SAVINGS AND BANKING. OVerVIew. CurrICulum AreAS. OutCOmeS module 6

Transcription

1 module 6 SAVINGS AND BANKING OVerVIew Students will: explore reasons for saving and the basic forms of savings available calculate interest to compare a variety of savings outcomes consider realistic savings targets for themselves, including savings in their Freedom 18 Budgets use their Life Stage Characters bank statements to examine types of banking services review their own needs for banking services review stories on identity theft, discuss the need for secure recordkeeping, and establish a personal recordkeeping system By examining a variety of savings and banking options for their Life Stage Character and for themselves, students gain an understanding of the role of savings and banking services in their future life. CurrICulum AreAS Use this module to teach Learning Outcomes in curriculum areas such as: Personal Finances Budgeting and Financial Planning Consumer Studies Introduction to Business Applications of Math, Consumer Math For a detailed listing by province/territory and course, refer to Learning Outcomes on the educator pages at Educational Programs > The City. OutCOmeS Following this activity, students will be able to: describe the purpose of saving and list basic savings forms calculate simple and compound annual interest and total savings describe a variety of banking services offered by financial institutions describe how to keep financial records secure and avoid the risk of identity theft

2 module 6 (cont d) materials AND tools copy for each student of Story 6-1, Savings and Banking (optional) banking account statements and documents for the eight Life Stage Characters transparencies from: Overhead 6-1, Why Save Money? Overhead 6-2, Choices Overhead 6-3, Ways to Save Overhead 6-4, Risk and Return Overhead 6-5, Savings Add Up Overhead 6-6, Spender and Saver Overhead 6-7, Rule of 72 copy for each student of: Handout 6-1, Calculating Savings Handout 6-2, Banking Checklist for Youth Handout 6-3, Identity Theft Handout 6-4, Fraud Squad Incident Report Handout 6-5, Quick Quiz Savings and Banking calculators for student use (optional) overhead projector, if using IN-ClASS time required two lessons (approximately two hours) Key words savings, balance, account, investment, risk, simple interest, compound interest, principal, Guaranteed Investment Certificate (GIC), Canada Savings Bond (CSB), term deposit, Rule of 72, effective rate of return, effective yield, risk, return, financial institution, savings account, chequing account, automated teller machine (ATM), electronic funds transfer (EFT), debit card, line of credit, overdraft, banking fees, banking statement, bank failure, deposit insurance, Canada Deposit Insurance Corporation (CDIC), identity theft, deposit, withdraw, withdrawal, cheque, bank, credit union, trust company, phishing

3 overhead The City Module 6 module 6 (cont d) SuGGeSteD ApprOACh: part 1 SAVINGS 1. Present Story 6-1, Savings, to the class. Discuss the story by asking questions like the following: What was Sienna saving for? She wanted to open her own restaurant. How did she manage to reach her savings target? She cut some expenses in order to save some money every week. How did Sienna s savings grow? She put her savings into an account with compounding interest. What did the characters need to know at the start of the story? What did they learn at the end? What do you want to know about saving money? 2. Have students: Suggest reasons why their Life Stage Character would have savings, and the savings targets that each might have. Discuss if students ever save money themselves and for what purposes. Discuss what their families save money for. Summarize the main reasons why people would include savings in their budgets. why save money? to buy a big item or pay for a big bill that s coming to have emergency funds to build funds to invest putting your money to work When you save, your money can earn interest A savings account is a simple form of investment Interest depends on time and risk 3. Show Overhead 6-1, Why Save Money? a) Point out that: Saving simply means not spending or setting money aside for a special purpose. When people save, they can accumulate money for other things, including: to buy a big item or pay for a big bill that s coming to have emergency funds to build funds to invest b) Discuss with the class which of these Sienna was saving for. c) Point out that: When people accumulate money (while saving for a car, a holiday or university), they can keep the money in a chequing account, or they can put it to work by investing it. When you put money in a savings account, you re lending your money to the financial institution. The financial institution protects your savings and guarantees that it ll be there when you need it. You re also putting it to work the financial institution uses the money (to lend to other people or to invest) and in exchange pays you a fee in the form of interest. Because your money is safe and you have the right to take it back almost any time, the financial institution pays only a low interest rate; if you re willing to let the financial institution keep it for a longer time you can put your savings in a term deposit or a guaranteed investment certificate (GIC) and the financial institution will pay a higher interest rate

4 overhead overhead The City Module 6 module 6 (cont d) choices Save or spend? If I save it, what s my best savings choice? When do I need it? Soon, or after a time? Can I put this money to work for me until then? 4. Show Overhead 6-2, Choices. a) Explain that when people save they can make some choices: Do I save money now or spend what I earn? If I save it, what s my best savings choice? When do I think I might need the money? Will I need it soon, or can I set it aside for a long time? Between now and the time I need it, can I put this money to work for me? ways to save Reduce spending on wants Pay yourself first save the first 10% of income after deductions Put your savings to work savings account guaranteed investment certificate (GIC) term deposit Canada Savings Bond (CSB) other investments 5. Ask students how Sienna started and kept on saving, and if they have any suggestions about how to save or start saving. Show Overhead 6-3, Ways to Save, and explain there are different ways to save: a) Reduce spending on wants Point out the distinction between needs and wants (see Module 4, Needs, Wants and Priorities), and ask the class to identify examples of spending on wants, and how much they could save by cutting back on these purchases. E.g.: spending $1.50 on soft drinks once a day doesn t seem like much, but it adds up to: $10.50 a week (enough for two kilos of ground beef or a kilo of salmon steaks) $45 a month (enough for a monthly student transit pass) $550 a year (enough for a month s rent in some places) b) Pay yourself first The easiest way to save is to save the first 10% of income after deductions. Put it away before you spend it. A small percentage deducted from a paycheque won t be noticed, but will accumulate over time. You can arrange to have your financial institution automatically transfer a small amount of your paycheque into a savings account. (Your financial institution will have the discipline even if you don t!) c) Put your savings to work Ask if anyone has a savings account, whether it s one they set up or someone set up for them, and if the account has any particular purpose. Explain that a savings account is one way to save, and there are many others. Those that earn money in the form of interest (or other profits) are called investments. The most common ones are: Savings account a deposit account that s secure but accessible and pays a small amount of interest Explain that when people put money into a savings account, it s a form of investment because the money earns interest. People don t usually think of a savings account as an investment, because the return is low, and people often choose to move some of their savings to other types of investment that pay a better return

5 overhead overhead The City Module 6 module 6 (cont d) Guaranteed investment certificate (GIC) a deposit for a fixed period of time that pays a set (or sometimes variable) interest rate. Term deposits are very similar. Canada Savings Bond (CSB) a loan to the Government of Canada at a guaranteed interest rate (that may change from year to year). Many other ways to invest your savings are discussed in Module 9. Point out that each type of investment has different advantages and disadvantages. The key point is to start the habit of saving and put those savings to work so that they earn you more money. risk and return Expected Return Risk Expected return is what you hope for. You could lose, too. SavingS add up Simple interest interest paid only on the initial deposit E.g.: $1000 at 5% simple interest earns $50 every year $50.00 in the second year (total: $ ) $50.00 in the third year (total: $ ) $50.00 in the fourth year (total: $ ) etc. Compound interest interest paid on the initial deposit and on any interest that has been earned E.g.: $1000 at 5% compound interest earns $50 in the first year $52.50 in the second year (total: $ ) $55.13 in the third year (total: $ ) $57.88 in the fourth year (total: $ ) etc. 6. Show Overhead 6-4, Risk and Return, and explain: a) Money earns income at different rates. b) One key factor in determining whether money earns a high income or a low income is the amount of risk. Low risk investments pay low returns. If you want to try for higher returns, you must be prepared to put your money at risk. If anyone tries to convince you that high return is possible with low risk, don t believe it. An offer of high returns without risk is most likely a fraud and should be reported. If risk is high, as with an investment in a new business where the return is hard to predict and you might even lose money, you would not choose to invest unless there is a good chance of earning a much higher return. If risk is low, as with a bank savings account, you may be willing to invest your money in exchange for a low return. c) Because different investments have different levels of return and risk, you have to be aware of your options and how to choose between them. 7. Show Overhead 6-5, Savings Add Up, and explain: a) Savings add up financial institutions pay interest on deposits Simple interest is paid only on the initial deposit. Compound interest is paid on the initial deposit and on any interest that has been earned, so your money grows more rapidly. In Canada, financial institutions pay compound interest on most accounts, which is usually paid and compounded monthly. Interest compounding means that starting long-term savings while young creates a big advantage. Financial institutions pay different rates of interest so it s a good idea to shop around

6 overhead The City Module 6 module 6 (cont d) saver and spender JOe saver 19 yrs. old $3,000/yr. at 8% for 9 yrs. Jim spender 19 yrs. old $0/yr. for 9 yrs. 28 yrs. old $40,459,69 28 yrs. old $0 $0/yr. for 37 yrs. $3,000/yr. at 8% for 37 yrs. 65 yrs. old $??? 65 yrs. old tip: Point out that this is a simplified example and doesn t consider things like taxes. As well, investment returns can vary considerably over time. $??? 8. Show Overhead 6-6, Saver and Spender, and explain: a) Two friends graduate from secondary school at the same time, take two years of college and start a new job at the age of 19. b) Joe Saver knows the value of compound interest, and starts saving right away. At the beginning of each year, he puts $3,000 into a long-term investment that earns 8% annual compound interest. He manages this for nine years, then at age 28 starts a family and spends all of his income supporting his family. He puts no more money into the investment, but lets it grow until his retirement. He works until he s 65, then retires and checks to see what his savings amount to. Ask students to guess what the amount totals, and note their guesses on the overhead. c) Jim Spender likes to party and travel, so he spends all of his money for a while. When he turns 28, he decides he had better start to save. He puts $3,000 a year into the same long-term investment earning 8% annual compound interest. He continues to save $3,000 every year for the next 37 years until he retires at age 65, and then checks to see what his savings amount to. Ask students to guess what the amount totals, and note their guesses on the overhead. d) Ask the class which of the two friends will have more money at retirement, Joe who saved $3,000 for nine years ($27,000), or Jim who saved $3,000 for 37 years ($111,000). Note the correct figures on the overhead and explain that: Joe has $697,752 Jim has $657,947 Joe has slightly more because he started earlier and let compounding do much of the work. Jim waited nine years to start saving and after 37 years he still can t catch up

7 overhead The City Module 6 module 6 (cont d) rule of 72 roughly how long will it take to double my money? Using compound interest: 72 interest rate = number of years to double savings E.g.: 72 5% = 14.4 years to double 72 years = interest rate needed to double savings E.g.: years = 7.2% interest needed to double 9. Show Overhead 6-7, Rule of 72, and explain: a) The Rule of 72 is an easy way to calculate approximately how long it takes for your savings to double at a compound interest rate. divide 72 by the interest rate to find out the number of years it will take to double the amount saved. divide 72 by the number of years of saving to find out the interest rate needed to double the amount saved. b) Students can use pocket calculators or online savings calculators provided by many financial institutions to calculate savings at varying rates of interest and terms. Students should use Canadian online calculators, as U.S. institutions use different assumptions for some types of calculations. Note that savings growth will depend on how often interest is compounded (yearly, semi-annually, monthly, etc.). The more frequent the compounding the faster your savings will grow. Fees can also affect how fast your investments grow. For instance, financial institutions often charge their customers monthly fees to operate accounts. Those fees can eat up some of the interest customers earn. 10. Distribute Handout 6-1, Calculating Savings. a) Have students complete the calculations. b) Review the students calculations. c) Discuss how the savings the students calculated would affect their transition from secondary school. If necessary, prompt students with questions like the following: Which of the first three calculations showed the greatest accumulation of interest? Why? The third accumulated the most interest, because the principal amount increased with yearly contributions plus interest on the contributions and the accumulated interest. Note that many financial institutions offer savings accounts that compound twice a year, or on a monthly balance, so the interest would be even greater. What would be an effective way to save for your future goals? Making regular monthly contributions to an investment that pays a competitive rate of interest. How would it affect your transition from secondary school and your progress toward your education and career goals if you were to begin a regular savings plan now? Answers will vary. How realistic is it for students to begin a regular savings plan now? Answers will vary. E.g.: Students may be able to save a portion of their income without a significant change in lifestyle if they currently spend on things they want but don t need, or if they are earning income. What proportion of your income do you think you could realistically put aside as savings now? Answers will vary

8 module 6 (cont d) 11. Option: a) Have students: Refer back to their needs/wants lists from Module 4 and their Freedom 18 Budgets from Module 5 to identify expenses they could reduce. Identify a savings target they believe is realistic for them. Modify their Freedom 18 Budget to reflect an appropriate savings target. b) Invite students who don t already have a regular savings plan to consider establishing one. SuGGeSteD ApprOACh: part 2 BANKING SerVICeS 1. Give students in groups the financial records for their Life Stage Character. Have the groups: Use the identifying icons on the character documents to find the bank account statement for their character. Tell the class the types of banking services their Life Stage Characters use and what charges they pay for the services. Suggest reasons why the characters use the services they do. They should include: a) luna (18-year-old university student): bank statement for chequing/savings account Receives direct payroll deposit and electronic transfer of bursary and goods and services tax credit; uses debit card for purchases, withdraws cash from ATMs and pays ATM fees in addition to monthly fee b) Nikos (18-year-old apprentice): credit union statement for chequing account Uses debit purchases and online transfers to make payments; transfers money to a mutual fund account automatically each month; avoids monthly fees by keeping a balance of $1,000 in his account; receives dividend on credit union equity shares c) Rio (20-year-old full-time worker): bank statement for chequing account Avoids monthly cheques by making pre-authorized payments for car loan; didn t keep enough money in the account to cover the rent cheque so has an NSF fee and pays for certified cheque to replace NSF payment; pays high service fees and a monthly service fee d) Sienna (20-year-old college graduate): bank statement for chequing/savings account Uses cheques to make some payments, like rent and a yearly car insurance payment, and debit card for smaller payments; uses transfer to pay credit card bill; avoids most ATM fees and pays low monthly fee

9 module 6 (cont d) e) Indigo (25-year-old university graduate): bank statement for chequing/savings account Receives a paycheque by automatic deposit from employer; uses debit card for some purchases; uses a credit card and a line of credit but pays them off with transfers from her account; buys traveller s cheques for travels out of The City f) liam (25-year-old college graduate): bank statement for chequing/ savings account Receives a paycheque and child benefit payment by electronic funds transfer; pays some bills by online transfer; pays a higher monthly fee to reduce other charges and pays a monthly fee for overdraft protection g) Zack (45-year-old consultant): trust company statement for chequing/savings account and separate foreign currency account Uses a trust company account, which can offer some services that banks don t; makes transfers to his savings account and to his daughter Raven at university; keeps a foreign currency account to avoid exchange charges when travelling or purchasing out of the City; pays a higher monthly fee that covers all his banking fees h) Gaia (45-year-old café owner): bank statement for chequing account Makes transfers to pay her mortgage; pays some business bills from her personal account; uses a line of credit to cover the balance when there isn t enough money in the account; rents a safety deposit box to hold important documents 2. Discuss the use of banking services and institutions: a) Ask why the service charges vary and point out that: Some characters pay a monthly fee that includes a wide range of services, such as card services, ATM charges and foreign transactions. Some pay low monthly fees, but pay for each ATM or debit charge. Some avoid the basic monthly fees by keeping a minimum monthly balance. b) Ask students to name some common features of bank accounts, and explain that one feature that many people use is a debit card. Debit cards let depositors use money in their account, either at a cash machine or when they buy things. It s convenient, but they pay for the service, either in a single monthly charge on their account or for each transaction. c) Point out that the Life Stage Characters use banks, credit unions and trust companies for their banking. Ask students to suggest reasons why people use accounts in banks, trust companies or credit unions to hold their funds. Point out that: Banking institutions often pay interest on the money that people deposit in these accounts. The accounts are a secure way of holding money. The accounts allow people to use cheques and debit cards to pay for goods and services that they buy. The accounts have an effective recordkeeping system for deposits and withdrawals

10 MODULE 6 (cont d) d) Point out that: Banks and trust companies are businesses that exist in order to make profits for their owners. Credit unions run on similar principles but their owners are their depositors, or members. Financial institutions make money by accepting deposits and lending or investing the deposits in other profit-making activities. A variety of other businesses provide some financial services, such as cheque cashing services. These services are not closely regulated and often charge high fees, so consumers should usually use a regulated banking institution such as a bank, trust company or credit union. TIP: Actual amounts guaranteed vary from province to province and can be changed by the provincial government at any time. Have students research the guaranteed amount in their own province or territory. 3. Ask if students have ever heard of a bank failure, and what it is. Point out that: Failure occurs when an institution becomes insolvent, that is, when it can t meet its financial obligations as they come due, and it may be unable to repay its depositors. Canada has a deposit insurance system, in which government organizations arrange to repay many types of deposits if an insured institution fails, including: deposits in banks and trust companies to a maximum of $100,000 per account when the funds are held in an eligible account with a member of the Canadian Deposit Insurance Corporation (some deposits are also insured in Quebec by the Autorité des marchés financiers (AMF); deposits in credit unions to a level set in each province. Canadian financial institutions are carefully regulated to protect depositors, so most accounts are very secure compared to many other countries. 4. Explain that students can review a variety of information and safety tips on the Financial Consumer Agency of Canada website ( TIP: Organize the groups of students to ensure that different types of institutions are covered, but that no institution is visited by more than a few pairs of students. Or you can collect brochures from different financial institutions and have students do the research from the classroom or on the web. 5. Distribute Handout 6-2, Banking Account Checklist. a) Have students work in groups to complete the assignment to research the services and costs of a bank, credit union or trust company in their community. b) Ensure that the class researches a variety of different institutions, including banks, trust companies and credit unions. c) Option: Have students prepare a summary chart comparing interest rates, fees and student loan services for the main types of accounts

11 module 6 (cont d) 6. Option: Have a representative from a local bank, credit union or trust company come to class to discuss banking services, how charges are calculated, and how to choose the most appropriate services. 7. Review the need to protect personal information: a) Distribute Handout 6-3, Identity Theft. b) Have students read the case reports and discuss the issues raised. If necessary, prompt students with questions like the following: What mistakes did the victims of identity theft make? Answer: Simon contacted the issuers of his lost items to replace them, but didn t report them to Canada s credit bureaus, Equifax Canada and TransUnion Canada. Melissa did not recognize the phishing was a phony and gave away her password. Daniel posted personal information where it was easy for others to find. Theresa didn t do anything wrong since she contacted Canada Post when she realized her mail was missing. Some victims are careless with their personal records, but you can be a victim even if you don t do anything wrong. What could they have done to prevent the theft? Answer: Melissa should have recognized the phishing as a fraud. Daniel should not have posted personal information on the web. Simon could have contacted Canada s credit bureaus to report that his ID was lost, and he could have contacted the police if he thought his ID or cards had been stolen. They should all have reported the identity theft to the police as soon as they became aware of it. To minimize the risk of identify theft, people can file records securely, destroy unused records, keep passwords and PINs hidden, refuse to share PINs with friends or on websites, check unexpected bills, check their credit records, etc. How could the theft affect the victims use of banking services? Answer: It could give them a bad and inaccurate credit rating, and force them to set up new accounts. c) Explain that some banking services, such as debit and credit cards, are a particular target for fraud and theft, so students should use their cards with care. They should never let anyone else see their PIN number and always keep the card in sight. d) Point out that students should be particularly careful about what information they post on social networking sites and who they allow to see it. Scammers can use information such as birthdate, place of birth and family names to crack passwords, get false documents and steal your identity. e) Distribute Handout 6-4, Incident Report. Have students complete the form to describe the problems in the case reports, and identify ways to avoid them. (Answers are as discussed in 7 b) above.)

12 module 6 (cont d) 8. Review bank account recordkeeping with students. a) Ask students if they receive a bank account statement and if they review it. Ask why they think it is important to review bank statements. Explain that: An account statement is a simple and effective way to watch for scams and errors, and reviewing the transactions and the balance each month can help avoid problems. Being aware of the current balance will help avoid extra charges and embarrassment for overdrawn accounts or refused cheques and debits. With online banking systems, depositors can review their account online at any time. b) Point out that careful recordkeeping helps people detect identity theft, scams, errors and over-spending. c) Have students use notebooks, electronic spreadsheets, envelopes, file folders or other methods to create a personal filing system that will help them keep track of their banking and other financial records and keep them secure. 9. Home Connections: Have students: Review with their parents the savings targets they added to their Freedom 18 budget and revise the targets if needed. Discuss with their parents the types of banking services the family uses and why the family chose those ones. Write a short report of their discussion and file it in their Financial Life Skills binder or portfolio (as described in Module 1). 10. Reflection and summary. Have students individually or in groups: Write the three most important things they ve learned about savings and banking services. Review the items students listed with the class. Points should include: Savings are a way to set money aside for an emergency, to prepare for a large expense, or to build funds to invest for your education or career. Earning interest adds to your savings over time. A simple and effective way to save is to set aside some money every month and put your savings to work earning compound interest. Financial institutions offer a variety of different services, and people have to choose the ones that are most appropriate to their needs. Identity theft can be a serious concern, but people can protect themselves with simple record management and personal security steps. Have students add their list of things they learned and Handouts 6-2 and 6-3 to their Financial Life Skills binder or portfolio (as described in Module 1). ALTERNATIVE: Have students create a diagram illustrating personal savings targets that would support their transition from secondary school and the banking services they would use to advance their targets

13 module 6 (cont d) evidence for ASSeSSmeNt Monitor the class discussion to ensure students can describe the purpose of savings and list a variety of savings vehicles. Review the students calculations and classroom discussion to ensure students can calculate simple and compound annual interest and total savings. Monitor the class discussion to ensure students can describe a variety of banking services offered by financial institutions. Review the students Fraud Squad reports to ensure they can describe how to keep financial records secure and avoid the risk of identity theft. Distribute Handout 6-5, Quick Quiz Savings and Banking, and have the class complete the quiz. Correct answers are as follows: 1) List two purposes for saving money. Answer: To have money for emergencies; to save money for a large expense; to have money available to invest 2) Financial experts recommend you should pay yourself first by saving the first (5%, 10%, 15%, 20%) of your income. (circle the correct answer) Answer: 10% 3) Because they earn interest and increase in value, Canada Savings Bonds and Guaranteed Investment Certificates can be considered types of. Answer: Investment 4) Define the words: simple interest: Answer: Interest paid only on the original amount compound interest: Answer: Interest paid on the original amount plus any interest already earned 5) An easy way to calculate approximately how long it takes for your savings to double at a compound interest rate is called The Rule of. Answer: 72 6) The three main types of financial institutions that offer banking services in Canada are banks, and. Answer: Credit unions, trust companies 7) Circle the correct answer: In Canada, the Canada Deposit Insurance Corporation, or CDIC, insures bank deposits up to how much money per account per institution? a. $40,000 b. $50,000 c. $100,000 d. $150,000 Answer: c) $100,000 8) Interest rates and account fees are pretty much the same at every financial institution. True/False Answer: False 9) List three advantages of electronic banking: Answer: You can carry out basic transactions at any time; you can check your balance and watch for fraud at any time; you can use automated teller machines in many locations

14 module 6 (cont d) 10) Define the words: Identity theft: Answer: When someone obtains your personal information and uses it without your knowledge to make purchases and commit crimes such as fraud banking statement: Answer: A record of transactions in an account at a bank, credit union or trust company, usually provided each month electronic funds transfer: Answer: A system that transfers money through electronic messages instead of by cash or cheques extension ACtIVItIeS Have students use web and other resources to research the features, advantages and disadvantages of savings accounts, guaranteed investment certificates (GICs) and Canada Savings Bonds. Have students review their list of needs and wants from Module 4, and calculate the savings they could have over a year if they cut out some spending on wants. Have students research and debate the proposition that secondary school graduates shouldn t rely on their parents to contribute to their post-secondary education or training, but should save for it themselves. Have students review the banking guidelines from the Financial Consumer Agency of Canada (See Banking Tools, at and the Canadian Bankers Association, and make a presentation to the class summarizing their advice. Have students use the web to compare the services of Canadian domestic banks (Schedule I banks) with foreign banks operating in Canada, like Citibank and HSBC (Schedule II and III banks). The Canadian Bankers Association maintains a list of Schedule I, II and III banks on its website ( Have students rewrite the stories on identity theft and describe how people can avoid problems and protect themselves from fraud. Have students research and debate the proposition that Canadians should be required to save 5% of their annual income to provide for major expenses such as education and buying a home

15 SToRy 6-1 SAVINGS AND BANKING ritish Columbia Securities Commission B Sienna s Cantina Sienna murmured to herself as she entered the café. Morsels Bistro Southwest Ambrosia Luna gave her a strange look. What are you mumbling about? Sienna grinned. Possible names for my restaurant. My future restaurant that I m one big step closer to opening. Huh? I reached $6,000 in savings today. That was my goal when I finished cooking school two years ago. Woah! Six thousand dollars in two years? What exactly do you do at your other job? Sienna laughed. It s legal, if that s what you re thinking. She started chopping carrots. So how d you do it? Luna asked. By putting away $55 a week. Is that all? Luna said sarcastically. Give me a break. You must have had no life at all. Well, some weeks I didn t get to do stuff I wanted, Sienna admitted. But not that many. I bet if you had something you really wanted to save for, you could find things to cut. Sure, skip a few coffees here, lunch out there. But how do you get from $55 to six grand? Do the math, girl, Sienna said, dicing onions. Fifty-five dollars a week times 52 weeks a year, plus a little bit of interest compounded annually. Once I had a certain amount saved, I put some in a bond at a better interest rate, so it would grow even faster. Before I knew it, it had grown into $6,000. Luna sighed. Imagine getting your hands on that much money. Sienna poured stock into a soup pot. The trick is to hold onto it and keep it growing. That s why I looked for the account with the highest interest rate and the lowest monthly fees. Luna nearly dropped her tray of coffee cups. Monthly? I pay over a buck for each transaction! You ve got to shop around. They ve all got different fees. Mine doesn t charge for transactions at other MetroBank terminals No charge! Sienna nodded, stirring. And they ve got the best identity security in The City. The iris scans at cash terminals mean that no one can use my ID number even if they steal it. I m switching to your bank! Luna said. She thought for a moment. I really want some new animation software. If I could save several bucks a month on service fees and tighten in a few other places She looked at Sienna. Two years? Sienna smiled. What s the first film you re going to make with that new software?

16 overhead 6-1 why save money? to buy a big item or pay for a big bill that s coming to have emergency funds to build funds to invest putting your money to work When you save, your money can earn interest A savings account is a simple form of investment mbia Securities Commission British Colu Interest depends on time and risk

17 overhead 6-2 choices Save or spend? If I save it, what s my best savings choice? When do I need it? Soon, or after a time? Can I put this money to work for me until then?

18 overhead 6-3 ways to save Reduce spending on wants Pay yourself first save the first 10% of income after deductions Put your savings to work savings account guaranteed investment certificate (GIC) term deposit Canada Savings Bond (CSB) other investments

19 overhead 6-4 risk and return Expected Return Risk h Columbia Securities Commission Britis Expected return is what you hope for. You could lose, too

20 overhead 6-5 savings add up simple interest interest paid only on the initial deposit E.g.: $1000 at 5% simple interest earns $50 every year $50.00 in the second year (total: $ ) $50.00 in the third year (total: $ ) $50.00 in the fourth year (total: $ ) etc. sh Columbia Securities Commission compound interest interest paid on the initial deposit and on any interest that has been earned E.g.: $1000 at 5% compound interest earns $50 in the first year $52.50 in the second year (total: $ ) $55.13 in the third year (total: $ ) $57.88 in the fourth year (total: $ ) etc. Briti

21 overhead 6-6 saver and spender Joe saver 19 yrs. old 28 yrs. old 65 yrs. old $3,000/yr. at 8% for 9 yrs. $0/yr. for 37 yrs. $40,459,69 $??? Jim spender 19 yrs. old 28 yrs. old 65 yrs. old $0/yr. for 9 yrs. $3,000/yr. at 8% for 37 yrs. British Columb ia Securities Commission $0 $???

22 overhead 6-7 rule of 72 Roughly how long will it take to double my money? Using compound interest: 72 interest rate = number of years to double savings E.g.: 72 5% = 14.4 years to double 72 years = interest rate needed to double savings E.g.: years = 7.2% interest needed to double

23 handout 6-1 CAlCulAtING SAVINGS Name: Class/Block: Date: Savings add up when you follow a regular savings plan. Calculate the answers to the problems below. Show the steps needed to arrive at your answers. You may use an electronic spreadsheet for your calculations if you show the formulas used at each step. 1. If you put $250 into an investment that paid 5% simple interest each year, how much interest would you earn in five years? What would your savings be worth at the end of five years? Investment Year year 1 Year 2 Year 3 Year 4 Year 5 Interest Total 2. If you put $250 into an investment that paid 5% compound interest each year, how much interest would you earn in five years? What would your savings be worth at the end of five years? Investment Year 1 Year 2 Year 3 Year 4 Year 5 Interest Total 3. If you put $240 each year into an investment that paid 5% compound interest each year, how much interest would you earn in five years? What would your savings be worth at the end of five years? Carry over $0 Year 1 Year 2 Year 3 Year 4 Year 5 Annual Contribution Investment Interest Total $

24 handout 6-1 (cont d) CAlCulAtING SAVINGS (cont d) 4. Write down the income you recorded in your Freedom 18 Budget. Calculate the total amount you would have if you saved 5% of your income for three years in an investment that paid 5% compound interest each year. Repeat the calculations for 10% and 15% of your income. Year year 1 Year year 2 Year year 3 Carry over $0 $0 Annual Contribution (5% of Freedom 18 Income) Subtotal Investment Interest Total Year year 1 Year year 2 Year year 3 Carry over $0 $0 Annual Contribution (10% (5% of of Freedom Income) Subtotal Investment Interest Total Year year 1 Year year 2 Year year 3 Carry over $0 $0 Annual Contribution (5% of Freedom 18 Income) (15% of Freedom 18 Income) Subtotal Investment Columbia Securities Commission Interest Total British

25 handout 6-1 CAlCulAtING SAVINGS ANSwer Key Name: Class/Block: Date: ritish Columbia Securities Commission B Savings add up when you follow a regular savings plan. Calculate the answers to the problems below. Show the steps needed to arrive at your answers. You may use an electronic spreadsheet for your calculations if you show the formulas used at each step. 1. If you put $250 into an investment that paid 5% simple interest each year, how much interest would you earn in five years? What would your savings be worth at the end of five years? year 1 year 2 year 3 year 4 year 5 Investment $ $ $ $ $ Interest $12.50 $12.50 $12.50 $12.50 $12.50 Total $ $ $ $ $ Answer: Interest: $62.50; Total: $ If you put $250 into an investment that paid 5% compound interest each year, how much interest would you earn in five years? What would your savings be worth at the end of five years? year 1 year 2 year 3 year 4 year 5 Investment $ $ $ $ $ Interest $12.50 $13.13 $13.78 $14.47 $15.19 Total $ $ $ $ $ Answer: Interest: $69.07; Total: $ If you put $240 each year into an investment that paid 5% compound interest each year, how much interest would you earn in five years? What would your savings be worth at the end of five years? year 1 year 2 year 3 year 4 year 5 Carry over $ $ $ $ $1, Annual Contribution $ $ $ $ $ Subtotal $ $ $ $1, $1, Interest $12.00 $24.60 $37.83 $51.72 $66.31 End balance $ $ $ $1, $1, Answer: Interest: $192.46; Total: $1, Assume contributions are made at the beginning of each year and receive a full year s interest. 4. Write down the income you recorded in your Freedom 18 Budget. Calculate the total amount you would have if you saved 5% of your income for three years in an investment that paid 5% compound interest each year. Repeat the calculations for 10% and 15% of your income. Answers will vary. Assume contributions are made at the beginning of each year and receive a full year s interest. 6.25

26 handout 6-2 BANKING ACCOuNt CheCKlISt Name: Class/Block: Date: Choose a financial institution operating in your community. Research the services it offers to help you make your transition from secondary school, like student loans or student accounts. Use the web, printed brochures from the institution, or questions to staff to gather the information listed below. Prepare a class presentation, using graphics or other aids you need. Name of financial institution: Number of local branches: Number of local ATMs: Number of branches in other locations Address of local branch: Hours of local branch: Are deposits insured by CDIC/CUDIC? Special services for students and youth: [ ] Fees waived [ ] Parent signature needed [ ] Student loans available [ ] Other credit services for youth accounts available for students and youth: Type of account: Transaction limits: Interest rate: % Calculated: daily/monthly on minimum/average balance Monthly fee: $ [ ] Fee waived if balance of $ Telephone/internet banking: [ ] Included Fee: $ [ ] Transaction history available online for previous months [ ] Transfers to other accounts [ ] Transfers to other institutions [ ] Electronic funds deposit [ ] Pre-authorized bill payment Debit/ATM card: [ ] Included Other network fees: $ Chequing: [ ] Included Printing cheques: $ Other charges: [ ] Balance enquiries Fee: $ International network fees: $ Fee: $ NSF charge: $ [ ] Bill payments Other:

27 handout 6-3 IDeNtIty theft Name: Class/Block: Date: SImON S SItuAtION When Simon lost his wallet, he thought it was a pain. He had over $50 in it, and his driver s licence and bank card. The next day he called the bank to replace the card, and applied for a new driver s license. A few months later, at a roadside driving check, the police asked him to step out of his car and placed him under arrest. That s when he found out that someone had been using his identity to buy expensive jewellery and sound equipment. One store charged him with forgery, and the police became involved. It took months of letter-writing, phone calls and explanations to convince the police, his bank, the collection agencies and credit bureaus that someone else using his ID was responsible for the crime and the debts. melissa S mess At first, Melissa was surprised when she got an from her bank saying that the security department had detected suspicious activity on her account. It asked her to go to a special web page to confirm her account information and password. It s lucky the bank caught the problem on time, she thought as she entered the correct information. But she was more surprised the next day when she went to pay for a movie with her debit card it was rejected. She checked her bank balance and found her account was empty. All her savings were gone. She was furious when she called the bank to ask what it did with her money. The bank said she had spent the whole amount in online purchases, using her password. Melissa said she had not bought anything online, but the bank said she was responsible if anyone used her password. Melissa was lucky, because she still had the asking for her password. The bank said that she was the victim of an online fraud called phishing, and agreed to refund her account. But it took many pages of paperwork and several months to get the problem cleared up. DANIel S DIlemmA Daniel was popular and had many friends on his networking page. It was a great way to keep in the loop and let friends know about his birthday party. So naturally when he moved into his own place, he posted his new address and phone number. But it wasn t long before Daniel started getting unwelcome messages in the mail bills from stores he didn t shop at. Credit card bills from card companies he didn t use. And the more he ignored them, the more threatening they became. When he finally phoned to tell them they had the wrong guy, he found out they had his name, address, even his birthday. And many of them wouldn t believe it wasn t really him until they compared his signature with the one setting up all the new accounts. 6.27

28 handout 6-3 (cont d) IDeNtIty theft (cont d) Daniel had to file a police report saying that someone was using his name and address. The officer said they probably got all his personal information from his networking page. It took months of paperwork to sort out all the false charges, and some of the stores refused to change the reports on his credit record. He was so careless, he was a bad risk, they said. theresa S troubles Theresa first noticed her magazine subscription was late. Then she noticed she wasn t getting her mail. She contacted Canada Post to ask what happened. She found out that someone had asked Canada Post to divert her mail. For ID, someone had used a drivers licence that Theresa thought she d lost. Soon after, she found that someone had received a credit card in her name. And a department store credit card. Bills addressed to her were mounting up, but they weren t being paid. Theresa was lucky she was able to pay her own bills before her electricity or cellphone were cut off. But she didn t feel so happy when she had to start contacting all the stores that were sending her bills. She also had to convince the credit card company that she wasn t responsible for the bills in her name. Identity theft is a new type of crime, but it s growing fast. It happens when someone obtains your personal information and uses it without your knowledge to make purchases and commit crimes such as fraud. Police say Canada has over 20,000 cases of identity theft a year, and the number is growing. Identity thieves build up a profile using pieces of information, such as a Social Insurance Number and a date of birth. With two pieces of ID, they can apply for banking services, or change the address on existing accounts. When they build up an identity, they can take over accounts, transfer bank balances, apply for loans and credit cards, and purchase items. sh Columbia Securities Commission Briti Most internet users have seen phishing s messages from scammers trying to gain confidential information such as a password by pretending to be a legitimate or website. Fraud artists can also look through your garbage or recycling box for bank cheques, insurance forms, pre-approved credit card applications, tax forms and other bits of personal information. New computers and photocopying machines make it easier for thieves to copy or modify documents and create identities. With more people posting personal information on social networking sites like Myspace, Facebook and Bebo, scammers can often find all the personal details they need to set up a phony identity. Some scammers post ads for jobs, asking applicants to send copies of documents like social insurance cards, birth certificates and driver s licences. Others use phony websites that ask for personal information to establish an account or to verify an existing account

29 The City Module 6 HANDOUT 6-3 (cont d) IDENTITY THEFT (cont d) WHAT CAN YOU DO TO PROTECT YOURSELF FROM IDENTITY THEFT? Here are some tips: Don t give out your Social Insurance Number, birth date, or other personal or employment data except to a reputable agency. Don t throw any identifying information, like bank statements or credit card offers, in the garbage or recycling box. Shred or cut them up. Never leave receipts at bank machines, bank wickets, trash cans or gasoline pumps. Pick up your mail as soon as possible. Watch for late bills and mistakes in your monthly statements. Review your bank statements to make sure that all the transactions are yours. Don t carry more ID than you need, and don t leave ID in your vehicle. Report lost or stolen identification and debit or credit cards to the card issuer and Canada s credit bureaus (Equifax Canada at and TransUnion Canada at Check your credit rating annually to ensure it is accurate and up-to-date. (You can request a free copy by mail. Agencies may charge a fee for requests by internet.) Report identify theft to the police as soon as you are aware of it. Security online Don t give out personal information over the phone or internet. Don t post personal or employment details on social networking sites like Myspace, Facebook and Bebo. Check the security and privacy settings on networking sites and limit personal access to trusted friends. Share your personal webpages only with trusted friends. Don t write down PINs or passwords, and choose difficult passwords. Never give your PINs to friends or post them online. Don t use personal data like addresses or phone numbers in your passwords. For more information about frauds and scams, visit the Canadian Anti-Fraud Centre website (

30 handout 6-4 fraud SquAD INCIDeNt report Name: Class/Block: Date: Case Name: Who blew it in this case: What did they do wrong? Smarten Up! To avoid future incidents, this person should:

31 handout 6-5 quick quiz SAVINGS AND BANKING Name: Class/Block: Date: 1. List two purposes for saving money. 2. Financial experts recommend you should pay yourself first by saving the first (5%, 10%, 15%, 20%) of your income (circle the correct answer). 3. Because they earn interest and increase in value, Canada Savings Bonds and guaranteed investment certificates can be considered types of 4. Define the words: a. simple interest b. compound interest 5. An easy way to calculate approximatey how long it takes for your savings to double at a compound interest rate is called The Rule of. 6. The three main types of financial institutions that offer banking services in Canada are banks, and 7. Circle the correct answer: In Canada, the Canada Deposit Insurance Corporation, or CDIC, insures bank deposits up to how much money per account per institution? a. $40,000 b. $50,000 c. $100,000 d. $150, Interest rates and account fees are pretty much the same at every financial instutition. h Columbia Securities Commission Britis True/False. 6.31

32 handout 6-5 (cont d) quick quiz SAVINGS AND BANKING (cont d) 9. List three advantages of electronic banking. 10. Define the words: a. identity theft b. banking statement c. electronic funds transfer