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Bank at School - Lesson 2 Previous Lesson Next Lesson
Why Do People Save?
Introduction
Lesson 1 discussed the role money plays as a medium of exchange. Lesson 2 introduces two concepts: consumption and saving. The primary focus of Lesson 2 is to prepare students for their first bank day by presenting a rationale for saving.
Objective
Introduce concepts of consumption and saving. To encourage savings goals.
Raise student awareness of their own ideas and attitudes about money.
Lesson Material
As we learned in our last lesson, the purpose of money is to act as a medium of exchange. If we have $5, our $5 can be used for several things: we could go to a movie, buy a book or get something to eat. No matter where we go in the United States, our money will be accepted. This is because we have one currency for the whole country.
Today, there are plenty of opportunities to use or "spend" our money. There are virtually millions of products available to buy. Think about how many kinds of gym shoes or cars there are. How many different items do you think there are in your local grocery store? The total cost of products available for purchase far out-values the money any one of us might have to purchase them. With so many choices available, we need to pay attention to how we spend our money. Otherwise, one day we might find ourselves without money to buy the things we really need. Saving is the best way to make sure we will have money for the things we really want and need.
What is saving? Saving means voluntarily putting aside a certain amount of money regularly, for future usage. People often save with a particular goal in mind. Savings goals can be short term or longer term. Common short term goals include saving for a treasured pair of jeans or a new cassette or CD. Longer term goals often include buying a house or saving for college.
People also save to have money in case of an emergency. Because no one can know for sure what their future needs or wants might be (did you know last year what Christmas gifts you'd like to have this year?), it's a good idea to put a portion of the money you receive in a special place.
Where do people put their savings? Before financial institutions were common, people often hid their money; they might have buried it in the ground, hidden it under a floor plank, or even slept on top of it. Today, most people keep their savings in a financial institution. Financial institutions offer special accounts for savers called savings accounts.
Savings accounts are useful for several reasons:
They offer a safe place for people to keep their money.
They allow people to earn a little money over the amount they save. This is because financial institutions pay savings account holders a fee (interest), in exchange for being able to use their money while the account holder is not using it. Even though the financial institution holds your money, you can always withdraw your money whenever you need it.
How much money should you save? Generally, the amount of money people save is based upon how much money they earn, what immediate expenses they need to pay, and why they are saving. A person who wants to buy a house will have to save more money than a person who wants to buy a computer. A good goal is to try to save 1/10-1/4 or 10%-25% of your money regularly.
The most important thing about saving is to save consistently. Try to save some money every time you receive some. Even if you cannot always save the same amount, saving some money is better in the long run than saving none.
(Teachers: Here is a good point to explain Bank At School day if you have not already discussed it.)
Remember, having money means making choices. Few people are able to have everything they want instantly. Most people need to save their money first, before they can acquire what they want. Could you buy a bicycle or a pair of Michael Jordan gym shoes by yourself today?
Try setting aside a little bit each week or month. Not so much that you don't have any money to spend, but enough to make a difference (for instance, if you receive $1 you might try to save 25). Before you know it, you'll have saved enough to get something really special for yourself or for someone you care about.
As you are planning for the future, saving for college should be an important part of your savings goals. In the year 2000, nine out of every ten jobs will require education or training after high school. Although college is 8-10 years away, the earlier you begin planning and saving toward a college education, the longer your money will work for you. Your whole family can work together as a team to save money for your higher education. You can help by putting part of your allowance, job earning, or gift money in your own savings account.
You can choose to attend a four-year public or private college, a two-year community college or a vocational training school. How much will college cost? By the time you start college, one year of attendance at a four-year public college is expected to cost over $13,000. Private colleges will cost even more; community colleges and vocational training institutions will cost less. College costs include tuition and fees (cost for classes) and room and board expenses (cost for living). A college education is a wise investment. Studies show that people with college degrees increase their lifetime earnings by nearly $1 million dollars. (Check out the Smart529 College Savings Program)
It is important to start saving early and saving regularly. (Did you know that if you save $100 a month at 5% interest, in 10 years you will have $15,601 to use for college?) Just remember - Saving Adds Up!
Suggested Activity
Suggested Homework
Glossary
Saving - The practice of putting aside a sum of money regularly for future use.
Savings Account - An agreement between a bank and an individual, where the individual places his or her money with the bank in exchange for the bank's providing safekeeping and paying the individual interest.
Share Account - An agreement between a credit union and a member, whereby the member invests his or her money with the credit union (shares) in exchange for the credit union's providing safekeeping and paying the member dividends (interest). Shares in a credit union are tantamount to member ownership and gives the member the right to vote for and become a member of the board of directors.
COPYRIGHT NOTICE: Portions of this material are subject to the copyright of the Office of the Illinois State Treasurer and may not be produced in any manner without its express written permission. Permission to use these portions herein is limited to use for educational purposes only.
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