Question

Katrina received $2000 as a graduation gift. She is heading off to college in the fall and the money will be used to pay for school expenses. She is unsure if she should save or invest the money. Describe the difference between saving and investing and give Katrina your advice on what she should do with the gift of money.

Answer 1

The differences between saving and investing are:

Money can more easily be withdrawn when money is saved than when money is invested.

There is little or no risk of loss of money when money is saved. Money can be lost when invested.

My advice to Katrina would be to save her gift.

Why should Katrina save her money?

Katrina needs her money in the short term. Thus, it is better to save because it would be easier to withdraw her account from a savings account when compared to an investment account.

Money that should be invested should be money you don't mind losing. This is due to the risk associated with investing. Katrina needs the money to pay for her school expenses. This makes investing an impractical idea.

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