Economic Indicators and Personal Financial Literacy Katherine M. Sauer
description
Transcript of Economic Indicators and Personal Financial Literacy Katherine M. Sauer
1
Economic Indicators and
Personal Financial Literacy
Katherine M. SauerMetropolitan State University of Denver
3rd annual “Fiscal Fitness for You and Your Students Workshop”Colorado Jump$tart Coalition | Great-West Financial
January 24th, 2013 – Denver Federal Reserve Bank
2
Income
Wages & Salaries
Interest & Dividends
Rental Income
Proprietor's Income
Transfer Payments
Taxes
Allocation Options
Spending Saving & Investing
Giving
Pay Back Debt
Borrowing
3
State of the Economy Income
Financial MarketsSaving & Investing
Interest Rates
Interest & Dividends
Borrowing
4
Economic Growth
Is economic activity increasing or decreasing?How much?
5
6
Inflation
Is the cost of living increasing or decreasing?By how much?
7
Yearly Inflation Rate, 2001 to 2012
8
Unemployment Rate
Of the people who want jobs, what percent don’t have one?
9
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Monthly Unemployment Rate, 2012U
nem
ploy
men
t Rat
e (%
)
10
01 02 03 04 05 06 07 08 09 10 11 12 130.0
2.0
4.0
6.0
8.0
10.0
12.0
Unemployment Rate by Year2001 – 2013
(January Rate)
Year
Une
mpl
oym
ent R
ate
(%)
*
*Dec. 2012 rate
11
S&P 500
stock market index
used as a measure of the general level of stock prices
includes the stock prices of 500 publicly traded companies
representative of US industry
12
13
S&P 500January 2004 – January 2013
14
Dow Jones Industrial Average
“the Dow”
stock market index
30, large, publicly traded firms
representative of US industry
15
Dow Jones Industrial AverageJanuary 2004 – January 2013
16
Nasdaq Composite
National Association of Securities Dealers Automated Quotations
stock market index
all the firms traded on the NASDAQ stock exchange
over 3,000 firms
technology companies and growth companies
17
Bull Market vs Bear Market
Bull Market = upward trend in stock market, optimism about continued gains
Bear Market = downward trend in stock market, pessimism about future
18
Bond Market
certificate of indebtedness
terms are fixed in advance but price varies with the market
can be sold at face value (par), a discount, or a premium
19
Issue price: $18.75Issue date: May 1978Maturity date: May 2008Interest over 30 years: $87.92 Treasurydirect.gov
US Government Savings Bond
20
Treasury Securities T-bills (mature in less than a year) T-notes (mature in 2 to 10 years) T-bonds (mature in 20 to 30 years)
21
Financial Intermediaries
match those with excess financial capital to those who wish to borrow money
interest rate market for loanable funds expected inflation credit risk
22
The Market for Loanable Funds
More Savings More Funds Available Cheaper to Borrow
More Borrowing Less Funds Available Dearer to Borrow
23
Expected Inflation
lenders factor inflation into interest rates
3% rate of return + 5% expected inflation = 8% interest rate
With higher-than-expected inflation (10%): rate of return on the loan = 8% - 10% = -2%
24
Credit Risk
lenders factor the riskiness of a loan into the interest rate
demand higher rates of return on riskier loans
7% rate of return + 5% expected inflation = 12% interest rate
25
The Federal Reserve
monetary policy
recessions lower rates increase econ activity
inflationary times raise rates decrease activity
26
Interest Rate Terms
Discount Rate = interest rate charged by the Fed to banks who need to borrow money
Federal Funds Rate = interest rate charged by banks to each other
Prime Rate = interest rate charged by banks to their best customers
27
The Big Mac Index compares foreign currency value versus the US
dollar
January 2012 Big Mac Prices US: $4.20 Russia: 81 rubles
exchange rate: 1 dollar to 31.8 rubles
81rubles x 1 dollar 31.8rubles
= $2.55
$2.55 < $4.20 … ruble should appreciate
January 2013 exchange rate: 1 dollar to 30.2 rubles ruble appreciated vs dollar
28
Men’s Underwear Index Alan Greenspan
to men, underwear is a necessity, not luxury
sales are consistent, except in down economic times when purchases are delayed
29
The Lipstick Index
in a weak economy, cut back on non-essentials but find “little luxuries” to spend on
recent recession: nail polish, boxed hair dye
30
Economic Indicators WorkshopMarch 2nd
www.CCEE.net
Katherine M. SauerMetropolitan State University of Denver
3rd annual “Fiscal Fitness for You and Your Students Workshop”Colorado Jump$tart Coalition | Great-West FinancialJanuary 24th, 2013 – Denver Federal Reserve Bank