Unit 1 - Your Financial Plan: Where It All Begins

Objective Students will be able to examine how the economy works, basic economic terminology and the definition of money

Terms to know Goals Financial Literacy Financial goals Money Short-term goals Intermediate goals Long-term goals Financial planning Delayed gratification Opportunity cost Satellite decisions Trade-off Wants Needs Values Financial Literacy Money Medium of Exchange Economy Economist Supply Demand Market Economy Barter Economy Inflation Incentive Scarcity Smart goals

Financial Literacy Is the ability to understand how money works in the world: how someone manages to earn or make it, how that person manages it, how he/she invests it (turn it into more) and how that person donates it to help others. Is the ability to understand finance It is an understanding of money management (spending plans, credit management and savings). Understanding how to finance your money

Financial Literacy Goals Rights and responsibilities Resource Mgt Decision Making Financial Service Fraud Prevention

Money Money is anything that serves as a medium of exchange that means it will be accepted as payment for goods or services Medium of exchange is a function of money that means it will be accepted as payment for goods or services (ex. Check, debit card, cash, credit card)

Economy Economy means all the activities related to making and distributing goods and services in an area Economist is a person who studies the economy Economy is growing people are buying goods or services. The lower the demand for goods and services may mean the business is not growing. The study of the economy is often said to be the study of scarcity

Market vs. Barter Economy The US has a market economy where the price for an item is set at a point that consumers are willing to pay and sellers are willing to accept Barter economy is system of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange such as money.

Demand vs. Supply Demand – the willingness and ability of consumers to buy products and services Products and services that are very popular among consumers they are said to have high demand. When demand exceeds > supply business may charge higher prices for products Needs and wants vs. spending wised and getting most value from dollars spent. Example clothes

Inflation is a general increase in prices and fall in the purchasing value of money.

Recession Is a significant decline in the economic activity lasting more than a few months, where growth slows, businesses stop expanding, employment falls, unemployment rises, and housing prices decline. Recessions are cyclical

Demand vs. Supply Supply the quantity of goods and services that producers are willing and able to provide So when Supply is > than the demand business will charge less for their products (put things on sale, BIGI 50% off. etc) Conclusion: Understanding how the economy affects prices of products, the job market, and your income can help you make better financial decisions.

Scarcity The basic economic situation – limited resources and unlimited wants Economy is growing people are buying goods or services. The lower the demand for goods and services may mean the business is not growing. The study of the economy is often said to be the study of scarcity

Objective Explain the relationship between spending practices and achieving financial goals by distinguishing between needs and wants

Needs vs. Wants Needs - are very basic things we must have to survive. Ex. Food, clothing, shelter and money Wants - are the beliefs and practices in your life that are very important to you (you don’t need it to live, makes life easier). “Anytime you go shopping, you should ask yourself, is this a need or is this a want?” – Michelle Singletary

Sample Wants and Needs NEEDS Food for breakfast Clothes for school Transportation to school or work ______________ WANTS An IPOD DVD Players Cell Phone Hot Car ______________ 1-C

Spending Record $6.00 $35.00 $4.00 $7.00 $5.00 $8.00 $15.00 $15.00 $55.00 $40.00 $15.00 1-I

https://www.youtube.com/watch?v=TRTkCHE1sS4

Objective Analyze the five steps in the financial planning process focusing on the importance of values, goal setting by creating smart goals differentiating between short-term, intermediate and long-term goals (2 to 3 days)

Values The beliefs and practices in your life that are very important to you. Ethics

Values Getting a good education Religious faith or beliefs Social causes Handling money responsibly Friendships / The people I hang out with What do you think about --slaughtering animals for their furs? Do you eat meat? ____________________________ 1-D

“Most people don’t plan to fail… They simply fail to plan!”

Financial Planning Is a process of setting goals, developing a plan to achieve them and putting the plan into action. Every decision today affects decisions made in the future.

Goals Personal & Financial Goals – a plan that is based on values or desired outcomes Personal goals – Things a person wants to achieve Financial goals – methods used to pay for personal goals Give Mrs. K’s personal goals and financial goals

The Five-Step Financial Planning Process 1-B

Term Goals Within three months Three months to a year More than a year SHORT-TERM GOALS Within three months INTERMEDIATE-TERM GOALS (medium) Three months to a year LONG-TERM GOALS More than a year 1-E

S-M-A-R-T GOAL CRITERIA Specific Measurable Attainable Realistic Time-Limited 1-G

Specific…….. Measurable… Attainable….. Realistic……. Time-Limited.. SMART Goals Specific…….. “Pay for lodging, transportation, meals for a 5-day trip to Washington, D.C.” Measurable… “$300 through fundraising, $50 from birthday money, save $25 a week.” Attainable….. “If I stick to my plan, I’ll have the money when I need it.” Realistic……. “I still have enough money to live on while I work toward this goal.” Time-Limited.. “I need to have all the money by 6 months from now.” 1-H

Apply what we learned Mika knows she will need a new phone in 2 months. What are two things we can say to describe this? Answer that it is a want and a short-term goal Want and a short-term goal

Why People Have Money Problems? Spend more than they make Buy on credit and can’t pay 3. Don’t budget or know exactly how much you are getting and spending 4. Don’t plan 5. Don’t save money to increase financial security Spend more than they make Buy on credit and can’t pay Don’t budget Don’t plan

What can be done to prevent this from happening to you? Set goals Budget money Don’t spend more than you make https://screen.yahoo.com/dont-buy-stuff-000000884.html

Developing Goals What is the time frame? Short-term— within 3 months Intermediate—reached in 3months to 1 year Long-term—reached after 1 year Guidelines for developing goals: Be specific Be measurable Be attainable Be realistic Have a clear time frame What action needs to be taken?

Factors That Affect Decision Making Age Factors That Affect Decision Making Needs Wants What about you? Family Culture Time Society Motivation Money Values Education Habits Attitudes 1-J

Decision Making Video Clip https://docs.google.com/file/d/0B2ptWhLqs_0YV0hZOUtuLXppcXc/edit?pli=1

Understanding the Importance of a Financial Plan by Setting Goals If I fail to plan, I plan to fail. What does this mean to you? List your financial goals How do you plan to achieve them?

Financial Planning Take out your Financial ID Quiz What did you find out about yourself? What is meant by “Pay Yourself First”? Put some money into your savings account before paying bills

Decision-Making Process Identify Your Goal Establish Criteria Examine Your Options Weigh Pros and Cons worksheet Make a Decision Evaluate Results 1-K

The Decision- Making Process p9 NEFE High School Financial Planning Program Unit One - Your Financial Plan: Where It All begins Decision Making and Financial Planning The Decision- Making Process p9 The Financial Planning Process Evaluate Results Make a Decision Identify Your Goal Weigh Pros and Cons Establish Criteria Monitor & Modify the Plan Implement Set Goals Create a Plan Analyze Information Examine Your Options 1-L

Know What You Want Identify Your Goal Decide where to eat Establish Criteria 1. 2. 3. 1-M

Delayed Gratification Saving money over time to make a major purchase. Waiting to buy a new product until the price goes down. Waiting to see the latest movie until the crowds get smaller and the lines shorter. ___________________________________________________________________ 1-F

Opportunity Cost, Scarcity, Trade-offs & Satellite Decisions Opportunity cost is the cost of passing up the next best alternative when making a decision Scarcity – the basic economic situation – limited resources and unlimited wants Trade-off – giving up one want to satisfy another Satellite decisions – is when a major decision leads to several smaller ones ex. Car (kind, down payment, color, where and when to buy, insurance, etc.)

Satellite decision examples Buying a car creates the need to make other decisions like where to obtain car insurance John purchased a new gaming system that one came with one controller. He needs another to play the game with a friend so he purchased a second fix

Opportunity Cost Scenarios Scenario 1. Time Scarcity: Volunteer Work or SAT Prep: 24 hours in a day Rosa has to decide how to spend her time Alternative: Attend SAT prep or do volunteer work at a community agency Decision: ? Opportunity cost: ? Complete Scenario 2 Money & 3 Space Incentive to make decision is that sat scores could improve and help her gain admission to the college of her choice Volunteer work is the choice, Rosa will miss added prep for the sat. An incentive for Rosa would be that many college admission officers consider extracurriculars. Added incentive Rosa could receive great satisfaction.

Opportunity Cost Example Reduce income by cutting back on work hours to go to college

Why is it important to have a financial plan? To have money to buy what I want To be able to afford things To have financial security (be able to pay bills and buy what I want)

REALITY RESPONSIBILITY RESTRAINT 1-N

SAVING SPENDING SHARING 1-O

Unit 1: Your Financial Plan: Where it All Begins