Time value of money refers to the relationship among time, money, and rate of interest. Earned interest is the payment you receive for allowing a financial institution or corporation to use your money. You may not realize it, but your bank doesn’t keep every euro you deposit in a safe. It may lend some of that money to other bank customers or deposit it with a government bank for safekeeping.
So the bank compensates you for that by paying you interest on your savings account. Both of these examples demonstrate the time value of money and show how much its three elements – time, money, and rate of interest – can help you reach your financial goals. In short:
- The more money you have to save or invest, the more money you are likely to earn.
- The higher the rate of interest you earn, the more money you are likely to have.
- The sooner you invest your money, the more time it has to make new money, making it likely that you could earn much more as a result.
Source: National Endowment for Financial Education – http://hsfpp.nefe.org
In our Economy Unit, we are going to start up a business and sell our products on a 3R Fair, so all the products have to help people Reduce, Reuse and Recycle.
Before we start our business project, we’ll take a look at what does a young entrepreneur do with her hard earn money to reach her financial goals and look forward to a bright future: Video 1
Open the worksheets and follow the links and instructions on them.
These are the other three videos linked into the worksheets:
Activities 1 to 5 will lead us to a full class debate. Your performance on that debate will be meassured against these standards:
After the debate, you will tell the class what would you rather do with your savings in order to make the most of the relation between money, time and interest rate, that is, to make the most of the time value of money.
The big question:
Does diversifying your investment lower the risk of loosing earnings and even your invested money?