economic indicators and personal financial literacy katherine m. sauer
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Economic Indicators and Personal Financial Literacy Katherine M. Sauer Metropolitan State University of Denver [email protected] 3 rd annual “Fiscal Fitness for You and Your Students Workshop” Colorado Jump$tart Coalition | Great-West Financial - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: Economic Indicators and Personal Financial Literacy Katherine M. Sauer](https://reader036.vdocuments.mx/reader036/viewer/2022062310/5681636e550346895dd44af0/html5/thumbnails/1.jpg)
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Economic Indicators and
Personal Financial Literacy
Katherine M. SauerMetropolitan State University of Denver
3rd annual “Fiscal Fitness for You and Your Students Workshop”Colorado Jump$tart Coalition | Great-West Financial
January 24th, 2013 – Denver Federal Reserve Bank
![Page 2: Economic Indicators and Personal Financial Literacy Katherine M. Sauer](https://reader036.vdocuments.mx/reader036/viewer/2022062310/5681636e550346895dd44af0/html5/thumbnails/2.jpg)
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Income
Wages & Salaries
Interest & Dividends
Rental Income
Proprietor's Income
Transfer Payments
Taxes
Allocation Options
Spending Saving & Investing
Giving
Pay Back Debt
Borrowing
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State of the Economy Income
Financial MarketsSaving & Investing
Interest Rates
Interest & Dividends
Borrowing
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Economic Growth
Is economic activity increasing or decreasing?How much?
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Inflation
Is the cost of living increasing or decreasing?By how much?
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Yearly Inflation Rate, 2001 to 2012
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Unemployment Rate
Of the people who want jobs, what percent don’t have one?
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Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Monthly Unemployment Rate, 2012U
nem
ploy
men
t Rat
e (%
)
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01 02 03 04 05 06 07 08 09 10 11 12 130.0
2.0
4.0
6.0
8.0
10.0
12.0
Unemployment Rate by Year2001 – 2013
(January Rate)
Year
Une
mpl
oym
ent R
ate
(%)
*
*Dec. 2012 rate
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S&P 500
stock market index
used as a measure of the general level of stock prices
includes the stock prices of 500 publicly traded companies
representative of US industry
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S&P 500January 2004 – January 2013
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Dow Jones Industrial Average
“the Dow”
stock market index
30, large, publicly traded firms
representative of US industry
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Dow Jones Industrial AverageJanuary 2004 – January 2013
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Nasdaq Composite
National Association of Securities Dealers Automated Quotations
stock market index
all the firms traded on the NASDAQ stock exchange
over 3,000 firms
technology companies and growth companies
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Bull Market vs Bear Market
Bull Market = upward trend in stock market, optimism about continued gains
Bear Market = downward trend in stock market, pessimism about future
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Bond Market
certificate of indebtedness
terms are fixed in advance but price varies with the market
can be sold at face value (par), a discount, or a premium
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Issue price: $18.75Issue date: May 1978Maturity date: May 2008Interest over 30 years: $87.92 Treasurydirect.gov
US Government Savings Bond
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Treasury Securities T-bills (mature in less than a year) T-notes (mature in 2 to 10 years) T-bonds (mature in 20 to 30 years)
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Financial Intermediaries
match those with excess financial capital to those who wish to borrow money
interest rate market for loanable funds expected inflation credit risk
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The Market for Loanable Funds
More Savings More Funds Available Cheaper to Borrow
More Borrowing Less Funds Available Dearer to Borrow
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Expected Inflation
lenders factor inflation into interest rates
3% rate of return + 5% expected inflation = 8% interest rate
With higher-than-expected inflation (10%): rate of return on the loan = 8% - 10% = -2%
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Credit Risk
lenders factor the riskiness of a loan into the interest rate
demand higher rates of return on riskier loans
7% rate of return + 5% expected inflation = 12% interest rate
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The Federal Reserve
monetary policy
recessions lower rates increase econ activity
inflationary times raise rates decrease activity
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Interest Rate Terms
Discount Rate = interest rate charged by the Fed to banks who need to borrow money
Federal Funds Rate = interest rate charged by banks to each other
Prime Rate = interest rate charged by banks to their best customers
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The Big Mac Index compares foreign currency value versus the US
dollar
January 2012 Big Mac Prices US: $4.20 Russia: 81 rubles
exchange rate: 1 dollar to 31.8 rubles
81rubles x 1 dollar 31.8rubles
= $2.55
$2.55 < $4.20 … ruble should appreciate
January 2013 exchange rate: 1 dollar to 30.2 rubles ruble appreciated vs dollar
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Men’s Underwear Index Alan Greenspan
to men, underwear is a necessity, not luxury
sales are consistent, except in down economic times when purchases are delayed
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The Lipstick Index
in a weak economy, cut back on non-essentials but find “little luxuries” to spend on
recent recession: nail polish, boxed hair dye
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Economic Indicators WorkshopMarch 2nd
www.CCEE.net
Katherine M. SauerMetropolitan State University of Denver
3rd annual “Fiscal Fitness for You and Your Students Workshop”Colorado Jump$tart Coalition | Great-West FinancialJanuary 24th, 2013 – Denver Federal Reserve Bank