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(c) 2012 National Endowment for Financial Education | Lesson 1-4 Spending Plan2

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WHAT DID YOU LEARN

LAST WEEK?

www.hsfpp.org

©2012 National Endowment for Financial Education | Lesson 4-1 Put Savings to Work3

Put Savings to Work

SELECT SAVINGS OPTIONSTHAT WORK FOR YOU


What Does it Mean to be Wealthy?


Preview

Today we will answer these questions:• What is the difference between saving and

investing?• What are the different ways I can invest money?• How do I get started with investing?

Use what you learn today toweigh the risks and rewards of investing.


Meet Whitney and JustinWhitney– senior

•Works part-time

• Spends most of her money on clothes and going out with friends

• Doesn’t stick to her savings plan

Justin– 8th grader

• Earns money from occasional odd jobs in neighborhood

• Father was recently laid off from job

• Is saving money for college


Save vs. Invest

Alike

Plan to use money later

Keep ownership

?SaveStore money somewhere

to avoid spending now

Original amount always available (unless stolen, lost, or destroyed)

Insured if kept in a bank account

InvestUse money with

expectation that it will make a profit (Ex: stock, rental property, business)

Not all investments are insured

No guarantee that original amount will be available if value of investment drops (except bank accounts)

Alike

?

Save?

Invest?


Millionaire Myth #1 – True or False?Millionaires usually work in sports, entertainment or lead gigantic Fortune 500 companies.

Athletes and entertainers are notorious for squandering their money until they’re broke. Actually, half of all millionaires are self-employed or own a business.

Source: Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D.The Millionaire Next Door: The Surprising Secrets of America's Wealthy, 1996


Millionaire Myth #2 – True or False?Millionaires made their fortunes the easy way—inheriting it.

Only 20 percent of millionaires inherited part of their money. And half of those inherited less than 10 percent of their assets.1

In fact, 76 percent of millionaires said “smart investing” is one of the top three factors contributing to their financial success. The other two critical elements are hard work and education.2

1Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D.The Millionaire Next Door: The Surprising Secrets of America's Wealthy, 1996

2Spectrem Group, 2012 Affluent Market Insightwww.millionairecorner.com/article/smart-investing


3 Steps to Build Wealth

1. Make enough money to cover essential expenses and have something left to save and invest.

2. Have a plan to save and use part of your income to invest.

3. Invest to put money to work for you.


Sources of Income for Teens

Sources of Income

Allowance

Job

Interest

?Gift

Money

Earned Interest

?


Windfalls

What are your windfalls?

Use unexpected increases in cash to save and invest.


Savers are Related to Borrowers

SaversDeposit money

BorrowersBorrow money

Pay InterestPay Interest

Time is Money

http://images.google.com/imgres?imgurl=http://fiossolutions.com/images/bigstockphoto_time_is_money_150063_y41p.jpg&imgrefurl=http://fiossolutions.com/About_Us.html&usg=__Zc_cAJd0uHR2a-OLbbK1LpZdNx8=&h=798&w=1200&sz=968&hl=en&start=17&um=1&tbnid=vDKqkPuZ6HUETM:&tbnh=100&tbnw=150&prev=/images?q=time+is+money&um=1&hl=en


Watch it Grow

Let’s say you have $1,000 saved in an account that earns 3 percent interest once a year. What is the balance and the compounded interest earned each year over five years?

The Mighty Power of Compounding

YearInterestEarned

EndingBalance

Beginning $1,000.00

1 $30.00 $1,030.00

2 $30.90 $1,060.90

3 $31.83 $1,092.73

4 $32.78 $1,125.51

5 $33.77 $11,59.28Without any physical effort on your part,

your money has “worked” to earn you how much interest?

The Mighty Power of Compounding

YearInterestEarned

EndingBalance

Beginning $1,000.00

1 ? ?

2 ? ?

3 ? ?

4 ? ?

5 ? ?


Interest-Earning Savings OptionsBank or Credit Union

• Savings Account

• Money Market Deposit Account (MMDA)

• Certificate of Deposit (CD)

www.treasurydirect.gov

• U.S. Savings Bond

How Investing Works

START INVESTING NOWTO REAP THE BENEFITS

©2012 National Endowment for Financial Education | Lesson 4-2 How Investing Works18

It costs how much?

I remember when ____ used to cost only $____


Preview

• When should I start investing?• What are some guidelines to follow when

investing?• How do I buy stock?

Use what you learn today tomake decisions about stock investments.


Inflation

2000 2012 $-

$5

$10

$15

$20

$25

$30

Same Item, Different Price


Time Value of Money (TMV)

Yesterday’s Today’s Tomorrow’s

Time is Money



Invest Now or Later?

Which is better?

A. Start investing a little now.

B. Wait a while to invest more later.

What Would You Choose?

$1,000,000.00 cash today

1¢ today that doubles in value each day for 30 days

OR

$5,368,709.12


Reasons to InvestAn income investment provides expected earnings, usually in predictable amounts.

• Earned interest – payment received in return for use of your money

• Dividends – share of profits some companies pay to their stockholders

• Rent payments – received from people or companies in return for using your property

Growth investments are purchased because of the potential that the value will increase over time; an unpredictable amount of money is received when the investment is sold.

• Real estate

• Business

• Crops

• Precious metals

©2012 National Endowment for Financial Education | Lesson 4-3 Choosing Investments26

Choosing Investments

ESTABLISH INVESTING RULES


Preview

• Are there other ways to invest other than buying stock?

• Isn’t investing risky?• How much risk am I willing to take on when

investing?• Are there ways to reduce the possibility that I’ll

lose money on my investments?

Use what you learn today toset up rules for investing.


Risk Meter

Potential Return Reward

Pote

nti

al R

isk

of

Loss

Certificate of

Deposit

Start-Up

Stock


The Language of InvestingAsset something of value that can be turned into cash Examples: stock, home, lake-front property, business

Liability something owed to another personExamples: loan, rent

Rate of Return degree to which an asset gains (or loses) value over a given period of timeExamples: APY interest on savings, stock value increase/decrease

Risk uncertainty of achieving a desired result


Take the RiskYour risk tolerance depends on …– When you need the money (short-term or long-term)– Your financial goals– Your ability to live with any investing decisions with

unpleasant consequences

Tame the risk– Be sure you can cover your necessary financial needs– Know what you are getting into before you invest– Invest in different types of investments


Diversify to Tame RiskDon’t put all your eggs in one basket.

• Invest in a combination of asset categories:– More than one asset (Example: not all Facebook stock)– Variety of assets (Example: not just Certificates of Deposit)

• Mix investments within an asset category:– Different industries (Example: not all retail)– Different-sized companies (Example: not all small)

Divide investments among several “baskets”.

©2012 National Endowment for Financial Education | Lesson 4-4 Investment Strategy32

Investing Strategy

SET GOALS FOR SAVING AND INVESTING


Wealthy Habits

1. Take on an “earn to invest” mentality.

2. Focus on your lifestyle and financial goals.

3. Persevere—Don’t be a quitter.

4. Let your mistakes be lessons.

5. Look for value.


Wealthy Habits

6. Be the one who controls your money.

7. Avoid unnecessary fees.

8. Believe in yourself.

9. Make strategic risks.

10.Be generous.


The Oracle of Omaha

Famous Investor, Warren Buffet’s investment philosophy:

Invest in top quality, profitable companies

with products you understand, good managers,

and lots of cash to reinvest in the company…

and hold them forever.


7 Paths to Pure Trouble

Trusting

others blindly

Falling for fairy

tales

Relying on pas

t performance

Borrowing to

invest

Holding

only one investment

Flipping

stocks

Getting emotional about

investments

Start Now!!

WHATEVER METHOD YOU CHOOSE THE EARLIER YOU START THE

MORE SUCCESS YOU WILL ATTAIN.

WHY?????

Time is

Money


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