2/3 of GDP is made up of consumer spending

What are some things that you buy on a daily/weekly/monthly/yearly basis?

Earning and Spending

Four Factors1. Income: more $$ = more

saving/investing2. Expectations: confidence in the

market = more spending, fear = more saving

3. Interest Rates: higher rate = incentive to save/invest

4. Taxes: higher taxes on investment = disincentive

Wealth Accumulation

1. Work• wage: hourly, by unit of production

- more blue collar• salary: weekly/monthly/yearly

- more white collar2. Wealth

• rent: selling use of your property• interest: selling use of your money

How do we earn money?

1. Set Financial Goals• Be REALISTIC!!!!• Be future oriented

2. Estimate Your Income• Only include guaranteed income

3. Plan Expenditures• Needs then Wants• Prioritize

Preparing a Budget

What types of jobs seem to pay the most?

The least?

Is a college education as necessary/worth the cost as it used to be?

Jobs Research

For the initial investment, the report adds up tuition, fees and the opportunity cost of not working. For return, the authors use the average lifetime wage difference between college grads and those with only a high-school degree.The associates degree has a higher rate of return than the bachelor's because of the lower cost (of course).

What is the Value of a College Education??

What is the Value of a College Education??

What is the Value of a College Education??

It really depends on what you plan to do…

Barriers to Entry Does correlation imply causation?

What is the Value of a College Education??

1. Safety• all options carry different levels of risk• Usually: high return = high risk, low return = low risk

2. Rate of Return • APR = Annual Percentage Rate of interest on principal• Set rate vs. Variable rate• Inflation protected?• Compound Interest – RULE OF 72

3. Liquidity• Ease of conversion to cash• Usually: high return = low liquidity, low return = high liquidity• Paper Millionaires

Considerations for Saving and Investing

72 /APR = Time it takes for principal to double Einstein referred to compound interest as the

8th wonder of the world How to get the most benefit:

Invest early, invest often Commit to your goals Try to follow 70-20-10 (PAY YOURSELF FIRST!) Don’t Touch It!!!!

RULE OF 72

Comparison

Invest $1000 at 8%

$2,000$4,000$8,000$16,000$32,000$64,000

Get $1000 Every Year

$9,000$18,000$27,000$36,000$45,000$54,000

Yrs

91827364554

1. Loans• College, business, car, consumer

2. Mortgage• Home loan

3. Charge Accounts• Macy’s, Kohls

4. Credit Cards• Get ready for some mail…

Types of Credit

1.Character• Past history – timely and honest

2.Capacity• Salary, wages

3.Capital• Assets

They want paid back!!

Approval for Credit

Credit Cards

Advantages Immediacy Emergency Flexibility Safety Character

Reference

Disadvantages

Higher Cost Impulse Buying Overspending

$2,000 @ 24% APR**Min. payment = $25

**Spent $125 for $-76 worth of progress

Balance at Balance atBeginning End ofof Period Payment Interest Period

$ 2,000 $ 25 $ 40 $ 2,0152,015 25 40 2,0302,030 25 40 2,0452,045 25 40 2,0602,060 25 41 2,076

$2,000 @ 24% APR

+ $1,000 @ 5%

Balance at Balance atBeginning End ofof Period Payment Interest Period

$ 2,076 $ ---- $ 42 $ 2,118+ 1,000 $ 50 $ 4 $ 954$ 3,076 $ 3,072

$ 2,118 $ ---- $ 43 $ 2,161$ 954 $ 50 $ 4 $ 908$ 3,072 $ 3,069

**Spent $100 for $7 worth of progress

Credit – Perks and Risks

Example…

Me – 25 yrs. old.