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Saving and Investing

George Washington,James Madison,limited government,Thomas Jefferson,Great Depression

Saving and Investing Activity: Saving Is Not Investing

Discuss the following in a mini-lecture:

Savings is having left over money that is not spent. For example, Ms. Pennysaver has an income of $1,000 per month and spends $800 per month on rent, food, entertainment, and other expenses. Therefore, she saves $200 a month. It DOES NOT mean that she “invests” $200 per month.

Investment is using money to buy or produce something. For example, Henry Ford makes $10,000 per month and has personal expenses of $8,000. Therefore, he saves $2,000 a month. He decides that he needs a new car factory and he takes his monthly savings of $2,000 to buy or construct a new factory. He is investing his savings in the production of something else (cars).

Write the following on the board: SAVINGS DOES NOT = INVESTING

Investing involves another step for the person who is saving. Usually others do the investing for us. Banks make money by taking people’s savings by investing a portion of those savings. “Stock market investing” is when you put your savings in the stock market. This is often called “investing,” however, it is really just a change in ownership. In reality, when you buy stocks, you are turning your savings over to another decision-maker (the management of the firm) to invest in whatever they are making (cars, planes, apps, power, TV shows, etc.)

Now have students work individually or in pairs to complete Handout A: Is It Saving or Investing or Both? Discuss the answers as a class and clear up any misconceptions

Review page one of Handout B: Loanable Funds Market with the class.

Then have students work individually to complete page 2. Go over the answers as a group.