Post on 18-Dec-2015
Chapter 7: BankingPersonal Financial Management
CHAPTER 7.1FINANCIAL SERVICES AND INSTITUTIONS
Beginning of Banking
• 1791
• First central bank – 8 branches
• Today - 11,000 banks, 2,000 savings and loan associations, and 12,000 credit unions.
Types of Financial Services
• Savings
• Payment Services
• Borrowing
• Other financial services
Savings
• Essential for any personal finance plan.
• Time Deposit – money that is left in a financial institution for months or years.
• Examples: money in any type of savings account and CDs• Selection of savings plan should be based on
interest rates, liquidity, safety, and convenience.
Payment Services
• Checking Account – most commonly used payment service
• Demand Deposit – money that you place in a checking account• You can withdraw the money at any time, or on
demand.
Borrowing
• Short-Term• Credit cards, personal cash loan
• Long-Term• Mortgage, auto loan
Other Financial Services
• Insurance protection
• Stock – money paid for investment into a business (securities)
• Bond – A form of a loan or IOU (securities)
• Mutual Funds – pools money from multiple investors to purchase securities
Electronic Banking Services
• Direct Deposit – automatic deposit of net pay into an employees designated banking account
• Automatic Payments – authorization needed, your bank withdrawing money monthly for a payment or bill
• ATM – computer terminal that allows for the withdrawal of money, deposits, and transfers
Document Detectives
• Textbook Page 193
• Answer question #1-6 in your notes
Evaluating Financial Services
• Balance your short-term needs with your long-term needs
• Location and convenience
• Fees
• Re-evaluate occasionally
Types of Financial Institutions
• Safety
• Deposit Institutions
• Non-Depository Institutions
Safety
• Record, examine history
• Federal Deposit Insurance Corporation (FDIC)• Protects deposits in banks• Insures each account in a federally chartered
bank up to $100,000 per account
Deposit Institutions• Commercial banks – for-profit institution that offers a
full range of financial services.
• Savings and loan associations – traditionally specialized in savings accounts and mortgage loans but now offers many of the same services as commercial banks.
• Mutual savings banks – owned by depositors, specialize in savings accounts and mortgage loans. Lower interest rates on loans and pay a higher rate on savings accounts.
• Credit unions – nonprofit, owned by its members and organized for their benefit.
Non-Depository Institutions
• Life Insurance Companies – provide financial security for dependents.
• Investment Companies – combine money with funds from other investors in order to purchase securities, mutual funds.
• Finance Companies – Advice, loans for consumers and small businesses, investing
Problematic Financial Businesses• Pawnshops• Make loans based on the value of tangible possessions• Interest charged
• Check Cashing Outlets• Charge from 1-20% of the face value of a check
• Payday Loans• Write a check to get a ‘loan’ • Personal check not cashed for 14 days• Interest charged and rolled over, a continuous cycle
• Rent-to-Own Centers• Own an item if consumers complete a certain number of monthly
or weekly payments.• Interest charged – end up paying more than the item is valued.
Section 1: Assessment
• Textbook page 201
• #1-7
• Complete on separate sheet of paper and turn in