1 Financial Literacy Basics 1 1 Introduction to

1 Financial Literacy Basics

1. 1 Introduction to Financial Literacy

Objectives • Describe the initial steps for creating a financial plan • Discuss the importance of setting goals as a part of financial planning Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Key Terms • financial literacy • personal financial planning • financial plan • need • want • consumer • good • • service values value system ethics priority standard resource goal Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Essential Question • Why is it important to plan your financial future? Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Planning Your Future • To manage money successfully, you need to be educated about money matters • Financial literacy is the possession of a body of financial knowledge, a set of basic skills, and the ability to apply knowledge and skills to making informed, responsible financial choices Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Planning Your Future (Continued) • Personal financial planning is the process of setting financial goals and developing plans to reach them while meeting financial needs • A financial plan is an overview of an individual’s current financial position and strategies to meet future financial aspirations Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Planning Your Future (Continued) • Needs are necessities a person must have to survive • Wants are things that a person desires but can live without Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Planning Your Future (Continued) • A consumer is an individual who purchases goods and services for his or her own use • Goods are tangible items that can be touched, used, and purchased, such as food or clothing • Services are intangible activities that another person usually performs for a fee, such as house cleaning or completing tax returns Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Planning Your Future (Continued) • Values are principles and beliefs that a person considers important • A value system is the overall structure of values and goals that guides a person’s behavior and provides a sense of direction in life Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Planning Your Future (Continued) • Ethics are the moral principles or beliefs that direct a person’s behavior • A priority is a value or goal that is given more importance than other values and goals • A standard is an established measure of quality, value, or quantity Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Planning Your Future (Continued) • A resource is a supply of something that can be used when needed – Human resources are internal, such as energy, knowledge, experience, skills, talents, motivation, imagination, and determination – Nonhuman resources are external, such as money, time, and equipment Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Planning Your Future (Continued) • Resources are scarce • Resources are manageable • Resources are related to one another Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Goals • A goal is an objective to be attained in a specific amount of time • There are different types of goals – to be goals – to do goals – to have goals Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Goals (Continued) • • Is the goal realistic and possible? Can I break big goals into smaller pieces? Can I measure my progress? What will the goal cost in time, money, and effort? • Will I still want the goal by the time I am able to reach it? Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Section 1. 1 Review 1. What factors should be taken into consideration when creating a financial plan? Creating a plan starts with analyzing your needs and wants, values, and ethics. It also takes into consideration your personal priorities, standards, and available resources. 2. Name examples of positive ethical behavior. Ethical behavior calls for honesty, fairness, reliability, respect, courage, tolerance, civility, and compassion. Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Section 1. 1 Review (Continued) 3. How are priorities set? Priorities are set by ranking goals in order of their importance. 4. List the two types of resources that can be used to meet goals. Human resources and nonhuman resources. 5. What are three types of goals? Three types of goals are to be goals, to do goals, and to have goals. Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

1. 2 Managing Your Personal Finances

Objectives • Discuss strategies for making financial decisions • List the steps used for systematic decisionmaking • Determine how to manage limited resources to reach personal goals Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Key Terms • • • financial competence cost-benefit analysis marginal benefit marginal cost law of diminishing marginal utility • trade-off • opportunity cost • systematic decisionmaking • management • personal information management (PIM) Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Essential Question • Why must financial strategies be applied when making choices about how to spend money? Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Making Economic Decisions • Economic decisions can be made out of habit, on impulse, and by failing to act • Financial competence is having the ability to understand basic topics related to finance, such as wisely making, spending, and saving money Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Making Economic Decisions (Continued) • Cost-benefit analysis is a method of weighing the costs against the benefits of an action, a purchase, or a financial decision • Calculate the cost, put a value on the benefits, and compare the results • This applies to economic decisions of consumers, businesses, and governments Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Making Economic Decisions (Continued) • Marginal analysis measures the added benefit, versus the added cost, of one more unit of a product – The change in total benefit of using one additional unit is the marginal benefit – The change in total cost of using one more unit is the marginal cost • The law of diminishing marginal utility states the marginal benefit of using each additional unit tends to decrease as the quantity used increases Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Making Economic Decisions (Continued) • A trade-off is the choice you give up when you make one choice over another • Opportunity cost is the value of the option you gave up Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Making Economic Decisions (Continued) • • Do not spend more than you can afford Establish priorities and plan carefully Needs should be covered before wants Your financial future is in your hands Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Systematic Decision-Making • Systematic decision-making is a process of choosing a course of action after evaluating available information and weighing the costs and benefits of alternative actions and their consequences • This process can help you arrive at the best course of action Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Systematic Decision-Making (Continued) Define the decision to be made Explore all alternatives Choose the best alternative Act on the decision Evaluate the solution or decision Goodheart-Willcox Publisher Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Managing Resources • Management is the process of organizing and using resources to achieve predetermined objectives • Personal information management (PIM) is a system that individuals use to acquire, organize, maintain, retrieve, and use information • The stages of management include planning, action, and evaluation Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Managing Resources (Continued) • Planning involves identifying goals, obstacles, and resources – What goals do you want to have or achieve? – What obstacles stand between you and your goals? What must you overcome? – What resources can you use to overcome the obstacles and reach your goals? Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Managing Resources (Continued) Goal Planning Goal Plan #1 Complete an English assignment on time Goodheart-Willcox Publisher Obstacles • • Time limitations Lack of interest in the topic Difficulty getting started Tough grading by the English instructor Available Resources • Two hours after school each day • Public library reference room • Knowledge of the topic and where to go for information • Detailed instructions from the English instructor • Writing and computer skills • Computer • Determination to finish on time and get a good grade Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Managing Resources (Continued) Goal Planning Goal Obstacles Plan #2 Become president of the student body • Popularity of the other candidates • Difficulty in contacting all the voters • Limited time before the election • Lack of organization among supporters Available Resources • • • Goodheart-Willcox Publisher Knowledge of the job and its demands Experience in the student government Organizational skills Public speaking skills Reputation for leadership Energy and enthusiasm for planning and running the campaign Knowledge of what the voters want Broad support from both the student body and the faculty Friends who are willing to help run the campaign Use of school computers and graphics programs Desire to win Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Managing Resources (Continued) • Action involves using your resources to achieve your goals • Successful action depends on determination and flexibility – Determination keeps you focused – Flexibility helps you find ways to revise and improve your plans Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Managing Resources (Continued) • Evaluation is a continuous process – What worked? – What did not? – How could you make it better next time? • Evaluation improves management skills for the future Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Managing Resources (Continued) Process of Evaluation Plans Evaluating Actions Evaluating Results • What are the goals? • What obstacles stand in the way? • What resources are needed? • Are the needed resources available? • Are the goals realistic? • Are the goals worth the effort? • Is the plan working? • Is there steady progress? • Are the resources being used to their best advantage? • Are top priority goals getting top priority attention? • Is there room for improvement? • What changes are needed? • Were the goals achieved? • Was it worth the effort? • Are the results satisfactory? • What key factors contributed to reaching or failing to reach the goals? • What were the strengths or weaknesses in the plans and actions? • How can future plans be improved? Goodheart-Willcox Publisher Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Section 1. 2 Review 1. What are some of the unplanned ways people make decisions? People make decisions out of habit, on impulse, and by failing to act. 2. List four strategies that individuals, families, businesses, and government apply when making financial decisions. Cost-benefit analysis, marginal analysis, trade -offs, and opportunity costs. Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Section 1. 2 Review (Continued) 3. What are the five steps in systematic decision -making? The five steps in systematic decision-making are: define the decision to be made; explore all alternatives; choose the best alternative; act on your decision; and evaluate your solution or decision. 4. Name three stages of management. Planning, action, and evaluation. Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Section 1. 2 Review (Continued) 5. What two personal characteristics are key in reaching goals? Determination and flexibility are key characteristics in reaching goals. Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

1. 3 Financial Influencers

Objectives • Identify and explain factors that impact an individual’s financial future • Describe how the government influences the economy • Explain how globalization influences a person’s finances Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Key Terms • • • economic condition recession inflation interest demographics • • • culture technology media entitlement globalization Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Essential Question • What factors influence your financial future? Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Your Financial Future • There are many important factors and forces that influence your financial life now and in the future – economic conditions – demographics – culture – changing technology Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Your Financial Future (Continued) • Economic conditions are the state of the economy at a given time • Recession is a period of slow or no economic growth • Inflation is a period of rising prices • Interest is the amount that is paid for using money Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Your Financial Future (Continued) • Demographics are the statistical characteristics of a population • Culture is the beliefs, behaviors, and other characteristics common among members of a group or society Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Your Financial Future (Continued) • Technology is the application of science and research to human life and environments • Media is forms of communication designed to reach a large number of people – television – radio – Internet Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Government and the Economy • An entitlement is a government program that provides financial benefits to eligible citizens based on their legal rights – Medicaid – Medicare – Social Security Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Globalization and Your Finances • Globalization is the worldwide spread and integration of production, markets, communications, and technology Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Section 1. 3 Review 1. List four factors that impact an individual’s financial future. Economic conditions, culture, demographics, technology. 2. What economic conditions make managing personal finances important and challenging? Recession, inflation, or interest rates going up or down makes managing personal finances even more important and challenging. Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Section 1. 3 Review (Continued) 3. How does media impact the financial decisions made by individuals, families, businesses, and the government? Media impacts individual, family, business, and government decisions by providing information for making financial decisions. It provides the latest information from around the world about consumer products, services, and issues. Consumers can compare prices, opportunities, and ways to spend money wisely without leaving home. Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.

Section 1. 3 Review (Continued) 4. Provide an example of an entitlement program. Medicaid, Medicare, and Social Security. 5. How does globalization affect job opportunities as a person enters the workforce? As a young person entering the workforce, you will be competing with workers around the globe. Copyright Goodheart-Willcox Co. , Inc. May not be posted to a publicly accessible website.