1. Methods for Teaching Financial Literacy with Economic Reasoning CCEE Summer 2012 Program Millionaire Game Colorado PFL and Economics Standards July 9 – 13, 2012 John Brock, Professor of Record

2. Colorado Council for Economic Education Faculty John Brock Director, Center for Economic Education –University of Colorado, Colorado Springs »jbrock@uccs.edujbrock@uccs.edu Master Teachers –Social Studies:Pam Patrick, Social Studies, Cherokee Trail HS –Mathematics:Ann Brock, retired Math teacher, Lewis-Palmer HS

3. Let’s Get Started!

4. What Is Wealth? Wealth = (What you own) “Assets” “Liabilities” minus (What you owe)

5. What’s a Millionaire? Household with a net worth (or wealth) of: $1,000,000 (or more)* Let’s play a game... * Definition of millionaire often excludes primary residence.

6. The Millionaire Game* Divide into two-person teams Rules: –Statements appear on screen. –Each team decides True or False. –Circle chosen answer on sheet provided. True or False * Shortened version of FFFL, 2 nd ed., Lesson 1

7. Millionaire Statements Statement 1: –Most millionaires are college graduates. Statement 2: –Most millionaires work fewer than 40 hours per week. Statement 3: –Most of America’s millionaires are first- generation rich. Statement 4: –The average total household annual income of today’s millionaires is about $120,000.

8. Statement 5: –Nearly 50% of millionaires drive current-year cars. Statement 6: –Many poor people become millionaires by winning the lottery. Statement 7: –College graduates earn about 60% more than high school graduates earn. Statement 8: –Millionaires tend to avoid the stock market. Millionaire Statements

9. Statement 10: –American families of English ancestry are more likely to be millionaires today than households of other ethnic origins. Statement 9: –At age 18, you decide not to purchase soft drinks from the vending machine and save $1.50 a day. –You invest this $1.50 a day at 8% annual interest until you are 67. –At age 67, your savings are almost $150,000. Millionaire Statements

10. How Did We Do? For each statement, hold up the card –T for true –F for false According to answer sheet: –correct answer = + 5 –incorrect answer = - 5 Each team has 1 Millionaire card –correct (+10); incorrect (-10) July 2012 CCEE Millionaire Champion Sources: Millionaire Next Door, Millionaire Mind, & Getting Rich in America

11. Statement 1 Most millionaires are college graduates. 80% of millionaires are college graduates. 18% have Master’s degrees 8% have law degrees 6% medical degrees 6% Ph.D.s True Diploma University of Colorado Colorado Springs Education

12. Statement 2 Most millionaires work fewer than 40 hours per week. About 67% of millionaires work 45 to 55 hours a week. False Earn

13. Statement 3 Most of America’s millionaires are first-generation rich. Only 19% received any wealth of any kind from a trust fund or estate. Fewer than 10% inherited 10% or more of their wealth. True Earn

14. Statement 4 The average total household income of today’s millionaires is about $120,000. Total income reported among millionaire households averaged $119,000 (2005). –Frugal, Frugal, Frugal True Save

15. Statement 5 Nearly 50% of millionaires drive current-year cars. Most millionaires spend under $30,000 for a car. –Only 23% drive a current- year [new model] car. False Save

16. Statement 6 Many poor people become millionaires by winning the lottery. Few people get rich the easy way! Chance of winning about one in 12 million. Average person who plays every day have to live about 33,000 years to win once. In contrast, you have a one in 1.9 million chance of being struck by lightning. A pregnant woman has one chance in 705,000 births to have quadruplets. –How many sets of quadruplets do you know? False Save & Invest

17. Statement 7 College graduates earn about 60% more than high school graduates earn. In recent years the average college graduate earned 63% more than the average high school graduate did. True Education

18. Statement 8 Millionaires tend to avoid the stock market. –Long term, the S&P 500 Stock Index has increased about 10% compound annual rate of return, exceeding the return on any other investment. False Invest

19. Statement 9 At age 18, you decide not to purchase vending machine soft drinks &save $1.50 a day. You invest this $1.50 a day at 8% annual interest until you are 67. At age 67, your savings are almost $150,000. –Because of the power of compound interest, small savings can make a difference, almost $300,000 in this case. False Save

20. Statement 10 American families of English ancestry are more likely to be millionaires today than households of other ethnic origins. In the mid-to-late 1990s: Russian –22% are millionaires Scottish –21% are millionaires Hungarian –15% are millionaires English –7.7% are millionaires False Financial Fitness

21. The Moral of the Story? Learning outcome for our students? A formula for financial fitness: E 2 + S + I 2 = F 2 E ducation, E arn, S ave, I nvest and I nsure equals Financial Fitness People who “have it all,” didn’t get there by accident. They had a plan and followed it. (as reflected in the Millionaire Game)

22. The Colorado PFL Content Standards

23. Personal Financial Literacy: Economics Content Area: Social Studies (4 standards) –History, Geography, Economics, Civics –Economics: 7 Grade Level Expectations 3 “traditional economics,” covering (although not labeled as such in the standards): –microeconomics –macroeconomics –international 4 personal financial literacy (PFL)

24. Standard 3: Economics Grade Level Expectation: High School 4. Design, analyze, and apply a financial plan based on short- and long-run financial goals –Selected Evidence Outcomes & 21 st Century Skills: Develop a financial plan including a budget Describe factors affecting take-home pay Sources of personal income Legal and ethical responsibilities regarding taxes Role of education in building financial security Education + Earn (+ a bit on Saving)

25. Standard 3: Economics Grade Level Expectation: High School 5. Analyze strategic spending, saving, and investment options to achieve the objectives of diversification, liquidity, income and growth. –Selected Evidence Outcomes & 21 st Century Skills: Investments available for diversified portfolio How economic cycles affect financial decisions Investments to achieve liquidity, growth, income. How compound interest manifests in investment and debt situations. Invest

26. Standard 3: Economics Grade Level Expectation: High School 6. The components of personal credit to manage credit and debt. –Selected Evidence Outcomes & 21 st Century Skills: Analyze lending sources, services & financial institutions Building and maintaining a credit history Similarities & differences in revolving credit, personal loans and mortgages Save (via responsible use of credit)

27. Standard 3: Economics Grade Level Expectation: High School 7. Identify, develop and evaluate risk-management strategies. –Selected Evidence Outcomes & 21 st Century Skills: Differentiate between types of insurance Explain function and purpose of insurance Select and evaluate strategies to mitigate risk Additional ways individuals can alleviate financial risk Protect with Insurance

28. Standard 3: Economics Grade Level Expectation: Eighth Grade 2. Manage personal credit and debt. –Selected Evidence Outcomes & 21 st Century Skills: Analyze benefits and costs of credit and debt. Compare sources of credit. When is debt useful? Save (via responsible use of credit)

29. Standard 3: Economics Grade Level Expectation: Seventh Grade 2. The distribution of resources influences economic production and individual choices. –Selected Evidence Outcomes & 21 st Century Skills: Explain the role of taxes. Define various types of taxes. Demonstrate the impact of taxes on individual income and spending. Factors influence production…supply, demand & price Earn

30. Standard 3: Economics Grade Level Expectation: Sixth Grade 2. Saving and investing are key contributors to financial well-being. –Selected Evidence Outcomes & 21 st Century Skills: Differentiate between saving and investing. Explain how saving and investing can improve financial well-being. What are risky investments and why would someone make that type of investment? Save and Invest

31. Content Area: Mathematics (4 standards) –Number Sense, Properties, & Operations –Patterns, Functions & Algebraic Structures –Data Analysis, Statistics, & Probability –Shape, Dimension, and Geometric Relationships Grade Level Expectations Evidence Outcomes (PFL) 21 st Century Skills (PFL) Personal Financial Literacy: Mathematics

32. Mathematics Standard 1: Number Sense Grade Level Expectation: High School 2. Formulate, represent, and use algorithms with real numbers flexibly, accurately, and efficiently. –Selected Evidence Outcomes & 21 st Century Skills: Describe factors affecting take-home pay and calculate the impact. Design and use a budget. How much money is enough for retirement. Is education worth the cost? Education & Earn; and Save

33. Mathematics Standard 2: Algebra Grade Level Expectation: High School 6. Quantitative relationships in the real world can be modeled and solved using functions. –Selected Evidence Outcomes & 21 st Century Skills: Analyze the impact of interest rates. Evaluate the costs and benefits of credit. Evaluate various lending sources. How much would today’s purchase cost tomorrow? Save and Invest

34. Math Standard 3: Probability & Statistics Grade Level Expectation: High School 5. Probability models outcomes for situations in which there is inherent randomness, quantifying the degree of certainty in terms of relative frequency of occurrence. –Selected Evidence Outcomes & 21 st Century Skills: Find and interpret the expected value and standard deviation of a discrete random variable X [non-PFL]. Analyze the cost of insurance as a method to offset risk. How does probability relate to insurance? Invest & Insure

35. Mathematics Standard 1: Number Sense Grade Level Expectation: Eighth Grade 2. Formulate, represent, and use algorithms with real numbers flexibly, accurately, and efficiently. –Selected Evidence Outcomes & 21 st Century Skills: Analyze how credit and debt impact personal financial goals. Computational fluency…allows individuals to accomplish daily tasks…such as…calculating overtime pay,…calculating interest … Earn, Save & Invest

36. Mathematics Standard 1: Number Sense Grade Level Expectation: Seventh Grade 2. Formulate, represent, and use algorithms with real numbers flexibly, accurately, and efficiently. –Selected Evidence Outcomes & 21 st Century Skills: Solve problems involving percent of a number, discounts, taxes, simple interest, percent increase and decrease. Use algorithms to help individuals spend money wisely. Use percentages to represent quantities…such as amount and types of taxes paid… Save and Invest

37. Mathematics Standard 1: Number Sense Grade Level Expectation: Seventh Grade 3. Proportional reasoning involves comparisons and multiplicative relationships among ratios. –Selected Evidence Outcomes & 21 st Century Skills: Estimate and compute unit cost of consumables sold in quantity to make purchase decisions. The use of ratios, rates, and proportions allows sound decision-making in daily life. Save (via control of spending)

38. Mathematics Standard 1: Number Sense Grade Level Expectation: Sixth Grade 3. Quantities can be expressed and compared using ratios and rates. –Selected Evidence Outcomes & 21 st Century Skills: Express the comparison of two whole numbers using…part-to-part ratios, and part-to-whole ratios in real contexts, including investing and saving. Save and Invest

39. The PFL Standards … … are summarized with our financial fitness formula: E 2 + S + I 2 = F 2 E ducation, E arn, S ave, I nvest & I nsure equals Financial Fitness

40. Scarcity Wants > Availability –or, Unlimited wants > Limited resources

41. Scarcity  Choice Economics is: – the study of choice

42. Scarcity necessitates choice –people must choose The Economic Way of Thinking: Key Concept

43. Develop a Decision-Making Framework for Students Help make decisions – by learning a process for more careful choice

44. Decision-Making Model Define the Problem List the Alternatives State the Criteria Evaluate the Alternatives Make a Decision PACED

45. Let’s Make Another Set of Choices …

46. Financial Planning Would you like to run in a race? So that you can plan & train appropriately –you’d want to know: How long is the race? If one does not know to which port one is sailing, no wind is favorable. Lucius Annaeus Seneca, Roman philosopher  Begin with end in mind, then develop a roadmap on how to get there.

47. Financial Plan Step 1: Goal Setting Goals – something you want: –to be –to have –to do Goals will point you in a direction. –Goals toward which to aim –Your values (beliefs important to you) impact your goals

48. Goals Have a Time Frame How long to accomplish? –Short-term goals Up to three years –Intermediate-term goals Between three and five years –Long-term goals Beyond five years and …

49. Goals Can Be... Financial –Purchase prom dress car college education retirement Non-Financial –Spend more time with family with friends exercising reading

50. Write Down Three of Your Future Goals Two “financial” –One short term and one long term One “non-financial”

51. List Some of Your Goals Financial Goals Estimated Cost of Achieving Goal Short term Long term Non-financial Goal Short or Long term

52. Buyer Beware! If it sounds too good to be true, then it probably is. What’s “too good to be true?” Recognizing “normal” rates of return can be helpful Best way to protect yourself from a Scam is to remember that: There’s no such thing as a free lunch! Speaking of scams … here’s a classic: http://www.youtube.com/watch?v=ynPJM0Zeqqg