Personal Finance Chapter 3 1

Essential Question Why is it important to recognize the difference between financial needs and financial wants? 2

Objectives  Identify your personal financial assets and explore the value of money.  Distinguish the differences between financial needs and financial wants  Make reasoned financial decisions  Develop spending and savings goals  Calculate your net worth  Prepare a simple budget 3

Chapter 3 – Personal Finance Mastering Money 4

Are you a Spend Thrift or a Tight Wad?  National analysis says:  _____ % Tight Wad (finds it painful to spend money)  _____ % Spend Thrift (can’t spend money fast enough) What do you think are the percentages? 5

Are you a Spend Thrift or a Tight Wad?  National analysis says:  24 % Tight Wad (finds it painful to spend money)  15 % Spend Thrift (can’t spend money fast enough) Does this surprise you? 6

Financial Self-Evaluation 1.I believe it is important to save 2.When I see something I want, I should buy it, regardless of how much it costs. 3.Money burns a whole in my pocket. 4.I believe you should only pay cash when buying things. 5.I am good at making money. 6.As soon as I am old enough, I plan to get a credit card. 7.I budget my money wisely. 8.I spend a lot of time thinking about a purchase before I make the purchase. Evaluate each of these statements using the following scale: 1- strongly disagree 2- disagree 3- unsure 4- agree 5- strongly disagree 7

Financial Self-Evaluation 9.I often cannot account for how I spent my money. 10.It is important to make charitable contributions. 11.I often ask my parents for an advance on my allowance to buy something I want. 12.I am able to save money to buy something I really want, even if it takes a considerable amount of time. 13.I gladly loan money to my friends. 14.If I see something I want, I wait until it is on sale to buy it. 15.I am happy to buy used items to save money. Evaluate each of these statements using the following scale: 1- strongly disagree 2- disagree 3- unsure 4- agree 5- strongly disagree 8

Financial Self-Evaluation  What does this survey tell you about yourself?  Are you a “saver” or a “spend thrift”?  Are you “cheap” or “high maintenance”?  Are you destined for debt and bankruptcy? or  Are you destined for early retirement? Does this foretell your Financial Future? Discuss at your table. 9

Vocabulary 1 10  Assets  Barter  Cash  Checks  Credit Card  Currency  Debit Card  Denomination Chapter Personal Finance 10  Electronic funds  Face Value  Federal Reserve  Finances  Marginal Benefit  Marginal Cost  Money  Financial goals

Mastering Money 11  Finances – assets, or resources, in the form of money.  Personal finances – includes the money you earn, spend, and save. Chapter Personal Finance 10

Mastering Money  Money is anything you exchange for goods or services.  Cash is the money made out of paper (dollar bills) and metal (coins).  Electronic funds transfer (EFT) is when you move money from one account to another using online banking. 12 Chapter Personal Finance 10 What is Money?

Mastering Money  People use credit cards to buy something and pay for it later.  We also write checks, which are written orders to a bank to transfer funds from our account to someone else’s account. 13 Chapter Personal Finance 10 The real value of money is what it is worth to you. The decisions you make about spending your money reflect your values.

Marginal Cost – Marginal Benefit  The value of Just One More.  A cookie is a good buy at $1.00  A second cookie may be a good buy at $1.00  How about the third? 14 Chapter Personal Finance 10  Is it still a good buy for the 5 th cookie?  What would it be worth?

Current Discontinued 15 Chapter Personal Finance 10

Financial Needs vs. Wants 16 Chapter Personal Finance 10  What is the difference between a WANT and a NEED?  Financial needs are the things you must buy in order to survive.  Financial wants are the things that will help you maintain a certain standard of living.  Standard of living measures how comfortable you are based on the things you own.

Financial Needs vs. Wants  Financial needs and wants are different depending on your stage of life.  Financial decision – a decision about how to manage your money.  You can use the decision-making process for making financial decisions. 17 Chapter Personal Finance 10

Financial Decisions Things to consider when making a financial decision:  Do I have enough money to PAY for it?  Do I NEED it?  Do I need it NOW?  Do I WANT it?  WHY do I want it?  Is there something less expensive but just as good?  If I buy it, will I have money left for something else? 18 Chapter Personal Finance 10

Financial Decisions Conspicuous Consumption? 19

Setting Financial Goals  Financial goals are the plans you have for using your money.  There are two main types of financial goals:  Spending goals are for buying things you need and want.  Saving goals are for saving money for the future.  Setting financial goals helps you focus on how you want to use the money you have available. 20 Chapter Personal Finance 10

Setting Financial Goals  You can set both short-term and long- term goals to manage your finances.  When you set financial goals, you will probably think first about what you need or want to buy. These are your spending goals.  It’s harder to set saving goals — saving money is not as much fun as spending! But saving and investing in your future is very important in achieving your financial goals. 21 Chapter Personal Finance 10

Vocabulary 2 22  Budget  Deficit  Expenses  Estimate  Fixed Expenses  Flexible or Variable Expenses Chapter Personal Finance 10  Income  Surplus  Unexpected expenses

Managing a Budget 23 A budget is a plan for spending and saving money. It gives you a clear picture of where your money comes from and where it is going. It helps you manage your money and make healthy financial decisions. Chapter Personal Finance 10

Managing a Budget  A budget is a record of your income and your expenses.  The goal is to balance the budget, which means making sure that your income equals or exceeds your expenses.  A budget helps you keep track of the ways you actually use your money, and to make adjustments. 24 Chapter Personal Finance 10

Managing a Budget  Fixed expenses are known each month, usually the same amount each month (ex: rent)  Flexible or variable expenses change from month to month (ex: electricity, food)  You will need to estimate your flexible expenses when setting up your budget. 25 Chapter Personal Finance 10

Setting Up a Budget  There are four basic steps for setting up a budget. 1.List the categories or types of your monthly income. 2.List the categories of your regular expenses. 3.Balance your budget. 4.Do the math and determine if you have a budget surplus or deficit. 26 Chapter Personal Finance 10

Setting Up a Budget  Use the Miscellaneous category for unexpected expenses, or are purchases you had not planned.  Staying on budget means using your money according to your plan to achieve your financial goals.  If you have a deficit, you are spending more money than you are earning every month. To achieve your financial goals, you’ll have to eliminate the deficit. 27 Chapter Personal Finance 10

Budget Activity  You are in your second year of college and are finally living off campus in an apartment with a roommate.  Make a list of the items that will be in your budget while at college.  Remember to include daily living costs such as food but also shampoo etc.  Now share your choices at your table. 28 Chapter Personal Finance 10

College Budget Budget ItemMonthly PlannedMonthly ActualVariance Income Expenses 29

Vocabulary 3 30  Base Pay  Benefits  Bonus  Commission  Endorse  Gross Income  Gross Pay  Monetary Compensation Chapter Personal Finance 10  Net Income  Paycheck  Pay Period  Pay Stub  Personal Allowance  Subsidy

Analyzing Your Paycheck  What is a Paycheck?  Why do you receive a Paycheck? 31 Chapter Personal Finance 10  Your paycheck is a document that tells your employer’s bank how much money to give to you. It is your payment for working.

Analyzing Your Paycheck  Most paychecks include this information:  Your employer’s name and address  A check number  The date of the check  Your name as the recipient, or payee  The amount of the check written in numbers and spelled out  The signature of a person authorized by your employer 32 Chapter Personal Finance 10

Analyzing Your Paycheck  A pay stub is attached to the paycheck and provides information about the money you earned:  Personal information about the employee  Information about earnings  Information about deductions  Information summarizing earnings and withholdings for the current pay period and the year-to-date (since January 1) 33 Chapter Personal Finance 10

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Analyzing Your Paycheck  How much do you earn?  How much do you bring home?  Gross Pay –  your hourly wage X the number of hours work or  your annual salary ÷ number of pay periods (ex: monthly)  Net Pay (take home pay) – your gross pay deductions  Taxes  FICA – social security and Medicare  Health Care 35 Chapter Personal Finance 10

How much will your Paycheck be? 36 Chapter Personal Finance 10

Choosing a Method of Payment  Cash  A good option for most purchases.  When you use cash, you don’t have to worry about whether there is enough money in your bank account or how you’re going to pay your credit card bill in the future.  The biggest drawback to using cash is that it can be lost or stolen. 37 Chapter Personal Finance 10

Choosing a Method of Payment  Check  When you write a check, you are authorizing your bank to transfer money from your account to the account of the person whose name you write on the check.  If you use a checking account, it is important to keep the account balanced, meaning you must keep track of how much money is in your account.  If the amount of the checks you write is greater than your deposits. your account will be overdrawn (in deficit) and you will be charged a fee.  Changes due to “Check 21” law 38 Chapter Personal Finance 10

Debit Cards, Credit Cards, and EFTs  Debit Card  A debit card is just like cash except it is more convenient.  When you use a debit card, the money is automatically and immediately transferred out of your bank account, just as if you withdrew it as cash.  Just like with a checking account, you must keep track of how much money is in your account 39 Chapter Personal Finance 10

Debit Cards, Credit Cards, and EFTs  Credit Card  A credit card lets you use credit—a loan—to buy now and pay later (but with additional cost).  Every time you use a credit card, you are borrowing money from the business that issued the card, such as the bank, store, or credit card company.  The business pays for the purchase, and then you repay the business by paying your credit card bill.  ETF – Electronic Funds Transfers  You use electronic fund transfers (EFT) to transfer money from one bank account to another. 40 Chapter Personal Finance 10

Other types of Money Transfers  Travelers Checks  A check on the company’s account that you endorse and then endorse a second time at the point of sale  Easy to replace – safer than cash  Money Orders  A check written on the company’s account that is made out to a specific person of company.  You must pay for the money order with cash but it is safer than mailing cash and cheaper than some checking accounts 41 Chapter Personal Finance 10

Chapter Review  Finances are assets, or resources, in the form of money. Your personal finances include the money you earn, spend, and save.  Your financial needs are the things you must buy in order to survive.  Your financial wants are the things that will help you maintain a certain standard of living.  Financial goals are the plans you have for using your money. 42 Chapter Personal Finance 03

Chapter Review  A budget is a plan for spending and saving money. It gives you a clear picture of where your money comes from and where it is going.  Your paycheck is a document that tells your employer’s bank how much money to give to you. It is your payment for working.  The four common methods of payment are cash, checks, credit cards, and debit cards. 43 Chapter Personal Finance 03

Vocabulary Game  Assets  Barter  Cash  Checks  Credit Card  Currency  Debit Card  Denomination  Electronic funds  Face Value  Federal Reserve  Finances  Marginal Benefit 44  Marginal Cost  Money  Financial goals  Budget  Deficit  Expenses  Estimate  Fixed Expenses  Flexible or Variable Expenses  Base Pay  Benefits  Bonus  Commission  Endorse  Gross Income  Gross Pay  Monetary Compensation  Net Income  Paycheck  Pay Period  Pay Stub  Personal Allowance  Subsidy 