Chapter 9: Sources of
Capital
Describe the benefits people gain by saving
money.
How do savings accounts differ from time
deposits?
How do economists measure savings?
Why do you save money?
Major purchases
Annual or
semiannual bills
Unexpected
expenses
Major long-term
expenses.
Amass wealth
What are the benefits of putting
your money in a bank?
Security
Interest
Money cannot be
lost.
Types of Savings Accounts
Regular Savings
Account
OB: require only a
small deposit.
OB: LIQUIDITY: can
be converted to cash
with little or no loss
in interest payments.
OC: Most banks
charge fees if
balance too low.
Types of Savings Accounts
Money Market
Deposit Accounts:
OB: Generally
higher interest rates
offered. Depends on
t-bill interest rates.
OB/OC: Fairly easy
to withdraw.
OC: Interest rate
might be lower than
regular savings.
Time Deposits
CDs (Certificates of
Deposit) – required
to leave money in
account for a
specific amount of
time.
Maturity – When you
can have your
money back.
Time Deposits
USUALLY the longer
in, the more interest
earned.
Depends on interest
rates!
Interest rate is
established when
the CD is purchased.
Require minimum
deposit.
Savings Bonds
Purchasers assume little risk. The bonds
are guaranteed by the US Government.
Buy the bond at a “bargain” and
redeem it on the date for the full value
on the bond.
Buy it for $25 and get $50 when you cash
it.
Savings Bonds
Kind of a loan to the
government.
Pays for government
programs.
Civic improvements.
Pays for the debt.
Measuring Savings
Economists measure
savings to determine
health of the economy.
The SAVINGS RATE is
the percentage of
people’s disposable
income that is not
spent.
Tells about wages
Tells about economic
slowdowns
QUESTION
Interest rates are
very low right now.
What would be
better, a savings
account or a CD?
9.2 Investing
Investment – people
exchange their
money for
something of value
with the expectation
of earning a profit in
the future.
Investment
Remember that
there is RISK.
Financial Planning
BUDGET: What are
the fixed expenses
and the flexible
expenses.
How much are you
willing and able to
save?
Financial Planning
An investment plan
should have
diversification. A
variety of
investments.
Types of Investment
Retirement Plan
(401k). - Employer
offers a pension or a
savings plan.
IRA: Self-employed,
you establish a
program to save.
Estate Plan: Life
insurance, house –
having a will to
transfer funds and
property.
Can be big bucks to
the taxman!
Two Types of Investment
Financial investment
– exchanging
property ownership
and payment to
make a profit.
Real investment –
using money to
create new capital
goods.
Easy Way to Remember!
Financial investment
– collect items you
expect to increase in
value.
REAL Investment
Use money to create
a new capital good.
Build an apartment
complex. Money
spent on the building
is a REAL
investment.
Real Investment and Economic
Growth
Capital accumulation promotes
economic growth.
Katie builds her own business. She will hire
construction workers, interior decorators,
buy stock, hire employees, etc.
• HELPING THE ECONOMY.
• That helps the infrastructure!
Real Investment and
Technological Change
Real investment enables companies to
develop or purchase new technology.
Push-pull effect. New tech pushes new
business, but new business pulls
technology up to their needs.
Real Investment and
Entrepreneurship
Venture Capitalists: REMEMBER Mark
Marcula in PIRATES OF SILICON
VALLEY?
Financed Apple.
Finds promising new businesses and
invests.
• Also government has options like Small
Business Administration with low interest loans.
Questions to Ponder
What are the goals
of a personal
financial plan?
How do financial
investment and real
investment differ?
How does real
investment affect
economic growth?
Stocks, Bonds and Futures
Why do people invest in the Stock
Market?
Gain a profit
Limit risk on investments
Become part owner in a corporation.
Stock Terms:
Blue Chip Stocks: SAFE stocks.
Products people will always need.
Companies that have history. Tend to
always offer profits.
Stock Splits: AOL - $200 per share. 10
shares. $2000. 40 shares of AOL for
$50. $2000.