Economics, Personal Finance
Unit 4; Day 2
Objective:
1. Describe some of the factors that influence savings..
2. Analyze the correlation between risk and reward for certain savings options.
Question:
What is the safest investment for my money?
Why might a very safe investment like this not be a good investment choice?
Answer:
Instructional Notes / Terms / Activity:
SAVING & INVESTMENT
1. What factors encourage or discourage investment?
a.
b.
c.
d.
e.
Wealth / Net Worth – people with greater amounts of wealth save more.
Income – as income increases, a greater % of income is saved.
Expectations of the Future – economic outlook influences savings.
Current Interest Rates on Savings / Investments and Credit / Debt
Government / Tax Laws – can encourage savings or spending.
2. Savings Options
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
Savings Accounts – money deposits into a bank or credit union.
Certificates of Deposit – money deposit for a certain period of time.
Money Market Accounts – an interest-bearing checking account.
Bonds – IOU’s issued by a business or by the government.
Mutual Funds – Corps that buy and sell stocks in other corporations.
Stocks – certificates of ownership in a corporation, shares.
Collectibles – things of value that can be bought or sold; cars, etc..
Real Estate – property and/or improvements to property; house, etc.
Commodities – agricultural products, precious metals, etc…
Options – the right to purchase or sell stock at a specific price.
3. Savings Places – Financial Institutions
a.
b.
c.
d.
Commercial Banks – large corporate banks; Citibank, Capital One, etc..
Savings and Loan Banks – smaller, local, independent banks;
Credit Unions – membership-based banking institutions; Idaho Central, etc..
Online / Virtual Banks – online only banking institutions;
4. Deposit Insurance
a. FDIC – Federal Depository Insurance Corporation; $250K
b. NCUA – National Credit Union Association;
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SAVING CONSIDERATIONS
1. Risk / Safety
a. How safe is my investment? What are the chances that I will get
back my investment with an additional amount of money?
b. The government insures certain savings deposits up to
$250,000.00! (recently increased from $100,000.00)
 FDIC – Federal Depository Insurance Corporation – 1934.
2. Rate of Return (ROR)
a. Interest – the return or rent received for allowing someone else to
use your capital for a period of time.
b. Rate of Return – amount made or lost relative to the initial deposit.
 Always expressed as a percentage for one year period of time
 (Total Return – Capital / Capital) x 100 = Rate of Return
 Example: Let's say you invest $100 in stock, which is called
your capital. One year later, your investment yields
$120. What is the rate of return of your investment?
($120 – $100 / $100) x 100 = 20%
o Simple Interest Calculation
 Interest is paid only on amounts deposited into investment.
o Compound Interest
 Interest paid on deposits plus any previously paid interest.
 The most powerful force in the Universe – Albert Einstein
3. Liquidity
a. How quickly can I convert my investment to spendable cash?
What processes must occur to spend my investment?
o Investments that are very liquid pay low interest rates; low ROR
o Investments that are not very liquid pay higher interest; high ROR
o Risk / Return / Liquidity Pyramid
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