Ch. 20

*Money, Banking,Credit & Consumer Rights

*MoneyReplaced the barter system in traditional economies*Functions*Medium of Exchange*Used to trade/purchase goods/services*Store of Value*Ability to store or save*Medium/Measure of Value*Can be divisible *Each one must be equal to the other*Not easy to counterfeit *Standard of Deferred Payment*Used to buy on credit

1.Joyce wants to buy a new coffee mug for $5, but decides to wait until payday.

2.Ben bought 2 tickets for a movie3.Melissa promised to repay next month a loan

Emily gave her4.Ken was trying to decide whether to buy 3

candy bars for $.50 each or 1 chocolate Sunday for $1.65

5.Joanne purchased a new hat as a present for her sister

6.Tyrone puts $20 into his savings account. He hopes to save enough money to buy a new dirt bike.

7.Henry has to pay the bank $187.50 a month for the next 4 years on his new car loan.

8.Kim decided to take the $.75 bus ride rather than an $8 cab ride.

9.The manager of Apex Stores gave Maria her paycheck

10.George always likes to keep a $20 bill stashed away in his wallet for emergencies.

*Different types of Money

*Banking

*Brings savers (sellers) & borrowers (buyers) together in the market

*Savers = deposits

*Borrowers = loans

*Banks are a business and have profit motive

*Make money off of fees and interest on loans

*Reserve Requirements – banks want more deposits so they can loan more money

1. Checking Account* Allows customers to write checks, use

debit cards or withdraw money from an ATM (Automated Teller Machine)

* Money transactions are quick and efficient* Money does not stay in the account for

long* Depositor usually receives no interest* Checking/Debit Cards*Transfer of funds electronically*Tied directly to checking accounts

*Types of Deposit Accounts

*Checking Accounts

2. Savings Account

* Banks pay interest to customers based on how much money is deposited

* Money remains untouched for longer periods of time

*Types of Deposit Accounts cont.

Sample Bank Book

3. Certificate of Deposit (CDs)

*Customers loan a certain amount to the bank for a certain amount of time

*Ex. I bought a $1,000 CD for 1 year at 4%

*Higher rates of interest than savings

*Customers can’t withdraw their money without a penalty

*Types of Deposit Accounts cont.

1. Commercial Banks – full service to individuals & businesses (Most common)

2. Savings & Loan Associations – traditionally loaned money to people buying homes & issued only savings accounts

3. Credit Unions – non-profit – sponsored by large businesses, labor unions or government institutions – offer full services at usually lower prices

*Types of Banks

*Commercial Banks

*Credit Unions

*Federal Deposit Insurance Corporation

*Insures deposited money in the bank up to $500,000

*Most banks are FDIC insured

*FDIC

1. 9/11

2. Bombing of Pearl Harbor

3. The stock market crash and bank runs during the Great Depression

* What US event caused the formation of the FDIC?

*Agreement for borrowing money with repayment plus interest*Used to make expensive purchases*Banks make money on the interest paid for a loan*In order to make loans, banks have to have money*To have the money, banks must attract deposit customers*Can increase the supply of money*Principle – amount borrowed*Interest – cost of borrowing*Interest Rate – rate of cost to borrow

*Loans

1. Fixed – interest is set & can’t be changed

2. Variable – Changes when interest rates change

*Types of Loans

*How do bank loans increase the supply of money?

*Buy goods & services at individual stores & pay for them later

*Credit limit: maximum amount a person can buy with the promise of payment

*Charge Accounts

1. Installment Account

* Repaid with equal payments over a certain period of time

* Part of the payment goes towards interest & part towards the principle

* Car loan or mortgage2. Regular Account

* Billing cycles where a bill is sent at the end

* No interest is charged if entire bill is paid

* Account can’t be used again until the balance is paid

* Interest is charged on the balance not paid

* Furniture Stores usually do this. Pay by 2010, certain amount each month, but with no interest.

*Types of Charge Accounts

3. Revolving Account* Billing cycles where a bill is sent

at the end* Interest charged on portion not

paid* Account can still be used until

credit limit is reached* Example: Credit Cards

*Types of Charge Accounts cont

*Make purchases without having the money

*Charge high interest rates

*Lower interest rates if the customer is reliable

*Finance Charges – Cost of credit (interest) expressed in dollars

*APR – Cost of credit (interest) expressed as a percentage

*Credit Cards

*Fill out application

*Credit Bureau does a credit check

*Creditor may ask for references

*Credit checks show your income, debt and ability to pay debts in the past

*Applying for Credit

*Rating of risk: Excellent, Good, Average or Poor*Ratings have a number associated with them*3 Credit Bureaus: Experian, Transunion & Equifax*Gives lenders an idea of reliability when issuing loans*Higher Credit Score = less interest you are charged on a loan = saving money

*Unsecured loans – loan based on reputation*Secured loans – have collateral to back up the loan

*Credit Rating

*Credit Bureaus

*Equal Credit Opportunity Act: a person can’t be denied credit because of race, religion, national origin, gender, marital status or age

*Usury Laws: Restrict the amount of interest companies, not banks, can charge

*In North Carolina, it is 8%. If you lend a neighbor $100, you can only receive $8 in interest

*Government Regulations

*Debts are so large they can’t be paid back

*Most of what a debtor owns is sold or given to creditors

*Takes 10 years to reestablish credit

*States can become bankrupt too

*Bankruptcy

*Consumer – someone who buys a product or service

*Types of Income

*Disposable Income – money after taxes taken out.

*Money to pay for house, car, etc.

*Discretionary Income – money remaining after paying for necessities

*Either save or spend it

*Consumer Rights

*Consumerism – a movement to educate buyers on purchases and to make sure products are safe*Congressional laws – Pure Food and Drug Act in 1906*Private groups – Better Business Bureau (BBB)*

*Consumer Bill of Rights*Consumers have…*Right to a safe product*Right to be informed*Right to choose*Right to be heard*Right to redress

*Consumer Rights cont.

*Smart Buying Strategies *Get info on products*Watch out for advertising*Comparison shopping – find out prices on product from different stores/internet*Brand Name vs. Generic

*When product fails*Report it*Check the warranty*Keep a copy of the receipt*Be calm

*Make Fair complaints

*Consumer Responsibilities

Ch. 25

*Taxation and Budget

*Major United States Taxes*Personal income: Tax on an individual’s yearly income. *Granted by the 16th amendment*April 15th is income tax day.

*Corporate income: Tax on a corporation’s profit.*Social Insurance: Social security tax. (FICA).*Excise: Special tax on alcohol, tobacco, and gasoline.*Estate: Tax on the assets of the deceased.*Inheritance: Tax paid on anything person inherits.*Gift: Tax paid on the value of an expensive gift received.*Sales: Tax paid on all purchases.*Property: Tax on the value of property. Can include buildings, stocks, bonds, cars.

* Example of a Paycheck

*Taxation *Revenue: Money the government receives.*Expenditures: Money the government spends.*60 to 80 percent of state and local government revenue comes from taxation. *Intergovernmental Revenue: Money received from other governments. *Example: States receive a big chunk of money from the Federal Government. Local governments then can get some of that money from the state.

*Nearly 100 percent of federal government revenue comes from taxes.

* NC 2005

*Taxation Problems*The government sometimes abuses its power to tax which leads to revolts.*Stamp Act (1765): British tax on virtually all goods.*Tea Act (1773): British tax on tea. Led to the Boston Tea Party.*British taxes lead to the American Revolution where the United States became a free country after defeating England.

*Taxation Powers

*The first government of the United States was the Articles of Confederation.

*The national government could not tax under the Articles.

*Under the Constitution, the government is given a limited power to tax to keep it from abusing its power.

*Limits on Taxation*The Constitution gives the government the power to tax.

*All appropriations bills (tax bills) are introduced in the House of Representatives.*Appropriations bills are laws that allow spending for a particular activity

*All national taxes are the same throughout the country.

*The 14th amendment says all groups must be taxed equally.

*Tax Classifications

*Progressive tax: Based on income. Higher taxes on those with higher incomes. Those who make less than a certain minimum pay no taxes.

*Regressive tax: People pay the same amount with no consideration of income.

*Affects people with lower incomes because it’s a larger percentage of their total income.

*Proportional tax: Takes the same percentage of all incomes.

*Which type of tax classification could have the greatest impact on those with higher incomes? Why?

*Which type classification could have the greatest impact on those with lower incomes? Why?

*Income Tax

*Tax on income

*16th amendment (1913): Gave the government the power to collect income tax.

*Personal income and corporate income are the two types.

*Tax Burden on Income Levels

*2010 Income Tax Brackets

*Tax Return*The deadline is April 15th.

*All taxpayers fill out a tax return form and send it to the Internal Revenue Service (IRS).

*An exemption is a portion of income that is not taxed.

*Deductions are for medical expenses and charitable contributions. They are not taxed.

*Everything else is taxable income.

*Sales Tax

*Tax paid at the time of purchase.

*The revenue is sent to state and local governments.

*Many state governments exclude necessary items from the sales tax.

*North Carolina is the 1st weekend in August

*Paying Income Tax

*Employers withhold funds from checks to pay the state and national government.

*Because of this, taxpayers do not pay as much at the end of the year.

*Some taxpayers receive a refund.

*Income tax is a Progressive Tax

*People with higher incomes pay a higher percentage in taxes.

*There are tax percentage rates of 10%, 15%, 25%, 28%, 33%, and 35%.

*The belief is that people with less money need more for necessities.

*Property Tax*The property is examined to assess the value.

*Local governments set the tax rate.

*Property taxes have increased steadily over the years.

*Tariffs

*Designed to raise revenue and protect American businesses.

*Products are made cheaper in other countries and brought to America.

*When America charges a tariff, the other country charges a tariff on American goods.

*Tariffs have caused many problems in U.S. history.

*Non-Tax Revenue

*The government will sell and rent land.

*The government will charge tolls for the use of roads and canals.

*The government will charge fees for driving, hunting, fishing, and getting married.

*Charge fines (traffic).

*Government run lotteries to provide revenue, but they are controversial.

Answer the following on a separate piece of paper and turn in -

*In at least 2 paragraphs, explain which tax classification you feel is the most fair? Give at least 3 reasons why.

*If the federal government needed to increase their revenue, which kind of tax (ex. Sales, excise, estate, income…..) do you think it should increase? Why? 1-2 paragraphs

*Budget

*Budget: Plan for managing and spending money.*Governments create budgets to help them make decisions because of limited resources.*Two parts: Revenue and Expenditures. (look on page 679)*Runs on a fiscal year: October 1-September 30.*The Office of Management and Budget (OMB) asks each federal department to estimate the amount of money they will need.*The OMB estimates the government’s revenue.*The completed budget is about 1000 pages long.

* Budget (cont.)*Mandatory spending – spending that does not need annual approval; has to be paid regardlessEx. Social Security, interest payments on the national debt

*Discretionary spending – spending that must be authorized each year.Ex. Space exploration, national defense, agriculture.

*Changes in

Personal Budgets

*Federal

Revenue

2007

*2006 Government Expenditures

*Revenue vs. Expenditures

*Passing the Budget*The President sends the budget to Congress.

*Appropriations bills must be passed by the House of Representatives

*Congress frequently changes the budget.

*The budget is always filled with compromises.

*State budgets follow the same process as the national budget. (look on page 683)

*Budgets change from year to year because of different political philosophies.

*Budget Deficits

*Deficits occur when expenditures exceed revenue.

*The U.S. budget had a deficit from 1968-1996.* Look on page 690

*Governments are expected to do more without raising taxes.

*This forces them to borrow money.

*Expenditures on Elementary and Secondary Education

*Borrowing Money

*The government borrows money to make up for a deficit.

*Most borrowing comes from the sale of government bonds.

*The government pays off the bonds as they come due.

*China owns a great amount of the US bonds. Estimated $900 billion.

*Percentage of Foreign Holder of US Bonds

*National Debt

*The total amount the government owes on the money it has borrowed.

*Goes up with each deficit and accumulated interest.

*Interest: Fee paid for the use of money.

*1996: Interest was $345 billion. They borrow to pay off the interest.

*Balancing the Budget

*Balanced Budget: Expenditures do not exceed revenue.*In 1995, Republicans introduced the Balanced Budget Amendment. It called for a balanced budget by 2002. It did not pass.*Many state constitutions require balanced budgets with no borrowing. *Rely on the emergency funds to pay off debts when state economy is struggling

*Automatic Stabilizers

*Programs to automatically stimulate the economy as soon as they are needed

*Unemployment insurance

*Income tax

*Activity - Part 1*Part of the government’s budget process involves planning projects that are dependent on taxpayer money.

*In groups of 3-4, create a proposal for a class trip to Washington D.C.

*You will create a poster to represent your planned trip.

*Posters should have labels describing the trip and images that represent the trip highlights.

*How many days? You should have 1-2 events for each day we are in DC.

*Activity - Part 2 *In order for governments to budget wisely they must keep track of expenditures. Part of that is to determine the cost of proposed programs.

*Each group will research and create a chart outlining trip expenses. Charts should include costs of – transportation, attraction ticket prices, meals, housing, and any other expenses.

*Brainstorm possible unexpected costs or changes of plans.

*Activity – Part 3

*Overestimated income and unforeseen expenses can spoil the most carefully drawn budget.

*Using your expense chart – you will each deal with a deficit in revenues.

*Brainstorm a plan for dealing with the deficit.