Session 3: Banking

We kicked off the day with a fun game where the class is broken up into two groups and given a sheet of paper. I say a word, for example "world" and each team has 60 seconds to come up with as many songs as they can think of which features the word, "world" (for example, "Whole New World from Aladdin, "Heal the World" by Michael Jackson etc). When time is up, each teach goes through their list (they have to sing the song as a team) and if the other team also has it they have to cross it off their list (no points). It was a great way to kick off the class!

- What is a bank? A financial institution which serves to connect depositors with lenders. Examples: Bank of America, Wells Fargo, Chase Bank

- What are some services that banks offer?

Checking Account – a bank account in which you can deposit and withdraw money as you please. You can withdraw either by using a debit card, or by writing a check. Used more regularly. Don’t pay interest.

Savings Account – a bank account designed to help you save money. Pays interest. Not for frequent withdrawals.

Debit cards vs. credit card - A debit card looks like a credit card, but when you use it money automatically and immediately comes out of your checking account. With a credit card no money immediately comes out of your account – you just borrow the money and agree to pay later. You can spend only as much as you have in your checking account. If you use more than what you have in your account, you might get charged an overdraft fee.

ATMs – Automated Teller Machines (the computerized machine designed to provide basic banking services without the need of human interaction)

Online Banking – a way to maintain your bank accounts over the internet. You can view your account. Transfer money. Pay bills etc.

FDIC Insured - If a bank is robbed, suffers a natural disaster or goes through some other change that makes it impossible to pay the customer his or her money, the government, through the FDIC, will replace the money that was damaged or stolen up to $250,000.

- What is interest? The “fee” you pay for borrowing money. Or the extra money you receive for lending money to a bank or financial institution. For example: If I borrow $100 from you, and you charge me 10% interest. When I return the $100, I will also have to pay you an extra $10 (10% of $100). The total I’ll owe is $110 which includes interest. I end up PAYING interest. YOU end up RECEIVING interest.

- What is Compounding Interest? (The interest will include interest calculated on interest). For example, if an amount of $5,000 is invested for two years and the interest rate is 10%, compounded every year: At the end of the first year the interest would be ($5,000 * 0.10) or $500. In the second year the interest rate of 10% will applied not only to the $5,000 but also to the $500 interest of the first year. Thus, in the second year the interest would be (0.10 * $5,500) or $550.

- We played the old brain teaser which goes something like this: Some wealthy parents were deciding how to pay their daughter her allowance this month. She was given two choices: Choice #1: Receive $300,000 for the month OR Choice #2: Starting with a penny on the first day, double her earnings every day for a month (e.g. day 1=$0.01; day 2=$0.02; day 3=$0.04; day 3=$0.08; etc). We take them through the value of the second choice every day. The table below shows that the second choice is by far the one that will result in higher earnings. In fact, the second choice will make the girl a millionaire in just 28 days! The girls LOVED this game!

- Article: Poor People Don't Just Need Cash, They Need Bank Accounts. Discussion questions:

1. What is the goal of Bank on San Francisco?

2. How do they achieve that goal?

3. How is Bank on San Francisco different to traditional banks?

4. Why do you think the President wants to support this program and copy it around the country?

5. Do you think it’s important that everyone (including the poor) has access to banks?