Chapter 8
Plan for Financial Security
The Truth About Saving and
Consumption
Saving for an Emergency
Why Save 8.1
Saving – Trading current spending for the
ability to spend in the future
Benefits of Saving
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Save
Save
Save
Save
Save
for the unexpected
for opportunities
for major purchases
for flexibility
to achieve your goals
The Importance of Saving
Money
Saving Strategies
Saving Strategies
Pay Yourself First
Save by the Numbers
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Set amount
% of pay
Reward Yourself for Saving
Focus on what you are getting not what
you are giving up
Automatic Saving
Payroll Deduction
Checking Account Transfers
How the Average American
Spends Their Paycheck
How Much Money Should You
Save?
How Much Should You Save?
The average savings account balance in the
U.S. was $5,923 in 2011
Bankrate.com reported in 2012 that 28
percent of American families have no savings
Just 43 percent have enough in savings to
cover three months of expenses.
The report suggests that by age 35, you
should have a savings balance equal to your
yearly salary.
http://finance.zacks.com/much-money-average-american-family-savings-7304.html
Savings Accounts
Savings Accounts – Account at a banking
institution in which you may deposit money,
earn interest, and withdraw your funds at any
time.
Interest – Money earned by allowing a
financial institution the use of your money to
lend to borrowers.
Fees and Restrictions
Compound Interest Vs.
Simple Interest
Interest
APY (Annual Percentage Yield)
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Truth in Savings Act 1993
Simple Interest
Compound Interest
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Principal
Dividend
How is the interest calculated?
Simple Interest—interest paid
only on initial amount of deposit.
Compound Interest—interest
paid at set intervals and added
back to principal.
Interest Equation
I = PRT
Interest = Prinicpal * Rate * Time (in years)
Interest = 500 * .85% * 3 years
Interest = $12.75
If simple interest is used,
there is no compounding:
Bob has a savings account that pays 1.05% simple
interest. The first year he has an average balance of
$1200. The second year he has an average balance of
$1325. Figure his interest for each year.
I=PRT
Year 1: I = 1200 X .0105 X 1
Year 1 interest = $12.60
Year 2: I =1325 X .0105 X 1
Year 2 interest = $13.91
Semiannual Compound
(twice a year or every 6 months)
I = PRT
First 6 months' interest:
$1000 x .05 x 6/12
=
Second 6 months' interest:
$1025 x .05 x 6/12
Total annual interest
$25.00
+
=
$25.63
=
$50.63
Quarterly Compound
(every 3 months or 4 times a year)
$100 at 5% (3/12)
1st - $100 x .0125
2nd - $101.25 x .0125
3rd- $102.52 x .0125
4th - $103.80 x .0125
Total annual interest
=
=
=
=
=
$1.25
$1.27
$1.28
$1.30
$5.10
Monthly Compound
(every month or 12 times a year)
$400 at 5% (1/12)
400 x .0042 = 1.68
401.68 x .0042 = 1.69
403.37 x .0042 = 1.69
405.06 x .0042 = 1.70
406.76 x .0042 = 1.71
408.47 x .0042 = 1.72
410.19
411.91
413.64
415.38
417.12
418.87
x
x
x
x
x
x
.0042
.0042
.0042
.0042
.0042
.0042
$420.63
Total Interest
=
=
=
=
=
=
1.72
1.73
1.74
1.74
1.75
1.76
$20.63
Daily Compound
COMPOUND INTEREST TABLE
Year
$100 at a rate of 3%
1 year
$ Amount x Factor =
Interest
$100 x 1.03 = $103.00
2 years
$100 x 1.062 = $106.20
3%
6%
10%
1
1.030
1.062
1.105
2
1.062
1.127
1.221
3
1.094
1.197
1.350
4
1.127
1.271
1.492
5
1.162
1.350
1.649
6
1.197
1.433
1.822
7
1.234
1.522
2.014
8
1.271
1.616
2.225
9
1.310
1.716
2.459
10
1.350
1.822
2.718
15
1.568
2.459
4.481
20
1.822
3.320
7.387
Math Activity 12 Simple Interest
Simple Interest
I = PIN
Interest = Principal X Interest Rate X Number of Years
Suppose you deposited $500 for six months and earned
4% simple annual interest. How much would you earn?
$500 X .04 X .5 = $10
Math Activity 12 Compound Interest
3 Step Approach:
1. Determine the periodic rate
annual rate/period
4%/4 (quarterly is 4 times a year)
4%/12 (monthly is 12 times a year)
2. Interest earned = account balance X periodic rate
1200 X .01 = $12
1200 X .0033 = $3.96
3. New balance = old balance + interest earned
1200 + 12 = $1212
1200 + 3.96 = $1203.96
Math Activity 15 Evaluating Retail Promotions
Sales
The term sale implies that the price of a good or service is lower
than the usual price. Before a business can legally label a price as
a sale price, the business must have sold the item regularly and
recently at the non sale price. Some businesses that meet that
requirement have previously sold merchandise at a higher price
than their competitors. Their “sale” price is no lower than the
regular price at other businesses.
Use the info given to find out if the business is really offering good
deal.
Math Activity 15 Evaluating Retail Promotions
Coupons
Coupons are another common form of promotion. Coupons may
arrive through the mail, by direct delivery, in magazines, and in
newspapers. Coupons usually emphasize the money you will save
by using the coupon.
Use the information given to determine if the consumer would
same money using the coupon or if they would do better to go
without.
Making Change
If you go to the grocery store and buy
groceries totaling $42.67 and give the
cashier a $50 bill. How much change
should you receive?
50 – 42.67 = $7.33
Mileage Reimbursement
I am going to a conference in Springfield on a
Thursday and Friday. I plan to drive there and
back each day. The mileage is 39 miles each
way and our school reimburses me .575 cents
per mile. How much will my reimbursement
check be?
39 X 4 = 156 total miles
156 X .575 = $89.70 is my reimbursement
Standard Form
Standard for is the numeric full form of
large numbers.
Write 5.692 billion in standard form.
5,692,000,000
Banks Vs. Credit Unions
Savings Institutions 8.2
Savings Institutions
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Commercial Banks
Savings Banks
Savings & Loan Associations
Credit Unions
Deposit Insurance
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FDIC
FSLIC
NCUA
Certificates of Deposit
Save with Safety 8.3
Liquidity Vs Interest Rate
Savings Options
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Certificate of Deposit (CD)
Money Market Account (MMDA)
Savings Account
Penalty vs Fee
Government Bonds
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Treasury Investments
Savings Bonds