American Civics HOLT Chapter 19 Managing Money Section

American Civics HOLT Chapter 19 Managing Money Section 1: Section 2: Section 3: Section 4: 1 Money and Credit Banks and Banking Saving and Investing Insurance Against Hardship HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 1: Money and Credit OBJECTIVES u What are the four basic characteristics of currency? u Why do people and businesses accept checks as payment instead of cash? u How is credit important in families and in the economy as a whole? 2 HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 1: Money and Credit Four basic characteristics of currency: u Must be easy to carry and take up little space u Based on system of units easy to multiply and divide u Must be durable u Must be in a standard form and guaranteed by the government 3 HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 1: Money and Credit Why do people and businesses accept checks? u Much of the U. S. money supply is in the form of bank deposits. u A check is a promise of funds sufficient to cover stated amount. u Insufficient funds and overdrafts are punished with fines or criminal penalties. 4 HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 1: Money and Credit The Importance of Credit u Credit allows wholesalers to buy a larger quantity of goods at once. u Families use credit for emergency purchases and large purchases. u Credit enables consumers to buy when production is high and goods are being sold. u Consumer spending encourages economic growth. 5 HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 2: Banks and Banking OBJECTIVES u What is the FDIC, and how does it help depositors? u What caused the savings and loan crisis in the 1980 s? u How and why does the Federal Reserve System regulate the amount of money in circulation? 6 HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 2: Banks and Banking The FDIC: u FDIC—Federal Deposit Insurance Corporation u A government agency u Insures accounts in commercial and savings banks for up to $100, 000 7 HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 2: Banks and Banking The savings and loan crisis: u 1980 s—many of the banks involved in risky loans, bad investments, and fraud u Hundreds of the banks failed u The FSLIC ran out of money, and debt was passed on to the FDIC. u The Resolution Trusts Corporation was established to sort out the crisis. u 1999—cost to taxpayers estimated at $165 billion 8 HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 2: Banks and Banking The Federal Reserve System regulates the money in circulation: u Regulation prevents bank failure. u The Fed controls money circulation to keep the economy healthy. u The Fed buys government bonds from banks and individuals to increase circulation and speed economic growth. u The Fed sells government bonds to take money out of circulation when economy grows too fast. u Member banks can borrow money from the Fed to increase their reserves. 9 HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 3: Saving and Investing OBJECTIVES u Why is it important to save money? u What are some ways people save and invest their money? u How does saving money help the U. S. economy? 10 HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 3: Saving and Investing The importance of saving money: u People save for education, emergencies, retirement, and large purchases. u Credit purchases often require a down payment in cash. u Ability to make a large down payment reduces monthly payments and the total interest on a loan. 11 HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 3: Saving and Investing Ways of saving and investing: u Purchasing items that may increase in value u Regular installments to a savings account that is u u u 12 earning interest Certificates of deposit (CDs)—interest is paid when CD matures Stocks—common and preferred stock; mutual funds; money market funds Bonds—low risk; money and earned interest is returned when bond matures HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 3: Saving and Investing Saving money helps the U. S. economy: u Expansion of the economy requires capital; money in u u 13 savings is used for expansion. Money saved is also money invested in the economy. Companies’ ability to raise capital promotes the country’s prosperity. Banks use money in savings to make loans to businesspeople. Businesses that save are able to reinvest in themselves. HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 4: Insurance Against Hardship OBJECTIVES u How are insurance companies able to cover the hardship costs of so many people? u What is the difference between private insurance and social insurance? u Why was Social Security created, and why are some people concerned about its future? 14 HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 4: Insurance Against Hardship Insurance companies cover many people: u Premiums are collected from millions of u u u 15 policyholders. Money is held in a reserve fund. Laws specify how much must be held in the fund. Claims are paid from the fund. Relatively few policyholders make claims each year. Other moneys are invested and profits are used to run the company. HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 4: Insurance Against Hardship Private Insurance and Social Insurance u Private insurance—voluntary insurance paid by individuals and companies: life insurance, health insurance, property and liability insurance u Social insurance—government programs meant to protect individuals from future hardships: Social Security u Social Security includes old age, survivors, and disability insurance, unemployment compensation and workers’ compensation 16 HOLT, RINEHART AND WINSTON

American Civics HOLT Chapter 19 Section 4: Insurance Against Hardship Social Security and Its Future u Social Security Act of 1935—part of the New Deal; intended to protect citizens from future hardships u Retirement population is growing while birthrate is dropping. u Fewer workers will be supporting growing group of retirees. u Critics argue the tax will continue to rise and prefer to abolish the program. 17 HOLT, RINEHART AND WINSTON