Saving

1.         Explain that many financial firms provide online resource for savers and investors.  One common resource is a “savings calculator.”  Clients or the public can use the calculator to determine how much they must save over some period of time t reach a specific savings goal.

2.         Explain that to reach a specific goal, such as $1,000,000 dollars saved at the time of your retirement, is determined by several factors:

a.         Current savings balance (how much you have now).

b.         Your future amount desired (your goal)

c.         The number of years you have to save.

d.         How much you can increase the amount saved each year.

e.         Expected annual return.

f.          Your marginal income tax rate.

These factors are explained on the NASDAQ web page.

3.         Go to: http://www.nasdaq.com/calculators/goal-savings-calculator.aspx

4.         Demonstrate how to use the calculator.  If you have access to a computer lab or  individual computers, students can individually use the calculator.

When you or the students click on the “Submit” button, the calculator will determine the required amount of saving over the time period.

5.         Discuss the three key factors influencing your return

a.         interest rate

b.         time

c.         amount saved (periodically)

Ask:  What is the key to achieving a long-term savings goal?

a.         higher interest rate (return)

b.         begin saving early

c.         save more (periodically)

6.         Introduce the concept of “compounding.”

Compound interest results when interest is added to the principal amount, so that added interest also earns interest. This addition of interest to the principal is called compounding.  If, for example, a balance of $100 earns $1 of interest during the first interest period (1%), it will earn interest on $101 during the next interest period (adding $1.01).  It will earn interest on $102.01 during the next period.  Beginning to save early with compound interest, increases the return over time.

7.         Students can see the impact of compounding by increasing the original amount saved or the time period of saving (saving early) on the savings calculator.

8.         Conclude: Review the three key factors influencing total return.   

a.         higher interest rate (return)

b.         begin saving early

c.         save more (periodically)

Activity 

Students read a modern version of the fable, “The Grasshopper and the Ant.”           They answer questions and complete a writing activity to help the grasshopper make better decisions to achieve his financial goals.

Answer these questions about the fable.

1. What was the ant’s advice to the grasshopper the first time they met.

2. Why do you think the grasshopper ignored the ant’s advice?

3.  What would you have done if you were the grasshopper?

4.  Write a new ending for the fable after the ant and grasshopper meet again a year later.

 Procedures

 1. Introduce the purposes of saving, short-term and long-term goals, and various reasons to save.  Students can discuss the ways they currently save and their future savings plans.  Discuss the benefits of saving to achieve financial goals, including the various ways to save.

2. Review the “Rule of 72” and the benefits of compound interest.  Use the web page to compare a plan to save early versus saving later in life.  Stress the value of time when setting saving goals.    

Source: “What is the Rule of 72,”Investopedia, http://www.investopedia.com/ask/answers/04/040104.asp

3. After students complete the “Grasshopper and the Ant” activity, one additional activity is to have students write a new ending for the story, as if the grasshopper took the ant’s advice.

Module 2: Strength Training – Savings and Interest

In football, strength is something that you can’t develop all at once. Players need a consistent and focused work-out regiment to reach their peak performance. And even then, it takes a long time. As a matter of fact, top players never let up on their strength training. 

 In finances, a consistent and focused savings plan will allow you to develop your financial strength.  Saving small amounts over a long period of time is much more effective than trying to save all at once.  The reason for this is interest.

 Interest is the money you earn on savings. In time, the interest you earn becomes a part of your savings, and earns more interest. It creates a very powerful financial cycle: the more interest you earn, the more money you have saved, and the more interest you earn. This is what people mean when they say, “Let your money work for you.” Unlike your muscles, you could get to a point when your savings bulks up without you doing anything.

Procedures

 1.  Explain that this lesson introduces the reasons for saving and savings account options through the use of a decision grid analysis.  Students identify the basic savings account options and the criteria to determine the advantages and disadvantages of the alternative savings account options.

 2.         Ask the students to write down the first word that you think of when you say the  word “saving.”   (2 or 3 words if it is a small group).

 3.        Share and clarify the meanings of the participant responses.

 4.         Categorize into the two groups:

             A.        Spending less to preserve income – reduce expenses.

            B.        Setting aside income for later use – achieving future goals.

 5.         Explain that there are two ways to look at saving (A and B, above).  One is     reactive (A) and one is proactive (B). 

 6.         Introduce the “The Decision-Making Process” handout.

Explain that this decision-making process can be used in a variety of decision-making situations – any situation when a decision has several difference alternatives and criteria.

 7.  Using the handout, ask student to write after line 1, “The Problem or Issue,” the problem or goal that motivates them to save.  Write the goal or problem in a complete sentence.

After they have written the problem or goal, ask them to rewrite it in different   words or from a different perspective.  After they have finished, ask them to rewrite the problem or goal a third time -with different language or perspective.

Ask students to share the three ways they have described the problem or goal.  In most cases, the second or third version is the one they think more accurately describes the problem.  This illustrates the reason why we may not want to focus on the first thing or way of identifying a problem that comes to mind.

8.  Ask students to write after line 2, “Decision to be Made,” what they must decide in order to start saving.  What is the real decision to be made? 

 Students share their ideas of the decision.  In most cases, the decision is to give up some consumption now to be able to save for the future goal.  This identifies the opportunity cost of saving as current consumption.   Help students to understand that this is the economic problem they face – are they willing to incur the opportunity cost of saving?

 9.         Referring to the handout, line 3, begin a discussion of the options for savings. 

            Focus on the more basic methods or types of accounts.  See the “Teacher     Resource: Savings Options” for ideas.

 Elicit from the group the basic options for savings accounts

            a.         cash at home

            b.         passbook savings account

            c.         certificates of deposit

            d.         money market account

            e.         money market mutual fund.

            f.          other?

10.         Explain that each of the savings options has advantages and disadvantages.

Participants should suggest the advantages and disadvantages (criteria).  Guide the discussion to include at least the criteria listed below: 

            a.         liquidity (time requirements)

            b.         transaction costs (fees, other barriers)

            c.         minimum deposit/withdrawal rules

            d.         interest rate differences

            e.         withdrawal penalties, limits, etc.

            f.          location/technology access

 11.       Participants complete the grid with the alternatives and criteria developed by the       class.  Rate each alternative + or – according to each criteria.

 12.       Small groups discuss their individual ratings – share information and reach    consensus about the advantages and disadvantages of each option.

Procedures:

1.         Tell students: Write down the first word that you think of when I say the word “saving.”   

            2 or 3 words if it is a small group.

2.         Share and clarify the meanings of the participant responses.

3.         Categorize into the two groups:

             A.        Spending less to preserve income – reduce expenses.

             B.        Setting aside income for later use – achieving future goals.

4.         Explain that there are two ways to look at saving (A and B, above).  One is reactive (A) and one is proactive (B). 

5.         Introduce the “The Decision-Making Process” handout.

             Explain that this decision-making process can be used in a variety of decision-making situations –  any situation when a decision has several different alternatives and criteria.

 6.         Using the handout, ask student to write after line 1, “The Problem or Issue,” the problem or goal that motivates them to save.  Write the goal or problem in a complete sentence.

             After they have written the problem or goal, ask them to rewrite it in different words or from a different perspective.  After they have finished, ask them to rewrite the problem or goal a third time -with different language or perspective.

             Ask students to share the three ways they have described the problem or goal.  In most cases, the second or third version is the one they think more accurately describes the problem.  This illustrates the reason why we may not want to focus on the first thing or way of identifying a problem that comes to mind.

 7.         Ask students to write after line 2, “Decision to be Made,” what they must decide in order to start saving.  What is the real decision to be made? 

           Students share their ideas of the decision.  In most cases, the decision is to give up some consumption now to be able to save for the future goal.  This identifies the opportunity cost of saving as current consumption.   Help students to understand that this is the economic problem they face – are they willing to incur the opportunity cost of saving?

8.         Referring to the handout, line 3, begin a discussion of the options for savings. 

            Focus on the more basic methods or types of accounts.  See the “Teacher Resource: Savings Options” for ideas.  Elicit from the group the basic options for savings accounts

            a.         cash at home

            b.         passbook savings account

            c.         certificates of deposit

            d.         money market account

            e.         money market mutual fund.

            f.          other?

9.         Explain that each of the savings options has advantages and disadvantages.

            Participants should suggest the advantages and disadvantages (criteria).  Guide the discussion to include at least the criteria listed below

            a.         liquidity (time requirements)

            b.         transaction costs (fees, other barriers)

            c.         minimum deposit/withdrawal rules

            d.         interest rate differences

            e.         withdrawal penalties, limits, etc.

            f.          location/technology access

10.       Participants complete the grid with the alternatives and criteria developed by the class.  Rate each alternative + or – according to each criteria.

11.       Small groups discuss their individual ratings – share information and reach consensus about the advantages and disadvantages of each option.