Unit 4: Money Management

Lesson 6: How to Protect Your Money

Topic 1: Invest

OBJECTIVE

1. Identify three different places you can invest your money.

INSTRUCTIONAL FORMAT
This lesson will review the basics of investing. Everyone can save money. However, some people will not have the resources or understanding to invest in stocks, mutual funds, or other common investments. If there are students who have the resources and interest to put money into these types of investments, it would be best to direct them toward a financial advisor in the area. The purpose of this lesson is to teach students that a good way to protect their money is to put a portion of their pay in savings or other investment before spending it. If the money is already tucked away, they cannot spend it foolishly, have it stolen, or be taken in a scam (unless someone talks them into withdrawing that money).

1. Discuss how investing money in a bank or other financial company can make money for a person. How investments make money is complicated, so trainers should keep this discussion in simple terms. People give money to banks (savings accounts, CD's), the government (bonds), and companies (stocks, mutual funds). This money is used by the bank, government, or company, and in exchange for using your money, you get more money back.
   
   

2. Discuss putting a little money away each payday before doing anything else with it. This can be done a few different ways. The first way is for the person to participate in his company's retirement program. If the company has a retirement program, the benefits coordinator can explain the details about it. Tell students that when they participate in a retirement program, a portion of their pay goes into an account. The employer usually puts some into the account as well. Each payday, this money goes into the account and the amount of money increases slowly over a number of years. This will provide the person extra income beyond Social Security when she retires. Remind students that the money in this account is not available to them until they retire. If they withdraw the money before retirement, there is a penalty. Use the examples below for further clarification.
   
   

   • Jane earns $500 every two weeks and gets paid $380 after deductions.
     
     
     She puts $50 into the retirement plan (her take home pay is now $330), plus her company matches half the amount and deposits $25. Thus, $75 is deposited into her retirement account every two weeks.
     
     
     The company then invests this money with the money of other workers in an attempt to make money. Hopefully the $1,950 that was invested during the year will increase. This amount of money continues to accumulate as more is invested. A person can withdraw some of the money, but will have to pay a high amount of tax. If she lets the money stay in the account until she retires, she will get back much more than she invested.
     
     

   • A second way to invest a little money each payday is to set up a direct deposit program with the employer and a bank or investment company. Students will have to get details from the place they want to invest their money and their employer. Basically, the company will give part of the person's pay to the financial company to invest. When the employee gets his check on payday, the money has already been invested. Use the example below for further clarification.
     
     
     Jane earns $500 every two weeks and gets paid $380 after deductions.
     
     
     She arranges for her employer to put $50 into her savings account at First Federal Bank (her take home pay is now $330).
     
     
     At the end of one year she will have deposited $1,300. With interest payments that money might be worth $1,400. Although she does not have as much accumulated as she does with a retirement account, she will be able to withdraw part or all of this money without the penalty of high tax rates.
     
     

   • The last way takes more discipline. When the person gets paid, she takes the check and deposits some of the money into a savings account or writes a check to an investment company to purchase stocks, bonds, etc. Use the examples below for further clarification.
     
     
     Jane gets earns $500 every two weeks and gets paid $380 after deductions.
     
     
     She deposits $330 into her checking account and purchases a US Savings Bond for $50.
     
     
     At the end of one year, she will have $1,300 worth of savings bonds. Before she can cash in a bond, she will have to wait at least six months from the time she purchased each Saving Bond. However, the longer she waits to cash in the bonds, the more money she will get back.
     
     
     Alternatively, Jane could deposit her check into her checking account and mail a check for $100 to buy shares in the ACME Footwear Company each month.
     
     
     At the end of one year she will have purchased $1,200 worth of stock. If she bought the shares for an average price of $10/share, she will have accumulated 120 shares. She can sell her shares anytime she wants. If the price per share is less than $10/share, she will lose money. If the price per share is greater than $10/share, she will make money.
     
     

3. Summarize this topic by indicating that in each scenario, Jane is investing about $100 per month into different types of investments. There are positives and negatives to the different type of investments. The important point of this is that Jane put $100 away before she can spend it on something foolish or have someone con her out of the money. The $100 investment will probably be worth more money when she gets it back to spend on something she has thought about and needs.
   
   

4. Remind students that this money is for the future and they should not let someone talk them into cashing in their future savings without careful consideration. There may be times when someone approaches a student about investing their money in a different place. It might be a good idea to sell some savings bonds and use the money to purchase stock that may be a better investment. However, it might not be a good idea to sell some savings bonds and give the money to some guy who wants to go into business selling hub caps. Tell students to talk to someone they trust to get assistance on any decision related to their savings.
   

SIGNS OF GENERALIZATION
Students are trying to save a little money each month.

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