A Penny Doubled Visual Aid 7.1. Saving versus Investing Visual Aid 7.2 SavingInvesting.

A Penny Doubled

Visual Aid 7.1

Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7




Day 29 Day 30

Saving versus Investing

Visual Aid 7.2

Saving Investing

Principal versus Returns

• Principal is the money you put into savings or an investment. Principal comes from money you have set aside when you first start saving and investing.

• Returns are what you earn on the principal.

Visual Aid 7.3

Common Types of Returns• Interest. Interest is the amount a bank, credit union, corporation

or government agrees to pay you for the use of your money. This is expressed as a percentage.

• Dividends. Dividends are a portion of a corporation’s profits given

back to shareholders. Dividends can be cash or more shares. • Increased share value. This is the amount you earn because the

market value of your share is greater now than what you paid for it. Increases in share value increase your portfolio value, but only create income or cash if you sell them. This is called a capital gain. You can also lose money because the value of your investments is less than what you invested in them. This is called a capital loss.

Visual Aid 7.4

Definition of Risk

Visual Aid 7.5

• Risk is certainty or any chance for loss.

Saving versus Investing Vehicles

Visual Aid 7.6

Saving Vehicles Investing Vehicles

Account Insurance Coverage

Visual Aid 7.7

• FDIC for banks and NCUA for credit unions covers each customer (member) up to $250,000 per account (and per type of account).

• Explain that principal is at risk in investments. Explain that some investments like U.S. Savings Bond (an example of a Treasury Security) carry almost no risk, but the return is also low.

• Explain SIPC (Securities Investor Protection Corporation) insurance: if you invest through a brokerage and it fails AND it is insured by SIPC if the brokerage is a member you may be able to recover some of your losses.

Opportunity Passport™ Matched Savings Returns

•Is earning $1 for every $1 you save a good deal?

•It is the best deal you are likely to ever get for money you save.•When you earn $1 for every $1 you save, you are earning 100% returns. •Money in a savings account earns about 1% right now. •Between 1883 and 2008, stocks returns averaged 7.6%.

Visual Aid 7.8

Wealth and Net Worth• Wealth is measured by someone’s net worth.• Net worth is just the value of all of the assets

minus the value of all of the liabilities.• Net worth is what you own minus what you

owe.• Net worth is what you would have left if you

were to sell all of your assets and pay off all of your debts.

Visual Aid 7.9

Fatima’s Net Worth

Visual Aid 7.10

Assets Value TotalChecking Account $1,200 Emergency Savings Account

$850

Mutual Fund $530 Automobile $4,570 Condo $85,950

Total Assets $93,100

Liabilities Value TotalCredit card $980 Automobile loan $676 Mortgage for Condominium

$76,230

Total Liabilities $77,886

Net Worth $15,214

How Does Saving and Investing Affect Net Worth?

• Financial assets generally contribute positively to your net worth because there is no liability.

• Unsecured debt on the other hand, reduces your net worth because there is generally no asset that goes with it.

Visual Aid 7.11

Investing in Yourself, Your Own Business and Your Community

Visual Aid 7.12

Group 1:

What does it mean to invest in yourself?

What are ways you can invest in yourself?

Group 2:

What does it mean to invest in your own business?

What are ways you can invest in your own business?

Group 3:

What does it mean to invest in your community?

What are ways you can invest in your community?

Keys to Saving and Investing

Visual Aid 7.13

• What are you saving or investing for and how much do you need? This is your goal.

• When do you need that money? This is the time frame.

• How much risk can you take? This is your risk tolerance.

Opportunity Passport™ Matched Savings and Investing

Visual Aid 7.14

You can use the Opportunity Passport™ Matched Savings to invest your savings into: – Certificates of Deposits– Stocks– Bonds– Shares of a mutual or

exchange traded fund

You cannot use the Opportunity Passport™ Matched Savings for: – Administrative Costs

Risk/return Tradeoff Graph

Visual Aid 7.15

Risk

Return

High risk, high return

Low risk, low return

Mitigating Risk

Visual Aid 7.16

Opportunity for Loss—Risk Ways to Mitigate the RiskFail a test in school Get injured in an automobile accident

Lose a job

Have cash stolen from you room, apartment or home Have identity stolen

Have more debt than can be handled Not earning the match through the Opportunity Passport™ Matched Savings

Different Kinds of Risk

Visual Aid 7.17

Market risk The risk that your rate of return does not keep up with inflation.

Inflation risk The risk that interest rates will change in a way that is not favorable for investments you may have.

Interest-rate risk The risk that you will lose money due to poor management of a firm.

Socio-political risk The risk that a corporation or government does not do a good job of managing its debt and gets a poor credit rating.

Liquidity risk The risk that you can lose some or your entire principal (the money you invest) caused by changes in the market.

Management risk The risk that you will not be able to turn your investment into cash when you need it.

Credit risk The risk that you could lose investments because of war, economic policy or other political issues.

Different Kinds of Risk

Visual Aid 7.18

Risk you havelessened (mitigated)

Risk you may experience

Savings Account

Certificate of Deposit

Stock

Mutual Fund (Stock)

Investing $25,000

Visual Aid 7.19

Saving or Invest Option Amount Allocated

Amount Allocated

Amount Allocated

Savings account

Certificate of Deposit$25,000 minimum depositReturns = 2% APR for 12 months

Certificate of Deposit$5,000 minimum depositReturns =1.25% APR for 12 months

Land in Rural Location

Best Friend’s Cleaning BusinessPartial partnership for $10,000Returns = 10% of profits

Best Friend’s Cleaning BusinessFull partnership for $25,000Returns = 40% of profits

Stock Mutual Fund (5 star rating)

Your Own Education

Bond Mutual Fund (5 star rating)

Wal-Mart Stock

Asset Classes

Visual Aid 7.20

.

• Cash—Things that have a low chance of principal risk: savings deposits, certificates of deposit, treasury bills, money market deposit accounts, and money market mutual funds

• Stocks—shares of ownership in corporation, mutual funds or ETFs

• Bonds—lending money to corporations or government for the promise of full repayment and interest in the future

Jasmine’s Current Asset Allocation

Visual Aid 7.21

One Option for Jasmine

Visual Aid 7.22

Diversification• Diversification is about making sure your money

is invested in more than one place within a particular asset class.

• For example, you may have money in a savings account for short-term goals, money in a money market deposit account for emergencies and money in a checking account for paying your bills.

• This is diversification of your cash.

Visual Aid 7.23

Time Value of Money

• If I bought something in 2006 for $10, that same item today would take $11.41.

• If something cost $100 in 1994, that same item today would cost around $145.

• Alternatively, something that costs $100 would have likely cost about $68 in 1994.

Visual Aid 7.24

Inflation• Inflation is the gradual increase in the cost of everything.

• In the U.S., the inflation rate on average is 3% a year. The result of inflation is that each year, one dollar buys less than it did the year before.

• With inflation, it takes more money to buy the same item each year.

• Inflation is measured by the Consumer Price Index (CPI) and the

Producer Price Index (PPI). • The PPI measures changes in wholesale prices—this is what

businesses sell goods and services to one another for. Generally, this will increase in front of the CPI. The CPI measures the average change in price of a bunch of consumer goods.

Visual Aid 7.25

The Rule of 72• You can figure out how long it will take your money to double at

any given rate of return.

• Divide 72 by the rate of return. This tells you how many years it would take any amount of money to double at that rate of return.

• For example, at 10%, your money would double in 7.2 years.

• This means that it would take 7.2 years for:– $1 to become $2– $100 to become $200– $1,000 to become $2,000

if earning a 10% return.

Visual Aid 7.26

Unbiased Saving and Investing Information

• Generally, if the organization or person providing the information does not gain from steering you in a particular direction—toward a specific product or service—it is unbiased.

• With investing, there are many people and businesses trying to sell many things. They all have something to gain from selling you specific products or services, some of which may be in your best interest, some which may not be.

• It is always best to learn more about saving and investing from unbiased sources first.

Visual Aid 7.27

Talking Stick Questions

• As a result of this training, what is one money management related thing you are going to start?

• As a result of this training, what is one money management related thing you are going to continue doing?

• As a result of this training, what is one money management related thing you are going to stop?

Closing Visual Aid 1

Web of Connectivity Questions

• What is the most important thing you have learned?

• What asset is it most important for you to build? What step will you take tomorrow to start building this asset?

• What is something—information, skill, resource or tool—that you will be able to use starting tomorrow?

• How has your social capital been strengthened or built through your experience?


Post-dated Letter to Yourself: Questions to guide your letter

• What progress have you made toward your short and long terms goals?

• Have you built any assets? Which ones?• Have you built your social capital? How?• How have you overcome obstacles?• How have you used the knowledge and skills

gained through your participation in Keys to Your Financial Future to become more financially capable?


A Penny Doubled Visual Aid 7.1. Saving versus Investing Visual Aid 7.2 SavingInvesting.

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