Personal Finance

• A. Banking- one of the most important components of personal financial planning is managing your finances• 1. Today, there are more than 11,000 banks, 2,000 savings and loan

associations, and 12,000 credit unions in the U.S.• 2. These financial institutions make money by lending consumers and

businesses money via loans.

Personal Finance

• 3. There are 3 main types of banks in the U.S.• a. Commercial Banks (Full Service Banks), most of the banks in the

U.S. are Commercial Banks• *. They are businesses that operate to make a profit, they earn this

profit by charging much more interest on the money they lend than the interest they pay on savings accounts• *. They offer services such as checking/savings accounts, mortgage

loans, small business loans, student loans, commercial loans, investment advising, etc.

Personal Finance

• b. Savings and Loan Associations• *These banks were originally established to offer savings accounts

and home mortgages (they charged lower interest rates on loans and higher interest rates on savings accounts)• *In the 1980’s 20% of Savings and Loan Associations failed , so the

government passed new regulations that allowed them to charge higher interest rates and offer more services like credit cards

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• c. Credit Unions Member owned financial institution• 1. Credit Unions are formed by large corporations and organizations

for their employees• 2. Credit unions are Not-For-Profit Organizations because their

purpose is to serve their customers not to maximize their profits• 3. Credit unions offer their members competitive rates, and other

financial services to their members

Personal Finance

• A. Types of Financial Services• 1. Savings Accounts• a. Regular Savings Account- are good if you make frequent deposits and withdrawls; they

require little or no minimum balance; however the interest earned on these type of accounts are relatively low compared to other savings options

• b. Certificates of Deposit (CD) is a savings option in which money is deposited for a stated period of time, to earn a specific rate of return (interest); offers a higher interest rate than a regular savings account

• c. Money Market Accounts type of savings account offered by banks and credit unions that pay higher rates, have higher minimum balances than regular savings accounts; Minimum balance is $1000-2500, and only allow 3-6 withdrawls a month

• d. U.S. Savings Bonds- (Patriot Bonds) are another savings option; you can purchase these bonds from the federal government in amounts that range from $25- $5,000.00

Personal Finance

• 2. Payment Services- are the 2nd category of financial services; the most commonly used payment services are checking accounts• Types of Checking Accounts• a. Regular Checking Accounts- usually do not require minimum balances• b. Interest Earning Checking Accounts are a combination of checking

and savings accounts; these accounts pay interest if you maintain a specific minimum balance• “Many checking accounts offer overdraft protection, which is an

automatic loan to cover checks that the balance in the account won’t cover”

Personal Finance

• B. Problematic Financial Institutions• 1. Pawnshops• Make loans based on the value of tangible possessions such as jewelry or

other valuable items• Many low and moderate income families utilize these organizations to obtain

cash loans quickly• They charge higher fees than other financial institutions (interest)• They have become the “neighborhood bankers” and the “local shopping

malls” because they provide both lending services and retail shopping services, by selling items that the owners do not redeem• While most states regulate Pawnshop rates, 3% or more a month is common

Personal Finance

• 2. Check Cashing Outlets• There are more than 6,000 check cashing outlets in the U.S.• You are not required to have an account with these organizations• They charge anywhere from 1-20% of the face value of a check, however the

average is 2-3%• For low income families these rates can be a significant portion of their

household budget• They also offer other services such as utility bill payments, money orders,

private postal boxes, etc.

Personal Finance

• 3. Payday Loans• Also known as cash advances, check advance loans, and delayed deposits• Interest rates range from 659-1300%• These type of financial institutions have increased in recent years due to the

economy• The most frequent user of these types of institutions are workers who are

trapped by debt, or people who have been driven into debt by misfortune

SECTION 1 PERSONAL FINANCIAL PLANSection #1• A. Scenario: You are 25 years of age, and have been working at your current job or profession for

the last 3 years. You are single, no children and have been living at home with your family, since completing your formal education (2-4 college education, Technical school, or Trade School) and have saved $10,000. You’re ready to move on. You have found an apartment, buying new furniture and a new car. In addition to your savings account you have a checking account where your monthly pay check is deposited into.

• B. You are putting together a financial plan to achieve your intermediate goals/objectives

• 1. Employment-Research an occupation you are interested • 2. Go to Salary.com and research the entry level salary for the specific job you are interested in• 3. To calculate your take home pay after taxes go to www.adp.com/.../calculators.../payroll-calculators/salary-payc

• 4. Please keep a journal of your findings and also submit your findings for homework…due date next class period…all late assignments will be deducted by 25 points per day