Housekeeping

1. Housekeeping • The following assignments were due for our international unit: • Economic political cartoons w/ questions • Corrections for the quiz • Chapter 4 questions and vocab from the EOCT book • Sugar research • Current event March 23 • Tree map on trade barriers • Exchange rate homework (unit 7 lesson 42) • Free trade vs. protectionism presidential speech

2. Sponge: Monday, November 13 • What expense line item was the largest in the budget that you created on Friday?

3. Sponge Check! Monday, April 11 • Write two quiz questions for international economics: one multiple-choice and one Jeopardy-style. Make them good!

4. On May 29, 2001, how much American money would an importer receive in exchange for one British pound? • On the same day, how many Euros would exporters receive for each American dollar they exchanged?

5. Personal Finance

6. SSEPF2 The student will explain that banks and other financial institutions are businesses that channel funds from savers to investors. • a. Compare services offered by different financial institutions. • b. Explain reasons for the spread between interest charged and interest earned. • c. Give examples of the direct relationship between risk and return. • d. Evaluate a variety of savings and investment options; include stocks, bonds, and mutual funds.

7. Banks and Financial Institutions • Banks and financial institutions are businesses that channel funds from savers to investors

8. Commercial Banks • Functions/services offered: • Receive deposits of money • Extend credit • Credit cards • Provide loans • Checking and savings accounts • Debit cards • Structure: • Similar to corporations with stockholders who own and manage banks for a profit • Main source of income: • Interest and fees charged on loans

10. Commercial Banks, continued • In the event of a bank failure, your money is protected as long as the bank is insured by the Federal Deposit Insurance Corporation (FDIC). • Any lending institution will require some kind of collateral to secure a loan • Collateral is anything of value that could be used to cover the value of the loan in the event the borrower is unable to repay the loan • E.g., the bank takes your house as collateral for a mortgage and your car serves as collateral for a car loan

11. Credit Unions • Functions/services offered: • Receive deposits of money • Extend credit • Provide loans • Checking and savings accounts: typically offer higher interest rates on deposits because they pay lower taxes than banks • Structure: • Cooperative associations that serve only their members; members own and control C.U. • Main source of income: • Interest and fees charged on loans

12. Savings institutions designed to aid home-building and savings Deposits are not as easily accessible, but rates of return are higher Focuses on mortgages Savings and Loan Associations

13. Payday Loan Company • Short-term loans made based on a borrower’s future paycheck • Typically much higher interest rates than banks • Fees are extremely high: up to $17.50 for every $100 borrowed • Interest rates: 911% for a one-week loan; 456% for a two-week loan, 212% for a one-month loan.

14. SSEPF2 The student will explain that banks and other financial institutions are businesses that channel funds from savers to investors. • b. Explain reasons for the spread between interest charged and interest earned.

15. Interest Charged vs. Interest Earned • Banks pay depositors interest on the money they deposit as savings • Banks charge borrowers interest on the money they borrow • In order to make a profit, the banks must charge a higher interest rate to borrowers than the rate they pay their depositors

16. Sponge: Tuesday, April 17 • Would you rather save your money in an account that earns simple interest or compound interest? • Who has the comparative advantage in coats, according to the table below?

17. SSEPF4 The student will evaluate the costs and benefits of using credit. • c. Explain the difference between simple and compound interest rates.

18. Simple vs. Compound Interest • Interest is the amount of money (usu. expressed as a percentage) that a lender charges a borrower in exchange for the use of their money • As a borrower, you pay interest when you repay a loan in addition to repaying the principal amount of your loan • As a saver, the bank pays you interest when you deposit money in a checking or savings account • There are two types of interest: simple and compound

19. Simple Interest • Simple interest is a rate that is applied only to the value of the principal (the amount of money originally borrowed) • E.g., on a $10,000 loan with 5% interest, your annual interest payment will always be $500 (10,000 x 5%) • E.g., on a $10,000 savings account earning 5% interest, you will earn $500 each year in interest (10,000 x 5%)

20. Compound Interest • Compound interest is applied to both the principal and the accrued interest • E.g., on a $10,000 loan with 5% interest, your annual interest payment will be $500 at the end of year 1 (10,000 x .05). Your balance at the end of year 1 will be $10,500 • In year 2, your interest will be calculated on the principal plus the earned interest from year 1: (10,000+500) x .05= $525. Your balance at the end of year 2 will be $11,025 • In year 3, your interest will be calculated on the principal plus the earned interest from year 1 and 2: (10,000+500+525) x .05= $551.25. Your balance at the end of year 2 will be $11,576.25

21. Compound v. Simple Interest

22. VE 4 Video re. Compound Interest

23. SSEPF2 The student will explain that banks and other financial institutions are businesses that channel funds from savers to investors. • c. Give examples of the direct relationship between risk and return.

24. Risk and Return • Return is the eventual payoff you receive from an investment • Risk is the chance that an investment might end up losing money rather than making it

25. Risk and Return, continued • The general rule of thumb: The greater the risk, the greater the possible return; the lower the risk, the lower the return • BIG QUESTION: How much risk can you afford? • If you make an investment and it fails causing you to lose all of your money invested, will you still be financially okay?

26. Stocks, Bonds and Mutual Funds • Stocks = shares in a company that an individual or organization purchases that give the person or organization a partial ownership interest in the company • Selling stocks is one way for companies to finance their business (i.e., to raise money) • Purchasing stocks is a way for individuals or organizations to invest their money • Stocks are risky by nature • Investors in Enron lost a lot of money • Early investors in MicroSoft or Apple made a lot of money

27. Stocks, Bonds and Mutual Funds • Bonds are loans to a company or a government, therefore they offer a lower rate of return • Issuing bonds is another way for a company or government to raise money • Purchasing bonds is another way for individuals or organizations to invest their money • No ownership interest is transferred in the sale of a bond

28. Stocks, Bonds and Mutual Funds • Mutual funds pool money from a number of investors to buy a range of stocks • Risk is reduced because the investment is spread among several companies (diversification): if one fails, it is likely that others will succeed • Risk is reduced because mutual funds are managed by financial experts • Downside of mutual funds is that the return is typically lower and investors must pay some kind of fee to the fund manager

29. Reasons People Save • Savings increase when interest rates are high (higher return outweighs the loss of immediate gratification of a purchase) • Large purchases, e.g., house, car, vacation • Big life events, e.g., having a baby, college, retirement

30. SSEPF4 The student will evaluate the costs and benefits of using credit. • a. List factors that affect credit worthiness. • b. Compare interest rates on loans and credit cards from different institutions.

31. Credit Worthiness: Should a bank lend you money? • Banks look at several factors to determine whether a borrower is likely to pay back a loan: • Credit score: a standardized number based upon an individual’s history as a borrower. Making monthly payments and paying bills on time will earn you a good credit score. Loan defaults or late payments = low credit score. • Salary/wages and savings • Property for collateral • Existing debts

32. Credit Worthiness: Should a bank lend you money? • A high credit score and strong credit-worthiness will increase the chances of you getting a loan at a favorable interest rate • A low credit score or other negative factors will result in a higher interest rate because banks perceive you as a greater risk of default (or you might be denied the loan all together)

33. Do I Have a Deal for You . . . • What kinds of enticements will companies use to get new credit card customers? • Can credit-card rewards affect a person’s spending decisions?

34. Work Period: Tuesday, April 17 • Review worksheets

35. Sponge: Wednesday, April 18 • What are the different features or terms on credit cards that might be available from various companies? • What kinds of insurance do you think are available to consumers and businesses? • Higher demand for U.S. exports will typically result in • an increase in the international value of the dollar • an increase in the international value of foreign currencies • an increase in the trade deficit of the United States • an increase in the price of foreign-produced goods in U.S. markets

36. Your last current event is due this Friday. Make it a good one (yes, there can be good current events related to economics)—everyone will have to discuss their event.

37. Housekeeping Stuff • Saturday School: April 28. Zap zeroes! • EOCT Cram Jam: Saturday, May 5, 9:00 to 1:00 • Everyone needs to attend this session—clear your calendars! • Parent-teacher conference night this Thursday from 5:00 – 7:00. • 200 class-participation points if your parent comes by themselves; an additional 100 points if you come with your parent • Tutorials: Mon & Fri 3:30-4:30; Tues & Thurs 4:20-5:00; before school as needed

38. SSEPF5 The student will describe how insurance and other risk-management strategies protect against financial loss. • a. List various types of insurance such as automobile, health, life, disability, and property. • b. Explain the costs and benefits associated with different types of insurance; include deductibles, premiums, shared liability, and asset protection.

39. Insurance • Insurance involves transferring risk to others. • Insurance provides financial coverage if an insured item is lost or damaged • Protects policyholders and their beneficiaries from financial devastation

40. Types of insurance • Life: Pays money to a beneficiary on the death of an insured; insured pays monthly premiums • Health/medical: Covers health and medical expenses • Disability: Provides a policy holder income in the event that they become disabled and cannot work

41. Types of Insurance, continued • Property insurance: • Homeowner’s insurance: Covers a policyholder’s house in the event that it is damaged or destroyed • Automobile insurance: Liability and possibly collision • Liability insurance: Pays for damages incurred by another person if the policyholder is found financially liable for an accident • E.g., auto liability, homeowner’s policy, comprehensive liability

42. Insurance-related Terms • Deductible: The amount you have to pay out-of-pocket for expenses before an insurance company will cover the remaining costs. • For example, let’s say you have an auto insurance policy that has a $300 deductible. You are speeding out of the McNair parking lot one day, and because you haven’t learned to drive yet, you run into Mr. Owens’ car. • If your medical expenses are $2,000 (the Illuminati rigged the accident), how much of your medical bill would you have to pay out of pocket? • What if you got lucky and your medical bills were only $300 (your car ran over your own foot when you got out to see how bad you hurt Owens’ car)—how much would you and the insurance company pay in that case?

43. Insurance-related Terms • Premium: Monthly, quarterly or annual price paid for an insurance policy. The premium is paid by the insured party to the insurer, and primarily compensates the insurer for bearing the risk of a payout should the insurance agreement's coverage be required. • Typically there is an inverse relationship between premiums and deductibles: • The higher your premium, the lower your deductible • The lower your premium, the higher your deductible • In your notes, write why you think this relationship is inverse. Also write why someone might choose to have a low-premium/high-deductible policy.

44. Insurance-related Terms • Asset protection: A benefit from holding insurance that provides financial payments in the event of the loss of a covered asset. Also, insurance can protect other individual or business assets by providing a source of repayment in the event of a loss due to liability. (In other words, if you are sued for damages from a car wreck, your auto insurance policy can pay for the damages instead of you having to sell other assets to get the funds to pay.)

45. Insurance-related Terms • Purchasing insurance involves shared liability between the insurer and the insured. • This means that the insurance company assumes a pre-determined amount of financial liability for a claim that the insured might file because the insured has paid premiums for the financial protection.

46. Work Period: Wednesday, April 18 • Complete “Comparing Credit Card Offers” • Complete “Tracking Your Spending” • Create a tree map on one of the following: • Various types of insurance (include automobile, health, life, disability, and property); include facts and examples of each • Various types of financial or lending institutions that we discussed (commercial banks, credit unions, savings & loans, payday loan company); include facts and examples of each • Worksheets are due at the end of class • Tree map is due first thing tomorrow

47. Work Period: Tuesday, Nov. 15 • Choose two of the following: • Create a tree map on the various types of investment options (include stocks, bonds, mutual funds and certificates of deposit (CDs)) • Create a tree map on various types of insurance (include automobile, health, life, disability, and property) • Create a tree map on the various types of financial or lending institutions that we discussed (commercial banks, credit unions, savings & loans, payday loan company) • Create a double-bubble comparing banks and payday loan companies • Create a double-bubble comparing stocks and mutual funds

48. Sponge: Thursday, April 19 • DO NOT MOVE MY DESKS!!!! • What skills are required to be successful in the workplace? Name four. • What kind of benefits would result from your investment in education, training, and skill development? • What are the tools of monetary policy and who controls those tools?

49. SSEPF6 The student will describe how the earnings of workers are determined in the marketplace. a. Identify skills that are required to be successful in the workplace. b. Explain the significance of investment in education, training, and skill development.

50. Housekeeping Stuff • Saturday School: April 28. Zap zeroes! • EOCT Cram Jam: Saturday, May 5, 9:00 to 1:00 • Everyone needs to attend this session—clear your calendars! • Parent-teacher conference night this Thursday from 5:00 – 7:00. • 200 class-participation points if your parent comes by themselves; an additional 100 points if you come with your parent • Tutorials: Mon & Fri 3:30-4:30; Tues & Thurs 4:20-5:00; before school as needed