Money Management Chapter 19. Money and Credit Money is anything that a seller will take in exchange for a good or service. To most Americans this includes.

Money Management

Chapter 19

Money and Credit

• Money is anything that a seller will take in exchange for a good or service.

• To most Americans this includes cash, coin, check, debit, and credit cards.

• These things are also known as Currency.

• The reason our money is worth anything is because our government guarantees it against the many things we produce.

Features of Currency

• 1. Must be easy to carry and conceal.• 2. Must be based on a system of easily

divided and multiplied numbers like 5 or 10.

• 3. Must be durable. Currency can not wear out or become unusable before it can be used.

• 4. Must be standard issue by a government that is recognized.

Coins and Paper

• All money must come from the Untied States Mint.

• The US Mint is the place where our money is made. Located in Philadelphia and Denver.

• Coins – used to be worth the amount of metal they contained. No longer, they are made up of various cheaper metals.

Cont…

• Paper money is not actually paper. It is made of cotton.

• 1, 5, 10, 20, 50, and 100 currently produced and in circulation.

• 2, 500, 1000, 5000, and 10000 currently not produced, but some exist in circulation.

• What is the value?• The US Government backs the currency

with our products and…

GOLD

• Our gold supply is held at Fort Knox in Kentucky.

Checks

• Written order to a bank to pay a sum from a person or business’ account.

• Non-cash transaction

• You deposit money into your account and when you write checks the bank removes the money.

• Works the same way with Debit cards.

Charge Accounts and Credit Cards

• Credit Cards – substitute for money. These can be used at any store.

• You use the companies money then pay them back.

• The customer can pay back the full amount during the grace period, or make payments while accumulating interest.

• Interest – Money charged by the companies to use their money.

Short Term v. Long Term Credit

• Short Term - If you have an emergency expense you can borrow an amount of money and pay it off in a small amount of time.

• Long Term – Money borrowed to make a large purchase. The borrower takes a long time to pay it back in equal installments.

Banks and Banking

• Banks – a business that deals in money and credit.

• Deposit – money put into the bank for safe keeping.

• Withdrawal – money taken out of a bank account.

• Loans – money borrowed from a bank.• Collateral – property used to guarantee a

loan.

Types of Banks

• Commercial Banks – offer savings accounts, checking accounts, and loan services.

• Savings and Loan Association – began to help people buy homes. Individuals deposited money into a savings account which earned interest. They then provided low interest loans to people buying houses.

Cont…

• Savings Bank – banks that only offer deposit service. People deposit money and earn interest.

• Credit Unions – established by people who were in the same organizations or worked for the same company.

• They offer all banking services at a discount rate.

Payback

• Loans must be paid back according to the loan agreement.

• Discounting – a person pays the interest first and receives a lower interest rate.

• Renewing a Loan – when a person is unable to pay the loan the bank will reissue the loan. With additional interest.

Government Regulations

• Federal Reserve System – the bank for the US government.

• Loans money to other banks.

• Handles the governments banking needs.

• Not for use by individuals or businesses.

• The banks who belong to the system can borrow money at a Discount Rate – lower interest rates charged to member banks.

Savings and Investment

• Everyone tries to save money.

• For future expenses, a purchase, or just to have extra.

• Savings can be used to put for a down payment on a major purchase like a car or house.

• This can lower the repayment amount and the interest rate.

How Do People Save?

• 1. Banks - most people set aside a regular amount from their paychecks to save.

• These accounts usually earn interest.• 2. Buying Bonds - people can buy savings

bonds as an investment. When these bonds mature the money can be withdrawn.

• 3. Buying Stocks - investing in the stock market can be a good way to make money.

Cont...

• Brokers - people employed by a brokerage house to buy stocks for individuals.

• These brokerage houses are members of stock exchanges

• Risk - you can make a lot of money, but you can also lose everything.

• Mutual Funds - buy shares of a fund that owns thousands of shares of different companies.

Cont...

• 4. Certificate of Deposit (CD’S) - issued by banks the cd is purchased at an agreed upon price and the money is in the cd until the time is up.

• The owner then gets their money back plus interest. Usually a guaranteed amount of interest.

Cont...

• 5. Money Market Fund - like a mutual fund only the person can remove the money whenever, and the investment is more risky.

• 6. Precious Metal - Gold, Silver, and Jewelry.

Insurance

• Insurance - a system of paying small amounts monthly to help pay for emergencies later.

• Home, health, life, flood, earthquake, fire, car, etc…

• Private Insurance - voluntary insurance.

• Can cover almost anything that can happen to you.

How Does Insurance Work?

• The insurance co. takes in millions of premiums.

• Not everyone uses the insurance. So there is excess money.

• This allows insurance companies to invest excess premiums (monthly payments) and make money off of them.

• This guarantees that when you need your insurance it will be there.

Life Insurance

• Provides the person’s family with money when they die.

• Term - life insurance that pays off during a certain period of time 5, 10, 20 years

• Life - life insurance that pays off no matter when the person dies.

• Which one is better for me?

Social Insurance

• Government provided insurance.

• Social Security Act of 1935 - establishes social security.

• This pays three groups

• 1. Old age / Survivors benefits

• 2. Unemployment insurance

• 3. Workman’s Compensation

Medicare and Medicaid

• Medicare Act 1965 - provides health insurance to certain groups of people.

• Medicare - helps citizens over 65 with medical expenses.

• Medicaid - helps citizens who cannot afford health insurance