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© Copyright 2014, The Lampo Group, Inc. Foundations in Personal Finance High School Edition
DAVE RAMSEY
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ISBN 978-1-936948-12-3
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LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
4 Foundations in Personal Finance High School Edition
Rachel Cruze
Rachel Cruze is a seasoned communicator and presenter, who has
been speaking to groups as large as 10,000 for more than a decade.
The daughter of Dave Ramsey, today she uses the knowledge and
experiences from growing up in the Ramsey household to educate
America’s students and young adults on the proper ways to handle
money and stay out of debt.
Chris Hogan
A popular and dynamic speaker on the topics of financial education
and leadership, Chris Hogan also works with businesses and high-
profile clients across the country, helping them develop strategies to
increase revenues, protect wealth and secure their financial futures.
Chris is also the host of the popular EntreLeadership podcast, one
of the leading podcasts on business and leadership.
Introduction 5
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
6 Foundations in Personal Finance High School Edition
Chapter 2: Saving 28
Chapter 3: Budgeting 48
Chapter 4: Debt 72
GLOSSARY 270
Introduction 7
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
1
What do other high
school students know
about spending?
We asked other high school students
CHAPTER
if they or someone they know has
ever bought something they could
not afford.
Introduction
to Personal
Finance
W ELCOME TO A CLASS that is going to give
81% you a head start on your future! Learning
how to manage your money is one of the most
of parents feel it is
their responsibility
important skills you can have. Why? Because
your financial decisions will have long-term
to teach their kids
about money and
savings.*
consequences, either good or bad. We’ll give
you the tools and knowledge that will help you
85% win with money right from the start. When it
comes to your financial future, we want you to
of American parents
surveyed thought
that a course in
aim high and dream big. There’s a lot to learn,
so let’s get started!
personal finance
should be a high
school graduation
requirement.*
*National Foundation for Credit Counseling, Inc.
Evaluate your own money personality; identify your » Loan: A debt evidenced by a “note,”
money strengths and weaknesses. which specifies the principal amount,
interest rate and date of repayment
BEFORE AFTER
Agree Disagree Agree Disagree
Can you think of a financial goal you have at this moment? Is this a long-term or a short-term goal?
Describe how you plan to achieve this financial goal.
1
+
This is one of the most
important classes you will
ever take. We’re excited
you are joining us. Now
let’s begin!
“ CHAPTER
Section 1:
“Wealth is more
often the result of
a lifestyle of hard
work, perseverance,
planning and, most What Is Personal Finance?
of all, self-discipline.”
MOST HIGH SCHOOL students don’t Have a money plan. Set money
The Millionaire Next Door
spend their time worrying about goals. Learning to manage money
mortgages and investments, but they at this stage can eliminate financial
are at an age when smaller financial mistakes and promote huge financial
responsibilities start creeping into benefits for the future.
$ their lives. Many of you are earning
allowances or have already begun What is personal finance? Personal
55% of teens surveyed
working a part-time job. So what do finance refers to all the financial
say that they want to
learn more about how
you do with your money? If you’re decisions an individual or family
to manage their money— just putting it in your pocket and must make in order to earn, budget,
particularly learning spending without a plan, living save and spend money over time.
about: investing (88%), payday to payday could become your These decisions are generally based
saving (87%), budgeting normal. You need to make decisions on a variety of financial risks and
(82%), checking accounts about what to do with your money. planning for the future.
(80%), and financing for big
purchases like a car or a
home (79%).
National Foundation for Credit
Counseling, Inc.
Directions: As you see words pop up on the left side of the Two in five U.S. adults gave
themselves a C, D or F on
video screen, write them into the workbook blanks. their knowledge of personal
finance.
Assess your situation (your income, National Foundation for Credit
Counseling, Inc.
1
assets and liabilities).
1 2 3
Credit Prior to 1917 Credit Takes Root Leveraging Credit to Escape
the Great Depression
» Before 1917, buying things on credit was » After 1920, consumer demand for big-
not common. Why? Because it had never ticket manufactured products was on » In an attempt to help Americans regain
been legal for lenders to charge inter- the rise. their financial footing, New Deal policy-
est rates high enough to turn a profit. makers came up with mortgage (home
» Credit laws were relaxed in an attempt to
» Lending money to others was not a create a mainstream, profitable alterna- loans) and consumer lending policies
money-making business. Only wealthy tive to loan sharks for the working class. that convinced commercial banks that
people could get personal loans. Without consumer credit could be profitable
» Installment credit (type of credit that despite bankers’ long-held reluctance
the possibility of profit, lending money
has a fixed number of payments, also to lend to the working class.
to the middle and lower class was not
known as revolving credit) and legalized
worth the risk.
personal loans became big business.
+
» Small-time loan sharks (people who
» This era made consumer credit legal
offered loans at extremely high interest
and more socially accepted.
rates, which was an illegal activity at the
time) existed for people in desperate
The New Deal was the legislative and
financial positions, but they were shady
administrative program of President
operations on the fringes of society.
» The highly evolved, highly accepted
“ F. D. Roosevelt designed to promote
economic recovery and social reform
consumer credit as we know it today “In 1917, one popular historian during the 1930s.
did not exist.
described debt as ‘semi-
slavery’ . . . (which) existed
before the dawn of history, and
it exists today.”
Debtor Nation: The History
of America in Red Ink
saved, and are ready to go make that large purchase”? Or are they more likely
to suggest that you “Buy NOW, pay LATER”? Which phrase is more familiar?
Sadly, borrowing money is so ingrained in our culture that we can’t imagine
life without it. So how did we get here? Let’s take a look.
4 5 6
WWII Fuels an Post World War II The Decline Into Debt:
Economic Recovery Consumerism 1970–Present
» After the Great Depression, WWII » Ah, the birth of the suburbs! The post- » After 1970, consumer debt skyrocketed
proved to be the most important eco- war middle class bought the American not because people were borrowing
nomic event of the 20th century. The war Dream with consumer credit. Ameri- more, but because they continued
ended the Great Depression by reviving cans “learned” to borrow in the midst to borrow as their parents had done
American industry through government of prosperity. since WWII. The difference was they
spending and consumption. In short, didn’t have the postwar period’s well-
» They borrowed because they believed
the economy improved because the paying jobs.
their incomes would continue to grow
war created a ton of new jobs. These
into the future . . . and they were right. » Banks were willing to lend even more
jobs provided considerable increase
Incomes rose steadily from 1945 to 1970. because they were now making huge
in personal income and led Americans
profits off consumer debt. The credit
to predict permanent improvements to » Financial institutions lent more money,
industry had become smarter than
their standard of living. and borrowers paid it back. Borrowing
borrowers.
became a post-war normalcy.
» As consumers borrowed to deal with
“
unexpected job losses and medical ex-
penses, as well as to live “the good life,”
“ banks were willing to continue lending.
“Americans left government- » Due to the clever structuring of finan-
mortgaged homes in “If you will happen to your cial institutions, the credit world now
installment-financed cars to money, then you will have resembles the pre-1920s loan sharks
shop on revolving credit at some. If you just let all your more than the 1950s banks.
shopping centers.” money happen to you, you’ll » In short, an old credit system premised
Debtor Nation never win.” on rising wages and stable employment
(low-risk borrower) was reformed to ac-
DAV E R A MSEY
commodate uncertain employment and
income instability (high-risk borrower).
This does not have to be your future reality. If you manage money well from the start and
make the decision not to use debt as a financial tool, you can avoid the stress of living paycheck
to paycheck.
* NOTE: Average credit card debt of all American households is $7,000, source: Nerd Wallet
*Federal Reserve, U.S. Census Bureau, Internal Revenue Service, manilla.com
Dave’s Story
With more than 20 years of experience counseling people on
how to manage their money, Dave knows what it takes to get
control of your cash.
More than 20 years estate worth more than $4 million. I
ago, my wife, Sharon, was good at real estate, but I was better
and I went broke. We at borrowing money. Even though I
lost everything due had become a millionaire, I had built
to my stupidity in a house of cards. The short version of
handling money, or the story is that debt caused us, over
not handling it, as the case may be. the course of two and a half years of
Hitting bottom and hitting it hard was fighting it, to lose everything. We were
the worst thing that ever happened sued, foreclosed on, and, finally, with
to me and the best thing that ever a brand-new baby and a toddler, we
happened to me. were bankrupt. Scared doesn’t begin
to cover it. Crushed comes close, but
We started with nothing, but by the we held on to each other and decided
time I was 26 years old, we held real we needed a change.
“ What was Dave’s biggest lesson when it came to managing money and
building wealth?
“You will either
manage your money,
or the lack of it will
always manage you.”
DAV E R A MSEY
» Third, and this is the hardest part, you need to learn how
to manage your with money.
26
» It’s in recognizing who you really are that allows you the
to grow and learn.
32
During this course, as you develop life spend and save. Reflect on your own
your knowledge and skills in areas like spending habits. Understanding the
budgeting and saving, consider your way you think about money will help
money personality. Think about how you manage your money and make good
your parents and other adults in your decisions for your financial future.
Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered and complete the “after” column of the Measure
Your Progress section.
1. 2. 3.
7.
Key Components 4.
of Financial Planning
6. 5.
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
Regular Income Source (job/allowance) Amount Pay Period (weekly, biweekly, etc.)
N/A
LIST ALL EXPENSES (auto insurance, car payment, cell phone bill, entertainment, clothing, etc.)
LIST ALL ASSETS (anything you own that has value: car, savings account, etc.)
Asset Value
N/A
N/A
N/A
N/A
Money in Review
Matching
Match the following terms to the correct definition below.
1. "_____ A fee paid by a borrower to the lender for 5. "_____ The granting of a loan and the creation
the use of borrowed money of a debt; any form of deferred payment
2. "_____ An obligation of repayment owed by one 6. "_____ A system by which goods and services
party (debtor/borrower) to a second are produced and distributed
party (creditor/lender)
7. "_____ The knowledge and skillset necessary
3. "_____ A person or organization that buys/uses to be an informed consumer and manage
goods or services finances effectively
4. "_____ A debt evidenced by a “note,” which 8. "_____ All of the decisions and activities of
specifies the principal amount, interest an individual or family regarding their
rate and date of repayment (example: money, including spending, saving,
house mortgage) budgeting, etc.
Illustration
Draw a picture representation of each of the following terms.
9. Learning the language of money is not that 13. Describe some of the mistakes Americans
important because you will be able to depend often make when it comes to money.
on financial planners to manage your money.
A True B False
CHAPTER
describe something they really wanted
and thought they had to buy, only to
realize later that they wasted their money.
Saving
YOU MIGHT BE wondering why you, a
25% teenager, need to worry about saving money.
While saving money when you make very
of American
families have no
little can be a challenge, it is important that
you develop a habit of saving a portion of what
savings at all.*
BEFORE AFTER
Agree Disagree Agree Disagree
What are your initial thoughts about saving? What do you want to learn about saving?
Chapter 2: Saving 31
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
SECTION 1
2
“
“Discipline yourself
to do the things you
need to do when you
need to do them, and
the day will come
when you will be able
to do the things you
want to do when you
want to do them.”
CHAPTER
Section 1:
ZIG ZIGL A R
Best-selling author and
motivational speaker
$
Saving: An Exercise of Character
VIDEO 1.1
The most important lessons
teens want to know when
1
how to budget (28%). T H E F I R S T F O U N D AT I O N
ING Direct USA Survey
Save a $500 1
Fund
+
2
T H E S E C O N D F O U N D AT I O N
3
T H E T H I R D F O U N D AT I O N
4
financial success. You will T H E F O U R T H F O U N D AT I O N
find the Five Foundations
explained in detail Pay Cash for 4
throughout this course.
These are basic steps that
5
anyone can and should do T H E F I F T H F O U N D AT I O N
in order to win with money.
So start now. We want to
Build 5
and 6
see you WIN!
Chapter 2: Saving 33
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
SECTION 1
Bailey, 15: “I have a little » When you’re in high school, you won’t have the same
gift box that I put spare
change and bills into
emergency expenses as your (like needing
8
when I earn baby-sitting to put a new roof on the house). For you, a surprise
money. Whenever I have a
significant amount in there, expense might be fixing a flat tire or replacing a broken
I’ll invest it or put it in the
bank. It’s important to cell phone.
keep a routine. Every time
I get money, I put some of
it away.”
» An emergency fund allows you to have money available
Adam, 16: “I recently got
for any surprise .
9
a part-time job where
my paychecks are
automatically deposited
» If you don’t have money saved to pay for these things,
into my checking account. then will start looking like an easy answer.
I set up an automatic 10
it’s all done automatically, one problem while creating another one!
I never actually see the
money. It is just left to pile
up in my savings account. » When you’re older and out of school, you’ll need to
I’ve already saved several
hundred dollars without
your emergency fund into a full three
12
doing anything!” to months’ worth of expenses.
13
WHAT ABOUT YOU?
Think of a way you have
saved money or could save
» Make sure this money is kept in the and that
14
money. Write it down and you ONLY use it for emergencies. You can’t keep the
then share it with
your class. money handy, because it will get spent.
Chapter 2: Saving 35
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
SECTION 2
“
Section 2:
“Save a part of
Three Basic Reasons to Save Money
your income and
The First Foundation is simple. Well, that will depend on what your
begin now, for
Save a $500 emergency fund. Keep monthly bills total at any given time.
the man with a
in mind that $500 won’t always be For instance, if your living expenses
surplus controls
enough for your emergency fund. As you (mortgage, utilities, insurance, food,
circumstances and
get older and you have more financial etc.) total $3,000 a month, then you’ll
the man without a
responsibilities like paying a mortgage want to set aside $9,000 to $18,000 in an
surplus is controlled
and supporting a family, you will want emergency fund. That sounds like a lot.
by circumstances.”
to have three to six months of living But rest assured, if you are managing
HENRY BUCKLEY expenses set aside in your emergency your money wisely, as your income
Australian politician
fund. How much money is that? grows so will your savings.
VIDEO 2.1
+
So now you know about the Save Money for Three Basic Reasons:
savings crisis in America.
You might be thinking, Yeah,
I’d like to start saving, but
1. Fund
16
I’m barely making any
money. And sometimes, 2.
17
doing something fun
seems more important 3. Building
than saving just a few 18
$
Explain how having an emergency fund helps protect your wealth.
In 2012, only 27% of all
point-of-sale purchases
were made with cash, and
that number is expected
to drop to 23% by 2017.
Report published by Javelin
Strategy & Research
VIDEO 2.2
Purchases +
» The second thing you save money for is .
WHICH IS WISER?
Using a sinking fund
20
versus borrowing money
» Instead of to purchase, pay cash by for a large purchase—you
make the call.
21
using a fund approach.
22 Say you borrow $4,000 to
purchase a dining room
A sinking fund is a way to save $40 a month toward your purchase set, and your interest rate
when you know you have a large ($200 divided by 5 equals $40). is 24% for two years.
purchase coming up, like a prom This means you will have
dress or new tires for your car. You Saving over time means you will payments of $211 per
calculate the expected cost of the never need to go into debt for a large month for 24 months.
item and how long you have until purchase. Think of it this way: You pay So, you will pay a total of
you need to purchase it. Divide the yourself $40 a month, and then pay $5,064, plus interest, for
total cost of the item by the number cash instead of using a credit card and that set.
of months until the purchase. For paying someone else $40 a month plus
But if you use the sinking
instance, if prom is five months away interest! That’s right. That dress would fund method and save the
and the amount you are willing to end up costing you more than $200 if same $211 per month for
spend is $200, you will need to save you borrowed money for it. only 18 months, you will be
able to pay cash.
Chapter 2: Saving 37
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
SECTION 2
Wealth Building
“ » The third thing you save money for is
“It was character
building.
23
that got us out of bed,
commitment that » is the key ingredient when it comes to
moved us into action,
24
wealth building.
and discipline that
enabled us to follow
through.” » Building wealth is a , not a sprint.
25
ZIG ZIGL A R
American author and
motivational speaker
JOURNAL QUESTION: VIDEO 2.2
Why do you think so many people borrow money for large purchases
instead of using a sinking fund?
» An interest-bearing account is an account » Inflation can eat up the interest you earn on
that generates interest income on the available an interest-bearing bank account. Even a low
balance in the account. rate of inflation (a persistent rise in the cost
of goods and services or the decline in the
» The convenience of a bank account comes purchase power of money) generally outpaces
at a cost. Banks generally pay lower rates on what banks pay on interest-bearing accounts.
|
|
||
| | | | | | |
| | | | | |
||
|
|
|
||
| | | | | | |
| | | | | |
||
|
($50/week)
|| |
|
|
||
| | | | | | |
| | | | | |
||
|
Save $100/month $3,000 in
($25/week) 30 Months
VIDEO 2.3
+
Wealth Building (Continued)
» is a mathematical IMPORTANT: Since you’re
in high school, hold off on
26
explosion. You must start . investing for retirement
27
until you have college
* TURN THE PAGE: Follow along with the Ben and Arthur compound interest chart to see the
power of compound interest!
completely paid for. It
doesn’t make sense to
invest while, at the same
JOURNAL QUESTION: VIDEO 2.3 time, taking out loans for
college. We want you to
live debt free, even through
How is saving an exercise of your character? college. Make paying for
your education a priority
over investing. Once you’ve
done that, invest as soon
as possible.
Chapter 2: Saving 39
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
SECTION 3
BEN ARTHUR
Invests Running Total Age Invests Running Total
2,000 2,240 19 0 0
2,000 4,749 20 0 0
Ben invested 2,000
2,000
7,558
10,706
21
22
0
0
0
0
ONLY $16,000. 2,000 14,230 23 0 0
2,000 18,178 24 0 0
2,000 22,599 25 0 0
Ben stops investing; 2,000 27,551 26 0 0
Arthur starts investing 0 30,857 27 2,000 2,240
0 34,560 28 2,000 4,749
0 38,708 29 2,000 7,558
0 43,352 30 2,000 10,706
0 48,554 31 2,000 14,230
Saving $2,000 each 0 54,381 32 2,000 18,178
year works out to
0 60,907 33 2,000 22,599
only $167 per month!
0 68,216 34 2,000 27,551
0 76,802 35 2,000 33,097
$2,000 INVESTED
ANNUALLY 0 85,570 36 2,000 39,309
÷ 12 MONTHS
0
0
95,383
107,339
37
38
2,000
2,000
46,266
54,058
$167 INVESTED
MONTHLY
0
0
120,220
134,646
39
40
2,000
2,000
62,785
72,559
0 150,804 41 2,000 83,506
0 168,900 42 2,000 95,767
0 189,168 43 2,000 109,499
Arthur 0 211,869 44 2,000 124,879
invested 0
0
237,293
265,768
45
46
2,000
2,000
142,104
161,396
$78,000 and 0
0
297,660
333,379
47
48
2,000
2,000
183,004
207,204
NEVER 0 373,385 49 2,000 234,308
CAUGHT UP! 0
0
418,191
468,374
50
51
2,000
2,000
264,665
298,665
0 524,579 52 2,000 336,745
Ben came out 0 587,528 53 2,000 379,394
ahead by over 0 658,032 54 2,000 427,161
0 736,995 55 2,000 480,660
$700,000! 0 825,435 56 2,000 540,579
0 924,487 57 2,000 607,688
0 1,035,425 58 2,000 682,851
0 1,159,676 59 2,000 767,033
0 1,298,837 60 2,000 861,317
0 1,454,698 61 2,000 966,915
0 1,629,261 62 2,000 1,085,185
0 1,824,773 63 2,000 1,217,647
0 2,043,746 64 2,000 1,366,005
0 2,288,996 65 2,000 1,532,166
What Is Interest?
a monthly, quarterly or annual basis. is compounded at 10% interest, so your Junior, Oklahoma
Whew! Need further explanation? So as time passes, the amount you earn
Here’s an example. from interest grows. That is why it is “I am excited about what
so important that you start as early as even a small investment
Take a one-time investment of $1,000 possible. You have more time for your can become.”
and earn 10% on it. Your interest interest to snowball and pick up more Senior, Colorado
earned at the end of the year is $100. and more snow!
“Having tons of money in
Chapter 2: Saving 41
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SECTION 3
$800,000 » $750,378
$700,000 »
$400,000 »
$300,000 »
$200,000 »
$100,000 »
$93,050
$10,285
0»
6% 12% 18%
ANNUAL INTEREST RATE
“
JOURNAL QUESTION: VIDEO 3.1
“Most people have the
will to win; few have
Why don’t more people save for the future? Which reasons can be fixed
the will to prepare
by having a money plan?
to win.”
BOBBY KNIGHT
Former head coach of the
Indiana Hoosiers (1971–2000)
Chapter 2: Saving 43
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
RECAP & REVIEW
Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered and complete the “after” column of the Measure
Your Progress section.
3 Reasons to Save
1 2 3
Goal:
Months Weeks Days
Emergency
$0 Chart your progress here! Fund
Complete!
$50 $100 $150 $200 $250 $300 $350 $400 $450 $500
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
Chapter 2: Saving 45
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
RECAP & REVIEW
Money in Review
Matching
Match the following terms to the correct definition below.
1. "_____ An account that generates interest 5. "_____ Saving money over time for
income on the available balance in a large purchase
the account
6. "_____ A rate which is either charged (on debt)
2. "_____ The five steps to financial success or paid (on investment accounts) for the
use of money
3. "_____ A savings account that is set aside to
be used only for emergency expenses 7. "_____ The persistent increase in the cost of
goods and services or the persistent
4. "_____ Interest paid on interest decline in the purchasing power of money
previously earned
Illustration
Draw a picture representation of each of the following terms.
Recession Economy
8. When it comes to saving money, the amount 13. What is the First Foundation? Explain how
you save is determined by how much you and why the dollar amount will change as
have left at the end of the month once all of you get older.
your spending is done.
A True
B False
Chapter 2: Saving 47
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3
What do other high
school students know
about budgeting?
We asked high school students
CHAPTER
to share some tips on how to
handle money.
Budgeting
BE C OM I NG W E A LT H Y D OE SN ’ T happen
56% accidentally. It is a journey that requires
intentionality, persistence and discipline. But
of U.S. adults admit
that they do not have with all of life’s distractions, how can you stay
a budget.*
focused on your money goals? A budget is the
perfect solution. It’s simple—just write down
a plan for your money and intentionally follow
33% it every day. Surprisingly, when you put
of Americans do not
boundaries on your spending, you end up with
pay all of their bills
on time. That’s more freedom!
more than 77
million people! * *National Foundation for Credit Counseling, Inc.
Understand the purpose of cash flow planning. » Carbon Check: A copy of each check
you write
Identify reasons some people avoid having or sticking
to a budget. » Envelope System: Series of envelopes
that are divided into categories (food,
Identify changes in personal spending behavior that entertainment, gas, etc.) and are used to
contribute to wealth building. store cash for planned monthly expenses
Explain the difference between a cash flow statement » Impulse Purchase: An item that is
and a budget. bought without previous planning or
consideration of the long-term effects
BEFORE AFTER
Agree Disagree Agree Disagree
1.
2.
3.
Chapter 3: Budgeting 51
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SECTION 1
3
“
“If you will happen
to your money, then
you’ll have some.
If you just let all
your money happen
to you, then you’ll
never win.”
DAV E R A MSEY
CHAPTER
+ Section 1: Budgeting 101
10 THINGS
VIDEO 1.1
MILLIONAIRES
DO NOT DO
» Money is
7. Buy brand-name
clothes . It is moving all the time. So if you
1
8. Desire instant don’t make your money behave, you’ll always wonder
gratification
where it went.
9. Socialize with people
who waste money
» You must do a written plan every
10. Spend more money 2
Chapter 3: Budgeting 53
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SECTIONS 1 & 2
» are a sign of crisis living and sloppy, finish. Then everyone who
sees what is happening
9
lazy habits. Remember, managing your will laugh at you. They will
10
say, ‘You started building,
money is your responsibility. Managing money well is a but could not finish the job’”
sign of maturity. (Luke 14:28–30).
Chapter 3: Budgeting 55
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SECTION 2
Balancing Your
Checking Account
At first, keeping track of your transactions may seem tedious and unnecessary.
But once you get the hang of it, balancing a checking account is actually easy.
By keeping track, you can avoid a bunch of headaches, like bouncing a check, the
bank making mistakes with your account, or not knowing your actual balance.
Remember, when you take responsibility for your money, you’ll have more of it!
3. A Reconciliation Sheet » Each time you make an entry in your register, add
(on the back of most bank statements or you or subtract that amount from the current balance.
can find one online)
» When you receive your monthly bank statement,
record any interest accrual and bank fees in the
Things to Remember check register.
» If you were diligent with recording transactions Compare Your Check Register and
in your check register every time money went in Bank Statement Side by Side
or out, your check register has the most current
balance. » Compare each transaction one by one. As you
do this, make checkmarks on both lists.
» Remember, the account balance from the bank
statement or ATM is not as current as your » On the reconciliation sheet, list any debits or
register’s balance because they don’t account deposits that are present in the register but not
for transactions that haven’t gone through yet. present in the bank statement. Then calculate
those into your bank statement balance.
» Contact the bank if you think they made an
error. It happens more than you may think. » Compare your register balance to the statement
balance. They should be the same. If not, look
» Don’t be discouraged on the first few tries. for discrepancies like outstanding checks,
Balancing your account takes practice. unrecorded bank fees or transactions, or
The more you do it, the easier it becomes. bank errors.
Bank Statement
Reconciliation Sheet
start with the ending balance
from your statement.
EQUALS
Chapter 3: Budgeting 57
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SECTION 2
Keep Records
$ » Smart money managers develop a filing system for
63% of people 18 and under keeping and using financial records. You should
have savings accounts, maintain both paper and electronic files for reference.
and 73% of those savings
accounts were started
before the age of 3. » These records will be useful for filing taxes and for
National Foundation for Credit
Counseling, Inc. disputing bank errors or fraudulent purchases.
» You may want to check with your bank to find out what
+ online record keeping features they offer.
RECONCILING or
balancing an account » In this digital age, it’s easy to personalize a system that
refers to a process that
compares two sets of
works for you. Explore phone apps and software that may
records (yours and your help in many areas of personal finance like budgeting,
bank’s, in this case) to
make sure the balances saving and keeping records.
match at the end of a
particular time period.
Second, I think it’s a great idea to keep your This separation acts as a mental note and a
checking and savings accounts separate, and barrier. It’s a way of telling you that you’ve reached
here’s why. If you put all your money in one place, your spending limit!
Chapter 3: Budgeting 59
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SECTIONS 2 & 3
Intermittent Expenses:
Expenses that occur at
various times throughout JOURNAL QUESTION: VIDEO 2.1
the year and tend to be
in large lump sums (e.g., Explain why Dave describes overdrafts as a sign of “crisis living.”
tuition payments, athletic
or club dues, car repairs)
Discretionary (Non-
Essential) Expenses:
Expenses for things we
don’t need (e.g., eating out,
gifts and candy)
and leave some things out at first, but as you get better at wrong.
budgeting, that will happen less frequently. Credit cards carry a huge
risk of allowing the user
to incur debt. Debit cards
» You your plan. All you really force you to pay with money
15
you already have. If you
need is paper, a pen and a calculator. It’s as simple as hold a debit card from a
writing down everything that requires money each well-known name like
Visa or MasterCard, it will
month and putting an amount next to it. have the same policy about
unauthorized charges that
» You don’t actually . This may sound overly credit cards have. Don’t fool
yourself into thinking that
16
simple, but it’s easy to find reasons not to write a budget. credit cards are the “safe”
way to go. They’ll only get
When this happens, remind yourself of all the reasons you into trouble and force
you should do it. you to make payments.
Chapter 3: Budgeting 61
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SECTION 3
43% of parents review from your finances. Seventy percent of Americans are
bank statements with their living paycheck to paycheck, just one missed payday away
kids monthly.
from disaster.
Only 28% of children have
used online banking to
view their savings account » money goes further. That’s because
19
balance.
when you write up a budget, you’re accounting for every
National Foundation for Credit
Counseling, Inc. single dollar of your income. You cut out all of those little
expenses that fly into your wallet like moths and eat
away at your money.
Chapter 3: Budgeting 63
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SECTION 3
VIDEO 3.2
Chapter 3: Budgeting 65
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STUDENT BUDGET
1
that nobody else does it. Add Up Your Monthly Income
But guess what?
Write your monthly income in the box at the bottom of the page (A ),
Everyone else is broke!
including any money your parents give you. This is the amount you have to
If you want to struggle with spend for the month. Pretty simple, right?
money your whole life,
2
then go ahead and do what
everyone else does. Estimate Your Spending
But if you want to win with Within each category, like RECREATION, there are items like Movies and
money, you’ve got to do a Sporting Events. Start at the top and work your way down, filling out the Budgeted
budget—no matter how column (B) first. Then add up each subcategory and put that number in each
old you are or how much category’s Total box (e.g., C).
money you have.
* REMEMBER: Your spending will change from month to month. Just put a “$0” in categories where
you don’t plan on spending any money.
We’re not crazy, though.
We’re not giving you a giant
binder full of spreadsheets. * NOTE: The envelope icons ( ) represent good options for cash envelopes.
3
student budget form for
you to get used to.
Total Each Category
If you get in the habit of Go through the form and add up all of the category Total boxes (e.g., C).
doing a budget now, you Write that grand total in the Monthly Outgo box (D). That’s how much you spend
could change your whole every month.
financial future.
The goal is to spend every dollar you make, but no more. So if your Outgo is
greater than your Income, you need to bring down the budgeted amount on some
items. If your Outgo is less than your Income, you need to increase the amount
in some area like College savings or Restaurants.
4 Get to Zero
Once your Outgo is the same as your Income, write a zero in the Zero box
at the bottom (E). You’re done!
GIVING B Budgeted
Gas $
Charity $
Car Insurance $
Other: _____________________ $ Oil Changes $
C GIVING TOTAL: $ License & Taxes $
SAVING Budgeted
TRANSPORTATION TOTAL: $
A Monthly Income
– $
D Monthly Outgo
= $
E ZERO!
( + + + + + + )
Chapter 3: Budgeting 67
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RECAP & REVIEW
Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered and complete the “after” column of the Measure
Your Progress section.
1. 2. 3.
7. 4.
Wealth-
Building Habits
6. 5.
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
Chapter 3: Budgeting 69
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
RECAP & REVIEW
Money in Review
Matching
Match the following terms to the correct definition below.
1. "_____ A written cash flow plan 5. "_____ Occurs when money is withdrawn
from a bank account and the available
2. "_____ The act of matching your bank balance goes below zero
statement with your checkbook
6. "_____ Series of envelopes that are divided
3. "_____ A cash flow plan that assigns an expense into categories (food, entertainment,
to every dollar of your income, wherein gas, etc.) and are used to store cash for
the total income minus the total planned monthly expenses
expenses equals zero
7. "_____ A summary that shows total income
4. "_____ An item that is bought without and spending for a given time period
previous planning or consideration
of the long-term effects 8. "_____ A copy of each check you write
Illustration
Draw a picture representation of each of the following terms.
9. The number-one cause of divorce in North 14. What are the reasons cash flow plans
America today is stress and disagreements sometimes do not work?
over money.
A True
B False
Chapter 3: Budgeting 71
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4
What do other high
school students know
about debt?
We asked students why they think so
CHAPTER
many people go into debt for things
like clothing and other purchases.
Debt
WE’VE ALL BEEN taught that we need to build
76% a good credit score and that debt is a financial
tool used to get the things we want. Sadly, as
of undergraduate
students have a you learned in Chapter 1, borrowing money
credit card.*
is so ingrained in our culture that we can’t
imagine life without it. The truth is, “building
a credit score” causes more harm than good.
48% And using debt as a “tool” displays impatience
of undergraduate
and immaturity in money management. Debt
students have
four or more forces us to become slaves financially, and it
credit cards.*
limits how we spend our money.
*Federal Reserve Survey of Consumer Finances
Section 1: Debt: Product, Not Privilege » Annual percentage rate (APR): Cost of
borrowing money on an annual basis;
Identify the costs of using various types of credit. takes into account the interest rate and
other related fees on a loan
Section 2: Debunking the Credit Myths » Credit card: Type of card issued by a bank
that allows users to finance a purchase
Evaluate and refute the myths associated with debt.
» Credit report: A detailed report of an
Apply systematic decision making to identify the most individual’s credit history
cost-effective option for purchasing a car. » Credit score: A measure of an individual’s
Identify various types of mortgage loans and the most credit risk; calculated from a credit report
cost-effective option for purchasing a home. using a standardized formula
» Debt snowball: Preferred method of debt
Evaluate ways that debt can negatively affect your
repayment; includes a list of all debts
financial future and how to overcome personal debt.
organized from smallest to largest balance;
minimum payments are made to all debts
Section 3: The Credit Score except for the smallest, which is attacked
with the largest possible payments
Describe the elements of a credit score. » Depreciation: A decrease or loss in value
Understand how to obtain a credit report. » Introductory rate: An interest rate
Explain how a credit score affects creditworthiness and charged to a customer during the early
stages of a loan; the rate often goes up
the cost of credit. after a specified period of time
Explain the factors that affect a credit score. » Loan term: Time frame that a loan
Analyze a credit report, indicate the time that certain agreement is in force, and before or at
negative data can be retained, and describe how to the end of which the loan should either be
repaid or renegotiated for another term
dispute inaccurate entries.
» Tax deduction: An expense, such as
a charitable contribution, that can be
Section 4: Credit Bureaus and Identity Theft deducted from one’s taxable income
BEFORE AFTER
Agree Disagree Agree Disagree
Chapter 4: Debt 75
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SECTION 1
4
+
When someone borrows
money from another, we
understand he or she has
an obligation to repay. A
study in the dictionary
will show you what this
really means. A definition
of obligation is “bound,”
which is defined as “tied; in
bonds: a bound prisoner.”
CHAPTER
Section 1:
“The rich rule over the poor,
and the borrower is slave to
the lender” (Proverbs 22:7).
2
T H E S E C O N D F O U N D AT I O N
$ Get Out of Debt
If you have a hard time
WE LIVE IN A WORLD where it takes a from the national economic mess of
viewing debt as a product
total national economic meltdown to 2008 and beyond, it’s that some people
that is sold and marketed,
maybe this will help: Total
get most people’s attention about crazy are finally getting the message: Debt
2011 earnings for the entire mortgages and stupid credit card debt! is dumb!
credit card industry were If there’s one good thing that’s come
$18.5 billion, which was
up from the $13.6 billion VIDEO 1.1
earned in 2010.
Debt Is Everywhere
BCS Alliance, Inc.
Chapter 4: Debt 77
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
SECTIONS 1 & 2
VIDEO 1.2
* REMEMBER: Taking on a lot of debt when you’re young will limit your options later in life.
$
» The third myth is that you need a car. You should
10
buy the car you can afford—with cash.
39% of incoming college
freshman already have a
credit card. Don’t fall for these myths. debt, save for
11
Federal Reserve Survey of
Consumer Finances
emergencies and large purchases, and learn to say no, even
when people around you won’t.
Explain what Dave means when he says, “The borrower is slave to the lender.”
Using a debit card, which is connected to your Credit cards are the quickest way I know to
checking account, means you’re spending money become broke and stay broke for the rest of
that’s actually yours. You’re not borrowing it from your life!
Section 2:
Debunking the Credit Myths “
“Our great-
A Message From Dave grandparents thought
debt was a sin. Our
We weren’t born to use debt. Our lie. If you tell a lie or spread a myth grandparents
country was not founded on easy often enough, loud enough and long thought debt was
financing and 90-days-same-as-cash. enough, eventually the myth becomes dumb. Our parents
The great fortunes in the history of accepted as truth. That’s where we are borrowed on a few
America weren’t built on cash-back with debt in America: trapped in the things. We borrow on
bonuses and free airline miles. We’ve myth that credit is a normal, healthy everything.”
been sold a bill of goods, and it’s a total part of life. DAV E R A MSEY
VIDEO 2.1
$
Money Myths The average number of
credit cards per person
MYTH If I money to a friend or relative, I will is 3.5.
12
be helping them. Federal Reserve Survey of
Consumer Finances
Chapter 4: Debt 79
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SECTION 2
» Many of these companies have horrible reputations for Have you ever loaned
someone money, only
unethical debt collection practices. to have it turn into a bad
experience?
Chapter 4: Debt 81
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SECTION 2
VIDEO 2.2
+
The Truth About Car Loans
DRIVE FREE. RETIRE RICH.
3
The Power of One Decision T H E T H I R D F O U N D AT I O N
Chapter 4: Debt 83
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SECTION 2
VIDEO 2.3
+
The Truth About Car Loans (Continued)
A CAR LEASE is a long-
term rental agreement;
a form of secured long-
MYTH your car is what sophisticated
26
term debt. financial people do. You should always lease things that go
down in value. There are tax advantages.
+
Buying a House
WHAT DO FIXED AND
MYTH I’ll take out a 30-year mortgage and pay VARIABLE RATES MEAN?
With a fixed rate mortgage,
34
on it. I promise! the interest rate is set
when you take out the
TRUTH Life happens and something else will always seem loan, and it will not change.
Therefore, your monthly
more important. Never take out more than a -year payments will never
35
change. Variable rate
fixed rate mortgage. mortgages (or adjustable
rate mortgages—ARM)
The ideal way to buy a house is the your monthly take-home pay. You can will start with a lower
100%-down plan—pay cash for the probably qualify for a much larger loan rate. This initial rate may
whole house. Sounds weird, doesn’t than what 25% of your take-home pay stay the same for months
it? But think how much fun that would will give you. But it’s not wise to spend or years. But when this
be! No mortgage! No payments! If more on a house, because then you will “introductory period” is
paying cash for a house seems too far be what Dave calls “house poor.” Too over, your interest rate will
out of reach, you can still buy a house much of your income will be going out change and the amount of
your monthly payment will
if you make wise choices. Save a down in payments, and that will put strain
likely go up.
payment of at least 10% on a 15-year on the rest of your budget. You won’t
(or less) fixed rate mortgage, and limit be able to save and pay cash for things
your monthly payment to 25% or less of like furniture and cars.
$341,762
$200,000 »
@ $1,899 / Month
$100,000 »
Chapter 4: Debt 85
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SECTION 2
Credit Cards “
“The only man who
MYTH You need a to rent a car or sticks closer to you
36
in adversity than a
make a purchase online or by phone. friend is a creditor.”
TRUTH A card does all of that. The only thing UNKNOWN
37
you can’t do with a debit card that you can do with a credit
card is go into debt! $
Chapter 4: Debt 87
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SECTION 2
VIDEO 2.6
Before McDonald’s chose that becoming and staying -free was the number-
45
to accept credit cards, the
one key to wealth building.
average ticket price was
$4.75. When they went to
credit cards, the average That’s because your largest wealth-building tool is your
ticket price went to $7. income. When you don’t have any payments, you have money.
That’s a 47% increase!
Nightline, ABC
DAVE’S ANSWER: I’ve been doing financial back because they know you’re going to stumble
counseling for decades, and I’ve worked with at some point—and that’s when they pounce!
tens of thousands of people. During that time I’ve
repeatedly met folks who were doing exactly what I’ve talked with hundreds of millionaires, and
you are doing, and it has come back to bite them. I’ve never met one who said they got rich thanks
to credit card rebates. They’ve all just gone
When you’re talking about credit cards, you’re about the business of earning money, living
talking about a multibillion-dollar industry on less than they make, and saving. They don’t
designed to do just one thing—separate you from play with snakes because they know, sooner or
your money. And they’re really good at it! They’re later, they’ll get bitten.
more than willing to pay you a percentage point
4. Get a part-time job or work overtime (temporarily). problems that have gone
too far. This is lingo you don’t
want to experience firsthand.
5. Use the debt snowball method.
FORECLOSURE: Process
Debt Snowball: List your debts in order from smallest by which the holder of
a mortgage sells the
to largest. Pay minimum payments on all your debts property of a homeowner
who has not made interest
except for the smallest one, and attack that one with and/or principal payments
intensity! Every extra dollar you can get your hands on on time as stipulated in the
mortgage contract
should be thrown at the smallest debt until it is gone.
REPOSSESSION:
Then you attack the second one. Every time you pay off Process of a lender taking
a debt, you add its old minimum payment to your next something back (like a
car) for failure to make
debt payment. So as the snowball rolls over, it picks up payments
more snow. Get it? BANKRUPTCY: A legal
procedure for dealing with
* REMEMBER: Even if your other loans have higher interest rates, you should still start with your
smallest one first. That way you experience quick wins and build momentum along the way! debt when an individual
or business cannot repay
what they owe
JOURNAL QUESTION: VIDEO 2.6
GARNISHMENT: A court-
ordered attachment that
Which credit myths did you believe prior to hearing this lesson? allows a lender to take
Explain why each of those are myths and not facts. monies owed directly from
a borrower’s paycheck;
only allowed as part of a
court judgment
SURRENDER OF
COLLATERAL: In a
bankruptcy proceeding, a
debtor can give up property
(collateral) to the creditor in
exchange for a clean slate.
DELINQUENCY: Broadly
refers to a borrower not
being current on his or her
payments
Chapter 4: Debt 89
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SECTION 3
$
Section 3: The Credit Score
The total number of VIDEO 3.1
card holders in the U.S.
is 176.8 million.
Federal Reserve Survey of What Your Credit Score Really Measures
Consumer Finances
STAND FOR? and is not a measure of winning financially. In fact, it can often
FICO stands for Fair Isaac
Corporation, the company
mean the opposite. If you were to inherit $10 million
that created and computes tomorrow, it would have NO effect on your credit score!
this credit score. Although
other companies also Some people seem to believe that the $10 bill and a $5 bill. But it’s simply
compute credit scores,
credit score is almost as important as not true. Can you really live without
FICO is the most trusted
oxygen and water. Most of that stems a credit score? Absolutely—and it’s
and most used score.
from the fact that we’ve been beaten actually easier than you’d think. It
over the head with the importance just takes some foresight, planning
of the credit score since we first and maybe a little patience.
learned the difference between a
Debt History
Debt Levels
35% 30%
The only thing
measured
here is debt! 10%
15%
Duration of
10% the Debt
New Debt
Type of Debt
work with you if you can provide first and last month’s The average college
rent as well as a security deposit. Get a rental history undergrad is carrying
about $2,169 in credit card
referral from your previous landlord. If it’s your first time debt. Graduate students
renting, you might have to look around for a little while. carry an average of $8,162
in credit card debt.
But you’ll be able to find someone to work with you. Investopedia.com
6. What if an employer wants to see my credit score measures the risk of your
not repaying debt; it is not
during the interview process? This is a growing trend, a measure of financial
success.
but it mainly affects people in the financial industry—
banks, mortgage brokers, investment companies and so
on. Again, the key here is to learn their process up front
+
and explain why you don’t have a credit score if they ask
you about it. CREDIT BUREAUS are
also commonly referred
to as consumer reporting
agencies or credit
JOURNAL QUESTION: VIDEO 3.1 reporting agencies.
Chapter 4: Debt 91
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
SECTION 4
$
Section 4:
In a recent survey, one in Credit Bureaus and Identity Theft
four teens didn’t know the
$
Identity Theft
The 2013 Identity Fraud
» A collection agency calls about a » You are turned down for a loan,
debt you didn’t incur. mortgage or other form of credit
because of unauthorized debts on
» Bank and billing statements don’t your credit report.
arrive on time.
Chapter 4: Debt 93
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
SECTION 4
* NOTE: There are several other credit laws of which you should be aware. Please refer to the
glossary under “credit laws” for more information.
Chapter 4: Debt 95
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
RECAP & REVIEW
Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered and complete the “after” column of the Measure
Your Progress section.
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
* NOTE: The vast majority of teens ages 14–18 do not have a credit file. Ideally, you will receive a simple rejection message from
AnnualCreditReport.com. However, if there is a credit file and it is full of errors, you’ll need to work on clearing them up. Contactall
three credit bureaus and consider putting a freeze on your credit.
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
Chapter 4: Debt 97
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
RECAP & REVIEW
Money in Review
Matching
Match the following terms to the correct definition below.
1. $_____ Cost of borrowing money on an annual 6. $_____ A measure of an individual’s credit risk;
basis; takes into account the interest calculated from a credit report using a
rate and other related fees on a loan standardized formula
2. $_____ A decrease or loss in value 7. $_____ A yearly fee that’s charged by the credit
card company for the convenience of the
3. $_____ A detailed report of an individual’s credit card
credit history
8. $_____ Preferred method of debt repayment;
4. $_____ Time frame that a loan agreement is includes a list of all debts organized from
in force, and before or at the end of smallest to largest balance; minimum
which the loan should either be repaid payments are made to all debts except
or renegotiated for another term for the smallest, which is attacked with
the largest possible payments
5. $_____ Type of card issued by a bank that allows
users to finance a purchase
Illustration
Draw a picture representation of each of the following terms.
9. You must establish credit in order to buy 14. Why is an adjustable rate mortgage (ARM) a
a house. bad idea?
A True
B False
Chapter 4: Debt 99
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
5
How are other
students planning for
life after high school?
We asked students what education and
CHAPTER
career plans they have after graduation.
Life After
High School
Identify reasons for not taking on debt to fund » Scholarship: A form of financial aid
your education. that does not need to be repaid; usually
awarded on the basis of academic,
athletic or other achievements
Section 3: Cash-Flow Your College Education » Work study: A program that allows
Develop a plan to attend college without acquiring debt. students to work part time while
continuing their studies
Demonstrate how to apply for financial aid.
BEFORE AFTER
Agree Disagree Agree Disagree
Not every career requires a four-year degree. Have you researched the education requirements
for your career of choice? If so, what education options do you have? If not, research the education
requirements for your career choice(s) and write them below.
5
$
$
CHAPTER
Section 1: Beware and Be Wise
Nearly 20 million
Americans attend college
each year. Of that 20
million, close to 12 million—
or 60%—borrow annually VIDEO 1.1
to help cover costs.
The Chronicle of Higher Education Considering all your career and your career and education will help you
education options after high school find those opportunities. And learning
can be overwhelming. After all, some about the dangers of student loans and
of your decisions may open doors to credit cards will allow you to avoid
endless opportunities while others those long-term consequences of a few
may have long-term consequences. bad decisions. Bottom line, you’ve got
The good news is, planning ahead for to beware and be wise.
* DISCUSS: If Andrea could do college over again, what things might she choose to do differently? Why?
VIDEO 1.2
$
Beware of the Student Loan Myth
During the last 20 years,
tuition has increased Not all careers require the same type you, we want to show you how to do it
at a faster rate than any of post-secondary education. We are without student loans. Believing that
other major product or going to show you how to come up with student loans are a “good debt” because
service— four times faster the most cost-effective education plan they are a path to getting an education
than overall inflation. After for your career of choice. If a four-year is a myth. You can get your education
adjusting for financial aid,
college is the best education option for without becoming a slave to debt.
the amount families pay for
college has skyrocketed
4
439% since 1982.
T H E F O U R T H F O U N D AT I O N
CNN Money
Pay Cash for College
» Our culture thinks student loan debt is okay—it seems
“ totally . Some people even call it “good debt.”
“Do more than is 9
required. What
is the distance
» When you receive your financial aid award package for
between someone college, you’ll see a list of all different types of awards
who achieves their
like and grants.
goals consistently 10
and those who * BE AWARE: Student loans will be listed in your financial aid award package as well.
spend their lives
and careers merely » A student is NOT an award! It will take years to
11
following? The extra pay it back, plus you’ll have to pay interest.
mile.”
GA RY RYA N BL AIR
Motivational speaker » is owing anything to anyone for reason.
12 13
and author
$
Section 2:
Two-thirds of college Start With the End in Mind
students graduate with
student loans. VIDEO 2.1: THERE ARE NO FILL-INS IN THIS SECTION.
CNN Money
So you’ve decided that you will Many people believe it’s impossible
continue your education at a four-year to go to college without taking out
college. How do you plan to pay for it? a loan. They’ll say things like, “The
+ If student loans are part of your plan, economy is down,” or “Tuition is
you may want to rethink that. Listen to so expensive,” or “I have no other
Debt is normal. Be weird! the stories in this chapter and decide options.” Everyone takes out loans,
how you really want to begin your so it’s not a big deal, right? We hear
post-college life. it all the time. It’s easy to think that
because it’s what we see all around us
You can start making decisions right in our culture. In fact, almost 70% of
now that will allow you to avoid the college students graduate with debt!
mounds of debt that so many young But just because it’s easy to sign those
adults begin their life with. One of student loan notes doesn’t mean it’s
those choices is to cash-flow (pay as the only way. And it definitely doesn’t
you go) your college education. mean it’s the best way.
Section 3:
CASE STUDIES Cash-Flow Your College Education
Chris O. “I planned for VIDEO 3.1
college ahead of time by
joining the military, saving
for years before I got out, What does it mean to cash-flow your college education?
and getting three well- To “cash-flow” simply means to pay with cash as you go,
paid internships. When
I finished school, I had instead of using credit or debt.
money in the bank and no
college debt.”
During their senior year of parents and school counselor along the way.
high school, every other
Sunday afternoon we
spent two hours at the
» Planning for college involves more than just ACT scores
kitchen table researching and college applications. You must understand how much
scholarships and applying.
One son received $13,000 it is going to cost (that includes tuition, books and living
this way, the other about
expenses) and know how you are going to pay for it.
$5,000 (but his school is
less expensive). When
they went to college, they
thought it would be okay to
get loans. After meeting
Get Good Grades
kids who are financing » One thing you can do is get good grades.
college completely with 17
loans, they were glad
we insisted on working » Good grades do more than just get you into the school
on scholarships. My
best advice is to do and career you want. They also help you get free money!
everything early and make Yes, scholarships go to those who earn them.
scholarship hunting a part-
time job. It will work.”
» Making good grades and scoring well on the ACT or SAT
will set you apart from the crowd.
» Attending a community college for your first two years is Kayla O. “I’m going to
finish college with an RN
a great way to knock out your freshman and sophomore degree and zero debt by
attending a community
years at a low cost. If you plan to continue your education college. I pay $4,000 a year,
after your two-year degree, work closely with your while other people I know
are going to the university
advisor to make sure the classes you take are going to up the road and spending
to your four-year university of choice. $20,000 a year for the
21 same education. In the
end, we have to take the
» Consider attending a state school instead of a private or same national test to be
an RN, so why not keep the
out-of-state school, which will have much higher tuition. $16,000?”
You must “shop” for the best price for your education in
the same way you comparison shop on any large
purchase. Don’t be sold on prestige!
VIDEO 3.2
+
Applying for Financial Aid
IS THERE A SCHOLARSHIP
OUT THERE FOR ME?
Scholarships aren’t just
In order to make the most of
22
for the highest scorers on college, you’ve got to focus on the specifics like filling out
the ACT or SAT. Schools
and foundations have
your financial paperwork, researching scholarships, and
broadened their criteria finding part-time work opportunities.
to include community
involvement, after-school
work and financial status
Fill Out the FAFSA Form
in addition to the traditional
athletics and diversity
» The (Free Application for Federal Student Aid)
23
scholarships. Don’t is the first step to receiving any kind of financial aid.
avoid the scholarship
applications requiring Whether you are interested in scholarships, grants, loans
essays. They can be a or other financial aids, you’ll need to submit this form.
good way to improve your
writing skills while earning
scholarships. Here are » The FAFSA form needs to be completed each year
some additional resources
to look into:
you are in college. The sooner you turn in the form (by
January or February), the more likely you are to get
1. Explore your state’s
website. financial help because some federal is
24
» Federal and state governments offer grants that are The average cost of tuition
and fees for the 2012–2013
usually need-based. The FAFSA will determine which school year was:
grants you qualify for. Examples include the Federal • $29,056 at private
universities
and state-specific grants. • $8,655 for in-state
28
residents at public
» Grants are free ! universities
29
• $21,706 for out-of-state
residents attending
Research Scholarships public universities (out-
of-state tuition)
» Another form of free money is .
30 To find out the average cost
of tuition for this year, go to
» You should never pay to apply for scholarships. foundationsU.com.
» As you work in the summer and save money for your during their college years.
National Freshman
« $25,000
2012 « $22,500
2010 2011
« $20,000
2008 2009
2007 « $17,500
2006
« $15,000
2005
« $12,500
« $10,000
« $7,500
« $5,000
« $2,500
» Collegedata.com reported that the average cost of room begin college. But think
about the savings if you
and board in 2012–2013 ranged from $9,205 at four-year just put that off for a year
or two. You might be wise
public schools to $10,462 at private schools. to reconsider that dorm or
apartment.
The choices you make in the next few years will affect the
next 40 years of your life. You’ll have much more freedom
to pursue your dreams and do exactly what you want to do.
Now that’s a great way to begin your future!
“
Section 4:
“Education is the
Education Options for the 21st Century
most powerful
weapon which you VIDEO 4.1
can use to change the
world.”
NELSON M A NDEL A
Be a Lifelong Learner
Revolutionary and politician
Many students and their parents career choice or specific educational
believe that a four-year college degree needs. If you do your research, you can
is necessary to compete in the job be sure you’re deciding on a career
market. College is not for everyone, path that ref lects your passions
and it is possible to build a career as well as your financial goals. It’s
without investing in an expensive important to assess what your
college education. Twenty-first- interests are, how you like to learn,
century education comes in many and what motivates you. For example,
forms. Remember, however, that even do you like to build things, sit behind
if a traditional four-year college isn’t a computer, or interact with people?
for you, it is still important to invest Once you’ve decided on a career,
in yourself. Learning is a necessary here are some college alternatives
lifelong venture regardless of your to consider.
Trade School
Trade schools allow students to learn basic
in two years or less
34
because technical schools typically cut out many of the
general courses required by traditional universities. Also,
since trade schools are often directly tied into the
employment needs of their region or state, prospective
employers often seek new hires from trade school
graduates.
Self-Education
Start reading books, blogs and trade magazines in your
field of choice. Attend conferences and local events. Meet
people and find a mentor. You may also want to attend
online courses specific to your field.
On-the-Job Training
- - training is just that. You, the
36
employee, train at the place of work while you are doing
the actual job. Usually a professional trainer serves as the
course instructor and uses a combination of hands-on
activities and formal classroom training.
Associate’s Degree
An associate’s is a two-year degree that can
37
offer a variety of benefits including lower cost than four-
year colleges, specialized training and a flexible schedule
that allows you to work while you earn your degree.
Whether it is your first step toward earning a bachelor’s
degree or the beginning of your career, an associate’s
degree may be a great option. Career fields such as fashion
design, nursing, cardiovascular technology and criminal
justice are offered at the associate’s level.
Starting a Business
Maybe you’d like to your own business. While
38
there is always risk involved, if you have passion and an
entrepreneurial spirit, it might be right for you. Be sure
to create a solid business plan and establish financial
resources first. Stick with a debt-free plan. Remember to
Budget be enthusiastic about your venture. Many people who don’t
necessarily make “good” traditional students make the best
Builder entrepreneurs because of their passion and people skills.
Cash-flowing your
post-high school Be prepared to work hard and know that there will be some
education will take
some planning. Go to
bumps in the road.
foundationsU.com/5 to
Military
build it into your budget!
Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered, and complete the “after” column of the Measure
Your Progress section.
Grants:
Scholarships:
Work Study:
Loans:
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
1 2 3
$ $ $
Money in Review
Matching
Match the following terms to the correct definition below.
3. #_____ A program that allows students to work 7. #_____ A merit-based form of financial aid
part time while continuing their studies that does not need to be repaid; usually
offered on the basis of academic, athletic
4. #_____ An undergraduate academic degree or other achievements
awarded by colleges upon completion of
a course of study lasting two years 8. #_____ A type of higher learning school that
focuses on job skill training for specific
career fields rather than academics in
liberal arts
Illustration
Draw a picture representation of each of the following terms.
9. Our culture thinks student loan debt is 14. Explain how you can get an education debt
normal and that it’s an acceptable way to free after high school.
pay for college.
A True
B False
CHAPTER
We asked other high school students
to share their favorite television
commercials.
Consumer
Awareness
MAR K ETING IS POWER FUL! Think about
26% it—almost every single purchase you’ve made
started with advertising. But be careful. As
of teens have placed
an order online
you learned in Chapter 4, debt is also marketed
to you. Some salespeople don’t want you to
in the past three
months.*
Evaluate the role opportunity cost plays » Opportunity cost: Refers to the financial
in purchasing decisions. opportunity that is given up because
you choose to do something else with
Describe the effect of inflation on buying power. your money
2. The average cost of a 30-second television advertisement during the 2013 Super Bowl was:
$1 million $2 million $3 million $4 million
3. The average American was exposed to almost 560 advertisements daily in 1971. Today
that number is closer to:
1,500 2,500 3,000 more than 5,000
4. A Harvard University study found that for every hour of television you watch each week,
your yearly spending increases by an average of:
$50 $100 $200 $500
6
+
WHY ARE WE SO
MARKETED TO?
The U.S. is the most
capitalistic country in the
world. Capitalism is an
economic system based
on a free market, profit
motive, open competition
and private ownership of
the means of production.
CHAPTER
Section 1: Buyer Beware
This market is driven by
the economic law of supply
and demand. Companies
promote consumer demand
by marketing their products.
VIDEO 1.1
DAVE’S ANSWER: It’s a stupid idea. First off, if I deal at about 24–38% interest. You’ll spend the
buy the item with cash, I’ll get a better deal. Plus, next year and a half cleaning up this mess. It
if you play with snakes, you’ll get bitten. If they actually happened with one of our clients here. If
record your payment wrong and it’s late, they’ll you can’t save up and pay for the item with cash,
backcharge you through the entire term of the you can’t afford to buy it!
VIDEO 1.2
What are some of your favorite brands (soft drink, clothing, etc.)? +
Why do you like them? Have you ever wanted
to know what was really
important to someone?
Look at their checkbook
entries. Are they spending
a lot on “stuff” like
entertainment, clothes,
friends, etc.? People spend
their money on things most
VIDEO 1.3 meaningful to their heart.
“For where your treasure
VIDEO 1.4
» Buyer’s is when you wake up the next day “Saving up enough to buy a
19
and regret your purchase. nice used car.”
Sophomore, Kansas
» We all have that spoiled, grocery store kid living inside of “Saving $20 per week.”
us. His name is . Junior, Washington
20
» When it comes to spending, adults devise a and “I’m trying to save up $800
21
for a new set of tires.”
it. Senior, Massachusetts
22
» When it comes to big purchases, the right way to do it is “My current money goal is
to and pay cash. to pay off my car and save
23 more money for college.”
Junior, Pennsylvania
Can you think of anything in your home that was bought but never or
rarely used?
to add a sinking fund the time to consider whether it is a need or a want. And
to your budget.
make sure you’ve budgeted for it!
“Many a man thinks You buy fun, but you can’t buy happiness. Happiness is
he is buying pleasure, where you are right now. Claim it for yourself!
when he is really
selling himself to it.” 3. Never buy anything you do not .
31
BENJA MIN FR A NKLIN
Author, inventor and Particularly financial products like insurance
political theorist
or investments.
ag
e
0.0% »
1913– 1920– 1930– 1940– 1950– 1960– 1970– 1980– 1990– 2000– 2010– 1913–
1919 1929 1939 1949 1959 1969 1979 1989 1999 2009 2012 2012
-2.0% »
Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter and place a
checkmark next to the learning outcomes you’ve mastered. Review the Measure Your Progress section and
correct your answers if necessary.
1 2 3
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
Money in Review
Matching
Match the following terms to the correct definition below.
1. "_____ To buy an item with credit; paying 5. "_____ Refers to the financial opportunity that
over time is given up because you choose to do
something else with your money
2. "_____ The promotion of a product or
service by identifying it with distinct 6. "_____ Feeling regret or concern after making a
characteristics (usually associated large purchase
with public perception, quality or
effectiveness) 7. "_____ Refers to the public’s ability to recall
and recognize a brand by its logo, jingles,
3. "_____ Latin term for “buyer beware” packaging, etc.
4. "_____ An amount of money you spend, usually 8. "_____ The process of communicating
$300, that causes some pain to part with the value of a product or service to
customers
Illustration
Draw a picture representation of each of the following terms.
9. As a consumer, you should consider inflation 14. Explain why financing a purchase is a bad idea.
in your investment and retirement planning.
A True
B False
CHAPTER
We asked other high school students
to describe how they have saved
money on a purchase.
Bargain
Shopping
EVEN IF YOU’R E not a spender by nature,
66% finding a great bargain on something you
really want will send a rush down your
of teens say they
know how to shop spine. It’s just plain fun to find a deal!
for the best deal
when making
a purchase.*
However, if you want to find the absolute
best bargains, you will need to do three
things: learn how to negotiate, have
77% patience, and know where to find great
of teens consider
deals. Now let the fun and games begin!
themselves super
*Charles Schwab Teens & Money Survey (2011)
savers as opposed
to big spenders.*
Section 2: The Seven Basic Rules of Negotiating » Foreclosure: Process by which the
holder of a mortgage sells the property of
Develop skills for negotiating deals on products or services. a homeowner who has not made interest
and/or principal payments on time as
Understand that integrity and honesty are important stipulated in the mortgage contract
when it comes to negotiating with others.
» Integrity: Having to do with a person’s
honesty and moral attributes
Section 3: Places to Find Great Deals
» Markup: The difference between the
Know the best places to shop for deals. wholesale price and retail price
Evaluate the benefits of not buying brand-name products, » Negotiate: To bargain for a lower price
taking advantage of seasonal shopping, buying slightly
» Walk-away power: The ability to walk
outdated products, etc.
away from a purchase when negotiating
BEFORE AFTER
Agree Disagree Agree Disagree
7
$
CHAPTER
“
“The bargain that
yields mutual Section 1: Bargain Shopping:
Part of a Healthy Financial Plan
satisfaction is the
only one that is apt to
be repeated.”
B.C. FOR BES VIDEO 1.1
Scottish financial journalist
and author
“
Section 2:
“The love of truth is
The Seven Basic Rules of Negotiating
the stimulus to all
noble conversation. VIDEO 2.1
This is the root of all
the charities. The
tree which springs Negotiate With Integrity
from it may have a
thousand branches, Getting a great deal doesn’t happen by accident, nor
but they will all does it always happen just because you bothered to ask.
bear a golden and
generous fruit.” Remember, this is a negotiation, and that means it’s a
ORVILLE DEW EY conversation with give and take. Here are what we call
American minister
“The Lucky Seven” rules that can help you make the most
of every single negotiation:
• Cash has .
10
“I got a $50 chain for $15.”
3. Understand and use “ - power.” If Junior, Michigan
11
you are not prepared to walk away from the purchase,
“Once I negotiated and paid
you will lose your ability to negotiate. Don’t get half the price listed.”
emotionally attached to the item. Senior, Missouri
VIDEO 2.3
$
Know How to Score a Good Deal (Continued)
More than two-thirds of
teenage girls say they
shop at low-budget stores
4. . Don’t talk too much. If you’re trying
12
and outlets, along with to buy something, it’s not your job to come up with a
55% of guys.
Business Insider
good price. Make the seller work for your business.
$
Seal the Deal
THE MOST COMMON
to agree to a price, but then throw something else into Trade Commission,
the most common
the deal. For example, “Okay, if I take the car for that types of consumer
fraud reported were
price, you’ve got to throw in new wipers and floor mats.” for bogus weight-loss
products, nonexistent
“The Lucky Seven” rules can get you incredible deals on the foreign lotteries,
stuff you buy every day, but they only work if you actually unauthorized buyer club
enrollments, dishonest
use them. Have some fun with them and enjoy the process! prize promotions and
fraudulent work-at-
If you are patient, willing to negotiate, and educated about home programs. The
what items are on sale during certain seasons, you’ll be FTC study also found the
following results:
saving big before you know it. • 25- to 34-year-olds
issued the most
get some money out of the stuff they don’t need or want 1. Familiarize yourself with
the store’s return policy
anymore. Also, they are usually motivated and willing prior to your purchase.
to negotiate for a lower price because the stuff is in 2. Hold on to your receipts.
their way. This makes for a win-win situation. 3. Keep the labels and
price tags on the item.
2. sales and public : You 4. Don’t delay. There
24 25
can find great deals at these places, but you have to be is usually a time
restriction included in
careful. It’s easy to get excited and end up paying more store return policies.
than retail for things. It’s best to be prepared. Before TIME Business & Money
Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered and complete the “after” column of the Measure
Your Progress section.
1. 2. 3.
7. Rules of Negotiation 4.
6. 5.
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
» Be a wise consumer.
r BENE
To
FI
COS
T?
?
COST The new phone would work better and have updated features. BENEFIT
COST The cost of the phone is $200 if you extend your contract for 2 years. BENEFIT
COST You can use the phone for research at school. BENEFIT
COST You won’t be able to buy that new gaming system you wanted. BENEFIT
NOW
Money in Review
Matching
Match the following terms to the correct definition below.
1. "_____ Having to do with a person’s honesty 5. "_____ A public sale in which property or
and moral attributes items of merchandise are sold to
the highest bidder
2. "_____ Retail store where people sell items and
the owner of the shop gets a percentage 6. "_____ The process of quantifying costs and
of the sale benefits of a decision
3. "_____ The ability to walk away from 7. "_____ The difference between the wholesale
a purchase when negotiating price and retail price
4. "_____ Process by which the holder of a 8. "_____ Type of yard sale with more
mortgage sells the property of a items, usually the entire contents
homeowner who has not made interest of a household
and/or principal payments on time as
stipulated in the mortgage contract 9. "_____ To bargain for a lower price
Illustration
Draw a picture representation of each of the following terms.
10. Using cash gives you more bargaining 15. Summarize the benefits of being a
power than using credit. wise consumer.
A True
B False
CHAPTER
describe the weirdest get-rich-quick
scheme they’ve ever heard of.
Investing and
Retirement
AS YOU CONSIDER a good time to begin
44% investing and retirement planning, think back
to Ben and Arthur in Chapter 2. The fact is,
of teens would like
their parents to talk
you want to start planning and preparing for
your financial future now! Dave’s friend and
more about how to
invest money.*
BEFORE AFTER
Agree Disagree Agree Disagree
List your initial thoughts about investing. What do you want to learn about investing?
8
+
THINGS TO CONSIDER
The smartest investment
you can make is in yourself.
As a young adult, you
should have two goals:
continue your education
and stay out of debt.
CHAPTER
Section 1: Investing 101
$
5
their own investment T H E F I F T H F O U N D AT I O N
decisions.
The Millionaire Next Door
Build Wealth and Give
the goal is to build
R E M E M BE R , for you. You’ll be amazed at how your
wealth. You can and should save money, when invested wisely, can
money for your emergency fund and begin to grow!
for purchases. Then, once you’re sure
that you have your post-secondary Investing will help you reach your
education paid for, you should begin long-term financial goals, such as
to invest a portion of your income. retirement. In this chapter, we are
How does investing build wealth? going to give you the tools to achieve
Investing allows your money to work lifelong financial well-being.
VIDEO 1.1
$
As a young adult, what is the most important thing you can invest in?
THROUGHOUT THE
STOCK MARKET’S
HISTORY
VIDEO 1.2 “
“Diversification is a
Basic Rules of Investing (Continued) protection against
ignorance.”
» Never invest purely for . WA R R EN BUFFETT
2
If what you are investing in is primarily a tax deal, then Famous American investor
Diversification
A bachelor’s degree on
average increases lifetime
“
income by $1.2 million
Here’s the thing to remember: Money is like manure. Left in one as compared with a high
pile, it stinks—spread around, it will grow things.” school diploma.
DAV E R A M S E Y Journal of Student Financial Aid
» is a risk-management
4
technique that mixes a wide variety of investments within
a portfolio. The rationale behind this technique is that
having a variety of investments will yield higher returns
and lower risk.
« $120K
« $110K
Investor 1 invests:
$10,000 for 25 years at 7%
The Investor 2:
More than « $100K
compounded annually
difference $116,000 « $90K
is almost because of « $80K
Investor 2 invests: $59,000! diversification! « $70K
$2,000 and loses it all « $60K
$2,000 in his cookie jar « $50K
Investor 1:
$2,000 at 5% return
Just « $40K
$2,000 at 10% return
$57,254 « $30K
$2,000 at 15% return without « $20K
diversification! « $10K
If you were giving advice to a friend, what would you say are the most +
important things to know about investing? U.S. SECURITIES
AND EXCHANGE
COMMISSION (SEC):
The government agency
responsible for regulating
the stock market. It was
created in 1934 to increase
public trust after the 1929
stock market crash and
FEDERAL DEPOSIT
INSURANCE
VIDEO 2.1 CORPORATION (FDIC):
The U.S. federal agency
that insures deposits in
Money Markets commercial banks. It was
created to restore public
» A market in which short-term financial instruments trust in banks after the
1929 stock market crash.
such as certificates of deposit (CD), Treasury bills, FDIC replaced the former
commercial papers and bank deposits are traded. New Federal Savings and Loan
Insurance Corporation in
York is the major money market, followed by London 1989.
commitment (i.e. six months, one year, etc.). for collecting taxes and
for the interpretation and
enforcement of the Internal
» A money market account is a -risk bank Revenue Code (laws)
9
savings account with check-writing privileges.
sell, scamming people by owes you money; a form of I.O.U. The company that issued
selling “phantom shares.”
Harry’s risky attempt to
the bond makes regular interest payments to the bond
diversify cost him $750. holder and promises to pay back or redeem the face value of
What would have the bond at a specified point in the future (maturity date).
happened if he had put
that money in a mutual
fund with a 12% return
» Your return is the fluctuation in price and the
instead? He would now rate paid.
have $22,469. 15
DIVIDEND: Distribution of
a portion of a company’s
earnings, decided by the
VIDEO 2.2 board of directors, to a
class of its shareholders;
generally distributed in the
Qualified Plans +
KNOW THE RULE OF 72!
A qualified plan is a - investment The Rule of 72 is a quick
21
(which means it has special tax treatment). way to calculate the length
of time it will take to double
a sum of money. Divide 72
Examples of qualified plans include: by the expected interest
rate to determine the
Individual Retirement Arrangement (IRA) number of years (i.e. 72
divided by 8% = 9 years).
When it comes to IRAs, everyone with an
is eligible.
22
DAVE’S ANSWER: I’m glad you’re asking $5,000 on some things just for you. After
questions. One of the fastest ways to lose all, spending and having fun with money is
money is to put it into an investment that you still important!
don’t understand.
But here’s something to think about once
You don’t need to change your major to you’ve educated yourself on investing. If you
finance to make this happen, but you do have put that remaining $30,000 in a good growth
a $40,000 responsibility that you didn’t have stock mutual fund, by the time you’re ready to
before. For now, a simple savings account retire you’ll be looking at about $5.5 million.
is fine. I’d park $30,000 in there and just
forget about it for a while. Then use $5,000 Talk about being able to retire with dignity
to set up an emergency fund and maybe blow and change your family tree!
+ Annuities
EDUCATION SAVINGS
PLAN (529 PLAN): A savings
» An annuity is a account sold by an
25
plan operated by a state
or educational institution
company, designed to provide
26
designed to help families set payments to the holder at specified intervals, usually
aside funds for future college
costs. It is named after after retirement.
Section 529 of the Internal
Revenue Code, which created
these types of savings plans
in 1996.
» The holder is taxed at the time of distribution or
withdrawal, making this a tax-deferred arrangement.
TAX-DEFERRED: The
key advantage of stashing
money in a tax-deferred » annuities have a low interest rate of around
27
retirement account isn’t
just that you’ll pay less to 5%; they have high fees and are a bad investment option.
the government this year,
but that your investments » annuities are mutual funds sheltered by
will compound faster than 28
in a taxable account. The the annuity, which allows the mutual fund to grow
result is usually a larger
retirement nest egg even
.
29
after the funds are taxed
upon withdrawal.
• It requires management.
Horrible Investments
+ » Gold: Gold has a 50-year track record of 4.1% returns.
SPECULATIVE: That’s about the rate of inflation.
Purchasing risky
investments that present » Commodities: are agricultural
the possibility of large 33
profits, but also post a or mining products. All commodities are traded, but since
higher-than-average
possibility of loss
no one really wants to transport all those heavy materials,
what is actually traded are commodities futures contracts—
an agreement to buy or sell a commodity at a specific date
in the future at a specific price. Both commodities and
futures are bad investments because they result in price
distortions and are highly volatile.
Exchange and NASDAQ have merged but maintain their 3. Choose an investment
DAVE’S ANSWER: Your first goal should be to On top of that, you should invest into a Roth IRA.
save three to six months of your income (since The current contribution limit is $5,500 per year,
you don’t really have any expenses). This will which comes out to about $458 per month. You
be your full emergency fund. Then you should can do less than that, but not more. If you start
save for anything you plan on doing in the next that now, you will be extremely wealthy when
few years, like getting married or buying a home. you retire.
Rollovers
+ If you leave a job and have money saved in your employer’s
WINNING THE LOTTERY retirement plan, always roll that money into an IRA using a
does not guarantee peace
of mind when it comes to direct rollover, which allows you to avoid taxes and penalties.
your financial future.
Budget
Builder
So you’re ready to invest?
Your investment dollars
will need to be part of
your monthly budget. Go
to foundationsU.com/8 to
update your budget!
Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered and complete the “after” column of the Measure
Your Progress section.
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
2 Directions
Plot the following investments on the risk return continuum below. If you’ve forgotten the level
of risk for any of the investment types, refer to earlier in the chapter for review.
RISK RETURN RATIO CONTINUUM: The relationship between risk and return on investment
2
ANNUAL RETURN
High risk,
high growth
potential
Low risk,
low growth
potential
RISK AMOUNT
Money in Review
Matching
Match the following terms to the correct definition below.
Illustration
Draw a picture representation of each of the following terms.
Diversification Stock
9. A single stock would be a good place to keep 14. Explain why you should never invest using
your emergency fund. borrowed money.
A True
B False
13. Which statement is true about liquidity? 18. Is real estate a liquid investment?
Explain your answer.
A The less liquid the investment,
the less return
B The more liquid an investment,
the more return
C The more liquid an investment,
the less return
D Both a and b
CHAPTER
think insurance is necessary.
Insurance
AS A HIGH SCHOOL STUDENT, insurance
Distinguish between necessary and unnecessary types » Out-of-pocket expense: Specific amount
of coverage. of money that you pay when insurance
only covers a portion of costs
Understand the importance of identity theft protection.
» Policy: Describes the type of coverage in
Understand the importance of property and an insurance agreement
liability protection.
» Premium: Amount you pay monthly,
quarterly, semiannually or annually to
Section 3: The Importance of Life Insurance purchase different types of insurance
Differentiate between term and cash value life insurance. » Will: A legally enforceable declaration of
how a person wishes his or her property
Explain how one becomes self-insured. to be distributed after death
Examine the purpose and importance of a will.
BEFORE AFTER
Agree Disagree Agree Disagree
9
“
“It is unwise to hope
for the best without
preparing for the
worst.”
A NONYMOUS
CHAPTER
Section 1:
Protecting Your Wealth
VIDEO 1.1
2. Auto Insurance
3. Health Insurance
1. Car
Auto insurance protects you against your car. Here are the basic components 2. Health
financial loss if you are in a car accident of an auto insurance policy:
or if something else causes damage to 3. Identity Theft
4. Renter’s
DAVE’S ANSWER: Gap insurance covers the Gap insurance can be pretty expensive, which
difference between what you owe on a car and is another reason not to buy a new car on credit.
what the insurance company says it is worth. The minute you drive off the car lot with a new
That is what happened to you. Your full-coverage car, it loses value and if you get into an accident,
policy paid for the current value of the car, but there will be a gap that you are responsible for
that is less than what you owe the bank. Since unless you have this gap insurance. All you can
you no longer have the car as collateral, the bank do right now is pay the bank what you owe and
is calling their note. move on, lesson learned.
you’re a responsible student you are more likely to be a Centers for Disease
Control and Prevention
responsible driver. (CDC), crash rates per mile
driven for 16- to 19-year-
2. Insurers differ. Prices can vary from company 6. At claims time, your insurer isn’t necessarily
to company. You can save money by comparison your friend. Your idea of fair compensation
shopping. may not match that of your insurer. Their job
is to restore you financially. Your job is to prove
3. Don’t just look at price. A low price is no bargain your losses so that you get what you need.
if an insurer takes forever to service your claim.
Research the insurer’s record for claims service, 7. Prepare before you have to file a claim.
as well as its financial stability. Keep your policy updated and reread
it before you file a claim so there are
4. Go beyond the basics. Although most states no surprises.
require only a minimum of liability coverage,
you should look for a minimum coverage of
$500,000.
+
Health Insurance
GROUP VS. INDIVIDUAL
You may think that because you are young and healthy HEALTH PLANS
that health insurance is not necessary, but you’d be A group health plan is an
employee benefit plan
wrong. Everyone needs to have health insurance. Medical maintained by an employer
health insurance policy until you’re out of school and on group to keep premiums
stable and they cannot
your own will lower your costs. deny you coverage based
on health issues.
* NOTE: There are currently many changes going on in our health care system. It’s important
for you to stay educated on these changes and how they relate to your health insurance needs.
+
Long-Term Care Insurance
REAL LIFE
Long-term care is care that you need if you can no longer Some companies will
do anything to make a
perform everyday tasks by yourself. Causes may be chronic buck—including insurance
companies. Here are a few
illness, injury, disability or advanced age. Your odds of bizarre examples of actual
needing this level of care increase as you get older. insurance plans available:
VIDEO 2.4
+
Disability Insurance
THINGS TO REMEMBER
ABOUT DISABILITY
INSURANCE
Disability insurance is designed to replace
20
lost due to a short-term or permanent disability. It basically
Disability insurance is
a long-term solution. provides an income for you if you have an accident or health
Your short-term needs
should be covered by a full
condition that prevents you from working. Once you are
emergency fund of three to working full time to support yourself, you will need to have
six months of expenses.
disability coverage.
Buy disability with after-
tax dollars. If you become » Try to buy disability insurance that pays if you cannot
disabled and you bought
disability insurance with
perform the job that you were or
21
pre-tax dollars, your educated to do.
disability income will
be taxable.
» That is called or “own occ”
22
disability. Many times, this is only available for two years.
+ » Beware of - policies covering less
23
OCCUPATIONAL
DISABILITY: Type of
than five years. Short-term disability should be covered
insurance that provides by your emergency fund, staying out of debt, and having a
an income in case the
insured becomes unable to
money plan.
perform the job he/she was
educated or trained to do » Disability insurance is most affordable if it is offered
through your employer.
Remember, insurance is all about transferring risk. In this • 43% of all ID theft is a
result of stolen wallets
case, you’re paying someone to take on the risk of cleaning and paperwork.
up the aftermath of your stolen identity. This is someone • About 11% of all identity
theft occurs through the
who is ready, willing and able to go to battle with banks and internet.
creditors that will come after you to collect the debts that • 40% of victims report
+ Section 3:
WHAT DOES IT MEAN TO The Importance of Life Insurance
BE SELF-INSURED?
VIDEO 3.1
If you follow the Five
Foundations, you will begin
investing when you finish Life insurance provides a monetary payout to
school and begin working beneficiaries (the person or people you elect to receive
in your career. Then, when
you are 57 years old and money or other assets) in the event of your death. The
the kids are grown and
gone, the house is paid for,
financial risk associated with death is the loss of income
you have no debt, and you necessary to support your family.
have $700,000 in mutual
funds, you’ll become » Life insurance is to replace lost income due to .
31
self-insured. That means
when your 20-year term is
up, you shouldn’t need life
» Two Types of Life Insurance:
insurance at all—because
with no kids to feed, no
1. insurance is for a specified period, is
house payment, and 32
$700,000 in the bank, your substantially cheaper, is easy to understand, and has
spouse will be financially
secure in the event of
no savings plan built into it. It has one job and one job
your death. only: It replaces your income when you die.
Which type of life insurance is the better option, term or cash value?
Explain your answer.
* NOTE: Get more information on creating a will by completing the Chapter 9 activity “What’s With the Will?”
« $625K
At Age 50 « $500K
« $125K
Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered and complete the “after” column of the Measure
Your Progress section.
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
1. Homeowner’s or Renter’s
Money in Review
Matching
Match the following terms to the correct definition below.
1. "_____ Specific amount of money that you pay 5. "_____ Applies to the amount of protection you
when insurance only covers a portion have through an insurance company in
of costs the event of a loss
2. "_____ Paperwork filed with an insurance 6. "_____ Amount you must pay before you
company in order to get them to cover a begin receiving any benefits from your
loss for someone they insure insurance company
3. "_____ Describes the type of coverage in an 7. "_____ The state or quality of being obligated
insurance agreement according to law or equity
Illustration
Draw a picture representation of each of the following terms.
8. Raising your deductible may be a good option 13. What does it mean to “transfer risk”?
when it comes to lowering your premium, but
it is important to do a break-even analysis
before making that decision.
A True
B False
CHAPTER
We asked high school students if
they’ve ever witnessed money affecting
a relationship close to them.
Money and
Relationships
MONEY AND R ELATIONSHIPS go hand in
34% hand, which means the way you handle your
money affects everyone around you. Hard to
of teens receive a
weekly allowance
imagine, right? Well it’s true. Whether you
save, overspend, are generous in your giving,
of, on average, just
over $16 per week.*
Evaluate how discussing important financial matters » Value system: A person’s priorities,
with household members can reduce conflict. beliefs and standards that affect how he
or she views the world
Understand how having a budget or a money plan can
reduce conflict.
What are your initial thoughts about money and relationships? What do you want to learn
about money and relationships?
10
+
Information not otherwise
sourced in this section is
based on Dave Ramsey’s
personal experience
counseling families for
more than 20 years.
CHAPTER
“
“Your priorities,
passions, goals and
fears are shown
Section 1:
clearly in the flow of Understanding Your Money Personality
your money.”
DAV E R A MSEY VIDEO 1.1
$
Financial Problems
» Men lose - when money problems
More teen girls than boys
report saving their money
6
pop up, because money usually represents a scorecard for small purchases like
music or clothes. (27%
to them. boys, 36% girls)
$
Section 2: Marriage and Money
HOW TEENS LEARN TO VIDEO 2.1
MANAGE MONEY
• 82% Parents
It takes teamwork! If men and women person might have a natural gift for
are so different, who is supposed to budgeting and working with numbers,
• 65% Real-Life Experience
do the financial decision making in the decision making has to be done
• 49% School a marriage? BOTH! Handling money together. Communication, teamwork
Charles Schwab Teens is the responsibility of both people and consistency are all important
& Money Survey (2011)
in a relationship. Although one elements of handling family finances.
A lease is a contractual » When you agree on your spending, that means that you
arrangement calling for
the lessee (user) to pay also agree on your value system.
the lessor (owner) for the
use of property. A more
common term is rental
» The likes doing the budget because it gives them
11
agreement. control, and they feel like they are taking care of loved ones.
Contracts or legal
documents not only » The feels controlled, not cared for,
12
define the legal rights or
privileges of the parties
and can appear irresponsible to the Nerd.
involved, but also define
the duties and obligations
of the parties. Contracts
In a marriage, you are financially your money what to do, but it also
and written agreements accountable to one another. That’s represents two people agreeing on
are “binding documents,” why having a monthly budget is what they want their money to do.
which when properly so important. Not only does it tell
written and signed become
enforceable by law.
JOURNAL QUESTION: VIDEO 2.1
According to a recent
VIDEO 3.1
Charles Schwab Teens &
Money Survey (2011), 9 out
» The Nerd should be the one to prepare the budget, but the
decision making must be done by both people.
leave for work is not what you want to start paying for, and the things you may
ideal. Make sure there
is time for both of you
need help paying for.
to have a relaxed and
complete conversation. your parents’ decisions. Don’t beg or
15
3. Be honest. When manipulate. The goal here isn’t to get more money out of your
it comes to money
and relationships,
parents. Instead, it’s to become responsible and independent
honesty is key. with the money you have.
4. Seek counsel. You’re
your money because no one is looking over your shoulder. in your budget? Go to
foundationsU.com/10 for
It’s up to you! your next budget lesson.
Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter and place a
checkmark next to the learning outcomes you’ve mastered. Review the Measure Your Progress section to
see if any of your answers have changed.
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
» Communication is key!
Money in Review
Matching
Match the following terms to the correct definition below.
1. #_____ A person who is picky about budgeting 4. #_____ A person who thinks that everything
and details will work out fine and typically hates to
deal with the details
2. #_____ The quality or state of being responsible,
liable or answerable 5. #_____ A person’s priorities, beliefs and
standards that affect how he or she
3. #_____ A situation in which a person is lacking views the world
time, which leads to stress
Illustration
Draw a picture representation of each of the following terms.
Conflict Respect
6. Communicating about financial issues and 11. Describe some general differences in
goals in a relationship can reduce conflict. how men and women relate with money.
A True
B False
CHAPTER
how they think taxes will affect them.
Careers
and Taxes
IT MIGH T SEEM overwhelming to consider
35% all the career opportunities in the world
today and have to land on just one. But now is
of teens do not know
anyone who works
an important time to start selecting, preparing
and planning for your future career.
at their dream job.*
*
Junior Achievement Teens and Careers Survey 2012
Identify your personal strengths and weaknesses. » Passive income: Money earned on a
regular basis with little or no effort
required to maintain it. Some things that
Section 2: Goal Setting produce passive income are real estate,
intellectual property like books or
Clarify your educational and career goals. internet content, or a business in which
the owner is not actively involved.
Understand the components of goal setting.
» Personal branding: The process by
which we “market” ourselves to others;
Section 3: You Won’t Love the Entry Level involves highlighting personal strengths,
interests and unique qualities and
Understand the value of entry-level jobs. identifying goals
Identify valuable work attributes outside of your general » Portfolio income: Income generated by
skill set. selling an investment at a higher price
than you paid for it
Section 4: Best Practices of Successful People » Property taxes: Taxes paid by anyone
who owns property such as land, a
Identify the best practices of successful people. home or commercial real estate
lol
2. What are your career goals?
11
“
“The mindset today
is you have to know
who you are and
how you function in
the market. That’s
the only security
you have.”
DAV E R A MSEY
CHAPTER
$ Section 1: Self-Assessment
• 43% of teens are “very
VIDEO 1.1
confident” they will
someday have their
dream job.
• 71% of teens would
A Message From Dave
consider giving up their
THE JOB M A R K ET watch and a pension, as well as the
dream job for one that
is changing, so you satisfaction of knowing he’d devoted
paid a higher salary.
must be prepared to his entire working life to a single
Junior Achievement Teens
and Careers Survey 2012 change with it. My company. Those days are gone in
grandfather was an America. Companies, products,
incredible man. He services, startups and shutdowns
was one of my heroes, actually. He are moving faster today than ever
entered the workforce during one of before. The rate of change going on
the most difficult periods in American in the workplace is mind-blowing!
history, the Great Depression. Life My grandfather, God love him, would
wasn’t easy back then, but he enjoyed be completely out of place in today’s
his work, loved his family, and poured market. Throughout this course, we
himself into both. He started in the focus almost entirely on the “outgo.”
accounting department at Alcoa, That is, we budget and plan how to
an aluminum company, as a very spend and save our money. That’s what
young man, and over time he grew into the Five Foundations are all about,
one of their head cost accountants. right? It’s how we tell our money what
Grandpa stayed with Alcoa for 38 to do once it leaves our hands. In this
years, until the day he retired from chapter we switch gears and examine
the workforce. He left with a gold your income.
$
What are some of your personal strengths and weaknesses?
Young adults go through
an average of seven jobs
during their 20s.
Society for the Study
of Emerging Adulthood
“ VIDEO 1.2
who feels a certain way. Fear wants to isolate you. As Best-selling author and speaker
long as you keep your fear to yourself, no one can tell you
the truth about it.
“
Build Your Brand “The future belongs
to those who believe
in the beauty of their
Most people know what a brand is. and strengths and marketing those
dreams.”
Who makes your favorite shoes or soft in the most effective way. You want
drink? But do you know why branding to leverage your education and ELEA NOR ROOSEV ELT
Former First Lady of
is important when selling a product? personal attributes for success. For the United States
Companies spend a lot of money example, say you spend a semester of
on developing their specific brand college studying Spanish in a third-
message. A brand is meant to tell the world country. You would want to be
“story” of a product through creative intentional about how you market
packaging and advertising in order to that unique experience on your
distinguish it from the competition. résumé. What you learned and how
you grew as an individual were just
Personal branding has the same as important as the skill of speaking
purpose. It’s simply a process of a foreign language.
identifying your skills, experiences
Write down what your negative voice says about you. Refute that voice
with the truth and share it with others.
+
Just Because You’re Good at Something
Doesn’t Make It a Strength
The DISC is a popular
system originally based on
the work of an American
psychologist named According to Marcus Buckingham, something doesn’t make it a strength.
William Moulton Marston author of Go Put Your Strengths You also must have a passion for what
in the 1920s. To Work, “most people think your you’re doing—that’s what qualifies it
TEST YOURSELF strengths are what you’re good at, as a strength. “A better definition of
Go to foundationsU.com and your weaknesses are what you’re a strength,” says Buckingham, “is an
and take the DISC bad at.” He explains that this isn’t a activity that makes you feel strong. And
Personality Profile. good way to measure your strengths a weakness is an activity that makes
and weaknesses. There may be a lot you feel weak. Even if you’re good at
of things that you’re good at but hate it, if it drains you, that’s a weakness.”
doing. Just because you’re good at
“
“The way to succeed You Never Outgrow Who You Are
is to identify your
strengths and Even though your knowledge and your parents, your friends or your
weaknesses, then work ex per ience w i l l cha nge teachers. Your career must engage
seek goals that fit throughout your life, you’ll never your strengths, not silence them. For
those strengths outgrow who you are. Everyone has example, if you have high energy and
and weaknesses natural tendencies, strengths and love interacting with others, then a
using tactics and weaknesses that are intertwined with job that requires you to sit at a desk
strategies that who they are as people. You cannot all day where you are isolated from
take advantage leave it up to someone else to tell you others probably would not be a good
of your strengths what you should do with your life—not fit for you.
and sidestep your
weaknesses.”
JOHN T. R EED JOURNAL QUESTION: VIDEO 1.3
American businessman,
author and investor
Which careers compliment your passions and strengths?
D I
Per suader
FAST
Pr
or o
ct 10% POPULATION 25% POPULATION
Decisive Interactive
m
u
nd
ot
er
Co
Lion Otter
Re l a t o r
TASKS PEOPLE
Cautious Stabilizing
CHAR ACTERISTICS CHAR ACTERISTICS
Detail-oriented; Can seem rigid; Loyal; Dislikes conflict; Amiable;
Analytical; Resistant to change; Calm; Can seem unenthusiastic;
Logical; Can be too serious Understanding; Team player
C S
CONCERNED WITH CONCERNED WITH
How Why
er
An
rt
ze
al
ANIMAL ANIMAL
po
p
y
Coor dinator
2012 Teens and Careers Survey by Junior Achievement and the ING Foundation
35% »
30% »
31% 30%
25% »
20% » 23%
15% » 18%
16%
10% »
14% 13 %
11%
5% »
+
SET YOUR GOALS!
Section 2: Goal Setting
In which areas of life do you
most need to set goals? Go VIDEO 2.1
to foundationsU.com/wheel
Goal-Setting Categories
to take Zig Ziglar’s Wheel
of Life Quiz.
Describe a recent goal you set for yourself. What did you do to make Ready to be an effective
reaching that goal a success? goal setter? Go to
foundationsU.com/goals to
use our Goal Tracker tool.
+
Section 3:
MORE THAN JUST
You Won’t Love the Entry Level
A SUMMER JOB
In recent years fewer and VIDEO 3.1
fewer teenagers have
been working during
the summer months. What Will Life Be Like When You Move Out?
With youth employment
declining, young people Maybe you’re assuming that when parents didn’t have those things when
are losing the opportunity
you’re on your own, you’ll have as big they were starting out. Just ask them
to develop important
of a house and as nice of a car and what life was like when they were
life skills that will help
them climb the corporate
take the same kind of vacations as starting out. Listen to the story of
ladder in later years. It’s your parents. And you aren’t alone; their humble beginnings—their first
these “first jobs” that help 59% of your peers believe they will apartment or car or where they went
young people develop the do even BETTER financially than out to eat for dinner.
perseverance, humility, their parents. But here’s the deal: Your
flexibility, hard work,
respect, teamwork and
commitment that make The truth is—having the same lifestyle as your
one successful in an adult parents won’t be automatic or immediate.
career. Something to
consider! » Average rent on a one-bedroom apartment in most cities
is about $ a month! Water and electricity—which
18
are kind of important—we’re talking $200 a month. Food
will cost you about $250 a month—and yes, that’s for just
one person. That’s $1,200 a month already!
now!
22
Someday you’ll think back to your It takes time and being smart with “
first car with one working window your money to build wealth. So get
“In order to succeed,
or your thrift-store coffee table and an education, budget your income,
your desire for
you’ll laugh—because they were pieces save for big items, and invest early for
success should be
of junk, sure, but also because those your future. As you move up in your
greater than your
little sacrifices paved the way for a career, your income will grow—and
fear of failure.”
great future. if you do what we teach, you will win
with money. BILL COSBY
American comedian,
actor and author
Describe a work experience that has helped you develop valuable career
attributes such as a strong work ethic, respect, commitment, etc.
“
Section 4:
“What I know is that
Best Practices of Successful People
if you do work that
VIDEO 4.1: THERE ARE NO FILL-INS FOR THIS SECTION
you love and work
that fulfills you, the Take notes in the spaces provided.
rest will come. I
truly believe that the Five Things Successful People Always Do
reason I’ve been able
to be so financially 1. They start. __________________________________________
successful is because
my focus has never, 2. They fight fear. _______________________________________
ever for one minute
been money.”
3. They ignore haters. __________________________________
OPR A H WINFR EY
American television host,
actress and philanthropist 4. They stay humble and hungry. ________________________
2. Editing ______________________________________________
3. Mastering ___________________________________________
4. Harvesting __________________________________________
5. Guiding _____________________________________________
Look back at Jon’s list of “Five Things Successful People Always Do.” Which +
of these comes naturally to you? Which of these do you struggle with? KEYS TO MAKING
MENTORSHIP A REAL
BENEFIT
• Choose wisely. The goal
of this relationship is
to improve your habits
and values as you
work toward your goals.
VIDEO 4.2: THERE ARE NO FILL-INS FOR THIS SECTION Often, your mentor will
be older than you and in
the next stage of life, so
“ I was lucky to have the right heroes. Tell me who your heroes are
and I’ll tell you how you’ll turn out to be. The qualities of the one
you admire are the traits that you, with a little practice, can make
• Take action. If all you
do is meet with your
mentor, you’re not
going to get much from
your own, and that, if practiced, will become habit forming.”
the relationship. Even
WA R R E N B U F F E T T, Legendary investor
the best mentoring
relationship is a failure if
Warren Buffett, billionaire and University. Following in the footsteps you don’t follow through
chairman of Berkshire Hathaway, of these “heroes,” Buffett became one and act on what you’ve
knows the value of a mentor. Buffett’s of the wealthiest men in the world, learned.
father, a stockbroker, was his first eventually mentoring another one • Change it up. You may
mentor. He guided young Warren as of the wealthiest men in the world, find that you need
he spread his business and investing Bill Gates. different mentors as
wings at an early age. you progress through
Whatever your goals in life, if you different stages of life.
Buffett’s next mentor was Ben Graham, desire success, find a person who
One last thought:
author of The Intelligent Investor, has achieved success and follow in Mentoring is a cycle. Keep
and Buffett’s professor at Columbia their footsteps. it going and return the
favor of all the wisdom you
received from your mentor
JOURNAL QUESTION: VIDEO 4.2
by being willing to become
a mentor yourself someday.
Describe someone you consider to be a success. What qualities make
this person seem successful?
“
“As iron sharpens
iron, so one person
sharpens another.”
Proverbs 27:17
VIDEO 4.3
+
Job Search and Résumé Basics
TO FIND A JOB, EXPAND
THREE CIRCLES
Job Hunting
1. Geography: Be willing to
work a greater distance » Companies do not start out looking for .
23
from home or move to
another city if necessary.
They have a specific , and they need someone
24
3. Permanence: If a
full-time position is not
available, be willing to
Applying for a Job
work part time or as a
temporary employee.
When it is time to contact the you target the companies where you
company, think of it like starting a would most like to work, you are going
Small circles will limit you, new relationship with a person. After to contact them at least three times.
e.g., “I only want to work in
advertising in a full-time
position in Nashville.” 1. Introduction : The primary purpose of an
27
JOHN Q. PUBLIC
402111 Little Drive | Lamponia, TN 13579
johnp@email.com | 555.123.4567
RESULTS
Named “Employee of the Month” three times in the past year at Jeffrey’s Grille. Youngest coaching
assistant for Lamponia Middle School wrestling team. Saved a life through CPR. More to come.
EDUCATION
Washington High School
Projected graduation date: May 20XX | GPA: 3.4
WORK EXPERIENCE
YMCA, Lamponia (20XX–present)
• Ensured safety of all patrons at the swimming pool
• Coordinated swimming instructions for 50 students each summer
Jeffrey’s Grille, Lamponia (20XX–present)
• Managed prepping station for salads and fries
• Provided a clean dining environment by wiping off tables and cleaning dishes
VOLUNTEER POSITIONS
Coaching Assistant, Lamponia Middle School l Wrestling Program (20XX–20XX)
• Exercised quick decision-making skills to coach wrestlers during matches
• Planned and instructed practices, including skills training for 32 wrestlers
• Prepared facilities for tournaments including coordinating concessions, referees
and scorekeepers
EXTRACURRICULAR ACTIVITIES
Junior Varsity Wrestling Team, Lamponia High School (20XX–present)
Iron Man Award
Wrestling Clubs
Thompson County Wrestling Club, Hopeville Jr. Wrestling Club, Lamponia Wrestling Club
$
What do you think is the most important thing to remember when
looking for a job?
10 CAREER FIELDS
LIKELY TO FLOURISH
IN 2020
1. Data crunching
2. Counseling
and therapy
3. Scientific research
4. Computer engineering
VIDEO 4.4
5. Veterinarians
DAVE’S ANSWER: Experience is a great thing to parents feel comfortable with you caring for their
have when you’re looking for a job. Every employer child, surely a fast-food manager can trust you
wants to know that a potential employee can to flip a few burgers.
do the job.
If you’re in band, hold a seat on the student
But even if it’s your first “real” job, you probably council, or even play sports, these things can
have experience you didn’t think about. Baby- catch a manager’s eye. They all show that you’re
sitting is great experience. It’s even better if the willing to work, commit to something, and take
parents will give you a good recommendation. If on responsibility.
» Be organized. Bring extra copies of your résumé and great! But if you don’t, at
least you will have spent a
a notepad to jot things down. lifetime doing something
that was rewarding. Money
should never become your
» Keep it positive. Never say anything negative about past primary motivation.
Taxes on Income
and agencies such as the
military, public schools
and roads.
Income taxes are taxes paid out by On your pay stub, you will notice three
anyone who earns an income. April 15 taxes taken out or deducted from
is the day that income tax filings are your paycheck. These are commonly
due in the United States. If you have referred to as withholdings. When you +
overpaid throughout the year, you will are hired by a company, you will fill out
receive a tax refund. If it is determined a federal tax form called a W-4. The THE INTERNAL
REVENUE SERVICE (IRS)
that you have underpaid, you will have information on this form is the basis
The IRS is the federal
an additional tax payment due. You for determining how much income
government agency
will pay both federal and state income tax should be withheld from your responsible for tax
taxes (unless you live in a state that paycheck. Payroll taxes, as these are collection and tax law
does not have an income tax). Income commonly known, are a tax on income. enforcement. It was
taxes are often subject to deductions or Hence, you file an income tax return created during the Civil
credits based on individual financial with the government every year you War in 1862 to enact a
circumstances. earn income. national income tax to pay
for war expenses.
Taxes on Consumption
The primary taxes on consumption are sales and excise tax.
» Sales tax is tax on goods and services that goes to your
state or local government. Sales tax is used by states as a
source of their income, and each state sets its own tax rate.
Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a checkmark
next to the learning outcomes you’ve mastered. Review the Measure Your Progress section.
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
» Set goals.
1 2 3
Money in Review
Matching
Match the following terms to the correct definition below.
1. #_____ The process by which we “market” 4. #_____ A brief account of one’s professional or
ourselves to others; involves highlighting work experience and qualifications
personal strengths, interests and
unique qualities and identifying goals 5. #_____ Income generated by selling an
investment at a higher price than you
2. #_____ Taxes paid out by anyone who earns paid for it
an income
6. #_____ A federal insurance program funded by
3. #_____ A letter that is always accompanied by taxpayer dollars that provides benefits
a résumé; used to inform a prospective to people who are retired, unemployed
employer of your interest and or disabled
capabilities as they relate to a specific
employment opportunity 7. #_____ Any income (wages/salary) that is
generated by working
9. Once you’ve defined your dream, your goals 14. Would you do something you did not like
should be the practical application of how in order to make a higher income? Why or
you’re going to accomplish your dream. why not?
A True
B False
CHAPTER
something—big or small—they had
done to help others.
Giving
MAN Y HIGH SCHOOL students want to help
Identify ways in which giving benefits both the giver and » Philanthropy: Means “love of humanity”;
the receiver. identifying and exercising one’s values in
giving and volunteering
BEFORE AFTER
Agree Disagree Agree Disagree
Do you feel as though giving is an important part of your financial plan? Why or why not?
12
“
“You give but little
when you give of
your possessions. It
is when you give of
yourself that you
truly give.”
K A HLIL GIBR A N
Lebanese philosopher CHAPTER
Section 1: False Perceptions
DESCRIBE THE MOST
VIDEO 1.1
RECENT THING YOU
HAVE GIVEN TO OTHERS:
5
Sophomore, Maryland T H E F I F T H F O U N D AT I O N
not helping because it doesn’t seem like you can afford that the largest source
of charitable giving
it. You’ll give when you’re older, when you’ve got a bigger came from individuals
at $217.79 billion, or 73%
bank account. That’s when you’ll really be able to make a of total giving; followed
difference, anyway! by foundations ($41.67
billion/14%), bequests
» The fact is, you can get started right away with what ($24.41 billion/8%) and
corporations ($14.55
you’ve got . That means, if you’re working, you billion/5%).
4
can use a portion of your money to benefit someone else. National Philanthropic Trust
» But even if you don’t have money to give, you’ve still got
YOU! Start with what you have today and give of +
by volunteering your time and talents. CHARITABLE
5
ORGANIZATION: An
» Before you can help others, you’ve got to know your own
—the things that matter most to you.
9
Knowing what you value will help you income in your life right now, but
select an organization or charity to that doesn’t mean you have nothing
serve. If you can identify your talents, to offer. Giving can be in the form of
you can discover more specific ways time, money or abilities.
to serve. You may not have a steady
t
Now Lisp 3
Your To ities
qual
are the , 1 2 3
These lue the most
you va ur core
or yo
values.
3.
Here are some examples of how other high school Now think of one way
students have used their talents to help others: you could use one of your
» Charlene’s friends say that she has a kindness about her and
a gift for putting others at ease. She knows what it’s like to
be a new student in a big school because her family moved
when she was in middle school. Now she makes it a point to
reach out to other new students to make them feel welcome. “
“The happiest people
» Tim is excellent in math and offers free tutoring to his in the world are those
peers after school two days a week. who do the most for
others.”
» Frank is a star basketball player at his high school. On BOOKER T. WASHINGTON
American educator, author
“
Section 2: Make an Impact
VIDEO 2.1
“Money is neither my
god nor my devil. It
is a form of energy
that makes us more Open Hands Build Wealth
of who we already are,
whether it’s greedy Money is important, but people are with a clenched fist, it destroys your
or loving.” more important. Being wealthy is relationships. You end up placing more
not an end—it is a means to an end. value on money than people. So make
DA N MILLM A N
Former world champion
That end is helping people. The a decision right now to put people first.
athlete and author truth is, when you hold your money
» The joy of giving lasts longer than the happy feeling you
OUTREACH: The practice
of providing help and get when you spend money on .
13
advice to people in a
community before they » It’s okay to spend money on yourself. Just make sure you
have to ask for it
spend money to other people as well.
DONOR: Someone who 14
Start Here
To begin your journey toward financial success!
Make Giving a Priority TRANSPORTATION Budgeted
+
GIVING B Budgeted
Gas $
Giving is the first $
Charity
Car Insurance $
category in the Student $
Other: _____________________ Oil Changes $
TIPS FOR DONATING Budget form as a C GIVING TOTAL: $ $
License & Taxes
5. Make a long-term When you are doing your monthly budget, why do you think it is
commitment. Smart important to have “giving” placed at the very top?
donors support their
favorite charities
for the long haul.
Giving is one of the most important As you are working toward your
and rewarding parts of your financial
journey. Since you are going to make
financial goals, like saving your $500
emergency fund, money to give may
+
sure that you stay completely debt seem hard to come by. That’s when TIPS FOR DONATING
free, you will have that much more you can find creative ways to give. NON-CASH ITEMS
money to spend, invest and give. Just You can give your time, your talents,
1. Determine whether or
remember that money given produces your knowledge or your services to not the items you wish
more joy than it could ever buy! help other people. to donate are useful.
» When we give to others we are saying, “Right now the 3. Start locally to find the
right charity in order to
needs of this person matter .” That’s why giving avoid transportation
20
more than money—giving of yourself—is so powerful! costs that can lower the
impact of your donation.
you put some in, but you get much valuable than $5!
1.
2.
3.
» kindness » generosity
What you can do today—yes, even in high school—is ask $
yourself, How do I want to be remembered? There are approximately
1 million charitable
You can make a lot of money and be wildly successful; you organizations in the
can go after your dreams and accomplish each and every United States.
National Philanthropic Trust
one of them. But to what end? If you’re giving of yourself,
you’re building a legacy to be proud of. After all, your
is the impact you have on the world—and it
24
shows the world what really matters to you.
2
T H E S E C O N D F O U N D AT I O N
simple desire to help
others. However, since this
is a course on personal
Get Out of 26
3
to be aware of the great T H E T H I R D F O U N D AT I O N
tax benefits that come
with giving. Here are some
Pay 27
for Your Car
things you should know.
4
T H E F O U R T H F O U N D AT I O N
• A gift to a qualified
charitable organization Pay Cash for 28
may entitle you to a
charitable contribution
5
deduction against your T H E F I F T H F O U N D AT I O N
income tax if you itemize
deductions.
Build 29
and 30
• A contribution to a
qualified charity is We know that by following these steps, you will build
deductible in the year
in which it is paid. wealth. The sky is the ! As you do, be intentional
31
• Most, but not all, with your money. Take care of your needs and commit to
charitable organizations
qualify for a charitable helping others along the way! Keeping an open hand and an
contribution deduction. open means you will leave behind an amazing
32
• There are limits to how
much you can deduct,
legacy someday.
but they’re very high.
• Certain rules exist for
The bottom line is, as a high school student, you’ve got the
non-cash donations. opportunity to take all of the we’ve
33
• Remember to document taught you and apply them to your own situation. You control
your charitable
contributions. your future! That’s so exciting! You’ve got your whole life
ahead of you. Where you’re from, your family background,
what you’ve been told by others—those things don’t define you.
+ YOU define you. Success isn’t easy, but it’s
34
TAX DEDUCTION: A
for anyone who is willing to go after it.
reduction in the gross
amount of income on
which a tax is calculated So what will your future look like? What will your legacy be?
When have you been impacted because someone gave their time, Recent studies show that
money or talents to help you? How did this affect you? the majority of charitable
dollars go to churches
(32%), education (13%),
human services (12%),
and grant-making
foundations (9%).
National Philanthropic Trust
Chapter Summary
1
T H E F I R S T F O U N D AT I O N
2
T H E S E C O N D F O U N D AT I O N
3
T H E T H I R D F O U N D AT I O N
4
T H E F O U R T H F O U N D AT I O N
5
T H E F I F T H F O U N D AT I O N
1
2
3
4
5
Money in Review
Matching
Match the following terms to the correct definition below.
1. "_____ Organizations that use money raised 4. "_____ Anything handed down from the past;
to achieve their goals rather than something that someone has achieved
distributing them as profit that continues to exist after they are gone
2. "_____ Means “love of humanity”; identifying 5. "_____ Save a $500 emergency fund
and exercising one’s values in giving and
volunteering 6. "_____ Traits or qualities that represent an
individual’s highest priorities, deeply
3. "_____ Pay cash for college held beliefs and motivating forces; one’s
guiding principles
Illustration
Draw a picture representation of each of the following terms.
7. You have to wait until you have a large 12. Why is it important to give money, time
income before you can help others. or talents?
A True
B False
10. Is it better to give to many charities 15. If you could start a charity, what would it be?
or just a few? Who would you help and in what way? Why?
A Many
B Just a few
C Doesn’t matter
D None at all
11. What percentage of households give 16. How can giving to others have a positive
to charity? impact on you?
A 100%
B 20%
C 65%
D 5%
ATM card: Automated teller card which allows you to Branding: The promotion of a product or service by
make transactions in automated teller machines identifying it with distinct characteristics (usually
associated with public perception, quality or
Auction: A public sale in which property or items of effectiveness)
merchandise are sold to the highest bidder
Brand recognition/awareness: Refers to the public’s
Auto insurance: Insurance to protect a car owner in the ability to recall and recognize a brand by its logo, jingles,
event of an accident or damage to a vehicle packaging, etc.
Average annual return: The rate of return on investments Break-even analysis: Method used to evaluate the wisdom
averaged over a specific period of time. It is determined of a financial decision by determining the length of time it
by adding together the rates of return for each year and will take for the cost of the decision to be recouped
dividing by the number of years in the calculation
Budget: A written cash flow plan
B
Buyer’s remorse: Feeling regret or concern after
making a large purchase
Bargain: A deal obtained when negotiating and paying a Career: Your line of work
lesser price than asked for an item
Cash flow statement: A summary that shows total
Beneficiary: The recipient of assets passed on from the income and spending for a given time period
death of a friend or relative
Glossary 271
LICENSED TO: SHAWNEE MISSION EAST HIGH SCHOOL
Glossary
401(k): Defined contribution plan offered by a Adjustable rate mortgage (ARM): Home loan secured
corporation to its employees, which allows employees to by a deed of trust or mortgage in which the interest rate
set aside tax-deferred income for retirement purposes; will change periodically (i.e., annually); typically adjusted
in some cases, employers will match their contributions based on a published index such as the Treasury Bill or
LIBOR; brought on as a result of high interest rates in
403(b): Retirement plan similar to a 401(k) plan, but the early 1980s as a way for banks to transfer the risk of
one that is offered by non-profit organizations, such as higher interest rates to the consumer
hospitals, schools and some charitable organizations,
rather than corporations; employees set aside tax- Aggressive growth stock mutual fund: Mutual fund that
deferred dollars seeks to provide maximum long-term capital growth
from stocks of primarily smaller companies or narrow
457 plan: Non-qualified, deferred compensation plan market segments; dividend income is incidental; the
established by state and local governments for tax- most volatile fund; also referred to as a small-cap fund
exempt government agencies and tax-exempt employers;
eligible employees are allowed to make salary deferral Allowance: Money given to a child by his/her parent/
contributions to the 457 plan; earnings grow on a tax- guardian, typically on a weekly basis
deferred basis and contributions are not taxed until the
assets are distributed from the plan. Amoral: Lacking morals; neither good nor bad
529 plan: College savings plan that allows individuals Amortization table: Breakdown showing how much of
to save on a tax-deferred basis in order to fund future each regular payment will be applied toward principal
college and graduate school expenses of a child or and how much toward interest over the life of a loan; also
beneficiary; generally sponsored by a state, these are shows the gradual decrease of the loan balance until it
professionally managed investments reaches zero
12b-1 fee: An annual fee that some mutual funds charge Annuity: Contract sold by an insurance company,
to pay for marketing and distribution activities designed to provide payments to the holder at specified
intervals, usually after retirement; the holder is taxed
at the time of distribution or withdrawal, making this a
A
tax-deferred arrangement
Accelerated payment: Making bi-weekly payments on Annual percentage rate (APR): Cost of borrowing money
your mortgage that makes one additional payment on on an annual basis; takes into account the interest rate
your mortgage annually and other related fees on a loan.
Caveat emptor: Latin term for “buyer beware” Comprehensive: Pays for damage to your car that is not
a result of an accident
C.D.: Certificate of Deposit, usually at a bank; savings
account with a slightly higher interest rate because of a Consignment shop: Retail store where people sell items
longer savings commitment (i.e., six months, one year, etc.) and the owner of the shop gets a percentage of the sale
Chapter 7 Bankruptcy: Chapter of the Bankruptcy Code Consumer: A person or organization that uses a product
providing for liquidation of the debtor’s assets in order to or a service
repay the creditors; certain assets or aggregate value of
assets of the debtor may be exempt based on state law Contact letter: A letter informing a prospective employer
that you are interested in working for their company
Chapter 11 Bankruptcy: Reorganization bankruptcy,
usually involving a corporation or partnership; generally Contents insurance: Insurance policy that covers
includes a plan of reorganization to keep a business alive personal possessions in a home or apartment
and pay creditors over time
Conventional loan: Mortgage obtained through the
Chapter 13 Bankruptcy: Chapter of the Bankruptcy Federal National Mortgage Association (FNMA), which
Code providing for an individual to repay debts over insures against default; generally includes a down
time, usually three to five years; debtor makes periodic payment of 5-20% or more
payments to the bankruptcy trustee, who in turn pays
the creditors; sometimes includes adjustments to debt Copay: In regards to health insurance, paying a set
balances within the bankruptcy amount per medical visit
Checking account: Account set up to maintain daily Core values: Traits or qualities that represent an
financial activities. Users can draft checks for payment, individual’s highest priorities, deeply held beliefs, and
issue deposits into their accounts, and keep track of their motivating forces; one’s guiding principles
debit card transactions through their checking account.
Cost-benefit analysis: The process of quantifying costs
Claim: Paperwork filed with an insurance company in and benefits of a decision
order to get them to cover a loss for someone they insure
Cover letter: Similar to a contact letter but is used to
Co-insurance: In a health insurance policy, after you pay inform the prospective employer of your interest and
the deductible the insurance company pays a percentage capabilities as they relate to a specific employment
and you pay a percentage; 80/20–insurance pays 80% opportunity; always accompanied by a résumé
and you pay 20%
Coverage: Applies to the amount of protection you have
Collision: Portion of auto insurance that covers losses through an insurance company in the event of a loss
due to vehicle damage in an accident
Cosigning: Offering to guarantee someone else’s loan;
Commission: A fee paid for providing a service becoming responsible for loan repayment if the borrower
defaults
Commodities: A food, metal or fixed physical substance
that investors buy or sell, usually via future contracts Credit: The granting of a loan and the creation of debt;
any form of deferred payment
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D
Disability insurance: Policy that insures a worker in the
event of an occupational mishap resulting in disability;
compensates the injured worker for lost pay
Day trading: Establishing and liquidating the same Disposable income: Amount of money left over after all
position or positions within one day’s trading necessities and expenses are paid
Debit card: Type of card, often bearing the seal of a major Dividend distribution: Payment of income to mutual
credit card company, issued by a bank and used to make fund shareholders from interest or dividends generated
purchases; unlike a credit card, the money comes directly by the fund’s investments
out of a checking account; also called a check card
Diversification: The practice of dividing the money
Debt: An obligation of repayment owed by one party (the a person invests between several different types of
debtor/borrower) to a second party (the creditor/lender); investments in order to lower risk
in most cases this includes repayment of the original
loan amount plus interest Dividend: Distribution of a portion of a company’s
earnings, decided by the board of directors, to a class
Debt consolidation: Act of combining all debts into one of its shareholders; generally distributed in the form of
monthly payment, typically extending the terms and the cash or stock
length of time required to repay the debt
Down payment: The part of the purchase price of a
Debt snowball: Preferred method of debt repayment; property that the buyer pays in cash and does not finance
includes a list of all debts organized from smallest to with a mortgage
largest balance; minimum payments are made to all
debts except for the smallest, which is attacked with the Duplicate checks: Type of checks that make duplicate
largest possible payments. copies as you write them out
E
receiving any benefits from your insurance company
Deed: The legal document conveying title to a property Earned income: Any income (wages/salary) that is
generated by working
Deflation: A broad, overall drop in the price of goods and
services; the opposite of inflation Economy: A system by which goods and services are
produced and distributed
Delinquency: Broadly refers to not being current on your
payments Educational Savings Account (ESA): After-tax college
fund that grows tax-free for educational uses; eligibility
Depreciation: A decline in the value of property; the based on parents’ annual income
opposite of appreciation
Elimination period: Amount of time that lapses after a
Direct deposit service: A service that electronically disabling event before the insurance company begins to
transfers all or part of any recurring payment, including pay benefits
dividends, paychecks, pensions and Social Security
payments directly to a shareholder’s account Emergency fund: Five hundred dollars in readily
available cash to be used only in the event of an
Direct transfer: Movement of tax-deferred retirement emergency; the goal of the First Foundation
plan money from one qualified plan or custodian to
another; results in no immediate tax liabilities or Employee benefit: Something of value that an
penalties, but requires IRS reporting employee receives in addition to a wage or salary.
Examples include health insurance, disability insurance,
discounted childcare, etc.
Excise tax: A tax levied on the purchase of certain Financial literacy: The knowledge and skill base
non-essential consumer goods such as tobacco, airline necessary to be informed consumers and manage their
tickets, etc. finances effectively
Expense: The cost of goods or services Financial plan: A plan of action that allows a person
to meet not only the immediate needs but also their
Expense ratio: The percentage of a fund’s average long-term goals
net assets used to pay annual fund expenses. The
expense ratio takes into account management fees, Financial resources: Financial assets that can be
administrative fees, and any 12b-1 marketing fees accessed when necessary
Extended replacement cost: Part of homeowner’s Financing: To buy an item with credit; paying over time
insurance policy that pays a percentage beyond the
insured price of the home for purposes of rebuilding it Fiscal: Having to do with money
in the event of a catastrophic loss. If you do not update
this, it will not cover the appreciation of your home (e.g. Fiscal year: Accounting period covering 12 consecutive
house is insured for $200,000, but the value goes up to months over which a company determines earnings and
$300,000, you are covered for the $200,000 plus whatever profits. The fiscal year serves as a period of reference for
the coverage states). the company and does not necessarily correspond to the
calendar year.
F
Five Foundations: The five steps to financial success
Federal Deposit Insurance Corporation (FDIC): A Fixed income securities: Investments, such as bonds,
federal institution that insures bank deposits which provide current income from a fixed schedule of
interest payments. While the level of income offered by
Federal Housing Administration (FHA): Federally these securities is predetermined and usually stable,
sponsored agency chartered in 1934 whose stock is their market value may fluctuate
currently owned by savings institutions across the United
States. The agency buys residential mortgages that Fixed rate: An interest rate that does not change over time
meet certain requirements, sells these mortgages in
packages, and insures the lenders against loss.
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GLOSSARY
Forbearance: Agreement of a lender to suspend Gratuity: An amount paid beyond what is required
foreclosure proceedings and allow a debtor to “catch up” usually to express satisfaction with service quality; also
a past due account over a specified period of time; lender known as a tip
grants a postponement of loan payments for a set period
of time, giving the borrower time to make up for overdue Gross income: A person’s total income prior to
payments withholdings and deductions
Foreclosure: Process by which the holder of a mortgage Gross National Product (GNP): Measures an economy’s
sells the property of a homeowner who has not made total income. It is equal to Gross Domestic Product,
interest and/or principal payments on time as stipulated plus the income abroad accruing to domestic residents,
in the mortgage contract minus income generated in domestic market accruing to
non-residents.
Fraud: A seller’s intentional deception of a buyer, which
is illegal Growth and income mutual fund: A fund that buys
stocks in larger, more established companies, medium-
Free Application for Federal Student Aid (FAFSA): sized companies or growth stocks; also called a large-
A form that is completed annually by current and cap fund
prospective college students to determine their eligibility
for financial aid Growth stock mutual fund: A fund that buys stock in
medium-sized companies that have experienced some
Free spirit: A person who thinks that everything will growth and are still expanding; also called a mid-cap
work out fine and typically hates to deal with the details fund
Front-end load: Sales commission that is paid up-front Guaranteed renewable: If you have a 20-year policy,
when shares of a mutual fund are purchased the insurance has to provide coverage after 20 years
regardless of health; it will only be more expensive
Fund family: A group of mutual funds sponsored by the because you are older
same organization, often offering exchange privileges
between funds and combined account statements for Guaranteed replacement cost: Part of homeowner’s
multiple funds insurance policy that pays for the full cost of replacing
damaged property without a deduction for depreciation
Futures: A term used to designate all contracts covering and without a dollar limit
the sale of financial instruments or physical commodities
for future delivery on a commodity exchange
H
G Health insurance: Covers you in the event of illness or
injury
Garnishment: Court-ordered attachment that allows a
lender to take monies owed directly from a borrower’s Health savings account (HSA): A health insurance plan
paycheck; only allowed as part of a court judgment for self-employed people containing a large deductible.
Money saved in this account grows tax deferred. It can
Goal: The result of achievement toward which effort is be used for medical care with no penalties and no taxes,
directed and may be kept if unused.
Grace period: Time period during which a borrower can Home equity loan (HEL): Credit line offered by mortgage
pay the full balance of credit due with no finance charges lenders that allows a homeowner to borrow money
against the equity in their home
Grant: A form of federal or state financial aid that does
not need to be repaid; usually given to students who Home warranty: An agreement that ensures the
demonstrate financial need structural soundness of a home
I
Interest rate: Percentage paid to a lender for the use
of borrowed money (in debt); percentage earned on
invested principal (in investing)
Impulse purchase: An item that is bought without previous Interest rate risk: The risk that a security or mutual
planning or consideration of the long-term effects fund will decline in price because of changes in market
interest rates
Income: Earnings from work or investment
Internal Revenue Service (IRS): Federal agency
Income fund: A mutual fund that invests in bonds and responsible for the collection of federal taxes, including
stocks with higher than average dividends personal and corporate, Social Security, and excise and
gift taxes
Income risk: The possibility that income from a mutual
fund or other investment will decline either as a fund’s International stock mutual fund: Mutual fund that
assets are reinvested or when a fixed income investment contains international or overseas companies
matures and is replaced with a lower-yielding investment
Introductory rate: An interest rate charged to a
Income tax: Tax paid out by anyone who earns an income customer during the early stages of a loan; the rate often
goes up after a specified period of time
Index: A statistical benchmark designed to reflect
changes in financial markets or the economy. In Investing: The process of setting money aside to
investing, indexes are used to measure changes in increase wealth over time for long-term financial goals
segments of the stock and bond markets and as such as retirement
standards against which fund managers and investors
can measure the performance of their investment Investment: Account or arrangement in which a person
portfolios. puts his/her money for long-term growth; invested
money should not be used for a suggested minimum of
Index fund: A mutual fund that seeks to match the five years
performance of a predetermined market benchmark or
index Investment advisor/manager: The individual who
manages a portfolio of investments; also called a
Individual retirement arrangement (IRA): Tax-deferred portfolio manager or a money manager
arrangement for individuals with earned income and
their non-income-producing spouses; growth is not Investment objective: A mutual fund’s performance
taxed until money is withdrawn; contributions to an IRA goal, such as long-term capital appreciation, high
are often tax-deductible current income, or tax exempt income
Inflation: Rate at which the general level of prices for Investors: People investing in securities, such as stocks
goods and services rise and bonds, or other investments, to achieve long-term
financial goals
Inflation hedge: An asset rising in value, which helps
one to keep up with the rising cost of inflation. Real Interview: A meeting between an employer and an
estate can be a great inflation hedge. applicant; the employer asks the applicant questions to
assess whether he or she has the right social skills and
Integrity: Having to do with a person’s honesty and intelligence suitable for the workplace
moral attributes
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GLOSSARY
J
Loan to value (LTV): Value of a property versus the
amount borrowed against it; example: a 70/30 LTV
means that the property owner owes 70% of the item’s
worth and owns 30% of the item’s worth
Job: A regular activity performed in exchange for payment,
especially as one’s trade, occupation, or profession Long-term care insurance: Policy that covers the cost
of nursing home or in-home care; recommended for
everyone over age 60
L
Long-term coverage: Coverage for an extended period
of time
M
Level term: This means you pay the same amount for
the entire term of the policy
Life insurance: Type of insurance designed to replace Market risk: The possibility that an investment will fall
income lost due to death; traditionally two types: term in value due to a general decline in financial markets
and cash value
Markup: The difference between the wholesale price and
Liquidity: Quality of an asset that permits it to be retail price
converted quickly into cash without loss of value;
availability of money Maximum pay: The amount an insurance company will
pay before you are dropped from coverage. With health
Loan: Temporary borrowing of a sum of money insurance keep at least a one million dollar maximum pay
Load fund: Mutual fund that sells shares with a sales Medicare: Federal government program that pays for
charge of typically 2-6% of the net amount sold; some certain health care expenses for citizens 65 or older;
no-load funds also levy distribution fees permitted by managed by the Social Security Administration
Article 12b-1 of the Investment Company Act. These are
typically 0.25%; a true no- load fund has no sales charge. Mid-cap fund: Mutual fund containing a group of
medium-sized companies that are growing
Loan term: Time frame that a loan agreement is in force,
and before or at the end of which the loan should either Money: Currency and coin that are guaranteed as legal
be repaid or renegotiated for another term tender by the government
Mutual fund: Pool of money managed by an investment Owner financing: Type of home loan in which the
company and invested in multiple companies, bonds, existing owner acts as the mortgage holder; payments
etc.; offers investors a variety of goals depending on the are made to the owner rather than to a mortgage
fund and its investment charter; often used to generate company or bank
income on a regular basis or to preserve an investor’s
money; sometimes used to invest in companies that are Overdraft: Occurs when money is withdrawn from a
growing at a rapid pace bank account and the available balance goes below zero
P
N Paradigm: Your belief system; the way you see or
perceive things
Need: Economic goods and services that are basic for
living such as food, clothing, and shelter Passive income: Money earned on a regular basis with
little or no effort required to maintain it. Some things
Negotiate: To bargain for a lower price that produce passive income are real estate, intellectual
property like books or internet content, or a business in
Nerd: A person who is picky about budgeting and details which the owner is not actively involved.
Nest egg: Sum of money earmarked for ongoing living Pawn shop: Retail establishment selling items that have
expenses at retirement or when employment income been traded as security for a cash loan
otherwise stops
Payroll deduction: Amount subtracted from a paycheck,
Net asset value (NAV): The market value of a mutual either by government requirement (mandatory taxes,
fund’s total assets, less its liabilities, divided by the Social Security, etc.) or at the employee’s request (health
number of outstanding shares insurance, retirement plan, etc.)
Nonprofits: Organizations that use money raised to Permanent disability: Disabilities that are ongoing and
achieve their goals rather than distributing them as profit are not expected to end
No-load mutual fund: Open-ended investment company Personal branding: The process by which we “market”
whose shares are sold without a sales charge; might ourselves to others; involves highlighting personal strengths,
include other distribution charges, such as Article 12b-1 interests and unique qualities and identifying goals
fees, but a true no-load fund has neither a sales charge
nor a distribution fee
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GLOSSARY
Personal finance: The decisions which an individual or Pro rata: Debt repayment plan by which the borrower
a family unit is required to make to obtain, budget, save, repays each lender a fair percentage of the total debt
and spend money over time owed when one cannot make the minimum payments on
one’s debt
Philanthropy: Means “love of humanity”; identifying and
exercising one’s values in giving and volunteering Prospectus: Official document that contains information
required by the Securities and Exchange Commission to
Policy: Describes the type of coverage in an insurance describe an investment
agreement
R
Portfolio: A list of your investments
Portfolio transaction costs: The costs associated with Rate of return: Return on an investment expressed as a
buying and selling securities, including commissions on percentage of its cost; also called yield
trades, dealer mark-ups on bonds, bid-asking spreads,
and any other miscellaneous expenses. These costs are Realtor: An intermediary who receives a commission
not included in the expense ratio. for arranging and facilitating the sale of a property for a
buyer or a seller; also referred to as a Real Estate Broker
Pre-authorized checking (PAC): System of automatic or an Agent
payment processing by which bills, deposits, and
payments are handled electronically and at regular Reconcile: To match your bank statement with your
intervals or on a predetermined schedule checkbook
Pre-paid tuition: Paying for college ahead of time by Redemption fee: Fee charged by some mutual funds for
accumulating units of tuition selling (redeeming) shares
Pre-tax retirement plan: A type of retirement plan Refunding: Sending in proofs of purchase to receive
where you put money in before taxes have been taken cash back or free gifts
out, but must pay taxes on the money at the time of
withdrawal Reinvestment: Use of investment income or dividends to
buy additional shares
Premium: Amount you pay monthly, quarterly, semi-
annually or annually to purchase different types of Rent: Periodic fee for the use of property
Insurance
Rental real estate: Buying real estate to rent out as an
Principal: Original amount of money invested, excluding investment
any interest or dividends; also called the face value of
a loan Renter’s insurance: Type of insurance that provides
coverage for accidents, damages and losses in a rental
Priority: Level of high importance or great urgency (apartment or house) or dormitory. Renter’s insurance
provides coverage for personal belongings and liability
Private mortgage insurance (PMI): Policy paid by the that may occur from an accident in the insured home
mortgage borrower that protects the lender against loss
resulting from default on a mortgage loan Replacement cost: Insurance that pays the actual
cost of replacing your home and its contents after a
Profit: The positive difference between total revenue catastrophic event
from a business or investment minus total expense
Repo lot: A place where items that have been
Property taxes: Taxes paid by anyone who owns property repossessed are offered for sale
such as land, a home or commercial real estate
Rule of 72: A quick way to calculate the length of time Self-esteem: A confidence and satisfaction in yourself
it will take to double a sum of money. Divide 72 by the
expected interest rate to determine the number of years Self-insured: Condition of wealth at which time one no
(72 divided by 8% = 9 years). longer needs an outside insurance policy to cover a loss
Rule of 78: Pre-payment penalty in a financing contract; the Share: Piece of ownership in a company, mutual fund or
portion of a 90-days-same-as-cash agreement that states other investment
that the entire loan amount plus the interest accumulated
over the first 90 days becomes due immediately Short-term disability: Minimal period of incapacitation;
often used to describe an insurance policy that insures
one’s income for the immediate future following an
S
incapacitating event
Salary: Payment for work, usually calculated in Significant purchase: An amount of money you spend,
periods of a week or longer. Salary is usually tied to the usually $300, that causes some pain to part with
completion of specific duties over a minimum, but not
maximum, number of hours. (See wage.)
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GLOSSARY
T
Simple interest: Interest credited daily, monthly,
quarterly, semi-annually, or annually on principal only,
not previously credited interest
Simple IRA: Salary deduction plan for retirement Take-home pay: The amount of money one has available
benefits provided by some small companies with fewer after taxes have been taken out of their pay; total wage,
than 100 employees salary, commissions, and/or bonuses minus payroll
deductions
Simplified employee pension plan (SEPP): Pension plan
in which both the employee and the employer contribute Tax: A government fee on business and individual
to an individual retirement account; also available to the income, activities, products, or services
self-employed
Tax credit: An amount that a taxpayer who meets certain
Sinking fund: Saving money over time for a large purchase criteria can subtract from tax owed
Small-cap fund: Mutual fund that invests in companies Tax deduction: Expense that a taxpayer is allowed to
whose market value is less than $1 billion; largely deduct from taxable income; examples include money
consists of smaller, more volatile companies; also called paid as home mortgage interest and charitable donations
aggressive growth stock mutual fund
Tax deductible: The effect of a tax deduction, such as
Social Security: A federal insurance program funded by charitable contributions and mortgage interest
taxpayer dollars that provides benefits to people who are
retired, unemployed or disabled Tax-deferred income: Dividends, interest, and
unrealized capital gains on investments in a qualified
Speculative: Purchasing risky investments that present account, such as a retirement plan, in which income is
the possibility of large profits, but also pose a higher- not subject to taxation until a withdrawal is made
than-average possibility of loss
Tax exempt: Investments whose earnings are free from
Stock markets: tax liability
» National Association of Securities Dealers Automated Tax exemptions: Amount that a taxpayer who meets
Quotation System (NASDAQ): The electronic stock certain criteria can subtract from a taxable income; see
exchange run by the National Association of Securities tax credit and tax deduction
Dealers for over the counter trading. Established in
1971, it is America’s fastest growing stock market and Tax-favored dollars: Money that is invested, either tax
a leader in trading foreign securities and technology deferred or tax free, within a retirement plan
shares. The NASDAQ uses market makers who trade for
their own account and profit on the spread between bid Taxable income: Income subject to tax; total income
and ask prices. Although once the province of smaller adjusted for deductions, exemptions and credits
companies, NASDAQ today is where many leading
companies are traded. Teamwork: Cooperative and coordinated effort on the
part of a group of persons acting together in the interest
» New York Stock Exchange (NYSE): The NYSE traces of a common goal
its origins back more that 200 years to the signing
of the Buttonwood Agreement by 24 New York City Term insurance: Life insurance coverage for a specified
stockbrokers and merchants in 1792. The NYSE period of time
utilizes a trading floor for traditional exchanges where
buyers and sellers meet directly–that is, brokers Time poverty: A situation in which a person is lacking
representing investors on each side of the transaction time, which leads to stress
come together on a price.
Timeshare: A form of vacation property ownership
Stocks: Securities that represent part ownership or where a company sells a small segment of time (usually
equity in a corporation a week) to a customer. The use and costs of running the
property are shared among all of the customers, now
Stop-loss: Total out-of-pocket expense for health owners, who bought into the timeshare.
insurance; once reached, insurance will pay 100 percent
V
Total return: The change in percentage over a particular
period in the value of an investment; including any
income from the investment and any change in its
market value
Veterans Administration (VA) loan: Type of mortgage
Track record: The past history of something; with loan designed to benefit veterans that allows for a true
investments, look at the five or ten year record zero-down mortgage; generally more expensive than a
conventional mortgage
Turnover rate: A measure of a mutual fund’s trading
activity. Turnover is calculated by taking the lesser of Value fund: Mutual fund that emphasizes stocks of
the fund’s total purchases or total sales of securities companies whose growth prospects are generally
(not counting securities with maturities under one year) regarded as sub-par by the market, resulting in stocks
and dividing by the average monthly assets. A turnover typically priced below average based on such factors as
rate of 50% means that during a year, a fund has sold revenue, earnings, book value, and dividends
and replaced securities with a value equal to 50% of the
fund’s average net assets. Value system: A person’s priorities, beliefs and
standards that affect how he or she views the world
U
Variable annuity: Annuity that has a varying rate of
return based on the mutual funds in which one has
invested; also see annuity
W
that provides a tax-effective manner of transferring
property to minors without the complications of trusts or
guardianship restrictions
Universal life: Type of life insurance policy, similar to Wage: Payment for work, usually calculated in periods of
cash value, but with better projected returns an hour rather than longer (see salary)
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GLOSSARY
Y
Yield: The annualized rate at which an investment earns
income, expressed as a percentage of the investment’s
current price
Z
Zero-based budget: A cash flow plan that assigns an
expense to every dollar of your income, wherein the total
income minus the total expenses equals zero