Lesson 13 Announcements. Mid Term - in class – Open Book (CHPT 1,2,3,4 6pp129-134)– NEXT Wed Final exam is November 18. Administration will be posting the date, time and room numbers.
Unlike corporations, people have limited lives.
Financial patterns of people and corporations are different.
People tend to have predictable patterns. People can hold ownership in corporations and pass that ownership to the next generation, which changes the pattern and cycle.
Not everybody gets rich. Those who do get rich, usually know a lot about money management. Those who do get rich and don’t know a lot about money management, usually lose their wealth and wonder why!
The Four Pillars
Separate Laws govern each area, because each area requires a Specialization of Knowledge.
The laws ensure that employers will face penalties for negligent and incompetent service.
This encourages and motivates corporations (which are owned by shareholders) to set high standards for their employees of face legal and financial penalties. Stock holders do not like their investments to be fined.
The reason for Specialization is that the risk to the individual citizen’s financial security, and the security of the whole community is reduced if a high standard of professionalism is required.
The trend to purchase was especially strong among trust companies and investment dealers who were to small to achieve economies of scale.
Definition: Economies of Scale
The reduction in long-run average and marginal costs arising from an increase in size of an operating unit (a factory or business office). Economies of scale can be internal to an organization (cost reduction due to technological and management factors) or external (cost reduction due to the effect of technology in an industry).
Question: How can a business that produces a service, such as an investment dealer (stock brokerage) improve its economies of scale?
The Trend continued: To provide a wider range of services than in the past.
What happened: Banks have been permitted to compete with insurance companies, stock and bond brokers and personal financial planners.
In many cases, the banks bought more than one and merged Trust Companies and Investment Dealers.
The 6 largest Canadian Banks dominate financial services in Canada.
Only the Life Insurance Companies are large enough to pose strong competition.
Size (people, specialization, training, professional development)
Geographical coverage (located in established communities and up and coming communities, near old wealth and new immigrants)
Variety of products and services (one stop shopping – like Walmart- it is very convenient)
Can this ever happen in China?
Is it good or bad?
Can it be of some benefit to you?
Two classes of Banks: ScheduleA and B
Payment Clearing System (transfers cheques, deposits, other transactions among banks and other financial institutions)
THE BANK OF CANADA is controlled by the FEDERAL GOVERNMENT. The BANK OF CANADA regulates the money supply and provides temporary liquidity support to the chartered banks.
Schedule A and Chartered Banks are Regulated Federally under the Bank Act and must be awarded a Charter (license) to operate by PARLIAMENT.
Schedule B Banks are much smaller in size , most do not have retail stores / branches and serve mostly the business sector and sometimes ethnic populations.
Transit / Branch: Local Identification
Institution (Bank or Trust Company): eg. Credit Union
Account: My account number for this account
Account Type: eg. chequing, savings, business, personal, child’s account
Originally established to:
Later, Trust Companies began offering additional services similar to Schedule A Banks.
Mutually owned by the customers.
See share price (screen capture) which is evidence of share capital in the credit union.
Common factor of membership is usually
Test Prep Class in this room on Monday at 6PM
These students are encouraged to attend.
Anybody else that wants to attend is welcome.
The need for Credit Unions was called for by people left out of the mainstream of financial power.
(financially poor, working class, undereducated)
Member Shares = Ownership and Voting Privilege
This is different from Service Fees
Automated Clearing House (ACH) is an electronic network for financial transactions. ACH processes large volumes of credit and debit transactions in batches. ACH credit transfers include direct deposit payroll and vendor payments. ACH direct debit transfers include consumer payments on insurance premiums, mortgage loans, and other kinds of bills. Debit transfers also include new applications such as the point-of-purchase (POP).
Unlike Banks and Credit Unions, deposits held by Mortgage and Loan Companies are not insured by the government or private insurers.
They receive their money from private depositors.
This increases the risk of dealing with them.
As their name implies, they provide:
People who borrow from Mortgage and Loan Companies usually cannot get a loan from a Bank or Credit Union.
Borrowing rates are higher for people with poor credit.
Provide Investment Services by acting as agents to:
A more popular option than in the past:
Sell the following:
- Life - Health - Disability
Property – Home, Business, Farm, etc.
Casualty – Accident
Liability – At fault. It was my fault and I have to pay.
More in Chapter 11
This is the name of the company and the product.
Mutual funds are a pool (grouping) of securities held by a company.
Private citizens or groups of people purchase units (percentages) of the fund. Owners realize proportionate increases or decreases in the value and can sell to take their profit or loss.
Track records demonstrating the percentage of profit are available to assist you to determine whether or not you want to invest with them.
In a group of 3, answer this question and hand it in to be graded.
Put your name and student number on the paper and hand it in before leaving class today.
If you are an employee and not a business owner, why is it still so very important to be skilled at personal financial management?