Question: What is the difference between saving money and investing money?

Instructor Note: Bullets will appear upon a second mouse click.

Explain: Saving money is setting aside money for future use. Investing money is the use of money to make more money.

Explain: An investment is a financial option that you purchase for future income or financial benefit. It is important because it provides retirement options and financial security.

Question: What are examples of investment products?

Instructor Note: Bullets will appear upon a second mouse click.

Explain: Examples include stocks, bonds, mutual funds, real estate and retirement plans.

Transition Statement: You may not be familiar with all of these investment products. In this lesson, we will discuss these investment options in detail. First, let's discuss the benefits and risks you take when you invest.

Explain: When you invest your money, there is a greater risk of losing it than if you put your money in a savings or other deposit account backed by the FDIC. Investments are not backed by FDIC and there is a possibility you may lose the entire amount you invest if the investment does not perform well.

Because of the risk you take, there is also the opportunity for your investment to earn more than your regular savings account. The greater the risk, the greater the expected return on investment.

The key to investing is time! The longer you can leave your money invested, the better your investment will do.

Question: How do you make money from investments?

Instructor Note: Bullets will appear upon a second mouse click.

Explain: You can make money on investments by selling them for more than you paid for them or by earning dividends.

Question: What does it mean to earn dividends? How is this different than earning interest?

Explain: Dividends are a form of income that shareholders as owners of corporations receive for each share of stock that they hold. These payments -- from a corporation's profits or from its accumulated retained earnings - are in cash or other assets (excluding the corporation's own stock).

Transition Statement: This leads us into the types of investments, the first being stocks.

Question: What are stocks?

Instructor Note: Slide information will appear upon a second mouse click.

Explain: A stock is a security that represents ownership in a corporation. If you own stock, you own a piece or "share" of that company. For example, if you buy 10,000 shares in a company with 1 million shares outstanding, you own 1% of the shares outstanding.

If the company does well, you might receive periodic dividends. Dividends are part of a company's profits that it gives back to you as a shareholder. Another way to make money from stocks is to sell them at a profit. If the company does well, others might be willing to buy your stock at a higher price than you paid.

Remember, if a company you invest in does poorly, you may lose your money. Choose wisely when you invest in a company and understand you risk losing the money.

The price of stocks varies greatly. Stock in Intel may cost $100+ per share. On the other hand, if you buy stock in a new company (which creates a higher risk), the stock may be much less expensive.

Question: Do you have any questions about stocks?

Transition Statement: Let's discuss another type of investment - Bonds.

Question: What are bonds?

Instructor Note: Slide information will appear upon a second mouse click.

Explain: A bond is a certificate which is evidence of a debt on which the issuer promises to pay the holder a specified amount of interest for a specified length of time, and to repay the loan on its maturity. Bonds are issued by corporations and by federal, provincial and municipal governments.

When you purchase a bond, you are loaning money to a corporation or to the government for a certain period of time, called a term. The bond certificate promises the corporation or government will repay you on a specific date, usually with a fixed rate of interest.

Most corporate bonds have a $1000 face value, while some government bonds carry a much higher value. Savings bonds can be purchased for sums under $100, so there is a wide variety of options. When the bond matures, the lump sum is returned to the investor along with the earned interest.

Maturities range significantly also, from 1 month for some municipal notes to 40+ years for some corporate bonds.

Question: Do you think bonds are a safe investment?

Explain: Lowering risk is basically what bonds are all about. If you buy government bonds, as U.S. Treasury Bonds, your investment option is backed by the U.S. government and, therefore, is a safer investment than some other types of bonds.

Buying savings bonds is an easy and safe way to save small amounts of money. For example, if you purchase a U.S. Treasury Bond for $25, in 20 years it could be worth twice as much ($50). Each bond has a different interest rate, so to determine what it will be worth when you redeem it you will have to do the calculations.

Keep in mind, some bonds have higher degrees of risk than U.S. Bonds, because they are not backed by the U.S. Government. Corporate bonds are not secured by collateral. Investors in such bonds must assume not only interest rate risk but also credit risk, the chance that the corporate issuer will default on its debt obligations.

Question: Do you have any questions about bonds?

Transition Statement: The third type of investment is a mutual fund.

Question: What is a mutual fund?

Instructor Note: Slide information will appear upon a second mouse click.

Explain: A mutual fund is a professionally-managed collection of money that an investment company invests in stocks, bonds and other products. These funds offer investors the advantages of diversification and professional management.

The key to mutual funds is diversification. You spread the risk of losing all of your savings. Rather than all of your money being in one corporation, the investment company will diversify your fund by investing a portion in low-, and high-risk stocks, short-, and long-term bonds, and other diverse products.

Mutual funds generally have a higher return over the long term than a regular savings account — however, lower return than stocks and some bonds. There is also less risk in mutual funds (than in stocks and bonds) because you can diversify your investment.

Question: What do you think will be the biggest investment many of you will make in your lifetime?

Instructor Note: "Homeownership" will appear upon a second mouse click.

Explain: For most people, it is owning a home. Owning a home is an investment because the home generally increases or appreciates in value.

Instructor Note: "Retirement Investments" will appear upon a third mouse click.

Transition Statement: Retirement savings are also a big investment that many of you will make.

Question: Do any of you have a retirement savings account now?

Explain: Retirement investments often are offered in the workforce. Generally they grow tax free until the money is withdrawn during retirement. Retirement plans allow you to choose from different types of investments depending on how much risk you want to take. Some examples of retirement plans include 401 K Accounts, Roth Accounts and Roth IRA Accounts. Social Security is also part of your retirement benefits.

Explain: A 401(k) plan is a retirement savings plan that is funded by employee contributions and (often) matching contributions from the employer. The major attraction of these plans is that the contributions are taken from pre-tax salary, and the funds grow tax-free until withdrawn. Also, the plans are (to some extent) self-directed, and they are portable; both for-profit and many types of tax-exempt organizations can establish these plans for their employees.

A Roth IRA account is a type of Individual Retirement Account that allows retirement savings to grow tax-free. You pay taxes on contributions, but not on withdrawals.

Social security is a program of the United States federal government that provides retirement income, health care for the aged and disability coverage for eligible workers and their dependents. Social Security is largely a "pay-as-you-go" system with today's taxpayers paying for the benefits of today's retirees. Money not needed to pay today's benefits is invested in special-issue Treasury bonds.

Social Security was never meant to be the sole source of income in retirement. It is often said that a comfortable retirement is based on a "three-legged stool" of Social Security, pensions and savings. American workers should be saving for their retirement on a personal basis and through employer-sponsored or other retirement plans.

Explain: OK, we've talked about all these types of investments, but how do you decide which one is right for you? Begin by asking yourself these three questions:

Instructor Note: Highlight the questions on Slide #11.

Explain: The first question is extremely important. You need to decide how you feel about risk. Your personal feelings will influence this answer, as well as your age. The closer you are to retirement, the less likely you are to feel comfortable taking high risk.

Second, you need to decide how much money you want to have for retirement, a second house, a new boat or other financial goal. You need to determine how much you want to earn.

Finally, you need to know how long you can invest your money. If you are in your early 20s you have many years before you will need your retirement funds. On the other hand, if you are approaching your 50s, you want to take less risk because you have fewer years left before you retire.

Activity: Distribute the Shopping for Savings Account/Investment Products Work Sheet. This work sheet can be used when comparing savings accounts or investment products.

Explain: Before we conclude, consider these three suggestions about your investment options.

Instructor Note: Highlight the questions on Slides #13, #14 and #15.