Page 483 - Business Principles and Management

C HAPTER 17 A SSESSMENT

CASE IN POINT

CASE 17-1: What’s Wrong with Savings?
Jun Wang, owner of a delicatessen in a shopping center, often chats out-
side his business with Cassidy Hall, who owns the bakery next door. One
weekday morning just after they opened their businesses, Jun mentioned
that he had just returned from his bank to deposit money. He told Cas-
sidy that as a recent immigrant, he was not that familiar with the Ameri-
can financial system. But he had decided it was important to save money
from his business and had opened a savings account in the local bank
down the street.
Cassidy wanted to help, so she asked Jun if he had a lot of money in
the savings account and if he was investing his profits in other ways. Jun
said he had a regular practice of putting 10 percent of his profits in the
account each month and was getting concerned that perhaps he should
start an account with another bank because the sum was getting quite
large. The rest of the conversation follows.
Cassidy: You’re losing money you could otherwise be earning, Jun, by
putting that much of your savings in a savings account.
Jun: What do you mean? I’ve always believed that a savings account
in a bank was the best place to save money. Now you tell me
I’m losing money? I’ve never lost any money, and each month
I earn interest.
Cassidy: It certainly is a way to save money, but the interest you’re
making right now is at least 2 ⁄2 percent less than what you
1
could make by putting that money in other types of accounts.
If I were you, I would be looking at CDs and T-bills. At least
put some of your money in a money market account. There are
several types of businesses in our community other than banks
that offer savings opportunities.
Jun: Wait. I don’t understand these words you are using. But I do
know that I don’t want to lose my hard-earned profits in any
risky investments.
Cassidy: There is a good financial adviser right here in our shopping
center. I meet with her quite frequently, and she has taught me
a lot about saving and investments. If you want, I can intro-
duce you to her.

THINK CRITICALLY
1. Is it likely that Jun could invest his money in other savings instru-
ments at his savings bank? Is it likely that the bank could meet all of
his financial needs as his business grows? Why or why not?
2. Are T-bills and CDs considered risky investments? Explain your an-
swer in a way that a novice investor like Jun might understand.
3. How much more could Jun earn if he withdrew the $100,000 he
has in his savings account and invested it instead in Treasury notes
earning 2 ⁄2 percent more interest? What problems might that create
1
for his finances?

470