FIRST STEPS TO FINANCIAL MODULE 2 INDEPENDENCE LESSON 2.1 Savings, Banking Services & Interest This lesson has students learning about Pay Yourself First®, savings, the different types of savings accounts, and the benefits of interest. In addition, students review vocabulary used during the lesson as part of FIT Work. MATERIALS & PREPARATION LEARNING GOALS Students compare different vehicles for saving money. Module 1 SDM sheet (previously completed by Students conclude how and when a financial goal will be students) achieved, based on time and amount saved. Notebook paper Students explore their financial goals and defend how they will achieve them. FIT Work 2.1 sheet (page 2.5) FIT Tool: Savings Goal Calculator JUMP$TART PERSONAL FINANCIAL EDUCATION NATIONAL STANDARDS ALIGNMENT Financial Responsibility and Decision-Making Slide Presentation 2.1 Planning and Money Management Saving and Investing DO THIS 1. Ask students if they save money. Ask how and why they save money. This discussion should not be about ‘how much’ they save but rather about the process of saving. 2. Review the concept of Pay Yourself First®, which is the idea that savings should be a regular part of a spending plan. Ideally, the money should be deposited in an interest-bearing account. 3. Define savings as the accumulation of money set aside for future use. Discuss the different savings methods and the benefits. Piggy bank/”under the mattress” Savings account Certificate of Deposit YesYouCanOnline.info LESSON 2.1 ©2009 American Century Proprietary Holdings, Inc. All rights reserved. Page 2.1 FIRST STEPS TO FINANCIAL MODULE 2 INDEPENDENCE NOTES: 4. Introduce the concept of an emergency fund. Define emergency fund as money set aside for unexpected expenses or for living costs in case of job loss. 5. Discuss the benefits of bank accounts and where one can be established (bank or credit union). Have students brainstorm the benefits of having money in a savings account. Examples: Earn interest Compound interest Safe Federal Deposit Insurance Corporation (FDIC) - insured Convenient Affordable 6. Ask students if they know what interest is. Discuss how interest is the banking institution paying people for the use of their money. 7. Discuss how the Federal Deposit Insurance Corporation (FDIC) ensures money is safe. The FDIC is a U.S. government corporation that provides deposit insurance; currently guarantees checking and savings deposits in member banks up to $250,000 per depositor. Additional information can be found at www.fdic.gov. 8. Discuss how savings accounts usually have lower interest rates than investments, but they serve as a pre-requisite for investing. In order to invest in the future, a person must have thousands of dollars saved. 9. Demonstrate and discuss, using the FIT Tool: Savings Goal Calculator, how putting money in savings, over time, with a good interest rate can help one reach their financial goals. Compare the piggy bank rate (no interest) to typical savings account interest rates. 10. Present the following scenario: Grace wants to purchase her mom a pair of diamond earrings for her birthday. She has 10 months to save her allowance. The earrings cost $150. She has $75 in her savings account. The interest rate is 2%. How much must Grace save each month in order to purchase the earrings? How much money did Grace earn from interest? (Answers: $7.32 and $1.81) 11. Present the following scenario and demonstrate and discuss using FIT Tool: Savings Goal Calculator. Philip wants to purchase a car in four years. He can buy his uncle’s truck for $4,500. He currently has $1,000 in his savings YesYouCanOnline.info LESSON 2.1 ©2009 American Century Proprietary Holdings, Inc. All rights reserved. Page 2.2 FIRST STEPS TO FINANCIAL MODULE 2 INDEPENDENCE NOTES: account. The interest is 5.4%. How much does Philip need to save each month to purchase his uncle’s truck? How much money did Philip earn in interest? (Answers: $60.99 and $572.48) 12. Discuss Philip’s situation and the amount of interest earned. 13. Present the following scenario and demonstrate and discuss using FIT Tool: Savings Goal Calculator. Sterling wants to purchase an $850 treadmill. He currently has $225 in his savings account. The interest rate is 4.5%. If he saves $50 a month, how many months will it take him to save the money he needs for the treadmill? How much did Sterling earn in interest? (Answers: 13 months and $24.79) 14. Discuss Sterling’s situation and the amount of interest earned. 15. Have students review the SML goals they outlined on their SDM sheet from Module 1 Lesson 2. This should be in their PF Portfolio. Discuss if Pay Yourself First® was part of how they are going to achieve their goals. 16. Have pairs of students run their SML financial goals from the SDM sheet through the FIT Tool: Savings Goal Calculator and determine when and how they will be able to achieve their SML financial goals. Have students compare how putting money into an interest bearing savings account would help them achieve their SML financial goals quicker than having the money in a ‘piggy bank’. Discuss. 17. Using the FIT Tool: Savings Goal calculator, have students print off a realistic best-case scenario for achieving one of their financial goals and write two paragraphs explaining how they would achieve their financial goals. Include financial terms such as savings goal, interest rate, and savings account. 18. Optional: Have a banker visit the classroom to further discuss banking services. Optional: FIT Work 2.1 sheet (page 2.5). Remind students they are FIT WORK responsible for keeping all FIT Work sheets in the PF Portfolio. YesYouCanOnline.info LESSON 2.1 ©2009 American Century Proprietary Holdings, Inc. All rights reserved. Page 2.3 FIRST STEPS TO FINANCIAL MODULE 2 INDEPENDENCE NOTES: Review FIT Tool: Savings Goal Calculator and two paragraphs for ASSESSMENT completion and mastery of content. Review FIT Work 2.1 sheet for completion and mastery of content. FIT Tool: Savings print off PFP Two paragraphs about financial goals FIT Work 2.1 sheet (page 2.5) YesYouCanOnline.info LESSON 2.1 ©2009 American Century Proprietary Holdings, Inc. All rights reserved. Page 2.4 Name FIT Work 2.1 Date Define the following: Saving Investing Interest FDIC Certificate of Deposit Savings Account Emergency Fund Why is it a good idea to save money in an interest bearing account, such as a savings account? What is the purpose of an emergency fund? YesYouCanOnline.info LESSON 2.1 ©2009 American Century Proprietary Holdings, Inc. All rights reserved. Page 2.5 Name FIT Work 2.1 Date Define the following: Saving The process of setting aside income (earnings) for future use. Investing Purchasing a financial product or other item of value with an expectation of favorable future returns (the use of money in the hope of making more money). Interest Money that financial institutions, governments, or corporations pay for the use of investors’ money. FDIC Federal Deposit Insurance Corporation (FDIC) is a U.S. government corporation that provides deposit insurance; currently guarantees checking and savings deposits in member banks up to $250,000 per depositor. Certificate of Deposit A short to medium-term, FDIC-insured investment available at banks and savings and loan institutions. A customer agrees to lend money to the institution for a certain amount of time. In exchange for doing so, the customer is paid a predetermined rate of interest. Savings Account A deposit account at a bank which pays interest but cannot be withdrawn by check writing. Emergency Fund Money set aside for unexpected expenses or for living costs in case of job loss. Why is it a good idea to save money in an interest bearing account, such as a savings account? Because while it is in safekeeping at an FDIC-insured institution, you can also make money (the interest the bank gives you for having your money at their institution). What is the purpose of an emergency fund? To be able to make it through a financial crisis which usually means having to deal with unexpected expenses. YesYouCanOnline.info LESSON 2.1 ©2009 American Century Proprietary Holdings, Inc. All rights reserved. Page 2.6 FIRST STEPS TO FINANCIAL MODULE 2 INDEPENDENCE LESSON 2.2 Compound Interest & Rule of 72 This lesson has students exploring compound interest and the Rule of 72. The FIT Work has students calculating compound interest. MATERIALS & PREPARATION LEARNING GOALS Students compare and contrast non-interest bearing and interest Compound Interest Resource (page 2.11) bearing saving alternatives. Students defend the power of compound interest. Rule of 72 Resource (page 2.12) Students discover how the Rule of 72 is impacted by compound Compound Interest sheet (page 2.13) one for interest. each student Rule of 72 sheet (page 2.16) one for each student JUMP$TART PERSONAL FINANCIAL EDUCATION FIT Work 2.2 sheet (page 2.18) one for each NATIONAL STANDARDS ALIGNMENT student Financial Responsibility and Decision-Making Saving and Investing FIT Tool: Compound Interest DO THIS Slide Presentation 2.2 1. Review the concept of saving (and eventually investing) and how interest is a benefit. Introduce the concept of compound interest. Ask students if they can define compound interest. Compound interest is defined as interest which is calculated not only on the initial deposit but also the accumulated interest of prior periods. When interest compounds, one makes money on the initial investment and all interest earned over time. 2. Share the following scenarios: How much money will Frank have if he saves the following in a piggy bank? Initial investment – $100 Monthly investment – $100 Time – 20 years Answer: $24,100 ($100 + ($100 x 240 months)).