This document compares savings and investing. It discusses that investing is done to increase future income, while savings is current income not spent. Investments carry higher risk and return but lower liquidity than savings, which have low risk and return but high liquidity. Inflation can decrease the value of savings over time, so investments are needed to earn returns higher than inflation. The time value of money means a dollar today is worth more than a dollar in the future. Future value refers to how much an investment will be worth over time at a given interest rate. Risk and return are directly related, with higher risk investments offering higher potential returns.

1. Savings vs.Savings vs.
InvestingInvesting

2. SavingsSavings
Investing is the purchase of assets with the
goal of increasing future income.
Savings is the portion of current income
not spent on consumption.
InvestmentsInvestments

3. Risk, Return, and LiquidityRisk, Return, and Liquidity
 RiskRisk

The chance that the value of anThe chance that the value of an
investment will decrease.investment will decrease.
 ReturnReturn

The profit or yield from an investment.The profit or yield from an investment.
 LiquidityLiquidity

The ability of an investment to beThe ability of an investment to be
converted into cash quickly withoutconverted into cash quickly without
loss of value.loss of value.

4. Risk, Return, and LiquidityRisk, Return, and Liquidity
 SavingsSavings

Low riskLow risk

Low returnLow return

High liquidityHigh liquidity
 InvestmentsInvestments

High riskHigh risk

High returnHigh return

Low liquidityLow liquidity

5. Inflation, Savings andInflation, Savings and
InvestmentsInvestments
Today, a large soft drink at
your favorite fast-food place
costs $1.00. You buy the soft
drink but also decide to save
some money for the future as
well. So you put a dollar in
your savings account, where it
earns 5%.

6. Inflation, Savings andInflation, Savings and
InvestmentsInvestments
One year later, the dollar in
your saving account is worth
$1.05. You take the money
out and visit your favorite
convenience store, hoping to
buy another delicious
beverage. Unfortunately,
drinks now cost $1.10.

7. Inflation, Savings andInflation, Savings and
InvestmentsInvestments
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.

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

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

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

11. Time Value of MoneyTime Value of Money

12. Risk and ReturnRisk and Return
 What is the relationship betweenWhat is the relationship between
risk and return?risk and return?

14. Which financial product isWhich financial product is
appropriate for theappropriate for the
following situations?following situations?
 Saving for a senior tripSaving for a senior trip
 Saving for a down payment on aSaving for a down payment on a
househouse
 Saving for retirementSaving for retirement