Soar to Savings is designed for students in economics and personal finance classes. Students will learn the benefits of saving, tips for saving, and the impact of individual saving on the overall economy. Real-life scenarios, with help from FRED THE FRUGAL EAGLE® , the St. Louis Fed mascot, will help students better understand opportunity cost, interest, down payments, and financial investment. At the end of the module, a test checks students’ understanding of concepts learned.
Module objectives:
- Identify key reasons to save.
- Recognize opportunity costs to both saving and spending.
- Recognize the power of compound interest for increasing savings balances over time.
- Use the Rule of 72 to calculate compound interest.
- Recognize that interest rates create incentives for lenders and borrowers.
- Explain the role of financial intermediaries and financial markets.
- Explain the difference between stocks and bonds.
- Explain how the supply of and demand for loanable funds determines interest rates.
- Recognize that national savings equals investment in a closed economy.
- Explain the paradox of thrift.
- Recognize that the U.S. Government finances deficit spending through the sale of U.S. Treasury securities.
- Explain that government debt can crowd out the supply of loanable funds and affect interest rates.
View Voluntary National Content Standards in Economics
Content Standard 1: Scarcity
Grade 8 Benchmarks
2. Making good choices should involve trading off the expected value or one opportunity against the expected value of its best alternative.
3. The choices people make have both present and future consequences.
4. The evaluation of choices and opportunity costs is subjective such evaluations differ across individuals and societies.
Grade 12 Benchmark
1. Choices made by individuals, firms, or government officials often have long run unintended consequences that can partially or entirely offset or supplement the initial effects of the decision.
Content Standard 2: Decision Making
Grade 8 Benchmark
4. Many people have a tendency to be impatient, choosing immediate consumption over saving for the future.
Grade 12 Benchmarks
3. To compare marginal benefits with marginal costs that are realized at different times, benefits and costs must be adjusted to reflect their values at the time a decision is made about them. The adjustment reflects returns to investment compounded over time.
7. Risk can be reduced by diversification.
Content Standard 10: Institutions
Grade 8 Benchmark
2. Banks and other financial institutions channel funds from savers to borrowers and investors.
Content Standard 12: Interest Rates
Grade 8 Benchmarks
1. An interest rate is the price of money that is borrowed or saved.
2. Like other prices, interest rates are determined by the forces of supply and demand.
Grade 12 Benchmarks
2. Higher real interest rates increase the rewards for saving and make borrowing more expensive.
5. Higher real interest rates reduce business investment spending and consumer spending on housing, cars, and other major purchases.
Content Standard 15: Economic Growth
Grade 12 Benchmark
4. Lower interest rates encourage investment.
Standard 20: Fiscal and Monetary Policy
Grade 12 Benchmark
5. When the government runs a budget deficit, it must borrow to finance that deficit.
View National Standards for Financial Literacy
Content Standard 1: Earning Income
Grade 8 Benchmarks
3. Getting more education and learning new job skills can increase a person’s human capital and productivity.
4. People with less education and fewer job skills tend to earn lower incomes than people with more education and greater job skills.
Content Standard 2: Saving
Grade 8 Benchmarks
2. For the saver, an interest rate is the price a financial institution pays for using a saver’s money and is normally expressed as an annual percentage of the amount saved.
6. Compound interest is the interest that is earned not only on the principal but also on the interest already earned.
7. The value of a person’s savings in the future is determined by the amount saved and the interest rate. The earlier people begin to save, the more savings they will be able to accumulate, all other things equal, as a result of the power of compound interest.
Grade 12 Benchmarks
1. People choose between immediate spending and saving for future consumption. Some people have a tendency to be impatient, choosing immediate spending over saving for the future.
2. Inflation reduces the value of money, including savings. The real interest rate expresses the rate of return on savings, taking into account the effect of inflation. The real interest rate is calculated as the nominal interest rate minus the rate of inflation.
Content Standard 4: Using Credit
Grade 8 Benchmarks
2. The longer the repayment period on a loan and the higher the interest rate on the loan, the larger is the total amount of interest charged on a loan.
Content Standard 5: Financial Investing
Grade 8 Benchmarks
1. Financial assets include a wide variety of financial instruments including bank deposits, stocks, bonds, and mutual funds. Real estate and commodities are also often viewed as financial assets.
3. When people buy corporate stock, they are purchasing ownership shares in a business. If the business is profitable, they will expect to receive income in the form of dividends and/or from the increase in the stock’s value. The increase in the value of an asset (like a stock) is called a capital gain. If the business is not profitable, investors could lose the money they have invested.
7. The rate of return earned from investments will vary according to the amount of risk. In general, a trade-off exists between the security of an investment and its expected rate of return.
Grade 12 Benchmarks
1. The real return on a financial investment is the nominal return minus the rate of inflation.
7. Diversification by investing in different types of financial assets can lower investment risk.
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