1. What do I do with my personal resources?
PERSONAL FINANCE
What do I do with my personal resources?

2. I respond predictably to incentives
Engage in activities that benefit me economically (increased income, profit, revenue)
Avoid activities that hurt me economically (decreased income, profit, revenue)

3. Rational Decision Making
I respond to incentives
Positive – a reward for making good choices/behavior (get a 10% raise for selling 80 pairs of shoes) – try to achieve these
Negative – punishment/consequence for making poor choices (getting fired for failing to sell 80 pairs of shoes) – try to avoid these

4. RATIONAL DECISION MAKING MODEL
Define the problem – resource are scarce, I can’t have everything I want
List the alternatives – what are my REALISTIC choices
State the criteria – what is most important to you (or what is necessary)
Evaluate the alternatives – what comes closest to what you want the most or will help you get what you want the most?
Make a Decision – rationally choose the best alternative

5. Worker’s Earnings Worker’s earnings: pay received from an employer
Determine how much a person will have to spend or save/invest for the future
Earning potential: how much a person is likely to receive in pay
Influenced by skills, education, training,
Highly successful people invest as much time/money on education and training as possible

6. Effect of Taxes on Personal Finance
Progressive tax – increases as income increases best example is Federal Income Tax:
Tax Bracket Married (FJ) Single
10% Bracket $0 – $17,400 $0 – $8,700
15% Bracket $17,400 – $70,700 $8, ,350
25% Bracket $70,700 – $142,700 $35,350 – $85,650
28% Bracket $142,700 – $217,450 $85,650 – $178,650
33% Bracket $217,450 – $388,350 $178,650 – $388,350
35% Bracket Over $388,350 Over $388,350

7. Taxes Continued Regressive Tax
Percentage paid in tax increases as income decreases
Sales tax - most common regressive tax
(7% in Effingham County)
7% of $300 = $21
Income of $10K 7% sales tax of $21 = .02 % of salary
Income of $50K – 7% sales tax of $21 = .004% of salary
Affect people of lower incomes more severly

8. Taxes Continued
Proportional Tax – everyone pays the same amount proportional to their income (also known as flat tax)
10% no matter your income…
$100K = $10K tax
$50K = $5K tax
$25K = $2.5K tax

9. Taxes Continued Property Taxes
Taxes paid on real estate (land, houses, etc.) people own.
Based on appraised value of property
Increases in property values, and thus taxes, are beneficial for people wanting to sell; but hurt people who may no longer be able to afford the taxes on their homes (think Hilton Head Island)
Delinquent (unpaid) taxes accrue interest and fees and can lead to foreclosure and loss of property

10. WHAT DO I DO WITH WHAT’S LEFT AFTER TAXES?
Banking, Saving, Borrowing
Financial Institutions
Commercial Banks – receive deposits of money, extend credit and provide loans
Owned and managed by stockholders
Make money by granting loans and charging interest – interest charged (amount charged to customers for borrowing money)
Pays interest to customers who deposit money in savings accounts - interest earned (amount paid to customers for the use of their money)
Interest charged is usually MORE than interest earned (“the spread”)

11. Financial Institutions Continued
Credit Unions
Cooperative associations that serve only their members (only certain people can join)
Offer checking and savings accounts and grant loans
Technically “non-profit” do not have to pay the same taxes as commercial banks
Offer higher interest earned rates than banks

12. Financial Institutions Continued
Payday Loan Lenders
Quick short terms loans
High interest rates
Borrow $50 on Wednesday because you do not get paid until Friday – on Friday, you pay $60 back when you get your check (20% interest rate
Use in EMERGENCY situations

13. Financial Institutions Continued
Title Pawn Lender
Short term loans for people with salary gap between income and expenses
Loan is based on collateral (car)
VERY high interest rates
Failure to pay back results in loss of vehicle

14. Investing High Risk Low Risk High Return Low Return
Looking for a RETURN (eventual payoff) on my investment
RISK (chance of losing investment) in hope for the payoff
Correlation between risk and return…
KEY: MAKE SURE I WILL STILL BE OK IF I LOSE THE MONEY

15. INVESTING CONTINUED
STOCKS – shares in a company – high risk, chance of high return.
MUTUAL FUNDS – pool of money from many investors that are used to buy a range of stocks- moderate risk, moderate return
RETIREMENT ACCOUNTS – 401K, 403B – Pre-tax, some companies match a percentage of contribution
U.S. TREASURY BONDS – loans to a company or the government - low risk, low return
SAVINGS ACCOUNT – place to “store” money – minimal risk, minimal return
Why invest or save??? To have a good retirement

16. How do I get credit???
Based on Credit Worthiness which is determined by the 3 C’s
Character as indicated in Credit Report from Experian, Equifax or Transunion that details a person’s borrowing and repayment history
Capacity – includes one’s income as well a existing debt. If debt to income ratio is too high, he may not be able to handle more debt
Collateral – something of value a borrower can use to back the loan if he fails to repay the debt

17. CREDIT: GOOD, BAD & UGLY GOOD
Allows me to have goods or services now and pay later (Student loans, House, Furniture, Car)
Difficult to save entire amount to pay in lump sum

18. Credit Continued
Bad
Interest charged makes me pay more in the long run
Simple interest – applied only to the value of the principle
5% annually for 10 years = $10,000 X 5% X 10 = 5K in interest = total paid to bank of $15K for loan
Compound Interest – applied to principle and the accrued interest
A = P X [1 + r/n]nt
A – amount to be paid back
P – principle
R – interest rate
N – number of compounding periods per year
T – number of years of the loan

19. Credit Continued Ugly Failure to pay on time leads to
poor credit score
Increased interest rates
Increased insurance rates
Limited employability

20. Insurance
Provides opportunity to share the risk (shared liability) with insurance company (consumer is not responsible for 100% of loss/damage/debt)
Consumer pays a premium
Usually includes a deductible (amount paid by consumer before insurer pays anything)
Insurer pays amount up to policy limits after deductible and co-pays are met

21. Types of Insurance Life – pays beneficiary upon insured’s death
Whole-life
Term-life (limited number of years)
Medical (health) – pays for covered medical care
Auto – pays for damage to auto and injuries in a covered accident
Property- (homeowner’s) pays for covered damages to home
Liability – pays for damages for which insured is held legally liable (comprehensive liability usually applies to businesses)
Disability – pays part of insured’s wages while they are unable to work