Money Management Chapter 19. Money and Credit Money is anything that a seller will take in exchange...
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Transcript of Money Management Chapter 19. Money and Credit Money is anything that a seller will take in exchange...
Money Management
Chapter 19
Money and Credit
• Money is anything that a seller will take in exchange for a good or service.
• To most Americans this includes cash, coin, check, debit, and credit cards.
• These things are also known as Currency.
• The reason our money is worth anything is because our government guarantees it against the many things we produce.
Features of Currency
• 1. Must be easy to carry and conceal.• 2. Must be based on a system of easily
divided and multiplied numbers like 5 or 10.
• 3. Must be durable. Currency can not wear out or become unusable before it can be used.
• 4. Must be standard issue by a government that is recognized.
Coins and Paper
• All money must come from the Untied States Mint.
• The US Mint is the place where our money is made. Located in Philadelphia and Denver.
• Coins – used to be worth the amount of metal they contained. No longer, they are made up of various cheaper metals.
Cont…
• Paper money is not actually paper. It is made of cotton.
• 1, 5, 10, 20, 50, and 100 currently produced and in circulation.
• 2, 500, 1000, 5000, and 10000 currently not produced, but some exist in circulation.
• What is the value?• The US Government backs the currency
with our products and…
GOLD
• Our gold supply is held at Fort Knox in Kentucky.
Checks
• Written order to a bank to pay a sum from a person or business’ account.
• Non-cash transaction
• You deposit money into your account and when you write checks the bank removes the money.
• Works the same way with Debit cards.
Charge Accounts and Credit Cards
• Credit Cards – substitute for money. These can be used at any store.
• You use the companies money then pay them back.
• The customer can pay back the full amount during the grace period, or make payments while accumulating interest.
• Interest – Money charged by the companies to use their money.
Short Term v. Long Term Credit
• Short Term - If you have an emergency expense you can borrow an amount of money and pay it off in a small amount of time.
• Long Term – Money borrowed to make a large purchase. The borrower takes a long time to pay it back in equal installments.
Banks and Banking
• Banks – a business that deals in money and credit.
• Deposit – money put into the bank for safe keeping.
• Withdrawal – money taken out of a bank account.
• Loans – money borrowed from a bank.• Collateral – property used to guarantee a
loan.
Types of Banks
• Commercial Banks – offer savings accounts, checking accounts, and loan services.
• Savings and Loan Association – began to help people buy homes. Individuals deposited money into a savings account which earned interest. They then provided low interest loans to people buying houses.
Cont…
• Savings Bank – banks that only offer deposit service. People deposit money and earn interest.
• Credit Unions – established by people who were in the same organizations or worked for the same company.
• They offer all banking services at a discount rate.
Payback
• Loans must be paid back according to the loan agreement.
• Discounting – a person pays the interest first and receives a lower interest rate.
• Renewing a Loan – when a person is unable to pay the loan the bank will reissue the loan. With additional interest.
Government Regulations
• Federal Reserve System – the bank for the US government.
• Loans money to other banks.
• Handles the governments banking needs.
• Not for use by individuals or businesses.
• The banks who belong to the system can borrow money at a Discount Rate – lower interest rates charged to member banks.
Savings and Investment
• Everyone tries to save money.
• For future expenses, a purchase, or just to have extra.
• Savings can be used to put for a down payment on a major purchase like a car or house.
• This can lower the repayment amount and the interest rate.
How Do People Save?
• 1. Banks - most people set aside a regular amount from their paychecks to save.
• These accounts usually earn interest.• 2. Buying Bonds - people can buy savings
bonds as an investment. When these bonds mature the money can be withdrawn.
• 3. Buying Stocks - investing in the stock market can be a good way to make money.
Cont...
• Brokers - people employed by a brokerage house to buy stocks for individuals.
• These brokerage houses are members of stock exchanges
• Risk - you can make a lot of money, but you can also lose everything.
• Mutual Funds - buy shares of a fund that owns thousands of shares of different companies.
Cont...
• 4. Certificate of Deposit (CD’S) - issued by banks the cd is purchased at an agreed upon price and the money is in the cd until the time is up.
• The owner then gets their money back plus interest. Usually a guaranteed amount of interest.
Cont...
• 5. Money Market Fund - like a mutual fund only the person can remove the money whenever, and the investment is more risky.
• 6. Precious Metal - Gold, Silver, and Jewelry.
Insurance
• Insurance - a system of paying small amounts monthly to help pay for emergencies later.
• Home, health, life, flood, earthquake, fire, car, etc…
• Private Insurance - voluntary insurance.
• Can cover almost anything that can happen to you.
How Does Insurance Work?
• The insurance co. takes in millions of premiums.
• Not everyone uses the insurance. So there is excess money.
• This allows insurance companies to invest excess premiums (monthly payments) and make money off of them.
• This guarantees that when you need your insurance it will be there.
Life Insurance
• Provides the person’s family with money when they die.
• Term - life insurance that pays off during a certain period of time 5, 10, 20 years
• Life - life insurance that pays off no matter when the person dies.
• Which one is better for me?
Social Insurance
• Government provided insurance.
• Social Security Act of 1935 - establishes social security.
• This pays three groups
• 1. Old age / Survivors benefits
• 2. Unemployment insurance
• 3. Workman’s Compensation
Medicare and Medicaid
• Medicare Act 1965 - provides health insurance to certain groups of people.
• Medicare - helps citizens over 65 with medical expenses.
• Medicaid - helps citizens who cannot afford health insurance