Friday, 5 February

Students turned in vocabulary flash cards, and analysis of their financial values. Students returned Government books and checked out Econ books.

The class talked about financial values. The class discussed the differences betweens money, wealth, and happiness.

The class focused on the term "investment" and it's association with risk.

Compounding: the power of investments; the danger of debt

The class learned about calculating simple and compound interest

Principal    Interest    Credit    Debt

Name _________________________________________ Date __________________ Period _______

Principal; Interest; Credit; and Debt are related words. In order to study these words you should recognize and understand some conventions used by many people when dealing with finances. Negative numbers, we’ll refer to these as “debt” (unless you are an accounting person) are often written like this: ($1,000); you are most likely used to thinking of this as -10,000. (Also, negative numbers are often displayed in the color red. Positive numbers in these cases are usually black.)

Principal is an amount of money that one starts with. Sometimes it is a debt as when it is an amount borrowed.

Three common reasons to borrow money:

Sometimes it is a positive number as when it is invested.

The most common ways people invest money are: savings accounts, U.S. savings bonds, certificates of deposit, money market instruments and funds, index funds, mutual funds and exchange traded funds, bonds, and stocks. Typical interest rates earned on these range (over the long term) from near 0% to 7%. Sometimes these investments lose money.

Interest is a percent increase in an investment or (debt). Interest usually “compounds” which means that it increase and also increases based on it’s previous increase. (Interest that only increases on the original principal is called “simple interest”).

The power of “compounding interest” is significant. Complete the tables below in order to understand the power of compounding.

		Interest	Interest	Investment	Debt / Loan	Investment	Debt / Loan
	Reason	Savings (compounding)	Saving (simple)
Principal: beginning amount		$100.00	$100.00
Interest rate (paid) or earned		2%
	1	$102.00
	2	$104.04
	3	$106.12
	4	$108.24
	5	$110.41
	6	$112.61
	7	$114.87
	8	$117.16
	9	$119.51
	10	$121.90
		$100.00
Line 10- Principal = Total earned or total cost		$21.90