Graph the following information Price of iPhone 6 Quantity demanded Quantity supplied $ $ $ $ $ What do we call the point where supply and demand meet? Bellringer Define the following terms: Economics Scarcity Demand Utility Bellringer What are some struggles for people who no longer work with in the banking system? Graph the following information Draw a normal Supply curve and a normal Demand curve. Why is the Demand Curve Inverse? Personal Finances Learn about money, banks and budgeting Personal finances Economists study how humans meet their wants and needs with scarce resources. However, we are all our own economists. We have to make decisions with our scarce resources (usually money) to get what we need and want. As you leave high school you will be responsible for your own money, bills, student loans, car, computer, rent, etc. This chapter is meant to help you understand some options of how to save money, how to spend it, and even how to invest. Basics: what is money? Money is any standard of currency that a group of people agree to accept in exchange for goods and services. Today we often think of dollar bills. In ancient times items such as beads, shells and even gold were used as money. Basically, money is a medium of exchange. Fiat Money Most nations in the world use Fiat Money. Value is attached to the money because of government fiat, or decree, that says it has value. The value of this money is stored in the nations gold and silver reserve. The United States stores its gold in Federal Reserves, the largest of which is Fort Knox (a favorite location for Hollywood movie thefts!) Mint Condition The Unites States prints its money in mints, hence the term mint condition. Coins are made at the Philadelphia, San Francisco or Denver mint. If you looked at any coin in your pocket you would see a small P, S or D. These letters represent which coin mint made the coin. Bills are also made in mints, with Fort Worth, Texas and Washington D.C. being two main bill mints. Like coins, each bill has an indication for what city made it. Start the presses Since the United States makes its own money, many people think we should just print more money when the economy is doing poorly. However, we cant do that as it decreases the value of the money. Remember, the value of our money is backed by the Gold and Silver the nation holds. If we printed more money the value goes down (this is a form of inflation which you will learn more about in the next chapter). Think of it in terms of supply and demand, the more we have of a good, the value goes down. Historical Spotlight After World War I, Germany was ordered to pay Billions in reparations, or money to pay for the damages of the war. However, Germany was hurt by a weakened economy. To pay the salaries of the German workers Germany simply printed more money. Soon, their currency was nearly worthless. People made billions of German marks a year, but they were worthless: marks=944,000 marks Watch the video at the following link for more information: https://www.youtube.com /watch?v=h-7YCcZUXmw Banks Today many people store their money in the bank. Banks have changed significantly since the founding of the United States. Banks today are much more secure. Following the Great Depression in the 1930s the government established the FDIC (Federal Deposit Insurance Corporation) which insured savings accounts up to $5,000. FDIC The FDIC is still around today, and insures deposits up to $250,000. When you go to a bank and see the FDIC sticker, it demonstrates that Federal auditors have examined the banking policies and practices of the bank and found them to be sound. Even the website for Watertown Savings Bank declares their FDIC status! Working money Banks are a form of business and they are trying to make money. Two major ways for banks to make money are investments on stocks and giving out loans. When you deposit money into a savings account, the bank doesnt keep it there. Instead, they let other customers and businesses borrow that money to buy houses, cars and for personal reasons. That money is paid back, plus interest. The interest is a fee you pay to borrow money, and its how banks make money. The bank also gives you some interest for letting them use your money. Bank or Mattress? Some people distrust banks and prefer to keep their cash at home, hiding it under mattresses, in freezers or even old coffee cans. The logic seems sound, the bank cant lose my money if I keep it home. But keeping your money home hurts the economy, it can be stolen, and it wont make any more money for you just sitting in the can. Additionally, if you never use a bank you will find it difficult to get access to loans, credit cards and other forms of credit. Hint: Dont do this Financial institutions There are four common types of financial institutions: -Commercial Banks -Savings and Loan associations -Mutual Savings Bank -Credit Unions Each financial institution performs similar tasks but do have differences. Commercial Banks There are over 10,000 commercial banks in the United States. Their main functions include lending money (loans), accepting deposits, and transferring money among businesses. Commercial banks originally were used by businesses only, but today most commercial banks also service individuals. Due to the wide range of services available many people use commercial banks. Savings and Loans Associations These banks were established to lend money and accept deposits. They began as home Building Societies. Each depositor would put in money to a large general fund. They took turns borrowing and paying it back until everyone built a house. Today S & L Associations are able to perform many of the same tasks as commercial banks. Mutual Savings Bank Similar to Savings & Loan and Commercial Banks, Mutual Savings Banks are places to make small deposits that the commercial banks didnt want to process. Often times interest rates for borrowed money are lower at Mutual Savings establishments. Credit Unions Employees of large businesses and institutions often belong to credit unions. When members deposit money, they purchases shares that pay interest. Credit Unions use this savings pool to supply low- cost loans. Credit Unions usually offer the highest interest rates on savings and lowest on loans. Many credit unions today have few restrictions to joining. If you ever listen to the radio the local credit union offers membership to anyone who works, plays or worships in Jefferson County. Using a Bank Most individuals use banks to safeguard money, create checking accounts to transfer money, borrow money and even make money. Banks offer several different account options, with Savings and Checking accounts being the most popular Savings Many people keep their money in the bank because it is safe, much safer than lets say a mattress. However, your money doesnt just sit there in the vault. Instead the bank uses it to buy stocks and give out loans. In return for being able to use your money, the bank pays you interest. Interest rates on savings accounts tend to be much lower than the interest rates on loans for borrowing money. When you put money into the bank it is called a deposit. When you take money out it is called a withdrawal. Certificate of Deposit Another way to save and grow your money is through CDs, or Certificates of Deposit. A CD pays a higher interest rate than a regular savings account, but it locks your money in place for a set amount of time. CDs are great if you have some extra money that you dont need to touch for a year or more. However, if you withdraw the money before time is up, you have to pay a penalty fee. Checking Accounts Checking accounts allow people to easily remove money from the bank to pay bills. You simply write a check and the bank will transfer them the money. However, because you always have access to your money, checking accounts do not earn interest. Many checking accounts today are linked to Debit Cards, which means your money is always accessible. You can go to an ATM to get out cash, or swipe your card when making a purchase. **SAFETY ALERT** Never give out your debit card, credit card or checking account information. These are used to easily and quickly access your money. When you give someone the ability to use that account information you are allowing them access to your money in other words, be smarter than this woman Borrowing Money The two most common ways to borrow money are Loans and Credit Cards. When you borrow this money you agree to pay it all back plus interest, or the fee to have borrowed. Advantages -able to buy needed items now -dont have to carry cash -credit cards can consolidate bills into one payment Disadvantages -interest fees -may require additional fees -financial difficulties if charging too much -impulsive buying When you borrow money you are creating debt, or money to be paid back. Some people are unable to repay this debt, meaning they default. Loans When people make big purchases they often apply for loans. Mortgages (buying a house), car loans, and student Loans are common forms of loans. When you apply for a loan the bank looks at your income, expenses and credit score. Your credit score is used to predict your ability to pay back the loan. Sometimes people cannot get loans because the bank does not think they can pay back the money. If you dont have a good credit score (as most graduating students dont) you may use a co-signer who will pay back your loan if you dont. Credit History When applying for a loan or credit card, banks and credit card companies look at the three Cs of Credit: Character- Have you repaid other forms of credit? Do you pay bills on time? Do you have a steady job and residence? Capital- Do you have assets and property that can be used to repay credit debt if income isnt available? Do you have a savings account? Do you have investments? Capacity- Do you have enough income to pay back the credit? How many other loan payments do you have? What expenses and debts do you have? Credit Scores There are 3 main credit reporting bureaus. Most banks and loan companies will check your score at all three and average them out. Reading your credit report There are several things to consider when you borrow credit: 1)Borrow only what you can repay and do NOT charge more 2)Read and understand the credit contract 3)Pay debts and bills promptly 4)Notify creditor if you cannot make payments for any reason 5)Never give your card number out 6)Depending on what you buy, you may face depreciation, or the loss of value. For instance, a new car begins depreciating the moment it drives off the lot, losing up to 1/3 of its purchase value. Be Careful with Credit Many people who use credit find themselves in deficit, or not having enough money to pay their bills. Be very careful to not deficit spend as it can affect you for a long time (think of the movie Spent: Looking for Change) Good Credit Good credit is important because it allows you to borrow larger amounts of money at lower interest rates, lowers insurance costs and can even help employment. To help build credit you can: -establish a steady work record -pay all bills promptly -open a checking account and dont bounce checks -apply for a small loan using savings as collateral and pay it back -use a co-signer when needed. Types of Credit Single Payment Credit Items are paid off in a single payment, within a grace period. Interest is usually not charged. Examples: Utilities, cable, medical services Installment Credit Goods are paid for in two or more regularly scheduled payments, with interest included. Examples: store payment plans, car or house loans Revolving Credit Many items can be bought over time as long as the total amount does not go over the credit limit. Repayment is made at regular time intervals for a minimum required amount. Interest is charged on the remaining balance not paid. Example: Store credit or credit cards. Credit Cards When applying for a credit card make sure you read the contract carefully and follow the terms. Remember, credit card companies are making a profit off of you!! Costs -annual percentage rate (APR) is interest on charges -annual fees (charges every year) -transaction fees (charged on each swipe) Features -Credit limit (maximum you can charge) -Cards acceptance (Visa, Discover, etc) -Rewards programs Credit Card Statement Minimum payment- if you continue to pay the minimum, it could take over a year to pay off a $50 pair of sneakers If you continue to pay only the minimum, without ever charging another thing, you can be paying for months or years. If you continued to purchase other goods you may be paying for years for a simple purchase. Calculating Interest If you pay off your credit card each month, there will be NO interest!! Plus, this does NOT have a negative impact on your credit score. It simply reflects that you are on time with payments. YAY! Budget! Budget! Budget! Credit can be great because it helps you get the things that are too expensive to save for, like houses and cars. But you have to be very careful. Select credit cards and loans that you understand and agree with the terms. Some credit cards have low interest rates for a year, then jump to 25% or more!! While small payments are easy, remember that interest on the purchase is still growing. A $100 purchase could cost nearly $1000 if you always pay the minimum. Create a budget, a plan for spending and savings your money. Making your money grow There are several ways to make your hard-earned money grow. We call this investing, or buying a part of a company and earning money if they are profitable. Investing works because you give companies your money, they use that money to improve their products and services. If the company does well, then you receive a share of the profit through dividends (pay outs). These Companies are Corporations. In the United States you can invest by buying stocks on the New York Stock Exchange, or at least getting a personal financer to buy for you. Down Side There are some serious risks with buying stocks. For example, if the company loses money, the investors lose some of their money. If a company goes bankrupt the investor cannot get their money back. In 2008 the Stock Market plummeted and many people lost many of their investments. The Stock Market is risky, but can pay off. For instance, some people took a chance on a company named Google, and they have made millions. Others back companies like ask.com, and have lost much of their investment. Retirement Investments Most retirement accounts purchase and sell stocks to help the investor save for retirement. Some retirement accounts are called aggressive, meaning they will purchase stocks with wide swings in price hoping to cash in. Others are more conservative and invest in safer options like Johnson & Johnson, which have slow but steady growth. Task 1)Explain why countries cant simply print more money when the economy isnt doing well (2-4 sentences) 3) What kind of account is best for each of the following: (Savings, Checking, CD) a)Joey just inherited $1,000. He does not have any bills that need to be paid off, or any debt. He wants to buy a new car in a year. b)Jane has a job that pays her bi-weekly. She needs access to her money to pay off her bills on the 1 st and 15 th of each month. c)Audrey makes $40,000 a year. She has bills to pay but her paychecks are more than her monthly bills. She wants to start saving to buy a house in the next 5 years. 4) Why is good credit important AND how can you improve your credit? 5) Your opinion (4-5 sentences) Some people say teenagers should have a credit card for emergencies, such as a car breaking down or emergency gas. Others say that teenagers do not have a good understanding of credit, limiting expenses and are subject to make impulse buys. Should young people be allowed to get credit cards? Why or why not? Smart Moves -Use banks -establish credit history by getting a credit card -Accept Subsidized Student Loans first -Start retirement funds early -Never take the full amount approved by banks for a mortgage -have all bills sent to you in the mail for at least a year until you are used to paying them Do you need good credit to be considered for student loans? No, in fact you wont have any credit when you first apply. This is why your parents often have to sign a promissory note, to pay if you dont. Paying Student Loan Debt: Subsidized loans will hold off on interest until you graduate, while unsubsidized loans continue to accumulate interest. After graduating (or dropping out ) you have 6 months grace before repayment begins. Most loans have a 10 year re-payment plan, but if you are still unemployed you can apply for income-based repayment. This lowers your monthly payment until you are more adequately employed.. Paying bills When you have multiple bills to pay such as mortgage, student loans, credit cards and car loans it can be overwhelming. To help pay down loans you have two options: -pay off the highest interest rates first (usually credit cards) -pay off the smallest values, then add those payments to the others Either way, the most important thing to remember is, if you CAN NOT pay, call the company/bank. Never just ignore it and stop paying. Buying a car Buying a car is a great accomplishment but is much more expensive than the sticker price. When considering a car you must include the following expenses: -taxes -insurance -registration -maintenance and tires -gas -licensing -depreciation Spent In order to gain access to loans, low interest rates and good financial opportunities you must be a part of the banking system. So what happens when you cannot access those basic banking functions? Slides to add: Calculating interest costs looking for a CC saving for retirement (options and benefits of starting young) Investments/stocks