it (rates go down). If there is less money in supply then it costs more to borrow it (rates go up). If there is less money in supply then it costs more to borrow it (rates go up).

The Fed Balancing Act If interest rates are lowered, borrowing money to make purchases becomes less expensive, and people are more motivated to spend money because they can get a better deal on the loan. Spending money, in turn, stimulates economic growth, which is what the Fed is trying to do in that instance.

The Fed Balancing Act If there is too much money in the economy, however, people spend more money and Demand increases at a faster rate than supply can match. Prices rise too quickly because of the shortage of products, and inflation results. That’s why we can’t just print more money to pay our debt.

The Fed Balancing Act If there is too little money in the economy, people don't have excess spending money, and there is little economic growth.

The Fed Balancing Act The Fed watches economic indicators closely to determine in which the direction the economy is going. By forecasting increases in inflation or slow-downs in the economy, the Fed knows whether to increase or decrease the supply of money, which raises or lowers interest rates.

Federal Budget

Federal Budget Expenses (2004) Social Security: 21.6% Social Security: 21.6% Defense: 19.9% Defense: 19.9% Medicare: 11.8% Medicare: 11.8% Medicaid: 7.7% Medicaid: 7.7% Interest on the debt: 7% Interest on the debt: 7% Everything else: 32% Everything else: 32%

Stufflebeam’s Financial Advice Go to school after high school. Go to school after high school. Find something you enjoy and do it for a living. Find something you enjoy and do it for a living. Pay yourself first. Put money in the stock market (mutual funds) and a Roth I.R.A. every month as soon as you get a real job. Pay yourself first. Put money in the stock market (mutual funds) and a Roth I.R.A. every month as soon as you get a real job. Avoid credit card debt like the plague. Avoid credit card debt like the plague.

Stufflebeam’s Financial Advice It’s what you spend, not what you earn, that counts. Live well within your means. It’s what you spend, not what you earn, that counts. Live well within your means. If you borrow money, the interest rate is the key number to know. If you borrow money, the interest rate is the key number to know. Don’t be a cheapskate but don’t be foolish either. Don’t be a cheapskate but don’t be foolish either. Ever hear of a savings account? Ever hear of a savings account?

Stufflebeam’s Financial Advice Whenever possible, pay cash or don’t buy it. That probably won’t be practical for cars for homes. Whenever possible, pay cash or don’t buy it. That probably won’t be practical for cars for homes. Car expenses will eat up your income very fast. Car expenses will eat up your income very fast. Buy inexpensive and used cars. Buy inexpensive and used cars. Avoid continuous but less expensive stuff (a $3.00 coffee each day=$1,100 a year). Avoid continuous but less expensive stuff (a $3.00 coffee each day=$1,100 a year).