1. Money, Banking, Credit & Consumer Rights
Ch. 20

2. Money Currency – Paper and coin money
Replaced the barter system in traditional economies
Functions of money
Medium of Exchange
Used to trade/purchase goods/services
Store of Value
Ability to store or save
Medium/Measure of Value
Can be divisible
Each one must be equal to the other
Not easy to counterfeit

3. Different types of Money

4. Banking
Brings savers (sellers) & borrowers (buyers) together in the market
Savers = deposits
Borrowers = loans
Banks are a business and have profit motive
Make money off of fees and interest on loans
Reserve Requirements – Amount of money banks are required to keep. Banks want more deposits so they can loan more money

5. Types of Banks
Commercial Banks – full service to individuals & businesses (Most common)
Credit Unions – non-profit – sponsored by large businesses, labor unions or government institutions – offer full services at usually lower prices
Savings & Loan Associations – traditionally loaned money to people buying homes & issued only savings accounts

6. Commercial Banks

7. Credit Unions

8. FDIC Federal Deposit Insurance Corporation
Insures deposited money in the bank up to $250,000
Most banks are FDIC insured

9. Types of Deposit Accounts
Checking Account
Allows customers to write checks, use debit cards or withdraw money from an ATM (Automated Teller Machine)
Money transactions are quick and efficient
Money does not stay in the account for long
Depositor usually receives no interest
Transfer of funds electronically

10. Checking Accounts

12. Types of Deposit Accounts cont.
2. Savings Account
Banks pay interest to customers based on how much money is deposited
Money remains untouched for longer periods of time so money grows larger the longer it is there.

13. Sample Bank Book

14. Types of Deposit Accounts cont.
3. Certificate of Deposit (CDs)
Customers loan a certain amount to the bank for a certain amount of time
Ex. I bought a $1,000 CD for 1 year at 4%
Higher rates of interest than savings
Customers can’t withdraw their money without a penalty

15. What US event caused the formation of the FDIC?
9/11
Bombing of Pearl Harbor
The stock market crash and bank runs during the Great Depression

16. Loans Agreement for borrowing money with repayment plus interest
Used to make expensive purchases
Banks make money on the interest paid for a loan and fees
In order to make loans, banks have to have money
To have the money, banks must attract deposit customers
Can increase the supply of money in the economy
Principle – amount borrowed
Interest Rate – rate of cost to borrow
Interest – cost of borrowing

17. Types of Loans
1. Unsecured loans – loan based on reputation. No collateral used. 2. Secured loans – have collateral to back up the loan. Ex. You need something of equal value to cover the cost of the loan the bank can take if you default on the loan (don’t pay) Interest on the loan can be - Fixed – interest is set & can’t be changed Variable – Changes when interest rates change

18. How do bank loans increase the supply of money in the economy?

19. Charge Accounts
Buy goods & services at individual stores & pay for them later
Credit limit: maximum amount a person can buy with the promise of payment

20. Types of Charge Accounts
Installment Account
Repaid with equal payments over a certain period of time
Part of the payment goes towards interest & part towards the principle
Car loan or mortgage
Regular Account
No interest is charged if entire bill is paid on time – If you do not pay the entire bill on time, then you must pay interest on the entire loan amount.
Account can’t be used again until the balance is paid
Furniture Stores usually do this. Pay by 2020, certain amount each month, but with no interest.

21. Types of Charge Accounts cont
3. Revolving Account
Billing cycles where a bill is sent at the end
Interest charged on portion not paid
Account can still be used until credit limit is reached
Example: Credit Cards

22. Credit Cards Make purchases without having the money
Charge high interest rates
Lower interest rates if the customer is reliable (Makes payments on time!!!)
Finance Charges – Cost of credit (interest) expressed in dollars
Annual Percentage Rate – Cost of credit (interest) expressed as a percentage

23. Applying for Credit Fill out application
Credit Bureau does a credit check
Creditor may ask for references
Credit checks show your income, debt and ability to pay past debts
Applying for Credit

24. Credit Rating Rating of risk: Excellent, Good, Average or Poor
Ratings have a number associated with them
3 Credit Bureaus: Experian, Transunion & Equifax
Gives lenders an idea of reliability when issuing loans
Higher Credit Score = less interest you are charged on a loan = saving money

25. Credit Bureaus

26. Government Regulations
Equal Credit Opportunity Act: a person can’t be denied credit because of race, religion, national origin, gender, marital status or age
Usury Laws: Restrict the amount of interest companies, not banks, can charge

27. Bankruptcy Debts are so large they can’t be paid back
Most of what a debtor owns is sold or given to creditors
Takes about10 years to reestablish credit
States can become bankrupt too

28. Types of Income Disposable Income – money after taxes taken out.
Money to pay for house, car, etc.
Discretionary Income – money remaining after paying for necessities
Either save or spend it

29. Consumer Rights
Consumerism – a movement to educate buyers on purchases and to make sure products are safe
Congressional laws – Pure Food and Drug Act in 1906
Private groups – Better Business Bureau (BBB)
Consumer Bill of Rights
Consumers have…
Right to a safe product
Right to be informed
Right to choose
Right to be heard
Right to redress (to remedy or set right a wrong/grievance)

30. Consumer Responsibilities
Smart Buying Strategies
Get info on products
Watch out for advertising
Comparison shopping – find out prices on product from different stores/internet
Brand Name vs. Generic
When product fails
Report it
Check the warranty
Keep a copy of the receipt
Be calm
Make Fair complaints