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  1. 1. PERSONAL FINANCE Finance 218: Summer 2010 CRN 80569 TU 17:15 to 21:40 Location: CH 383 DRAFT AS OF 6/12/10 Instructor: Douglas M. Crow (Adjunct) Office Hours: Tuesday and Wednesday by appointment/before class Office Phone: 503-481-5445 (Leave a Message) generally on SBA 5th Floor Please contact me via email or phone as This is my personal cell phone. Do not use the SBA number. needed. Leave a note at Faculty Services (SBA 5th Floor) Email: I check frequently except teaching days (TU and W). This is the most reliable method of contact. Course Learning Objectives This is a survey course designed to understand basic financial management concepts and their practical personal application. The course offers no promises of financial security or wealth accumulation but may provide the students valuable tools and insights about how to proceed with this important aspect of life. No prior knowledge is required or expected. Upon completion of the course, the students should have improved abilities to evaluate and plan for financial well- being, understand how to approach managing their money to include budgeting and planning, credit and large purchases(home ownership), management of personal risks (insurance and other), investing their savings via various strategies and establishing retirement and estate plans. I consider this Syllabus my contract with you. A contract has two parties. I will make best efforts to delivery all the information outlined. I expect students as a party to the contract to prepare, complete assignments and other work as their part of the transaction. As a practitioner rather than a pure academic, I will emphasize the learning and application of useful knowledge. The practical application of financial theory will be integrated into the course. I have some experience in every subject we will discuss. Check my resume on the SBA website for more information about my experience. To the extent possible, I will invite professionals in specific fields to supplement my teaching. Required Text and Course Packet Students are required to obtain the following: The text can be found at the PSU Bookstore. The other is an available most new and used bookstore including Powell’s and Amazon. These are both useful books that you are likely to retain in your business library. Required Texts (All three are required): 1. Keown, Arthur J., Personal Finance. 4th ed., Prentice-Hall (2007) with Student Workbook. This is an excellent textbook, but it is expensive ($150+ new and less used) Therefore it is OPTIONAL, but you must buy some basic book. As a substitute most of the same subjects are covered in Suze Orman, The Money Book for the Young, Fabulous and Broke (2005). The difference is price is very substantial, especially ’used’ on Amazon. Your Choice! Both are “keepers” and test coverage is the same. COMMENT: There are many good textbooks on this subject. Frankly any one published within the last 4-6 years covers the subject and could be substituted. I have personally reviewed Kapoor, Personal Finance (2001) and Gitman, Personal Financial Planning (2008). New or used any text will be good back up to classroom work and lectures. Used books can save you substantially. I have seen ones at Goodwill (SE Grand Street location) for $5. 2. Scott, D. L., Wall Street Words (Any of several editions). Excellent reference. You need to understand the vocabulary of finance. Page 1
  2. 2. 3. Required Hand-out Materials from Clean Copy (across from Cramer on Broadway) Advising: SBA and Me. Noted below is a service of SBA. In addition, I am available to assist my students to the extent I can in any of these matters. I view this as an important part of my job as your instructor. I lack the expertise in some of the administrative matters and a full knowledge of your background, but can offer my opinions on course work, post graduate studies and careers. I think it is important to gather several views into the decision making process. Please contact me at class or via my coordinates noted above. The SBA provides academic advisors as well as career and internship advisors to assist students in making the most of their collegiate experience. Academic advisors are trained to provide counsel in a wide range of issues. From selecting a business major to evaluating transferred transcripts, academic advisors are here to help students with all of their degree related questions. The following is a brief summary of the type of issues with which academic advisors can offer assistance: ♦ DARS reports ♦ SBA admissions requirements ♦ Major selection and requirements ♦ Transcript evaluation ♦ Course overrides ♦ Transfer credit petitions ♦ Career planning ♦ Portland State rules and policies In addition to academic advising, the SBA provides career and internship advisors to assist students in landing a job upon graduation or a summer internship while students are still in pursuit of their degree. Career and internship advisors can also provide resume and interview guidance. All SBA advisors are available by appointment, which must be scheduled in advance. Drop-in hours are available as well. Drop-in hours are held regularly throughout the week and are designed to help answer routine or simple questions. For more information about SBA advising and drop-in hours please visit the School of Business website at and click on student resources. Grading Procedures Class Participation (measured 2x) 10 points Quizzes (2) 20 points Work Sheets (2) 20 points Presentation/Project. 10 points Lessons Learned Final Plan 20 points Final Exam 20 points Total 100 points YOU WILL BE GRADED ON A STRAIGHT POINT TOTAL--EVERY EXERCISE AND CLASS ATTENDANCE IS IMPORTANT AND ADDS TOWARD THE TOTAL SCORE. ALL ASSIGNMENTS AND TESTS MUST BE COMPLETED FOR A GRADE. • Academic honesty is required to pass. Cheating will result in automatic failure. • Plagiarism is considered cheating. • Attendance and participation at class is instrumental to performing well in the course. You will receive information not from other sources and included on exams. • You are responsible for announcements made in class. Page 2
  3. 3. • The quizzes will be designed to check your progress in the course. Grading System Your final grade will be determined according to the following percentages: A 93-100 B+ 87-90 C+ 77-80 D+ 67-70 A- 90-93 B 83-87 C 73-77 D 60-67 B- 80-83 C- 70-73 F below 60 Class Approach. Four credits and practically four hours in a classroom is a long time. Each class will be divided into two or three parts of about 1-1.5 hours with a 10-minute break at 45 minute and then a 15-minute break between halves. To start there will be 15-20 minutes of discussion about current events or questions about the general subject or past classes. I will link the subjects discussed in classes with what is actually happening in investment and financial markets. This will be followed by lectures on the subjects of the day and also presentations by students or guests. 10-30 minutes at the end of the class will be flexible and open for group meetings, short meetings with the instructor, consulting on worksheets projects, or for the good of the order. Quizzes and Final. All quizzes and the final will be open book and open notes. Good note taking in class will be very helpful in the testing so if you miss class you would be well advised to get a copy of a classmate’s notes. Quizzes will consistent of 10 short answer questions (no multiple choice, true/false or essay) and the final will be 20 similar questions (up to 25% directly from the quizzes). You will be given 30 minutes to complete a quiz. The quizzes are designed to test your learning progress and knowledge and not to find obscure facts in the text. Generally all the answers will be covered in a previous class—either specific facts or methodology/analysis. Class Participation. The class participation grade evaluates a student’s contribution to the classroom. Participation grades are determined by a balance of the quantity and the quality of comments in class Participation grades are determined by student’s contributions to discussions, thoughtful comments and questions about the short weekly presentations and during the lecture portions of the class. Worksheets. Worksheets come from the Student Workbook and/or Handouts. They are essential to understand and benefit from the classroom instruction. Sometime will be given to understanding and starting the worksheets required for the next class. Bring the workbook to the first the first class in order to prepare for the second class. Worksheets will be prepared before class based on the chapters to be read and suggestions by the instructor at the previous class. Since the information is often private, the instructor will review the worksheets and return them. Worksheet grading will be pass-fail with 5 sets each with a score of either 10(completion) or 0 (incomplete) for a total of 20 (20% of grade). My comments will be included and general comments in class. Lessons Learned-Your Plan. Students will prepare a 3-4 page final report based on the material in the class and worksheets completed. The plan will include the following sections: 1. Financial Goals for the next 2 years. Monthly Budget (show a typical month to include a monthly pro-rate as needed for each year) and Annual Budget (for each year) (Spreadsheet) with categories from worksheets. Note extraordinary items not contained in a monthly budget. 2. Financial Goals for the next 5-10 years. Specific strategies to achieve them like income, major expenditures, savings amounts, and investment rate of return of targeted investments. Completed from information in worksheets and displayed on a spreadsheet for each year. 3. Longer Term Plans (10-30 years) to include contingencies for life events and eventual retirement. On each of the 3 areas, give brief explanations about your assumptions in footnotes. For example: inheritances, birth of children or dependent person, purchase of house, graduate school attendance, job promotion or other events with a material non-routine financial impact. The idea is to show what you have learned and to put numbers Page 3
  4. 4. together with activities and events. You will be graded on the application of the class and text material to your personal situation and the completeness of the plan. The handout materials have a further explanation. Small Group or Individual Project Grade Each week, two partners or an individual will prepare a short presentation to the class on a specific subject. I will make assignments from the list of possibilities below and will also accept your suggestions. The subject must relate to personal finance. These are about subjects of timely interest or background that a stock market investor should know, but will not be covered in standard texts. The project will include a short written report of up to two pages (500 words or less), an oral presentation to the class (5 minutes per person) with a 1-page handout if desired and leadership of class discussion for up to 10 minutes. To receive full credit, the assignment must be completed in whole and turned in at the beginning of class. Each week, two partners or an individual will prepare a short presentation to the class on a specific subject. I will make assignments from the list of possibilities below and will also accept your suggestions. The subject must relate to personal finance. These are about subjects of timely interest or background that a stock market investor should know, but will not be covered in standard texts. The project will include a short written report of up to two pages (500 words or less), an oral presentation to the class (5 minutes per person) with a 1-page handout if desired and leadership of class discussion for up to 10 minutes. To receive full credit, the assignment must be completed in whole and turned in at the beginning of class. Class 2: Book Review: Clason, George S., The Richest Man in Babylon (1926). Visit to: Goodwill or Salvation Army Grocery Outlet Discounter, like Ross Comparison shop Costco v. Safeway or Fred Meyer Yard Sales or Flea Markets Craig’s List and Ebay Thrift Shop—any Farmers Market Better Business Bureau Experience buying a used car Scooter and Bicycle-purchase/commute Experiences retting a student loan. Class 3 Visit to Small Claims Court Book Review: Kyrosaki, Robert. Rich Dad-Poor Dad (2000). Experiences buying a house. Visit Rebuilding Center Class 4 Long Term Care Insurance. Insurance Agents Class 5 Book Review: Navarro, Peter, The Well-Timed Strategy (2006) Book Review: Nassem Taleb, Black Swans or Fooled by Randomness. Mutual Fund Masters: Page 4
  5. 5. Peter Lynch and Fidelity Funds John Templeton and Franklin-Templeton Funds John Bogle and Vanguard Funds Ken Heebner Martin Whitman, Third Avenue Funds Socially Responsible Investing (SRI) Class 6 Book Review: Malkiel, Burton, A Random Walk Down Wall Street (2003). Bond Master Investor: Bill Gross, PIMCO Master Investors: W. Buffett-Biography and Berkshire-Hathaway Class 7 My Company’s 401k or Retirement Plan. Certified Financial Planners-Careers? Book Review: Pollan, Stephan,M., Die Broke (1997) Any Class-Personal Choice. Ask me first for an “OK” and date. Other Comments about the Course. This class has a final exam. All Quizzes and Final exams are open book and notes. You are encouraged to take careful notes, as more often than not the subjects discussed in class will be covered on the exams, not obscure passages from the textbook. Absences that are not cleared with me one week in advance will not be recognized and will not be allowed make-ups. If you know you will miss an exam, see/contact me immediately. • An incomplete will only be given for documented extremely extenuating circumstances based on School guidelines. As an Adjunct Professor this further complicates this matter for me, since I may not teach the next quarter. • No withdrawals will be granted past the standard date without documented extenuating circumstances. • Earning a poor grade in the course in itself does not constitute an extenuating circumstance. • Academic honesty is required to pass the course. When and issue of cheating or honesty arises, students may want to think about the Rotary International’s “4- Way Test” for guidance on ethical conduct: "Of the things we think, say or do: 1. Is it the TRUTH? 2. Is it FAIR to all concerned? 3. Will it build GOODWILL and BETTER FRIENDSHIPS? 4. Will it be BENEFICIAL to all concerned?" Rotary is a worldwide public service organization of over 1.2 million business and professional members organized in local units. FIN 218 Summer 2010 SCHEDULE Guidance: • Assignments are due on the dates indicated. • The reading and worksheet are to be completed, before the class in which it is first discussed. • The points listed in the Syllabus form a study guide for quizzes and tests. • There maybe some overlap between classes, but generally this schedule will be followed for each class session and I will do my best to stay on track. Page 5
  6. 6. 116/22 1 Introduction to the course Syllabus and Handout. Syllabus Overview. Chapters 1, 2 H-O (Handout) at 1 Intentional “Money Mentality” Exercise Personal Finance H-O at 3 Critical Thinking Basic Lessons: H-O at 2 Agency Problem Worksheets 1,3,4 or • Beginners Mind: Doubt, Faith, and Determination. H-O at 4 Benchmarks H-O 108, 109, 110 • Earning, Spending and Saving. The Millionaires. H-O at 5 Life Events Cash Flow, Net Worth • Time Value of Money and Compounding--Rule of 72 H-O at 6 Basic of Management and Goals. • Capital Growth—Capital Preservation. Rules of Management. H-O at 7 Diversification H-O at 8-9 Millionaire Mind • Diversification of Risk • Exogenous-Endogenous Events. H-O at 107-110 Budget Forms • Cycles. Life, Business and World H-O at 116-118 Present Value Tables Workbook/Worksheet Introduction and Practice Making a Plan and a Budget—Introduction to Cash Flow Chapters 3, 4 Orman 142-171 Time Value of Money, Plan Review and Strategies H-O at 10 Behavioral Finance Retirement Forecasting. See: H-O at 11 Interest Rates H-O at 22-24 Retirement Considerations: Forecast Behavioral Finance. H-O at 69 (Inflation-Deflation) Structure of interest rates. Inflation and Deflation. What these mean? Discussion and Practice Cases of Time Value of Money Strategies related to the Time Value of Money Page 6
  7. 7. 6/29 2 Cash Management, Credit Cards, Consumer Loans Chapters 5, 6, 7. Review Revised Work Sheets and Retirement Funding Analysis Orman 18-52, 78-141 Hand-in Worksheets: Cash Flow, Net Worth What these mean? H-O at 15-19 Expense Cuts and Goals. Leverage and Risk Management H-O at 20 Emergency Funds Liquidity and Cash Flow Student Debt H-O 12-13 Solvency and Bankruptcy Taxes H-O 20 Check the web sites on credit theft & Student Debt reports. Taxes H-O at 25 Picking a Bank H-O at 31 Dispute Resolution Guest Lectures-PSU Banks and other Financial Institutions (Thrifts, Credit Unions, Pay-day Loan H-O at 32 Consumer Laws Student Legal Shops, etc.). Establishing Accounts. Advantages and Disadvantages. H-O at 33-35 Consumer Protect. Counsel. H-O at 26-27 FICO Bankruptcy and Building a “Credit Record.” Consumer Rights. Credit Bureaus and Credit Scoring. See: cra/index.jsp for a free copy of your credit report—you do not have to buy “extra” services. Any of the three companies will give basically the same information. Credit Card or Debit Card: Risk, Rates and Fees. Identity Theft. See: the site for the Federal Trade Commission Consumer Protection, A brief legal discussion. Uniform Commercial Code and Contracts Dispute Resolution Methods Small Claims Court Page 7
  8. 8. 7/6 3 Major Expenditures and Real Estate Investments Keown. Chapter 8. Orman 252-319 See index under Hand-in Worksheets as Big-Ticket Purchases: Internet Research & Secured Lending “Homes” revised based on your • Autos (Blue Book) further expense • Appliances-Big Ticket Items (Consumer Reports) H-O at 2 Agency Problem analysis. • Secured Lending. H-O at 28-30 Autos Hand-in Real Estate and Home Ownership. H-O at 36-37 First Time Buyer worksheet on Preparing to Buy a Home. H-O at 46 Replacement Costs Retirement Review Housing Affordability Analysis H-O at 38 Terms to Know Rent vs. Buy Decision. H-O at 41 Rent v. Buy Check the web sites on Real Estate-Residential H-O at 47 MLS credit theft & H-O at 39-40 Affordability reports. Web Sites for Research and Analysis. H-O at 44-45 Affordability 1. Mortgage Rate Websites. The following sites are useful in calculating Calculator mortgage rates and understanding the time value of money. H-O at 42-43 Closing Costs H-O at 49 Investment Property • Good general background and tutorial. • Guest Lecturers. ator.frame Mortgage Rates in Oregon markets and P+I calculator • Typical commercial site looking for Credit Unions: borrowers and you have to give your name and address to get information Your Financial and get contacted. They might be useful for the search for the best deal. Connection. 2. Housing Affordability Websites. Calculators are also available on the web similar to Worksheet 23. Home Mortgage • Lending. dability2e.asp • 3. The multiple listing services in any locality (usually by state or major metropolitan area. Have public access to listings. In Oregon this is the RMLS website: For a search where the criteria can be included go to: Real Estate-Income and Commercial (Investment) This Class may go into the next week. Page 8
  9. 9. 7/13 4 Risk Management. Keown. Chapters 9, 10 • Life Events Orman. 330-332 See index under Quiz 1 • Probabilities and Actuaries “insurance.” • True Diversification Jonathan Hilt, Guest • Life style Choices: Controllable/Uncontrollable Risk H-O at 5 Events Lecturer and Quiz H-O at 7 True Diversification Proctor • Self-Insurance H-O at 50 Self Insurance H-O at 51 Term Life Types of Insurance. H-O at 52 A.M. Best Ratings • Insurance Ratings—A.M. Best • Life, Term and Whole. Fixed and Variable • Disability • Health. The Deductible Dilemma • Travelers Insurance • Special Situations (Pets, Crops, etc.) • Asset Protection. Property and Casualty. Homeowners, Umbrella, Auto Valuables) • Mortgage/Debt Insurance (Credit Life) • Long Term Care Contracts • Annuities (Fixed, Variable Contracts) Case Studies: Apply Insurance to Situations. Other “ Insurance” Products and Services Start Investment Basics. Page 9
  10. 10. 7/20 5 Investment Basics Keown. Chapters 11, 12. Adam Smith, Wealth of Nations. Supply and Demand. Orman 216-251 See index under “Stocks.” Investing in Securities. Defined. What is a “security?” H-O at 53 Comparative Returns Risk and Return—the SML H-O at 54 “Tail” Risks Understanding a “portfolio.” Asset Allocation H-O at 55 SML How does the “market” work? H-O at 56-57 PIMCO H-O at 58-60 Asset Allocation Macro Economics—Brief Micro Economics—Brief H-O at 64-68 Economics The need for rules—especially capital preservation. Opening a Brokerage Account and Picking a Broker. See: H-O at 61-63 Brokerage Accounts and Costs Foreign Investors Securities Laws Memo. Brief Overview of Securities Laws-mainly ’33 and ’34 and SOX Reporting and Transparency- GAAP and Business Law. Self-Dealing Methods of Analysis: Technical, Financial, Comprehensive “Value.” H-O at 88 Elements of Risk The 3 Pillars of Modern Portfolio Management: H-O at 65 Dividends • Risk and Reward-Capital Asset Pricing Model (Sharpe) Securities Market Line. Beta. • Diversification of Risk. (Markowitz). The relationship between holdings H-O at 77 Market Efficiency and systematic and nonsystematic risk reduction. • What is the “Efficient Market?” (Fama) Information flow. H-O at 89 Proxy Financial Statements Required by Public Companies. Columbia Sportswear Packet • Annual and Periodic (10k and Q) (review in class) • Proxy Statements (Governance) • Press Releases and 8K Page 10
  11. 11. 7/27 6 Stocks and Bonds Keown. Chapter 13 and 14. Hand-in Worksheet- Sources of Information Orman. Chapter 7 and see index Stock H-O 111 Financial Newspapers: Wall Street Journal and Investors’ Business Daily under stocks and investments Hand-in Worksheet- Value Line, Standard and Poors and other financial information icons. Mutual Fund Use of the Internet for analysis. H-O at 82 Value Line H-O 113 H-O at 81 Yahoo Review the basics and look at some specifics: Charting-Patterns of markets and securities over time. H-O at 74 Stock Ratings Ratio/Financial Analysis: P/E (growth) and Yield (income) H-O at 90 Technical 50 day moving avg. Bond Investing H-O at 73 Bond Ratings Application: Approaches to Selection and Valuation. • NASDAQ Web Site with “guru investors” • CANSLIM • Motley Fools Approach. H-O at 83-87 • Value and Large vs. Small Companies. • Investment Masters. H-O at 80 Basic Considerations Mutual Funds and Exchange Traded Funds (ETF) H-O at 73 Market Efficiency Understand the factors when investing in Mutual Funds H-O at 75-76 Risk-Return Morningstar and the Internet. Groups Fund Literature and Prospectus H-O at 87 MF Basics 94 Understand Mutual Funds (Open, Closed and ETF) H-O at 95 Morningstar Report Discuss the types of Mutual Funds—Investment Styles and Specialized Funds H-O at 96-97 Oakmark Example H-O at 98 SRI Screens How Mutual Funds Relate to Modern Portfolio Theory. H-O at 99 Buying and Selling Page 11
  12. 12. 8/3 7 Retirement Planning—Estate Planning Quiz 2 Examine current issues with retirement Keown Chapters 16 and 17. • Social Security-Future and Funding Orman Chapters 6& 7 • Defined Benefit plans-Pension Benefit Guarantee Corp. • 401K and IRA Savings Plans H-O at 43 Agency Problem • Health care-Long Term Care and Savings Plans H-O at 22 Social Security? H-O 71-72 Inflation Risk • Working Retirees H-O 91-93 Basic Estate Planning Terms H-O at 101 Savings Rates Families: Wills, Trusts and the Tax-man. H-O at 102 Picking an Advisor Review of Lessons Learned Assignment H-O at 103 Tax Issues and Assets to Heirs H-O at 105-106 Sample Will H-O at 115 Lessons Learned 8/10 8 Personal Planning/Investing and Review of Course Review Text or Orman Hand-in Lessons • Assessment of needs and objectives. H-O at 115 Lessons Learned Learned: • Personal risk and return and related strategies. H-O at 120 How to make the Personal Plan • Review of Life Events BIG bucks Discussion of Lessons Learned and Plans Summarize Course and Plan of Final Exam FINAL EXAM Week of 8/10 Final Exam. The exam will cover the entire course material. Open books and notes. Page 12