Question Number of Yes Responses How many of you know that smoking is unhealthy? How many of you know people who smoke? How many of you know that eating

SAVING: THE EARLIER YOU START THE LESS YOU HAVE TO DO

WHY DON’T PEOPLE SAVE WHEN THEYKNOW THEY SHOULD?

Question Number of Yes Responses

How many of you know that smoking is unhealthy?

How many of you know people who smoke?

How many of you know that eating food that are high in fat content, such as fast foods and packaged snacks, isn’t healthy?

How many of you know people who eat foods that are high in fat content?

How many of you know that regular exercise provides many health benefits?

How many of you know people who don’t exercise regularly?

LESSON 13 – WHY NOT SAVE?

SLIDE 13.1

COSTS AND BENEFITS

Costs are all the things that have to be given up when a choice is made.

Costs are negative. Benefits are any gains or favorable

outcomes that make people more satisfied when a choice is made.

Benefits are positive.


SLIDE 13.2

THE COSTS AND BENEFITS OF DIET AND EXERCISE What are the benefits of eating a healthful diet

and exercising regularly? Do these benefits of diet and exercise occur now

or in the future? If people choose a healthful diet and exercise

regularly, are they guaranteed these benefits? Can they count on them for sure?

What are the costs of choosing a healthful diet and exercising regularly?


SLIDE 13.3

DISCIPLINE AND SACRIFICE

THE BENEFITS OF BUYING SOMETHING ARE IMMEDIATE, THE BENEFITS OF SAVING ARE NOT.

THE CONSEQUENCES OF SAVING ARE IMMEDIATE, THE CONSEQUENCES OF BUYING SOMETHING ARE NOT.

WHAT DOES THIS MEAN?

WE PREFER INSTANT GRATIFICATION TO DELAYED, THAT’S WHY SAVING MONEY

IS SO HARD.

Interest: How is interest calculated?

COMPOUND INTEREST is the accumulation of money where the interest earned remains in the account to earn additional interest in the future. In other words, you earn interest on your interest.

The equation for compound interest is:

Total = Principal (1 + rate)years




Lets say you have $20,000 to invest at 7% interest. How much money will you have in your account at the end of 5 years?

Total = 20000 (1 + .07)5

This result is a total of $28,051.03 at the end of 5 years.




Lets say you have $20,000 to invest at 7% interest. How much money will you have in your account at the end of 5 years? This result is a total of $28,051.03 at the end of 5 years.

Now calculate the same problem for 10 years and 20 years.

Did you get $39,343.03 for 10 years?

Did you get $77,393.69 for 20 years?


Compound interest can be further complicated by the number of times PER YEAR the interest is calculated.

For example, is the interest calculated bi-yearly or twice per year? Is the interest calculated quarterly or four times per year?

The following table shows the final principal (P), after t = 1 year, of an account initially with C = $10000, at 6% interest rate, with the given compounding (n). 1 (yearly) $ 10600.00 2 (semiannually) $ 10609.00 4 (quarterly) $ 10613.64 12 (monthly) $ 10616.78 52 (weekly) $ 10618.00 365 (daily) $ 10618.31


The Rule of 72……states that 72 divided by the interest rate will result in the number of years it will take your investment to double…...

Interest: The Early Bird Gets the Worm

How interest rates affect your Return on Investment (ROI)


How interest rates affect your Return on Investment (ROI)


Mary and John graduate from college in the same year. Starting at age 22, Mary invests $2000 per year for 7 years and stops. John

sees that Mary has saved a lot of money and begins investing $2000 per year at age 29 and continues for the next 33 years. Who will have

the most money with which to retire at age 62?


Mary’s investment of $14,000 resulted in $628,329 when she reached age 62.

John’s investment of

$66,000 resulted in $600,082

when he reached age 62.

Saving Money

Important ideas to keep in mind:•Set goals for saving (stereo, car, home, retirement)• Let the magic of compounding work for you•Save BEFORE you spend•Direct deposit can make saving easier (out of sight, out of mind)

GOALS FOR SAVING People who save usually have savings goals.

These are aims or desired results that people hope to achieve.

Short-term savings goals are those that can be achieved in one year or less.

Medium-term savings goals are those that can be achieved in one-to-five years.

Long-term savings goals require more than five years to achieve.


SLIDE 13.6

TYPES OF SAVINGS GOALS?


Short-TermSavings Goals

Medium-TermSavings Goals

Long-TermSavings Goals

SLIDE 13.7

Documents

Question Number of Yes Responses How many of you know that smoking is unhealthy? How many of you know people who smoke? How many of you know that eating