unit 2 understanding finance unit 2. learning outcomes at the end of this unit, students should be...
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Unit 2Understanding Finance
Unit 2
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Unit 2
Learning Outcomes
At the end of this unit, students should be able to:
Understand the history of money
Investigate examples of opportunity cost
Understand the term “saving” and how it works in credit unions
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Learning Outcomes (continued)
At the end of this unit, students should be able to:
Define compound interest and show how to calculate it
Understand the term “DIRT” and show how to calculate it
Unit 2
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Unit 2
What is Barter?
Before money, how did individuals exchange goods or services?
BARTER“Barter is a medium in which goods
or services are directly exchanged for other goods and/or services,
without the use of money…”
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Unit 2
Examples of Barter
Long ago farmers used livestock for barter, then crops
Nowadays we have moved onto electronic money (paying for goods over the internet)
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Unit 2
What is Money?
“Money is anything that is generally accepted as payment for goods and services and repayment of debts…”
What forms are available? Can you think of a few examples…
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Unit 2
Opportunity Cost”Opportunity cost is the economic cost of using a resource for a specific activity is equal to the income foregone by not using it for an alternative activity”
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Unit 2
Opportunity Cost
For example the opportunity cost of using an acre of land in your faming operation is the income foregone by not renting it to a neighbouring farmer.
Can you think of any more examples?
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Unit 2
What are Savings?
“Savings are the process of setting aside money until a future date instead of spending it today. The goal of saving is provide funds for emergencies, short term goals and investments”
OR“A fund of money put as a reserve for the future”
Do you have a savings ( share) account in your credit union?
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Unit 2
Uses of Money
Students understand 4 main uses on money from communion to birthday presents:
1. Saving (10%)2. Giving (10%)3. Investing (10%)4. Spending (70%)
Example: allowance €/£ 10 per week but put €/£1 in savings for Christmas, holidays, birthdays, college, debs etc.
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Unit 2
Savings: Why save in the Credit Union?
You become a member and have a vote
Your savings are insured
No transaction fees
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Your Credit Union declares a dividend at AGM and each share you hold you are entitled to dividend i.e. €1=1 share
You can access savings as long as the shares are not held as security against a loan
All members have a common bond, your local community or place or type of work
Savings in Credit Unions are called SHARES
Unit 2
Savings: Why save in the Credit Union?
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Unit 2
1. Contact your local Credit Union and open a share account
2. The Credit Union pays you a dividend on the money/shares in your account
3. The Credit Union loans that money out to other people, but charges a slightly higher interest rate on the loan
How do savings work?
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How do savings work?
A depositor / investor will look at the options on how interest is calculated and credited?
He / she will assess the A.E.R.( Annualised Equivalent Rate of Return)
Unit 2
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Unit 2
Compound Interest
This is the interest added to the principal so you get interest on interest.
The COMPOUND ANNUAL RATE ( c.a.r.) is the rate you get when calculating your interest. Example: how much will you receive if you invest €/£500 @ 4% per annum for two years?(see worksheet for solution and additional questions including D.I.R.T.)
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Unit 2
Deposit Interest Retention Tax (DIRT)
Deposit Interest Retention TaxThis is a tax paid on the interest you receive on your savings. It is calculated as a % of the interest you received e.g. 30%
Gross Interest €/£ 200DIRT 30% € /£ 60Net interest received €/ £ 140
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Savings and lending for CU
When you save you become a member with your shares or savings
You get a share of any profit the Credit Union makes
You may pay DIRT on interest received
If a member dies, insurance will add to the values of shares
Unit 2
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Savings and lending for CU
Loans up to ‘x’ times the value of shares held (savings)
If a member dies, insurance usually pays off the remaining loan
Interest rate charged may be lower than banks as its charged on the reducing balance
Interest earned is called a dividend and decided at AGM
Unit 2