Financial Literacy for Youth

  • About Us
  • Our Work
    • Build Our Future
    • Money Matters In Classrooms
    • Ambassador Program
  • News
  • Photo Gallery
  • Testimonials
  • How you can Help
    • Resources
      • Peer Education Curriculum
      • Money Management Certification Program
      • Games & Apps
    • Contact Us

The Power of Saving and investing

Saving just 35 cents a day will result in more than $125 in a year. Small amounts saved and invested can easily grow into larger sums. However, a person must start to save. Various savings plans are available to consumers. These include regular savings accounts, money market accounts, and certificates of deposit (CD).  Investing takes saving one step further. Bonds, stocks, mutual funds, are covered in the section.

1       Learning Objectives

  • List and explain some of the advantages of saving money
  • Understand the concept of “pay yourself first” and list some ways to encourage this habit
  • List and explain the differences among the most common saving methods
  • Understand the advantages and disadvantages of popular investment vehicles
  • Compare and contrast the short- and long-term consequences of investment decisions
  • How simple and compound interest are calculated
  • How many years will it take to double my money? Rule of 72

 

2       The Pros and Cons of Saving and Investing Video

 

3       Saving Concepts and Strategies

3.1       Pay Yourself First (a little can add up)

Save this each week at % interest in 10 years you’ll have
  $7.00 5% $4,720
14.00 5% $9,440
21.00     5% $14,160
28.00 5% $18,880
35.00     5% $23,600

 

  •    You can buy … two fast food meals or one movie ticket
    (and a candy bar) or save $7.00 this week.
  •    You can buy … two small cheese pizzas or one large pepperoni pizza,
    delivered or one new CD or save $14.00 this week.
  •    What can you give up to save for your financial goals?

 

3.2       Types of Savings Accounts

Account Type what they are and how they work  Benefits  Trade-offs 
money-market deposit accounts Checking/savings account. Immediate access to your money Usually requires a minimum balance of $1,000 to $2,500.
certificates of deposit (CDs) Bank pays a fixed amount of interest for a fixed amount of money during a fixed amount of time.
  •    No risk
  •    Simple
  •    No fees
  •    Offers higher interest rates than savings accounts.

 

  •    Restricted access to your money
  •  Withdrawal penalty if cashed before expiration date(penalty might be higher than the interest earned)

 

3.3       How Simple and Compound Interest are Calculated

simple interest calculation

  •    Dollar Amount x Interest rate x Length of Time (in years) = Amount Earned

example

–        If you had $100 in a savings account that paid 6% simple interest, during the first year you would earn $6 in interest.

$100 x 0.06 x 1 = $6

–        At the end of two years you would have earned $12.

–        The account would continue to grow at a rate of $6 per year, despite the accumulated interest.

compound interest calculation

  •    Interest is paid on original amount of deposit, plus any interest earned.

(Original $ Amount + Earned Interest) x Interest Rate x Length of Time = Amount Earned

example

  •    If you had $100 in a savings account that paid 6% interest compounded annually, the first year you
    would earn $6.00 in interest.

            $100 x 0.06 x 1 = $6

            $100 + $6 = $106

  •    With compound interest, the second year you would earn $6.36 in interest.
  •    The calculation the second year would look like this:

            $106 x 0.06 x 1 = $6.36

            $106 + 6.36 = $112.36

 

3.4       The Rule of 72

 How many years will take you to double your money?

72 divided by interest equals to years to double  a sum of money

At what interest rate will my money double in a set of number of years?

72 divided by years to double investment equals  interest rate required

 

4       Investing Concepts and Strategies

4.1       Investment Principal

Warren Buffett is widely considered one of the greatest investors of all time, but if you were to ask him whom he thinks is the greatest investor, he would probably mention one man: his teacher, Benjamin Graham. Graham was an investor and investing mentor who is generally considered the father of security analysis and value investing.

We’ll condense Graham’s main investing principles and give you a head start on understanding his winning philosophy.

Principle #1: Always Invest with a Margin of Safety

In simple terms, Graham’s goal was to buy assets worth $1 for 50 cents. He did this very, very well.

Principle #2: Expect Volatility and Profit from It

The market will fluctuate – sometimes wildly – but rather than fearing volatility, use it to your advantage to get bargains in the market or to sell out when your holdings become way overvalued.

Principle #3: Know What Kind of Investor You Are

To determine what type of investor you are, think about your personal limitations, as well as your strengths and weaknesses.

 

4.2       Investment Types

Account Type what they are and how they work 
Bond what they areA bond is an “IOU,” certifying that you loaned money to a government or corporation and outlining the terms of repayment.How they workBuyer may purchase bond at a discount. The bond has a fixed interest rate for a fixed period of time. When the time is up, the bond is said to have “matured” and the buyer may redeem the bond for the full face value.AdvantageAs debt securities, bonds offer the advantage of steady interest income and payment of face value at maturity.DisadvantageSome types of bonds bear the risk that the borrower will default – that is, fail to make its payments.
Mutual Fund What they areProfessionally managed portfolios made up of stocks, bonds, and other investments.How they work

  • Individuals buy shares, and fund uses money to purchase stocks, bonds, and other investments.
  • Profits returned to shareholders monthly, quarterly, or semi-annually in the form of dividends.

Advantages

Allows small investors to take advantage of professional account management and diversification normally only available to large investors.

Disadvantage

Mutual fund managers charge fees that can reduce the profitability of investing in mutual funds or amplify the losses.

Stock What they areStock represents ownership of a corporation. Stockholders own a share of the company and are entitled to a share of the profits as well as a vote in how the company is run.How earnings are made

  • Company profits may be divided among shareholders in the form of dividends. Dividends are usually paid quarterly.
  • Larger profits can be made through an increase in the value of the stock on the open market.

Advantages

  • If the market value goes up, the gain can be considerable.
  • Money is easily accessible.

Disadvantages

  • If market value goes down, the loss can be considerable.
  • Selecting and managing stock often requires study and the help of a good brokerage firm.

 

 

 

Copyright © 2019 Financial Literacy For Youth | Website by Blast Web Design