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ECONO IC CONCEPTS

 %ll decisions involve trade-offs & gaining something and giving something up.'eople make decisions about spending and saving. !f people save, they willhave money to satisfy the ne#t most favored want. (hen people spend, theygive up the opportunity to save. !n either case, they incur an opportunity cost:and the decision they face is choosing the option with the lower opportunity cost.)ver time, saving accumulate a larger amount.

The three reasons for saving are:

• to purchase planned goods or services in the future*

• to buy goods or services that people suddenly see and want* and

• to deal with emergencies and une#pected events.

Map your financial future - Take time to list your financial goals, along with arealistic plan for achieving them. +ou can go places you want to go without aroadmap - but seldom on the first try.

Plan for wants* consider trade-offs and opportunity cost. Learn good moneymanagement. ee where you can start saving. ap out short-term goals andlong-term goals.

Consider need vs. wants. Think about the items you purchase on a regularbasis. o you really need the items/ 0an you do without it/ o you think youcould get it later on sale/ (here can you save/ These are some questions you

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(hen you have developed a budget, you can see more clearly where you can

cut some e#penses and start saving. !t is import to start saving at an early age.!t is a habit that is good to get into.

4or ideas where to put your savings, see (eb ites: Mini&Lesson & C'ildrenand Money and $an(in%.

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DISCUSSION UESTIONS AND

TOPICS

5. 6ave students discuss the amount of time they consider to be short, medium,or long. 6ow does age affect one7s idea of time/

8. %sk students to list the things they want to have in the future and to indicatethe goods and services they would be willing to save for.

 

9. 6ave students define the term want. ;% desire that can be satisfied byconsuming goods or services.<

=. %sk students to give e#amples of the opportunity cost of spending or savingdecisions they have made in the past. efine opportunity cost as the highestvalued alternative that must be given up because another option is chosen.

> (hat might you have to give up to reach each of your savings goals/ (hen

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ACTI!ITY5. 6ave students make a budget and decide how much they can save on aregular basis.

2. !nstruct students to fold a sheet of paper ;55A by 5=A< in thirds and label onesection short-term goals, another medium-term goals, and another long-term

goals. $sing the list they had made of the things they want to have in the future,have them write these items under the heading that reflects the amount of timethey will need to save in order to acquire them.  

9. @eview with students the value of setting saving goals and the differencebetween short-term and long-term goals.

=. 6ave them design their personal strategy for meeting their short-term goals

while, at the same time, planning for medium-term and long term goals. avingdecision require trade-offs between short-term and longer-term goals. Trade-offsinvolve giving up some of one thing to get some of another thing.

6ave students take the avings and !nvestment BuiC on the  Internet or ;Print)ui* in Ado+e<. 'rint the Answers to t'e avin%s and Investment )ui* in

 %dobe.

6and out 1rochure.

OT"ER RELATED UI##ES

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 Accounts That Give Piggy Banks a Run For The Money , by ebraDussbaum.The Dew +ork Times, p. 4E, ;Fune 9G, 5HHI<.

Students Tackle a Subject With Interest learning the !unda"entals o!investing can be a #ro!itable lesson, by Martha M. Hamilton. TheWashington Post, p.WH9, (March 4, 1997).

%oo&s'P()*+$ets

$oo(s written on the stock market.

$i#linger%s Money S"art $ids &and #arents' too(), 1odnar, Fanet, Dational1ook Detwork. Telephone: ;JGG<8>9-I=EI. K58.H>.

*ou and Money' Invest"ent $it !or Fourth to Si+th Graders %vailable freefrom: 4idelity !nvestments, ;JGG< >==-IIII

,eb Sites

ee our e+ ite on !eac'in% $asic Economics to 'elp Parents teac' t'eirc'ildren +asic economics.

Additional teac'in% information/ !'e Copernicus Education Gateway!eac'ers Guide !'e Art of $ud%etin%0 Money -esponsi+ility0 avin% andInvestin%0 $an(in% services0 and Allowance and pendin% Plan.

CCCs for 1ids (ord games to teach children about the benefits of saving their

money

avin%

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(hen it comes to savings, interest is whatitOs all about. !nterest is what a borrower pays a lender for the use of the lenderOsmoney.

(hen you deposit money in a savingsaccount, a money market account, aninterest-bearing checking account or a

certificate of deposit ;0<, youOre lendingthat financial institution your money. Theinstitution uses that money to make loans   essentially, borrowing money from youand paying you interest for the right to useyour money to lend to someone else.

)f course, the institution then charges thatloan customer an even higher interest rateto more than recover the interest itOs

paying you. !nterest is calculated as apercentage of the amount of the loan.!nterest can get complicated, especiallywhen the terms rate and yield areinvolved.

+ou may see a K5G,GGG 0 with a >-percent annual interest rate ;%'@<, butright ne#t to it is the annual percentageyield ;%'+< number and itOs higher.

!'e difference +etween rate and yieldis determined +y 'ow fre4uentlyinterest is paid0 and 'ow it is paid.

@ate is the nominal, or stated, interestrate on the investment. !f you have a 0with a >-percent nominal rate, theninterest is calculated by multiplying >percent by the amount invested and by

the fraction of a year the money isinvested.

LetOs say interest pays annually. % K5G,GGGinvestment will earn K>GG in interest.;K5G,GGG # > percent # 5 year.< (hen aninvestment pays interest annually, its rateand its yield are the same.

The more frequently interest is paid, thehigher the yield. ThatOs because the

interest payment is credited to the 0 andit starts earning interest along with theinvested principal.

!f the > percent 0 paid interest semi-annually, the si#-month interest paymentwould be K8>G, ;K5G,GGG # > percent # .>years.<

The K8>G payment starts earning interest

and earns KI.8> in interest during the ne#tsi# months, ;K8>G # > percent # .> years.<ThatOs what compounding interest is allabout.

The first 0 earned K>GG in interest after a year and the second 0 earnedK>GI.8> in interest. The rate and yield onthe first 0 is > percent. The rate on thesecond 0 is > percent, but its yield

;%'+< is >.GI percent. !f interest was paiddaily, the rate would be > percent but theyield ;%'+< would be >.59 percent.

These yield computations assume that theinterest is reinvested in the 0 at the 0Osnominal rate.

Always s'op for t'e +est AnnualPercenta%e 2ield.

"o- Interest R(tes

(re Deter)ine.!nterest rates are affected by a number of factors. The 4ederal @eserve, which ischarged with maintaining the stability of the nationOs financial system, raises or 

lowers short-term interest rates in an effortto maintain that stability.

The 4ed regularly takes these actions inresponse to economic e#pansions andcontractions that the country goes throughon a fairly routine basis. hort-term ratesare raised in e#pansions     good times

    to keep the economy from building toofast and risking inflation, which is caused

by too much money chasing too fewgoods and services. @aising rates makesit more e#pensive for companies andindividuals to borrow money.

The 4ed will lower short-term rates whenthe economy is contracting     slowingdown. Lowering rates makes it lesse#pensive to borrow money, the ideabeing that businesses and consumers will

buy more products and services andspeed the economy up a bit and keep theeconomy from sinking into a recession.

 % recession happens when consumershold on to their money and donOt buy theproducts and services that keepcompanies afloat and employeesemployed.

(hen the 4ed cuts short-term rates, it iscutting the rate that banks charge eachother to borrow money. Those cuts are

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eventually passed on to businesses andconsumers. The same thing happens inreverse when the 4ed raises short-termrates.

)ther factors affect interest rates, too, buton a more irregular basis. % crisisinvolving the foreign oil-producing nations,

for e#ample, could have a major economicimpact that could affect interest rates.

Long-term interest rates arenOt affected byeconomic conditions as much as short-term rates, but there is a trickle downfactor and they reflect the impacteventually.

(hat works for you, as a saver, works

against you as a borrower. (hen ratesare high, youOre earning a hefty amount of interest for your deposits, but youOre goingto pay a high interest rate if you need toborrow.

'en rates fall0 you don5t %et muc'interest on your savin%s0 +ut it5s a lotc'eaper to +orrow money.

0all our toll-free number or write to theaddress on the cover for a copy of any of the brochures or for further consumer credit information.

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