Free Enterprise - Principle 5

Principle 5: When people have money to save they have a chance to invest their savings in businesses that will give them profits in the future.

Magic won’t make money grow, but regular saving will. Many people dream of the day when they will earn profits without having to work. Some people save a part of their income each week or each month. They start with a little and end up years later with a lot. They put it in a bank or other safe place. They want to build up their savings to a large amount. Why do they want a lot of money saved?

They like to earn interest if they put their savings in the bank. The bank will pay them a fee, called “interest”, on money deposited in the bank. The bank can use the money to make more money, and then pay back the depositors, and also the bank has made a profit.. Individuals will put money in a savings account with a bank so they can make a profit (earn interest) on their money.

Some people are willing to take more risk, in hopes of getting more profit. They put their money in an investment that will return them more than the bank return. These investments are not as safe as putting money in the bank. However, the profit potentials are greater. There are many different levels of investment risk. Each person chooses the level of risk he can live with. In general, we think the greater the risk, the greater the profit potential. But potential is not a guarantee. Some investments fail and people lose most of their savings.

People hope to have money left over after they have paid their expenses. They can save it and invest it. A wise investment will pay a good return for many years into the future. If they save their money now, and invest it, it will continue to pay them in the future. This will be their security in old age.

Story

Sabetha not only wanted the nicest cabin, she also did not want to work. She wanted to be a lady of leisure. She was planning to invest her money in a way that would make money even though she was not actually working. That was the reason she wanted to be friends with Allen and Andre. She thought they had a good chance of running a profitable business. There was no bank in their little valley, so depositing money in the bank so it could earn interest was not an option. It would be a risk—she hoped it would pay off! Besides, she wanted to earn more than interest—she had her eye on really big money.

She realized that Marcella had quite a lot of money too. She had seen it one day when Marcella’s suitcase fell open.

“Marcella!” she called out, and hurried to catch up to her. “I thought we should talk.”

“Okay, what about?” Marcella asked.

“I don’t think you want to always work as hard as some of kids are having to, do you?”

“Of course not, but I need to eat. Do you have a secret plan or something?”

“Maybe,” Sabetha said with a smile. “Want to hear my ‘secret’ plan?”

Marcella was all ears—she was very eager to hear! If there was a way to have food, shelter, clothes and enjoyment without having to work a lot she wanted to know about it.

“Tell me! Tell me!” she was so excited.

“Okay, it works like this,” Sabetha started to tell Marcella the plan. “We each saved our money regularly before this vacation trip. I saved each week and I think you did too. Some kids didn’t—and now you and I have quite a lot of money, compared to most of the others.”

“I saw you talking to Andre and Allen—how do they fit into this?” asked Marcella.

“Glad you asked” Sabetha said. “They don’t have much money, but they have great ideas about how to make money. They are energetic and will work hard. They are entrepreneurs. We can give them our money to use, and they will make it grow. They will make profits and so will we—only they will be doing the work. But for us, well, our money is what will be doing the work for us.”

“Wonderful!” exclaimed Marcella. “I know it is a risk, but big risks can equal big profits! Let’s do it!”

“You realize,” said Sabetha, “This is not a guarantee. Allen and Andre could mess up and we could lose a lot of money—maybe even all of it! I don’t think they will, but this is not safe like putting money in the banks back home.”

“Right!” chimed in Marcella, “but we don’t expect to make interest of 5 or 8 %--we’re going to make a lot more!”

Off they went to talk to Andre and Allen. They were very excited about becoming investors so they could earn profits without actually working!

Activity: Find two students who can act and call them to the front of the class. Have one student “be poor” and have one student “be rich”. Ask the class, “Can ______ (poor one) afford to take friends out to dinner?” The answer will be no.

Explain that he hardly knows where his next meal is coming from. Ask if he has extra money for savings. They will say no. Ask if ______ (rich one) has money for savings. They will say yes.

Ask the class if they think both the rich person and the poor person would like to have enough money in the bank so that someday in the future they will not have to work. Most students will say yes. Ask if the poor one is likely to be able to save any money at all. They will say no.

You say, “Only when people have money to save do they have a chance to invest so they can earn profits in the future without having to work! Having money to save is important!”