values that person's resources and skills.
People do a big mistake when they say that income is same as wealth.
Wealth is any resource that can be used to produce income. An individual's
possessions, such as a house, a car, or a stereo, are part of that person's
wealth. Each of these could be sold to produce income.
Now if we want to understand it we have to consider two women who receive
an income of $25,000 a year. One earns all of her income working at a bank.
The other receives her $25,000 income from dividends on stock worth
$250,000. The second woman is much wealthier than the first women.
At the end of my presentation I have to say that spending becomes income
for someone else.
№9. Making a personal budget.
When you live in loneliness you understand that something should be done
with your unlimited wants and limited resources. You should use your income
as effectively as possible. Choices must be made concerning spending and
saving. You never know whether you can afford another outing, or a disco,
or a concert. Than you come to the conclusion that you must develop a
useful personal budget. And if you want to do it you should keep track of
your actual income and expenses for a month, and, of course, at first you
have to clear out what should be recorded.
Money resources may include allowance, part-time jobs, babysitting,
errands, interest on savings. You must list all sources of income. And it
means that if somebody presented you with a sum of money on an account with
a bank, so you can rely on interest on savings and allowance have to be
included.
Than you should record how much you spend for food, entertainment,
clothing, college supplies, personal care, transportation, and
miscellaneous items. You wonder in which category you spend the most, the
least. You think that you should decide what changes to make in the budget
if you want to reduce your expenses.
You have to understand that there is some difference between fixed,
optional and flexible expenses. Fixed expenses are set in advance and must
be paid regularly (e.g. rent payments, tuition, higher purchase
installments). Flexible expenses are necessary but change with
circumstances (food, clothing, college supplies). Optional expenses vary
and are not always necessary (entertainment, personal care).
Thus you can compare your income and expenses. And of course you
understand if you want to live expenses should not be higher than income.
№10. The value of college education.
Every year millions of students graduate from high school. The decisions
they make will affect the rest of their lives. Some will choose to go to
college; some will want to get full-time jobs; others will decide to obtain
technical job training. In every case, economic reasoning will help
students make better choices.
Everybody decide to consider the costs and trade-offs connected with a
decision to go to college. And the main questions in this situation: Is a
college education worth the expense in terms of immediate and future
personal growth and economic well-being?
The opportunity costs of going to college involve a loss of income and a
loss of practical job experience while attending college. Lets consider two
mans: The Education Level of the first one is less than 12 years and his
Projected Lifetime Earnings is $850.000; The Education Level of the
second one is 5 years college and his Projected Lifetime Earnings is
$1.500.000. We see a big difference between them.
The trade-offs involved in going to college include using time and money
now to gain greater advantages in the future. But somebody think that if
you could invest $ 30.000 now, for instance, forego a college education,
and with your investment returns still have the same lifetime earning power
as a college. It’s of course can be true bat where do you get $30.000 if
you don’t have education. Besides nobody give you a job if you haven’t got
education and knowledge. And I am sure that my further education is worth
the time and money involved.
№ 14 Annual report of a company.
Just as teachers send out report cards to the Dean’s office each term,
corporations issue annual reports summarizing the progress made last year.
Stockholders and potential investors use the annual report to evaluate the
performance of corporation.
The annual report is a message to the stockholders-the owners-of a
corporation from the corporate management. The report tells the
stockholders the company’s financial status at the end of the fiscal year
and what the management sees for the future. Also, the annual report
fulfils a legal requirement. The Securities and Exchange Commission a
federal agency in the USA requires corporations to publish financial
information about their firm. With such information, investors can make
educated decisions.
Annual reports of company generally are divided into two sections. The
first section contains a letter to the stockholders from the chief
executive officer of a company. Accompanying this letter summarising the
company’s performance is a chart of financial highlights. Also frequently
included in the first section is an overview of the company’s organization.
The second section includes statistics on the company’s performance. Most
of the information appears in charts and graphs.
For example, the balance sheet is a chart that includes the assets (items
of value the company owns) and it’s liabilities (debts or claims against
the assets of the company). The balance sheet represents the financial
picture of the firm at the instant in time. The income statement shows the
profit or loss of the company for the year. This chart reports the income
the company received from sales, interest, and other sources. The operating
costs – salaries, advertising, maintenance – deducted from income total the
profit or loss. The statement of stockholders’ investment, or equity
includes information on the company’s stock such as number of shares
outstanding and issued.
Various parts of the annual report can be used to determine whether a
company is profitable. In addition to reporting on this current year, most
companies include in their annual reports comparisons of the current year
and the prior year’s financial information. Also important to stockholders
and investors is the company’s return on sales. For example, if a firm sold
$1 mln. worth of its products and its profit was $100,000; return on sales
would be 10%.
So we can say that annual reports help us to understand financial status
of the firm in the end of the fiscal year and to make educated decisions-
invest in company our capital or not.
№15. Money: history, functions and forms.
Today we buy bread, clothes with money in a shop. These are goods: we
exchange our money for goods which others sell to us. Today we travel on a
train or bus. or maintain a banking account, and we pay the charge or fee.
These are services: we exchange our money for the services which others
provide for us.
In a primitive community people obtain goods and services by barter. Trade
by barter is the earliest form of trade, when people offer goods in
exchange for what they want, that is they swap goods for other goods.
As primitive communities develop into more advanced societies people
realize they need some commodity they can use in exchange for anything,
some commodity that does not decay and remains valuable, some commodity
with the help of which people can measure the value of one thing against
the value of another thing. Such commodity is money. Thus money is a
necessary part of any civilized society, ft serves as:(1) medium of
exchange; (2) a store of wealth; (3) a measure of value.
Money means coins, banknotes and cash in the bank account. We use it to
make payments. Nowadays we know that the units of money must have certain
qualities to be successful. They must be:
1. Standard. They must all be of the same kind.
2. Durable. They must be strong and long-lasting, so that they are a store
of value and do not wear out easily.
3. Scarce. They must be difficult to come by to keep their value.
4. Acceptable. They must be accepted as a medium of exchange in a.
5. Portable. They must be easy to carry.
6. Divisible. It must be possible to divide the units of money of large
value into smaller values.
In the past many things were used as the medium of exchange — corn, furs,
rice, tobacco, salt tea, rum — there is no end to them. In time people
realized that metals were superior to the commodities previously mentioned.
The Ancient Britons and Greek used iron, the Romans used copper but
gradually silver and gold replaced them.
The advent of coinage is a step forward because coins are free from most
of the disadvantages of earlier forms of money. The first coins are
credited to China around about 1.000. B.C.
After coins came notes. The hardest problem for anyone with money then was
to find somewhere safe to keep it. Gold and silversmiths had safes, because
their trade was traffic in coin and bullion, and they needed somewhere
secure to keep their stocks.
So it came about in the seventeenth century that goldsmiths took theses
deposits for safe keeping. They issued a receipt. More and more people come
to hold these receipts and they began to circulate for value among
merchants. They come to be trusted and become usual in payment, as easier,
lighter and quicker to handle than a lot of coin.