Guest Post: Money Lessons 101 - College Edition Part I

For years John has educated his nieces and nephews on the important issues surrounding money and investing. He has offered to share his knowledge with the readers of Crazyville. Please take a moment and read his important advice. - Sharon, The Mayor

Let me tell you all you need to know about money.  At first things will seem very simple, almost childish.  But things will get complicated very quickly.  Just stick with it.

This is something of a family business.  My uncle inspired me to take an interest in investing.  When I was growing up, he was the only one in the family to have a stockbroker.  He taught me a little about investments.  I learned more on my own from investing magazines, a weekly PBS television program and eventually, by becoming a Chartered Mutual Fund Counselor.

High schools, colleges and universities do a poor job of preparing students for the financial prospects of their lives, unless of course, they are in business administration, finance, or accounting.  Hopefully these lessons will help to alleviate those shortcomings and give you the basics you need for financial security and, ultimately, a comfortable retirement.  

Here goes. 

By now you’ve seen money, paper bills, coins, and credit cards, debit cards.

Cash – that’s bills and coins. Money is easy to use, but not identifiable.  If you lose it, or it’s stolen, you can’t say, “hey that is my twenty-dollar bill”.  Cash just sits in you pocket waiting to be spent or lost.

A more identifiable form of cash is a check.  It has your name on it and you can write it in any amount, as long as you have enough money in the account. Debit cards look and act like credit cards, but they are linked to your savings or checking account.  If you lose it, a thief may be able to drain all the money out of your bank account.  The bank will, most likely, cover the loss but you will have to pay some sort of deductible.

Savings and checking accounts, along with debit cards, pay very little interest.  That is because they are demand deposits.  You can demand your money at any time.  The bank can’t use your deposit for longer term, and higher paying, investments. 

Actually, they do invest in longer term things like home mortgages.  They keep a small supply of cash on hand, because it unlikely that everyone will want their money out of the bank at the same time.  That is called a bank run.  Bank runs are very rare now.  Most banks are part of the FDIC, Federal Deposit Insurance Corporation, a government agency that insures deposits.  If you want to see a bank run, watch “It’s a Wonderful Life”, the part where everyone wants to cash out of George Bailey’s Building and Loan Association all at the same time. When you open a saving account, be sure the FDIC insures the bank.

- Uncle John

Tomorrow John will discuss credit and Certificate of Deposits.