Financial Literacy

• Business Studies

Financial Literacy

by: James Ritenour and Alex Adair

You have 8 minutes to test your money skills in the real world!

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How do you spend your money?

Do you have any money saved for yourself in the future?

1. No
2. Yes
3. My parents save it for me
4. I don't know

Why should you save money?

• to reach financial goals
  
• to be prepared for an emergency
• to feel freer
• to be able to take advantage of  new opportunities 

How To Save:

• create a budget to follow
• set SMART financial goals for yourself
• save a little every day
• start a savings account
• keep track of your progress

Creating a Budget:

• estimate your income
• estimate your expenses
• plan for new situations
• cope with change
• keep your goals in mind
• balance your budget

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Financial Plans Contain:

• personal goals
• financial goals
• steps to achieve goals
• timeline to achieve goals

How To Spend Wisely:

• keep track of your money
• don't make unnecassary purchases
• decide on your priorities
• find the best value for your purchases

Checking Accounts:

• bank accounts that pay little to no interest
• money is deposited into the bank and taken out through the use of debit cards or checks
• don't have withdrawal limits

Savings Accounts:

• bank accounts that earn interest
  
• a safe place to keep money for saving 
  
• have withdrawal limits
  

Certificates of Deposit:

• allow investing at a set interest rate for a set period of time
• promises to the bank that the money will not be taken out
• used for big purchases

Individual Retirement Accounts (IRAs):

• allow independent saving for retirement
  
• helpful for people without employee benefits
• Traditional: tax-deductible
• Roth: tax-free

What is credit?

• borrowed money used to purchase goods/services
• average interest rate: 20%
• have to pay 3% of balance monthly
• no interest if balance paid off within a month

Credit Scores:

• numbers that relate how likely you are to pay a debt
• created by Equifax, Experian, and TransUnion
• ranges from 300-850
• the higher the score, the better

Mai charges $1000 to her credit card for a vacation. Her interest rate is 20% and she only pays the minimum amount (3% of the balance due) per month. How long does it take her to pay off the debt?

1. 10 years
2. 20 years
3. 8 years
4. 25 years

Types of Credit Cards:

• revolving: has limit, you carry balance monthly
  
• charge cards: no limit, you pay balance used monthly
• service credit: agreements with service providers
• installment credit: loans repaid with interest periodically

When credit cards are paid off within a month, how much interest will be charged?

1. 10%
2. 5%
3. none
4. 20%

Debt:

• money owed by one party to another
• secured debt: the ower has pledged an asset as collateral for the loan
• unsecured debt: a loan not backed by an asset

Good or Bad?

• good debt: helps you generate income ("money makes money")
• bad debt: borrowing money to purchase depreciating assets

What are your future job plans?
What careers interest you?

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Choosing a Career:

• know your qualifications
• know your projected income needs
• find your interests
• research your options
• choose a field with a career ladder

How to Get a Job:

• assess personal interest, abilities, and career goals
• evaluate current employment market
• identify/research job opportunities
• apply for employment
• interview for available positions
• follow up

Human Capital:

• a person's skills, abilities, experiences, and interests
• determines income
• greater human capital leads to greater salary
• should grow continuously

Common Investment Vehicles:

• stock: a piece of a company
• bond: a loan to a corporation or the government which is repaid with interest
• real estate: buildings might resell at higher prices

Protection from Investment Fraud:

• be informed about the investment/industry
• talk with other investors
• avoid opportunities promising large returns in a short amount of time (too good to be true)

The Stock Market:

• where investors connect to buy and sell stock (shares of a company)
• shares are auctioned between parties
• prices raise and drop frequently (high risk!)

Risk:

• the possibility that things might not go as planned and you might endure financial loss
• important to consider when handling finances

How to Prevent Risk:

• have a savings reserve
• purchase insurance
• always make a Plan B or alternative plan
• calculate the risk of every decision you make

Insurance:

• transfers risk from an individual to an organization
• individual pays periodically for financial protection
• policy: contract specifying the risks covered and amount of money involved

How Insurance Works:

• 100 people have a 1% chance of getting sick and paying $10,000 in medical bills
• No one knows who'll get sick
• Each person pays $100 into a pool to cover the $10,00 cost of whoever gets sick
• 99 people gain peace of mind, 1 person gains financial help

Carlos got in an accident and has to pay $3, 788 to fix his car. He has a policy with a $500 deductible and 0% co-insurance. How much does Carlos pay and how much does the insurance company pay?

1. $200 $3388
2. $500 $3288
3. $250 $3588
4. $500 $3588

Decision Making Process:

• identify the need/problem
• generate available options
• analyze options
• select the best option
• implement decision
• evaluate the outcome

Helpful Tips:

• know the difference between needs and wants
• read and understand all financial agreements
• consider opportunity costs (loss of potential gain) and trade-offs

Influencing Factors:

• values
• peers
• habits/feelings
• economic factors:

- budget 

- interest rates

- stock market index

Common Strategies:

• spontaneity
• compliance
• procrastination
• agonizing
• security
• synthesis

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