Modern commercial banking, in its present form, is of recent origin. Though bank is
considered to be an ancient institution just like money. Its evolution can be traced in
the functions of money lender, the goldsmiths and the merchants.
A bank has been often described as an institution engaged in accepting of deposits and
granting loans. It can also be described as an institution which borrows idle resources,
makes funds available to. It does not refer only to a place of lending and depositing money,
but looks after the financial problems of its consumers. In simple words, banking can be defined
as the business activity of accepting and safeguarding money owned by other individual and
entities, and then lending out this money in order to earn a profit.
This era is the age of specialization with the changing situation in the world
economy, banking functions have broadened.
Financial institutions which are shaped by the general economic structures of the country
concerned vary from one country to another. Banks are among the most important financial
institutions in the economy and are the principle sources of credit.
1.2 . Meaning of Banking
Here are a few of definitions given by well known scholars:
Bank is a manufacturer of credit and machine for facilitating exchanges.
A bank is a person or corporation which holds itself out to receive from the public
deposits and payable of demand by cheque.
Banks are institutions whose debts usually referred to as ‘Bank Deposits’ are
commonly accepted in final settlement of other people debts.
A bank is an establishment which makes to individuals such advances of money as
may be required and safely made and to which individuals entrust money when not
needed by them for use.
MU/CBE/ACFN BANKING PRICIPLES AND PRACTICES Page 6
All the above definitions are reflect the purpose of banks and function of banks that given by
different scholars; however a single definition is needed to understand the corporate image of
different banks in one definition; so that the definition provided below is concretely elaborate,
what banking does it mean?
In simple words, banking can be defined as the business activity of accepting and safeguarding
money owned by other individual and entities, and then lending out this money in order to earn a
profit
Banking is defined as the accepting, for the purpose of lending, or investment of deposits, money
from the public, repayable on demand or otherwise and withdraw able by cheque, draft, or order.
On the other hand a bank is a financial institution which deals with deposits and advances and
other related services. It receives money from those who want to save in the form of deposits and
it lends money to those who need it. It bridges the gap between the savers and borrowers. The
provision of deposit and loan products normally distinguishes banks from other types of financial
firms. Deposit products pay out money on demand or after some notice. Deposits are liabilities
for banks.
1. Ten Sound Money
Management Principles for
Students
PPT Developed by Barbara O’Neill, Ph.D., CFP
Revised & presented by Jean Lown, Ph.D.,
Family, Consumer & Human Development, USU
Jean.lown@usu.edu
2. What are Your $ Questions?
I can’t promise to answer all of them but
by knowing your questions before we
start I can adjust my presentation
How many parents?
– Single parents?
Utah Savers?
– Sign up for drawing
PPT on FPW website
2
3. 3
Money Management Principles
Are timeless and time-tested
Apply to everyone
Work well in up & down economies
Help people grow wealthy over time
Need to be taught in school
4. 4
1. Go For The Goal
Goals provide a “why” for saving
Use goals to develop action plans
Break goals into benchmarks
Make your goals SMART
– Specific
– Measurable
– Attainable
– Realistic
– Time-Related
5. 5
Invest in your Human Capital
Get a solid education
– For career satisfaction
– For better health
– For higher lifetime earnings
It’s OK to borrow for education
– There is an opportunity cost to taking too long to
earn degree
– Student loans are better than credit cards
6. 6
2. Time Is Your Friend
Time: a young person’s biggest asset
Compound interest is awesome
For every decade that savings is
delayed, the required investment triples
Example: $500,000 at 65; 10% yield
– Age 25: $ 79 per month
– Age 35: $ 219 per month
– Age 45: $ 653 per month
– Age 55: $ 2,141 per month
7. 7
More About Time
Time diversification reduces investment
volatility
The Rule of 72
– 72/interest rate = doubling period
– 72/doubling period = interest rate
Advantage calulators
8. 8
3. Live Below Your Means
Spend less than you earn
Create a spending plan
– Income = Fixed Exp (including savings) +
Flexible Exp + 1/12 of Occasional Expense
Distinguish needs from wants
“Step-down principle”
Automate savings so money isn’t spent
9. 4. Establish Emergency Fund
Aka contingency fund
– Online savings accounts
• No minimum
• FDIC insured
• 4.5% (varies)
• Linked to checking account
– HSBC
– Emigrant
– ING & many others
9
10. 10
Pay Yourself First: Automate
Your Savings
Tax-deferred employer plans
– Get full 401(k) match from employer
Employer credit unions
Savings bond purchase plans
Mutual fund Automatic Investment Plan
Direct stock purchase plans
11. Utah Saves
http://www.utahsaves.org/
Build wealth, not debt
Saver Strategies
Get out of debt
Earned income tax credit
Free income tax preparation
Individual Development Accounts
11
12. 12
5. Buy Insurance According to
“The Large Loss Principle”
Magnitude- not frequency- of losses
Increase deductible to save $
Spend premium dollars on large
potential losses:
– Liability
– Disability
– Destruction of home
– Large medical expenses
– Loss of household earner’s income
13. 13
6. Low Income Saver’s Credit
Refundable tax credit up to
$1,000/person
Contribution to retirement account:
IRA, 401(k), 403(b), or SEP
Couple filing jointly AGI: $50k or less
Single with AGI: $25,000 or less
Sliding scale: 10-50% of contribution
14. 14
7. Repay Debt Quickly and
Borrow For Less
Consumer debt ratio < 15% of net pay
Consumer debt + housing < 50% of net
High debt makes other problems worse
Negotiate lower interest rates
Always pay more than the minimum
Avoid “perma-debt”
Pay promptly to avoid late fees
Family Life Center PowerPay analysis
15. 8. Earned Income Tax Credit
Refundable tax credit for workers
15
16. 9. Vita tax prep
Provided by USU accounting students
in Business building- starts Feb.
AVOID instant tax refunds
– High cost loans (similar to payday loans)
Auto deposit
Split your refund
– Save a portion, pay debt, spend
16
17. 17
9. Buying House/Vehicle
Don’t buy more house than you can
afford (Subprime mortgage meltdown)
– Don’t’ trust mortgage broker
Don’t buy before you are really ready for
the financial commitment
Buy new cars every 8-10 years or buy
“new used”
18. 18
Check Your Financial Health
Take the Financial Fitness Quiz
– http://njaes.rutgers.edu/money/ffquiz/
Least common practices
– Not having a will
– No written financial goals
– No written budget
– No net worth calculation
19. 19
Financial Education Resources
Investing For Your Future
– Home study course
– http://www.investing.rutgers.edu/
Money 2000 & Beyond
– http://www.rce.rutgers.edu/money2000
RU-FIT financial independence training
– http://www.rce.rutgers.edu/ru-fit/
USU Extension
– http://extension.usu.edu/
20. Spend Less,
Enjoy the Holidays More
http://extension.usu.edu/htm/news/articl
eID=2361
Start a UESP account for your kids
Spend time with important people
Avoid gift cards
– High fees, money can’t be saved
Pay cash! Avoid debt.
20
21. Small Steps to Health & Wealth
http://njaes.rutgers.edu/sshw/
“This program is designed to motivate
consumers to implement behavior
change strategies that simultaneously
improve their health and personal
finances.”
21
23. 23
FCHD 3350 Family Finance
Personal Financial Management
DSS general education
Fall & Spring semesters
– Live and on-line
Don’t leave campus without this class!
25. 25
USU Family Life Center
Very low cost financial & housing
counseling
PowerPay Debt reduction computer
analysis https://powerpay.org/
First time homebuyer workshops
797-7224; 495 North 700 East, Logan
26. 26
Financial Planning for Women
http://www.usu.edu/fpw
For women of all ages & knowledge
Second Wednesday (except December)
– 12:30-1:30 in Family Life room 318
– 7-8:30 pm in Family Life Center
Email list: jean.lown@usu.edu
– Monthly e-news & program info
Sign up sheet for FPW
PPT will be posted on the website
27. 27
Avoid Common Mistakes of Young
Adults
Buying a house before you are ready
Buying too much house
Putting too much $ into vehicles
Keeping a balance on your credit cards
Waiting to invest for retirement until…
Not considering the cost of kids
Spending too much on eating out