Consumer Economics - Unit 3

reasons for using a checking account

reduces the need to carry lots of cash, convenient, written record of spending/deposits, safety

parts of a check

check number, date line, payee, dollar amount in numbers, dollar amount in words, drawee, signature line, routing number, account number, memo line

pre-printed items on a check

name and address of account holder and financial institution, check number, ID numbers

three parties involved

payee (who it is written to), drawer (who wrote it), drawee (bank)

endorsements

your signature on the back of a check, use pen, sign name

blank endorsement

use if you want to receive your check as cash, can now be deposited into anyone’s account or someone can cash it, sign name only

special endorsement

use if you want to give your check to a third party so they can deposit it into their account, banks rarely allow this without both parties being present, must match driver’s license

restrictive endorsement

use this if you want to make sure your check only goes into your account, deposit cash value of that check into account, bank specifies what check will require

mistake while writing a check

write void in large letters across the check

$10.21

ten and 21/100

$1,500.00

one thousand five hundred and 00/100

$125.46

one hundred twenty-five and 46/100

checkbook register

where you keep track of all your checking account transaction

deposit slips

allows cash or check to be deposited into an account, located in the back of the checkbook or at bank

balancing checkbook/reconciliation

matching the amount of money you say you have with the amount of money that bank says you have

bank statement

includes a record of all withdrawals, deposits, interest, and fees

canceled check

checks you have written that have been cashed, the money is no longer in your account

deposits outstanding

deposits you have made but bank has NOT processed yet

checks outstanding

check you have written but have NOT been cashed, the money is still in your account

reconciliation summary

bank account statement ending balance + deposits outstanding - checks/withdrawals outstanding = ending balance in checkbook register

investing

using your own money to make more money

when to start investing

the earlier the better

the greater the risk

the greater potential reward

return

income that an investment produces, measured as a %

dividends on stocks

regular intervals, every 3 months

profit from sale of investment

capital gains

tax advantages

deduct from taxable income

risk

the possibility of losing all or part of an investment

conservative investor

less risk, make more money slowly

speculative investors

risk taker, fluctuation

volatility

the degree to which an investment’s return or value may change (more volatile = more risk, higher chance of ROR)

liquidity

how quickly an investment can be turned into cash

diversification

don’t put all your money in one spot, reduces risk

mutual fund

collection of different stocks, bonds, etc. managed by a professional

investment portfolio

a collection of investments that is both diversified and well balanced

stock exchange

where you can buy and sell stock

indexes

indicators that determine how well the economy is doing

examples of stock exchange

NYSE, Chicago Board of Trade, NASDAQ

examples of indexes

DOW Jones, NASDAQ Composite, Standard and Poor’s 500

Dow Jones Industrial Average

most widely used indicator of the overall condition of the stock market

blue chip stock

very large company, safe investments, pays predictable dividends

bull market

lengthy period when stock prices rise

bear market

lengthy period when stock prices fall

IRA

established through broker/bank, pre/post tax options, max contribution $7,000 per year

401K

company based, taxed when you withdraw, max contribution $23,000 per year

retirement accounts

retirement investments, withdraw at age of 59.5, good to have both (IRA, 401K) for diversification

Roth IRA

money goes in “after tax,” will pay less tax overall, withdrawals after 59.5 are free, good for early investors

Traditional IRA

money goes in “pre-tax,” recievve tax deduction for contributions, taxed on withdrawals at 59.5

bonds

companies and government borrow money from investors, pay interest at maturity, raise money for government, business, etc.

stocks

ownership of a company, buy low, sell high, could lose all your money, steady income with dividends

common stock

provides voting rights, price fluctuates every second, most common type of stock

preferred stock

investors are paid dividends before common stocks, dividends are paid at a fixed rate, no voting rights

financial institutions/services

an organization that provides services related to money

commercial banks

a business owned by investors who are called stockholders and shareholders

primary functions of commercial banks

receive, transfer, and lend money

federal deposit insurance corporation (FDIC)

agency that protects bank customers by insuring deposits

goal of FDIC

maintain consumers and business confidence in the banking system

FDIC insurance coverage

$250,000

savings and loan associations

main focus is mortgages, can be owned by borrowers and depositors, stakeholders, FDIC insured

credit unions

nonprofit with services offered only to members, pay no federal taxes, lower interest rates for lending and higher interest rates for savings, NCUA insured

online/mobile banking

easy to use, never closed

debit card

allows you to make purchases by swiping your card through a point-of-sale terminal

ATM card

does not allow purchases to be made, pin is required at ATM or POS station

certified check

funds are withdrawn from your personal account and frozen until the check is cashed out

cashier’s check

funds are moved from your personal account to the bank’s account until cashed out

special services money order

a certificate you purchase with cash which is payable to the receiver of it, guaranteed payment, used if you don’t have a checking account, requires fee

peer to peer payments

allow immediate transfer of money from one person to another (virtually)

savings plan

a strategy for using your money to reach important goals and advance your financial security