Savings Introduction

The Essentials to Take Charge of Your Finances

Family Economics & Financial Education

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

What Can People Do With Money?

• Spend it • Save it

• Invest it

• Donate it

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

• People usually spend money before they save, invest, or donate it

• For example:– The average adolescent spends about

$264 per month– How much of this are they saving?

• The amount saved is most likely much less than the amount spent

What Can People Do With Money?

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Goals• What is a goal?

– Something a person intends to acquire, achieve, do, reach, or accomplish

– Goals help people focus on items that are most important

7.14.1.G1

© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Types of Goals• There are 3 main types of goals

– Short-term goals• Can be achieved in less than one year

– Long-term goals• Can be achieved in a time period of more

than one year

– Financial goals• Specific objectives to be accomplished

through financial planning

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Why are goals important?

• Short-term and long-term goals are a necessary component of an effective financial plan

• In order to reach short-term and long-term saving goals, individuals may need to change their spending habits

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Savings• What is savings?

– A portion of income that is not spent to purchase necessary or wanted items

• Saving should be viewed as an expense– Use the motto “pay yourself first”– Pay yourself first - set aside a portion of

money for saving each time a person is paid before using any of the money for spending

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Why should people save?• For unexpected events and

emergencies– Without savings, unexpected events may

become huge financial problems– Examples: the car breaking down or

having a medical emergency

• To purchase expensive items– Examples: a new car or a family

vacation

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

How should people save?• Should use an account with a

financial institution– A financial institution is a business

that holds and protects money for people

• Examples of accounts…– Savings Account– Money Market Deposit Account– Certificate of Deposit (CD)

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Savings Account• An account with a financial institution • Keeps money safe until the owner needs it• Opening a savings account

– Deposit, or put money into the account– The financial institution will pay interest, or

additional money, which is calculated by taking a percent of the total amount of money deposited in the account

– Money can be withdrawn, or taken out, at any time

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

SIMPLE INTEREST & COMPOUND

simple interest calculation• Dollar Amount x Interest rate x Length of Time (in years) = Amount Earnedexample

– If you had $100 in a savings account that paid 6% simple interest, during the first year you would earn $6 in interest.

$100 x 0.06 x 1 = $6– At the end of two years you would have earned $12.– The account would continue to grow at a rate of $6 per year, despite the accumulated interest.

compound interest calculation• Interest is paid on original amount of deposit, plus any interest earned.(Original $ Amount + Earned Interest) x Interest Rate x Length of Time = Amount Earnedexample• If you had $100 in a savings account that paid 6% interest compounded annually, the first year

you would earn $6.00 in interest.$100 x 0.06 x 1 = $6$100 + $6 = $106

• With compound interest, the second year you would earn $6.36 in interest.• The calculation the second year would look like this:

$106 x 0.06 x 1 = $6.36$106 + 6.36 = $112.36

7.14.1.G1

© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Money Market Deposit Account

• Another type of account with a financial institution

• Pays a higher interest rate than a savings account

• Money can be withdrawn from the account a limited number of times every month

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Certificate of Deposit• An account that pays interest on a

lump sum of money• Money is required to stay in a CD for

a specific period of time – The money and interest earned can be

withdrawn at the end of the time period

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Summary• What can people do with money?

– Spend, save, invest, or donate

• What is a goal?– Something a person intends to acquire,

achieve, do, reach, or accomplish

• What are the three main types of goals?– Short-term, long-term, and financial

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Summary Continued• Why are goals important?

– They are a necessary component of an effective financial plan

• What is savings?– A portion of income that is not spent to

purchase necessary or wanted items

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Summary Continued• Why should you save?

– For emergencies, unexpected events, or to purchase expensive items

• How can you save money?– Savings Account, Money Market Deposit

Account, and Certificate of Deposit

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Matching Game• Divide into groups of three and designate one

person as the referee• The referee should shuffle the matching

activity cards and place them answer side down into rows

• Try to match the term with the definition by flipping over two cards at a time

• Ask the referee if the match is correct – If so, keep the cards and take another turn!– If not, turn the cards back over and wait for the next

turn.

• Good luck!

7.14.1.G1

© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Note taking guide

• What do people do with money? – Spend it – Save it – Invest it – Donate it

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Note taking guide• Goals

– The definition of a goal is something a person intends to acquire, achieve, do, reach or accomplish

– Short term goals can be achieved in less than one year

– Long term goals can be achieved is more than one year

– Financial goals is a specific objective that is to be accomplished through financial planning

7.14.1.G1

© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Note taking guide• Savings

– The definition of savings is a portion of income that is not spent to purchase necessary or wanted items

– One follows the motto of paying yourself first by setting aside a portion of money for saving each time a person is paid before using any of the money for spending

7.14.1.G1

© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Note taking guide• Why should people save?

– Answers may vary however may include: • Medical emergencies • Appliances such as a dishwasher leaking • Transportation problems such as a car

breaking down

7.14.1.G1

© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Note taking guide• How should people save?

– Savings Account: this is an account with a financial institution

– Money Market Deposit Account: this is a type of account that pays a higher interest rate than a savings account

– Certificate of Deposit: this is an account that pays interest on a lump sum of money

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© Family Economics & Financial Education – Revised September 2009– The Essentials to Take Charge of Your Finances – Savings Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Note taking guide • When opening a savings account at a

financial institution an individual will deposit or put money into the account. Once the account is open, the owner can take our or withdraw money at any time. The money will then increase in value or earn interest.