Chapter 7: Banking
Personal Financial Management
FINANCIAL SERVICES AND INSTITUTIONS
CHAPTER 7.1
Beginning of Banking
• 1791
• First central bank – 8 branches
• Today - 11,000 banks, 2,000 savings and loan
associations, and 12,000 credit unions.
Types of Financial Services
• Savings
• Payment Services
• Borrowing
• Other financial services
Savings
• Essential for any personal finance plan.
• Time Deposit – money that is left in a financial
institution for months or years.
• Examples: money in any type of savings account
and CDs
• Selection of savings plan should be based on
interest rates, liquidity, safety, and convenience.
Payment Services
• Checking Account – most commonly used
payment service
• Demand Deposit – money that you place in a
checking account
• You can withdraw the money at any time, or on
demand.
Borrowing
• Short-Term
• Credit cards, personal cash loan
• Long-Term
• Mortgage, auto loan
Other Financial Services
• Insurance protection
• Stock – money paid for investment into a
business (securities)
• Bond – A form of a loan or IOU (securities)
• Mutual Funds – pools money from multiple
investors to purchase securities
Electronic Banking Services
• Direct Deposit – automatic deposit of net pay
into an employees designated banking account
• Automatic Payments – authorization needed,
your bank withdrawing money monthly for a
payment or bill
• ATM – computer terminal that allows for the
withdrawal of money, deposits, and transfers
Document Detectives
• Textbook Page 193
• Answer question #1-6 in your notes
Evaluating Financial Services
• Balance your short-term needs with your longterm needs
• Location and convenience
• Fees
• Re-evaluate occasionally
Types of Financial Institutions
• Safety
• Deposit Institutions
• Non-Depository Institutions
Safety
• Record, examine history
• Federal Deposit Insurance Corporation (FDIC)
• Protects deposits in banks
• Insures each account in a federally chartered
bank up to $100,000 per account
Deposit Institutions
• Commercial banks – for-profit institution that offers a
full range of financial services.
• Savings and loan associations – traditionally
specialized in savings accounts and mortgage loans but
now offers many of the same services as commercial
banks.
• Mutual savings banks – owned by depositors,
specialize in savings accounts and mortgage loans.
Lower interest rates on loans and pay a higher rate on
savings accounts.
• Credit unions – nonprofit, owned by its members and
organized for their benefit.
Non-Depository Institutions
• Life Insurance Companies – provide financial
security for dependents.
• Investment Companies – combine money with
funds from other investors in order to purchase
securities, mutual funds.
• Finance Companies – Advice, loans for
consumers and small businesses, investing
Problematic Financial Businesses
• Pawnshops
• Make loans based on the value of tangible possessions
• Interest charged
• Check Cashing Outlets
• Charge from 1-20% of the face value of a check
• Payday Loans
• Write a check to get a ‘loan’
• Personal check not cashed for 14 days
• Interest charged and rolled over, a continuous cycle
• Rent-to-Own Centers
• Own an item if consumers complete a certain number of monthly
or weekly payments.
• Interest charged – end up paying more than the item is valued.
Section 1: Assessment
• Textbook page 201
• #1-7
• Complete on separate sheet of paper and turn in