Personal Finance • The economy in our state is affected not only by national and global markets, but is also affected by actions and decisions we make about our own money. • Our decisions about our personal finances, good or bad, affects the economy of our community.
Income and Expenses • Income – money that you make or acquire • a job, a gift, a prize, an allowance, earnings from investments, performing a task, selling something
Income and Expenses • Expenses – spending your some or all of your money • Necessities (basic goods and services) food, clothing, shelter, transportation, health care • Wants – items not absolutely necessary vacations, games, movies, jewelry club memberships
What to do with your income… • Checking account • Savings account • Investments
Checking Account Deposits made into an account to pay expenses • Record all expenses to avoid “bouncing a check” – known as overdraft • Overdraft fees charged by bank and check recipient can be expensive and can be more than a person makes an hour.
Saving and Investing This means that you do not spend all the money that you make. You put some away for the future. • Interest – money the bank pays you to use your money • Amount of interest rate depends on what is going on in the national economy.
Savings Account Usually pays a small amount of interest and added to the account Savings provide an emergency fund if you lose your job or if you have an unexpected expense You can also save for a specific goal – a vacation, a car, a house, college Protected by FDIC
Investment • Money spent on something with the goal of making a profit – hopes of making more money • Stocks • Bonds • CDs • Real Estate • Mutual Funds Beneficial yet can be risky Safer investments earn less money than riskier ones. Know how much you can afford to risk!
Certificate of DepositCD • Safe investment • Interest rates higher than savings accounts • must leave it in the CD for a specified period • Protected by FDIC
Bond • The investor lends money to the government or to a company. • The loan will be paid back with interest on a certain date. • U.S. Savings Bonds and U.S. Treasury Bills – issued by the government • Municipal Bonds – issued by cities • School Bonds – issued by school boards
Stock • Ownership or shares in a company • Corporation issued stocks to raise money • Investor (purchaser) – buys part of the company and becomes a shareholder • Can be risky! • What happens if the company goes out of business? • But what if the company makes a large profit? • Learn about the company before purchasing.
Mutual Funds • Pools money from many investors and buys many different stocks and bonds. • Money is spread out in different investments so risk is spread out. • Often include investments with different levels of risk. • Managed by professionalswho charge a fee.
Credit • Buyer can take possession of something now and pay for it in the future, usually with interest • Enables for establishment of new businesses • Allows for established businesses to expand • Allows for families to purchase homes, cars, furniture, and take vacations
How do income, expenses, and credit keep the economy going? Keeps money circulating • People buy homes – builders get to build the house or make repairs to existing ones • Builders buy supplies, suppliers make money on what they sell, provides jobs to people, and so on • Consumer credit includes personal loans, mortgages, and credit cards.
How can borrowing money or buying too much on credit cause a financial hardship? • If people borrow too much • If people spend too much using credit cards • Sometimes it’s easy to buy on credit but can difficult or impossible to make the payments • Making the minimum payment can lead to additional debt
Personal Credit History and Credit Scores Establish and maintain good credit scores How? • Make payments on time • Pay full amount due Why? • Credit scores checked by financial institutions, businesses, insurance companies, potential employers • Low credit scores can have difficulty getting a loan or a credit card • Results in higher interest charges
Why does this matter to me? • Develop good financial habits now! • Save for the future! • Invest wisely! • Buy only what you can afford! • Establish a good credit history! • Earn a good credit score! Poor financial decisions can affect the entire economy. Companies lose money and people lose jobs.