UNIT #4
MONEY
&
PERSONAL FINANCE
WHAT IS MONEY?????
• Money is anything that serves as a medium of exchange,
a measure of value and a store of value.
Functions of Money:
1. Medium of Exchange universally accepted as a payment for goods and services
2. Measure of Value expresses worth in terms that most people understand
3. Store of Value purchasing power can be saved until needed.
Characteristics of money:
1. Portable easily transferred from one person to another
2. Durable can be handled without breaking
3. Divisible divisible into smaller units so you can use only as much
as needed.
4. Limited Availability availability must be limited so value does not decrease
Vocabulary
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Cost of Attendance (COA): A student’s cost of attendance at a postsecondary
institution includes: tuition and fees; room and board expanses while attending
school; allowances for books and supplies; transportation; loan fees for federal
student loans and other miscellaneous expanses.
Financial Aid:
Money to help pay for college
Scholarships:
Cash grant for academic promise
Grant:
Cash given for need, rather than for academic record
Loan:
Cash that must be repaid after graduation
Work-study:
Job provided by the college to help earn part of expenses
Understanding Financial Aid and Scholarships
Free Application for Federal Student Aid
Guidance Office
Basic Investment Strategies
1. Risk-Return Relationship:
- What is your level of risk? Make decisions about your
investments based on your comfort with risk.
2. Investment Objectives:
- Why are you investing? If it is for retirement
maybe a 401K vs. saving for a vacation
3. Simplicity:
- Stick to investments that you can understand
4. Consistency
- Invest consistently over long periods of time.
Investment Options
CDs
Saving Bonds
Stocks
Investment Options
Mutual Funds
Savings
Accounts
Inflation
• Inflation is defined as:
– a rise in the general levels of prices
– YOUR PURCHASING POWER GOES
DOWN!!
• Inflation is measured by:
– price level – the relative magnitude of prices at one
time
• Then What is Deflation?
– decrease in general price level (Great Depression)
Types of Inflation
• Demand-pull Inflation– Excessive business or consumer
demand
• Cost-push Inflation– Wage demands of labor push prices up
• Stagflation– High inflation coupled high
unemployment
Causes of Inflation
• Demand-Pull Theory: Excessive demand
drives up prices
• Federal Government deficit spending
• Rising input costs (labor) drive up costs
of products
• Unexpected increase in non-labor inputs
(oil)
• Excessive monetary growth (money
supply increases faster than Real GDP)
Effects of Inflation
• Dollar buys less because purchasing
power of dollar decreases as prices rise
(dollar loses value)
• Causes changes in spending habits
• Take advantage of high price level
– Ex: Buy a condo now to sell later
Who does inflation impact the most?
People on fixed income (retired)
Let’s review two basic economic ideas!
1. What are the economic goals of a country?
2. What does the PPF graph below tell us about a
country’s production possibility?
3. What goals are shown in this PPF model?
Gross Domestic Product (GDP)
•The total amount of all final goods & services produced within a
country’s national border within a year.
•United States 2012 GDP=
$15.70 Trillion
Why is it important to know a country’s GDP?
1. It is the primary indicators used to gauge the health of a country's
economy.
2. It represents the total dollar value of all goods and services
produced over a specific time period
Gross National Product (GNP)
The total value of income earned by residents of a country
regardless of where the income came from.
United States 2012 GNP= $16.3 Trillion
Growth rate= 1.3%
GDP or GNP?
Which measurement is a better
indicator of how a country is
doing financially?
GDP!!!!
Because it is one of the key measures of a country’s
“progress”
All visuals taken from Google images