Personal Finances and Economics

What functions does money have?Medium of Exchange: We trade “Money” for “Goods & Services”Store of Value: We hold our wealth in the form of “Money” until we are ready to use it.Measure of Value: Money is a measuring stick that can be used to assign a “Value” to a “Good or Service”.

What different types of money can be used?Historically: Salt, Animal Hides, Gems, Tobacco

Today Currency: Coins, Paper Money, Debit Cards, & Credit Cards

What gives money value?

We are absolutely sure that someone else will accept its “Value” as well.

What types of institutions work within our financial system? Commercial Banks: Financial Institutions that offer full banking service to all individuals & businesses.Savings and Loan Associations (S&Ls): Financial Institutions that traditionally “Loan Money” to people buying homes; however, today they also perform many of the service that “Banks” perform.Credit Unions: These are “Non-Profit” institutions that are only open to members of the group that sponsors them…EX…SECU (State Employees Credit Union)

What makes our financial system safe?FDIC: The Federal Deposit Insurance Corporation is a National Corporation that “Insures” individual accounts in financial institutions for up to $100,000…created after the Great Depression.Government Regulation: Banking is one of the most “Regulated” industries in the nation because of the banking disaster in the 1920s…they are required to follow rules and accounting practices that minimize unnecessary risk.

Within the free enterprise system individuals have a number of rights that include:

The right to enter into any business or profession you are interested in if it is LegalThe right to buy the products and brands that you like & to reject others that you don’t like.

Identify each of the following:Disposable Income – The money that remains after “ALL TAXES” on it have been paid.Discretionary Income – The money remaining after paying for “All Necessities”.

In the past the rights of consumers were limited and could be summed up with the phrase caveat emptor “Let the Buyer Beware” What is consumerism? A movement to educate Buyers about the Purchases they make and to demand better & safer products from Manufacturers.

Identify the purpose of each of the following acts:The Food, Drug and Cosmetic Act: Requires packages to list their ingredients according to the amount of each.

The Pure Food and Drug Act: Requires Manufacturers of foods, cosmetics, & drugs to prove that their products are safe.

The Fair Packaging and labeling Act: Requires every package to have a Label identifying its contents and its weight.

What is the Better Business Bureau (BBB) – Provides info about Local Businesses and warn Consumers about dishonest business practices. What does the Consumer Bill of Rights (1960’s) state:

Right to a Safe ProductRight to be InformedRight to ChooseRight to be HeardRight to Redress…Ask for your Money Back!!

Consumer Responsibilities

Gather Info

Comparison Shopping

Make Fair Complaints

Report Faulty

Products

Use Advertising

Carefully

What responsibility do consumers have?

What is a budget? A careful record of all the money you earn and spend.What is income? The Money you EarnWhat are expenses? The Money you Spend on EverythingWhat is a:Balanced budget- A Budget in which there is no Surplus or DeficitBudget surplus- Money is left over after you have paid all ExpensesBudget deficit- You are short money after paying all Expenses What is credit? Borrowing Money to pay for something now while promising to repay laterWhere do people go to borrow money (sources of credit)?BanksCredit UnionsFinance CompaniesStores

Credit Term Description Lender

Person who loans the money

Borrower

Person that Receives the Loaned Money

Interest

The cost for the use of the money

Annual Percentage Rate (APR)

The annual cost of credit expressed as a % of the amount borrowed

Credit Rating

An Evaluation of the likelihood of a borrower defaulting or being unable to repay a loan.

Collateral

Property that a borrower pledges as security for a loan.

Bankruptcy

The inabilities to pay off debts…you have no money.

Credit Terms

Type of Account Definition Return Time FrameBank Savings Account

Accounts at a Bank, Savings Association, or Credit Union

Low Interest Rate

Depositor can withdraw money at any time.

Certificates of Deposit

Bank Notes for a set period of time at a Fixed Rate of Interest

Interest Rates are usually higher than rates for Bank Savings Accounts

Vary from 6 months to 5 years.

Money Market Accounts

Savings Accounts offered by Banks that require a high minimum balance

Interest Rates are usually higher than rates for regular Bank savings accounts

Depositor may withdraw funds at any time.

U.S. Savings Bonds

The U.S. Gov’t issues savings bonds as one of its ways of borrowing money

Interest Rate is usually higher than rates on Bank Savings Accounts

Good for medium & long-term savings goals.

What are the different kinds of savings accounts individuals can save money in:

What are investments? Risking your income for a greater profit at a later time.Besides savings accounts what are other ways in which people can invest their money?

Stocks: Partial Ownership Shares of a CorporationDividend: Payment received for Ownership of a Share of Stock.

Bonds: Lending or Investing your Personal Income with the U.S. Government…you are loaning the Gov’t Money.

Mutual Funds: Pools of money from many people who are invested in a selection of individual stocks or bonds chosen by financial experts.