Bell Ringer
 To have a balanced budget, what must be
greater – income or expenditures?
Spending and Saving Money
Chapter 15, Section 2
By the end of today’s lesson,
you should be able to:
 Describe how to make financial decisions
Balanced Budget
 Income must be greater than expenditures.
 When income is greater, many people save
some of the remaining money each month.
 When expenditures are greater, many people
borrow money or buy on credit.
Be A Smart Shopper –
Shop for Quality
 Buy something that
will last
 Research item before
you buy it by talking
to friends or
magazines such as
Consumer Reports
 Try the item
 Read the label
carefully
Be A Smart Shopper –
Shop for Value

 Compare ads from
different stores to find
the best price
 Sony 24” FD Trinitron
WEGA Flatscreen TV
(KV24FS120)
 Wal Mart - $347.00
 Best Buy - $319.99
Be A Smart Shopper –
Shop for Value
 Unit Price: Price of a standard unit of measurement
What is the better deal? A 4-ounce bar of soap for
52 cents or a 6-ounce bar of soap for 72 cents?
4 oz. – 13 cents per ounce
6 oz. – 12 cents per ounce
Be A Smart Shopper –
Shop for Value
 Compare the price of store brand groceries to
brand name groceries. Store brand groceries
are usually less expensive.
 Shop at seasonal sales.
Be A Smart Shopper –
Avoid Impulse Buying
 Supermarkets will place items by the check out or
at the end of aisles hoping you will add the items to
your cart.
 One-Day Sales – doesn’t leave time to comparison
shop
 High Pressure Sales Techniques
 Know the return policy and keep your receipt.
Ways to Save Money
 Payroll Deduction
 Deposit money into an account that earns
interest
 By earning interest, you increase your
savings.
 Investment Money
Saving with a Bank or
Credit Union
 Savings Account: pays
small amount of interest,
but offers immediate
access to your money.
 Certificate of Deposit
(CD): pays higher interest
but requires that the money
be left for a specific
amount of time. For
example, a 2-year CD is
currently paying 2.9%
interest.
 Government Bonds: safest
investment; bonds are
worth more when they
mature.
 Company Bonds: IOU
from a company
Investment
 Investment: buying of something the purchaser
expects to increase in value
 Risky but has much higher rate of return
 Most common example is the stock market.
 A share of stock is part ownership in the company.
 Mutual Funds are safer investments, because they
purchase stocks and bonds in different areas.
 Investments help the economy.
Pay yourself first . . .
a little can add up
A little can add up!
Save this each week … at 5% interest … in 10 years you’ll
have
$7.00
5%
$4,720
14.00
5%
$9,440
21.00
5%
$14,160
28.00
5%
$18,880
35.00
5%
$23,600
You can buy … two fast food meals or one movie ticket (and
a candy bar) or save $7.00 this week.
You can buy … two small cheese pizzas or one large
pepperoni pizza, delivered or one new CD or save $14.00 this
week.
Teens – Lesson 12 - Slide 12-A
What can you give up to save for your financial goals?
The Rule of 72
How many years will it take to double my money?
72 DIVIDED BY
________________________ =
INTEREST RATE
YEARS TO DOUBLE A SUM OF MONEY
At what interest rate will my money double in a set number of years?
72 DIVIDED BY
________________________ =
YEARS TO DOUBLE
A SUM OF MONEY
INTEREST RATE REQUIRED
Teens – Lesson 12 - Slide 12-H
Borrowing Money
 Banks
 Credit Unions
 Mortgage Companies
 Finance Companies
 Department Stores
The 3 C’s
Character—will you repay the debt?
From your credit history, does it look like you possess
the honesty and reliability to pay credit debts?
 Have you used credit before?
 Do you pay your bills on time?
 Do you have a good credit report?
 Can you provide character references?
 How long have you lived at your present address?
 How long have you been at your present job?
The 3 C’s
Capital—what if you don’t repay the debt?
Do you have any valuable assets such as real estate,
savings, or investments that could be used to repay
credit debts if income is unavailable?
 What property do you own that can secure the loan?
 Do you have a savings account?
 Do you have investments to use as collateral?
Teens – Lesson 7 - Slide 7-B
The 3 C’s
Capacity—can you repay the debt?
Have you been working regularly in an occupation that
is likely to provide enough income to support your
credit use?
 Do you have a steady job? What is your salary?
 How many other loan payments do you have?
 What are your current living expenses? What are your
current debts?
 How many dependents do you have?
Teens – Lesson 7 - Slide 7-B
manner of payment codes
status type of account code
status timeliness of payment
O Open (entire balance due each month)
0 Approved not used; too new to rate
1 Paid as agreed
2 30+ days past due
3 60+ days past due
4 90+ days past due
5 Pays or paid 120+ days past the due date;
or collection account
6 Making regular payments under wage
earner plan or similar arrangement
7 Repossession
Teens – Lesson 7 - Slide 7-G
8 Charged off to bad debt
R Revolving (payment amount variable)
I Installment (fixed number of payments)
Borrower’s Rights
truth in lending act (1968)
Ensures consumers are fully informed about cost and conditions of borrowing.
fair credit reporting act (1970)
Protects the privacy and accuracy of information in a credit check.
equal opportunity act (1974)
Prohibits discrimination in giving credit on the basis of sex, race, color, religion, national
origin, marital status, age, or receipt of public assistance.
fair credit billing act (1974)
Sets up a procedure for the quick correction of mistakes that appear on consumer credit
accounts.
fair debt collection practices act (1977)
Prevents abuse by professional debt collectors, and applies to anyone employed to collect
debts owed to others; does not apply to banks or other businesses collecting their own
accounts.
Borrower’s Responsibilities
 Borrow only what you can repay.
 Read and understand the credit contract.
 Pay debts promptly.
 Notify creditor if you cannot meet payments.
 Report lost or stolen credit cards promptly.
 Never give your card number over the phone unless you initiated
the call or are certain of the caller’s identity.
How Much Can You Afford?
never borrow more than 20% of your yearly net income
 If you earn $400 a month after taxes, then your net income in one year is:
12 x $400 = $4,800
 Calculate 20% of your annual net income to find your safe debt load.
$4,800 x 20% = $960
 So, you should never have more than $960 of debt outstanding.
 Note: Housing debt (i.e., mortgage payments) should not be counted as part of the 20%,
but other debt should be included, such as car loans, student loans and credit cards.
monthly payments shouldn’t exceed 20% of your monthly net income
 If your take-home pay is $400 a month:
$400 x 20% = $80
 Your total monthly debt payments shouldn’t total more than $80 per month.
 Note: Housing payments (i.e., mortgage payments) should not be counted as part of the
20%, but other debt should be included, such as car loans, student loans and credit cards.
The ABC’s of Borrowing
 Principal: the amount of money borrowed
 Interest:amount of money charged to borrow the
money
 High-Risk borrowers are charged higher rates of
interest.
 Collateral: item used to secure the loan
 Repossess: take back the item bought on credit or
used to secure the loan
 Bankruptcy: a legal statement that one can not pay
one’s debts
Using Credit Cards
 MasterCard, Visa, Discover, American Express
 Department Stores offer charge accounts for their
regular customers
 When you buy an item with a credit card, the
business collects the money from the credit card
company.
 The credit card company sends you a bill for the
month’s purchases.
 There is a minimum monthly payment required.
 If you do not pay off the entire balance, you are
charged interest on the remaining balance.
Advantages of Using Credit
 Convenient
 Do not have to carry around cash
 Some credit cards offer rebates or extra
warranties on items purchased with the credit
card.
Dangers of Using Credit
 Spend more money than you can afford to
pay
 Charged interest
 Interest accumulates which can result in
taking a very long time to pay off the
purchase
 Can accumulate a lot of debt
 Increased impulse buying
True Cost of Credit
 You get a credit card offer to borrow up to $2,000 and pay
only $40 a month. The interest rate is 18%.
 You buy a big screen TV for $2,000.
 You pay $40 a month. At the 18% interest rate, $30 is
interest and $10 is toward the principal (the original
$2,000 borrowed).
 If you pay the minimum $40 payment each month, it will
take over 30 years to pay off the TV.
 The total amount of interest you will pay is almost $5,000.
 This puts the true cost of the TV at almost $7,000!!!
If you saved that $40 a month . . .
 By investing $40 a month in a mutual fund
account paying only 8% interest per year,
over the 30 year period you would earn
$46,000 in interest.
 Your mutual fund account would be worth
over $60,000.
Comprehension Check
 How much of your income should be spent
on debt payments?
 20%
Comprehension Check
 What is an investment?
 The buying of something the purchaser
expects to increase in value.
Comprehension Check
 What type of interest rates do finance
companies typically charge high-risk
borrowers?
 High Interest Rates
Comprehension Check
 What form of credit do department stores
offer their regular customers?
 Charge Accounts
Comprehension Check
 What is principal?
 The amount of money borrowed
Comprehension Check
 What are the advantages of using credit to
make purchases?
 Convenient, No need to carry cash,
Incentives offered by the credit card
company
Comprehension Check
 What are the disadvantages of using credit?
 Spend more money that you can afford,
Charged interest, Hidden cost of credit
Ask-Pair-Share
 Ask your partner a method of saving money
and a method of borrowing money?