Personal Financial Literacy: Unit 4

annual percentage yield

(APY); the amount of interest you will earn in one year from a savings account

Steps to buying and selling stock:

1. A company or individual makes shares available for sale. 2. An individual puts in an order to buy stock with a broker. 3. The trade is executed on the exchange floor or electronically. 4. The individual waits and watches the stock. 5. The individual puts in an order to sell stock. 6. The sale is executed either electronically or on the exchange floor. 7. Money is sent to seller.

there are several steps to opening a bank account, what are they?

1. gather the required information: date of birth, Social Security number, home address, and phone number 2. Choose a director for the account 3. Go to the bank to sign the necessary bank forms 4. Fill out a deposit and deposit at least the minimum amount of money

Years to double=

72/ interest rate

A=P(1+r)^n

A is the amount of money accumulated, P is the principal, r is the interest rate, and n is the number of years the amount is in the account.

What is an incentive for a person to contribute to an IDA?

An organization matches the amount deposited.

biblical principles:

Invest with purposeful goals in mind such as education or retirement. Select investments that meet or promote biblical standards. Seek advice from experts. Choose investments that don't change your lifestyle or cause stress. Be patient and don't invest because of greed. Evaluate risk and return, and if you can't afford to invest, don't.

Treasury Bills

T-bills; a savings product sold by the US Treasury department at a discount from their face value and range in terms from a few days to six months

treasury notes

T-notes; a savings product that pays interest every six months and is issued in terms of two, three, five, and ten years

Treasury Inflation-Protected Securities

TIPS; a savings product that pays interest twice per year and provides protection against inflation

principles that financial experts recommend:

Understand your risk tolerance. Determine how much risk you are comfortable with. Remember, there's a connection between risk and return. Learn as much as you can about the investment from stock tables, company information, financial magazines, and reliable financial web sites. Keep investments simple, and don't be afraid to ask questions so that you understand completely. Look at past performance of the investment, remembering that past performance is not a guarantee of future performance. Consider how long you plan to keep your money in the investment. Some investments are better for longer term and are less liquid. Continuously evaluate your plan. The ideal investment products for you will change over time, so reevaluate what you have from time to time. Keep investment expenses low. High trading fees or fees for withdrawing money from a CD can add up. Stick with it. After you have developed your saving and investing plan, stay with it.

Series HH savings bonds

a U.S. Treasury savings product issued in multiples of $500 that pays interest every six months

stock

a certificate representing a share of ownership in a company

mutual funds

a collection of money from a group of investors that is used to buy different investments, like stocks, bonds, and real estate, managed by professionals

Rule of 72

a formula that helps you calculate how long it will take for your savings to double in value

rate of return

a percentage that shows how much gain or loss an investment makes

shareholder

a person who owns shares of a company's stock

retirement account

a plan for setting aside money to be spent after retirement

stock broker

a professional who buys and sells stocks and other investments for customers

IRA

a retirement account that lets you save and invest money tax-free until you withdraw it when you retire

403(b)

a retirement plan available to employees of nonprofit organizations, such as schools and hospitals

401(k)

a retirement plan that some private corporations offer their employees

529 plan

a saving plan for education designed to help set aside funds to pay future college costs.

money market account

a savings account that offers a higher rate of interest when you make large deposits

Savings bond

a savings product or certificate issued by the U.S. government with values ranging from $50 to $10,000

Term

a set period of time.

share

a single unit or equal part

share

a single unit or equal part of stock

stock symbol

a unique set of letters assigned to a company for the stock market

Club Account

an account used to save money for a special reason, such as a holiday, a vacation, or college

U.S. Department of Treasury

an executive department of the United States government whose purpose is to manage the government's money

IDA

an individual development account or a matched savings accounts into which an organization, such as a foundation, corporation, or government, agrees to add money which matches the money you deposit

stock market

an organized way for people to buy and sell stocks and for corporations to raise money. The New York Stock Exchange and NASDAQ are the biggest in the United States

5 main savings categories

basic savings, high-yield savings, money market, online savings, and credit union savings

Depositing money into a savings account helps you:

be a better steward of God's resources, save money towards goals, have money for emergencies, learn to better manage money.

CD

certificate of deposit; an account where you leave your money for a set period of time and are unable to make deposits or withdrawals during this time unless you pay penalties

variable interest rates

different interest rates paid for different size balances, with higher balances earning higher rates

Services that can help you with saving and investing include:

financial advisement; fund manager; full-service stock broker or brokerage firm.

helpful resources

financial advisers articles in financial magazines and the financial section of the newspaper; full-service stock broker or brokerage firm; investment books at the library or book store; millions of online articles about various financial topics; (Note: make sure they are written by a reliable source.) suggestions from analysts who are accessible online; web sites that provide stock quotes and tables; customer service representatives at your bank.

Reasons a person would save money in a CD

high interest rates, safe, and no fees.

Higher risk ____________. Low risk __________.

higher potential return. lower return.

Before you select an account think about:

how long you'll be keeping your money in the account, how often you'll want to withdraw money, how much money you'll keep in the account

Compound Interest

interest the bank gives on the interest that has been already earned.

diversification

investing in a variety of investments in order to limit losses in the event of a sharp decline in a particular type of investment

Series I savings bonds

may be purchased at face value

If you received a $100 savings bond yesterday, can you use the money from the savings bond to buy an item that costs $85 today?

no

An online savings account _____.

offers higher interest rates because they don't have the overhead that standard banks have

tools and services available at financial institutions

online statements allow you to view your balance and transactions online, ATMs, online savings plans, transfers, direct deposits, automatic transfers

Some investment tools include:

online trading accounts for buying and selling stock from any device that can connect to the internet; online portfolios; (Note: Online stock brokerage firms, such as E-trade and Fidelity, offer portfolios to help you quickly view your investments and their worth.) spreadsheets to list your investments; online calculators to calculate compound interest or the value of a savings bond.

When selecting a savings account you should consider if there are

penalty fees, minimum balance, interest rate, interest threshold, variable interest rates, APY

P/E

price to earnings ratio; the latest closing price divided by the earnings per share

before you invest look at the

price-to-earnings ratio (P/E), 52-week high, 52-week low, dividend

Before investing money check to see what the ____________ are.

risk, rate of return, and liquidity

Investing is ...

risky, potentially earns more money, not federally insured, sometimes earns money through dividends, necessary to sell an investment to use the money.

Series EE savings bonds

safe savings products that you can use toward your education or for gifts

Saving is ...

safe, earns a lower amount in interest, federally insured, no dividends, earns interest, no need to sell, withdrawals permitted.

special savings accounts

savings bonds, CDs, money market accounts, 529 plans, IDA, club accounts, treasury securities.

Tips for saving money:

spend wisely, if you receive cash as a gift save at least part of it, pay your bills on time to avoid late fees and finance changes, use direct deposit of set up your account to automatically transfer money directly into savings, save any extra money, save tax refunds, join a retirement plan that is offered, avoid debt.

types of investments

stocks, mutual funds, retirement investments, and real estate, collectibles

opportunity costs

the difference between a chosen investment and one that is passed up

liquidity

the ease with which an investment can be turned into cash without losing its value

mature

the full value of a savings product when it has been saved for the full term; becoming payable or due

interest thresholds

the minimum balances before the bank begins paying interest

Principal

the original amount of money invested or deposited into a savings account.

stock quote

the prices of a stock at a particular point during the day

fund manager

the professional who decides where to invest money in a mutual fund

Return

the profit or gain from saving or investing money.

trade

to buy or sell stock

Mutual funds are the riskiest type of investment.

true

investing

using money in order to try to make more money