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Building Wealth. Assets-Liabilities = Net Worth Assets—anything an individual or business owns that has commercial or exchange value Liabilities—Money an individual or organization owes; same as debt Net Worth—The difference between the total assets and total liabilities of an individual.

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building wealth

Building Wealth

Assets-Liabilities = Net Worth

Assets—anything an individual or business owns that has commercial or exchange value

Liabilities—Money an individual or organization owes; same as debt

Net Worth—The difference between the total assets and total liabilities of an individual

the value of assets
The Value of Assets
  • Wealth-creating assets are possessions that generally increase in value over time or provide a return
  • Depreciation is the decrease in an asset’s value over time. Items that wear out or have a falling price depreciate.
slide3

Equity

    • the difference between the market value of the home and the amount of the mortgage on the home
    • How much your home is worth compared to how much you owe on your home

BOTTOM LINE: Your net worth is your wealth

slide4

Choose one item from the following list and answer these three questions:

1. A specific description of your goal ($,item,etc.)

2. Time frame for achieving your goal

3. Financial resources required to achieve your goal (savings and income)

Buy a new vehicle Rent an apartment

Go to college Take a trip

Buy a used vehicle Buy a house

Go to the prom Buy a new Big Screen TV

bonus
BONUS:
  • Find an article from a newspaper or magazine that deals with the results of Hurricane Sandy.
  • Explain how this will affect the supply or demand for a good or service.
  • Your report should be a minimum of 100 words.
  • Attach a copy of the article to your paper.
  • DUE DATE: Tuesday, 4/2
what comes to mind when you see the word interest write down the first 5 things that come to mind
What comes to mind when you see the word “interest?”Write down the first 5 things that come to mind.
slide7
Simple Interest ChartHow much interest will a saver receive each year on a $100 deposit that earns 5% simple interest?
saving and investing
Saving and Investing

INTEREST—is a fee for the use of money over time.

Simple Interest—the interest payment is computed as a percentage of the original deposit amount or principal

Compound Interest—interest that is paid on both the principal and also on any interest from past years

compound vs simple interest
Compound vs. Simple Interest
  • After 4 years, the difference is only $1.55
  • After 10 years though, the difference is $12.90
  • After 20 years, the difference is $65.33
  • If your original investment was $500, after 20 years the difference would be $326.00
slide11

Think about compound interest and answer the following question:

Would you rather receive $100,000 today or 1 cent with a promise that if you hold all of the money that you are given, the amount will be doubled each day for a month (30 days)?

questions on savings
Questions on Savings

True or False?

  • The more money people save, the less money there is available for investments.
  • The rule of 72 refers to the amount of time it takes to save for a 72 Corvette.
  • People should choose to save when the interest rate on savings is 3 percent and the cost of living is rising by 4.5 percent.
  • Inflation does not influence saving or investment decisions.
slide14

For the following question, include ideas of risk and return in your answer:

If you were to receive $10,000, how would you invest the money?

banks
Banks
  • Banks are businesses, but they do not manufacture products or grow crops
  • Banks make money by selling financial services
    • Car/truck loans, home mortgage loans, business loans
slide16

People come to banks looking for a safe place to keep their money (Savers)

  • Or they come to banks looking to get money to buy a house, start a business, pay for college (Borrowers)
how do banks make money
How do Banks make money?
  • Banks take the money they have in deposits (savings) and loan it to those who want to buy things (borrowers)
  • They make a profit with the difference between the interest rates they charge
slide18

What factors should a saver consider in choosing a bank?

  • The interest rate
  • Fees including: ATM, NSF, withdrawal
  • Monthly balance if required

What factors do banks consider before lending $?

  • How much debt do you have
  • What type of credit (credit cards, vehicle loans, mortgages)
  • Do you have a history of repaying your loans
  • How promptly you pay your bills (have you ever been late!)
slide19

List 7 markets that you participated in over the last month. (EX: Wal-Mart.)

Thinking about these markets, write down 3 answers to the following: “We couldn’t have markets unless we had _________ “

Just as there is a market for music (iTunes), jeans (department stores) or food (Wendy’s) there is also a market for stocks.

stocks
Stocks
  • a share of ownership in a company
  • People buy stock expecting the company to do well, which will increase the price of the stock
slide21

You make money two basic ways:

  • The price increases and you sell it at a higher price
    • This is called a capital gain
    • CG is the difference between the purchase and the sale price of a share of stock
slide22

2. Dividends

a.) If the company does well, they can issue their stockholders a dividend

b.) This is a percentage of the company’s profits

what is the dow jones
What is the Dow Jones?
  • The Dow Jones Industrial Average (DJIA) is the oldest measuring index for the Stock Market
  • It takes an average of the 30 most actively traded industrial companies
slide26

Bulls and Bears

A bull market means that people are optimistic and believe the market will increase.

A bear market means that people are pessimistic and believe the market will decrease.

how does the stock market affect your life
How does the stock market affect your life?
  • An increase in stock prices causes an increase in wealth, and consequently an increase in consumer spending.
  • As the stock market goes up and down, it can cause companies to be optimistic about the future.
  • They may decide to increase production or offer new products
slide29

Investment BasicsBasics: Risk/Return

The RISKIER the Investment

The HIGHER the Return

slide30

Types of investments:

  • Insured Savings Accounts
  • Savings Bonds
  • Certificates of Deposit
  • Treasury Bonds
  • Corporate Bonds
  • Mutual Funds
  • Stocks
  • Collectibles
  • Commodities
you have 5 000 to invest which would you choose and why
You have $5,000 to invest, which would you choose and why?
  • Mattress
  • Passbook savings account
  • CD
  • U.S. Government Savings Bond
  • Money market mutual fund
  • Stocks
  • Stock mutual fund
why use credit
Why use Credit?

Advantages

  • Use a good today and pay for it later
  • Acquire assets: car, house, college
  • Help with an emergency
  • Take advantage of a unique opportunity to buy
  • Pay back with cheaper dollars in a time of inflation

Disadvantages

  • Loans have to be repaid with interest
  • Convenient credit might encourage impulse buying
  • People may use too much credit compared to their income
  • Poor credit use can harm credit ratings
  • A poor credit rating can make credit more expensive in the future
consumer credit information
Consumer Credit Information
  • Credit cards allow people to “buy now, pay later”
  • Credit cards enable people to obtain instant loans from banks, gasoline companies, department stores, etc.
slide34

Most credit cards come with limits as to how much a person can borrow

  • Most allow for cash advances and most charge a fee for these advances
slide35

Interest charges on credit cards can be as high as 26%

  • The average American has 1-3 credit cards and owes credit-card balances of approximately $8,000
  • Most Americans save very little of their disposable income
  • The credit card debt of low-income families continues to rise
slide36

If credit card companies can get you in debt early, they may be able to keep you in debt for life. 

  • You're either paying interest or making interest, and the paying side is worse in more ways than one.
  • $1000 invested at a productive rate of 10% would turn into $17,450 over thirty years, but in the same time $1000 debt at 23.99% credit card interest would become $633,285 !
the 4 c s of credit
The 4 C’s of Credit

1. Character—refers to the financial history of the borrower..Do you pay your bills on time? Have you had credit before?

2. Capacity—ability to pay back the loan..Do you have a job or another income source?

slide40

3. Collateral—an item of value pledged against the debt; car or house. With credit cards, the collateral could be the money in your savings. If it is a car loan, the car could be the collateral

4. Conditions—how you plan to use the money, What is the purpose of the loan? Vehicle? Education? Business? Home?