Personal Financial Management Chapter 7: Banking Personal Financial Management

FINANCIAL SERVICES AND INSTITUTIONS Chapter 7.1

Beginning of Banking 1791 First central bank – 8 branches Today - 11,000 banks, 2,000 savings and loan associations, and 12,000 credit unions.

Types of Financial Services Savings Payment Services Borrowing Other financial services

Savings Essential for any personal finance plan. Time Deposit – money that is left in a financial institution for months or years. Examples: money in any type of savings account and CDs Selection of savings plan should be based on interest rates, liquidity, safety, and convenience.

Payment Services Checking Account – most commonly used payment service Demand Deposit – money that you place in a checking account You can withdraw the money at any time, or on demand.

Borrowing Short-Term Credit cards, personal cash loan Long-Term Mortgage, auto loan

Other Financial Services Insurance protection Stock – money paid for investment into a business (securities) Bond – A form of a loan or IOU (securities) Mutual Funds – pools money from multiple investors to purchase securities

Electronic Banking Services Direct Deposit – automatic deposit of net pay into an employees designated banking account Automatic Payments – authorization needed, your bank withdrawing money monthly for a payment or bill ATM – computer terminal that allows for the withdrawal of money, deposits, and transfers

Document Detectives Textbook Page 193 Answer question #1-6 in your notes

Evaluating Financial Services Balance your short-term needs with your long-term needs Location and convenience Fees Re-evaluate occasionally

Types of Financial Institutions Safety Deposit Institutions Non-Depository Institutions

Safety Record, examine history Federal Deposit Insurance Corporation (FDIC) Protects deposits in banks Insures each account in a federally chartered bank up to $100,000 per account

Deposit Institutions Commercial banks – for-profit institution that offers a full range of financial services. Savings and loan associations – traditionally specialized in savings accounts and mortgage loans but now offers many of the same services as commercial banks. Mutual savings banks – owned by depositors, specialize in savings accounts and mortgage loans. Lower interest rates on loans and pay a higher rate on savings accounts. Credit unions – nonprofit, owned by its members and organized for their benefit.

Non-Depository Institutions Life Insurance Companies – provide financial security for dependents. Investment Companies – combine money with funds from other investors in order to purchase securities, mutual funds. Finance Companies – Advice, loans for consumers and small businesses, investing

Problematic Financial Businesses Pawnshops Make loans based on the value of tangible possessions Interest charged Check Cashing Outlets Charge from 1-20% of the face value of a check Payday Loans Write a check to get a ‘loan’ Personal check not cashed for 14 days Interest charged and rolled over, a continuous cycle Rent-to-Own Centers Own an item if consumers complete a certain number of monthly or weekly payments. Interest charged – end up paying more than the item is valued.

Section 1: Assessment Textbook page 201 #1-7 Complete on separate sheet of paper and turn in