Transcript IYP_Lesson-4

Teacher instructions:
Savvy Savers.
1.
Print the lesson,
2.
Display slide 2 with Procedure step 2 in the lesson.
3.
Display slides 3 through 6 with Procedure step 3.
4.
Display slides 7 through 12 with Procedure step 4.
5.
Display slides 13 through 15 with Procedure step 5.
6.
Display slides 16 through 24 with Procedure step 6.
7.
Display slide 25 with Procedure step 9.
8.
Display slide 26 with Procedure step 10.
saving
the part of a person’s income that is not
spent or used to pay taxes
non-interest-bearing account
an account in which no interest is paid
on the principal –
also called a zero-interest account
principal
the original amount of money deposited
or invested, excluding any interest or
dividends
interest
the price of using someone else’s money
compound interest
Interest computed on the sum of the
original principal and accrued
(accumulated) interest
Maria’s Savings Decision Problem 1
Principal = $1,000
Interest Rate = 5%
Interest paid semiannually
Principal = $1,000
Interest Rate = 5%
Interest paid semiannually
Step 1:
Convert annual interest rate
(5%) to decimal (.05)
Principal = $1,000
Interest Rate = 5%
Interest paid semiannually
Step 2:
Divide annual interest rate
(stated as decimal) by two to
change it to semiannual.
(.05/2=.025)
Principal = $1,000
Interest Rate = 5%
Interest paid semiannually
Step 3:
Multiply the principal by the
interest rate to get the interest
paid in dollars.
($1,000 x .025=$25.00)
Principal = $1,000
Interest Rate = 5%
Interest paid semiannually
Step 4:
Add principal and interest to get
new amount of principal.
($1,000 + $25.00=$1,025)
Principal = $1,000
Interest Rate = 5%
Interest paid semiannually
Step 5:
Record new level of principal and
repeat the process from Step 3.
What is a non-interest bearing account?
an account or deposit that does not pay interest
on the principal
What could Maria have bought with the $50.62
of interest she might have earned on her
savings?
Would you classify Maria as a saver or a savvy
saver?
saver
Why?
She didn’t save her money in a way that would
giver her a return on her investment, i.e. an
account that pays interest on the principal.
Why would anyone leave the $1,000 in a noninterest bearing account rather than putting it in
an interest-bearing account?
He or she may not understand the importance of
compound interest or may be financially lazy.
Imagine that instead of $1,000, Maria’s
grandmother had given her $10,000. After three
years, how much interest would $10,000 have
earned on a 5 percent compounded
semiannually account?
$1,597.10
Why is time, i.e., the number of months you have
your money in an interest-bearing account, a
very important factor in accumulating savings?
The sooner you start saving, the sooner you start
earning interest not only on your principal but
also on accrued interest. Money works for you
over time.
4% (72 4)
36 years
4% (72 4)
18 years
12 years
9 years
6 years