Introduction to BusinessPersonal Finance UnitWhy
Save?ObjectivesSaving what it isWhy people saveHow interest is
calculated on money savedHow much do we save?Disposable income =
after-tax income97%3%Disposable income and savingDisposable income
= consumption + savingSaving = disposable income -
consumptionActivity 1Groups of fourChoose a recorder to take
notesChoose a reporter to share the groups work to the
classIndividually, read Activity 1In your groups, discuss two
questions posed at the end of the handoutActivity 1 Discussion
questionsWhat do you think is meant by this statement: Pay yourself
first?What are some reasons why people save?Simple vs. Compound
InterestInterest earned on an initial $100Saved at 8% interest
rateActivity 2Groups of sixChoose two accountants to keep running
totals of the initial savings amount ($100), plus interestSimple or
CompoundEach bean = $1Place $100 in jarPlace beans in jar for
amount of interest earned through Year 9
YearSimple Interest AddsTotal Saving Using Simple
InterestCompound Interest AddsTotal Saving Using Compound
Interest1$8.00$108.00$8.00$108.0028.00116.009.00117.0038.00
124.009.00126.0048.00
132.0010.00136.0058.00
140.0011.00147.0068.00
148.0012.00159.0078.00
156.0012.00171.0088.00
164.0014.00185.0098.00
172.0015.00200.00Activity 2 Discussion questionsWhat did you
notice about the accumulation of simple interest?What did you
notice about the accumulation of compound interest?Calculating
Simple InterestInterest = Principal (amount of initial saving) x
Rate (of interest being paid on savings) x Time (in years)Example:
Simple interest at 8% for 3 yearsInterest = $100 x .08 x 3 =
$24Rule of 7272 divided by the Rate (of interest being paid on
savings) = the number of years it will take for savings to double
when interest is allowed to compoundExample: Compound interest at
8% for 9 years72 / .08 = 9 yearsAt the end of nine years, the
initial savings of $100 have increased to $200 double the amount of
initial savingsReview QuestionsWhat is saving?Saving = disposable
income - consumptionInitial savings are $1,000; the interest rate
is 5 percent. If you keep the initial savings for five years, how
much simple interest will be paid?$1,000 x 5% =$50 per year; $50 x
5 years = $250Initial savings are $500. At an interest rate of 3
percent, how long would it take to double your initial savings?72 /
3 = 24 years
