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Prospecting for Gold Part 2: Personal Finance Exploration

Part 2: Personal Finance Exploration
Personal Financial Literacy StandardsPersonal Finance Considerations

Personal Financial Literacy Standards (Oklahoma State Department of Education)

o Introduction: Economic Reasoning
Presentation

The economic way of thinking involves the ability to develop and practice critical thinking
skills that enhance decision making. Life is about making choices because we have limited
resources and unlimited wants. Nothing in life is ever free. We have to make choices, we cannot
have everything we want, though people have unlimited wants with the limited amount of
resources (scarcity). Every time we make choice, we give up something; all choices have their
benefits and costs (opportunity cost). Incentives are rewards, and disincentives are punishments.
People prefer incentive and will change their behavior as their incentives change. Choices are
shaped by economic systems. Rules influence our incentives. Incentives influence our choices.
As rules change, incentives and choices change. Choices have consequences for the future. Five
steps to take are to state the problem, list the alternatives, identify the criteria, evaluate the
options, and make a decision (PACED). We need to weigh both the costs and benefits before
making choices.
Terms: Choices, cost/ benefit analysis, incentives and disincentives, opportunity cost, scarcity,
trade-offs

Module: Economic Reasoning

The economic way of thinking is the idea of considering the benefits and the cost of
something. Sometimes when a decision is made and it doesnt turn out as expected, there is a
lack of information when making a decision. Some choices are more complex or simple than
others. The goal is to determine how to get the greatest benefit for the least cost, and choose the
alternatives that will accomplish that goal. The reason why we make choices is because there are
limited resources (time, money, space, etc.) and unlimited wants. An opportunity cost is your
second best choicethe choice you gave up. When using this kind of cost/benefit analysis, we
use incentives to measure our costs and our benefits. An incentive is a reward for our behavior. A
disincentive is a punishment for our behavior. Choices with positive outcomes are always better
than choices with negative outcomes. The five steps to good decision making include: P = State
the PROBLEM. A = List the ALTERNATIVES. C = Identify the CRITERIA. E = EVALUATE
the options, based on the criteria. D = Make a DECISION.

o Standard 1: Earning an Income

Presentation
What are your plans after high school? What jobs or careers have you considered? If
someone wants to earn more income in the future, they should invest more into their education,
because the longer someone is in school, the more they are developing their career and human
capital, the more income they will receive in comparison to a high school diploma.
Paying taxes is part of the responsibility of earning an income. Do you wonder what
happened to the paycheck you received and wondered where it all went? Deductions. Taxes are
used to support a variety of programs, such as public schools, national defense, and public
welfare. While no one likes paying taxes, we all enjoy the benefits received from them. Other
payroll deductions provide benefits to us and to our families.
What is the difference between a dream and a goal? Set your goals and stay focused to
achieve them. It may take time, but the end result will be worth it. A budget is one of the most
important tools an individual or a family can have to help manage their financial resources.
Without a budget, you are left guessing every month if you will have enough money to get by.
Budgets should be flexible and change with your needs (not your wants!). Most successful
money managers will review their budget at least once a year to ensure they are on target for
reaching their personal and financial goals.

Module
1.1 Earning an Income

A job tends to be temporary and allows a person to go to work and draw a paycheck. May not
offer long term satisfaction. A career offers a profession or vocation that becomes ones life
work. Allows for advancement and professional growth. Human capital is the health, education,
experience, training, skills, and values of people (human resources). Education matters, it
increases your annual income.
Terms: Career, earned income, human capital, human capital investment, income, job, labor

1.2 Income and Taxes

Several deductions are subtracted from a paycheck. Gross income is the total pay before
deductions. Net income is take home pay after deductions, while some deductions are required;
others are optional. Deductions include, insurance, taxes, uniforms, meals, retirement, union
dues, and others. Payroll taxes include FICA (Federal Insurance Contributions Act) which covers
social security and medicare (federal programs providing benefits for people who are retired,
disabled, or children of deceased workers, Federal Income Tax which are tax rates that vary
based on income, and State Income Tax which are tax rates that vary from state to state. These
taxes are deducted from paychecks.

Terms: Deductions, exemptions, FICS, gross income, medicare, net income, social security

1.3 Goal-Setting

Short term goals can be reached in a few months. Medium term goals can be reached in
1-3 years. Long term goals can be reached in more than 3 years. When setting rules, be specific,
write down goals, stay focused, believe in yourself, and see roadblocks as opportunities.

1.4 Managing Your Income

Fixed (fixed expenses) is the same for an extended period of time; fixed income and fixed
expenses. Variable (variable expenses) changes from month to month; variable income and
variable expenses. When setting your budget, be sure to include deposits to your savings account
as a fixed expense. A budget is THE most important tool to manage financial resources and meet
personal goals. They should be reviewed annually.
Terms: Budget, expenses, financial goals, fixed expenses, fixed income, income, variable
expenses, variable income.
o

Standard 2: Taxes
Presentation
Module
2.1 Somebody Has to Pay

The ability to pay is a theory about people who can afford to pay taxes should pay more
than those with limited ability to pay. Taxing one group more than the other may decrease the
incentive to earn more money. The theory behind the benefits received is behind that the
government should only tax people who receive the goods and services. The problem is people
who often benefit more from government programs have limited incomes. The problems with
these two theories have led to the implementation of two different kinds of taxes: progressive and
regressive. By definition, a tax is progressive if the proportion of income paid in taxes increases
as income increases. A tax is regressive if the proportion of income paid in taxes decreases as
income decreases. Basically, this means that people with higher income levels pay more in taxes
overall than people with lower incomes. Everyone benefits from the public goods and services
provided by our tax dollars. The free rider problem happens when people benefit from using
goods and services without paying for them. If we do not have to pay or only pay a small share,
there is little incentive to control our demand for those goods or services. Those who are paying
will need to pay more to meet our demands.
Terms: Ability to pay, benefits-received principle, free rider, progressive tax, regressive tax, taxes

2.2 Voluntary Compliance

Our tax system operates on a principal called voluntary compliance. If you do not file a
tax return you can: face criminal prosecution. be heavily fined, or be imprisoned. The Internal
Revenue Service (IRS), a division of the U. S. Treasury, is responsible for the federal tax system.
According to law, everyone who receives a paycheck is required to submit a tax return to the IRS
by April 15. Employees receive a form, called a W-2, in January of each year. The W-2 includes
the information you need to complete your tax return. In some states, you are required to pay
local and state personal income tax in addition to the federal. By paying taxes, you are assisting
in providing many of the services people rely on every day. Paying taxes is a moral and ethical
responsibility of all U. S. citizens. Paying taxes helps us avoid being financially penalized or
imprisoned by the IRS.
Terms: ethics, morals, standard of living, quality of life, voluntary compliance
o Standard 3: Financial Service Providers
Presentation
Module: Finding Financial Services
Financial Service Providers are businesses providing services similar to banks. Banks, credit
unions, credit card companies, insurance companies, stock brokerages, mortgage companies, and
investment banks. When choosing a financial service, some considerations include fees, time,
and the ability to access the services and the level of skill in using them. *Online banking
Terms: ATM, automatic deposit and payment, bank, check cashing service, checking account,
credit card, credit union, debit card, financial services, financial institution, insurance company,
investment bank, money transfer, mortgage company, online banking, overdraft, overdraft
protection, safety deposit box, savings account, stock brokerage.
o Standard 4: Managing a Bank Account
Presentation
Module: Tracking Your Money
Check and debit card transactions are almost instant, so it is very important to have the
money in your account when you use them. A Check is a written document ordering a financial
institution to transfer money from your account to another account. Debit Cards are a plastic
version of a check. Most bank accounts come with a debit card. Debit cards are easy to use but it
can be difficult to remember to write down your transactions. To write a check, write the current
date (step 1), name aka payee (step 2), dollar amount in numbers (step 3), dollar amount in words
(step 4), sign your name (step 5), and notes about the transaction (step 6). Then on the booklet
that comes with your preprinted check write the check number, date, payee, amount of the check
or ATM transaction (step 7), subtract amount of check from the balance (step 8).
To deposit money into your account, step 1: Write todays date on the deposit slip in the
date line. Step 2: If you are depositing currency (dollar bills), write down that total amount in the

space following the word currency. Step 3: If you are depositing coins, write down that total
amount in the space following the word coin. Step 4: Write down each check, including the
person/business it is from and the amount, on a separate line and space. If you have more checks
than lines and spaces on the front of the deposit slip, there should be additional lines and spaces
on the back side of the deposit slip. Step 5: Total the amount of your deposit (cash, coins, and
currency) and write that amount in the space following the word subtotal. Step 6: If you want to
take out any cash from your deposit, write that amount in the space following the words less cash
received. Step 7: Subtract the cash received from the subtotal, and write that amount in the space
following the words net deposit. Step 8: If you are withdrawing cash from your deposit (Step 6),
then you will need to sign your name on the line below the date. Your name should be signed
exactly the same way you sign your checks. Key to managing your account, write down every
deposit, withdrawal, and fee charged to your account.
Each month, you receive a bank statement. A bank statement is a record of all of the
transactions on your account during the past month. It lists every check, every ATM withdrawal,
every debit card use, every fee charged, and every deposit made. When you receive your
statement, it only takes a few minutes to reconcile it. When you reconcile your bank statement,
you simply compare the banks records with your records. Step 1: Record the balance in your
check register. Step 2: Subtract any bank charges. That amount is your check register balance.
Step 3: Find the ending balance on your statement and add any deposits not included on your
statement. (If you make a deposit after the bank statement was printed, it would not be reflected
on the statement.) Step 4: Subtract all withdrawals that are not included on the statement,
including all checks, debit card, and ATM transactions.
Terms: automated teller machine, check, debit card, reconcile
o

Standard 5: Saving and Investing

Presentation
Module
5.1 Getting Started

Decisions about savings involves opportunity costs (things given up for the better). To
save, save a portion of earnings before spending any. Saving money can be done in a safe place,
where it will earn interest or in government saving bonds, money market accounts, or certificates
of deposits (CDs). A strategy to save is liquidity, ease of turning an item into cash without losing
money. Why do we invest money? Investing can be another way to pay yourself first. Investing
- putting money some place with the intention of making financial gain. Offer higher financial
gains, but at a higher risk than savings. Risk chance of losing some or all of the money you
invested. Savings and investing are two ways to reach your financial goals. Consisting of
commitment to set aside money for future needs rather than the present.
Terms: investing, liquidity, opportunity cost, risk, saving, savings, savings account

5.2 The Rule of 72

Compounded interest is interest earned not only on the principal but also on the interest
already earned. A principal is the original amount of money deposited or invested. Simple
interest (principle x interest x number of years) is interest calculated periodically on the loan
principal or investment principal only, not on previously earned interest. Rule of 72 is the length
of time, in years, it takes an amount of money saved to double when it receives compound
interest. This length of time can be found by dividing the interest rate (expressed as a whole
number) into 72.
Terms: compound interest, principle, rule of 72, simple interest

5.3 Saving and Investing Tools

Certificates of deposit is a certificate issued by a bank to a person depositing money in an

account for a specified period of time (often six months, one year, or two years); a penalty is
charged for early withdrawal from CD accounts. Corporate bonds is a certificate representing the
purchasers agreement to lend money to a business on the promise that the debt will be paid, with
interest, at a specific time. Money Market Mutual Funds are funds restricted by law to investing
in the short-term money market. MMMFs provide low risk and low returns, but they maintain
their investment value. Mutual funds are an investment tool that pools the money of many
shareholders and invests it in a diversified portfolio of securities, such as stocks, bonds, and
money market assets. Rate of return is how fast money in savings account or investment grows.
A risk is a measure of the likelihood of loss or profit the uncertainty of an investments rate of
return. Savings accounts are financial institution deposit accounts that pays interest and allows
withdrawals. Savings bonds are documents representing a loan of more than one year to the U.S.
government, to be repaid, with interest on a specified date. Stocks are an investment that
represents shares of ownership of the assets and earnings of a corporation.
Terms: certificates of deposits, corporate bonds, money market mutual funds, mutual funds, rate
of return, risk, savings accounts, saving bonds, stocks

5.4 Time is Money

Time is one of the most important factors to consider when making decisions about
savings or investing. Fixed income items are associated with loaning your money to someone
else. Some fixed income items vary from bank accounts, government bonds, to corporate bonds.
An Asset class is a group of investments with similar characteristics. Diversification is investing
in a variety of stocks, bonds, money market accounts, etc., in order to spread risk. Equities are
groups of investments involving ownership of assets. Fixed income class is a group of
investments involving loans made to someone else. Inflation is a rise in the general or average
price level of all the goods and services produced in an economy. Risk tolerance is a measure of
the likelihood of loss or profit the uncertainty of an investments rate of return. You have many

different options when deciding how to save and invest your money. Remember to consider your
time horizon, risk tolerance, and the impact of inflation as you decide what will be the best
options for you to choose.
Terms: asset class, diversification, equities, fixed income class, inflation, risk tolerance, time
horizon
o Standard 6: Retirement Planning
Presentation
Module
6.1 Planning for Your Retirement
Social security is the most common form of retirement benefit- provided by the federal
government and supported by payroll taxes. Benefits are based on the number of years you
worked and income earned. Annuities are contracts between an individual and an insurance
company where the individual makes a series of payments that are invested by the company and
repaid to the individual at a later date, generally during retirement. Some company retirement
plans include the 401(k), a retirement plan that allows employees in private companies to make
contributions of pre-tax dollars to a company pool that is then invested in stocks, bonds, or
money markets. Also the Individual Retirement Account, An account in which an individual may
set aside earned income in a tax-deferred savings plan for his or her retirement. Four specific
kinds of risk to understand are Market Risk; The chance that the value of an investment will go
down because of a change in supply and demand. Inflation Risk; The chance that the rate of
inflation will exceed the rate of return on an investment. Fraud Risk; The chance that an
investment has been misrepresented. Lastly Financial Risk; the chance that an individual,
business or government will not be able to return money invested.
Terms: annuity, financial risk, 401 (k), fraud risk, individual retirement account, inflation risk,
market risk, social security

6.2 Longevity and Retirement

People tend to underestimate their life expectancy (average life span). Three steps to
consider if you want to increase your retirement savings. 1. Rethink your goals. If your goal is to
take a European vacation each year, you may need to adjust those plans and visit a local lake
instead. 2. Postpone your retirement. You can work more years and accumulate more money in
your retirement account, or take a different job and supplement your retirement earnings with
money earned on your job. 3. Increase your contributions to your retirement account. Putting
more money aside now increases the possibility of having more money later.
Terms: Life expectancy, lifestyle

Standard 7: Borrowing Money

Presentation
Module
7.1 Remember the Interest

Borrow money, but it comes with an interest. Borrow when investing something in the
future. Loan agreements. Amount, interest rate, payment, prepayment, late fees, default.
Terms: credit, collateral, comparison shopping, interest, installment credit, interest rate, loan
agreement, mortgage, secured credit, non-installment credit, unsecured credit

7.2 It is in Your Interest

Who and where you want to borrow money. Dont use credit cards for everything you
pay for. Making only minimum payments means you will be paying interest for a long time and
it greatly increases the cost of the goods and services you purchased.
Terms: credit, collateral, comparison shopping, interest, installment credit, interest rate, loan
agreement, mortgage, secured credit, non-installment credit, unsecured credit

7.3 Your Credit Score

Credit bureau: An establishment that collects and distributes credit history information of
individuals and businesses. Credit history: A record of borrowing and repayments. Credit report:
An official record of a borrowers credit history, including such information as the amount and
type of credit used, outstanding balances, and any delinquencies, bankruptcies, or tax liens.
Credit score/rating: A measure of creditworthiness based on an analysis of the consumers
financial history, often computed as a numerical score, using the FICO or other scoring systems
to analyze the consumers credit. FICO: The most commonly used credit score. The name comes
from the Fair Isaac Corporation, which developed the scoring model.
Terms: Credit bureau, credit history, credit report, credit score/rating, FICO

7.4 Consumer Credit Legislation

Truth in Lending Act. Fair Credit Reporting Act. Fair Credit Billing Act. Equal Credit
Opportunity Act. Consumer Leasing Act. Electronic Fund Transfer Act. Fair Debt Collection
Practices Act. Fair Credit and Charge Card Disclosure Act. Consumer Credit Reporting Reform
Act. Credit Repair Organizations Act.
Consumer credit legislation: Any law that is designed to protect consumers, especially by
assuring that consumers have access to accurate information about products and services related
to financial transactions.
Terms: Consumer credit legislation:

o Standard 8: Credit Cards and Online Shopping

Presentation
Module
8.1 Credit Cards: More Than Plastic
Credit card: A plastic card that authorizes the delivery of goods and services in exchange
for future payment with interest, according to a specific schedule. Revolving credit: A consumer
line of credit that can be used up to a certain limit or paid down at any time.
Terms: credit card, revolving credit

8.2 Credit Cards: Shopping Online

Pay special attention to the details such as level of security for the web site, return
policies, warranties, shipping and handling charges, and other conditions affecting your
purchase.
Terms: credit card, revolving credit
o Standard 9: Fraud and Identity Theft
Presentation
Module
9.1 Beware! Consumer Fraud
Terms: federal trade commission, fraud, identity theft, federal trade commission, fraud, identity
theft

9.2 Beware! Identity Theft

Federal Trade Commission: A federal agency that enforces consumer protection. Fraud:
Someone who knowingly deceives you for their own personal gain. Identity theft: Using a
persons name or personal information without the persons permission to steal money or get
other benefit.
Terms: federal trade commission, fraud, identity theft
o Standard 10: Renting vs. Buying
Presentation
Module
10.1 Housing Alternatives
Identify various housing alternatives. Determine local housing options, both renting and
buying. Renting less expensive (monthly expense)
House: A structure serving as a dwelling for one or more persons, especially for a family.

Terms: apartment, condominium, house

10.2 Renting an Apartment

Apartment: A room or suite of rooms designed as a residence and generally located in a

building occupied by more than one household.

10.3 Buying a House

Condominium: A building or complex in which units of property, such as apartments, are

owned by individuals and common parts of the property, such as the grounds and building
structure, are owned jointly by the unit owners.
o Standard 11: Risk Management and Insurance
Presentation
Module
11.1 Identifying Risk
Identify possible risks. Explain strategies for handling risk. A risk is a measure of the
uncertainty of an investments rate of return; possible losses involving income or standard of
living; the possibility of a loss from peril to people or property covered by insurance.

11.2 Different Types of Insurance

Health insurance (medical insurance). HMO (health maintenance organization). PPO

(preferred provider organization. Disability insurance. Medicare. Medicaid. Long term care
insurance. Life insurance (less expensive to purchase while you are young). Liability insurance.
Homeowners Insurance. Renters Insurance. Car Insurance.
Terms: deductible, premium, claim

11.3 Using Insurance to Manage Risk

Coinsurance: The percentage of the costs of medical services paid by the patient.
Copayment: An amount of money that the member or insured pays directly to a provider at the
time services are rendered.
Terms: co-insurance, co-payment, deductible
o Standard 12: Gambling
Presentation
Module: Risky Business

Involves taking a chance with your with your personal finances, or Risking your money
or something else of value on an activity with an uncertain outcome. Dependent event: The
outcome of one event affects the outcome of another, changing the probability of the second
event. Gambling: Taking risks with personal finances or personal assets. Independent event: The
outcome of one event has no affect on the outcome of another; both events have the same
probability. Predictability: Telling or forecasting about something in advance of its occurrence by
means of special knowledge or inference. Probability: The chance or likelihood that something
will happen.
Terms: dependent event, gambling, independent event, predictability, probability
o

Standard 13: Bankruptcy

Presentation
Module: Managing High Levels of Debt

Bankrupt: A person or company with insufficient assets to cover their debt. Bankruptcy:
A state of being legally released from the obligation to repay some or all debt in exchange for the
forced loss of certain assets. A courts determination of personal bankruptcy remains in a
consumers credit record for 10 years. Consumer credit counseling: Services offered by
organizations that help consumers find a way to repay debts through careful budgeting and
management of funds. Creditor: A person or company to whom money is owed. Debt
consolidation loan: A single loan that replaces the debt owed by multiple loans, often with a
lower monthly payment and a longer repayment period. Financial counseling: Generally the
same as consumer credit counseling. Garnishment: A legal warning concerning the attachment of
property to satisfy a debt. Home equity loan: A loan secured by a primary residence or second
home at the amount where the fair market value exceeds the over the debt owed on the property.
Repossession: To take possession of property in which the owner is behind in payments.
Terms: bankrupt, bankruptcy, consumer credit counseling, creditor, debt consolidation loan,
financial counseling, home equity loan
o Standard 14: Charitable Contributions
Presentation
Module
14.1 Charitable Contributions
Identify different charitable organizations in our community. There are different types.
Terms: charitable giving, cost benefit analysis, gifts in kind, tax deductions

14.2 Checking Out Charitable Groups

Charitable giving: The act of giving to charitable organizations or to those in need.

Cost/benefit analysis, risk/reward relationship: A tool used to choose among alternatives involves

weighing the cost of a product or service against the benefit it will provide. Nonprofit
organization: A legal organization providing services or activities without commercial or
monetary gain; organized for purposes other than earning a profit.
Terms: charitable giving, cost benefit analysis, gifts in kind, tax deductions

Referenced, Note Taking, and Responded to link provided: http://ok.gov/sde/personal-financialliteracy-teacher-and-student-materials