banking
Investing Money In Plain English
This video from Common Craft explains the risks and potential benefits of borrowing money.
Most of us look forward to a comfortable future.
To get there, you've got to be smart about using your money to make more money.
This is Investing Money in Plain English.
We know that putting money in savings helps you make more money over time, thanks to interest.
It's predictable and based on an interest rate.
However, there are ways to more money
if you're ready to take risks.
Consider this. You're here, and you want to be here.
You have a choice between two options.
Going around the mountain, which usually takes 5 hours.
It's very predictable.
Or going over the mountain, which can shorten the trip to 2 hours.
It may seem like an easy choice.
You can get there 3 hours earlier by going over,
but there's a catch!
You might get stuck in the snow,
which is a risk that could make the trip even longer than going around the mountain.
The best way to deal with risk is to be informed.
If you do your homework, like checking the weather reports,
you'll have a better chance of making a smart decision.
Now, of course I'm not talking about getting from town to town,
but reaching your financial goals.
Having a savings account is predictable,
it grows steadily with interest.
Investing, on the other hand, can grow your money much faster,
but there's also a chance you could lose some of it.
There are many ways to invest.
Let's say your friend is opening a coffee shop.
She needs money to buy the beans and supplies.
Because she can't afford everything,
she asks people like you to be investors.
You can see that this is a big risk,
but you do the research and find that a new coffee shop could do very well.
So, you give her company money,
and you become an owner in a tiny part of the company.
That bit of ownership represents the money you invested.
If the coffee shop business is slow,
the value of your investment may shrink.
But if the coffee shop is successful,
your investment could grow with the company.
It may take time to see the outcome,
but you've bet that your money would grow faster in an investment,
than the modest earnings in a savings account.
That's what makes it risky.
It's hard to know how an investment will do over time.
The same is true for the stock market.
When you buy stocks, you're buying a tiny portion of a large business,
and betting that the business will do well over time,
increasing the value of your investment.
Now, the stock market and private businesses aren't the only kinds of investing.
Let's say you'd like to invest $500.
You find antiques that you believe will be worth more in the future.
If you're right, you may be selling them for $750 in a few years.
If you're wrong, they may be worth only $400.
By investing, you're taking a risk,
and you have to be ready for both outcomes.
Whether it's a friends coffee shop, the stock market, or antiques,
the big ideas are the same.
Savings accounts are predictable, and may be a good choice.
But if you're ready to take the risk that you might lose money,
you could put your money into an investment
that has the potential for a much bigger payoff.
Investing is serious business.
And every investment comes with different risks.
Do your homework
and discuss your plans with a financial professional before getting involved.
If you plan for the long term,
you may find that a comfortable future isn't too many years away.
I'm Lee LeFever, and this has been Investing Money in Plain English.
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Borrowing Money In Plain English
This video from Common Craft teaches the risks and realities of borrowing money.
Sometimes we don’t have the money we need to accomplish a goal.
Borrowing money can help,
but if we aren’t aware of how the system works,
it can create bigger problems for us.
This is Borrowing Money in Plain English.
Among friends, borrowing money seems easy – you just pay them back.
However, we sometimes need to borrow a large amount of money from a financial institution,
maybe for a home, a car, or education.
Understanding how these relationships work
is a key to being responsible with your money.
Let’s say you need to borrow $10,000 from a bank.
As long as you meet their requirements,
the bank is happy to loan you this money because when you pay it back,
you’ll have to pay a fee.
This is how the bank makes money.
It’s called “interest.”
When you borrow money,
the interest you pay is usually a percentage of the total you borrowed.
This percentage is called the “Interest Rate.”
You’ll see this rate referred to as the Annual Percentage Rate or APR,
which is the interest and fees you’ll pay over a year for borrowing money.
Let’s see how this works for Rachel.
She’s a musician who needs to borrow $10,000 to produce her new album.
$10,000 plus interest is a lot of money to pay back,
but she doesn’t have to do it all at once.
To make it more affordable, she pays it back in monthly payments.
Each month, she’s paying back part of the money she borrowed
plus part of the interest.
It adds up over time.
This way, Rachel can see if she can afford to pay back the loan on a monthly basis.
She found one loan that had a 5% APR with a 1 year timeframe.
To pay it back, she would have had payments of $856 per month.
It was too much!
With what Rachel earns she would run out of money in just six months.
To avoid serious problems and owing even more money,
she kept looking.
Eventually, she found the right loan for her -
a lower APR and longer timeframe.
She found that spreading the payments across a longer timeframe
meant less to pay each month.
Before signing on the dotted line,
she was careful to understand all the terms of her loan.
She learned that some interest rates could change during the loan
which could impact her monthly payments.
Because she had a fixed budget,
she made sure the interest rate for her loan wouldn’t change.
While Rachel was asking questions,
she learned the rules as well,
because breaking the rules can cause an affordable loan
to become a big headache.
For instance, if she pays late,
she may owe the bank more money.
She made a promise to herself
to pay on time and avoid any late fees.
It was wasteful.
It was clear to Rachel that without care, problems could snowball.
Changing APRs and late fees
could have made her loan impossible to afford.
Because Rachel took the time to find the right loan for her,
she was able to pay back the loan on time
and publish her new album. Yaay!
Borrowing money can help you accomplish your goals,
but only if you’re realistic about what you can afford.
When it comes time to find a loan,
discuss it with a financial professional and ask questions.
Learn about your payments and terms.
It’s up to you to make sure you know the rules
and get a loan that fits your needs.
I’m Lee LeFever and this has been Borrowing Money in Plain English
on the Common Craft Show.
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The Common Craft Store now offers downloadable versions of our videos
for use in the workplace.
Find them at CommonCraft.com/store.