Personal Finance for the Economics Classroom A Teaching Guide  An Introduction to...
Financial Literacy Defined Financial literacy   refers to the basic skills people need to manage money and make financial ...
A Financial Literacy Crisis <ul><li>61% of people age 24-64 have no retirement savings account of any kind. </li></ul><ul>...
2002 Personal Finance Survey  4,024 High School Seniors <ul><li>Average Score 50.2% -- a failing grade </li></ul><ul><li>Y...
The Good News <ul><li>As little as 10 hours of classroom instruction can affect how teens handle their money </li></ul><ul...
What makes this Program Different? <ul><li>It contains a sound basic instruction on general personal finance  PLUS </li></...
Concepts Addressed <ul><li>Teach how to think critically and make sound decisions  </li></ul><ul><li>Financial Choices & D...
Concepts Addressed <ul><li>Students have money but few management skills </li></ul><ul><li>Money Management </li></ul><ul>...
Concepts Addressed <ul><li>Investor Protection </li></ul><ul><ul><li>Rights and responsibilities </li></ul></ul><ul><ul><l...
Concepts Addressed <ul><li>Young people who fail to begin saving and investing in their youth lose out on potentially subs...
Financial Foundation High Risk Medium Risk Lower Risk Options futures Stocks, Bonds Real estate, Mutual funds Financial Fo...
FL2010 web site <ul><li>Unique community of personal finance instructors/ chat area </li></ul><ul><li>Recognizes frequent ...
Web Site <ul><li>Local training opportunities </li></ul><ul><li>Local trainers are listed </li></ul><ul><li>Local  unbiase...
Workshop Objectives <ul><li>Promote the importance of teaching personal finance in schools. </li></ul><ul><li>Encourage te...
TEACHING GUIDE <ul><li>5 Units </li></ul><ul><li>Lesson outline </li></ul><ul><ul><li>Estimate time of presentation </li><...
Five, Self-contained Units <ul><li>Understanding financial markets </li></ul><ul><li>Making financial decisions </li></ul>...
Financial  Unit 1 MARKETS
Unit 1 - Objectives <ul><li>How markets work </li></ul><ul><li>Recognizing public companies </li></ul><ul><li>What makes s...
Why teach this Unit? <ul><li>Events in financial markets affect all of us </li></ul><ul><ul><li>cost of credit, prices, el...
Capitalism <ul><li>Our economic system in which: </li></ul><ul><ul><li>private ownership of property exists </li></ul></ul...
How markets work <ul><li>Define markets </li></ul><ul><li>Market economy v. command economy </li></ul><ul><ul><li>markets ...
Recognizing public companies <ul><li>Free enterprise system </li></ul><ul><li>Entrepreneurs </li></ul><ul><li>Define priva...
What makes stock prices fluctuate <ul><li>Investor Actions:   Buying/Selling </li></ul><ul><li>Business Conditions:   Prof...
Role of government in securities regulation <ul><li>Caveat Emptor </li></ul><ul><li>Role of the States  </li></ul><ul><li>...
Regulation of Financial Markets <ul><li>Organizations with the purpose of  </li></ul><ul><li>assuring professional and eth...
Unit 1 - Summary <ul><li>Definition of economic concepts specifically free enterprise and markets as well as other basic t...
DECISION Unit 2 MAKING
Unit 2 - Objectives <ul><li>Simulated step-by-step decision making: car purchase model  </li></ul><ul><li>Demonstrate the ...
Why teach this Unit? <ul><li>Students have money but few know how to manage it </li></ul><ul><li>Students who understand a...
Financial Tasks of Young Adults <ul><li>train for a career </li></ul><ul><li>Starting a family </li></ul><ul><li>establish...
Financial decision making model  <ul><li>Define issue or problem - buying a car (p 2.4) </li></ul><ul><li>Gather informati...
Weighing trade-offs and opportunity costs <ul><li>Delayed v. instant gratification </li></ul><ul><li>Needs v. Wants (p. 2....
The Time Value  of Money <ul><li>The time value of money is the growth of money over time as a result of investment earnin...
Worksheet See “How Time Affects the Value of  Money” Student Worksheet, Unit 2,  Page 2-19 and 2-20. See
How Long  to Double your Money <ul><li>Earnings Rate </li></ul><ul><li>2% </li></ul><ul><li>3% </li></ul><ul><li>6% </li><...
Rule of 72  Double Your Money <ul><li>72 divided by the % rate of return  </li></ul><ul><li>equals the number of years  </...
Dollar-Cost  Averaging <ul><li>Dollar-cost averaging is the technique of investing the same fixed dollar amount in an inve...
Credit Cards <ul><li>Less than 40% of  card holders pay entire balance each month </li></ul><ul><li>If interest is 12% APR...
If You Owe... <ul><li>A Minimum Means a  </li></ul><ul><li>Payment of   Debt Lasting </li></ul><ul><li>2%……………..…..32 year...
If a 21 year old college student owes . . . . <ul><li>$2,300 on 18% APR credit card </li></ul><ul><li>Makes minimum monthl...
A What if Question <ul><li>What if you could earn 18% on your money instead of paying  interest charges? </li></ul>
From Debt to Earnings <ul><li>If  you pay off your credit cards you have done the  precise equivalent of  earning 18% . </...
Your Credit Report <ul><li>Credit inquiries - 2 yr. </li></ul><ul><li>Payment patterns - 7yrs. </li></ul><ul><li>Bankruptc...
Unit 2 - Summary <ul><li>Financial decision making for students </li></ul><ul><li>Time value of money </li></ul><ul><li>Un...
Investment Unit 3 Choices
Unit 3 - Objectives <ul><li>Analyze the differences between saving and investing </li></ul><ul><li>Identify common investm...
Why teach this unit? <ul><li>Understanding “risk and return” is critical to financial decision making </li></ul><ul><li>Yo...
Savings and investment products <ul><li>Savings products: </li></ul><ul><ul><li>Savings accounts </li></ul></ul><ul><ul><l...
Selecting Savings & Investments <ul><li>Liquidity: the speed and ease with which an asset can be converted into cash </li>...
Selecting Savings and Investments <ul><li>When choosing investments consider… </li></ul><ul><li>risk =  potential return o...
Other factors in selecting investments <ul><li>Return (historically inflation rate+3%) comes from earnings,growth or tax b...
How Securities Are  Bought and Sold <ul><li>New issues registered with SEC and, in some cases, the state securities agenci...
Financial Foundation High Risk Medium Risk Lower Risk Options futures Stocks, Bonds Real estate, Mutual funds Financial Fo...
Financial Information <ul><li>Prospectus -  a legal document describing an investment offered for sale contains: </li></ul...
Understanding Price Quotations <ul><li>Stocks are quoted in $ and ¢. </li></ul><ul><li>Bonds are... </li></ul><ul><ul><li>...
Understanding Stock Price Quotations <ul><li>High  (52 Week)=  </li></ul><ul><li>Highest price paid in  </li></ul><ul><li>...
Understanding Stock Price Quotations <ul><li>Volume  =  </li></ul><ul><li># of share of that stock that changed hands </li...
Understanding Bond Price Quotations <ul><li>Bond/Coupon Rate/Date of Maturity - </li></ul><ul><ul><li>percentage rate paid...
What To Look For In a Financial Advisor? <ul><li>Credentials -  </li></ul><ul><ul><li>CFA, ChFC, CPA, RIA, Reg. Rep.,  </l...
Costs of Investing <ul><li>High costs are an often overlooked drag on long-term performance. </li></ul><ul><li>Money-savin...
Unit 3 - Summary <ul><li>Unit 3 discusses investment choices, reasons to invest savings and investment choices; the decisi...
Investment Unit 4 Fraud
Unit 4 - Objectives <ul><li>Examine types of investment fraud </li></ul><ul><li>Analyze fraud cases for warning signs </li...
Investment Fraud <ul><li>Estimates are that unwary investors lose  $10 billion a year  -- </li></ul><ul><li>about  </li></...
Role play a fraudulent sales pitch <ul><li>Call comes from a distant city. </li></ul><ul><li>Salesperson counters every ob...
Popular Types of Investment Scams <ul><li>Pyramid schemes </li></ul><ul><li>Precious metals fraud </li></ul><ul><li>Intern...
Investor Protections <ul><li>The Securities Act of 1933 </li></ul><ul><li>The Securities Exchange Act of 1934 </li></ul><u...
Financial Unit 5 Planning
Unit 5 - Objectives <ul><li>Identify short and long term goals </li></ul><ul><li>Determine net worth </li></ul><ul><li>Est...
Myths <ul><li>I don’t earn enough money to plan. </li></ul><ul><li>Investing is for people with lots of money. </li></ul><...
Why Make a Financial Plan? <ul><li>Planning is a tool to help you: </li></ul><ul><li>live within your income </li></ul><ul...
A Financial Plan <ul><li>identify goals  </li></ul><ul><li>figure net worth </li></ul><ul><li>estimate income and expenses...
Live Within Your Income <ul><li>Financial Records </li></ul><ul><li>Net Worth </li></ul><ul><li>Income/Expenses </li></ul>...
Employee Savings Plans <ul><li>25% of the eligible people  do not participate </li></ul><ul><li>They lose  </li></ul><ul><...
Diversification <ul><li>Select different categories of investments among various industries  </li></ul><ul><li>to reduce r...
Average Annual Total Returns  (1926-2001) Inflation 3.1% 3.8% 5.3% 5.8% 10.7% 12% 10 8 6 4 2 0 Long-Term Corporate Bonds U...
Which Investment Mix*  in employer-sponsored plan ‘ Aggressive  Growth Growth Moderate Growth Conservative Growth Bonds St...
Worksheet See “Employer-Sponsored Retirement Plans” worksheet, Unit 5, pages 5-28 and 5-29.
Tips for Financial   Success <ul><li>Get started early  </li></ul><ul><li>Invest for the long term </li></ul><ul><li>Conti...
For information about FL2010  Check the Web site at www.fl2010.org. <ul><li>Please complete evaluation forms. </li></ul><u...
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  • A National Non-Profit educational effort cosponsored by IPT, NASD Regulation, NASAA, and State Offices of Financial Services and Security Regulation
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    1. 1. Personal Finance for the Economics Classroom A Teaching Guide An Introduction to...
    2. 2. Financial Literacy Defined Financial literacy refers to the basic skills people need to manage money and make financial decisions.
    3. 3. A Financial Literacy Crisis <ul><li>61% of people age 24-64 have no retirement savings account of any kind. </li></ul><ul><li>Average credit card debt among college students is over $2,300. </li></ul>
    4. 4. 2002 Personal Finance Survey 4,024 High School Seniors <ul><li>Average Score 50.2% -- a failing grade </li></ul><ul><li>Yet, 65% of students said they felt very or somewhat sure about their ability to manage money </li></ul>Jump$tart Coalition for Personal Financial Literacy Study
    5. 5. The Good News <ul><li>As little as 10 hours of classroom instruction can affect how teens handle their money </li></ul><ul><li>58% of students improved their spending habits </li></ul><ul><li>56% of students improved their savings habits </li></ul><ul><li>NEFE Financial Literacy Study </li></ul>
    6. 6. What makes this Program Different? <ul><li>It contains a sound basic instruction on general personal finance PLUS </li></ul><ul><li>It gives solid information on the basics of investing showing alternatives to savings </li></ul><ul><li>It is free and we are not selling anything </li></ul><ul><li>Not commercial / State sponsored </li></ul><ul><li>Local resources </li></ul>
    7. 7. Concepts Addressed <ul><li>Teach how to think critically and make sound decisions </li></ul><ul><li>Financial Choices & Decisions </li></ul><ul><ul><li>Personal values, goals, needs, wants </li></ul></ul><ul><ul><li>Financial decision making process </li></ul></ul><ul><ul><li>Financial markets </li></ul></ul><ul><ul><li>Financial products and services </li></ul></ul><ul><ul><li>Resources of financial information </li></ul></ul>
    8. 8. Concepts Addressed <ul><li>Students have money but few management skills </li></ul><ul><li>Money Management </li></ul><ul><ul><li>Financial planning and record keeping </li></ul></ul><ul><ul><li>Personal economic resources </li></ul></ul><ul><ul><li>Spending patterns </li></ul></ul><ul><ul><li>Consumer credit management </li></ul></ul><ul><ul><li>Saving and investing and Insurance </li></ul></ul>
    9. 9. Concepts Addressed <ul><li>Investor Protection </li></ul><ul><ul><li>Rights and responsibilities </li></ul></ul><ul><ul><li>Laws and agencies </li></ul></ul><ul><ul><li>Fraud and redress </li></ul></ul><ul><li>Concepts, teaching strategies and materials are compatible with the Voluntary National Standards in Economics and the Jump$tart Coalition Guidelines </li></ul>
    10. 10. Concepts Addressed <ul><li>Young people who fail to begin saving and investing in their youth lose out on potentially substantial retirement income </li></ul>
    11. 11. Financial Foundation High Risk Medium Risk Lower Risk Options futures Stocks, Bonds Real estate, Mutual funds Financial Foundation Income, Insurance, Financial Goals/Budget, Controlled Spending and Manageable Debt CDs, MM, Bank, CU, EE
    12. 12. FL2010 web site <ul><li>Unique community of personal finance instructors/ chat area </li></ul><ul><li>Recognizes frequent visitors </li></ul><ul><li>Special version can be made for you </li></ul><ul><li>Online version of training guide </li></ul><ul><li>Newsletter </li></ul><ul><li>Financial news/ Hot sites </li></ul>
    13. 13. Web Site <ul><li>Local training opportunities </li></ul><ul><li>Local trainers are listed </li></ul><ul><li>Local unbiased investor education experts/ Dept. of Securities/ SEC/ NASD </li></ul><ul><li>Relevant state curriculum standards </li></ul><ul><li>Tries to be the start page on the Web for finance instructors everywhere </li></ul>
    14. 14. Workshop Objectives <ul><li>Promote the importance of teaching personal finance in schools. </li></ul><ul><li>Encourage teachers to incorporate personal finance concepts into their classrooms. </li></ul><ul><li>Provide an overview of “Personal Finance for the Economic Classroom Teaching Guide.” </li></ul>
    15. 15. TEACHING GUIDE <ul><li>5 Units </li></ul><ul><li>Lesson outline </li></ul><ul><ul><li>Estimate time of presentation </li></ul></ul><ul><ul><li>Objectives, sources of materials, procedures </li></ul></ul><ul><ul><li>Worksheets, graphics, overheads </li></ul></ul><ul><li>Tests and answer keys </li></ul><ul><li>Appendix and Glossary </li></ul>
    16. 16. Five, Self-contained Units <ul><li>Understanding financial markets </li></ul><ul><li>Making financial decisions </li></ul><ul><li>Investment choices and finding and using sources of information </li></ul><ul><li>Recognizing & victim-proofing against fraud </li></ul><ul><li>Developing a personal financial plan </li></ul>
    17. 17. Financial Unit 1 MARKETS
    18. 18. Unit 1 - Objectives <ul><li>How markets work </li></ul><ul><li>Recognizing public companies </li></ul><ul><li>What makes stock prices fluctuate </li></ul><ul><li>Role of government in securities regulation </li></ul>
    19. 19. Why teach this Unit? <ul><li>Events in financial markets affect all of us </li></ul><ul><ul><li>cost of credit, prices, eliminate or add jobs </li></ul></ul><ul><ul><li>student’s every-day lives; mall spending money, part-time jobs; car purchase </li></ul></ul><ul><li>Soon the students will be required to participate by employer-based retirement plans or individual investing </li></ul><ul><li>De-mystify financial markets </li></ul>
    20. 20. Capitalism <ul><li>Our economic system in which: </li></ul><ul><ul><li>private ownership of property exists </li></ul></ul><ul><ul><li>ownership of capital provides income </li></ul></ul><ul><ul><li>free competition for getting capital </li></ul></ul><ul><ul><li>profit motive is basic to economic life </li></ul></ul><ul><li>Laissez-faire, private enterprise, free-price </li></ul>
    21. 21. How markets work <ul><li>Define markets </li></ul><ul><li>Market economy v. command economy </li></ul><ul><ul><li>markets in which students participate </li></ul></ul><ul><ul><li>supply and demand - football tickets ex </li></ul></ul><ul><li>Financial markets </li></ul><ul><ul><li>exchanges - stock markets </li></ul></ul><ul><li>Internet - ebay etc. </li></ul>
    22. 22. Recognizing public companies <ul><li>Free enterprise system </li></ul><ul><li>Entrepreneurs </li></ul><ul><li>Define private companies </li></ul><ul><li>Define public companies </li></ul><ul><li>Students identify companies they deal with as public or private </li></ul>
    23. 23. What makes stock prices fluctuate <ul><li>Investor Actions: Buying/Selling </li></ul><ul><li>Business Conditions: Profits / Losses </li></ul><ul><li>Government Actions: Taxes, Interest Rates </li></ul><ul><li>Economic Indicators: Personal Income, Consumer Spending, Employment, Inflation </li></ul><ul><li>International Events: War, Natural Disaster </li></ul>
    24. 24. Role of government in securities regulation <ul><li>Caveat Emptor </li></ul><ul><li>Role of the States </li></ul><ul><li>Roles of the federal government </li></ul><ul><li>Self regulatory agencies </li></ul><ul><ul><li>NASD </li></ul></ul><ul><ul><li>Exchanges </li></ul></ul><ul><ul><li>Accountants & Lawyers </li></ul></ul>
    25. 25. Regulation of Financial Markets <ul><li>Organizations with the purpose of </li></ul><ul><li>assuring professional and ethical </li></ul><ul><li>investing practices... </li></ul><ul><li>Securities and Exchange Commission (SEC) </li></ul><ul><li>State Securities Agencies </li></ul><ul><li>National Association of Securities Dealers (NASD) </li></ul><ul><li>Commodity Futures Trading Commission (CFTC) </li></ul>
    26. 26. Unit 1 - Summary <ul><li>Definition of economic concepts specifically free enterprise and markets as well as other basic terms </li></ul><ul><li>Student participation in markets </li></ul><ul><li>Financial markets, how they work, how they affect us and their regulation </li></ul><ul><li>Entrepreneurship: public & private business </li></ul>
    27. 27. DECISION Unit 2 MAKING
    28. 28. Unit 2 - Objectives <ul><li>Simulated step-by-step decision making: car purchase model </li></ul><ul><li>Demonstrate the time value of money </li></ul><ul><li>The power of compounding </li></ul><ul><li>The costs of credit </li></ul><ul><li>Steps in getting financial advice </li></ul>
    29. 29. Why teach this Unit? <ul><li>Students have money but few know how to manage it </li></ul><ul><li>Students who understand and practice sound financial decision making are on the road to success </li></ul><ul><li>Young people who fail to begin saving and investing lose out on creating adequate retirement income </li></ul>
    30. 30. Financial Tasks of Young Adults <ul><li>train for a career </li></ul><ul><li>Starting a family </li></ul><ul><li>establish a good credit record </li></ul><ul><li>develop a financial plan </li></ul><ul><li>consider insurance protection </li></ul><ul><li>save and invest for future goals </li></ul>
    31. 31. Financial decision making model <ul><li>Define issue or problem - buying a car (p 2.4) </li></ul><ul><li>Gather information </li></ul><ul><li>Alternatives and consequences </li></ul><ul><li>Make a decision and take action </li></ul><ul><li>Modify as needed </li></ul>
    32. 32. Weighing trade-offs and opportunity costs <ul><li>Delayed v. instant gratification </li></ul><ul><li>Needs v. Wants (p. 2.5) </li></ul><ul><li>Choice </li></ul><ul><li>Costs </li></ul><ul><li>Benefits </li></ul><ul><li>Trade-offs: job or college </li></ul><ul><li>Opportunity costs: job income v college cost </li></ul>
    33. 33. The Time Value of Money <ul><li>The time value of money is the growth of money over time as a result of investment earnings. Investments made earlier in life have a greater pay-off than those made later in life. </li></ul>
    34. 34. Worksheet See “How Time Affects the Value of Money” Student Worksheet, Unit 2, Page 2-19 and 2-20. See
    35. 35. How Long to Double your Money <ul><li>Earnings Rate </li></ul><ul><li>2% </li></ul><ul><li>3% </li></ul><ul><li>6% </li></ul><ul><li>12% </li></ul><ul><li>18% </li></ul><ul><li>36% </li></ul><ul><li>Years to Double </li></ul><ul><li>36 years </li></ul><ul><li>24 years </li></ul><ul><li>12 years </li></ul><ul><li>6 years </li></ul><ul><li>4 years </li></ul><ul><li>2 years </li></ul>
    36. 36. Rule of 72 Double Your Money <ul><li>72 divided by the % rate of return </li></ul><ul><li>equals the number of years </li></ul><ul><li>to double your money </li></ul><ul><li>At 10% it takes 7.2 years </li></ul><ul><li>(72  10=7.2) </li></ul>
    37. 37. Dollar-Cost Averaging <ul><li>Dollar-cost averaging is the technique of investing the same fixed dollar amount in an investment, such as a mutual fund, at regular intervals over </li></ul><ul><li>a long period of time. </li></ul>
    38. 38. Credit Cards <ul><li>Less than 40% of card holders pay entire balance each month </li></ul><ul><li>If interest is 12% APR </li></ul><ul><li>adds 12% to price of items purchased </li></ul>
    39. 39. If You Owe... <ul><li>A Minimum Means a </li></ul><ul><li>Payment of Debt Lasting </li></ul><ul><li>2%……………..…..32 years </li></ul><ul><li>3%…………………12 years </li></ul><ul><li>4%………………… 8 years </li></ul><ul><li>5%………………… 6 years </li></ul>$2,000 on a 19.8% APR Credit Card assuming no new charges
    40. 40. If a 21 year old college student owes . . . . <ul><li>$2,300 on 18% APR credit card </li></ul><ul><li>Makes minimum monthly payment </li></ul><ul><li>Will take 33 years to pay off debt, assuming no new purchases. </li></ul><ul><li>Total Interest Payments </li></ul>$5,831
    41. 41. A What if Question <ul><li>What if you could earn 18% on your money instead of paying interest charges? </li></ul>
    42. 42. From Debt to Earnings <ul><li>If you pay off your credit cards you have done the precise equivalent of earning 18% . </li></ul>
    43. 43. Your Credit Report <ul><li>Credit inquiries - 2 yr. </li></ul><ul><li>Payment patterns - 7yrs. </li></ul><ul><li>Bankruptcy - 10 years. </li></ul><ul><li>For employment and mortgages over $75,000 information can be kept for a lifetime. </li></ul>How long information stays on your record?
    44. 44. Unit 2 - Summary <ul><li>Financial decision making for students </li></ul><ul><li>Time value of money </li></ul><ul><li>Understanding trade-offs and opportunity cost ( delayed v instant gratification) </li></ul><ul><li>Smart decisions about credit </li></ul>
    45. 45. Investment Unit 3 Choices
    46. 46. Unit 3 - Objectives <ul><li>Analyze the differences between saving and investing </li></ul><ul><li>Identify common investment options using pyramid of risk </li></ul><ul><li>What is a prospectus </li></ul><ul><li>Interpret mutual fund and stock quotes </li></ul>
    47. 47. Why teach this unit? <ul><li>Understanding “risk and return” is critical to financial decision making </li></ul><ul><li>Young people who don’t know about saving and investing alternatives are at risk of being too conservative or too risky </li></ul><ul><li>Students will develop critical thinking skills by examining the credibility of sources and content of information </li></ul>
    48. 48. Savings and investment products <ul><li>Savings products: </li></ul><ul><ul><li>Savings accounts </li></ul></ul><ul><ul><li>Money-market funds </li></ul></ul><ul><ul><li>CDs </li></ul></ul><ul><li>Investment products </li></ul><ul><ul><li>Stocks represent ownership </li></ul></ul><ul><ul><li>Bonds are a type of loan </li></ul></ul><ul><ul><li>Mutual Funds </li></ul></ul>
    49. 49. Selecting Savings & Investments <ul><li>Liquidity: the speed and ease with which an asset can be converted into cash </li></ul><ul><ul><li>How quickly will you need your money </li></ul></ul><ul><ul><li>Highly liquid: savings accounts & money markets </li></ul></ul><ul><ul><li>Less liquid: stocks, bonds, CDs </li></ul></ul>
    50. 50. Selecting Savings and Investments <ul><li>When choosing investments consider… </li></ul><ul><li>risk = potential return or risk = potential return </li></ul><ul><ul><li>Inflation risk </li></ul></ul><ul><ul><li>Political risk </li></ul></ul><ul><ul><li>Fraud risk </li></ul></ul><ul><ul><li>Interest rate risk </li></ul></ul><ul><ul><li>Business failure risk </li></ul></ul><ul><ul><li>Market price risk </li></ul></ul>RISK
    51. 51. Other factors in selecting investments <ul><li>Return (historically inflation rate+3%) comes from earnings,growth or tax benefits </li></ul><ul><li>Inflation (rise in price of goods & services) </li></ul><ul><li>Diversification (spreading risk) </li></ul><ul><li>Taxes (exempting or deferring) </li></ul>
    52. 52. How Securities Are Bought and Sold <ul><li>New issues registered with SEC and, in some cases, the state securities agencies. </li></ul><ul><li>A prospectus, giving details about a company's operation and the stock to be issued, is printed and distributed to interested parties. </li></ul><ul><li>Stocks can be purchased though a broker, directly from the company, via the internet or through mutual funds </li></ul>
    53. 53. Financial Foundation High Risk Medium Risk Lower Risk Options futures Stocks, Bonds Real estate, Mutual funds Financial Foundation Income, Insurance, Financial Goals/Budget, Controlled Spending and Manageable Debt CDs, MM, Bank, CU, EE
    54. 54. Financial Information <ul><li>Prospectus - a legal document describing an investment offered for sale contains: </li></ul><ul><ul><li>The goal of the company or mutual fund </li></ul></ul><ul><ul><li>Financial statement showing assets and liabilities </li></ul></ul><ul><ul><li>Performance (profit and loss) over a period of years </li></ul></ul><ul><ul><li>Any fees the investor must pay </li></ul></ul>
    55. 55. Understanding Price Quotations <ul><li>Stocks are quoted in $ and ¢. </li></ul><ul><li>Bonds are... </li></ul><ul><ul><li>sold in $1,000 units but are quoted as 100s </li></ul></ul><ul><ul><li>sold by face value, discount, and premium </li></ul></ul><ul><li>Mutual funds quote a Net Asset Value (NAV) </li></ul><ul><ul><li>NAV = Market value of all the fund’s securities - liabilities / number of shares </li></ul></ul>
    56. 56. Understanding Stock Price Quotations <ul><li>High (52 Week)= </li></ul><ul><li>Highest price paid in </li></ul><ul><li>the last 52 weeks </li></ul><ul><li>Low (52 Week) = </li></ul><ul><li>Lowest price paid in </li></ul><ul><li>the last 52 weeks </li></ul><ul><li>Stock = Name of the stock </li></ul><ul><li>Div = </li></ul><ul><li>Yearly dividend the stock pays </li></ul><ul><li>Yield = </li></ul><ul><li>Percentage return based on every $100 </li></ul><ul><li>P-E = Price-to-earnings ratio (stock price/12 mo. Earnings per share) </li></ul>
    57. 57. Understanding Stock Price Quotations <ul><li>Volume = </li></ul><ul><li># of share of that stock that changed hands </li></ul><ul><li>High, Low Close and Net Change = </li></ul><ul><li>The high, low, close and net change in the price of the stock for the previous day </li></ul>
    58. 58. Understanding Bond Price Quotations <ul><li>Bond/Coupon Rate/Date of Maturity - </li></ul><ul><ul><li>percentage rate paid annually on the bond’s $1,000 face value and year the bond ends </li></ul></ul><ul><li>Current Yield - </li></ul><ul><ul><li>the annual interest divided by the closing price </li></ul></ul><ul><li>Volume - </li></ul><ul><ul><li>number of bonds of this kind sold that day (multiplied by 10,000) </li></ul></ul><ul><li>Close/Net Change - </li></ul><ul><ul><li>The final closing price of the bond and the change in price for the day before. </li></ul></ul>
    59. 59. What To Look For In a Financial Advisor? <ul><li>Credentials - </li></ul><ul><ul><li>CFA, ChFC, CPA, RIA, Reg. Rep., </li></ul></ul><ul><ul><li>member IAFP, NAPFA, etc. </li></ul></ul><ul><li>Services provided </li></ul><ul><li>Costs and fees </li></ul><ul><li>How the Financial Advisor is paid - </li></ul><ul><ul><li>Fee-only, commission or combination </li></ul></ul>
    60. 60. Costs of Investing <ul><li>High costs are an often overlooked drag on long-term performance. </li></ul><ul><li>Money-saving tips </li></ul><ul><li>• be skeptical of load funds </li></ul><ul><li>• look for low expense ratios </li></ul><ul><ul><li>Industry Average: 1.11% </li></ul></ul><ul><li>• pass up 12b-1 plans </li></ul>
    61. 61. Unit 3 - Summary <ul><li>Unit 3 discusses investment choices, reasons to invest savings and investment choices; the decisions made relating to investment choices and the true value of money. Remember that the purpose of investment diversification is to reduce risk. Also, let us emphasize to young people how understanding investment choices and investing at a young age can help them achieve their life-long goals. </li></ul>
    62. 62. Investment Unit 4 Fraud
    63. 63. Unit 4 - Objectives <ul><li>Examine types of investment fraud </li></ul><ul><li>Analyze fraud cases for warning signs </li></ul><ul><li>Role-play a fraud sales pitch </li></ul><ul><li>Examine ethics of fraud and </li></ul><ul><li> how to report to authorities </li></ul>
    64. 64. Investment Fraud <ul><li>Estimates are that unwary investors lose $10 billion a year -- </li></ul><ul><li>about </li></ul><ul><li>$1 million every hour </li></ul><ul><li>to investment fraud </li></ul>
    65. 65. Role play a fraudulent sales pitch <ul><li>Call comes from a distant city. </li></ul><ul><li>Salesperson counters every objection. </li></ul><ul><li>Offers no risk, high returns and secret tips. </li></ul><ul><li>Demands immediate action. </li></ul>Script - page 4-19
    66. 66. Popular Types of Investment Scams <ul><li>Pyramid schemes </li></ul><ul><li>Precious metals fraud </li></ul><ul><li>International investing </li></ul><ul><li>Stock swindles and insider trading </li></ul><ul><li>Franchise/business opportunities </li></ul><ul><li>Ponzi schemes </li></ul><ul><li>Affinity fraud </li></ul>
    67. 67. Investor Protections <ul><li>The Securities Act of 1933 </li></ul><ul><li>The Securities Exchange Act of 1934 </li></ul><ul><li>State and federal securities agencies </li></ul><ul><li>Self-Regulatory Organizations (SROs) </li></ul>
    68. 68. Financial Unit 5 Planning
    69. 69. Unit 5 - Objectives <ul><li>Identify short and long term goals </li></ul><ul><li>Determine net worth </li></ul><ul><li>Estimate income & expenses </li></ul><ul><li>Design a personal financial plan </li></ul><ul><li>Make asset allocation for retirement </li></ul>
    70. 70. Myths <ul><li>I don’t earn enough money to plan. </li></ul><ul><li>Investing is for people with lots of money. </li></ul><ul><li>Young people don’t need to think about saving for retirement. </li></ul><ul><li>Social security is a </li></ul><ul><li>business-funded program for old, poor people. </li></ul>
    71. 71. Why Make a Financial Plan? <ul><li>Planning is a tool to help you: </li></ul><ul><li>live within your income </li></ul><ul><li>know your goals and priorities </li></ul><ul><li>meet your expenses </li></ul><ul><li>face emergencies </li></ul><ul><li>limit credit use </li></ul><ul><li>reduce conflict </li></ul><ul><li>save and invest for future </li></ul><ul><li>gain independence and control </li></ul>
    72. 72. A Financial Plan <ul><li>identify goals </li></ul><ul><li>figure net worth </li></ul><ul><li>estimate income and expenses </li></ul><ul><li>save - pay yourself </li></ul><ul><li>Asset Allocation </li></ul><ul><li>implement the plan </li></ul><ul><li>review and modify </li></ul>Steps...
    73. 73. Live Within Your Income <ul><li>Financial Records </li></ul><ul><li>Net Worth </li></ul><ul><li>Income/Expenses </li></ul><ul><li>(Worksheets in Unit 5) </li></ul>
    74. 74. Employee Savings Plans <ul><li>25% of the eligible people do not participate </li></ul><ul><li>They lose </li></ul><ul><ul><li>• power of compounding </li></ul></ul><ul><ul><li>• tax deferral </li></ul></ul><ul><ul><li>• employer match </li></ul></ul>
    75. 75. Diversification <ul><li>Select different categories of investments among various industries </li></ul><ul><li>to reduce risk. </li></ul>Stocks Cash Reserves Bonds
    76. 76. Average Annual Total Returns (1926-2001) Inflation 3.1% 3.8% 5.3% 5.8% 10.7% 12% 10 8 6 4 2 0 Long-Term Corporate Bonds U.S. Treasury Bills Common Stocks Long-Term Government Bonds Source: Ibbotson Associates, Inc. Past performance is not indicative of future returns.
    77. 77. Which Investment Mix* in employer-sponsored plan ‘ Aggressive Growth Growth Moderate Growth Conservative Growth Bonds Stocks Bonds Stocks Bonds Stocks Stocks 100% Stocks 80% Stocks 20% Bonds 60% Stocks 40% Bonds 40% Stocks 40% Bonds 20% Cash *Asset Allocation
    78. 78. Worksheet See “Employer-Sponsored Retirement Plans” worksheet, Unit 5, pages 5-28 and 5-29.
    79. 79. Tips for Financial Success <ul><li>Get started early </li></ul><ul><li>Invest for the long term </li></ul><ul><li>Continue to study and learn </li></ul><ul><li>Participate in employer- sponsored plans </li></ul><ul><li>Know when to seek advice </li></ul>Financial Success Award
    80. 80. For information about FL2010 Check the Web site at www.fl2010.org. <ul><li>Please complete evaluation forms. </li></ul><ul><li>Register your attendance. </li></ul>

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