Teacher instructions:

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.

Savvy Savers.

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 = $1,000Interest Rate = 5%Interest paid semiannually

Principal = $1,000Interest Rate = 5%Interest paid semiannually

Step 1: Convert annual interest rate (5%) to decimal (.05)

Principal = $1,000Interest 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 = $1,000Interest 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 = $1,000Interest Rate = 5%Interest paid semiannually

Step 4: Add principal and interest to get new amount of principal. ($1,000 + $25.00=$1,025)

Principal = $1,000Interest 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 non-interest 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)

4% (72 4)

36 years

18 years

12 years

9 years

6 years