Saving and Investing: Understanding the Key Differences

Savings is setting money aside for use at a later time. Investing is using a resource (usually money) with the expectation that it will generate increased income or grow in value. Think about why savings could be important in your life. Putting aside money for future use can help you meet life goals

1. Savings, credit &
Investing
By: Addisalem T.
(PhD Candidate)

2. Outline
Savings
Importance of Saving
Types of Savings Accounts
Strategies for Saving
Common Savings Challenges and Solutions
Tips for Successful Saving
Credit
Types of credit
Importance of credit
Managing credit
Investment s
Types of investment
Importance of investment
Risk, Return, and Liquidity

3. Savings
Saving refers to the portion of income
not spent on current expenditures and
set aside for future use. It is the most
basic form of personal financial
management.

6. Importance of Saving

7. Importance of…
•Emergency Fund:Provides a financial
cushion in case of unexpected expenses
such as medical emergencies or job loss.
•Future Goals:Helps in accumulating
funds for future needs such as buying a
house, education, or retirement.
•Financial Independence:Reduces
reliance on debt and improves financial
stability.

8. Importance of…
Financial Security: Savings provide a safety
net for unexpected expenses such as medical
emergencies, car repairs, or job loss.
Goal Achievement: Savings can help in
achieving short-term and long-term goals like
buying a home, funding education, or taking a
vacation.
Wealth Building: Regular saving and investing
can lead to wealth accumulation over time.
Stress Reduction: Having savings reduces
financial stress and improves overall well-being.

9. Types of Savings Accounts
1.Regular Savings Account:Easy access to funds with
modest interest rates.
2.High-Yield Savings Account:Offers higher interest
rates compared to regular savings accounts but may
have higher minimum balance requirements.
3.Money Market Account:Combines features of
savings and checking accounts with higher interest
rates and limited check-writing capabilities.
4.Certificates of Deposit (CDs):Fixed-term deposits
with higher interest rates, where funds cannot be
withdrawn without penalty before maturity.

10. Strategies for Saving
•Automatic Transfers:Setting up automatic
transfers from checking to savings accounts
ensures consistent saving habits.
•Budgeting:Creating a budget to track
expenses and identify potential savings.
•Setting Goals:Establishing short-term and
long-term savings goals to stay motivated.
•Reducing Expenses:Cutting down
unnecessary expenses to increase the amount
saved.

11. Common Savings Challenges
and Solutions
Low Income: Start small, save consistently, and
gradually increase the savings amount.
High Debt: Focus on paying off high-interest
debt first while saving a small amount.
Lack of Discipline: Automate savings to ensure
consistency.
Inflation: Use high-yield accounts or investment
options to combat the eroding effects of inflation
on savings.

12. Tips for Successful Saving
1.Track Your Spending: Use apps or
spreadsheets to monitor expenses and identify
savings opportunities.
2.Set Realistic Goals: Break down large goals
into smaller, manageable ones.
3.Stay Informed: Keep learning about new
savings products and strategies.
4.Review and Adjust: Regularly review your
savings plan and make adjustments as
needed.

13. Credit
Credit is the ability to borrow money or access
goods or services with the understanding that
you will pay later.

14. Types of Credit
1.Revolving Credit:Credit that can be used
repeatedly up to a certain limit as long as
the account is open (e.g., credit cards).
2.Installment Credit:A loan for a fixed
amount that is repaid in regular
installments (e.g., auto loans, mortgages).
3.Open Credit:Must be paid in full each
period (e.g., charge cards).

15. Importance of Credit
•Purchasing Power:Allows consumers to
make significant purchases and pay over
time.
•Emergency Situations:Provides financial
assistance during unexpected expenses.
•Building Credit History:Responsible use
of credit builds a good credit history, which
is crucial for obtaining future credit.

16. Managing Credit
•Paying on Time:Ensuring timely payments to avoid
late fees and negative impacts on credit scores.
•Monitoring Credit Reports:Regularly checking credit
reports to identify and dispute errors.
•Maintaining Low Balances:Keeping credit card
balances low relative to credit limits.
•Avoiding Unnecessary Credit:Only applying for
credit when necessary to avoid excessive hard
inquiries.

17. What are Financial
Intermediaries?
Financial intermediaries are institutions
that facilitate the channeling of funds
between savers and borrowers.
They play a crucial role in the financial
system by providing a bridge between
those who have surplus funds (savers)
and those who need funds (borrowers).

18. Types of Financial
Intermediaries
•Banks
•Credit Unions
•Investment Companies
•Insurance Companies
•Pension Funds
•Mutual Funds

19. Benefits of Financial
Intermediaries for Savers
Safety and Security: Protection of funds through
insurance (e.g., FDIC for banks).
Liquidity: Easy access to savings and investments.
Interest and Returns: Earn interest on deposits
and returns on investments.
Convenience: Simplified processes for managing
finances and making transactions
Expertise: Access to professional financial advice
and management.

20. Investments
Investing is the purchase of assets with the
goal of increasing future income.
Investment involves committing money to
an asset with the expectation of generating
income or profit

21. Investments
Investing is the purchase of assets with the
goal of increasing future income.
Investment involves committing money to
an asset with the expectation of
generating income or profit

22. Importance of Investing
•Building Wealth
•Inflation Protection
•Achieving Financial Goals

23. Importance of Investment
Wealth Accumulation: Investments can
grow in value over time, contributing to
long-term wealth.
Income Generation: Certain investments
provide regular income, such as dividends
from stocks or interest from bonds.
Inflation Protection: Investments often
offer returns that outpace inflation,
preserving purchasing power.

24. Types of Investments
Stocks:Sharesofownershipinacompany,offeringpotential
forcapitalgainsanddividends(Commonvs.Preferred).
Bonds:Debtsecuritiesissuedbyentitiessuchas
governmentsorcorporations,providingregularinterest
payments.
MutualFunds:Pooledfundsfrommultipleinvestorstoinvest
inadiversifiedportfolioofstocks,bonds,orotherassets.
RealEstate:Investmentinproperty,eitherdirectlythrough
purchasingphysicalpropertyorindirectlythroughREITs
(RealEstateInvestmentTrusts).Commodities:Physical
assetslikegold,silver,oil,oragriculturalproducts.
Cryptocurrencies:Digitalorvirtualcurrenciesthatuse
cryptographyforsecurity

25. Investment Strategies
•Growth Investing
•Suitable for Long-term Goals
•Value Investing
•Finding Undervalued Stocks
•Income Investing
•Focus on Dividends and Interest

26. Risk, Return, and Liquidity
Risk
The chance that the value of an
investment will decrease.
Return
The profit or yield from an investment.
Liquidity
The ability of an investment to be
converted into cash quickly without
loss of value.

27. Risk, Return, and Liquidity
Savings
Low risk
Low return
High liquidity
Investments
High risk
High return
Low liquidity

28. Risk Mitigation
Strategies
•Asset Allocation
•Hedging
•Insurance
Tools and Resources for
Investors
•Financial Advisors and Planners
•Online Brokerage Accounts
•Investment Research Tools
•Educational Resources (Books,
Online Courses, Webinars)

29. Inflation and Savings
NEFE

30. Inflation, Savings and
Investments
NEFE

31. Inflation, Savings and
Investments
The point? Inflation can
work against your money.
You need to learn to invest
wisely, follow the rate of
inflation, and make sure your
investment rates are higher
than those of inflation.

32. Time Value of Money
The time value of money refers to the
fact that a dollar in hand today is
worth more than a dollar promised at
some future time.

33. Future Value
Refers to the amount of money to which
an investment will grow over a finite period
of time at a given interest rate.
Put another way, future value is the cash
value of an investment at a particular time
in the future.

34. “You can always
make
more money,
but you can’t make
more time.”
Respond to this statement
on your guided notes and
then discuss it with a
partner. How does it relate
to future value?

35. Time Value of Money
Picture from NEFE

37. Risk and Return
What is the relationship between
risk and return?

39. Which financial product is
appropriate for the
following situations?
Saving for a senior trip
Saving for a down payment on a
house
Saving for retirement

40. NEFE Teacher Guide

41. Sample Student Work

42. Sample Student Work

44. Thank you!