Lesson video

Hello and welcome to today's citizenship lesson.

I'm Mrs Barry and we'll be looking at this lesson with you today.

We're looking at a series of lessons about how we can manage money well and today's lesson is all about how we can save money.

So hopefully you have got everything prepared and you've turned off your apps and notifications to make sure you've got a distraction-free area to learn and you're in a nice quiet place.

I'm sure you've already got your brain with you and hopefully, you've got something to write with such as a pen or a pencil and then something to write on such as some paper.

We're going to look at a variety of things to understand this question of where can we save money? And so we're going to start the lesson by looking at types of savings, and following on to thinking about investments and how investments are slightly different to savings.

And we're going to look at why people decide to save or invest money? We'll do some activities to make sure you've checked what we've learned today and hopefully, you'll be confident on where can you save money.

So let's make a start.

We're starting today's lesson by looking at types of savings and the concept of saving has always existed with the idea of keeping things for the future.

For example, as a farmer, you would grow crops over the summer, but store or save some of this to keep you fed through winter.

And by saving, we're looking after our money, managing it well, we're preparing for events in the future, both expected, for example, saving up for a holiday you want to go in on and unexpected, for example, saving up for things like your car breaking down.

And all of this links to financial responsibility.

And when we are saving and being careful with our money and ensuring we're planning for the future, we're acting responsibly with our finances.

And this happens for us as individuals, but also and for other organisations, such as businesses or the government.

They also have to ensure that they plan and save for the future whether it be for things they want to improve, so perhaps a business wants to refurbish their store, they know that that's going to be a cost, so they save up for that, but also for those unexpected events such as some of their equipment breaking down and they might have to replace them.

We need to understand this concept of critical consumerism.

Now when you're critical, you analyse things you've worked them out and consumerism links to that word consumer where you are the person purchasing goods or services.

So we not only save money by putting money away or by investing, but we also can be critical consumers and save as a result of that, which means we're careful with our purchases and are not pressured to buy things on impulse.

And if you're not pressured to buy some things on impulse, you're not going to spend extra money.

In fact, you're saving it by not spending it.

With this, we not only consider the price of the item that we're looking for, the price of services that we might be looking to purchase, we're looking for the best deal for what we need, and also we're looking at the ethics of the seller and where the item might be coming from.

And the ethics is all about whether something is positive, whether it has negative impacts.

You might be tempted to buy an item at a slightly cheaper price from a large company, but ethically, it might be better to buy a slightly higher price from a smaller business.

And if you look at those businesses and what they invest their profits into, you might find that one company is investing in something good that helps others and one might be investing it purely for their own financial gain.

So that might impact your choice and it's part of being a critical consumer.

Now, there are lots of different types of savings and there are many bank accounts which have savings accounts available and to here are some of the options.

I wonder if you've heard of any of these? So an ISA, which is an instant savings account.

The jam-jar account, you might've heard of that one if you've done some of the previous lessons on finance in this unit.

Instant access accounts, piggy banks, you might have one of those at home perhaps or notice accounts and then there's investments as well.

And just have a think, is there any of these that is an old one out? Just have a think.

Maybe you've spotted it, but investments is the odd one out here because that is not just putting money away to use later, it works slightly differently.

We're going to have a look at these savings accounts.

So we've taken investments out of that because it's the odd one out, we'll look it up later.

We're going to start with these different savings accounts.

So task one, I'd like you to pause the video and you're going to match the different savings accounts with the description of what it is.

So once you've had a go at that, spend about five minutes putting those together and you can press play and we'll have a look at the answers.

Well done for giving that a go and welcome back.

These are the different savings accounts, the most popular ones that you might come across.

So you have an ISA which I said was an Individual's Savings Account and that's where interest can be earned tax-free.

And just a note on tax, tax is an amount that's you pay as an adult for money that you earn or have.

And so, having it tax-free essentially saves you whatever the tax rate is.

And currently tax, average tax rate is about 20% depending on your income.

So, you'd be saving an extra 20% by using an Individual Savings Account.

You've got jam-jar accounts, which are known as budgeting or rent accounts and they let you divide your money into different "jars" to help you budget.

So you can automatically have your income go into a rent jar, a savings jar, a bills jar, or so on, for example.

An instant access account is a low-interest savings account where money can be withdrawn at any time.

So the clue is in the description that because it's instant, you could put money in on day one of the month and if you decide five days later actually you need it, you can go and get it back.

Piggy banks was simply a vessel, might literally look like an actual piggy which you can put your cash in and you store it at home.

You're not going to add any extra in there, but it does keep it safe.

And then a notice account, which is a higher-interest savings account where you can inform the bank within a specific amount of time that you want to withdraw money.

And so some banks will say that notice accounts need six months notice, she would put your money in a one day and if 10 days later you decided you want that money, well, actually you have to inform the bank and wait six months before you can take it back out.

But the advantage there is that it is at a higher interest rate and so you might have to wait to get it out, you earn more on it.

That's only if you've got those rights and if you didn't, that's okay because we've been through all the definitions and now descriptions and hopefully you've got a good idea of some different savings accounts and options And I said we would look at investments.

This is a recap because we looked at this in a previous lesson in this unit or lessons and an investment is where you put money into something looking to gain a return.

So you are looking specifically to gain more money, but there's no guarantee on this.

It's not a savings account in that whatever you put in you're guaranteed to get it back, plus some hopefully.

With this one, there is a chance that you could lose some money.

So you're not guaranteed to make money by investing and there are always risks involved.

But there are three main types of investments that you might come across in the United Kingdom.

We've got bonds, which are investment bonds where you're allowed to invest a sum of money into a company or insurance policy.

In the UK, specifically, we have something called premium bonds and they're secured by the UK treasury.

So whatever you put in, you can take back out, but you're not guaranteed to make anything in that investment.

You don't gain money on the amount, but instead are entered into a prize draw or cash prizes each month.

There's shares and some companies sell parts of their business and the value of a share changes depending on how well that business is doing.

So if a business is doing really well, the cost of the share might go up and if a business is doing poorly, then the cost of the share might go down or the value of that share.

Capital is an example, so an example of capital might be a property investment and you might wait for the property to increase in value or rent-out the property as an additional income.

An example when that might not work so well is if the value of properties decreases and then you could actually end up in what's called negative equity, which means that what you put in isn't there anymore and actually, you are in debt rather than in credit as a result of that investment.

So you can see, this is why investments are different because there are greater risks associated with them compared to savings accounts.

How are investments savings and we've already said that investments and savings are different? Savings is setting money aside for events in the future.

With an investment, you spend your money on something in the hope that it will make money for you.

In both instances, the goal is to save money for future events.

Parts of recognising where we can save our money is to think about what some offer if we do save our money.

And to be able to look at that, you need to understand interest and how interest works.

And so, interest works with borrowing as it does on saving.

And you may have heard of interest if you've looked at the lessons we looked at on credit borrowing when we talked about interest and the amount that you had to pay back on borrowing.

So if you borrow money and the borrower charges interest, you pay them a fee, but if you deposit money into a savings account or an interest-based investment, then you'll be paid that interest on the amount saved or invested.

And so, interest works as opposites for borrowing as it does for saving in the sense that borrowing you pay someone else, but for saving, you are getting paid for that saving.

And you can see here, the key distinctions are high-interest rates, so if you're looking at saving at a high-interest rate, then your savings will increase quicker than if you are saving at a lower interest rate where your savings would increase slowly.

And that works exactly the same for boring in that, if you have a high-interest rate, your debts will increase quickly and if you are borrowing at a low-interest rate, then you're going to save in the sense that your debts increases slowly.

So when looking at interest, we can consider how it works in the sense of the Bank of England and the Bank of England is exactly what it says is the place where all the money and all the decisions to do with money get processed.

And so, they determine the base rate of interest in the United Kingdom.

And we're going to just listen to one of their videos about why interest rates really matter and then we'll have a think about where we can save and also the question of how we can manage our money well.

Hi, my name is Jeff and I work at the Bank of England's.

Today, I'm going to tell you about interest rates.

Interest rates were cut sharply in 2009 and remain extremely low by historical standards.

With rates so low for so long, do they really matter anymore? Yes, they do.

Whether you're running a business or a family on a budget, interest rates continue to affect our daily lives and have a big impact on what's left over to spend on essentials each month.

For most, interest payments on a mortgage are one of the biggest outgoings.

Covering the cost of spending on credit cards and payday loans can also be a big drain.

Many of those with savings rely on interest payments from the bank to provide essential income to live on.

So, whether you're a saver or a borrower, the level of interest rates for you and your family really does matter.

The Bank of England has told us that interest rates matter because they affect our lives and they do that in a range of ways.

So they impact our spending, so different things that we buy might have interest on and therefore cost more.

They impact the way we live in terms of potentially paying a mortgage and that's what you pay if you own your home and you're buying it from a bank.

They might be impacted from credit, so if you owe a company money, then there would be interest on that.

Savings are impacted by interest.

If you save your money, then interest rates matter because of that and that's what we're looking at this lesson, we're looking at where we can save our money.

And so interest, as the Bank of England has told us matter when we look at saving.

If it's low, if the interest rate is low from the Bank of England and their base rate is low, then you would pay out less on things that you owe for, but you would earn less also on savings.

If, you are looking at a high-interest rate as a result of the base rates of interest in the United Kingdom, then you would pay out more on things such as borrowing for a mortgage, but you would also receive more in terms of your savings.

It's important to consider when assessing our income, our outgoings and our savings decisions what the interest rates is.

Now, why are we looking at the Bank of England when we're looking at interest? Well, it's because they're really important.

The Bank of England is the central bank for the United Kingdom and it helps to manage the country's economy, so their money looking after the financial system that works within the country and also helps to ensure the country's money maintains its value.

And that's why they manage inflation and interest to ensure that the money in the country has value.

Other banks borrow from the Bank of England which is why they use the base rate to set their own interest rates.

The Monetary Policy Committee or a group of people within the Bank of England meet to decide the Bank of England's base rate to keep inflation low and stable and inflation looks at the increase in prices and the fall in the value of money.

And since the Bank of England's job, partly is to ensure that money has value in the United Kingdom, then it's their responsibility to look at inflation and ensure that it is maintained at a reasonable level.

It influences, but isn't the only deciding factor in the interest rates offered by banks in the UK.

And as we've said, that's because the other banks borrow from the Bank of England and they need to make sure that they don't offer things that they can't afford.

And so currently, the Bank of England has a base rate of 0.

5% and the reason why it's so low at the moment is it it was to help the economy as low-interest rates encourage spending.

So at the moment, at the time of recording this lesson, there is a pandemic and so, spending is at an all-time low and so to encourage people to spend, they lowered the base rate so that there is a low-interest rate on spending and that's why people get encouraged to spend more.

And just to go over this idea of the economy, the economy is how the status is determined in terms of producing and using goods and services in relation to money.

So, when we talk about the economy, we're talking about a country's money situation.

We've talked a lot about interest and so, we're going to have a think about interest in terms of where we can save money.

And this task, task two, is looking at which type of account, bearing in mind interest rates, these young people should have? So I've got three people, Sammy, Binita and Fred and I want you to decide which type of savings account bearing in mind their offerings of interest would be best for them in their situation because we remember that financial responsibility means that you need to be aware of personal situations and the scenario that you're facing at the time? So I'm going to read these through.

So, Sammy is going to university next year.

He has never left home before and has 1000 pounds in savings at the moment.

Binita wants to save up for the latest gaming console which comes out next year.

She currently has 150 pounds in a piggy bank and Fred is 12.

He has no plans to spend any money at the moment, but wants to save some money for the future.

So pause the video and note down which savings accounts you would recommend to these young people and also justify it, why would you recommend it to them? When you've done that after about five minutes of work, press play and we'll continue with our lesson.

Well done and welcome back.

And hopefully, you've had a real good think about these different offerings of accounts and which ones you would recommend.

And there's no no real right answer here, but there are some justifications that you might make.

And remember in citizenship, it's really important to justify responses.

So Sammy is going to university next year, which means that he might need some money because university is quite expensive.

He's never left home before either though and has a thousand pounds in savings at the moment.

So if he's never left home, then potentially, he doesn't really know too well about budgeting.

So you could potentially have recommended a jam-jar account which might help him budget in the future.

But also, you might think about a slightly higher interest rate such as the instant access account of 0.

5% higher than the 0.

2 offered by that jam-jar account.

And there's a reason why I wouldn't recommend the notice account because that's, I mean, that's got a higher, a much higher interest rate, but if he needs it, then he has to be really careful about giving notice to get that money out.

So those are the ones potentially you might recommend to Sammy.

Binita is looking to save up for the latest gaming console and that comes up next year, so she's got at least a year.

She's got 150 pounds in a piggy bank and a piggy bank is just something you have at home, so you're not going to earn anything on it.

So for Binita, any of these options really are better than what she's got.

She doesn't necessarily need a jam-jar account and that's quite a low-interest rate, but potentially, an ISA would work for Binita.

Doesn't tell us her age, but if she's of in taxable age, she might want to consider that.

You might look at an instant access account or potentially a notice account if she could plan really well and give the right amount of notice to be able to buy that console that she wants.

Fred's 12, so he doesn't really have to worry about tax because he can get tax-free savings, but wants to start saving some money and so really, the chance of him needing that money quickly are small.

So potentially for Fred, he could look out a notice account, but realistically, probably a piggy bank to start him off.

As I said, there's no real right or wrong answer, it's about evaluating these options and making justification depending on the situation that they are in.

So well done for giving that a go and well done if you've done some justification like I've just done when explaining which accounts you might look out for these young people.

So we've got one last task for you to do in this lesson and this is to weigh up the advantages and disadvantages of saving and/or investing because we've talked about savings, we've talked about interest and this lesson is all about where can we save money? And part of that is to understand, is it advantageous or disadvantageous to save money? So, spend about five or six minutes thinking about what are the positives of saving and investing, keeping that money, making money from it and what might be the disadvantages of doing that? So pause the video now, give that a go and when you're ready, press play and we'll have a look Well done and welcome back and hopefully, you've got a few different ideas in terms of the advantages and disadvantages that there are of saving and/or investing.

So, some of the advantages you might have and make notes of any that you didn't, could be to become financially independent so you don't have to rely on others.

You worry less about surprise expenses because you've got some money put away and you've planned for those unexpected events.

You got money available if you lose your income, so that's planning for the future.

And similarly, preparing for the future, for example, if you're going to university and you know that's going to be a bigger cost or expenditure than you're currently experiencing and you've got money for that.

It might help you with big life purchases, so to buy a home, you need a deposit to do that.

And it reduces your risk of getting into debt because you've got a fail save, you've got some money there that you can fall back on if you need to.

Now, the disadvantages might be the concept of temptation.

It's easy to spend on things you want, but do you really need it? And so, having money there might tempt you to spend it, so thinking about where you would put that money away in terms of maybe a notice account that we looked at rather than somewhere you can access it easily.

You might give up some expenses to have to save.

So actually, you might have to sacrifice some of the things you like to do or like to spend your money on to be able to save and that can be feel like a disadvantage.

And you might not get a good return on your money.

So thinking about investments, if you invest, it might be a gamble in the sense that you might not always make a return, you might not always make more money on what you put in and sometimes you can lose parts of the original amount that you put into that investment.

So it's up to you about what-how you save and your decisions around saving, but the here are some advantages and disadvantages that might help you to look at where you can save money, how you can save money and whether you feel that it is something for you.

Bear in mind that businesses and the government also have to make those decisions and so all these advantages and disadvantages can be transferred over to bigger organisations that also have to make these similar decisions when thinking about their financial responsibility for other people.

So well done for completing today's lesson on where can save money.

We've looked at financial responsibility in terms of why it's important to save and think about future expenses.

And we've looked at critical consumerism in the fact that it's not always about putting money away, but it's about thinking about what you buy and when you buy it.

We've looked at different types of savings in terms of things like ISAs and we've also looked at investments as an alternative to savings such as buying a home.

And we've also thought about different scenarios where different savings might be best for people and we've thought about the advantages and disadvantages of saving or investing.

So we've done a lot today and we've checked your understanding through a variety of activities and hopefully, you feel really confident in talking about where we save money.

So well done.

If you've done anything that you particularly want to share with Oak National, then do you ask your parent or carer to do so on Instagram, Facebook or Twitter tagging in @OakNational or #LearnwithOak.

And there's one last thing I need you to do before finishing up today's lesson and that is to complete the exit quiz.

So well done for all your efforts today and I look forward to teaching you another citizenship lesson soon.