1. To Save or Not to Save
Securities and Investments

3. Saving is…
A means of reaching short-term (typically one-year or less) financial goals
Synonymous with “Pay Yourself First”
Treating your savings as an expense by paying yourself an amount on a regular basis to go toward savings
Easy to get to in the event of an emergency
“Saving” as opposed to “investing” is generally intended for short-term financial needs such as shopping, groceries, small bills, and other minor emergencies. It is also called “Pay Yourself First” whereby a small amount can be set aside each month, treated as any other expense, and deposited into an account where it may or may not earn interest.

4. Common Savings Instruments
Safe places for your money, usually short-term, lower interest rates, easily accessible (liquid)
Savings accounts
Certificates of deposits (CDs)
Money market accounts (MMAs)
Because savings is designed for short-term, easy access to funds for rainy day needs, interest rates will be lower but the cash is there when you need it.

5. Investing is … Not the same as “saving”
Designed to meet long-term (typically longer than one year) financial goals
More risky than a regular savings account
Potential for higher returns on your money
Investing is not the same as saving because it is intended for long-term (greater than one year) financial goals. Because these goals are further in the future, the money that can be invested can generally earn higher interest which provides for greater returns on your investment.

6. Common Investment Instruments
Riskier places to put your money (no guarantees of rates), long-term in order to see higher returns, not as easily accessible (not as liquid)
Real estate
Individual stocks
Mutual funds
Corporate bonds
Government bonds
U.S. Treasury Securities-notes and bills
Investments are designed to make your money work for you through longer time. This means the money may not be as easy to get to right when you need it, but if you can afford the time difference, there may be more money there for you the longer you wait.

7. Benefits to Investing Financial security for many years
Time can be an asset
The rate of return can be greater than the inflation rate
Can become a part owner of a company
There are many benefits to investing, as opposed to having savings accounts. First, investing has the potential for financial security as investments are held for many years into the future. The longer the time invested, the higher the possible earnings. Also, as prices rise (inflation), the interest rate of the investments can be higher than the rate of inflation, thereby protecting you from inflation. Finally, many people like the idea of being a part owner of a company. Purchasing shares of stock allows you to be a part owner of a company that you like.

8. Measurable-a total amount of money to be saved for the vacation
SMART Goals
Time Bound-a specific date for the goal to be accomplished, i.e., by February 1st as opposed to spring
Realistic-a reasonable plan or breakdown of exactly how to save the money, i.e., $50 per week for 20 weeks
Attainable-how the plan to achieve the goal is possible, i.e., a general breakdown of vacation expenses
Measurable-a total amount of money to be saved for the vacation
Specific-what you would like to achieve, i. e., a specific vacation destination
Many goals can be easier to achieve if they are made using the “SMART” criteria. Goals should be Specific, Measurable, Attainable, Realistic, and Timebound. Adherence to these criteria can facilitate the achievement of financial goals.

9. SMART Goal Example
Time Bound-I can continue this pattern of saving for an additional 6 months so I can save at least $ at the end of the year that I can put toward a computer.
Realistic-I can save $10.00 each week, or $40.00 per month, for 6 months, for a total of at least $
Attainable-I can save $10.00 each week , or $40.00 per month.
Measurable-I will save $10.00 each week by giving up my coffees.
Specific-I want to save money each week by not getting coffee each morning.
By following the SMART goal procedure to set financial goals, the goals become more reachable and more tangible. Having a plan to save with a specific purpose in mind makes it easier for us to stay on the path to saving. SMART goals can also be used for plans to invest as well. As you meet goals, set new ones.

10. Simple vs. Compound Interest
Simple interest example:
$100 x 5% (the interest rate) = $5
Compare to a snowball dropped from a high point such as a roof
There is snow added to the snowball but it does not get any larger
Compound interest example:
$100 x 5% = $5 for a total of $105
Now, $105 x 5% = $5.25 for a new total of $110.25
Also known as “interest on interest”
Compare to a snowball rolling down a hill
Snow accumulates on top of the snow already in the snowball and it continues to grow
An illustration of a difference between saving and investing is with interest rates. Generally, short-term savings will earn simple interest due to the shorter time frame and simplicity of the accounts involved. Longer-term investments can earn compound interest, also called “interest on interest”, because interest is first calculated on the principal amount, then on the principal plus the interest earned to that point. Over a long period of time, this can create more potential earnings on your investments.

11. Time Value of Money
The time value of money is the concept that money is worth more now if it is invested than if it is invested later
This is because time is on your side; the earlier money is invested, it has more time to “grow”
The value of money now is called “Present Value” while the value of money later is called “Future Value”
Money has the potential to be worth more in the future the earlier it is invested. This is referred to as the Time Value of Money and it emphasizes that the earlier money is invested, the more time it has to accumulate interest earnings. At this point show page 1.22 of the Basics of Saving and Investing publication to illustrate the benefits of compounding and the time value of money.

12. “Rule of 72” Explained
Shows how compounding can increase your money at a more rapid rate than simple interest
A formula which calculates how long it will take your initial investment to double
For example, here is the formula if you anticipate a 6% interest rate:
Take 72 and divide by 6 to determine the number of years it will take to double your investment
72 / 6 = 12 years
Another illustration of the higher potential earnings power of investing versus saving is in the “Rule of 72”. This mathematical tool calculates how long it will take your investment to double based on the interest rate. For example, if you anticipate earning 8% on your investment, this is how the calculation works: 72/8 = 9. Therefore, it will take 9 years to double your investment if it earns 8%.

13. Formal Assessments
SMART Goal Assignment #1 – Decide on a financial goal you would like to achieve. Create a SMART goal explaining each component of the SMART acronym. Include an appropriate graphic or diagram to enhance this word-processing document.
Basic Savings Chart Assignment #2 – Students will conduct online research to discover interest rates for at least three different types of accounts at three different financial institutions. They may create a table in a word-processing program or on a posterboard.

14. Formal Assessments
Saving vs. Investing Comic Strip Assignment #3 – Students will use either an online comic strip creator program or posterboard to create a comic strip depicting a conversation among individuals where one is telling the other one the differences between saving and investing, listening to the goals of the other character, and then recommending to that character which actions to take with his or her money.