(YFF) Saving for a Rainy Day Lesson
Saving for a Rainy Day
Have you ever heard people use the phrase, "saving for a rainy day?" Did you ever wonder what they meant? What constitutes a "rainy day" and what are they "saving?" This phrase is meant to remind people to put some money away for use in case of "hard times." There are other reasons to save your money. Perhaps you are planning to make a big purchase, or you are planning to go to college, or you are planning to retire while you are young enough to travel around the world.
Look at the charts below. They are telling you a story about the history of the United States and giving you some advice about the future.
Consumer Price Index
As you can see from the above chart, the United States government has not always been in the business of providing social services (pensions, health care, education, and welfare) to its citizens. During the Great Depression of the 1930s, the U.S. government passed many laws that created and funded social services and financial safety nets for its people, and since that decade you can observe a steady increase in government spending to care for them.
Now look at this next chart; it shows a history of the Consumer Price Index in the United States. Remember, that the Consumer Price Index is the average that a consumer pays for goods and services during a given year. Check out the blue line.
The blue line in this chart shows the history of the average cost of goods and services in the United States. As you can see, the average cost to consumers to purchase goods and services has risen steadily since 1970.
Why are these two charts next to each other in a lesson about saving for the future? To show you that while the American government does put money aside to care for its citizens every year, it will not be enough for you to rely on as the cost of goods and services rise in our nation. So, what do you need to do with your money in order to prepare for "rainy days," big plans, or retirement? You will need to save it. The act of saving money is the fourth standard recognized by the Council of Economic Education.
But what do you have to do to save your money? Simple- don't spend it. Saving money is the act of not spending it in the present so that it will be available in the future. What should you do with your money when you do not spend it? Is there some way to save your money in a safe environment that will allow the amount of your money to grow over time? You know there is!
When people first start saving money, they will often put that money into a savings account at a bank. Why? As a person who is just starting the savings process, he or she does not really have enough to invest and a savings account at a reputable bank will allow the saver to accrue more money in a safe environment that is insured by the federal government. When you put your money in a bank account, the bank uses it. So, in a way, you are lending the bank money. As a result, the bank will pay the holder of a savings account interest on the money located in the savings account. This is true for other locations where you can save your money.
Once a person knows what they are saving their money for and how much they will need to save, they are faced with many options on ways to save their money. Simple savings account at a bank while providing some interest payments does not allow your savings to grow at the rate that other options will provide. Financial investing, the fifth standard in growing your financial literacy, can yield a greater return on your savings dollar, but it can also yield a greater risk at the same time.
View the spectrum below to learn about the options you have regarding investing your savings dollar. Those options on the left provide the least risk and lowest return yield and those options on the right provide the most risk and the highest return yield. Roll your mouse over each to learn more.
The last standard that the Council for Economic Education recognized as the means for improving your financial literacy was "Protecting and Insuring." Now that you have learned how to get the money and what to do with the money, it is time to learn how insurance can protect yourself, your possessions, and your investments.
Insurance is a practice or arrangement by which a company or government agency provides a guarantee of payment for specified loss, damage, illness, or death in return for the payment of a premium. Basically, you pay an insurance company a certain amount every year, and in the event of a personal catastrophe that company will give you money to make up for your loss. There are different types of insurance policies: some that protect your possessions, some that protect your personal, and some that protect your finances.
Look at the chart above. It shows the average amount paid by country per person for medical expenses every year. The United States is the top light blue line. After you have studied the chart, answer the following questions in the "Health Insurance Discussion" assignment. Considering how expensive medical treatment can be, do you think it is necessary for all Americans to have health insurance? What do you think hospitals and doctors should do if a person comes to them in need but cannot afford to pay the medical bills and does not have health insurance? Do you think the right to medical treatment should be considered accessible to all Americans in the same way education and military/police protection are?
Challenge
Throughout this semester, you have learned about the economies around the world and, in this last module, about your personal economy. Now let's mesh those subjects together.
As the leader of your own personal economy, you will work within the national economy as you head towards these goals. This means you will have to work with other "leaders of their own personal economies." You will learn how to do business with other people- trading, supplying, negotiating- just as the different economic systems that span the globe have to do with each other. You will deal with the exchange of money during your different business transactions and this means that money will change hands back and forth as you go about your daily life.
This is true for national economies as well but in a different sense. If you were to open your wallet, you might see a dollar bill. On that dollar bill, you would see the words "Federal Reserve Note" and "This note is legal tender for all debts, public and private." That dollar bill is legal tender in the United States and other nations use other forms of currency as their legal tender
Take Away
How do businesses in different nations conduct financial transactions if they do not share the same currency? They exchange it. One U.S. dollar is worth a certain number of British pounds. One British pound is worth a certain amount of Kenyan shillings. One Kenyan shilling is worth a certain number of Mexican pesos. Mexican pesos are worth a certain amount of U.S. dollars. Based on an ever-shifting exchange rate, businesses in one nation can exchange their currency for the currency of another nation in order to trade there. Fortunately, as Americans, we do not have to deal with this type of exchange in order to do business with our fellow Americans. It is good information to have and some people even speculate or invest in the currencies of other nations. So now you know about the world and where you fit into it (at least economically). As you continue your education you will delve into all of the subjects you have studied this past year a little more deeply. With each passing year, you will increase your knowledge of the world and your financial future. Good luck!
IMAGES CREATED BY GAVS