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THEME2Part1AManagingBasicAssets

HonorsPersonalFinance

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ManagingYourCash&Savings•  Establishinggoodfinancialhabitsinvolvesmanagingcashaswellasothertypesofassets.•  CashManagement– therouGne,day-to-dayadministraGonofcashandnear-cashresources,alsoknownasliquidassets,byanindividualorfamily.

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ManagingYourCash&Savings•  Asarule,near-termneedsaremetusingcashonhand,andunplannedorfutureneedsaremetusingsometypeofsavingsorshort-terminvestmentvehicle.•  Inpersonalfinancialplanning,efficientcashmanagementensuresadequatefundsforbothhouseholduseandaneffecGvesavingsprogram.

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ManagingYourCash&Savings•  CashManagementTips:①  Avoidcarryingcheckbook,debitcard,

orcreditcardwhenunplannedpurchasescouldoccur.

②  Whengoingshopping,setamaximumspendinglimit.

③  Establishanongoingsavingsprogram.

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TheFederalReserveSystem•  TheFederalReserveisthecentralbankoftheUnitedStates.Itsuniquestructureincludes:

v afederalgovernmentagency,theBoardofGovernors,inWashington,D.C.,and

v 12regionalReserveBanks.

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TheFederalReserveSystem•  TheframersoftheFederalReserveActpurposelyrejectedtheconceptofasinglecentralbank.Instead,theyprovidedforacentralbanking“system”withthreesalientfeatures:

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TheFederalReserveSystem①  AcentralgoverningBoard,②  AdecentralizedoperaGngstructure

of12ReserveBanks,and③  AcombinaGonofpublicandprivate

characterisGcs.

7Memphis is in District 8

FinancialServices•  ThefinancialservicesindustryconGnuestoevolve,thanksinlargeparttotechnologyandchangingregulaGons.• Nolongerarecheckingaccountsoneplace,creditcardsanother,andbrokerageservicesyetanother.•  TodayfinancialinsGtuGonsareallencompassing.

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FinancialServices•  ThoughtherearefourprimaryfinancialinsGtuGons,theyallcanbeclassifiedintotwobroadgroups:

①  Depository②  Nondepository

•  ThisisbasedonwhetherornottheyacceptdepositssuchasatradiGonalbank.

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FinancialInsGtuGons•  Thereare4primary:①  CommercialBanks②  CreditUnions③  Savings&Loans④  BrokerageFirms

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FinancialInsGtuGons-DEPOSITORY•  ThevastmajorityoffinancialtransacGonstakeplaceatdepositoryfinancialinsGtuGons:•  CommercialBanks(Brick&Internet)

•  Savings&Loan•  CreditUnions

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FinancialInsGtuGons-DEPOSITORY•  Banks-Thelargest&oldestofallfinancialinsGtuGons,relyingmainlyoncheckingandsavingsaccountsassourcesoffundsforloanstobusinesses&individuals.•  TheyfuncGonasafor-profitinsGtuGon.

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FinancialInsGtuGons– DEPOSITORYBankOfferings

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Deposit–anaddiGontothebalanceonyourbanksavingsorcheckingaccount.

•  Accountsarestartedbymakinga:

FinancialInsGtuGons– DEPOSITORYBankOfferings

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SavingsAccount–isabankaccountthatearnsinterest.

TimeDeposits–asavingsdepositatafinancialinsGtuGon;remainsondepositforalongerGmethanademanddeposit.

Theseareofenreferredtoas:

FinancialInsGtuGons– DEPOSITORYBankOfferings

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Checkingaccounts-abankdepositagainstwhichcheckscanbedrawnbythedepositor.

FinancialInsGtuGons– DEPOSITORYBankOfferings

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DemandDeposit–anaccountheldatafinancialinsGtuGonfromwhichfundscanbewithdrawnondemandbytheaccountholder;sameasacheckingaccount.

AcheckingaccountheldatafinancialinsGtuGonisknownasa:

FinancialInsGtuGons– DEPOSITORYBankOfferings

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• Manyemployersofferanaddedbonusforthosewithacheckingaccount;paycheckscanbe:

DirectDeposit– adepositofmoneybyapayerdirectlyintoapayee'sbankaccount.

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FinancialInsGtuGons– DEPOSITORYBankOfferings

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•  Inasavingsaccount,andrearoccasionssomecheckingaccountsyourmoneyworksforyoubyearning:

Interest-incomeearnedonadepositorpaymentowedonaloan.

FinancialInsGtuGons– DEPOSITORYBankOfferings

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•  Thereare2typesofinterest.SimpleinterestmeansthatyouonlyearninterestonyouriniGaldeposit.

FinancialInsGtuGons– DEPOSITORYBankOfferings

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•  CompoundinterestallowsyoutoearninterestnotonlyonyouriniGaldeposit,butalsoontheinterestyouearnasyougoalong.

FinancialInsGtuGons-DEPOSITORY•  CreditUnion-afinancialinsGtuGonownedbyitsmembersthatprovidessavingsandcheckingaccountsandotherservicestoitsmembershipatlowfees.OperaGngasanon-profitfinancialinsGtuGonownedbyitsmembers.

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FinancialInsGtuGons-DEPOSITORY•  Savings&Loan-afinancialinsGtuGondesignedtocollectsavingsandusethatcapitaltomakeloans.Theytendtospecializeinrealestateloans.

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FinancialInsGtuGons-DEPOSITORY•  BrokerageFirm-firmsthatbuyandsellstocks,bonds,andothersecuriGesfortheircustomersandprovideotherfinancialservices.

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FinancialInsGtuGons• Howsafeisyourmoney?

• MostfinancialinsGtuGonsarefederallyinsured.Thosethatarenotareusuallyinsuredthroughastateorprivateinsurer.•  ItisbelievedthattheseinsGtuGonsarelessinsuredthanfederallyinsured.

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FinancialInsGtuGons

•  BothprovideidenGcalprotecGonsincludingupto$250,000.00onaccounts.

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Federal Depositors Insurance

Corporation

National Credit Union

Administration

FinancialInsGtuGons•  It’simportanttounderstandthatdepositinsuranceisprovidedtothedepositorratherthantoadepositaccount.•  Ex:$150,000inchecking,$75,000insavings,&$25,000inaCDallfromthesamebankisfullycovered.

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FinancialInsGtuGons•  YoucanincreasecoveragebyopeningdifferentaccountsunderdifferentdepositorsatthesameinsGtuGon.•  Ex:Amarriedcouplecanhaveoneaccountineachperson’snamefor$250,000each($500,000total).Thenajointaccountinbothnamesforanother$500,000(whichis$250,000peraccountowner).Total$1,000,000.

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FinancialInsGtuGons•  AddiGonalAccountOpGons

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MoneyMarketDepositAccounts–afederallyinsuredsavingsaccount,offeredbybanksandotherfinancialinsGtuGons,thatcompeteswithmoneymarketmutualfunds.Theseaccountsareverysafeandhighlyliquidshortterminvestments.Interestratesvaryfrommonthtomonth.

FinancialInsGtuGons•  AddiGonalAccountOpGons

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MoneyMarketMutualFunds–amutualfundthatpoolsthefundsofmanysmallinvestorsandpurchasehighreturn,short-termmarketablesecuriGes.

Historicallytheseaccountspay1%to3%aboveregularsavingsaccounts.

ElectronicBankingServices

Thishelpstospeedupandsimplifythefinancialprocess.

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ElectronicFundsTransfer(EFT’s)–systemsusingthelatesttelecommunicaGonsandcomputertechnologytoelectronicallytransferfundsintoandoutofcustomer’saccounts.

ElectronicBankingServices•  Banks&CreditUnionsalsoissue:

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DebitCards– speciallycodedplasGcCardsusedtotransferfundsfromacustomer’sbankaccounttotherecipient’saccounttopayforgoodsorservices.

ElectronicBankingServices•  Inordertomakedebtcardsmoreusefulbanksuseremoteterminals:

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AutomatedTellerMachines(ATM)–aremotecomputerterminalthatcustomersofdepositoryinsGtuGonscanusetomakebasictransacGons24/7.

ElectronicBankingServices•  IfyourbankbelongstoanEFT’snetwork,suchasCirrus,Star,orInterlinkyoucangetcashfromtheATMofanybankintheU.S.Aoroverseas.

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ElectronicBankingServices•  SecurityconcernshavecausedfinancialinsGtuGonstobeginreplacingthecommonmagneGcstripwithEMV(Europay,MasterCard,Visa)chips.

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OtherBankingServices

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Safe-depositbox–arenteddrawerinabanksvault.

•  Boxescanberentedonaveragefor$30peryear,dependingonthesizeofthebox.

•  Youreceiveakeyandthebankkeepstheother.Bothkeysarerequiredtoopenthebox.

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UsingACheckingAccount

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UsingACheckingAccount

• Generalcheckingaccountprocedures:Ø Alwayswritechecksinblue/blackinkØ Alwayssignchecksthesameasthesignaturecard

Ø Printchecksfromonlinethataretaxrelated

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UsingACheckingAccount•  RecordalltransacGons(checks,deposits,debitcardpurchases,ATMwithdrawals,automaGcEFTs)inthe

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checkbookledger– orcheckregisterisabooklet,providedwithasupplyofchecks,usedtomaintainaccuraterecordsofallcheckingaccounttransacGons.

UsingACheckingAccount•  Accuraterecordsareimportanttoavoid

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overdrafs– theresultofwriGngacheckforanamountgreaterthanthecurrentaccountbalance.Withoverdrafs,bothparGescanbecharged$10,$20,ormore.Youfortheoverdraf,andtherecipientwhodepositsa“badcheck”paysaswell.

UsingACheckingAccount

•  Therearewaystopreventanaccidentaloverdraf.

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OverdrafprotecGon– anarrangementbetweentheaccountholderandthedepositoryinsGtuGonwhereintheinsGtuGonautomaGcallypaysacheckthatoverdrafstheaccount.

UsingACheckingAccount

•  ThereareGmeswhenyouneedtostopacheckyouhavealreadywriren.

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stoppayment– anordermadebyanaccountholderinstrucGngthedepositoryinsGtuGontorefusepaymentonanalreadyissuedcheck.

UsingACheckingAccount

•  Everymonthcheckingaccountholdersshouldcompletea:

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accountreconciliaGon– verifyingtheaccuracyofyourcheckingaccountbalanceinrelaGontothebanksrecordsasreflectedinyourbankstatement.

UsingACheckingAccount•  SpecialTypesofChecks

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UsingACheckingAccount

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Cashier’sCheck– acheckpayabletoathirdpartythatisdrawnbyabankonitselfinexchangefortheamountspecifiedplus,inmostcases,aservicefeeof$5to$10.

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UsingACheckingAccount

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Traveler’sCheck– achecksoldbymostlargefinancialinsGtuGonsthatcanbeexchangedforpurchaseorcurrencyinmostpartsoftheworld.

UsingACheckingAccount

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CerGfiedCheck– apersonalcheckthatisguaranteed,forafee,bythebankonwhichitisdrawn.

UsingACheckingAccount

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