Transcript PF1.01ppt-

Personal Finance 7086
Unit A
Preparing to Live
Independently
PF01.00: Understand
economic activities of
individuals and families
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PF01.01: Understand responsible earning,
spending, saving, and borrowing.
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Have you ever heard the saying that
“Money talks.”
FYI
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The presence of money can speak loudly and
greatly help solve some types of problems but
for other problems, money may have little or
no relevance.
Knowing how to use money responsibly can
prevent many problems from ever occurring.
PF01.01: Understand responsible earning,
spending, saving, and borrowing.
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Give me examples of problems that can
be solved with money.
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Give me examples of problems that can
not be solved with money.
PF01.01: Understand responsible earning,
spending, saving, and borrowing.
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Write answers to the questions in your
JOURNAL.
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Number Page
Write Date
Indicate Objective (PF01.01)
Label Answers
PF01.01: Understand responsible earning,
spending, saving, and borrowing.
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List as many words as possible that mean “MONEY.”
When was the last time you did something to EARN
money?
How did you earn it?
How did this make you feel?
How do you decide on what to SPEND your money?
What was the last thing for which you decided to SAVE
money?
How do you “make yourself” save?
When was the last time you decided to BORROW money
or something else?
How did things turn out?
What are your views on borrowing and lending?
PF01.01: Understand responsible earning,
spending, saving, and borrowing.
Share words that mean “MONEY”
This Personal Finance course is about money
and many areas of life that relate to money--being able to live independently, preparing to
earn a living, becoming a responsible
consumer, and protecting/managing
resources.
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PF01.01: Understand responsible earning,
spending, saving, and borrowing.
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Class Discussion
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Questions written in JOURNAL.
PF01.01: Understand responsible earning,
spending, saving, and borrowing.
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There are four basic economic activities of
consumers
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Earning
Spending
Saving
Borrowing
When these activities are handle responsibly,
individuals are more likely to achieve financial
security and personal satisfaction.
EARNING
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Is gaining money by working, owning a business, or
receiving investment returns
Money gained from earning is called EARNINGS.
A person’s career choices, ability to find
employment, and ability to advance determine his or
her expected earnings and standard of living. (the
style of living that a person can afford, according to
his/her income)
EARNING
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The word earn applies to many things of
value in life, not just money.
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Honor Roll Certificate
Perfect Attendance Certificate
Factors affecting career choices & ability to
find employment
Career Choices
 Type of career/job
 Place of employment
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Ability to Find Employment
 Education level
 Employability skills
 Prior job performance
 Economic conditions
 Workplace trends and
opportunities
……and ability to advance
Ability to Advance
Career Choices
 Type of career/job
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 Education level
Ability to Find Employment
 Job performance
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 Economic conditions
Ability to Advance
 Workplace trends and
opportunities
Earnings
Standard of Living
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Responsible Earning
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Involves realizing that career choices greatly
affect lifetime earnings and standard of living
and considering these factors when making
career choices.
PF01.01: Understand responsible earning,
spending, saving, and borrowing.
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Group Activity
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Internet Activity
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Earning Handout
Wealthy People
Handout Available
PF01.01 Key Terms
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Earning - Gaining money by working, owning a
business, or receiving investment returns
Earnings - Money gained from earning
Productivity - The amount of goods/services an
employee produces
Advance - To get a promotion and/or raise in salary
Workplace Trend - A direction in which the
workplace is moving
Workplace Opportunity - A chance to get a job,
advance in a career, or start or expand a business
PF01.01 Key Terms
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Standard of Living - The style of living that a person
can afford, according to his/her income
Market Economy - A free enterprise system in
which consumers respond to the economy as they
wish --- in their earning, spending, saving, and
borrowing
Gross Domestic Product - The total output of
goods and services in a nation
Responsible - Showing a responsible approach to
choices, considering obligations to others
PF01.01 Earning
EARN: Appendix 1.01E Choice Assignments.” The
assignment on “Earning Power” involves online
research about expected lifetime earnings
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PF01.01 Spending
Write a response to the
following quote in your
journal.
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PF1.01 Spending
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Bad spending habits can easily destroy you. Bad
spending habits don’t usually go away as you get
older, which is why they call them habits. In fact,
bad spending habits usually get worse with age.
That’s why a lot of people I know make tons of
money each year, yet they are just about broke at
the end of every year. These people will never be
able to retire. They will work until the day they die.
Bad spending habits can cause big problems in life.
PF01.01 Spending
-----using money to purchase goods and services.
 The way a person spends money determines the
value received and influences the economy.
 Each purchase contributes to the demand for the
product or service purchased.
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PF01.01 Spending
Law of Scarcity: An economic system cannot produce
all goods and services that consumers want, and
most consumers do not have the resources to
purchase everything they want. Choices must be
made about how limited resources (time, money) are
used.
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PF01.01 Spending
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Goods – Items that people buy
Services –Activities done for others for a fee
PF01.01 Spending
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Trade-offs and Opportunity Costs
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When making a choice, other alternatives must be
sacrificed. The highest-valued alternative that must be
given up when a choice is made is the opportunity cost of
the choice. The choice of one item while giving up another
is called a trade-off.
PF01.01 Responsible Spending
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Responsible spending includes researching and
planning purchases in advance and making wise
choices in light of opportunity costs and trade-offs
that apply.
HATFIELDS & MCCOYS
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Opportunity cost is the highest-valued
alternative that must be sacrificed when an
action is selected; it is what the decision
maker could have had instead.
Opportunity cost is not the same thing as
money price. For example, the Hatfields
gave up cloth in order to specialize and
spend their time in corn production—they
actually wanted both corn and cloth.
HATFIELDS & MCCOYS
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The Hatfield’s “opportunity cost” for
producing one bushel of corn is the 4/5 yard
of cloth they could have produced.
Compare that with the McCoy’s “opportunity
cost” of producing one bushel of corn—1 1/4
yard of cloth.
Do you see that corn production is less
expensive for the Hatfields and more
expensive for the McCoys?
HATFIELDS & MCCOYS
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In all cases, to have a “comparative advantage”,
means having the lowest “opportunity cost” of
production.
Therefore, if the Hatfields and McCoys each
specialize in the production of the good, they have a
“comparative advantage” in producing and trade for
the good they are at a disadvantage comparatively,
they will both benefit.
HATFIELDS & MCCOYS
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One of the most difficult things in economics
is understanding the opportunity cost of
choosing a particular action.
HATFIELDS & MCCOYS
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Please do not confuse opportunity cost with tradeoff.
In achieving certain economic goals, we may have to
sacrifice others.
For example, in solving unemployment we may
cause inflation.
When raising taxes to redistribute income to the
poor, we may depress the incentive to work.
HATFIELDS & MCCOYS
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A stock investor may give up growth potential
for security.
Think of tradeoffs in terms of outcomes and
opportunity cost in terms of the next best
alternative for an action taken.
When specializing and trading, the Hatfields
and McCoys had to “tradeoff” self-sufficiency
and security for leisure time and more
material possessions.
HATFIELDS & MCCOYS
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Foreign trade.
The Hatfields and McCoys may now become the
U.S. and China. Instead of trading corn for cloth, we
must trade dollars for yuan before we can buy the
Chinese products.
Suggestion: Start by buying and selling money just
as if it were corn and cloth.
Money is simply a medium of exchange, with no
intrinsic value.
Buying foreign currency is a prerequisite to buying
foreign products.
HATFIELDS & MCCOYS
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Now change the value of one currency relative to
that of the other (let the exchange rate float).
One trading partner will gain and one will lose.
The trading partners will also be affected by barriers
to trade such as tariffs, quotas, subsidies and
embargos.
Not only will their net gains from trade (consumer
and producer surpluses) be impacted but
“deadweight loss” to society will occur.
Global economics is a moving target and lots of fun!
PF1.01 Spending – Journal Entry
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Money doesn’t grow on trees. (Anonymous)
Economy does not lie in sparing money, but in
spending it wisely. (Thomas Henry Huxley)
Riches are no menace if you do not divorce dollars
from sense. (Anonymous)
Money talks. (Anonymous)
You can’t appreciate home till you’ve left it, money till
it’s spent. (O. Henry)
PF1.01 Saving
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--- putting aside money for later use. Money
may be “saved” in a bank account or in a
wallet. The form of savings used determines
the financial return.
PF1.01 Saving
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“Later Uses” for Savings
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Emergencies
Recurring expenses
Future purchases
Financial goals
Retirement
PF1.01 Saving
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Benefits of Saving
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Provide money for future purchases
Can be used to earn income
Produce a healthy economy
Increase personal financial security
Provide growth opportunities for business
ventures
PF1.01 Responsible Saving
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Responsible saving means forming the
habit of saving regularly and finding forms of
saving that yield high returns.
PF1.01 Saving – Journal Entry
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If you were given $10,000 today, how much would
you save? (State dollar amount and percentage of
the total)
How much of the $10,000 would you spend? (State
dollar amount and percentage of the total)
On what would you spend part of the money?
Where would you put the part of the money to be
saved?
Why did you respond as you did?
PF1.01 Saving – Class Discussion
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Survey the class to see what percentage
each person would plan to save and what
percentage they would spend right away.
Discuss reasons students made the choices
they did.
PF1.01 Responsible Saving
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Responsible saving means forming the
habit of saving regularly and finding forms of
saving that yield high returns.
PF1.01 Borrowing
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--- obtaining money, goods, or services at
present in exchange for the promise of future
payment . . . “Buy now, pay later.”
Borrowing means spending future
income and includes buying on credit.
 Having “good credit” depends on one’s
willingness and ability to pay back what
is owed when it is due.
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PF1.01 Borrowing
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Credit purchases are more costly than
cash purchases if not paid back quickly.
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The wise use of credit can help some
individuals raise their standard of living
by extending their buying power.
PF1.01 Borrowing
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Examples of Borrowing
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Buying with a credit card
Buying on installment
Payday loans
Cash advances
Layaway purchases
PF1.01 Borrowing
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Reasons for Borrowing
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Major purchases
Emergencies
Convenience
Prepare for future goals
Take advantage of good sales/offers
PF1.01 Responsible Borrowing
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Responsible borrowing means borrowing
only what can be paid back when due.
PF1.01 Borrowing – Journal Entry
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List times in life when you might consider
borrowing possessions or borrowing money.
List characteristics that would be desirable in
a person from whom you might borrow.
List things that should be agreed upon
between a lender and a borrower.
PF1.01 Responsible Borrowing
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Responsible borrowing means borrowing
only what can be paid back when due.
Wrap-up
Personal Finance 1.01
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Wrap-Up
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View PowerPoint: Responsible Earning, Spending,
Borrowing, Saving
Wrap-up
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Corner Fill-in the Blank
4-Corner Handout
Wrap-Up
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Unit A introduces these four economic activities and
that the remainder of the course focuses on ways to
earn, spend, save, and borrow responsibly.
The main focus in Unit B will be earning; in Unit C,
spending; and in Unit D, saving and borrowing.
A person who has financial knowledge and skills
acts responsibly in these four activities and that is
what indicates financial literacy.