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
