How Are Saving and Investing Related - Financial Literacy - أول ثانوي

? How can you grow the value of your money? 4 مراره Investing

21129-45 HA LESSONS How Are Saving and 4.1 Investing Related? What Are the Benefits 4.2 of Investing? 4.3 What Are Your Investing Options? 4.4 How Can You Protect Financial Resources? Sav aving and investing can help you accomplish short-term, interme- diate, and long-term goals. Although some aspects of saving and investing overlap, there is a difference between the two. Savings can provide for your short- term needs and goals. Once you start setting aside money on a permanent basis, you will be in a position to make investments and grow your wealth. Through sustained saving and Invest- ing, you will be able to achieve your personal financial goals. Your plan should be based on solid principles of investing. Consider the risk involved and the amount you can expect to earn, 115

Link to digital lessin 回 www.len.edu.sa 4.1 How Are Saving and Investing Related? Learning Objective Once you have completed this lesson, you should be able to: ⚫ explain the relationship between saving and investing ⚫ describe the features of the Saudi Social Development Bank's Zawd Al Ajyal savings program ⚫ explain how savings and investments provide security and wealth. Key Terms Safety of principal Contingencies Depreciating asset Liquidity Investing Illiquid Emergency fund Appreciating asset Safety of principal protecting the money in your savings account وزارة التعليم 116 Financial Literacy The Relationship Between Saving and Investing It is important to ensure that you have savings. Savings, or deferred spending, is money not spent today which allows for needs to be met in the future. Saving money is important because: • . You are planning for planned future needs and wants, such as vacations. You have money available for emergencies, such as emergency smart device repairs. You have money available for unplanned spending, such as if your television needs replacing. When you are saving money, the emphasis is on safety of principal. A bank savings account is a good, safe way to save because your money is safe from destruction. For example, if your house burned

down and you had money inside, you would lose all your money. If a bank burned down, you would not lose your money. However, if you save your money in a bank account (or at home), the value of your money decreases over time it is a depreciating asset. This means that you may need a strategy to ensure large amounts of money do not lose their value. Therefore, when savings accumulate above what you might need for short-term goals and emergencies, you have money that can be used for investing. The purpose of investing is to save money and make the value of your money grow every year. There are many ways you can invest, for example: ⚫ Purchasing real estate, such as a house; this is both a financial investment and an investment into your future security. • Buying shares of stock in a corporation; this is mainly a financial arrangement. Depreciating t an asset that loses value Over time Testing a strategy to increase the value of your money faster than the rate of inflation Do you have my savings? Why?/Why out? 117

How much did your smart phone cost new? How much can you sell it for today? Why? Your hope is that the house and stocks will increase in value over the years that you own them. That way, you will have more money when you sell the investments than when you bought them. Saving and investing are related, because it is the setting aside of money (savings) that provides the funds that can be used for investing. The key difference between saving and investment is that saving comes with no (or extremely limited) risk, whereas investing involves risk but also the possibility of growing your money. People who make investments rather than saving need to be sure that they have an emergency fund in a savings account that they can access quickly if they need to. Emgency fund an amount of money set aside for unplarmed expenses Continge unplanned capsible ever وزارة التعليم 118 Financial Literacy Savings Provide Security When you set aside money, you have a reserve or emergency fund that you can count on. An emergency fund gives you a sense of secu- rity - knowing you can take care of contingencies when they arise. For example, suppose you are playing a video game with your friends, and your computer crashes and will not restart. You will need money to pay a technician to fix your computer, or you may even need to buy

new one. An emergency fund will provide for contingencies like this. Experts recommend that a person set aside six months' salary in this emergency fund. It is important that this money is liquid. Liquidity is important because: ⚫ Emergencies often require you to access your money immedi- ately. If your cash is illiquid, you may need to sell your assets at a reduced cost. You may find it difficult to sell illiquid assets. For example, a regular savings account is very liquid because you can withdraw your money at any time without penalty. An asset such as a house is very illiquid because it can take a long time to sell. Some assets such as stocks would be regarded as semi-liquid because they can be sold relatively quickly, but not as quickly as one could simply withdraw money from a bank. In addition, selling stocks in a hurry might mean selling them at less than the price that you paid for them, resulting in a loss of money. Within your plan for financial security, it is important to have some liquid assets that are available to cover unexpected needs. Louidity a measure of how quickly an asset can be turned into cash Hiquid an asset that cannot be easily sold or exchanged for cash without a loss in value Zawd Al Ajyal Savings Program The Saudi Social Development Bank has developed a three-year sav- ings program which aims to educate Saudi children and young people from six to 18 years old. This interactive banking program encourages savings and financial understanding using financial incentives, aware- ness, and educational materials, all under the guidance of parents. The main features of the savings program are: وزارة التعليم 123-1445 Managing children's expenses and savings The program helps children to manage their expenses and savings by using parental controls and limits. Learning opportunities Young people will be able to try out new ideas and tools throughout the program, building a strong base of financial literacy. CHAPTER 4 Investing 119

وزارة التعليم 120 Financial Literacy % 0000 An electronic money jar This program provides a money jar to digitally save small amounts of money. No administrative fees Many bank accounts charge users money to manage their finances, however this educational savings program is free. A 3-year program This savings program lasts for three years, and provides lessons and instructions on elements such as saving and money management. Bonuses Young people will have incentives to achieve bonuses every month, as well as being able to achieve bonuses at regular intervals. Sharia-compliant This program teaches young people to understand finance in accordance with religious guidelines. As well as improving young people's long-term financial literacy, the program has a very attractive short-term benefit. It offers financial incentives every month and quarter. The financial incentives are: • monthly cash rewards (up to a maximum of SAR 15) ⚫ monthly draws and prizes of up to SAR 100 and quarterly prizes of SAR 300. Families are able to register for the program online. The website pro- vides information and advice on how to sign up, including telephone numbers and physical offices for those who are not comfortable sign- ing up online. The Social Development Bank of Saudi Arabia has a number of pro- grams aimed at young people looking to save money for specific pro- jects. For those earning less than SAR 12,500 who want to get married, there is a Marriage Financing account. For those who are interested in their business careers, there is the Entrepreneurial Finance (Nafath) service, Nafath aims to make young people financially sufficient and especially helps those who are working as freelancers.

Investments Provide Wealth As investments continue growing, they lead to an increase in wealth. Wealth is the total value of the assets that you build up over time such as: • stocks and shares houses and land appreciating assets, such as artwork or rare vehicles. Investing and Inflation Most investments that are considered long-term, strategic choices are designed to stay ahead of inflation: ⚫ When your investments are growing at a faster rate than the rate of inflation, you are accumulating wealth. When inflation is growing faster than your investments, your wealth is shrinking. It is important to make good investment choices with your savings, which will lead to increased value over the long run. With any invest- ments, you have the potential for great gain. However: you do not know how much you will earn on the money you invest-this depends on the success of your investment choices you may even lose the money you invest-some investments may fail and all of the money invested could be lost the higher the potential gain, the higher the risk. With some investments, you may have temporary setbacks due to market conditions that are beyond your control, such as world events or the popularity of a brand. However, your gains from investments will usually exceed your losses over the 30- or 40-year period you could be investing money. LOOKING HEAD "What appetite for risk do you think you have for investing money? وزارة الكليم 1071-1445 Appriciating any asset which increases in value CHAPTER 4 Investing 121

وزارة التعليم 122 Financial Literacy Review Questions Choose the correct answer. 1. Savings allow for needs to be met in the future. a. true b. false 2. Which of the following is NOT a benefit of saving? a. It allows you to meet future needs. b. You have money available for emergencies. c. Your money can be invested and grow every year d. The value of your savings can decrease over time. 3. Which of these statements about investing savings is NOT correct? a. you do not know how much you will earn on investments b. your investment is 100% guaranteed the higher the gain, the higher the risk d. you may lose your investment 4. When inflation is higher than your gain from investment, your wealth is increasing. a. true b. lalse 5. Which of the following is NOT liquid? a. cash b, a house c. a bank savings account d. a product which can be sold quickly for the full value 6. It is important to have a plan for contingencies, a. true b. false