Hi I'm David Luhman and welcome to "Introductory Personal Finance for Everyone". In this tape I'd like to help you map out your financial goals, and learn how to save and invest to achieve them.
But first let's talk a little about the need for a tape like this. Although there's always been a need for financial planning, there's an even greater need today.
For one, we've moved away from corporate paternalism to an environment where it's "every man for himself". Twenty years ago many people could count on a secure job at a large corporation like AT&T or General Motors, and they also had a nice pension paid for and managed by the corporation.
But now firms like AT&T and GM are facing competition from companies like MCI, British Telecom and Toyota. To meet the increased competition, old-line companies are looking to reduce their pension costs.
Although these traditional pension funds won't disappear overnight, today's new companies rarely provide traditional pensions. Instead, employees are forced to save for themselves through self-managed 401(k) or IRA accounts. And many smaller companies don't offer any kind of company retirement plan at all!
So today's workers have to manage their own money to a greater degree, but it's becoming more difficult to manage that money. From the 1940s to the 1960s long-term interest rates were very stable. But today long-term interest rates can move 1 percent or more in a month.
To help cope with this instability in the financial markets, investors have sophisticated financial products at their disposal. While this is good, it also means that individuals need to spend even more time learning how to use these products.
In spite of the need to learn more about investing and finance, the vast majority of Americans know little about finance. Recent surveys show that 75 percent of Americans don't understand investing's most important concept known as compounding or "the time value of money".
Also more than two-thirds of Americans don't understand "tax-deferred investing" -- the easiest way to cut your taxes now and save for retirement later.
If you already understand these concepts, pat yourself on the back and consider yourself at the head of the class. If you don't understand them yet, don't worry. In this and other tapes I'll try to explain them and provide useful information that will help you meet your financial goals.