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  1. 1. How to get started teaching personal finance in your classroom and interact with Adopt An Author member Peter Bielagus: Step 1. Register (click's free!) Step 2. Read a little bit about Getting Loaded and the importance of teaching personal finance to students. Just click on the book. Step 3. Review the FREE curriculum & project ideas (Click here for curriculum) Step 5. Order books. Barnes & Noble and Borders Books offer 20% discounts to Adopt-An-Author teachers. Step 6. Begin the unit. Encourage your students to e-mail Peter Bielagus via his website at Step 7. When nearing the end of the unit, contact Peter and arrange either a visit or an in-class phone call. When they click on the book the following information should appear: Why use Getting Loaded and the Adopt An Author Program? Why teach personal finance? Suggested grade levels Why use Getting Loaded and the Adopt An Author Program? Getting Loaded: A Complete Personal Finance Guide For Students and Young Professionals has many virtues that make it a great classroom text: • It is written by a young author. I wrote Getting Loaded between the 19-24th years of my life. I am as close to my audience as a financial author can get. I reference our movies, our books and our songs. I make it fun. • It is written for a young audience. The majority of investment books available today are targeted toward baby boomers, the demographic group that is widely believed to be the most concerned about personal finance. Getting Loaded is written specifically for young people in their late teens and twenties by a young person in that same age range. • The book follows a non-linear format. Rather than 12 or 15 long chapters, the book is chopped into 50 short chapters. The 50 short chapters make it easy for teachers to skip around and customize the curriculum for their own classrooms. • The book is well organized, with each chapter explaining the theory behind the concept at hand, as well as suggesting certain action steps on how students can
  2. 2. improve their financial lives. What’s more each chapter is summarized in a handy section at the end of each chapter called “In a Nutshell” • Author interaction. As a member of the Adopt an Author Program, I’m available to students and teachers who use the program in their classroom. I’m also available for classroom conference calls and, schedule permitting, an in person appearance. • Immediate results. While students will learn a good deal of theory as they go thru the program, the program’s primary focus is action for immediate results. Students will be looking up stocks, preparing their own budgets, and more as they go thru the program. Why teach personal finance? Here are the facts: • Each year, over 1 million personal bankruptcies are filed. About 100,000 of those are by people under the age of 25. • Very few schools require courses on personal finance. This lack of education makes students a prime target for financial companies. That’s why credit card companies have flooded every college campus. Often a person’s first lesson on financial education is provided by a salesperson. • Because of compound interest, for every day someone under the age of 30 waits to invest they must work an extra week before retiring. • The financial world is getting more and more complicated and woe to those who don’t keep up. 30 years ago, one could not borrow more than 80% of a home’s value to borrow it. Now lenders will loan you over 100% of the value of a home. Credit reports once enjoyed the fairness of human evaluation. Now credit reports are all electronic and the computers don’t care about your personal problems. In short, it’s tougher now to have good credit. What’s worse, credit reports are being pulled by the most unlikely people-most notably employers, using them as a character judgment tool. Suggested grade levels For high school: Getting Loaded is best suited for grades 11 and 12. While younger grades can benefit from its information juniors and seniors will most closely relate to the content. They’re working, they’re driving, they’re looking towards the next step in their lives, be it college or otherwise. Most important, the financial sharks are already circling, and the moment they graduate from the high school halls they will be bombarded with credit card offers. For colleges: Getting Loaded will find favor from all college students both undergraduate and graduate. They have one foot in the financial real world; they’re working, renting apartments, paying off cars, taking out student loans, buying on credit and even filing tax
  3. 3. returns. What’s more the financial sharks are no longer circling – they’re biting, with dozens of offers for credit cards. When they click on the curriculum link the following should appear: Curriculum: The book is broken into 50 short chapters or as I call them, Secrets. These secrets are grouped within the following five parts: 1. Part One-Call the Shots: Part one deals with goal setting and organizing. Students will write down goals, learn about their assets and liabilities, and organize whatever financial documents they may have. 2. Part Two-Put It On My Tab: Part two deals with the basics of saving and credit. Students will learn about budgeting and ways to save, and they will also learn all about how credit cards work and why they can act as a double edge sword. Students will even learn about the art of negotiating, a powerful, yet all too often overlooked skill in the world of personal finance. 3. Part Three-Look For The Happy Hours: Part three offers specific advice on how to save for some of life’s larger purchases, like cars, college, apartments, and taxes. High school students may not warm up to part three as quickly as college students do, but it covers topics that inevitably, they will run into. 4. Part Four-Put It On Ice: Part Four deals with structuring your investment portfolio. It preaches about the benefits of retirement accounts. Perhaps not too many high school students are thinking about retirement accounts, but they should. No argument is better than that of compound interest. If one were to invest for 30 years outside of a retirement account, then one could expect to have half as much money as the individual who invested inside. And yes some retirement accounts (like the Roth IRA) have no age limits; a 13 year old can open one, so long as they have earned income. 5. Part Five-Get Loaded: Ahhh finally we arrive at investing. This is a very exciting part of the book. It explains exactly how the stock market works and how many of today’s major investments work-stocks bonds and mutual funds. It also holds a student’s hand thru the stock picking process. 6. Part Six-Last Call: In truth, the last part of the book will be of most interest to older readers as it covers topics like home buying and life insurance. However it does contain an interesting chapter on starting your own business that surely all ages will enjoy. A suggested start: One great way to get started is for the teacher to get a copy of the book and start looking it over. The book’s format is flexible so you’ll be able to design your curriculum according to your own schedule. Some teachers prefer to complete the project in a month, while others prefer to stretch it out, doing “Financial Fridays” where every Friday is devoted to the study of personal finance. For teachers who want to get started
  4. 4. immediately click here for the author’s website which contains the book’s introduction and the first few secrets. When they click the word “here” it should go to my website From there: Below is the teacher curriculum guide. Since students can access this site (and therefore the answers) only teachers who register with Adopt an Author will be able to get to the links below. Secret-By-Secret Curriculum Guide This guide is a teacher’s guide to Getting Loaded. It offers suggested quiz/test questions, fun financial facts, and questions for discussion.
  5. 5. Secret-By-Secret Curriculum Guide Click on any secret to go directly to it. Preface and Introduction Part I Call The Shots Secret #1-Go For The Goals Secret #2-Wake Up And Prioritize Your Dreams Secret #3-Find Your Net Worth Secret #4-Organize Your Portfolio Secret #5-Get Some Green Off Those Goals Secret #6-Get A College Education For $25 Secret #7-Get A Little Help Part II Put It On My Tab Secret #8-Spend A Week On Spending Secret #9-Care Less Secret #10-Cool Off The Card Secret #11-Get The Right Card Secret #12-Give Yourself Credit Secret #13-Become A Savvy Shopper Secret #14-Get Celebrity Status-Form A Consumer Buying Pool Secret #15-Negotiate Part III Look For The Happy Hours Secret #16-Axe The Tax Secret #17-Cover Your Ass Secret #18-Cut Car Costs Secret #19-Cut College Costs Secret #20-Rent Right Secret #21-Reap The Benefits Secret #22-Go For The Green Secret #23-Ease The Fees-Go Online Secret #24-Skip The Bank CDs Part IV Put It On Ice Secret #25-Don't Be An Idiot-Save Secret #26-Screw The Cable Company Secret #27-Come On and Take A Free Ride
  6. 6. Secret #28-Open An IRA Part V Get Loaded Secret #29-Know Thy Investment Secret #30-Match Investments To Goals Secret #31-Ease Up On Economics Secrets #32-Take Pete's Stock Market Crash Course Secret #33-Take A Random Walk Secret #34-Go Broker Secret #35-Master Mutual Funds Secret #36-Escape From Bondage Secret #37-Stock Up-Part One Secret #38-Stock Up-Part Two Secret #39-Be Careful If You Go Clubbin' Secret #40-Buy All The Time Secret #41-Avoid The Pitfalls Secret #42-Forget Everything Else Secret #43-Know When To Sell Secret #44-Put It All Together Secret #45-Review Part VI Last Call Secret #46-Mind Your Own Business Secret #47-Get A Crib Secret #48-Mingle With A Mortgage Secret #49-Don't Lose Your Life Secret #50-Protect Your Assets
  7. 7. Preface and Introduction: Pages XI-11 What is personal finance? • Suggested exercise: Have students look up the words “personal” and “finance” in the dictionary o Personal –relating to a particular individual’s situation or interests o Finance –to pay for Put them together and personal finance is about paying for your personal life. So why bother learning about personal finance now? The short answer is that the earlier you start the easier the whole process will be. This is primarily because of compound interest, which is covered in the book on page 8 There are a few important factors to remember about compound interest: • Compound interest creates wealth by making use of both time and money. • Therefore, money has a time value and time has a money value. (We already know that time is money. Think about crossing a city. The way that takes the least amount of time-taking a cab-also costs the most money. The way that takes the most amount of time-walking-requires the least amount of money. But money also has a time value. A dollar in your hands today is worth more than a dollar in your hands in two years. Money in your hands can be invested and increased. Since time creates money, it follows if you want more money; you need to provide more time, by investing early. • Have students turn to pages 8 & 9 of Getting Loaded. The chart shows how much a dollar a day will be worth if invested at 15% interest for the next 45 years. After 45 years an investor will clear 1 million dollars. But here’s the kicker. Notice at year 40, your investments are worth about ½ million. In the last five years you make $500,000. At this interest rate your money doubles every 5 years. So the big payoff is in the final time your money doubles. • Ask your students to pretend they are 40 years old and they want to retire at age 65. What would they end up with? Answer: $65,580 (Look on line 25) • The Key Point is that it’s all about your money doubling in value. The more times it can double the more money you will have and the most powerful double comes at the end.
  8. 8. Preface and Introduction Continued • Or if your classroom can get online go to and click on the compound interest financial calculator. You can put in your own numbers. • You can also teach your students the rule of 72. The Rule of 72 is a useful formula that shows you how quickly your money will double in value. It works like this: • Simply take the interest rate you are earning, divide it into 72 and the answer is the amount of years it will take for your money to double. • Imagine you’re earning 10% in interest: 10.0 (the interest rate) divided by 72 =7.2 years for your money to double in value. So if you invested $1000 in an investment that pays 10%, and you held it for seven years and two months (roughly), you would have about double your initial investment, in this case $2000.
  9. 9. Part I Call The Shots Secret #1-Go For The Goals pages 15-19 Suggested questions for discussion: 1. How are goals important in the financial planning process? Goals ARE the financial planning process! Remember the Key Point that personal finance is about financing your personal life. So before we get to the finance part, we must first determine what your personal life is. Your goals tell you what’s important in your personal life. 2. What 3 characteristics must all written goals have and why? They must be specific, measurable, and tied to a timeline. Goals without all three of these characteristics are open-ended wishes that aren’t likely to be achieved. Homework: Use the goal sheet in the book as a guide, but have students write down at least five goals making each specific, measurable, and tied to a timeline Note To Teachers: How does billionaire investor Warren Buffet define the word “risk?” He says risk is not having a plan.
  10. 10. Secret #2-Wake Up And Prioritize Your Dreams pages 20-23 Suggested Questions For Discussion: 1. Why bother sorting our goals by their cost and ordering them by priority? The Key Point is that you can have ANYTHING you want; you just can’t have EVERYTHING you want. Far too many people try to get everything and often end up with nothing. 2. Can you name any rich and famous people who tried to get everything and as a result ended up losing everything? MC Hammer, Michael Jackson, Mike Tyson. Ask the class whom else they know Homework: Using the goal priority lists in the book have the students sort and prioritize the goals they wrote down for Secret #1.
  11. 11. Secret #3-Find Your Net Worth pages 24-28 Suggested Questions For Discussion: 1. What is your net worth? Your net worth is the number you get when you subtract your assets from your liabilities. Assets are what you own, liabilities are what you owe. Assets are cars, houses, stocks, cash, and stereos. Liabilities are student loans, car loans, credit card debt, and rent. 2. So why is knowing your net worth important? Net worth can be one of 3 things, positive, negative or neutral (zero). The greater the number is positive, the closer you will be to achieving your goals. If your net worth is a positive $1 million, it will be easy for you to achieve your goal of buying a motorcycle. If you owe $1 million, chances are you won’t be able to reach your goals anytime soon. You’ll be paying off your debt. 3. What might be some other benefits of determining your net worth? There are many. If your net worth is positive, the exercise might brighten your day. If negative, you might become more motivated to get your financial life in order. Perhaps best of all, the only way to find it out is by dragging out every piece of financial information you have about yourself. Most people have no idea what they own or what they owe. Before you can make any major financial decisions you need to find out what you own and what you owe. 4. Write some assets and liabilities on the board and have students tell you which they are. Here are a few to start: STOCKS: Asset GOLD COINS: Asset HOUSE: Asset CREDIT CARD DEBT: Liability COLLEGE EDUCATION: Asset STUDENT LOANS: Liability 5. If someone borrows money to buy a house, they own the house, but they owe money on it. Which is it? An asset or a liability?
  12. 12. Secret #3 Continued There is some debate in the financial industry about this. Some define an asset as anything that puts money in your pocket and a liability as anything that takes money away. Others claim that in the long run an asset makes you richer and in the long run a liability makes you poorer. Both lines of thinking are designed to shun you from liabilities and direct you toward assets that actually will increase your net worth, as opposed to depreciable assets (like cars) or extremely costly assets (like luxurious vacation homes) In the strictest definition the home is the asset, and the loan is the liability. There is no right or wrong answer here, ask the students what they think. 6. If someone buys a car for $30,000, but every year that car goes down in value, what is it? An asset or liability? Again the pros will argue. Technically the car is taking money out of your pocket so those of that school would say liability, as would those who believe liabilities make you poorer. Another term to introduce is the depreciable asset. This is something you own that over time goes down in value. I don’t let people count these in their net worth calculations but other financial authors do. Do your students think they should count? 7. Why is it important to know the difference between an asset, a liability and a depreciable asset? The Key Point is that the more assets you have and the less liabilities and depreciable assets, the wealthier you will be. Believe it or not, as basic as the concept may seem very few people actually follow it. They buy liabilities and depreciable assets first, and then they buy assets, which of course is an expensive way to live. Homework: Have the students calculate their net worth using the worksheets in the book. Be sure to have them ask their parents for financial documents they may have (i.e. savings bonds from a birthday or bar mitzvah) Note to Teachers: Students may not have any liabilities or assets. But they can list the depreciable assets they certainly own, clothes and CDs and estimate their value. This is a good exercise because they will have to do this someday.
  13. 13. Secret #4-Organize Your Portfolio pages 29-32 Suggested Questions For Discussion: Note to teachers: Secrets 3 and 4 are short and easy and can be combined. 1. What is a portfolio? In the world of finance, a portfolio is the collection of all your financial information, your assets, liabilities, your stock certificates, savings bonds, your goals sheets, and the like. 2. Why is it important to organize your portfolio? Not knowing the current status of your finances can cost money. If you don’t know how much you bought a stock for, how can you possibly know when to sell it? Even worse many people own investments they don’t even know they own. Maybe one of your students will find some hidden investment they never knew they had. Homework: Ask your students to set up their own investment filing system. This will vary from student to student. Some will use folders and files, while others may even use a computer. Some may even have one setup already. Ask students to setup a system and then be prepared to come in tomorrow to discuss what they did. Depending on the age of your students, they may not have certain components of a portfolio. It is for instance, unlikely that an 11th grader will have any debt. So stress to students that they should think about what they will need in their portfolios. On the next page is a system to use as a guide. Note to teachers: The point of this exercise is to stress the importance of getting organized. It is NOT to brag to other students about who has what. It’s important then that students understand they’re to come in to discuss the filing system they set up, NOT what’s actually in the system.
  14. 14. Secret #4 Continued Here is a potential system to use as a guide: What would your students use? Six Folders: • Asset Folder o Stocks o Bonds o Bank statements • Liabilities Folder o Student Loans o Credit Card Debt • Income Folder o W-2 forms o Pay stubs • Expense Folder o Credit Card statements o Receipts o Budget • Protection Folder o Insurance policies for Car, Renter’s, or Life Insurance • I Have No Clue Folder o A catch all folder o Goals? o Resume?
  15. 15. Secret #5-Get Some Green Off Those Goals pages 33-36 Suggested Questions For Discussion: 1. What is the difference between an investment and a purchase? A purchase is an item obtained by paying money or its equivalent An investment is an outlay of time or money for income or profit. The Key Point is that purchases make you poorer, investments make you richer. The more investments you have and the fewer purchases, the wealthier you will be. 2. Why should anyone care? Often times it’s possible to convert a purchase into an investment. This makes it that much easier to help us get what we want. 3. Give some examples of converting a purchase into an investment. One might be sharing the cost of a purchase with someone else. This may not make you any money but it can instantly cut costs in half. If you want to buy a car, what about starting a car pool and charging people to ride with you? If you buy $3 of coffee every day, why not buy a cappuccino machine and start saving $3 a day? Homework: Have the students look at their goal sheets and write a few ideas about how they might convert some of their goals into purchases. Have them share their ideas with the class.
  16. 16. Secret #6-Get A College Education For $25 pages 37-39 Suggested Questions For Discussion: 1. Why is it important to meet with mentors now? Mentors are often happy to share their business secrets with young people, but not so happy to share them with people their same age. Professionals don’t see young people as a threat as they may see someone of their own generation. So if you are looking to meet with a mentor, now is the time to do it. Students are surrounded by experts-their professors and teachers. When students graduate the teachers and professors will be much harder to reach, as they will give first priority to their new students, not their old ones. 2. Mentors, organization, prioritizing, and converting purchases into investments. So when are we going to start talking MONEY? When do we learn about stocks and bonds? The Key Point is that personal finance is about getting our goals. We will talk money soon enough, but let’s do the easy stuff first. All too often investors ignore the simple stuff and they get burned. Or they do achieve their goals; only they do it by expending more effort than necessary. Homework: Again it all goes back to goals. Have students look at their goals and write down the names of some people they should interview in order to achieve them. Students don’t necessarily have to know the person they think they should interview; it could even be vague like, “I need to meet a stock broker.” Perhaps you can give extra credit to any student who actually has a meeting with a mentor.
  17. 17. Secret #7-Get A Little Help pages 40-49 Suggested Questions For Discussion: 1. What are some of the problems with hiring a financial advisor? • Conflicts of interest. • Low government regulation. • It’s tough to know when you get a bad deal. • YOU 2. How can YOU possibly be a problem with a financial advisor? There is a human tendency to bet the farm. Many people pay a financial advisor because they want to hear about a magic investment that will make them millions. When they don’t hear it, they get upset and force the financial advisor to buy something that they think will make them millions. It’s important to know a financial advisor’s limits. 3. So if they can’t make you millions, are they good for anything? Sure. They can help you form a plan. Better yet they can help you stick to it. 4. What about just going with a financial advisor who makes a lot of money? It’s not so much how much they made it’s how they made it. What if they made their money selling overpriced investments to their clients? 5. How are financial advisors compensated? Is one way better than the other? Typically one of four ways: 1. By commission 2. By charging a flat fee or hourly fee 3. By charging a % of the money under management 4. By some combination of the above When a salesperson works on commission, they want you to buy what they sell, not necessarily what’s best for you to buy. Flat fee advisors are probably the most unbiased of the bunch, but finding them is tough. Advisors that charge a percentage on the money under management really only work with wealthy clients who have a minimum of $250,000 to invest. Still they, by nature, will be less biased than commissioned based advisors. And there are those who combine them together somehow. 6. Ask your students; does anyone in this room need a financial advisor? Does anyone have one?
  18. 18. Secret #7 Continued While students typically don’t have enough money to need a financial advisor, their parents on the other hand are a different story. This brings me to a Key Point. Families are connected financially, whether they like it or not. The government decides which related members get what for tax breaks and for inheritance. Unless families work together to set up their own situation, then the government will decide for them. If a student does have a financial advisor (most likely a family stock broker) and if they feel comfortable sharing, ask them to talk about their experience with the class. Homework: Have students write down five questions they would ask a financial advisor and why.
  19. 19. Part II Put It On My Tab Secret #8-Spend A Week On Spending Pages 53-60 Note to Teachers: Secret #9 is a short secret that can easily be combined with #8. Suggested Questions For Discussion: 1. What is a budget? (Note To Teachers: This definition is not in the book) A budget is a list of one’s projected expenses. 2. Why don’t budgets work? (Note To Teachers: This answer is not in book, ask students to think) There are two primary reasons: 1. People forget the little stuff like coffee. $3 worth of coffee every day is over $1000 worth of coffee a year. That’s a big expense 2. People write about what they want to spend, not what they are spending. Sometimes then, the budget becomes more of a wish list than it does an actual expense report. Budgets involve first looking at the past, where your money is already going then figuring out how to funnel it to where it needs to go. 3. What are some documents you need to prepare for your week of expense tracking? All your receipts, ATM receipts, credit card statements, check book register. What can students think of? Homework: You guessed it. Have students track their expenses! Use the book as a guideline. Some students may even create their own expense tracking worksheet in Excel. Use the financial calculators on my Website to see how much students are REALLY losing. If you invested the $1 a day you spent on soda how much would that be worth at 12% interest in 45 years? For extra credit, students can even prepare a family budget. Note To Teachers: This will take more than one night to do this exercise. In order to be effective it should take place over at least a week.
  20. 20. Secret #9-Care Less pages 61-64 Note to Teachers: Secret #9 is a short secret that can easily be combined with #8. Suggested Questions For Discussion: 1. What’s the theory behind this chapter Care Less? If personal finance is about funneling more money to your goals it follows that one way to do this is to stop funneling money into those things you don’t enjoy or don’t care about. Homework: Just as it is in the book. Have students make a list of what they do not care about. The next day in class, have students talk about what they learned. What are people willing to give up? What can they do about it?
  21. 21. Secret #10-Cool Off The Card pages 65-72 Suggested Questions For Discussion: 1. What is credit? Credit is borrowed money. Credit decreases your net worth. Credit is something you owe, not something you own. 2. What is a credit card? A credit card is a piece of plastic, which serves as the authorization to allow you to borrow up to a specific amount of money at a specific interest rate. 3. What’s a debit? (Note To Teachers: This is not in the book.) A debit is the opposite of a credit. It is an increase in your assets. Debits are things you own, not things you owe. 4. What’s a debit card? A debit card is a piece of plastic, which serves as the authorization to allow you to extract cash from your bank account. Debit cards do not allow you to borrow money; they only allow you to easily use money that is already yours. 5. So what’s the difference between the two? Credit cards allow you to use money that isn’t yours; debit cards allow you to use money that is yours. People often get this confused because we say things like, “go ahead and credit my account” when we return an item at a store. But remember that in strict financial terms, credits decrease your assets, debits increase them. 6. What are the networks? The networks are the major companies like VISA, MasterCard, Discover and American Express that advertise credit cards and establish deals with merchants. 7. Who else is involved with offering a credit card? The issuers are the banks that select the interest rates, lend the money and control the lines of credit. These are why there are so many cards (the CITI VISA, the Wachovia Bank VISA etc)
  22. 22. Secret # 10 Continued 8. What’s an APR? APR stands for Annual Percentage Rate. This is the interest rate your card carries. They can be as high as 20%! APRs can be either fixed or flexible (tied to an economic indicator.) Note To Teachers: Trace the history of a purchase with a credit card with your students. The history follows roughly like this (please note exact numbers are hypothetical, but the message is the same): • You buy a $1000 flat screen TV at Best Buy. You charge it on your credit card, which has an 18% annual interest rate. • The moment that card is swiped, your issuing bank puts $970 into Best Buy’s account. The “missing” thirty dollars goes to the Network and the Issuer as a fee Best Buy pays to accept the card. • You get to keep the TV, Best Buy has its $970, and your bank is out $970. • Now you owe your bank $1000. • You have 25 days to pay the bank back that $1000 and you will not be charged any interest. • After 25 days you will be charged interest for the month. • That interest is calculated like this: o The Issuer takes your annual percentage rate and divides it by 12 (twelve months) to find your monthly interest rate. Your annual rate was 18% so your monthly rate is 1.5%. o They multiply this monthly rate to your outstanding balance. In this case $15 ($1000 X 1.5%= $15) o To this $15 of interest the credit card company will add maybe $5 or so in principal. o So your required minimum payment becomes $20 • At this point you must pay at least $20 by the due date on your bill or you will get charged a late fee of $29 • Next month, assuming you charge nothing new, you will get a bill of $19.95 slightly smaller because you paid of $5 last month, so your balance is $995. • So you’re only paying $5 a month off your balance. • This of course gets even worse when you add more purchases because your balance gets bigger! 9. Do credit card companies want you to pay back all the money you borrowed right away?
  23. 23. No! Look how much interest they charge you! They’re getting $15 a month off you. Why would they want that to end? That’s why they created the minimum payment, to encourage people not to pay it all off. Secret #10 Continued Homework: Bring in a credit card offer from you get in mail. Or have students bring in one their parents get. (Black out any personal information.) Photocopy them and have them read it for homework. What fees are charged and for what? If this is a college class have students find out the APRs on the cards they already have. Have students bring in the offers they are getting. What can the students find for fees, benefits and gimmicks?
  24. 24. Secret #11-Get The Right Card pages 73-77 Suggested Questions For Discussion: 1. Why doesn’t everyone get the same card? Remember there are four major networks; VISA, MasterCard, Discover, and American Express, but there are hundreds of issuing banks. Also remember that the particular terms of your credit card are based on your own individual situation. 2. What are some things to look for in a good credit card? • APR-This is the most important number. Obviously the lower the better and ideally it should be fixed. • Reward points-Only a bargain if you pay off in full and on time but those freebies like frequent flyer miles and free gasoline can gently pad your pockets. • Fees-Fees are pretty standard throughout the industry so it’s not so important you find the lowest fees, more so that you know exactly what the fees are and when they are incurred. Homework: Have students log onto and see what cards are being offered. What’s available for fees and APRs and rewards points? This is a great exercise because this is what people should do when they actually apply for a card.
  25. 25. Secret #12-Give Yourself Credit pages 78-85 Suggested Questions For Discussion: Note to teachers: People under the age of 18, legally are not allowed to own any property. On the high school level then, students won’t have any credit. But this lesson can show them how to build good credit, as they are a mere year or two away from doing just that. 1. What happens when you borrow money and then fail to pay it back on time? Often this tardiness is reported on your credit report. A credit report records both your on time and late payments (although not every payment) It is up to the lender to actually make the report. 2. So what’s the big deal about credit reports? Think of this as the report card for the rest of your life. Employers, banks, car salespeople, and landlords will all look at this report before they loan you money, sell you a car, hire you, or allow you to move into their apartment. In fact the contents of a credit report are summed up in something known as a FICO score, which is one number that measures your credit risk. FICO scores run from 300 to 850. The higher the score the more lenders will like you. 3. What are some ways people can build their credit? Easy, just borrow money and pay it back in full and on time. Also limit the number of credit cards you have. Homework: Have students pretend they are $3500 in debt (which is in fact, the average credit card debt of college graduates.) Have them design a plan to get out of it. Will they sell personal items at a yard sale? (Perhaps some of the personal items on their liability sheets?) What will they cut back on? Will they get a job? Get a second job? Sell some of their investments?
  26. 26. Secret #13-Become A Savvy Shopper pages 86-94 Suggested Questions For Discussion: 1. Does looking for bargains restrict your lifestyle? Not necessarily. In fact if you bargain shop, you technically should be able to wind up with more of what you want, because you’re paying less per item. 2. What’s Chain Reaction Shopping? This is a Key Point. Chain Reaction Shopping (CRS) is a theory that certain purchases will affect the price of smaller subsequent purchases. If you buy an expensive car, then you have to buy a nice stereo to put in it and of course, it needs leather seats. You’ll spend more money to have it fixed and to keep in clean. Or if you buy a nice sweater you have to buy a nice outfit to go with it. 3. Who cares? CRS prevents people from being able to live on a budget. Someone looks at their budget and says, “I can afford a car that’s another $100/ month” But this blows their budget because that more expensive car makes other categories in the budget more expensive. 4. Why is a penny saved two pennies earned? What does that mean? Another Key Point here. Unfortunately, you don’t get to keep every penny you make. We have to pay taxes on that money. (Taxes covered in Secret #16) Imagine John pays 50% of his income in taxes. Imagine also that John makes $100 a week. If John wanted to take his girl friend out for a night on the town (parking, dinner, theater tickets totaling $200) how many weeks would John have to work in order to pay for that night out? Answer: Not two but four weeks. Because after taxes, John only earns $50 a week. This is a great exercise because it gets students to think about taxes and how expensive it really is to spend. Note To Teachers: Have students look at the chart on page 92. Discuss how powerful saving can be at their age. Also have students go to my website at and play around on the compound interest calculator. What will a dollar saved be worth 30 years from now? Homework: Have students find bargain deals in your area. Like 5 cents off gas on Thursdays, or students get 10% off on Wednesdays or free parking before 5pm. Perhaps they already know of some. Perhaps they have to ask parents and friends. Or perhaps they need to drive around. Have the class compile a list of bargains in your area.
  27. 27. Secret #14-Get Celebrity Status-Form A Consumer Buying Pool pages 95-99 Suggested Questions For Discussion: 1. What is a consumer buying pool? (CBP) A CBP is a group of people who get together to buy the same item typically, at the same time, in order to pay less per person. An example would be if 5 people showed up to the car dealership, they should, in theory, get a better deal. 2. For what items could we form one? Have students shout out what they could form a CBP for. Would it work for buying a computer? Would it work at the Gap? At the pizza joint next door? Homework: Have students actually form a CBP and test it out at some of their favorite places. Perhaps this could be a class field trip. If 24 students walk into the pizza shop and demand a discount, chances are they will get it. If the class as a whole is actually able to travel to the business this can be a very powerful exercise. Perhaps even the class could claim they represent the whole school. Will the vendors give them any discount cards they can use over and over?
  28. 28. Secret #15-Negotiate pages 100-105 Suggested Questions For Discussion: 1. Why is it important to negotiate? Typically negotiation is the least painful way to save money. Rather than cutting back, going generic or simply not buying an item, negotiating allows you to get what you want at a price you can afford. 2. In a negotiation, does one person win and one person lose? Not necessarily. Think about a consumer buying pool that arrives at a car dealership. The salesperson will lower the price per car, but she’ll also be able to sell more cars with less effort. The best negotiations are ones where both parties strive to make sure both parties are happy. Doing this ensures the negotiation will go smoothly rather than one where both parties are in fear of being cheated. 3. Is greed good in a negotiation? Typically, yes. If you start high, you can go lower. If you start low, you can NEVER go higher. Remember the worst thing that can happen is that the other party rejects your offer. Homework: The first part of this exercise should be done in class. Have students split into pairs. One person is the buyer and one is the seller. They are negotiating over a sailboat. As have students write about some of the strategies they used and why they did or did not work. Give the seller this information: • You bought the sailboat for $20,000, but you’d like to get $15,000 for it • You don’t need the money right away • Your boat also has a trailer • The boat is filled with equipment like life jackets and ropes • You as the seller are happy to deliver it within 100 miles of this location. • You’ve been trying to sell for 2 years. Give the buyer this information: • You can spend up to $25,000 • You’d prefer to make monthly payments as opposed to all up front • You want a boat before summer which is 1 week away • You need a trailer • You need all the equipment like life jackets and ropes.
  29. 29. • You don’t want to pay extra for delivery
  30. 30. Part III Look For The Happy Hours Secret #16-Axe The Tax pages 109-122 Suggested Questions For Discussion: 1. Why do we pay taxes? Taxes pay to solve society’s unprofitable problems. We live in a capitalist society and that means that individuals are allowed to solve society’s problems and charge a fee for doing so. For example, people need cheap, fast food, so Ray Kroc, the founder of McDonald’s, created a chain of restaurants that did just that and of course makes money doing so. Taxes pay for those problems that don’t turn a profit. Like homeless shelters and public schools. 2. If taxes pay for unprofitable problems is it fair then to try and pay less in taxes? This is of course up for discussion. But one Key Point should be raised. Many tax breaks are offered to encourage the individual to take it upon themselves to solve society’s unprofitable problems. For instance, if you donate money to a charity, your taxes will be lower. Taxes exist not just to raise money but to encourage good behavior. 3. What do we pay taxes on? There are many types of taxes. People who own property pay property taxes. People who buy stuff often pay a sales tax. If you bring in stuff from another country, you might pay an import tax. But most people are concerned with income taxes, which are taxes on the money they earn. Income taxes are probably the largest tax. 4. Who do we pay taxes to? Different taxes are paid to different governments. Sales taxes are collected by state governments. Property taxes are collected by local governments. Income taxes are collected by federal, state and local governments. 5. What are tax brackets? Note To Teachers: If you can, bring in enough dimes so each student has six. Have students turn to the chart on page 111. Give each student 6 dimes. You pay a greater % of your income in taxes the higher that income is. In short, high income earners are taxed more than low income earners. To make it easier, taxes are divided into brackets (page 111). Have student “A” put down 3 dimes one in each of the first 3 boxes. Ask the class how much is this person paying in taxes.
  31. 31. Secret #16 Continued The answer: • On the 1st dime they made, they are paying 10% of 10 cents or 1 penny • On the 2nd dime they made they are paying 15% of 10 cents or 1.5 pennies • On the 3rd dime they made they are paying 28% of 10 cents or 2.8 pennies So the total tax bill is 1+1.5+2.8 = 5.3 pennies in taxes Have student “B” do the same thing only with more dimes. How much is she paying? Work with the class on a few problems. The highest tax bracket you pay is considered the tax bracket you’re in. 6. What is a tax deduction? A tax deduction is an amount taxpayers are allowed to subtract from their taxable income. If someone who makes $40,000 a year has a $500 deduction then they are taxed only on $39,500, not $40,000. To find out how much a deduction is worth, simply multiply the deduction by the tax bracket: (tax bracket) X (amount of deduction) = (actual money saved) 15% (tax bracket) X $500 (amount of deduction) = $75 (actual money saved) 7. What is a tax credit? A tax credit is an amount taxpayers are allowed to subtract directly from the taxes they owe. If someone owes $3000 in taxes but has a $1000 credit, their new tax bill is $2000. Credits obviously are more beneficial than deductions. 8. Trace with your class a year in the life of a taxpayer Let’s say Sally gets a job at _________(have students pick the business) on March 1. • Before Sally starts working, her boss will give her a W-4 form to fill out. By filling it out, Sally will tell her boss how much money she wants withheld from her paycheck. • As Sally works throughout the year each paycheck she receives will have money taken out of it and this money will be sent to the Federal Government to pay income taxes. • On December 31st the tax year is over. • On January 1st the new tax season begins. Banks, employers and investment companies will send their customers and employees summary forms describing how much money they earned and how much, if any, was withheld for taxes.
  32. 32. Secret #16 Continued • As Sally receives these forms, she will begin compiling the information on her tax return which is a financial summary of one’s income, deductions and credits. The bottom line of the tax return will reveal whether a taxpayer has a refund which means they had too much money taken out of their paychecks throughout the year, or if the taxpayer has a balance due which means they did not have enough taken out. If a taxpayer has a balance due, they send in money with their return. • This tax return is due to the Federal Government, or more specifically the Internal Revenue Service, the division that administers our tax system, by April 15th. • Once the return is received the IRS looks it over and checks for accuracy and fraud. • If everything is okay, the IRS sends the person their refund check if they were entitled to one. People who had a balance due don’t get any correspondence. • If the IRS believes something is wrong, they will send the taxpayer a letter asking for more information. This process can go on unto the IRS is satisfied with the taxpayer’s return. • And of course the process repeats itself year after year. Homework: Have students go to the IRS website at Have them download form 1040 (or make copies for the class.) Have each student pick a line and research what that line means. Have them write 25 words or so describing that line. To do this they can either ask an accountant or even better do what accountants do, which is look it up. Most of the answers can be found in Publication 17 which can be downloaded in full from the IRS website. Students should first go to the index in the back of Pub 17 and then find the proper page number. This is the real deal, tax professionals do this all the time.
  33. 33. Secret #17-Cover Your Ass Pages 123-133 Suggested Questions For Discussion: 1. What is insurance? Insurance is a tool that protects an individual’s assets. An individual enters into an agreement with the insurance company whereby the individual pays them money (or premiums) and in return the insurance company will deliver the full cash value of the individual’s asset it has agreed to protect, should that asset be destroyed, damaged, or stolen. The Key Point to remember is that insurance protects what you already have. 2. What types of assets do people insure? The most common ones are cars, houses, apartments, and incomes. 3. How do people insure their incomes? Three types of insurance protect a person’s income. Health insurance, which pays to heal someone so they can go back to work, life insurance, which pays a breadwinner’s heirs a large sum of money in the event the breadwinner dies, and disability insurance which pays a breadwinner’s income if the breadwinner is too disabled to work for that income. 4. What are the two basic parts to any insurance policy? The premium is the cost of the policy. The coverage is what you get if the policy is invoked. Needless to say, the higher the premium, the better the policy. 5. What’s a deductible? A deductible is the amount of money an individual must pay before the insurance policy kicks in. If you have a $500 deductible on your car and you crash it, you would pay the first $500 in damages and the insurance company would pay the rest. The higher it is, the less risk for the insurance company and the cheaper the insurance. Homework: Have students go online and get a quote from an insurance company, whether it be car, home or life. Use the websites in the book. Have them put in different hypothetical examples. Compare premiums and coverages. What factors make a policy go up or down? Use the websites in the book as guide.
  34. 34. Secret #18-Cut Car Costs Pages 134-139 Suggested Questions For Discussion: 1. Is a car an appreciable or depreciable asset? A depreciable one. The longer you own it, the less it is worth. 2. What are the two most important factors to consider when buying a car and why? Safety and price. Cars are expensive and they depreciate. The more money you put into them, the more you will lose. So it makes sense to buy the cheapest car you feel safe in, for in doing so you’re committed to losing the smallest amount of money possible. 3. Is it better to lease or own? In almost all cases, it’s better to own. Leasing often tricks you to buy a more expensive car, and while the monthly payments may be lower, they never stop. Note To Teachers: Though not mentioned in the book, often cars are advertised with 0% financing. Tell students this is typically not a good deal, because many dealerships work the interest rate right into the price. Rather than paying 6% on a $14,000 car, you pay 0% on a $16,000 car. This is a perfect example of how companies manipulate their prices to seem more attractive. Homework: Have each student pick the kind of car they want to buy. Let them pick anything, although warn the would be Ferrari owners their homework will be the toughest. Then have them research the different ways to get it and write a summary of their research and their decision about what to buy. Have them visit the websites in the book. Have them look at the classifieds and maybe even talk to a salesperson on the phone. Compare leasing, vs. buying new, vs. buying used. Get them familiar with the actual process. They’ll have to do it sometime.
  35. 35. Secret #19-Cut College Costs Pages 140-152 Suggested Questions For Discussion: 1. Is a college education an asset? Yes, because it is acquired for income or profit. The profit is the increased salary it often brings. 2. Ask the class who would like to go to college. 3. Ask them if they feel it is worth it, considering the cost involved. 4. What are the four types of financial aid and which is the best? (In order) 1. Scholarships 2. Grants 3. Loans 4. Work study 5. When applying for financial aid, what are some things you can do to increase your chances? (have the class help you make a list on the board) Apply for all the scholarships you. Tell your parents to put money into retirement accounts. Don’t save money in the student’s name. Use free cash to buy college items before applying (take $1000 out of your account to buy a computer before you apply for financial aid.) Talk with your parents about how to organize their finances. 7. Does it make sense to save for college as a high school student? Since college is right around the corner you won’t be able to save enough to pay for even half of it. But you can work with your parents to maximize your chances for financial aid. But what about-and I know this sounds crazy-saving for your kids, even before they’re born? Homework: Ask students to make a plan for paying for college. Depending on their age, and the time of year, they may already know which school they want to go to or are going to. Some might be doing a post graduate year, some may be going to a trade school and some due to financial reasons may not be going at all. Have each student write a plan, for whatever their plans may be. Have them talk to their parents about a plan. Have them look in a college book to find out how much their college of choice costs. This is more than a homework assignment. This is their future.
  36. 36. Secret #20-Rent Right Pages 152-156 Suggested Questions For Discussion: 1. Is rent a purchase or investment? A purchase. There is no profit in renting. So like buying a car, try to get the cheapest place you feel safe in. 2. What’s a lease? The legal agreement between a tenant and a landlord. Leases obligate you to pay your rent and they obligate landlords to let you live on the premises. They also spell out other agreements like who will pay for electricity and who will take out the trash. It is a good idea to have all roommates sign the lease. 3. If insurance protects assets and rent is not an asset but a liability, why get renter’s insurance? Renter’s insurance protects your assets within the apartment, like your computer and clothes, and it also protects you from lawsuits, like if the pizza man falls down your front steps. Homework: Go to your local board of realtor’s website and print out their standard apartment lease. It should be about four pages. Have the class read it over. What types of things must the landlord do? What must the tenant due? What happens when they don’t due them? In the class’s opinion, is the lease skewed in favor of the landlord or tenant?
  37. 37. Secret #21-Reap The Benefits Pages 157-159 Suggested Questions For Discussion: 1. Why is it important to know about benefits that are available to you? A Key Point of personal finance is to do the simple and easy stuff first. There are few things easier and simpler than accepting the “no strings attached” free items available to you. It’s also important to know what benefits a company or college is offering so you can truly compare apples to apples. You might think College A is cheaper than College B, but if College B offers $3000 worth of free stuff-gym memberships, subsidized housing etc-then College A might actually be more expensive. Homework: Have students uncover the benefits. Maybe they can call the college they are interested in applying to and ask what free stuff they offer the students. If a student belongs to a health club, maybe they can ask about what the club offers for free. Or maybe a student organization, like the Key Club or the Scouts have free programs for their members. Have everyone bring in a list and compare.
  38. 38. Secret #22-Go For The Green pages 160-165 Suggested Questions For Discussion: 1. What are some profitable ways to save the environment? Ask the students to close their books as the answers are right there. And there are certainly more ways than the ones in the book. 2. If you can, have the class go around the school and suggest environmentally and economically friendly steps the school is taking or ways the school could improve. Maybe the heating system is old. Maybe the windows are old. Maybe the faucets aren’t low flow. Maybe more students could carpool. The building could use shade trees. Is the building even designed environmentally? Is it making full use of sunlight? Are the parking lots in the sun (thereby reducing some of the snowplowing efforts?) Perhaps an environmental consultant could visit the school and offer some guidance. Homework: Have students find at least five ways to save the environment and save money in their house. Have them write a plan put it into action. Give more points to students who come up with ideas that no other students thought of. Or as a class project, find out how they can help the school save money and the environment. Maybe you could submit your findings to the school board.
  39. 39. Secret #23-Sock It Away pages 166-172 Suggested Questions For Discussion: 1. What’s a disaster fund and how much should be in it? A disaster fund is a fund of liquid cash that should be used to pay for emergencies, like an unexpected lay off, a medical emergency or a funeral attendance. Typically, financial advisors recommend having three months worth of living expenses in this account. 2. Why have it? Because the cash is liquid you won’t be forced to sell an investment at the wrong time to cover an emergency. This fund is your self insurance. 3. How does a bank work? (Note To Teachers-this is not in the book) Banks make money by loaning money. They get their money from people like you and me. When we open a bank account, we deposit our money into the bank and we are paid a small interest rate. The bank pays us that interest rate because they are actually using our money. They take our money, pay us 1% a year in interest for the use of that money, and then loan it out to someone else at 5% a year. The 4% difference is their profit. 4. What fees can a bank charge? ATM fees. These are the worst. Most people pay $1 and take out an average of $20. That’s a 5% management fee, the highest in the country for any investment. While banks make most of their money loaning money, many banks charge you for: • Writing too many checks per month • The price of the checks themselves • Writing a check for too small an amount • Not having a minimum balance • Monthly fees 5. What’s the money market? The money market is a market where corporations, governments, and individuals can borrow large amounts of money for a very short term. Sometimes companies need to borrow money for only one night and when they do that they go to the money market.
  40. 40. Secret # 23 Continued 6. So whose money is in the money market? Yours and mine! We invest in the money market typically thru money market mutual funds-since the amounts are so huge few individuals can afford to go in one their own. A money market account works just like a bank account but often pays better interest. 7. Are bank accounts insured? Are money market accounts insured? Bank accounts are insured (up to a degree) by the Federal Deposit Insurance Corporation FDIC. If a thief were to steal all the money in the bank, either in person or thru some sort of wire fraud, or of the bank were to go bank-rupt, the FDIC would pay back the customers whatever they lost. (Though there is a $100,000 limit) Money market funds are not insured but they are just about as safe as can be. When you deposit into a money market account, your money is being loaned out to only the safest short term borrowers. What’s more, money market funds are overseen by a parent company who would repay the customers if a problem arose. They would do this because no investment company can function without a super safe money market fund. 8. Where should the money be kept? The Key Point is that it doesn’t really matter. You may get a few more dollars out of a money market fund as opposed to a bank account but neither will make you a millionaire. Pick what’s easiest for you and watch those ATM fees. Homework: Have students find out the fees on their bank accounts. If they don’t have one, have them get information from the local banks. Who’s charging and for what? Does there seem to be a better deal? Have them get the interest rate, the price of checks, monthly fees, and account minimums of a few banks. (Perhaps it is best to divide students into groups.) They can look online or go in person. Maybe even encourage the students to open a bank account if you, they, and their parents think it’s appropriate.
  41. 41. Secret #24-Skip The Bank CDs Pages 173-174 Suggested Questions For Discussion: 1. What’s a bank CD? A bank CD is a Certificate of Deposit. It is a loan you make to the bank, for a specific amount of money, for a specific amount of time, at a set interest rate. 2. Why do banks like them so much? Remember banks make money by loaning your money out at a higher interest rate than the one they are paying you. But by law in order to loan money they must have a certain percentage of that money on deposit (they can loan $1 for every 10 cents in the vault.) Banks like CDs because they lock your money up for a certain amount of time. And when you’re money is locked up in their bank, they can loan out more money. 3. Are CDs a bad investment? Another Key Point in the investment world is that its not so much an investment is bad on its own, it’s simply bad in comparison to what else is out there. Take a look at CDs compared to US treasury bills CDs: Treasury Bills -Pay a low interest rate -Pay a low interest rate -Are super safe -Are super safe -Are fully taxable -Are not taxed on the state level -Lock your money up -Do not lock your money up See the difference? They’re basically the same but compared side by side, T-Bills (which we’ll discuss later) are just a bit more attractive. Homework: Have students visit or call a local bank and find out what they’re offering for CDs. Compare the variations in class. (Measures must be taken to ensure students don’t all call the same bank!)
  42. 42. Part IV Put It On Ice Secret #25-Don't Be An Idiot-Save Pages 177-181 Suggested Questions For Discussion: 1. What is social security? Social security is an insurance program whereby individuals pay into a fund administered by the Federal Government in exchange for certain guarantees that they will be financially protected if and when they are no longer able to work. Social security pays out benefits to people after they reach a certain age, if they become disabled, or even if a family member dies. Just like with income taxes, people get Social Security “contributions” (“contributions” being the politically friendly way to say “taxes”) withheld from their paychecks. That money is placed into the Social Security Trust Fund. From that fund, the benefits are paid out to those eligible. 2. Is there a problem with social security? The problem is that when the system began there were more people contributing to the system than taking out of it. While that is still true today, the gap is widening and people are living longer. Today the average worker pays into social security $3500 each year, while the average retiree takes out $11,200 each year. So we need four workers to supplement every retiree. What happens when there are only three workers for every retiree? Only two? Only one? 3. What is inflation? A rise in the cost of goods and services. 4. Why does it happen? It happens because it gets more expensive to produce those things. Imagine a town in the middle of the forest where everyone lives in a log cabin. The first log cabins that were built we made very inexpensively with the finest trees right near the town. But the price of cabins kept going up, because it became more expensive to produce them. The best trees became harder and harder to find and loggers had to travel deeper into the woods. This is a basic example of how inflation happens. 5. What is the opposite of inflation? The opposite of inflation is called Deflation. Deflation is a decrease in the price of goods and services. It happens when it gets less expensive to produce those goods. Remember
  43. 43. Secret #25 Continued that prices on certain goods inflate while others deflate. Over the past 20 years, the prices of houses have gone up, while the prices of computers have gone down. 6. Why do we care about inflation? Inflation erodes our purchasing power. Remember how grandpa tells of when a movie was a nickel? Well now it costs a lot more to go to the movies. Inflation warns us that stuff is getting more expensive, so it’s important our incomes rise with the prices. We need to be prepared for the day when movies cost $20. What’s more it hurts our compound interest requirements. If we earned 10% in interest this year, but inflation was at 3%, we really only earned 7% This is known as an inflation adjusted return. Few people include inflation in their financial lives. You’ve probably heard someone say, “I don’t want to lose my shirt in the stock market. That’s why my money’s safe, in the bank.” But how safe is it? If the bank is paying 1% in interest every year and inflation is at 3% you’re losing 2% of your money every year! People must always keep inflation in the back of their heads. Homework: Have students write a short essay on how they would solve the social security funding problem. There are some suggestions in the book but let them choose whatever they want. What would they do and how would they do it? Note To Teachers: The first social security check was paid to a woman in Vermont, who paid in $22 and received over $20,000 in benefits before she died.
  44. 44. Secret #26-Screw The Cable Company Pages 182-186 Suggested Questions For Discussion: 1. What’s this chapter all about? This chapter is arguing that if you don’t save first you will never save at all. We’re ingrained with the idea that you save whatever is left over after you’ve paid all your bills. This in truth rarely happens. There’s too much month at the end of the money as they say. When we say “pay yourself first” we mean treat your savings as a bill, a bill that should be paid before all others. 2. But will this work? What if you put aside money for savings then you can’t pay your bills? I’d rather not simply say, “trust me this never happens” but, trust me, this never happens. Paying yourself first is kinda like an auto budget. Once you set aside the 5%, 10% or 15% to save, the rest of your money is yours to splurge. 3. But what if it REALLY doesn’t work? Then pay the late fee and budget better next month. Remember you have to save something, somehow and this is the easiest way to do it. Note To Teachers: Tell students that nowadays you can automatically have money withdrawn from a bank account and sent to a savings account or an investment account. This is an easy way to save because you don’t have to go thru the pain of moving the money yourself. Homework: How important is it to save? Ask students to solve this question: If inflation runs at 4% per year for the next 50 years, how much will $10,000 be worth 50 years from now? Answer: Remember the Rule of 72. Divide you’re the interest rate you’re earning into 72 and you’ll find the number of years it takes your money to double. This also works in reverse. Divide the inflation rate into 72 and that’s the number of years it will take for your money to be cut in half. (This can also be done in Excel) • So 72 ÷ 4% = 18 • This means every 18 years your money gets cut in half • Over 50 years your $10,000 will be cut from $10,000 to $5000, then from $5000 to $2500 to $1407 (roughly)
  45. 45. • So you wind up with only 15% of the money you originally had Secret #27-Come On and Take A Free Ride Pages 187-194 Suggested Questions For Discussion: Note to teachers: At the high school and college level, chances are no one will be eligible for an employer sponsored retirement account. But remember, before they can do it, they must learn it. If you, as the teacher, get the “what does this have to do with me” speech, remind students they learned about sex and drugs at a very young age, way before the normal time the topic comes up. So it is with personal finance. What’s more this chapter brings up a Key Point to finance, it’s not simply what you own, but how you own it. And it is easier to make money paying attention to the latter than the former. 1. What’s the purpose of an employer sponsored retirement plan? One Key Point of personal finance is it’s not simply what you own, but how you own it. Think of a retirement plan as a refrigerator and your investments as food. If Dick and Jane buy a gallon of milk they, in essence have the same investment. But if Dick puts his milk in the fridge and Jane just puts hers on the counter, their “investments” will suffer drastically different fates. Same thing with your money. Money inside a retirement plan is protected from taxes (among other things.) Money outside is not. 2. What are the two basic types of plans and what’s the difference? Defined benefit plans and defined contribution plans. A defined benefit plan guarantees a certain amount of money will be paid out, a defined contribution plan, only guarantees participants a certain contribution limit. 3. Which is better? Defined benefit plans are better because the employer assumes all the risk. Pay in and you’re GUARANTEED to get money out. With defined contribution you as the participant take all the risk. A Key Point to tell students is that that defined benefit plans are slowly disappearing. Companies don’t want to assume that much risk anymore. This is an increasing trend in the world of finance to shift responsibility from governments and corporations to the individual. That’s why it’s so crucial to learn about this stuff now.
  46. 46. Secret #27 Continued Note to teachers: Since none of the students will be dealing with 401ks for at least a few years, don’t dwell too long on this topic. The most important Key Points are that: 1. It’s not only what you own, but HOW you own it. Is it protected from taxes, bankruptcy, etc? Only amateurs ignore factors like these 2. Each year, the professional and political powers that be are shifting more financial responsibility over to the individual Homework: 1. List 4 benefits to investing in an employer sponsored retirement account: Answer:  Tax deferred growth  Matching funds  Upfront tax deduction  Protected from bankruptcy 2. Imagine John makes $50,000 a year and is in the 36% tax bracket, and his employer matches his retirement plan contributions 30 cents for every dollar, if John contributes $10,000, how much does it really cost him? Answer: First determine the tax savings: John contributed $10,000 and his tax bracket is 36% ($10,000 X 36% = $3600 in tax savings) Next multiply the employer matching by the amount contributed (30 cents for every dollar): ($10,000 X 0.30 = $3000) Finally add the tax savings $3600 to the matching funds $3000 and get $6600. Subtract that from the initial contribution and you realize it really only costs John $4400 to contribute $10,000.
  47. 47. Secret #28-Open An IRA Pages 194-200 Suggested Questions For Discussion: 1. What is an IRA and why do they exist? IRA stands for Individual Retirement Account. It works much like the employer sponsored plans we discussed in the last Secret. They exist because many people work for companies that do not offer employer sponsored accounts. IRAs offer people like these a chance to save for their futures. 2. What are the two types of IRAs and how do they work? The Traditional IRA and the Roth IRA. The Traditional IRA works much like the employer sponsored accounts discussed in the last secret. You get a tax break for putting money in, and when you take the money out, it gets taxed as income. The Roth is rather interesting. There is no tax break for putting money in, but once it is in it is NEVER taxed again. Note To Teachers: Obviously, getting young people excited about retirement isn’t easy. But you may want to go on to and use the interactive calculators on compound interest. Since the Roth is tax free you’ll be able to see how much money young people can wind up with if they start saving now. The Roth is a new retirement account, on the scene in 1997. And for young people, it’s a pretty juicy offer. Hmmm.. I wonder why that is. Tell students this is a Key Point. The Roth IRA is another example of the government shifting more responsibility to the individual. Homework: If a student is employed, they are actually able to open a Roth and contribute up to $3000 or 100% of their income, whichever is less. You may ask students to go online and get some Roth IRA applications and go over them in class. What are brokers requiring for minimum investments to open the account? Note To Teachers: Roth IRA gets its name from the Senator who proposed it. William Roth.
  48. 48. Part V Get Loaded Secret #29-Know Thy Investment Pages 203-209 Suggested Questions For Discussion: 1. What are the five criteria on which you evaluate an investment? Write each on the board Risk, reward, control, minimum investment/cost of investment, liquidity 2. Are there any other characteristics you’d use? (ask students what they come up with.) One you can suggest is method of repayment. 3. Why would method of repayment be important? A Key Point here. Remember that a dollar in your hands today is worth more than a dollar in your hands tomorrow. You can invest the dollar in your hands and start earning interest. Whereas if you have to wait, you could lose out on opportunities. Method of repayment differs from liquidity in that liquidity is only useful when you want to sell the investment. The method of repayment simply dictates when and how you will get your money. Will you get it all at once at the end of five years? Or will you get a little bit each month over five years? 4. If two investments both pay $500 in interest but one pays $100 a year for five years and the other pays $500 at the end of five years which is more valuable? The one the pays every year. That means you can immediately put that money to work somewhere else and start earning interest on it. Another Key Point. Remind students that often to get one thing in the investment world, you must give up something else. You can get more reward if you will take on less risk. You can get more liquidity if you give up reward. 5. So how do you decide what to get and what to give up? Your goals! You need to figure out what YOU need to create a healthy financial life. People who are retired want safety, since they are no longer able (or willing) to work for a living. Young people often want large reward, because they have plenty of years to overcome risk. Remember the Key Point: We buy investments for a reason.
  49. 49. 6. What’s the difference between equity investments and lending investments? What are the benefits and drawbacks to each? Secret #29 Continued With equity, you own a piece of the action. Equity means more reward, more risk and you profit by the investment growing in value. With lending investments you didn’t buy anything, you just loaned money to someone at a specific interest rate. You have less reward but naturally less risk and your money comes to you in the form of income. Note to teachers: Review the apple tree story on page 208 with your students as it outlines the life of a young investor. Homework: Have students do an “Investment Breakdown” of their goals. Have them take each of their goals and write down what type of investment characteristics they’d like most for 3 of their goals. For instance if a student has a goal that’s 30 years away they might rate reward as “very important” and risk as not important. Here is an example: Use the ratings: Very Important Important Not Important The goal is to buy a $15,000 car in five years: • Risk: Important • Reward: Very Important • Control: Important • Minimum Investment/Cost of Investment: Not Important • Liquidity: Not Important Note To Teachers: There are no right or wrong answers to these questions. The purpose of the exercise is to train students to think about what the investment they are buying is supposed to do for them.
  50. 50. Secret #30-Match Investments To Goals Pages 210-214 Suggested Questions For Discussion: 1. Ask students to recall, what is the purpose of personal finance? The purpose of personal finance is to finance (pay for) our personal lives. We already know what we want out of our personal lives (that’s why we wrote our goals. Now we just need to match up the right investments to those goals.) It is this Key Point, that you invest to achieve your goals, that far too many investors overlook and not surprisingly, this is why they lose money. Imagine your goal is to buy a car within the next five years. The car will cost you $15,000. You invest $5000 in a stock in hopes that it will appreciate somewhat over the next 5 years. Imagine after 1 year that stock triples in value to $15,000. You have met your goal, albeit 4 years early. What do you do? Sell the stock and put the money where it is super safe, like in a bank account. Of course in reality many investors would think, wow, if it went to $15,000 in one year, imagine where it will be in 5! And of course, this is where people lose money. Serious investors know why they own an investment, which often gives them a clear time of when to sell it. 2. Review the story of “Stu” on page 211. It illustrates the common psychological dilemma of many investors. Homework: Just what the book says. Have students locate their goal sheets and write down specific investments that could help them reach their goals. The homework they did for Secret # 29 should help.
  51. 51. Secret #31-Ease Up On Economics Pages 215-219 Suggested Questions For Discussion: 1. What is economics? Economics is the study of how we use our scarce resources. Governments, corporations and even individuals need to determine the best use of what they have. 2. Is the study of economics important? In this author’s opinion, for the individual, not really. The trouble is the individual has so little control over economic conditions that a careful study of them becomes merely a guessing game. True for those of tremendous financial influence-the president of the United States, who may be able to introduce a new tax law-a close economic study is probably necessary, but for the rest of us, we needn’t worry so much. 3. What does “visions, not conditions make decisions” mean? That is actually a Key Point. Investors need to pay attention to what they can control and stop worrying about what they can’t. Homework: This chapter is about not worrying too much, so take the night off and don’t worry about it.
  52. 52. Secrets #32-Take Pete's Stock Market Course Pages 220-227 Suggested Questions For Discussion: 1. Why does a stock become “public?” Really, the original reason a stock becomes public is because the top management of the company needed money. In order to raise that money, management decides to sell shares (or stock) of their company, to the public. The Key Point is that the stock market is all about raising money. Just because a company sells its stock DOES NOT mean the company is any good. 2. When a company goes public, does that mean the government has approved it worthy of doing so? (Note to Teachers: This is not in the book.) NO! While companies going public must fill out a mountain of paperwork and satisfactorily meet the registration requirements the government, the Securities and Exchange Commission (the government wing responsible for this) approves or disproves NOTHING. This is why lousy companies can go public. 3. When a company needs money to expand, what two options does it have? One is to borrow the money from a bank. Two is sell an interest in your company to an investor with cash. The advantage of borrowing the money is that the company is still 100% yours. The obvious drawback is that you are on the hook for the money. When you take on an investor, the pros and cons swap. You’re not on the hook, but you lost a % of your company. The fact is most companies HAVE to go with selling part to an investor. Remember that old saying, “a bank is a place that will lend you money once you prove you don’t need it?” Well it’s true. Most banks won’t lend any serious money to budding companies. They need investors. At times, lots of investors. And that’s where the stock market comes in. 4. What are indexes and why do use them? It’s too difficult to examine every stock individually to determine how the market as a whole is doing. So instead we take a representative selection of stocks, compile them into an index and we use the index to gauge the market. 5. What’s volume?
  53. 53. Volume measures the number of shares traded in one day. There is a common misconception that, if prices go down that means volume is low and if prices are high that means there was a lot of volume. But volume does not measure price, only Secret #32 Continued activity. For every buyer there is a seller, so high volume could mean the market is much higher or lower than what it was. Low volume means not much happened on Wall Street. Homework: Have students look up tonight’s volume, as well as the Dow Jones Average, and the NASDAQ. These can be found online or on the evening news.
  54. 54. Secret #33-Take A Random Walk Pages 228-233 Suggested Questions For Discussion: 1. What is the random walk theory? We learned in Secret #32 that the number of buyers and sellers determine the price of the stock. People buy and sell for an endless number of reasons, because of the news, because they need money, because they’ve done their research. The trick is to buy before everyone else buys and sell before everyone else sells. The random walk theory states that an individual cannot predict where a stock’s price will be tomorrow based on today’s information. In short, one cannot “beat” the market indexes. 2. How is the random walk theory different from the efficient market theory? The efficient market theory deals with how the market reacts to new information. When a bit of news hits the street, the efficient market theory states that news is absorbed so quickly into the stock’s price that an individual cannot possibly have a chance to take advantage of it-the market’s prices are too efficient. 3. Why do we care? Acceptance or rejection of the random walk theory will dictate much in an investor’s life. If you believe in the theory, if you believe the market is unbeatable, then you will waste very little time trying to beat it. You won’t be scouring thru investment magazines or paying high fees to brokers. Those on the other hand who think they can beat it, will spend much of their time doing these things. 4. Run a discussion with students on the random walk theory, or more specifically whether they feel the stock market is beatable. a. What do they think of recent developments with Enron, and Martha Stewart? Is it an “insiders” game? b. Logically do they think it is beatable? Why or why not? Homework: Have students go online and research investors who have beaten the market. Or you may lead them directly to Warren Buffet, Peter Lynch, George Soros, Phillip Fisher, T Rowe Price, and Sir John Templeton.
  55. 55. Have students write a brief essay/summary on some of the strategies these investors used to beat the market. Are there any techniques in common? Ask the students to write if they feel the average investor can do the same. Does new technology change anything?
  56. 56. Secret #34-Go Broker Pages 234-244 Suggested Questions For Discussion: 1. What is a broker? A broker (be it for stocks, real estate, etc) brings buyers and sellers together for a fee. They Key Point here is the phrase for a fee. The broker doesn’t make money when the buyer or seller makes money. He makes money when a sale is complete. A broker, then is biased to himself. 2. What type or person would choose a full service broker over a discount broker? Only two types of people choose full service brokers. Those who want to do almost nothing in managing their own money and those who do not believe in the random walk theory. Remember if you think you can beat the market then you’ll spend time and money trying to beat it. You’ll hire a full service broker. If you don’t believe you can beat the market, you’ll instead try to keep your costs as low as possible, i.e. use a discount broker. Another Key Point with these brokers is that it’s not just what you own and how you own it, but also how you got it. Often times the same investment can be bought from two different places at two different prices. 2. Are stocks insured? Note To Teachers: This is not in the book. Yes, but not in the way bank accounts are insured. The money on deposit in a bank is insured up to $100,000. If a robber were to make off with the money or a bank president were to commit fraud, the Federal Government or more specifically the Federal Deposit Insurance Corporation (FDIC) would refund each customer his/her money on deposit up to $100,000. Stocks are also protected against fraud and theft, but their value is not protected. If you buy PepsiCo at $65 per share and it plunges to $40 per share because the market is tanking, that’s your loss. If on the other hand your broker tries to steal your PepsiCo stock, you are protected from that by an organization known as Securities Investor Protection Corporation (SIPC). The Key Point is that the value of a bank account is insured while the value of a stock account is not. Stocks are only protected from theft, fraud, and the like.
  57. 57. Secret #34 Continued Homework: Go online to one of the brokers in the book. Fill in the information to request an application kit to be sent to your house. Photocopy it and give it to the class. Have them read thru it, looking for items the book recommends. (The text of these disclosures is quite boring, so it’s best to have the students divide into groups and each student find one or two things.) Have them highlight it and bring it into class. Did they get everything they wanted in the account? Also have students come in with one question to ask about the application. If you as the teacher don’t know the answer, Email Me!
  58. 58. Secret #35-Master Mutual Funds Pages 245-252 Suggested Questions For Discussion: 1. What is a mutual fund? Let’s break down the term. A fund is a pool of money. Mutual means common. So a mutual fund is a pool of money formed by people with something in common. A whole group of people may want to invest in New York City real estate, but they realize that alone, they can’t afford a thing. So they get together with investors who have a mutual interest and form a real estate mutual fund. By pooling their money they actually can buy the Empire State Building. There are mutual funds that buy bonds, real estate, stocks, technology stocks, and foreign stocks. There are even mutual funds that buy…other mutual funds! 2. What the difference between a closed ended fund and an open ended fund? An open ended fund has an unlimited amount of shares. When people want to buy more shares, the fund just issues more and those people buy those shares directly from the mutual fund company. A closed ended fund has a limited amount of shares. If an investor wants more shares, he/she must find another investor willing to sell. For both funds, the price of the shares is determined at the end of every day. The difference is in how they are calculated. Open end funds add up all the values of the all the stocks they hold at the end of the day. Then they divide this number by the number of outstanding shares. Their result is called the NAV. The price per share of closed end funds all depends on investor demand. At times the price per share is less than its NAV, other times the price is higher. 3. What’s turnover? Turnover is the rate at which a mutual fund buys and sells its investments in one year. If a $1 billion fund bought and sold $1 billion worth of investments in one year, its turnover would be 100%. 4. Why should you care? Turnover guarantees two things, taxes and higher fees. When a fund sells a stock for a profit, it passes that profit along to shareholders and they are taxed on that profit. And even mutual funds have to pay someone to be their broker, and that someone is going to charge a fee.
  59. 59. Secret #35 Continued 5. Why are fees so important? Remember our Key Point about control. We can’t control when stock prices are going to go up or down, all we can do is give our best guess. But we can pick a fund with the cheapest fees. The lower the fees the more money in your pocket. Homework: 1. An open ended fund has $4 billion in assets and 17,065,000 shares outstanding. What is the NAV per share? Answer: $4,000,000,000 ÷ 17,065,000 = $234.40 2. A closed ended fund has $300 million in assets and 125,000 shares outstanding. What is the price per share? Answer: This is a trick question. The price per share of a closed end fund is determined by market demand. Remember it is closed to new investors. You must buy from a current investor. 3. Imagine you’re a mutual fund manager. You need to subtract your fee for the day. Today’s NAV is $400 million. You charge a 1.5% annual operating expense fee on your fund. How much money can you take away for fees today? Answer: First find out your daily expense fee. Divide your annual fee by 365 days. 1.5% ÷ 365 = .0041% Then multiply the daily expense fee by the NAV $400,000,000 X .0041% = $16,400. Not bad for a day’s work.
  60. 60. Secret #36-Escape From Bondage Pages 253-260 Suggested Questions For Discussion: 1. What is a bond? A bond is an IOU. Companies can raise money either by selling shares in the company, or by borrowing money. Bonds are a way for a company to borrow money; a way that can be slightly more attractive than a loan. 2. How do bonds make us money? In two ways. By paying interest (called coupon) and perhaps appreciating in value. So they are both income and growth investments. 2. How do bonds appreciate in value? Bond prices move in the opposite direction of interest rates. If your bond pays 5% and rates drop to 3%, your bond is paying more than all the new bonds being issued. So people will pay a premium for it. If your bond pays 5% and rates rise to 7% then your value drops, because no one would pay full price for yours if it pays below market interest rates. 3. What are the risks that bonds carry? If you intend to hold the bond until maturity you really only have two risks. One is that you get paid back early-the bond is callable and you don’t get the interest rate you intended and the other way is you don’t get paid back at all. If the company that issues the bond goes bankrupt, it’s possible you’ll lose everything. Before maturity, bond prices can fluctuate if interest rates move against you or if they receive a lower rating due to flimsy financial statements. 4. What are bonds good for? Bonds are slightly riskier than money market accounts but less risky than stocks. They’re a nice in between. It’s possible to use them to save for upcoming purchases 3-5 years down the road. So long as you hold them until they mature, chances are you’ll wind up with the money you needed. Homework: Have the students answer the following questions: 1. Bond A is currently paying a 7% interest rate. Today, interest rates dropped to 4%. What happens to Bond A’s value?
  61. 61. Secret # 36 Continued Answer: Bond A’s value will go up. Bond A is now paying an interest rate higher than what the market will pay. 2. Mel’s Surfboards Inc. issued 1000 $1000 five year bonds last year with a 5% coupon rate. Today Mel himself was convicted of using Mel’s Surfboards Inc to launder illegal gambling money. The company was order to pay a $100 million fine The bonds the company issued dropped from an AAA credit rating down to a CCC. How much will the interest rate drop? Answer: A bit of a trick question. The interest rate will not drop at all. Bonds like these must pay a fixed interest rate even if their credit drops. The lower credit hurts only the resale value of the bond, should someone want to sell it before it matures. 3. Bill bought a $1000 5 year bond with a 7% coupon. If Bill holds the bond all 5 years what is the TOTAL amount of money he will get back? Answer: $1350.00 Bill gets $70 per year ($1000 X 7% =$70.00) for five years $350.00 Plus he of course gets back his initial $1000 investment.
  62. 62. Secret #37-Stock Up-Part One Pages 261-268 Suggested Questions For Discussion: 1. What type of investor picks stocks? Naturally an investor who thinks they can beat the market. Otherwise, there is little point in it. 2. What are the three basic rules of thumb in investment selection? • Don’t invest in something you don’t understand • Don’t invest in more investments than you can keep track of • When you buy a stock, pretend you are buying the whole company 3. Ask the students to come up with their own rules. Discuss them. Here are some suggested ones for discussion: • Always have a target profit price and loss price at which you will sell. In other words if you buy a stock at $50, you agree to sell it no matter what at $100 or at $25. Do students think this is a good idea? • What about a research rule? Something like I will not buy a stock until spend at least 2 hours of research on it. What do they think of that? 4. Do students agree with the “who is my?” list strategy? Why or why not? The “who is my” list is a list of all the companies you do business with, like your clothing company or your car company. The idea is that you are automatically an expert in these areas, because you are constantly testing their products. Your social life forces you to be on top of these companies. You, even before you were an investor, were trying to figure out what’s hot and what’s not. (Arguably young people more than any others.) Were you to buy stock in an industrial drill making company, you hardly run across these in your everyday life and therefore you start at a disadvantage. 5. This secret mentions many tips on picking stocks. Many of which revolve around the theme of “common sense.” But these tips are far from everything. What else can the students come up with? Perhaps write them on the board and have the students vote.
  63. 63. Secret #37 Continued Homework: Have the students make a “who is my list” of 4 companies. Then take each of these companies thru the 20 questions outlined in the chapter. This exercise is important because like so many others in this book, it’s the real deal. This is the technique used by many of the top mutual fund managers in the country. Next we’re going to take these stocks thru the numbers. Note To Teachers: Remind students that not all companies are public.