Transcript Personal Finance - Wichita State University

Personal Finance
Benchmark 4.01
Benchmark 4.01
Demonstrate an understand that personal spending,
saving, and credit decisions have significant
implications for the future
Competencies
4.01.03
Explain the role and utilization of credit in a market
economy
Sample indicators:
• Give examples of different types of credit
• Explain how credit systems operate or function
• Indentify potential costs and benefits of using credit
Lesson 14
Credit: Your Best Friend or Your Worst Enemy?
Indicators for benchmark 4.01.03:
• Explain how credit systems operate and function
• Identify potential costs and benefits of using credit
Terms
 Choice
 Cost and benefits
 Credit
 Debt
 Interest
 Revolving credit
Lesson 14
Credit: Your Best Friend or Your Worst Enemy?
Objectives:
1. Calculate interest payments, minimum balances and
the cost of credit.
2. Develop and apply criteria for determining when
the use of credit is appropriate.
Before starting lesson 14
Ask students to define:
Credit:
Revolving credit:
Contrast use of credit cards with debit cards
Before starting lesson 14
Ask students to define:
Credit: is the ability to obtain goods or services before
paying for them, based on a promise to pay later.
Thus, each time a person uses credit, he or she is
borrowing money. Credit cards are merely short
term loans
Revolving credit: is credit that is available up to a limit
and automatically renewed as debts are paid off or
paid down. People who use revolving credit often
make partial payments on their unpaid balances at
regular intervals. (credit cards offer revolving credit)
Begin Activities for lesson 14
Activity 1 and 2
• 5 to 10 minutes
• Read activity one
• Complete activity two
• Look at answers to activity two
• If Justin pays $55 per month how long will it take him
to pay off is balance?
Problems with the use of credit
Cost versus benefit of using credit
Problems with the use of credit
Key is to look at the cost of using credit versus the benefits
gained
• Advantages
 In an emergency
 To take advantage of opportunities such as sales
 Purchase valuable assets
• Disadvantages
 Increases cost of purchase
 Late fees
 Reduces capabilities to make other purchases in the future
 bankruptcy
Activity 3
• 5 to 10 minutes
• In groups
• Discuss the scenarios and decide whether the use of
credit is a good idea in each case.
Competencies
4.01.02
Define money, explain the role of banks and contrasting
them with security exchanges.
Sample indicators:
• Explain how banks and other depository institutions
create money they lend.
• Identify a security and how it might fit in a financial
system (e.g. a stock, bond)
• Define the role of financial institutions (e.g. Federal
Reserve, banks, capital markets, etc.)
Lesson 34 Money and Monetary Policy
Indicators for Benchmark 4.01.02
• Explain how banks and other depository institutions
create money when they lend
Terms:
 Federal Reserve
 Fractional reserve banking system
 Money
 Monetary policy
 Money supply
Visual 1
Money: anything that is generally accepted as final
payment for goods and services
Money serves these purposes:
• Medium of exchange: used to purchase goods and
services
• Unit of account: it can be used to compare the value
of different goods and services.
• Store of value: It can be held to buy something in
the future (does not guarantee equal purchasing
power)
Money Supply:
• Narrow definition: currency (coins and paper money) in the
hands of the public
 Currency is 48% of total and checking –type accounts
about 52%
• Supply of money is important for price stability and economic
growth
 To much money in the economy can cause inflation
 To little money in the economy can lead to falling prices
and falling production
• Federal Reserve controls the money supply by encouraging or
discouraging banks to make loans
 When a bank makes a loan the money supply increases by
the amount of the loan
Activity:
• How banks create money and the affect the money
supply.
• Materials required:
 Handout cut in to pieces
 50 dried beans
 Visual 2 (minus answers)
Visual 2 (minus answers)
Round 1 Money supply =
Round 2 Money Supply =
Round 3 Money Supply =
Activity
• Distribute 50 beans to the class (not an equal
distribution)
 Beans are accepted for payment (coin or currency)
the money supply is 50
• Instructor opens a bank where students can deposit
their beans.
Ask: Why might people deposit money in a bank?
• Collect deposits replacing the beans with the bank
deposit receipts (handout)
 Receipts can be turned into the bank for a bean
(e.g. Check)
Activity continued:
• Have a student use the receipt to buy an items from
another student.
• What is the money supply now? What is its
composition? (hint: only money in circulation is counted
in the money supply)
• Tell students that the bank has decided to go into the
lending business.
 Ask who would like to borrow money
 Explain fractional reserve system
 Give the student five bank receipts
• What is the money supply now? How many beans and
bank receipts are in circulation?
Visuals 3 and 4
Visual 3
 Structure of Federal Reserve
• Why 12 Regional Federal Reserve Banks?
Visual 4
 Totals used by the Federal Reserve to control the
money supply
Activity:
• How banks create money and the affect the money
supply.
• Materials required:
 Handout cut in to pieces
 50 dried beans
Activity:
• How banks create money and the affect the money
supply.
• Materials required:
 Handout cut in to pieces
 50 dried beans
Lesson Seventeen
Saving, Investing, and The Invisible Hand
Indicators for benchmark 4.01.02:
• Identify a security and how it might fit in a financial
system (e.g. a stock, bond)
• Define the role of financial institutions (e.g. Federal
Reserve, banks, capital markets, etc.)
Terms:
 saving
 investment
 the stock market
 the bond market
 primary and secondary markets for financial securities
 banks
Lesson Seventeen
Saving, Investing, and The Invisible Hand
Visual 1
 Savings means not consuming
Questions that can be asked:
• What are some reasons that some people save?
• When people save, they are usually trying to make
themselves better off in the future. But can this saving
help others as well? (banks and other financial
instructions loan savings to others, thereby increasing the
money supply
Visual 1
 Investment production and purchase of machines,
buildings, and equipment that can be used to
produce more goods and services in the future
• Man made tool that goes back into production
of other goods and services
Visual 1
 Personal investment purchase financial securities
such as stocks, bonds
• More risky than savings accounts because they
may fall in value, but in most cases will pay a
higher rate of return in the long run than the
interest paid on savings accounts
Stocks vs. Bonds
• What is a bond? (a legal promise to repay money
loaned to a business or government agency, with
interest, on a specific date or dates)
• What is a stock? (purchasing shares of ownership in
a corporation, hoping that the shares value will
increase resulting in a financial gain)
Visual 2
Two Kinds of Markets for Financial Securities
Primary Markets: new issues of bonds and corporate
stocks are offered for sale to the public by companies
and investment banks. (initial public offering): funds
used by business for investment in new plants and
equipment.
Secondary Markets: markets where previously issued
stocks and bonds can be bought and sold by
individuals and institutions: funds to the individual
investors. (example: New York Stock Exchange,
NASDAQ)
Activity 1
• 5 minutes
• Work in groups
• For each scenario indicate whether it represents
 S (savings)
 I (investment)
 P (personal investment)
 N (neither saving or investment)
Competencies
4.01.01
Explain the role and impact saving has on building
wealth.
End of slides