Transcript Module 1: Introduction to Personal Finance File

“A penny here, and a dollar there, placed at interest, goes on
accumulating, and in this way the desired result is attained.
It requires some training, perhaps, to accomplish this
economy, but when once used to it, you will find there is
more satisfaction in rational saving than in irrational
spending.”
-P. T. Barnum
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Learning Objectives:
 What is Personal Finance?
 Identify the 8 basic Financial planning activities
 Identify Social and Economic influences on personal
financial goals and decisions.
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Question Cluster 1- Initial knowledge questions
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Personal Finance skills are lacking
Financial Literacy Quiz
US Survey Data at a Glance
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LO1. Need for Financial Security
• Maslow’s Hierarchy of need is a pyramidshaped representation of human needs and
wants.
• Beginning with our basic needs— food, water,
sleep, sex, homeostasis—Maslow suggests that
our physiological needs are primary motivators
and must be satisfied before moving on to
higher-level need (you probably would not be
concerned with Instagram followers if you were
unable to breath.)
• In a society that is not preoccupied with
fulfilling basic physiological needs—food,
water, and shelter—happiness and esteem are
sought after relentlessly.Copyright © eNestEgg Press, LLC.
What is it?
What is personal finance?
Personal finance is all financial decisions and actions of a person. Very simply, almost any
decision that involves spending or making money.
 This could include insurance, budgeting, savings, investing, mortgages, debt servicing and more. In
general financial planning consist of evaluating your current financial position and predicting
short-term and long-term needs.
Personal financial planning:
 Is managing money in order to reach both the short term and long term financial goals of an
individual.
 For additional information visit: Investopedia- Personal Finance
What is a financial plan?
 A complete assessment of an investor's current and future financial state by using current variables
to forecast future cash flows, asset values and withdrawal plans.
Financial plan:
 A formal report that shows where you are, what you need, and which way to go.
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LO2. 8 Basic Financial Planning Activities
 Obtaining- Making money
 Planning- Have a plan and stick to it
 Saving- Setting aside fund for later
 Borrowing- Control your credit
 Bankruptcy-A legal process involving a person or business that is
unable to repay outstanding debts. (Maintain control of you debt)
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8 Basic Financial Planning Activities
 Spending- Make smart purchases
 Managing Risk- Insuring yourself against the unknown
 Investing- Placing your money into stocks, bonds, mutual
funds real-estate, etc.
 Retirement/Estate Planning- To provide for retirement
and on
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Question Cluster 2
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Our Inner Caveman
 In prehistoric times cavemen struggled to survive from one day to the
next.
 Ex: Being eaten by tigers, starvation & disease.
 The day to day need to survive gave cavemen a very short view of the
world.
 The average caveman was dead by the age of 33 while today the average
American lives to the age of 78.
 Planning for the distant future was not a primary concern of cavemen.
This resulted in us not being not being programed to plan for todays
world, where these kind of threats are not as popular.
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Why personal financial planning?
 A guide to help us get where were going.
 Less stress from insufficient funds for rent, bills, and other living expenses.
 Better relationships with family and friends.
 Increased ability to obtain, spend, invest and protect our money.
 Overall improved standard of living.
 The freedom to pursue new things.
 Improved health and well-being.
 Security against unforeseen things in the future such as lost job, illness, or
even death.
Reading assignment: “Your Most Valuable College Class: Personal Finance 101”
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Successful Financial Planning
 Involves sacrificing today’s spending to save for the future
 A balanced view towards money and happiness.
 Money:
 A tool to enjoy life
 Security against an uncertain world
 A way to achieve future dream
Our perspectives and views regarding money are influenced by our
surrounding environment.
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Question Cluster 3
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Result of not planning your finances:
 The number of pro athletes with financial troubles within 5
years of retirement:
- 78% of NFL players (Average yearly Salary $1.9 million)
- 60% of NBA players (Average yearly salary $5.15 millions)
 Similar to pro athletes, lottery winners often spend
extravagantly because they believe that they deserve luxuries.
 There are many reasons for these astounding numbers including
a lack of financial knowledge, over spending, and poor
judgment.
Source: The Richest
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How the world around us affects our
decision making in Financial Planning:
 Domestic (in the U.S.):
 Business, labor, and the government are all economic influences on
financial planning.
 The Federal Reserve affects the U.S. economy by keeping interest
rates and prices at appropriate levels in attempt to maintain an
adequate money supply for businesses and consumers.
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How the world around us affects our
decision making in Financial Planning:
 Foreign Factors (Outside the U.S.):
 Globalization- Business and investment opportunities have rapidly
moved beyond domestic markets. The world has seen a marked
increase in trade and cultural exchange in the recent future.
 Jobs are being moved overseas
 Cheaper labor
 Cheaper goods
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Question Cluster 4
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LO3. How the events in our life affect our
financial situation?
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What are your
financial goals at
each point in
your life?
Excel worksheet assignment:
Where do you want to be?
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Question Cluster 5
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Values and Financial Planning:
 A persons values shape what they consider to be
important in their life and the principles and standards of
behavior that support these. Your values can determine
career choice, saving behavior, purchasing behavior,
tolerance for risk, and even your desired fiscal legacy.

Ex. Someone who values their job satisfaction over money may leave a job
which makes them wealthy, but unhappy for a job they enjoy more and pays
less.
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Attitude and Financial Planning
A persons attitude shape how they view the
world around them, including their own
personal and financial situation.
 For example you may hate doing paper work or being
organized. Your attitudes about something are unlikely to
change therefore you must learn to adapt and work around
these pitfalls. Everyone has their own strengths and
weaknesses.
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Life is Expensive
Here are some possible large expenses you may experience within
your life time:
 Cost of a divorce
(Reading “Gain and Loss: Marriage and Wealth Changes Over Time” by Julie M. Zissimopoulos)
 Cost of funeral
 Cost of wedding
 Cost to retire
 Geographic (Moving to other places)
 Home Ownership
 Car calculator
 Cost of Food (per month)
 Cost of college
Personal and Financial Investment Quiz
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Life is full of Hassles
Everyday life hassles: minor annoyances and common conflicts
are the greatest source of stress in our lives due to their frequency and
duration.
 The top ten common hassles consist largely of items that can be
improved or eliminated through financial security.
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Did you know?
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Money Reduces Hassles
 A good paying job making living expenses less
burdensome:
 Buying a car
 Buying a house
 Paying for college
 A good paying job provides money to pay for hassles:
 home maintenance
 yard work
 hiring an assistant
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Money is not always Happiness
 Research finds richer people as a whole are more satisfied than
poorer people.
 Higher incomes are related to increased levels of happiness and
subjective well-being—up to a point.
 http://www.forbes.com/sites/susanadams/2013/05/10/money-
does-buy-happiness-says-new-study/
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The price of well-being
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Life satisfaction and income
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Did you know?
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"Money, if it does not bring you happiness, it will at
least help you be miserable in comfort."
-Helen Gurley Brown (former editor of Cosmopolitan)
Your personal financial plans need to be taken seriously.
How you handle your personal finances will have a major
impact on what you will be able to do with your life.
Attaining personal economic satisfaction is an ongoing and
long-term process.
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