Transcript Essential Question for Sept. 21, 2012

Essential Question
for Sept. 21, 2012
Unit 2: Personal Finance
EQ #1) How can your money work for
you?
How do people make
choices?
• People respond to incentives in a
predictable way.
• People work hard and are more
productive if the incentive to work hard
is there
• People weigh the marginal benefit
against the marginal cost
• If,
Benefit > Cost, then
people will purchase.
Net Income
vs. Gross Income
• Gross Income is the amount of money
that you make.
• Net income is the amount that you
actually bring home.
• Where does the rest go?
• Taxes, insurance, retirement,
etc...
how do we save?
• The formula for savings
• Disposable income minus
consumption
Creating a Budget
• 1) List all things that you wish to include
• 2) Prioritize them
• 3) Price each item and then keep a running total
Sample Budget
item
1)
Charitable Giving
2)
Rent/Mortgage
3)
Food
4)
Utilities
5)
Car
6)
Gasoline
price
% of
Income
What is not on this budget?
TV, Movies, Sports, Hobbies, Insurance, Retirement,
Savings.....
Neatly Create your
own budget.
• Work with your neighbor to ensure that
you have covered all areas.
• Is there anything that you forgot to
include that he/she reminded you?
• How much money must you net in order
to successfully have this budget?
• What quality are the products on your
list?
How much are you
worth? (Net Wealth)
• Calculating your net wealth.
• Your total assets minus what you
owe.
• http://youtu.be/mZbV0zeFhyY
Budget Project
Essential Question
for Sept. 20, 2012
Unit 2: Personal Finance
EQ #2) Why is insurance important ?
Standards: SSEPF 1-5
http://youtu.be/bT-ovtsvnV8
Protecting What You
Have
• Insurance
• Key Terms
• Premium-Monthly
Payment
• Deductible-Payment
before a policy will pay
out in the event of a claim
Protecting What You
Have
• Types of Insurance
• Home owners
• Renters
• Health
• Disability
• Automotive Insurance allows someone
else to share the risk of a a
financial loss.
Essential Question
for Sept. 18, 2012
Unit 2: Personal Finance
EQ #3) What is the difference in a
progressive and a regressive tax?
Standards: SSEPF 1-5
http://youtu.be/EBSnWlpTPSk
Taxes
• Progressive Tax
•
•
a step system that requires those
who make more money to pay a high
percentage of their income in taxes
•
U.S. Income tax
Regressive tax
•
a tax system that places more of a
burden on the poor than on the
wealthy
•
•
Sales tax
Why?
• pecial option taxTaxes
• Like SPLOST
• Proportional Tax
• Tax on some property at a
percentage which does not change
based on the value
• Property tax
Effect of Income
Taxes
• Tax increase = more money is taken
out; therefore, a person is likely to
spend less. i.e. purchase fewer goods
or purchase “inferior goods.”
• Tax decrease = less money is taken
out; therefore, a person is likely to
spend more, save more, invest more.
Business owners are likely to invest
more and expand.
Essential Question
for Sept. 18, 2012
Unit 2: Personal Finance
EQ #4) What is credit?
Standards: SSEPF 1-5
Credit-goods or services recieved now
for the promise to pay back later.
• Credit is the rating that signals your ability to
pay back loans to lenders
(Credit Score)
• Interest--the price of the loan, it is a percentage
of the loan to be paid back along with the initial
principal borrowed
• the loaner receives interest (interest earned)
• the borrower pays the interest (interest
charged)
Credit
•
•
Credit score is a number that gives
lenders an idea of the risk/reward of
loaning money
3 C’s of credit
•
Collateral--Some thing that is of value
used to back a loan. (interest rates may be
lower for a person with good collateral because
the lender has a recourse of payment is not
made.)
•
•
Character
Capacity--ability to pay back a loan
Credit Score
•
•
•
3-digit FICO number
•
10%
10% 35%
15%
30%
Ranges from 350-850 (sort of)
Big 3-TransUnion, Equifax, Experian
Innovis, PRBC
•
•
•
Each uses its own data reporting and
therefore has a slightly different score.
Actual formula is secret
Misinformation is the responsibility of
the individual to get fixed.
how do we save?
• The formula for savings
• Disposable income minus
consumption
Essential Question
for Sept. 18, 2012
Unit 2: Personal Finance
EQ #5) How can one raise income
levels?
Standards: SSEPF 1-5
How to increase
income
•
•
Education: Studies have shown that the
higher the education the higher the
average income...thus more disposable
income.
Jobs that require skills that many need but
few have will pay more, the demand for
some jobs are high while the labors trained
to do the job are few...salaries in those
fields go up.
Why do pro quarterbacks
make so much money?
• The demand for a top
notch quarterback is very
high...teams owners want
to win and have a player
that can be the face of the
team
$41.7 Million
Rookie
$72m over 6
years)
• While the number of people
$18 Million
guarantee
($96m over 6
years)
who have the skills and
ability (the supply of
laborers for that job) are
very few.
Essential Question
for Sept. 18, 2012
Unit 2: Personal Finance
EQ #5) What is investment, and how can
compound interest help you or hurt you?
Standards: SSEPF 1-5
Investments
• 3 Rules of investing
• Buy and Hold
• Start Early (Let your money grow)
• Diversify
Types of investments
and their risks
•
Stocks
•
Mutual Funds
•
Bonds
•
•
Municipal Bonds are issued through Local
or state government
Federal Bonds are issued through the
Federal government
•
CDs
•
Savings
High Risk may lead to High Return
or total loss
Low Risk should not result in total loss but
will not yield high returns either
How does a bank
work?
Types of interest in
investing
• Simple Interest
• Compound
Interest
Interest rates can be fixed-they are
always the same, or they can be
variable-they change with the
market
Sample Problems
• $500 principal
• 10 years
• at 5% simple interest
500
x .05
25.00
But we started with
$500
so the total of what we
have is the interest plus
what we started.
25.00
$750.00
x 10years
$250.00total interest
Sample Problem
• $300 principal
• after 3 years
• 10% compound interest compounded
annually
300 +
x .10
$30
= $330 +
$33
= $363
$36.30
$399.30