Chapter 2: Savings
Learning Outcomes
Section 1: Saving: An Exercise of Character
Identify the Five Foundations of personal finance
Understand the purpose of having an emergency fund
Section 2: Three Basic Reasons to Save Money
Explain the three basic reasons for saving money
Understand the importance of saving for both long-term and short-term goals
Describe what a sinking fund is and identify purchases for which you would use a sinking fund
Section 3: The Power of Compound Interest
Demonstrate how compound interest works and understand the impact of annual interest rate
Describe the difference between simple and compound interest
Understand the importance of beginning to save now
Vocabulary
Compound Interest - interest paid on interest previously earned; credited daily, monthly, quarterly, or semiannually
Emergency Fund - five hundred dollars in readily available cash to be used only in the event of an emergency; the goal of the First Foundation
Interest Rate - Percentage paid to a lender for the use of borrowed money (in debt); percentage earned on invested principal (in investing)
Five Foundations - the five steps to financial success
Sinking Fund - saving money over time for a large purchase