What do other high school students know about saving? We asked high school students to describe something they really wanted and thought they had to buy, only to realize later that they wasted their money. “I worked and saved $250 for a guitar that I never learned how to play.” Junior, Michigan “I bought some fish that I thought I really wanted. I never fed them, totally lost interest in them, and they all died. What a waste of money!” Junior, Alabama “I really wanted this expensive skateboard that cost $229. I had to have it. Turned out it skated no better than the other ones that were a lot less expensive.” Sophomore, Alabama “I got a pink purse that I paid more than $200 for and have maybe used twice.” Junior, Florida “I bought an $80 sweater that turned out to be really cheap quality.” Freshman, Tennessee
INTRODUCTION Before You  Learning Outcomes Once you’ve completed this chapter’s videos, you will be to return to this list and place a checkmark next to the items you’ve mastered. Section 1: Saving: An Exercise of Character  Identify the Five Foundations of personal finance.  Understand the purpose of having an emergency fund. Section 2: Three Basic Reasons to Save Money  Explain the three basic reasons for saving money.  Understand the importance of saving for both long-term and goals.  Describe what a sinking fund is and identify purchases for which you would use a sinking fund. Section 3: The of Compound Interest  Demonstrate how compound interest works and understand the impact of annual interest rate.  Describe the difference between simple and compound interest.  Understand the importance of beginning to save now. Key Terms Get to know the language of money. » Compound interest: Interest paid on interest previously earned; credited daily, monthly, quarterly or semiannually » Emergency fund: Five hundred dollars in readily available cash to be used only in the of an emergency; the goal of the First Foundation » Interest rate: Percentage paid to a lender for the use of borrowed (in debt); percentage earned on invested principal (in investing) » Five Foundations: The five steps to financial success » Sinking fund: Saving money over time for a large purchase
SECTION 1 “ “Discipline yourself to do the things you need to do when you need to do them, and the day will come when you will be able to do the things you want to do when you want to do them.” Z IG Z IG L A R Best-selling author and motivational speaker $ The most important lessons teens want to know when learning how to manage money are learning to save (35%) and understanding how to budget (28%). ING Direct USA Survey 2 Section 1: Saving: An Exercise of Character VIDEO 1.1 The Five Foundations 1 T H E F I R S T FO UN D A T ION Save a $500 Fund 1 + THE FIVE FOUNDATIONS are the beginner steps for establishing and maintaining financial peace. These steps will serve as your compass or framework for your financial success. You will find the Five Foundations explained in detail throughout this course. These are basic steps that anyone can and should do in order to win with money. T H E S E C ON D FO UN D A T ION Get Out of 2 T H E T H I R D FO UN D A T ION Pay for Your Car 3
SECTION 2 “ “It was character that got us out of bed, commitment that moved us into action, and discipline that enabled us to follow through.” Z IG Z IG L A R American author and motivational speaker Building » The third thing you save money for is building. 23 » is the key ingredient when it to 24 wealth building. » Building wealth is a , not a sprint. 25 JOURNAL QUESTION: 2.2 Why do you so many people borrow money for large purchases instead of using a sinking fund? to Start Saving? Read These Bank Tips First! * REMEMBER: The emergency fund is not intended to grow wealth, so interest earned is not a factor. » A bank is one of the safest places to keep your money. Since the financial crisis of 2008, the federal government (Federal Deposit Insurance Corporation or FDIC) increased the level of insurance on bank accounts to $250,000 per depositor. » An interest-bearing account is an account that generates interest income on the available balance in the account. » The convenience of a bank account comes at a cost. Banks generally pay lower rates on interest-bearing accounts than financial institutions that offer accounts that resemble bank services: The most common are brokerage cash management accounts, credit union accounts, and mutual fund money market accounts. » Inflation can eat up the interest you earn on an interest-bearing bank account. Even a low rate of inflation (a persistent rise in the cost of goods and services or the decline in the purchase power of money) generally outpaces what banks pay on interest-bearing accounts. W