A PENNY SAVED


WHY AND HOW WE SAVE, AND HOW SAVING HELPS THE COUNTRY ECONOMY.

IT’S NOT A REAL DIAMOND, BUT IF YOU DON’T TELL ANYBODY, I WON’T EITHER.


What If people didn’t save?
If people didn’t save, they wouldn’t have the extra dollars we all like to have for special occasions in our lives.
I think we’ll have to ELOPE. We can’t afford a wedding.

We’d like to send you to college...
...But we can’t because we haven’t saved enough.

If we didn’t save, we wouldn’t be able to afford the special things we enjoy buying.
You can’t have the sneakers if you don’t have the money to pay for them, trade-ins.

I can’t afford the trip. How much is a picture postcard instead?
UNEMPLOYMENT
If we don’t save, we also might run into trouble when emergencies arise.
Since I lost my job, I’ve had to stop eating meat. I hope these chips give me the protein I need.
Since I broke my leg skiing, it’s been all downhill, I haven’t been able to go to work, and I’ve rung up a lot of debt.
Since the transmission on my motorbike broke, it’s been a vicious cycle. I can’t afford to fix the motorbike, and without the motorbike. I can’t get to work to earn what I need to fix the motorbike.
SO, WE SAVE FOR SPECIAL OCCASION, WE SAVE TO BUY SPECIAL THINGS, AND WE SAVE TO PROTECT AGAINST EMERGENCIES, BUT WHAT IS SAVING, ANYWAY?

Saving means refraining from spending all of our income on the things we buy now, such as food, clothing, housing, transportation, and entertainment.

IF for example, your income is $ 250, and you spend $200, you are saving $50.
When we save, we give up the opportunity to spend now, in order to have the spending power available sometime in the future.

We can save in many different ways, for example, we can keep our saving in our house.
However, while a penny saved may be a penny “urned,” if you keep your saving in an urn-or anywhere else in your house –they don’t earn any interest.

However, If you deposit your savings into an account in a bank, you earn interest and your saving grow.
Actually, the word “BANK” is an oversimplification, there are really many different types of depository institutions, or institutions that accept deposits, such as commercial banks, saving and loan associations, and credit unions. For short, though, we’ll just call them “Banks”.

When you deposit your savings in a bank, not only do you earn interest on your savings, but you also earn interest on the interest that you receive and keep in your account.
NOW YOU’VE AROUSED MY INTEREST

Interest that’s paid, not just on what you deposit in the bank, but also on interest that has been added to your account, is called “compound interest, “ that can be a very useful term to know.

For example, if you deposit $100 in a bank at 5% interest, at the end of ten years you won’t have just $150 (The original $100 plus to 10 “simple” interest payments of $5 each); you’ll have more than $160, because you’ll earn interest on the interest that you receive.

When interest rtes are higher, “compounding” has a greater effect in making your savings account grow, for example, if the rate of interest is 10%, simple interest would increase a $100 deposit to $200 in 10 years, but compound interest will increase it to almost $260.

How fast do your savings grow when you receive compound interest?
The answer lies in something called the “Rule of 72,” divide the interest rate into 72, and the answer tells you approximately how many years it will take your savings to double when you receive compound interest.

That’s right, with a 5% rate of interest, your savings will double in about 14 years, but with an interest rate of 10% they’ll double in about seven years.

t = 72/5

Bankers offer a range of interest rates on different types of accounts.

In general, the longer you are willing to leave your savings in a bank, the higher the rate of interest you can earn, the reason involves something called “Liquidity”

No, liquidity has nothing to do with liquids.

The word “liquidity” refers to the readiness with which an item can be converter into cash without losing at least some of its value. The money you deposit in a savings account is very liquid, because you can withdraw it at any time.

However, if you agree to leave your savings on deposit in what’s called a “Certificate of Deposit” for, say, two years or five years, you SACRIFICE liquidity and you receive a higher rate of interest in return for that sacrifice.

Another reason interest rates are higher on longer-term deposits has to do with inflation, or rising prices, inflation ERODES the value of your savings, even if you earn interest on them.

I COULD HAVE BOUGHT MORE WITH MY SAVINGS TWO YEARS AGO THAN I CAN NOW.
For example, a fan prices $15 for last two years, but now it prices $20.

To protect the value of your savings, YOU WANT TO GET AN INTEREST RATE THAT EXCEEDS THE RATE OF INFLATION, but the longer you agree to leave your savings in a bank, the greater the threat that prices might start rising more rapidly.

SO, THE LONGER YOU COMMIT YOUR SAVINGS TO A BANK, THE HIGHER THE RATE OF INTEREST YOU’LL WANT TO RECEIVE.

Even if prices rise 5% a year, the value of my savings will increase because I’m getting 6% interest on my Certificate of Deposit.

IF YOU PUT YOUR SAVINGS INTO A CERTIFICATE OF DEPOSIT AND YOU WITHDRAW THE MONEY BEFORE IT MATURES, YOU PAY A PENALTY—THAT IS, YOU LOSE SOME OF THE INTEREST YOU HAVE EARNED AND POSSIBLY EVEN MORE OF YOUR ORIGINAL DEPOSIT.

YOUR WILL LOSE THREE MONTHS’INTEREST BECAUSE YOU’RE MAKING AN EARLY WITHDRAWAL
THAT’S OK, I’M USED TO LOSING INTEREST, AND I’M AN ECONOMICS STUDENT.

Why do banks pay interest on the money you deposit????
BANKS PAY INTEREST IN ORDER TO ATTRACT DEPOSITS, THEY THEN LEND OUT MUCH OF THE MONEY AT INTEREST RATES HIGHER THAN THE RATES THAT THEY PAY THE DEPOSITORS. THAT’S HOW BANKS EARN A PROFIT—SOMETHING THAT’S NECESSARY TO KEEP ANY ENTERPRISE IN BUSINESS.

A banker is willing to pay higher rates of interest on longer-term deposits because the assurance of having the money for a long time allows the bank to extend longer-term loans. WELL, WE WON’T HAVE TO RETURN THIS MONEY TO YOU FOR FIVE YEARS.

If banks lend the money they receive as deposits, how can you’ll be able to withdraw your money when you want it?
THE ANSWER IS THAT BANKS DON’T LEND ALL THE MONEY THEY RECEIVE AS DEPOSITS; THEY ALWAYS KEEP ENOUGH ON HAND TO MEET THE NEEDS OF THEIR CUSTOMERS.

WE’RE RUNNING LOW ON TWENTIES; BETTER PUT SOME MORE ON THE SHELF.

ALSO, BANK ACCOUNTS ON WHICH YOU CAN WRITE CHECKS AND IN WHICH YOU CAN ALSO KEEP SOME SAVINGS ARE SUBJECT TO “RESERVE REQUIREMENTS” THE FEDERAL RESERVE, THE NATIONAL’S CENTRAL BANK, REQUIRES THAT BANKS REFRAIN FROM LENDING A PERCENTAGE OF THE DEPOSITS IN THOSE ACCOUNTS.

In Cambodia, The National Bank of Cambodia (NBC) requires reserve requirement 16% of the deposits.

But what if the bank lends money to people who can’t repay the loans? Will depositors still be able to get their money back?

SORRY, YOU CAN’T GET YOUR MONEY THIS WEEK??????????

Again, there’s nothing to worry about, even if a bank makes unwise loans and can’t collect them, the bank has its own money, its capital that it can use if someone wants to make a withdrawal. Indeed, the government won’t allow a bank to open unless it has a lot of capital.

Also, at the last line of defense, people’s deposits of up to $100,000 in each bank are insured by a government agency, so all depositors will get their money back, up to that amount.

In Cambodia, Capital for operating as commercial bank 13 Million

Here’s a question to ponder: If a bank takes your savings and lends them to a borrower who pays a higher interest rate than the bank pays you, why can’t you lend the money directly to the borrower and receive the higher rate yourself?
TO ANSWER THE QUESTION, SUPPOSE SOMEONE APPROACHED YOU AND ASKED TO BORROW YOUR SAVINGS, HOW WOULD YOU KNOW WHETHER THE PERSON IS A GOOD CREDIT RISK—THAT IS, HOW WOULD YOU KNOW WHETHER YOU COULD COUNT ON THE PERSON TO REPAY THE LOAN?
YOU MIGHT EASILY MAKE A MISTAKE AND LEND MONEY TO SOMEONE WHO IS NOT CREITWORTHY, AND LOSE YOUR MONEY.

In contrast, banks have a lot of experience in deciding whether or not to lend to people and banks employ experts to make such decisions.
I’ve gone over all of your financial statements, and I’m happy to say that we can give you the loan.
I’m sorry we can’t give you the loan. Ours analysis of your income and assets indicates that you would have trouble repaying it.
There are other reasons we put our savings in banks, rather than lending them directly to borrowers, one is that borrowers often borrow amounts of money that are much larger than the savings of single person. A bank takes the savings of many different people and combines them into a single loan.
Also, you might not be able to find someone interested in borrowing the precise amount of money that you have saved. A bank, though, is always willing to accept the amount that you have saved and pay you interest on that amount. As example you are willing to save $13.73.
Another reason we deposit our savings in banks, rather than lending directly to the people who borrow from the banks, is that the borrowers we know may want to borrow money for longer than we are willing to part with it. 30 years.
Banks, though, are able to offer long-term loans, because they analysis have new deposits coming in that they can lend to other customers. HERE’S YOUR 30-YEAR MORTGAGE, GOOD LUCK IN YOUR NEW HOME.
If you want to save and earn interest on your savings, you don’t have to put your money in a bank, there are other ways to save one is to buy U.S. Saving Bonds. When you buy savings bonds, you are lending money to the U.S government.
U.S. saving bonds have a number of advantages, one is that you don’t have to pay income tax on the interest you earn each year; you can postpone paying the tax until you “cash in “ the bond—that is, until you ask U.S government (Uncle SAM) to repay the loan.
Many people buy savings bonds during their working years and then cash them in after they retire – when their income tax rates are lower.
I want to cash them in now that I’m retired and paying less income tax.
Millions of people buy saving bonds through a payroll savings plan—they have money deducted from their earnings each pay period and applied to the purchase of savings bonds. THIS IS A CONVENIENT WAY TO SAVE FOR THE CHILDREN’S EDUCATION.
There are many ways to save, some people like to put their savings into the stock market—that is, they buy stocks, or shares in corporations.
When you buy stocks, you can earn a return in two ways; first, you may receive dividends—that is, a share of the company’s profits. Also, if the company does well, the value of your stocks may go up, and if you want, you can the sell the stocks for more than you paid for them.
Stocks have the potential to give you a much higher return than a bank account does. But there is also a risk when you buy stocks, their value can drop. You can reduce the risk of buying stocks by investing in mutual funds, which buy shares in many different companies, the, even if some companies do badly, your loss will be limited because other companies will do better. The professionals who manage a mutual fund decide what companies to buy shares in. A disadvantage is that some mutual funds charge an annual fee for managing your savings. SOMEONE HAS TO PAY FOR THE COMPUTERS THAT HELP US DECIDE HOW TO INVEST YOUR SAVINGS. Also, because your investment is diversified, you can’t earn the very high return that you might earn by investing in a single company that does very well. There are other things in which you can invest your savings—things that offer the potential for high returns. Two examples are real ESTATE and ART. However, the prices of such items also can fall, reducing the value of your savings. There’s an over-supply of office space, and builders aren’t interested in doing any new construction, so, land values are way down.
In general, the types of investments—such as real estate and art—that offer the prospects of high returns also carry high risks.
Investments such as real estate and art have another drawback—they are not very liquid, that means that if you have to convert them into cash quickly, you may have to sacrifice some of their value.
In deciding how to invest our savings, we are all free to choose the combination of safety, liquidity, and potential return that we prefer.
NOT EVERYONE IS EQUALLY ABLE TO SAVE, OF COURSE.
In general, people who are in their peak earning years are most able to save. I’m a relief pitcher, and because of all my saves, I get a high salary, so I’m able to save a lot.
On the other hand, people who are just starting their careers often dissave—that is, they spend more than they earn, because they expect to earn much more in the future. I CAN’T PAY THIS CAR OFF NOW, BUT I WILL BE ABLE TO AFTER I FINISH MEDICAL SCHOOL.
Similarly, retirees, whose incomes are lower than the incomes they enjoyed while working, also frequently dissave. I’M GLAD I SAVED WHILE I WAS WORKING FOR SOME OF THE THINGS I WANT TO BUY NOW.
So far, we’ve discussed saving from the standpoint of the individual saver. Saving also is important, though, to the national economy. If Americans don’t save, businesses will not be able to invest in the machinery, buildings, and other things that are essential for economic growth. That’s because when a business wants to build a new building or buy new machinery, it usually has to borrow money. My company is expanding, and we need a construction loan. And in order for money to be available for businesses to borrow, someone must save the money first.
The U.S. savings rate—the percent of income that Americans save—declined during the 1980s and 1990s. The decline has long been a matter of concern. A 1993 congressional report says, “The National saving rate is too low to provide more than negligible growth in living standards for the next generation of Americans.” That doesn’t mean that living standards will go down. The low saving rate implies that living standards won’t rise as much as they could.
The U.S. needs a higher rate of saving to enjoy the full benefits of higher living standards. Why has there been a decline in the percentage of income that Americans save? ECONOMISTS OFFER SERVERAL EXPLANATIONS, ONE IS THAT AMERICANS’WEALTH GENERALLY HAS INCREASED, AND WHEN PEOPLE HAVE MORE WEALTH, THEY FEEL LESS OF A NEED TO SAVE OUT OF CURRENT INCOME. If I ever run into an emergency, I can sell some of my stocks to raise cash, so why should I do any more saving?
Another theory points to the rising proportion of the U.S. population in the age brackets in which saving is generally low.
Another theory is that the social security system, which provides income to retired people, has led workers to feel less of a need to put aside savings for retirement. The social security I’ll get when I retire will protect me in my old age, so, I don’t have to build up that much of a nest egg now.
While the saving rate has declined in recent years, it is possible that the rate will rise in the future. Now that you’ve finished reading the comic book on saving, what should you do with it?