Does Money Really Grow on Trees?

Grade 9 Lesson #5

Does Money Really Grow on Trees?

SS.912.FL.3.3 Compare the difference between the nominal interest rate which tells savers how the dollar value of their savings or investments will grow, and the real interest rate which tells savers how the purchasing power of their savings or investments will grow.

SS.912.FL.3.6 Describe government policies that create incentives and disincentives for people to save.

Correlated Literacy Standards:

LAFS.910.RL.1.1 Cite strong and thorough textual evidence to support analysis of what the text says explicitly as well as inferences drawn from the text.

LAFS.1112.RH.1.2 Determine the central ideas or information of a primary or secondary source; provide an accurate summary that makes clear the relationships among the key details and ideas.

SS.912.FL.3.6 Describe government policies that create incentives and disincentives for people to save.

Does Money Really Grow on Trees?

Lesson #5

Correlated Florida Standards (See Full Text on Cover Page)

· LAFS.910.SL.1.1

· LAFS.1112.RH.1.2

Essential Questions

· Why is savings important to long-term financial security?

· What is diversification and how can it positively impact financial planning and success?

· What is interest and compound interest?

· What fees to banks charge for savings accounts?

Learning Goals/Objectives

Students will be able to…

· Assess the importance of savings to long-term financial security.

· Define interest and compound interest earnings.

· Compare the savings plans at various banks, including associated fees.

Overview

Students will continue to discuss the importance of saving part of their income for the future. Students will also learn that time, interest rates, and diversification affects the value of savings. Additionally, students will compare the costs and fees associated with different savings plans at several banks.

Materials

· Computers and Internet access

· Availability of video technology

· Comparison chart for various banks and associated fees (student developed)

· Student Reading: Savings Accounts for Investors (Included in the lesson).

Key Vocabulary

Investment portfolio, diversification, interest rates, compound interest

Time

50 minutes (For a block-scheduled class, you may want to include the optional extension suggestion/home learning assignment).

Activity Sequence

INTRODUCTION/HOOK

1. Ask students the following question: What does it mean when we say, “Don’t put all of your eggs in one basket?” In financial terms, what might this quote mean? (Diversification of financial investments to limit the amount of risk is the best scenario.)

2. Tell students that they are in the “driver’s seat” when it comes to setting up a diverse investment portfolio for their financial goals. They will see that time is on their side due to their age and they do not have to wait for their first paycheck because they can start saving now! (5minutes)

ACTIVITY

This lesson includes a number of short video clips. (All are included in the lesson file.) A summary of each clip is provided in the lesson. Teachers are asked to preview the clips before showing them in class to better ensure that strong connections are made to the lesson’s objectives/learning goals both before and after the clips are shown. Teachers may use their professional judgment on whether all videos are required to address the lesson’s objectives/learning goals.

1. Review the following vocabulary terms: investment portfolio, diversification, interest rates, and compound interest (5 minutes)

2. Explain that choosing a financial institution is an important financial planning decision and subsequent success. Explain that banks offer different savings plans, with associated banking fees. Ask students if they currently have a bank that they use and if they know what fees they have to pay to the bank. Answers will vary; however, it is important that students know that banks are businesses and are making money with their money, often in the form of loans to others.

Demonstrate how you would compare various banks by accessing Bank Rate: http://www.bankrate.com/funnel/savings/savings-results.aspx?state=FL&market=22&prods=33or The Mint: https://www.mint.com/savings-accounts/ web sites.

Have students choose 3-4 banks (e.g., Citibank, SunTrust, Capital Bank) and review the fees for each bank to determine the best option for their savings account. (10 minutes)

3. Define and discuss the term diversification (a technique that mixes a wide variety of investments within a portfolio) by explaining to students that they should not put all of their savings in one place; i.e., “Don’t put all of your eggs in one basket.”

View the following video: CSE 4.8 Fun with Dick and Jane- Personal finance by Joe Calhoun http://www.criticalcommons.org/Members/fsustavros/clips/cse-4-8-fun-with-dick-and-jane-personal-finance-1 Dick and Jane find themselves in financial trouble when their lawn is repossessed and they discover that they owe more on their house than it is worth. To make matters worse, their savings and pension were both in Globadine stock, the bankrupt company that Dick used to work for. When the company failed, they lost their life savings and retirement. The video shows the importance of diversifying a saving and investment portfolio. (5 minutes)

4. To introduce the concept of compound interest (interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan), view the following video: PBS CSE 4.7 St.Louis Fed- Compound Interest by Joe Calhoun http://www.criticalcommons.org/Members/fsustavros/clips/cse-4-7-st-louis-fed-compound-interest-1 The power of compound interest is explained and illustrated with several examples. An important way to get ahead financially is to put the power of compound interest to work for you. What is interest and how are interest rates determined? How can compound interest work for you? Kris Bertelsen from the St. Louis Fed answers these questions and discusses how they are keys to building wealth over the long term. (5 minutes)

To reinforce the concept of compound interest consider showing the following additional videos:

CSE 4.7 Young Cuts Einolf- Compound Interest by Joe Calhoun http://www.criticalcommons.org/Members/fsustavros/clips/cse-4-7-youngcuts-einolf-compound-interest M&Ms are used to illustrate the concept of compound interest. Instead of buying M&Ms, saving the money and earning compound interest can generate substantial wealth. For example, not spending $20 per week will produce $240 in saving for a year. At 6% interest, another $7 will be accrued. This may seem small at first, but the power of compound interest will make this grow tremendously. Over the course of 40 years, this will generate $9,600 in saving and $30,230 in interest. (5 minutes)

Pt4_M14a_Student by Joe Calhoun http://www.criticalcommons.org/Members/fsustavros/clips/pt4_m14a_student As Beth's father told her, Albert Einstein once stated, "The most powerful force in the universe is compound interest." The best way to take advantage of it is to start saving when you’re young and investing strategically after you have your real-world savings account ready. Start saving now. Don’t wait until you have that first paycheck from your first “real” job. (3 minutes)

5. Review the impact compound interest has on meeting one’s individual saving goals. With this in mind, have students revisit their initial financial planning goals to make any needed adjustments to the short and long term goals they previously developed (Refer to lesson #4; 10 minutes).

CLOSURE

Ask students to make summary statements to support the following: Diversification of financial investments to limit the amount of risk is the best scenario; i.e., “Don’t put all of your eggs in one basket.” (2 minutes)

OPTIONAL EXTENSION SUGGESTION/HOME LEARNING

For block-scheduled classes or as a lesson extension activity, read and discuss the Investopedia article entitled, Savings Accounts for Investors bySarita Harbour. The article summarizes four basic savings accounts offered by banks (Included in the lesson).

Sources/Bibliographic Information that contributed to this lesson:

· Bank Rate: http://www.bankrate.com/funnel/savings/savings-results.aspx?state=FL&market=22&prods=33

· The Mint: https://www.mint.com/savings-accounts/

· Investopedia: http://www.investopedia.com/terms/c/compoundinterest.asp

· PBS CSE 4.7 St.Louis Fed- Compound Interest by Joe Calhoun http://www.criticalcommons.org/Members/fsustavros/clips/cse-4-7-st-louis-fed-compound-interest-1

· CSE 4.7 YoungCuts Einolf- Compound Interest by Joe Calhoun http://www.criticalcommons.org/Members/fsustavros/clips/cse-4-7-youngcuts-einolf-compound-interest

· CSE 4.8 Fun with Dick and Jane- Personal finance by Joe Calhoun http://www.criticalcommons.org/Members/fsustavros/clips/cse-4-8-fun-with-dick-and-jane-personal-finance-1

Savings Accounts for Investors

bySarita Harbour Investopedia

Introduction - If you're thinking about opening asavings account, do your research before committing. Not all savings accounts are created equal. The best account for you depends on several things. These include your savings goals, the amount of money you have for an initial deposit, the likelihood you may need to withdraw money prior to your target date ,and your comfort using technology.

Here are four types of accounts customers may use for savings, with a few points on what to watch for and what type of investors the accounts are best suited for.

1. Basic Savings Account - Also known as a Passbook Savings Account, these accounts are a good introduction to earning interest and saving money. Transactions on a basic savings account are updated either in a passbook when then customer visits their financial institution, or on a statement issued periodically (often monthly). However certain types of withdrawals on basic savings accounts including checks, debit card purchases and electronic transfers arelimited by federal lawto just six per month.

Funds of up to $250,000 deposited in a basic savings account are insured by the Federal Deposit Insurance Company (FDIC), making this a good choice for investors who want a very low-risk and easy-to-access savings account. Money held in a credit union basic savings account is insured by the National Credit Union Administration (NCUA).These accounts usually offer lower interest rates than other types of savings accounts because of the flexibility in depositing and withdrawing funds.

If you are new to savings, a basic savings account can be a good option to get started.

2. Online Savings Accounts - If you like the idea ofonline banking, an online savings account could be the solution for you. These savings accounts may offer access to view, deposit, and transfer funds online 24/7, and withdraw money from an ATM anytime depending on the type of online savings account you set up. They may be accessible from any mobile device, including a tablet or smartphone. Deposits in these accounts may also be FDIC or NCUA insured.

Fans of online savings accounts may choose them because they offer a relatively high interest rate compared to traditional basic savings accounts. As these accounts are not serviced in branches by staff members, they are less expensive for financial institutions to maintain. This often allows them to provide higher interest rates than traditional savings accounts.

Online savings accounts are good options for tech-savvy customers looking for self-service banking and higher interest rates than basic, brick-and-mortar savings accounts.

3. Money Market Savings Accounts - Banks and credit unions offer a specialized savings account known asmoney market accounts(MMAs). They may also be called money market savings or deposit accounts. These are different from money market mutual funds offered by investment companies, which are not insured. Funds of up to $250,000 deposited in a bank MMA are insured by the FDIC. Money held in a credit union MMA is insured by the NCUA.

These accounts may offer tiered interest levels, and/or fee waivers for maintaining a certain balance each month.

Money market accounts suit customers who want a higher interest rate than a basic bank account, and are willing to keep a larger balance in their account. They are suitable for investors with savings goals with target dates ranging from a few months to a few years away. Funds may be withdrawn prior to that time.

4. Certificate of Deposit Account - Certificate of deposit accounts (CDs) are a good savings account option for individuals saving for a goal with a defined target date in mind. Available through most financial institutions as well as some brokers, a CD usually pays a higher rate of interest than traditional and online accounts because a fixed amount of your money is invested with the institution for a specific length of time. This may range from a few months to one or more years. In most cases, the longer the term of the CD, the higher the interest rate paid. CDs of amounts up to $250,000 are insured by the FDIC or NCUA to protect investors in the event the issuer experiences financial issues.

Consider a CD to save for a large financial goal within the next five years such as a down payment for a home or an automobile purchase.

The Bottom Line - There are several types of savings accounts available for investors. A basic savings account is a simple, easy-to-use, low-risk account with a lower rate of return suitable for beginning savers. An online account is a convenient, higher interest account option for people comfortable with online banking. Money market savings accounts may offer perks such as better rates for higher balances. And certificate of deposit accounts pay a premium rate for locking a fixed savings amount in for a specified duration ranging from a few months to five years. Deposits to these savings accounts are insured by FDIC or NCUA for amounts up to $250,000.

Source: Investopedia, http://www.investopedia.com/articles/personal-finance/090314/4-savings-accounts-investors.asp#ixzz42R1bZbxm