[[ Free eBook ]] Not Your Parents' Money Book: Making, Saving, and Spending Your Own MoneyAuthor Jean Chatzky – Z55z.co

CHAPTER ONE The ECONOMYand YOUNoteLately my parents have been talking a lot about how to save money and how to move their money around to pay the bills that they have because my dads job is getting cut back a little bit So money is a little bit of a situation in our house We have to think about how we can saveMax, NoteMy mom is a single parent, so its just her and me She and I talk about how sometimes we cant go out and do things like we normally do Well talk about how we cant go out to eat right now, we have to eat in today Or shell say, You cant go to the movies now But maybe laterBrittney, ALMOST TWENTY YEARS AGO, WHEN he was running for president for the first time, Bill Clinton had a campaign strategist from Louisiana named James Carville Carville, whose nickname was the Ragin Cajun, gets a lot of credit for Clintons victory because he focused the campaign on the economy He even wrote the words Its the economy, stupid on a piece of paper and posted it in the campaigns war room, a sort of mission control, so that no one would forget what they should be emphasizingWhat did Carville mean He understood that the early s, much like the last few years, and of course the Great Depression, were a time of financial worry for many people When the economy is chugging along nicely, there are plenty of jobs, businesses are growing, and prices on things that you need to buy every day, like gas and milk, arent out of control, and as a result most people feel safe and secure When it is not, people want changeand they vote for change Thats what ushered Barack Obama into the White House inBy making sure that the Clinton team remembered, every day, that the economy was issue number one, Carville and company won the White HouseThe economy has been issue number one in the last few years as well Any time you turn on one of the twenty four hour news channels, you are likely to hear about it But what is the economy What is it really The economy, simply put, is the exchange of goods, services, and natural resources by people and companies Goods are physical products Guitar Hero is a product So are AirHeads Services are jobs or functions that people or companies perform for one another Cooking dinner in a restaurant is a service, so is designing a website or fixing an air conditioner And natural resources are non man made items that can also be exchanged Coffee, natural gas, and water are all natural resources When people talk about the economy on television, they are usually talking about the national economy of the United States But your town, city, state, and region have smaller economies of their own And the global economy includes all of the different goods and services being exchanged around the worldI Asked How is the economy doing You Answered NoteWell, I know that were in trillions of dollars of financial debt and that in this economy theres no room for spendingWere in a recession Its not a depression Its a little before thatYou hear all this stuff about how the economy is bad I dont really get any of thatFrom everything my mom tells us and our teachers tell us, they say werein a bad economyAs you can see, when I asked the question, the perception was that the economy was struggling But there isat any point in timea real way to tell how the US economy is doing We have many ways to measure it, but the main measurement tool is called GDP, or gross domestic product This is the value of all of the goods and services in the country Essentially, its the size of the economy, but you wont usually see GDP expressed as a dollar amount Instead its expressed as apercentage and used as a comparison from quarter to quarter or from year to year For example, you might hear a reporter on a financial news station report that the US GDP is uppercent year over year That means the economy ispercent larger than it was last year If GDP is up, the economy is growing, and that means good things, likegoods,services, andjobsP tells us what is happening in real time Then theres the crystal ball datasignals, or indicators, that tell economists if things are headed up or headed down Some of these signals are called leading indicators They move ahead of the economy If a leading indicator is up, the economy as a whole will likely be growing The stock market is a leading indicator It goes up before the economy does Other signals are lagging indicators they move after the economy Unemployment is a lagging indicator It improves after the economy is already showing signs of getting betterAnd then there is inflation Inflation is a measure of the price increase in goods and services You may think higher prices are always a bad thing, but theyre not If an economy is going to continue to grow, prices have to go up and wages need to rise The key is that neither of those things goes up muchquickly than the other For example, if prices rise too far too fast, but the amount of money youre earning lags behind, you likely wont have enough money to buy the things you need And if youand all the consumers like youarent spending, the economy will suffer as a result Back in the s the United States went through a period of double digit inflation The economy was struggling, the Vietnam War had just ended and energy prices were soaring ask your parents to tell you about the lines at the gas pumps when Jimmy Carter was president and they were kids Since then things have been much better Recently, inflation has been averaging aboutpercent, which has no one worriedLook at a Dollar BillOn the front, in the top left corner, right under THE UNITED STATES OF AMERICA, it says in smaller type This note is legal tender for all debts, public and private Youll find the same words on every bill, from twenties to hundreds, and they mean that the US government will back up a dollar with a dollar And because the government always has, everyone therefore believes a dollar is worth a dollarThe next question, of course, is Whats a dollar worth Your parents may chuckle and say something like, Not as much as it used to be Thats because of inflation, which over time has eaten away at the purchasing power of the dollar When I was your age, for example, I could buy a can of Mountain Dew my favorite for twenty five cents in the vending machine at my summer camp Today the same can of Mountain Dew is likely to cost you seventy five cents or even a dollar Thats inflation at workYou Wanted to Know NoteHow does the amountof money people spendaffect the economy Cassie, It actually affects the US economy a great deal For the last few decadespercent of our economy has been totally supported by consumer spendingon everything from food and housing to health care to stuff The otherpercent of GDP comes from government spending Over the past few years your parents and other adults started savingand spending less, which was good for them individually, but it wasnt all that good for the economy as a whole Spending money rather than socking it away boosts the fortunes of companies and the economy overallWe also get a sense of how the economy is doing by looking at these indicators CONSUMER CONFIDENCE This is how positive consumers are feeling about how the economy is doing It is measured by how much people are saving and spendingE DEFICIT If you spendmoney than you have, you have a debt The amount of that debt is the amount you owe When the federal government spendsthan it takes infrom taxes and other sourceseach year, that is called a deficit If the government is able to spend only what it takes in, then its budget is balanced One worry of a big deficit is that it can lead to inflationYou Wanted to Know NoteIf the economy is low on money,why cant the government justprintTheresa, I wish it were as easy as that Unfortunately, though, if you makemoney without increasing the value of whats backing up that money, its value will dropYoure probably wondering, What backs up our moneyThe answer is the strength of our economy and the amount of goods and services that we produce If our economy gets bigger, our money will get stronger and remain strong If we just printmoney or pumpinto the system, its value will drop Inflation, or an increase in the prices of goods and services, would also occurUNEMPLOYMENT AND THE UNEMPLOYMENT RATE This is another indicator of how the economy is doing If youre over the age of sixteen and have a job or are actively looking for a job, you are a part of our nations labor force If you are in the labor force and you dont have a job, you are unemployed Every month the government conducts a survey to get an idea of how many people are working and how many people are unemployed In July of ,percent of the nations labor force was unemployed Thats about where the unemployment rate should be At that point few people are worried about it Ten years later, in early , the unemployment rate soared topercent and many people were worried because it was yet another signal that the economy was suffering When the unemployment rate is high, people have less money, they buy less, and fewer goods are producedYou Wanted to Know NoteHow can you be sure money in the bankis safe today Dont banks fail allthe time Alaina, In recent yearsbanks have failed than usual In ,banks failed, the largest number since , whenbanks failed Your money is safe, though, because of something called the Federal Deposit Insurance Corporation, or FDIC The FDIC was established by the Banking Act ofThe FDIC was created after the Depression to restore peoples confidence in banks Until , any individual account holder could put up to , in a bank and know that it was insured by the government If the bank went under, the government would be responsible for giving you back your money up to that , amount In , however, we entered the period called the Great RecessionA recession is defined as a period of economic decline of usually two quarters orTechnically, economic growth as measured by GDP, the value of all reported goods and services produced by the United Statesfalls over that half year And during that time, typically, unemployment is rising, personal income is falling, people are buying less stuff, and the stock market is headed down A depression is longer than a recession, and unemployment hits double digits, meaning thatpercent orof adults who are looking for work cant find it Heres a joke from when I was a kid NoteQ Whats the difference between a recession and a depression A A recession is when your neighbor loses his or her job A depression is when you lose yoursNot so funny, I know During the Great Recession jobs were being lost Banks and brokerage houses were going under And the head of the FDIC, a woman named Sheila Bair, started to fear that we were going to have another period of panic and bank runs, and that that would make an already shaky economy even worse So she worked to have the limits on FDIC insurance raised Today, as a result, each individual can put up to , into any one bank and know that it is insured by the FDIC What if you havemoney than that Then you need two names on the accounta husband and a wife, or a parent and a childto double the protection Or you need to open accounts at two ordifferent banksOnething Just because a bank fails does not mean you have to rush to pull your money out Typically, a bank fails when it cant meet the needs of its depositors Then the FDIC steps in It may operate the bank itself as a federally owned bank or very quickly sell the bank to another bank that isnt having financial problems Unless you read about it in the paper or online, you as a depositor may not even know whats happening You can still use your debit card or write checks You can still use your ATM card You just may go to sleep thinking that your money is in the First National Bank and wake up to find that its in the Second National Bank Eventually youll get a new ATM card or debit card or checks, but theres no need to panic, because youre not likely even to feel the changeEREST RATES And here is another economic indicator Everything has a price even money Interest rates are the prices that people pay to borrow money, generally from a bank, a company, or another person They are also the prices you might receive for loaning your money out If you have a savings account at a bank, you are getting paidinterest Why Because when you deposit money in the bank, you are allowing the bank to use your money to make loans In return for that, the bank pays you interest For example, say you putin the bank and your bank pays youpercent interest every year At the end of one year youd have an extraand change The change comes from something called compoundingan incredible way to make whatever money you have today intomoney tomorrow Well talkabout it later in the book But what determines interest rates Lets focus on one interest rate in particular The fed funds rate is the interest rate at which the Federal Reserve the central bank of the US government lends money to banks It is controlled by the Federal Reserve itself Eight times a year the Federals Open Market Committee meets to decide whether it will raise the federal funds rate, lower it, or leave it unchanged Many other interest ratesfrom the prime rate the interest rate that banks charge their best customers , to the interest rate you earn from your bank on your savings, to the interest rates you pay to buy a house or a carare affected by changes in the fed funds rate But interest rates arent the only things affected The stock market tends to rally, or move higher, when interest rates are reduced, because businesses can borrowmoney cheaply When interest rates rise, the stock market generally has the opposite reactionThe Federal Reserves Chairman and its Board of Governors understand that if interest rates are high, people are likely to borrow and spend less and saveAnd if rates are low, people are likely to borrow and spendand save less They use this knowledge to move the economy to a place where it is growing not too quickly, not too slowly, but just right This is called the Goldilocks economy Getting the economy to behave like the fairy tale, however, is far from easy It takes a lot of understanding of how the economy works, and sometimes trial and error And its not a perfect science Think of it this way The Fed has tools that can help the economy along, but it cant control it completelyUnderstanding theFederal ReserveManaging the nations money is a big job but it must be done In the United States that job falls to the Federal Reserve The Federal Reserveor the Fed, as its commonly knownis our nations central bankCreated in , the Federal Reserve System was designed to keep our countrys monetary and financial system safe and stable The Federal Reserve is made up of twelve banks across the country and a number of branches These banks and branches are under the careful watch of a group known as the Board of Governors The board is made up of seven members who are first chosen by the president and then approved by the Senate The Fed regulates the United States interest rates and money supplies distributes money to the countrys banks, credit unions, and savings and loans associations provides financial services to the US government and educates the public about the economySincethe Federal Reserve chairman has been Ben BernankeTime magazines Person of the Year infor avoiding another Great Depression Before becoming chairman, Bernanke was the chairman for the presidents Council of Economic Advisers He also served in several other roles in the Federal Reserve System and for many years was an economics professor How did Bernanke get so smart about the economy He studied A lot Bernanke graduated from Harvard with a degree in economics and went on to get his PhD in the subject from the Massachusetts Institute of Technology Time called him the most powerful nerd on the planet Sometimes being a nerd pays off big timeJean ChatzkyFor the first time, financial guru and TODAY Show regular Jean Chatzky brings her expertise to a young audience Chatzky provides her unique, savvy perspective on money with advice and insight on managing finances, even on a small scale This book will reach kids before bad spending habits can get out of control With answers and ideas from real kids, this grounded approach to spending and saving will be a welcome change for kids who are inundated by a consumer driven culture This book talks about money through the ages, how money is actually made and spent, and the best ways for tweens to earn and save money