Personal Finance
• A. Banking- one of the most important components of personal
financial planning is managing your finances
• 1. Today, there are more than 11,000 banks, 2,000 savings and loan
associations, and 12,000 credit unions in the U.S.
• 2. These financial institutions make money by lending consumers and
businesses money via loans
.
Personal Finance
• 3. There are 3 main types of banks in the U.S.
• a. Commercial Banks (Full Service Banks), most of the banks in the
U.S. are Commercial Banks
• *. They are businesses that operate to make a profit, they earn this
profit by charging much more interest on the money they lend than
the interest they pay on savings accounts
• *. They offer services such as checking/savings accounts, mortgage
loans, small business loans, student loans, commercial loans,
investment advising, etc.
Personal Finance
• b. Savings and Loan Associations
• *These banks were originally established to offer savings accounts
and home mortgages (they charged lower interest rates on loans and
higher interest rates on savings accounts)
• *In the 1980’s 20% of Savings and Loan Associations failed , so the
government passed new regulations that allowed them to charge
higher interest rates and offer more services like credit cards
Personal Finance
• c. Credit Unions Member owned financial institution
• 1. Credit Unions are formed by large corporations and organizations
for their employees
• 2. Credit unions are Not-For-Profit Organizations because their
purpose is to serve their customers not to maximize their profits
• 3. Credit unions offer their members competitive rates, and other
financial services to their members
Personal Finance
• A. Types of Financial Services
• 1. Savings Accounts
• a. Regular Savings Account- are good if you make frequent deposits and withdrawls;
they require little or no minimum balance; however the interest earned on these type of
accounts are relatively low compared to other savings options
• b. Certificates of Deposit (CD) is a savings option in which money is deposited for a
stated period of time, to earn a specific rate of return (interest); offers a higher interest
rate than a regular savings account
• c. Money Market Accounts type of savings account offered by banks and credit unions
that pay higher rates, have higher minimum balances than regular savings accounts;
Minimum balance is $1000-2500, and only allow 3-6 withdrawls a month
• d. U.S. Savings Bonds- (Patriot Bonds) are another savings option; you can purchase
these bonds from the federal government in amounts that range from $25- $5,000.00
Personal Finance
• 2. Payment Services- are the 2nd category of financial services; the most
commonly used payment services are checking accounts
• Types of Checking Accounts
• a. Regular Checking Accounts- usually do not require minimum balances
• b. Interest Earning Checking Accounts are a combination of checking and
savings accounts; these accounts pay interest if you maintain a specific
minimum balance
• “Many checking accounts offer overdraft protection, which is an automatic
loan to cover checks that the balance in the account won’t cover”
Personal Finance
• B. Problematic Financial Institutions
• 1. Pawnshops
• Make loans based on the value of tangible possessions such as jewelry or
other valuable items
• Many low and moderate income families utilize these organizations to obtain
cash loans quickly
• They charge higher fees than other financial institutions (interest)
• They have become the “neighborhood bankers” and the “local shopping
malls” because they provide both lending services and retail shopping
services, by selling items that the owners do not redeem
• While most states regulate Pawnshop rates, 3% or more a month is common
Personal Finance
• 2. Check Cashing Outlets
• There are more than 6,000 check cashing outlets in the U.S.
• You are not required to have an account with these organizations
• They charge anywhere from 1-20% of the face value of a check, however the
average is 2-3%
• For low income families these rates can be a significant portion of their
household budget
• They also offer other services such as utility bill payments, money orders,
private postal boxes, etc.
Personal Finance
• 3. Payday Loans
• Also known as cash advances, check advance loans, and delayed deposits
• Interest rates range from 659-1300%
• These type of financial institutions have increased in recent years due to the
economy
• The most frequent user of these types of institutions are workers who are
trapped by debt, or people who have been driven into debt by misfortune
SECTION 1 PERSONAL FINANCIAL PLAN
Section #1
• A. Scenario: You are 25 years of age, and have been working at your current job or profession for
the last 3 years. You are single, no children and have been living at home with your family, since
completing your formal education (2-4 college education, Technical school, or Trade School) and
have saved $10,000. You’re ready to move on. You have found an apartment, buying new
furniture and a new car. In addition to your savings account you have a checking account where
your monthly pay check is deposited into.
• B. You are putting together a financial plan to achieve your intermediate goals/objectives
• 1. Employment-Research an occupation you are interested
• 2. Go to Salary.com and research the entry level salary for the specific job you are interested in
• 3. To calculate your take home pay after taxes go to www.adp.com/.../calculators.../payrollcalculators/salary-payc
• 4. Please keep a journal of your findings and also submit your findings for homework…due date
next class period…all late assignments will be deducted by 25 points per day