What Makes Money...Money?
What are the three functions of money?
Medium of exchange, standard of value, and store of value
What type of loan might a business take out to help pay for new equipment or labor costs?
Commercial loan
Why should you put aside money as savings?
Contribute to national economic growth, help reach important goals, and/or provide a safety net during hard times (rainy day fund)
What is the ability of an investment to generate earnings that can be reinvested to earn still more earnings called?
Compounding
What is fiat money?
Paper money issued without the backing of gold or silver
What is legal tender?
The medium of exchange that must be accepted as money for purchase and as payments for debts.
What is a bank's main function?
Financial intermediary (between savers and borrowers)
What are the three main types (legs) of retirement plans?
Social Security, company retirement plans, and personal savings
What do high risk investments offer?
High potential reward
What does a credit card do?
Takes out small loans you can pay back over time
What are the six main characteristics of money?
Scarcity, durability, acceptability, portability, divisibility, and uniformity.
What system requires banks to keep a portion of deposits in reserve and make loans with the rest?
Fractional reserve banking
What is the best strategy to make sure you put money aside in savings every month?
Include savings in your regular monthly budget
What is the rule of 72?
Divide the annual rate of return (percentage) by 72 to find how many years it would take to double your money
What is the best investment option for a person who is too busy to research and assess investment options for risk?
Mutual funds
Why were gold and silver the preferred kinds of commodity money?
They had all six of the main characteristics of money.
What kind of bank account should you open to earn the greatest amount of interest on your deposits?
Certificate of deposit
What government institution insures savings accounts up to $250,000?
Federal Deposit Insurance Corporation (FDIC)
What investment type is best for someone with a low tolerance for risk?
Government bonds
What type of bank account is not protected by the FDIC because it invests in short term investments, such as treasure bills?
Money Market Accounts
What is considered a part of the M1 money supply?
Currency (bills and coins; cash), checkable deposits (checking accounts), and traveler's checks
What government institution decides how much money is set aside for fractional reserve banking?
Federal Reserve System
What percentage does the average American put aside of his/her income as savings?
Less than 3%
What is diversification?
Investing your money in more than one type of investment or savings
What type of investment has historically the highest rate of return?
Stocks