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Course: Financial Literacy > Unit 7
Lesson 1: Introduction to saving and investing- Real world: The Case of the Early Bird
- Saving and investing
- Why save and invest
- How financial institutions and markets facilitate saving and investing
- The types and functions of financial institutions and markets
- Financial institutions and markets, their roles and services
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How financial institutions and markets facilitate saving and investing
Financial institutions, like banks and credit unions, are places where people can save, borrow, and manage their money. Financial markets are where people can buy and sell investments, like stocks and bonds, to help their money grow over time. Created by Sal Khan.
Want to join the conversation?
- What are Bonds and what do they do(3 votes)
- Bonds are sold by corporations and governments to raise money for projects they want to accomplish. A bond is a kind of promissory note that gains interest higher than one can get from putting money into a bank. Government bonds often yield lower interest, because what they earn is not always taxable income.(1 vote)
- What are Bonds and what do they do(3 votes)
- Bonds are loans you give to a company or government for sometime and they return you your money with a good interest(1 vote)
- say I kiss u on the lips, then what?(1 vote)
- That depends on whether one or both of us found the experience to be pleasurable.(2 votes)
- if someone buys stocks in a business say like 10% in a small business would they get 10% of the say in what that business does? or do they just get 10% of the profit?(1 vote)
- That depends on the arrangement. There is "voting stock" and "non voting stock". Even if you have "voting stock", you only get to vote for the members of the board, who make the decisions. The only leverage you have is to vote for someone else, or to sell your stock and get out.(1 vote)
Video transcript
- So let's talk a little bit
about financial institutions. There are many different types
of financial institutions, but probably the most basic one that almost everyone encounters at some point in their life is a bank. And a bank, at the most basic level, there's many things that a bank can do, but it's a place where you
can deposit your money, arguably for safekeeping, and a place where you
can access it easily, and maybe you're going to be able to get a little bit of interest on it. And so think about what
the world would be like if you did not have banks. You would probably put your money, stuff it into your mattress,
put it in a vault someplace. One, it could be a little bit scary if someone were to break into your house, and I think more people
would break into houses if they knew that people were stuffing money into their mattress. But even more than that,
if you were to then go make a big purchase of some kind, instead of handing someone your debit card or being able to do it
in an electronic way, you would have to take all the cash there, which by itself could be a security issue, and frankly, it'll be hard
to keep track of all of that. And so modern banks, you're
able to make your deposits. The money is accessible with a debit card. You can log online, use the various apps and see what your different
transactions have been, how much and what your balances
are wherever you are many times in the world. I was just out of the country,
and with my debit card, I was able to go and get cash. I was able to buy things. I didn't have to take all of
that cash with me on a plane. Now, the other thing that banks do is they'll give you interest, and the way that they are
able to create that interest is they take a large fraction
of the money that's deposited and then they will lend
it out to other folks. Now, if you have less than $250,000 per person per account type
in a US bank, that's insured, so you can feel pretty confident that you put that money in there, if you need that money,
you'll be able to take it out. So you don't have to worry too much about that dimension of it. And once again, by putting it in the bank versus having it stuffed in your mattress, you're gonna be able to
get some interest on it and be able to access things very easily. Now, there are other
financial institutions. There's things like insurance companies. We talk a lot about
insurance in this course. And in order to get insurance, you need someone to take
the other side of it. So you need someone to
pay a certain premium, a certain amount per month
or per year to agree that, "Hey, we got your back if the
bad thing were to happen." And not just anyone can
start an insurance company or a bank for that matter. They're heavily regulated
because the government, we all wanna make sure
that these other groups, these other institutions, are going to be there
for you when you need it. When you go to a bank and you
say, "I want my money back," they better give you your money back. If you go to an insurance company and say, "Hey, look, my car got totaled. "I need the money back," you better hope that that
insurance company is there and that they're going to
be good for your money. Now, there's many other types
of financial institutions, and some of 'em are connected or parts of insurance companies or banks. You could have things like brokerages. These are folks who help
broker transactions. Oftentimes it's a stock brokerage. They're helping, if
someone is buying a stock, that means that someone
else is selling that stock, and a few times it's the actual company that's selling the stock, but
usually you're just buying it from somebody else out
there in the stock market. So you need the brokers who help facilitate that transaction. You have the stock markets
themselves that obviously help or in a even more direct
way, I should say, help make those
transactions happen as well. So I could go on and on and on. We could spend hours talking about all the different types
of financial institutions, but it's important to realize
when you're using your money or when you're interfacing
with any of these, you're like, okay, what
does this organization do? What am I really getting out of it? What are they providing for me? And then what are the risks involved and what are they getting out of it? How do they make their money, and is that something that I
think is a reasonable thing for them to do given the services that they're providing to me?