1. Consumers, Savers, and Investors

2.  Anyone who buys goods and services for personal use.

3.  Income From Work ◦ Salaries and Wages  Income from Wealth ◦ Rent, interest on savings, selling assets

4.  According to the Economic Report of the President, US consumers invest less than 1% of their income.  recommended that people invest as much as 10% of their income.

5.  How much people invest or save depends on the following: ◦ Their income level. ◦ Expectations ◦ Current interest rates ◦ Tax Laws

6.  budget = personal financial plan.  It is balanced when income and expenditures are equal.

7.  A deficit occurs when expenditures exceed income.  A surplus exists when income exceeds expenditures.

8.  3 steps: ◦ 1. Setting financial goals ◦ 2. Estimating Income ◦ 3. Planning Expenditures

9.  When deciding where to invest your money, there are three factors you should always consider…

10. Banks = safe. Under the mattress = not safe Stock Market = less safe

11.  Stocks, for example, have market risk associated with them.  The value of stock can rise and fall dramatically, especially in the short term.

12.  Interest is your reward for giving up money and allowing a financial institution to use it.  Compound interest —computed on the sum of savings you deposit (principal) plus the accumulated interest measured at regular intervals.

13.  A measurement of how quickly you can convert your savings to cash.  Some investments are more liquid than others.

14.  Liquid assets—Checking account, savings account, homes, cars.  Non-liquid assets—401k investment plans, mutual funds, IRA’s (Individual Retirement Accounts)

16.  Very safe investments with low rates of return.  Checking Accounts—Low interest and high liquidity  Certificates of Deposit (CD’s)— Higher interest, less liquid

17.  Insured deposits that allow you to write a limited amount of checks.  Offer much liquidity, but lower interest rates than a CD.

18.  Funds that are invested in stocks, mutual funds, etc.  Examples: IRA, 401(k), 403(b), Employee Stock Ownership Plans (ESOP).  Usually tax deferred — meaning you don’t pay taxes on the interest you earn.

19.  One share of stock=one part ownership in a company.  Profits are sometimes given to the shareholder in the form of a dividend.  As company’s grow, the value of stocks also grow.

20.  IOU’s issued by a company to a bondholder.  Bonds can rise or fall depending on the success of a company.

21.  Special investment companies where people pool their money to make a variety of investments.  A mutual fund company may own stock in over 300 firms.

22.  When the US treasury borrows money from you.  Sold at a discount (usually half the face value) and then can be redeemed when they mature.

23.  People pay a monthly premium to ensure their family is cared for in the event of an emergency.

24.  Appreciable Assets—Buying something that you think will be worth more in the future.  Foreign exchange—Other country’s currency.  Commodities—Precious metals and gems

25.  Allows you to enjoy goods and services before you pay for them fully.  When you borrow money, you must pay the principal plus interest.

26.  Principal—The amount that is borrowed.  Interest—The cost of borrowing money, usually defined by APR (Annual Percentage Rate)

27.  Home Mortgages  Auto and Consumer Loans  Store Charge Accounts  Credit Cards

28.  Credit worthiness is judged by the following characteristics: ◦ Character (record of repayment) ◦ Capacity to repay debts ◦ Capital—what you own

29.  Must prove that you can handle financial obligations.

30.  Open and be responsible with a checking and savings account.  School Loans.  Open a charge account/credit card and pay the entire balance off every month!

31.  Ways to use life insurance policies: ◦ Create an estate ◦ Create a college fund ◦ Fund a business transfer ◦ Pay off a home mortgage ◦ Guarantee loans

32.  Auto  Homeowners  Liability  Health  Disability