Transcript Finances in the News

Finance Issues in the News
Economic Indicators
• Inflation: Overall rise in prices
-The Consumer Price Index averages the
prices for various commodities and tries to
track overall inflation
• Unemployment: Tracks people out of
work and looking for work but not those
who have given up
Why is too much inflation bad?
• Prices too high-people can’t buy things• Factories stop producing as much• Factories start laying people off• Laid-off people can’t buy things• Life isn’t good for a lot of people
• RECESSION!
Recession
Six months of:
• People buying less stuff
• Decrease in factory production
• Growing unemployment
• Slump in personal income
• An unhealthy stock market
Can inflation be good?
• If your income goes up at the rate of
inflation then it doesn’t hurt you too much
• If you owe money and there is high
inflation then the real value of your debt
goes down, which is good for you and bad
for the people you owe.
Economic Indicators
• Housing starts
• Gross National Product: The total value of
final goods and services produced in a
year by a country's nationals (including
profits from capital held abroad).
• Gross Domestic Product: The total value of
final goods and services produced within a
country's borders in a year.
Economic Indicators
• Dow Jones Industrial Average: Average of
major stock market corporation’s stock
value
• NASDAQ: Tech stock average
• These aren’t officially economic indicators
• There are other, more boring indicators
like “factory orders”.
Budget Deficit and National Debt
• Budget Deficit: How much the U.S.
spends vs. how much it makes (through
taxes) each year. Currently about $250
billion.
• National Debt: The total amount of all of
our deficits added up. Currently about $9
Trillion.
Who Do We Owe That Money To?
• Our country sells Treasury Bonds
(T-Bills) to raise money. These bonds are
guaranteed to be paid and the interest
you earn on them is tax free so people like
to buy them.
• T-Bills are mostly bought by banks,
corporations, or rich people. Many are
from foreign countries.
Federal Reserve Board (The Fed)
• The Fed regulates the banking industry
and, to some degree, our economy
• The Fed influences our economy by raising
and lowering interest rates and controlling
the money supply.
• This allows them to regulate inflation and
avoid recession
The Fed Balancing Act
• The Fed regulates the money supply by
buying and selling T-Bills.
• When it sells T-bills, it takes money out of
circulation. When it buys them, it puts
money back
The Fed Balancing Act
• The Fed also raises and lowers interest
rates because the amount of money in
supply determines how much it is worth.
• If there is more money in supply then it
costs less to borrow it (rates go down).
• If there is less money in supply then it
costs more to borrow it (rates go up).
The Fed Balancing Act
If interest rates are lowered, borrowing
money to make purchases becomes less
expensive, and people are more motivated
to spend money because they can get a
better deal on the loan. Spending money, in
turn, stimulates economic growth, which is
what the Fed is trying to do in that instance.
The Fed Balancing Act
If there is too much money in the economy,
however, people spend more money and
Demand increases at a faster rate than
supply can match. Prices rise too quickly
because of the shortage of products, and
inflation results. That’s why we can’t just
print more money to pay our debt.
The Fed Balancing Act
If there is too little money in the economy,
people don't have excess spending money,
and there is little economic growth.
The Fed Balancing Act
The Fed watches economic indicators closely
to determine in which the direction the
economy is going. By forecasting increases
in inflation or slow-downs in the economy,
the Fed knows whether to increase or
decrease the supply of money, which raises
or lowers interest rates.
Federal Budget
Federal Budget Expenses (2004)
• Social Security: 21.6%
• Defense: 19.9%
• Medicare: 11.8%
• Medicaid: 7.7%
• Interest on the debt: 7%
• Everything else: 32%
Stufflebeam’s Financial Advice
• Go to school after high school.
• Find something you enjoy and do it for a
living.
• Pay yourself first. Put money in the
stock market (mutual funds) and a Roth
I.R.A. every month as soon as you get a
real job.
• Avoid credit card debt like the plague.
Stufflebeam’s Financial Advice
• It’s what you spend, not what you earn,
that counts. Live well within your
means.
• If you borrow money, the interest rate is
the key number to know.
• Don’t be a cheapskate but don’t be
foolish either.
• Ever hear of a savings account?
Stufflebeam’s Financial Advice
• Whenever possible, pay cash or don’t
buy it. That probably won’t be practical
for cars for homes.
• Car expenses will eat up your income
very fast.
• Buy inexpensive and used cars.
• Avoid continuous but less expensive
stuff (a $3.00 coffee each day=$1,100 a
year).