Take Charge of Your Finances Family Economics and Financial Education Comparing Job Offers 1.1.3 Take Charge of Your Finances Family Economics and Financial Education Changes on Slides 4, 6

Supply and Demand The availability of jobs and the rate of pay is dependent upon the economic concept of supply and demand. Supply – the relationship of prices to the quantities of a good or service that sellers are willing to sell at any given point in time. Demand – the relationship between prices and the corresponding quantities of a good or service individuals are willing to purchase at any given point in time.

Congratulations! Sara just graduated from college with a teaching degree and received two job offers. Which is the best deal?

Which is the better deal? Job Offer 1 $35,000.00 in Reno, NV Job Offer 2 $40,000.00 in Anchorage, AK Not enough information to decide Which option is best? Added option C because it is in the body of the LP

Cost of Living Cost of living – includes housing, food, transportation, and other everyday expenses. Rural communities often have a lower cost of living than urban communities. Index form – rates communities on a scale of 100.0 and gives an average cost community a rating of 100.0. A lower index means a lower cost of living. A higher index means a higher cost of living.

Comparing Job Offers In groups of 3-4 participants brainstorm examples for each of the following categories: Base Salary Dollar amount a person will receive in his/her monthly paycheck before taxes. Based upon supply and demand Fringe Benefits Paid sick time Holidays and vacation time Bonuses Health and life insurance Workers’ Compensation Retirement contributions Opportunity for Advancement & Other Work Incentives Raised based on performance Guaranteed pay raise based on longevity Additional perks Relocation allowances Company car Repayment of education loans Stock options Gym membership Flexible hours Merchandise discounts Child care Telecommuting Location and Environment Commute time Affordable housing Low crime rate Good schools Desired climate

Cost of Living Equation Salary in city 1 x Cost of Living Index of City 2 Cost of Living Index of City 1 = Equivalent Salary in city 2 Round dollar amounts to two decimal places

Cost of Living Equation In order to compare the cost of living in two cities always follow these three steps: Step 1: Assign each city’s number. One city will be assigned the number one and the other the number two. Step 2: Provide the corresponding salaries and index amounts. Step 3: Complete the math and indicate which city is a better offer and why.

Sara’s Job Offers Job Offer 1 – Reno, NV Job Offer 2 – Anchorage, AK $35,000.00 salary 105.1 cost of living index Job Offer 2 – Anchorage, AK $40,000.00 salary 123.1 cost of living index

Sara’s Cost of Living Equations 123.1 $35,000.00 in Reno x = Equivalent Salary in Anchorage 105.1 Option 1 or Option 2 $40,000.00 in Anchorage x 105.1 = Equivalent Salary in Reno 123.1

Sara’s Cost of Living Equations $35,000.00 x 1.1712654 = $40,994.29 = Equivalent salary in Anchorage Option 1 or Option 2 $40,000.00 x .8537774 = $34,151.35 = Equivalent salary in Reno

Sara’s Job Outcome Job Offer 1 Job Offer 2 $ 35,000.00 in Reno, NV $40,994.29 in Anchorage, AK A person earning $35,000.00 in Reno must earn $40,994.29 in Anchorage to have the same spending power. Or A person earning $40,000.00 in Anchorage must earn $34,151.35 in Reno to have the same spending power. Therefore, the salary offer in Reno is better by $994.29 ($40,994.29 - $40,000.00).

Joe’s Offers Job Offer 1- Denver, CO Job Offer 2 - Seattle, WA $24,000.00 salary 102.9 cost of living index Job Offer 2 - Seattle, WA $32,000.00 salary 148.2 cost of living index

Cost of Living Equation Salary in city 1 x Cost of Living Index of City 2 Cost of Living Index of City 1 = Equivalent Salary in city 2 Round dollar amounts to two decimal places

Joe’s Cost of Living Equations 148.2 $24,000.00 in Denver x = Equivalent salary in Seattle 102.9 Option 1 or Option 2 $32,000.00 in Seattle x 102.9 = Equivalent salary in Denver 148.2

Joe’s Cost of Living Equations Option 1 or Option 2 $24,000.00 x 1.4402332 = $34,565.60 = Equivalent salary in Seattle $32,000.00 x .6943319 = $22,218.62 = Equivalent salary in Denver

Joe’s Job Outcome Job Offer 1 Job Offer 2 $24,000.00 in Denver, CO $34,565.60 in Seattle, WA A person earning $24,000.00 in Denver must earn $34,565.60 in Seattle to have the same spending power. Or A person earning $32,000.00 in Seattle must earn $22,218.62 in Denver to have the same spending power. Therefore, the salary offer in Denver is better by $2,565.60 ($34,565.60 - $32,000.00).

Fringe benefits and employer provided services can make a difference: For example, if a $35,000.00 job had 100% of medical insurance coverage valuing $400.00 per month, a person would not have to budget for $4,800.00 in medical insurance per year. This would increase the value of his or her salary to $39,800.00. Benefits and services should be included within the salary before calculating the cost of living.

Sara’s Job including benefit package Salary in city 1 x Cost of Living Index of City 2 Cost of Living Index of City 1 = Equivalent Salary in city 2 Round dollar amounts to two decimal places

Sara’s Job including benefit package Job Offer 1 – Reno, NV $35,000.00 salary + $4,800.00 benefits = $39,800.00 105.1 cost of living index Job Offer 2 – Anchorage, AK $40,000.00 salary + $5,200.00 benefits = $45,200.00 123.1 cost of living index

Sara’s Job including benefit package Option 1 or Option 2 123.1 $39,800.00 in Reno x = Equivalent salary in Anchorage 105.1 105.1 $45,200.00 in Anchorage x = Equivalent salary in Reno 123.1

Sara’s Job including benefit package Option 1 or Option 2 $39,800.00 x 1.1712654 = $46,616.36 = Equivalent salary in Anchorage $45,200.00 x .8537774 = $38,590.74 = Equivalent salary in Reno

Sara’s Job Outcome including benefit package Job Offer 1 $39,800.00 (with benefits) in Reno, NV Job Offer 2 $45,200.00 (with benefits) in Anchorage, AK A person earning $39,800.00 in Reno must earn $46,566.00 in Anchorage to have the same spending power. -Or A person earning $45,200.00 in Anchorage must earn $38,590.74 in Reno to have the same spending power. Therefore, with the benefits package included, the job offer in Reno is higher.

Joe’s Job including benefit package Job offer 1 - Denver, CO $24,000.00 salary + $4,500.00 benefits =$28,500.00 102.9 cost of living index Job offer 2 - Seattle, WA $32,000.00 salary +$6,000.00 benefits = $38,000.00 148.2 cost of living index

Cost of Living Equation Salary in city 1 x Cost of Living Index of City 2 Cost of Living Index of City 1 = Equivalent Salary in city 2 Round dollar amounts to two decimal places

Joe’s Job including benefit package Option 1 or Option 2 $28,500.00 in Denver x 148.2 = Equivalent salary in Seattle 102.9 $38,000.00 in Seattle x 102.9 = Equivalent salary in Denver 148.2

Joe’s Job including benefit package Option 1 or Option 2 $28,500.00 x 1.4402332 = $41,046.65 = Equivalent salary in Seattle $38,000.00 x .6943319 = $26,384.61 = Equivalent salary in Denver

Joe’s Job Outcome including benefit package Job Offer 1 $28,500.00(with benefits) in Denver, CO Job Offer 2 $38,000.00(with benefits) in Seattle, WA A person earning $28,500.00 in Denver must earn $41,046.65 in Seattle to have the same spending power. Or A person earning $38,000.00 in Seattle must earn $26,384.61 in Denver to have the same spending power. Therefore, with the benefits package included, the job offer in Denver is higher.

Additional Websites Websites available to help calculate salaries and cost of living in various locations www.homefair.com www.bankrate.com/brm/movecalc.asp www.accra.org $12.95 fee

Questions?