1. Unit 5: Saving & Investing
Consumer Education
Chapters 8 & 9

2. Benefits of Saving
Saving – trading current spending for the ability to spend in the future
What should I save for?
Save for the Unexpected
Save for Opportunities
Save for Major Purchases
Save for Flexibility
Save to Achieve Your Goals

3. Saving Strategies Pay Yourself First Save by the Numbers
Savings is an expense in your budget
Save by the Numbers
Save a % of your take-home pay, not a set amount
Reward Yourself
Low-cost rewards for saving
Consider Your Values
Enroll in Automatic Saving
Payroll Deductions
Checking Account Transfers
Set up automatic transfers through online banking

4. FDIC – Commercial Banks ; NCUSIF – Credit Unions
Savings Institutions
Commercial Bank – a financial institution that serves individuals and businesses
Savings Banks – financial institutions owned by their depositors
Dividend – a share of the company’s profits
Savings and Loan Associations – financial institutions that originally specialized in lending money to customers to buy homes (mortgages)
Credit Unions – financial institutions that offer memberships to people who share a common bond; non-profit organizations
Deposit Insurance:
FDIC – Commercial Banks ; NCUSIF – Credit Unions

5. Savings Options
Savings Account – an account at a banking institution in which you may deposit money, earn interest, and withdraw your funds at any time
Certificate of Deposit (CD) – a deposit in a savings institution that earns a fixed interest rate for a specific period of time
Money Market Account – a deposit for which the interest rate changes over time as interest rates in the economy change
Annual Percentage Yield (APY) – the actual interest rate an account pays per year, calculated the same way by all banks

6. Government Bonds
Bond – a written promise to pay a debt by a specified date
Savings Bond – U.S. government bonds issued for amounts of $50 - $10,000
Face Value – the dollar value printed on a bond (the amount it is bought for)

7. Simple Interest Principal – money on deposit
Interest (I) = Principal (P) x Rate (R) x Time (T)
Principal – money on deposit
Simple Interest – interest paid one time per year at the end of the year on the average balance in the savings account
Compound Interest – interest paid on the principal and also on previously earned interest, assuming that the interest is left on deposit in the account

8. The Rule of 72
If an asset (money) grows x% a year, its value will double in 72 / x years

9. Annual interest rate: 4% Interest Compounded: Quarterly
Date
Interest
Balance
Jan. 1, 20xx
$900.00
March 31, 20xx
$9.00
$909.00
June 30, 20xx
$9.09
$918.09
Sept. 30, 20xx
$9.18
$927.27
Dec. 31, 20xx
$9.27
$936.54
I = PRT
Q1: I = $ X .04 X .25
I = $9.00
Balance = $ $9.00 = $909.00
Q2: I = $ X .04 X .25
I = $9.09

11. Investing Basics
Investing – saving in a way that earns income
Risk – the chance that an investment will decrease in value
Return – income earned on an investment
The higher the potential rate of return, the greater the risk
Diversification – distributing funds among a variety of investments to minimize overall risk

12. Investing in Corporations
Corporate Stock – a unit of ownership in a corporation that you can buy
Stockholders – investors who own a corporation because they own its stock
Stockbroker – a person who handles the transfer of stocks and bonds between buyer and seller
Brokerage Firm – a company that specializes in helping people buy and sell stocks and bonds

13. Investing in Corporations
Stock Exchange – a location where orders to buy or sell stock are sent and carried out
National Association of Securities Dealers Automated Quotation System (NASDAQ) – an electronic stock-trading system that links brokerage firms

14. Types of Stock
Dollar Cost Averaging – investing roughly equal amounts of money at regular intervals
Preferred Stock – a non-voting share of ownership in a corporation that pays a fixed dividend
Common Stock – a voting share of ownership in a corporation for which the dividend varies, as determined by the corporation’s board of directors
Preferred Stock carries less risk because preferred shareholders receive dividends first
Returns (dividends) are not guaranteed

15. Stock Classifications
Blue Chip Stocks – large, well established corporations
Growth Stocks – smaller or younger corporations
Large Cap Stocks – total stock value of $10 billion or more
Mid Cap Stocks – total stock value $2-10 billion
Small Cap Stocks – total stock value less than $2 billion
Sector Stocks – corporations who operate in a specific part of the economy
Cyclical and Non-Cyclical Stocks – success linked to the success of the economy
International Stocks – corporations based in other countries

16. Corporate Bonds
Corporate Bonds – bonds sold by corporations to finance business activities, which usually pay a fixed interest rate and are paid after a specific term
Junk Bonds – corporate bonds that are high-risk investments. Also known as high-yield bonds
Bond Rating Services:
Moody’s
Standard & Poor’s (S&P)
AAA – safest
C & D – riskiest

17. Mutual Funds
Mutual Fund – a business that accepts deposits from many people to invest in various ways
Portfolio – selection of stocks or bonds that a mutual fund purchases
Load – a sales fee that you pay when you invest in a mutual fund
Front-end load – when you buy
Back-end load – when you sell
No-load – no fee because the fund has no sales people

18. Retirement and Other Investments
Tax-deferred – a main benefit of many retirement plans; allow you to postpone paying tax on the income you invest until you retire
401(k) plans – a tax-deferred retirement plan offered to employees by their employer
Vested – point at which you can keep employer’s contributions to your retirement account
Individual Retirement Account (IRA) – a retirement savings plan that has special tax benefits bit is not employer-sponsored
403(b) plan – a tax-deferred retirement plan for teachers, hospital workers, ministers, and some other public employees

19. Mutual Fund Classifications
Index Funds –
Balanced Funds –
Large Cap Funds –
Mid Cap and Small Cap Funds –
Aggressive Funds –
Sector Funds –
International Funds –
Bond Funds –
Tax-Free Funds –
Exchange Traded Funds –