- Hi, let's talk about grandchildren.
- Oh boy.
So is this where you tell them
you have about a thousand grandchildren,
and I've only got 12?
- No, no, no, no, no.
We'll leave that discussion to another time.
Instead, let's talk about the investment program
you've established for your 12 grandchildren.
So tell us, what do you do?
- Okay, well when each grandchild is born,
I set up a savings account for her or him.
I start with 3,000 dollars,
and then I add 100 dollars a month.
- A hundred each month?
How long to you continue this?
- Well, I don't know.
My oldest grandchild, Lily is just 10 years old.
My plan is to keep going until each grandchild turns 25,
or until I die, I guess.
- Well, that's a great idea.
But it sounds kind of complicated.
For example, where do you store the money?
Is it invested?
And how do you remember to add 100 dollars
for each of your 12 grandchildren every month?
- No, it's easy.
I've arranged all of this with a mutual fund company.
When a new grandchild is born,
this mutual fund company allows me
to transfer the 3,000 dollars directly from my local bank.
And for 100 dollars each month,
I have the mutual fund company
automatically make withdrawals from my local bank.
It all works smoothly with minimal effort on my part.
- Well, how is the money invested?
- The mutual fund company gives me hundreds of options.
My wife Ramona and I have chosen
to invest our grandchildren's money
in an emerging markets stock index fund.
The investments are spread among companies
in countries such as Taiwan, Brazil,
China, India, and Russia.
- So how much do you have to pay for this service?
- Not much.
This year it's going to cost me a total of 250 dollars
in management fees for this mutual fund company
to handle this for all 12 of my grandchildren.
- That is a good illustration of the benefits
provided by financial institutions.
Financial institutions are companies
that are experts in managing money, risk,
and complicated transactions on behalf of individuals
like you and me, and other companies.
- In essence, I have outsourced this complicated task,
managing the savings funds for my twelve grandchildren
to an expert, the mutual fund company.
- Now, there are several different types
of financial institutions ranging
from your ordinary local bank
to multinational insurance companies.
- Let's study financial institutions.