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Personal Finance

Birth of Money
In 1913 The Federal Reserve Act created the Federal Reserve System, the central bank of the U.S.
It issues paper currency known as, Federal

Reserve notes.

Created in 1933, the FDIC (Federal Deposit Insurance Corporation), insures individual deposits up to $100,000 dollars today.

Money Matters
Liquidity- the ability to be used as, or directly converted, to cash.

1. Time- How quickly can you convert your investment to cash?

2. Penalty- Will you lose a portion of your investment if you convert it to cash Examples: Real Estate- no


Measuring the Money Supply

M1= liquid assets 1. currency 2. checking account/debit card 3. travelers checks 4. credit cards

*all can be used directly in financial exchanges

M2 = near money cannot be used as cash, but can be converted to cash fairly quickly
1. savings deposits

2. time deposits= money deposit at a bank that cannot be withdrawn for a certain term or period of time, unless a penalty is paid.(CD, bond)
3. mutual fund/stock

Banking Services
1. Storing money- keep money safe/FDIC insured
2. Save money- pay % interest to depositor -simple interest= interest paid only on principal -compound interest=interest paid on both principal and accumulated interest Principal ex. 2002 $100.00 2003 $105.00 2004 $110.25 5% Int. $5.00 $5.25 $5.51 End of the year $105.00 $110.25 $115.76

3. Make loans- auto , home, credit

How do banks make a profit?

1. Interest from depositors money= they invest your money while they hold it for you

2. Interest charged to borrowers= making loans is the largest source of income for banks

3. Fees: ATM, Checking, Savings, Credit Cards

Banks are a fractional reserve banking system.

Draw this diagram: Money In $100,000 Money Out $70,000

Banks keep 30% of

deposit in reserves

Credit Card Considerations

What is the difference between credit and debit?

1.Annual Fees- yearly fee to use card 2.Finance Charges interest rate to use card=+ 10%

3.Cash Advance Fee- withdrawing cash from ATM

4. Overage Fee- fee assessed when you exceed limit 5.Late Payment Fee- when you exceed grace period you are charged a fee * Some cards require total monthly balance paid in full

Example: You have $40.50 in your checking account account. You buy gas at 8:00 AM for $40.00 (the gas station will not report this transaction until midnight when they close)

At 10:00 AM you buy a Starbucks coffee for $3.00

At 1:00 you buy a $1.00 pack of gum

At 3:30 you buy a bag of Greebies for $1.75

When the gas station reports your morning fill up, your account will be overdrawn.
You will be charged 3 separate overdraft penalties of $20.00-35.00 each.

How to write a check

2. Maker - person/business who writes the check - the name will be printed on the check 8. Banking information - both the name of the bank and the American Banking Association number appear on the check 1.Date - the date the check is written (cannot be a future date) 4. Signature line or lines - two or more signatures can be required on a check

3. Payee person/bus iness to whom the check is written

5. Written amount - the amount written in numbers

6. Legal amount - the amount written in words

9. Account and routing numbers - appear on the bottom of the check in the MICR line

7. Check number - which is printed on the check and appears in the MICR line on the bottom of the check

The high cost of borrowing money Buy now pay later. the American way!

Calculating Simple Interest



I = interest
P= principal R= rate (convert % to decimal) T=time

Lets suppose you borrow 2,000.00 at a 12%

Example #1

add-on interest rate for 2 years

$2,000.00 x .12 x 2 = $480.00

The cost of borrowing the $2,000.00 is $480.00

You try
Example #2
Michelle borrows 5,000.00 at 9% for 3 years from Bank of America to buy a used car.

$5000.00 x .09 x 3= $1350.00

The cost of borrowing $5,000.00 for 3 years is $1,350.00, the total cost of the used car is $6,350.00

Example #3 Jim borrows $2,000.00 at 6% for 6 years from Chase to buy a washer and dryer

$2,000.00 x .06 x 6 = $720.00

The cost of borrowing the $2000.00 is $720.00, the total cost of the washer and dryer is $2720.00

Factoring Monthly Payments


MP= monthly payment P= principal I=interest (convert % to decimal) N= number of months the loan is for

Kristy finances a new Mustang for $40,000 from Huntington Beach Ford at 8% interest rate for 4 years
P= $40,000.00 I= (40,000x.08x4) or $12,800

MP= (40,000+12,800) 48

Kristys monthly car payment is $1,100.00.

What is Credit?
FICO scores are the credit scores most lenders use to determine your credit risk. Three Credit Reporting agencies score your credit: 1. Equifax 2. Experian 3. TransUnion

What is a good score?

How do I improve my credit score?

-Pay your bills on time -Keep credit limits low -Keep open accounts active over a long period of time

-Limit inquiries to your credit

Can a high FICO score save me money?


Great credit = Low Interest


Calculating Your Monthly Expense Whether you pay them or not!!

Cell Phone Service Car Insurance Gas

Estimated Cost $70 $100 $150 $0 $200

Actual Cost

Health Insurance
Clothes/shoes/accessories School Expenses (supplies, fees, & supplies) Athletics/Trainers/Gym Membership/Yoga Class Haircuts/nails/pampering/tann ing Eating out (Food NOT eaten at home and NOT with parents) Internet Service TV/Cable Service

$0 $100 $200 $60