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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.

Have you ever heard the saying that “Money talks.”

FYI – 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.

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PF01.01: Understand responsible earning, spending, saving, and borrowing.

Give me examples of problems that can be solved with money.

Give me examples of problems that can not be solved with money.

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PF01.01: Understand responsible earning, spending, saving, and borrowing.

Write answers to the questions in your JOURNAL.– Number Page– Write Date– Indicate Objective (PF01.01)– Label Answers

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PF01.01: Understand responsible earning, spending, saving, and borrowing.

1. List as many words as possible that mean “MONEY.”2. When was the last time you did something to EARN

money?3. How did you earn it?4. How did this make you feel?5. How do you decide on what to SPEND your money?6. What was the last thing for which you decided to SAVE

money?7. How do you “make yourself” save?8. When was the last time you decided to BORROW money

or something else?9. How did things turn out?10. What are your views on borrowing and lending?

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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.

Class Discussion– Questions written in JOURNAL.

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PF01.01: Understand responsible earning, spending, saving, and borrowing.

There are four basic economic activities of consumers

– Earning– Spending– Saving– Borrowing

When these activities are handle responsibly, individuals are more likely to achieve financial security and personal satisfaction.

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EARNING

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)

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EARNING

The word earn applies to many things of value in life, not just money.– Honor Roll Certificate– Perfect Attendance Certificate

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Factors affecting career choices & ability to find employment

Career Choices Type of career/job Place of employment

Ability to Find Employment Education level Employability skills Prior job performance Economic conditions Workplace trends and

opportunities

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……and ability to advance

Ability to Advance Type of career/job Education level Job performance Economic conditions Workplace trends and

opportunities

Career Choices+

Ability to Find Employment+

Ability to Advance

Earnings

Standard of Living

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Responsible Earning

Involves realizing that career choices greatly affect lifetime earnings and standard of living and considering these factors when making career choices.

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PF01.01: Understand responsible earning, spending, saving, and borrowing.

Group Activity– Earning Handout

Internet Activity– Wealthy People– Handout Available

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PF01.01 Key Terms

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

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PF01.01 Key Terms

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

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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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Write a response to the following quote in your journal.

PF01.01 Spending

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PF1.01 Spending

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.

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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

Goods – Items that people buy Services –Activities done for others for a fee

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PF01.01 Spending

Trade-offs and Opportunity Costs– 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.

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PF01.01 Responsible Spending

Responsible spending includes researching and planning purchases in advance and making wise choices in light of opportunity costs and trade-offs that apply.

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HATFIELDS & MCCOYS

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.

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HATFIELDS & MCCOYS

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?

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HATFIELDS & MCCOYS

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.

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HATFIELDS & MCCOYS

One of the most difficult things in economics is understanding the opportunity cost of choosing a particular action.

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HATFIELDS & MCCOYS

Please do not confuse opportunity cost with trade-off.

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.

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HATFIELDS & MCCOYS

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.

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HATFIELDS & MCCOYS

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.

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HATFIELDS & MCCOYS

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!

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PF1.01 Spending – Journal Entry

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)

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PF1.01 Saving

--- 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.

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PF1.01 Saving

“Later Uses” for Savings– Emergencies– Recurring expenses– Future purchases– Financial goals– Retirement

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PF1.01 Saving

Benefits of Saving– 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

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PF1.01 Responsible Saving

Responsible saving means forming the habit of saving regularly and finding forms of saving that yield high returns.

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PF1.01 Saving – Journal Entry

1. If you were given $10,000 today, how much would you save? (State dollar amount and percentage of the total)

2. How much of the $10,000 would you spend? (State dollar amount and percentage of the total)

3. On what would you spend part of the money?

4. Where would you put the part of the money to be saved?

5. Why did you respond as you did?

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PF1.01 Saving – Class Discussion

1. Survey the class to see what percentage each person would plan to save and what percentage they would spend right away.

2. Discuss reasons students made the choices they did.

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PF1.01 Responsible Saving

Responsible saving means forming the habit of saving regularly and finding forms of saving that yield high returns.

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PF1.01 Borrowing

--- 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

Credit purchases are more costly than cash purchases if not paid back quickly.

The wise use of credit can help some individuals raise their standard of living by extending their buying power.

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PF1.01 Borrowing

Examples of Borrowing– Buying with a credit card– Buying on installment– Payday loans– Cash advances– Layaway purchases

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PF1.01 Borrowing

Reasons for Borrowing– Major purchases– Emergencies– Convenience– Prepare for future goals– Take advantage of good sales/offers

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PF1.01 Responsible Borrowing

Responsible borrowing means borrowing only what can be paid back when due.

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PF1.01 Borrowing – Journal Entry

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.

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PF1.01 Responsible Borrowing

Responsible borrowing means borrowing only what can be paid back when due.

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Personal Finance 1.01

Wrap-up

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Wrap-Up

View PowerPoint: Responsible Earning, Spending, Borrowing, Saving

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Wrap-up

Corner Fill-in the Blank 4-Corner Handout

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Wrap-Up

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.