UNIT 4: Money Management

Lesson 1: Money

Vocabulary:

Currency: is a specific type of money.

exchange rate: two currencies tell you how much one unit of currency is worth when converted to another currency.

The Federal Reserve System: the central banking system in the U.S. It is the only organization with the right to print U.S. currency

Cash: is money in the form of paper bills or coins.

banknote: is a paper bill or note produced by a bank that has a specific value in a currency.

U.S. Department of the Treasury: is the part of the government that controls the finances of the country. The standard bills and coins used in the U.S. are produced by the Department of the Treasury for the Federal Reserve to circulate.

Treasuries: are notes and certificates provided by a government as a form of currency. They are worth a specific amount of money and issued by the government.

government bond: is a type of treasury in the form of a certificate given by the government to an investor in exchange for money. It promises to pay the investor back a larger sum of money in the future.

Income: is money that a person or company receives.

Earned income: is income that you receive for work you've done.

Unearned income: is income that you receive for reasons other than work you've done.

financial goal: is a goal related to money

Finance: is the management of money.

Short-term goal: are goals that you want to achieve within the next 2 years.

Intermediate goals: are goals that you want to achieve in the next 2-5 years

Long-term goals: are goals that you want to achieve 5 years or more from now.

Prioritizing: is ranking things in order of importance. You'll need to prioritize your list of financial goals to make sure you fund the most important ones.

budget: is a financial plan that shows what you plan to do with your money.

Budgeting: is the act of creating a budget. Budgeting is an important part of managing money. It can help you accomplish your financial goals and make sure they are realistic.

Money

• Money is used as a medium of exchange, which means it is used to buy and sell commodities.

•  Money makes it much easier for producers and consumers to exchange items of value.

•  Without money, a producer and a consumer might have difficulty getting what they want from each other.

•  If a consumer wanted something from a producer, the consumer would also need to have something the producer wanted.

• Money makes it much easier to measure the value of a commodity and compare it to others.

• Without money, it would be difficult for consumers to know which producer was offering the best deal on a certain product.

• It would also be more difficult for a producer and consumer to agree on a price. They might have to negotiate a deal separately for each exchange.

• Money is also a way for people to store value and use it later. Unlike many commodities, money doesn't go bad or expire.

• A person who tried to store value in a perishable commodity could easily lose that value.

Currencies

• Currencies are based on different units that are worth different amounts.

• There are many companies that will exchange currencies for you, including banks. Banks will usually give you a better exchange rate than a hotel or airport currency desk will.

The Federal Reserve System

• The Fed is responsible for the nation's monetary policy, supervising and regulating banking institutions, maintaining stability of the financial system, and providing financial services to banking institutions, the government, and foreign institutions.

• Interest rates and inflation are some of the big issues that the Fed deals with. The Fed can influence interest rates and inflation.

Forms of Currency: Cash

• Cash is convenient and easy to use because it is accepted by nearly all producers.

•  Because cash is easy to carry and doesn't show who it belongs to, it is easy to lose cash or have it stolen from you.

•  After cash is lost or stolen, it is difficult to prove that the lost or stolen cash belonged to you.

Lesson 2: Banking Services

Vocabulary

bank: is a financial company or organization that stores money for many people. It offers protection against loss or theft.  

bank account: is a way to keep track of the money the bank is storing for you.

branch: is a local bank office you can visit.

transaction: is when you add or remove money from a bank account.

deposit: is when you put money in the bank.

withdrawal: is when you take money out of the bank.

transfer: is when you move money from one account to another.

Automated Teller Machines (ATMs): are machines that let you view your account information and add or remove money from your account.

Online banking: is available 24 hours a day. It's a convenient way to check your account information, move money between accounts, and even pay some bills.

Checks: are printed slips of paper that can be used to transfer money from one bank account to another.

Debit cards: are small wallet sized cards that can be electronically scanned to transfer money from one bank account to another.

Direct deposit: is when the employer puts money straight into the employee's bank account, without using a check.

electronic funds transfer system: is a computer system that makes it possible to transfer money from one account to another without using paper checks or notes.

checking account: is a very common type of bank account intended to make it easy for you to make deposits and withdrawals.

Checks: are printed slips of paper with your name, address, and bank account information on them. Each of your checks will have a unique number printed on it.

checking register: is a printed set of pages included in a checkbook for you to keep track of transactions that affect your account.

minimum balance: is the least amount of money you can keep in the account. If you go below that amount, you will be charged a fee.

savings account: is an account intended for money that you will be saving.

Interest: is a percentage of the money in the account.

Federal Deposit Insurance Corporation (FDIC): is a government corporation that provides insurance on bank deposits for banks that are FDIC members.

Risk: is the possibility of loss or failure.

Financial risk: is the possibility of losing money.

volatile investment: is one that can change quickly and without much warning. The value of the investment might go up or down dramatically.

Diversification: is an investment strategy in which you spread out your investments among many different types.

Choosing a bank

Trust

Make sure the bank is a well-known, established organization that you trust.

 Convenience

The bank may be especially convenient if your family members bank there also, or if it has branches and ATMs near your home, school, or place of work.

 Account Features

Banks may offer free checks, no minimum balance, lower fees, and good interest rates. You'll learn about more about these things soon.

Lesson 3: Investing

Vocabulary

Investing: is when you give your money, time, or energy to something in order to get a reward in the future--usually a financial reward.

Return on investment (ROI): is the amount you eventually receive in return for your investment.

Debt investments: are investments without ownership that promise a specific return on the investment. They are less risky than equities, but they have lower potential returns.

Bonds: are a type of debt investment in which you lend money to a company or a government, and the company or government gives you a bond.

Interest: is a way to increase the amount of money you have by lending it to another person or organization

interest rate: is usually calculated as a percentage per year.

time value of money: is the assumption that money is worth more the sooner it is received.

Compound interest: is the way your investment grows when you reinvest the interest back into the investment.

capital gain: is the increase in value of an equity investment.

Dividends: are a type of income that comes from an equity investment into a company.

Rent: is the amount that a person or company pays you in order to use property that you own.

Equity investments: are investments in the ownership of something, such as a company or real estate, with the hope that the investment will go up in value and be worth more at some future date.

Equity: is the amount of ownership the investor has. It can be expressed in many ways, including as a percentage, as a dollar amount, or in shares of stock.

Stocks: are a way to buy partial ownership of a company in a tiny fractional amount called a share.