Personal Finance!

{Personal Finance!

Unit 5Economics

Money in exchange for work or from assets “working” for you

70% of Americans income comes from work

There are other sources such as savings, stocks, land and rental property

Qa

Demand for Jobs! Dental hygienists will be in huge

demand increasing their salary Flip side: need for TV & radio

announcers going down, which salary for it also goes down!

Other factors: Natural abilities, work hard, get along with others & self-disciplined!

Qb

Human capital = set of intangibles such as knowledge, skills, talent all also related to income differences!

Qc

Relationship between education & income from work:Higher education generally leads to higher income!

Individuals must invest in own human capital by getting more education!Qd

2008: High school graduate: $27,963 Vs. HS drop out: $20,246 Difference = $7,717 Over a 40 year career = $308,680 Heck yes, it pays to stay and finish = lot

more income, which means more needs & wants met!

Qe,f,g

Now lets take a bit higher College graduate: $48,097 HS graduate: $27,963 Difference = $20,134 Over a 4 year career = $805,360 Education is a great but costly investment!

Qh,I,j

Insurance! http://www.youtube.com/watch?v=zV5D8f49ZUY

Personal FinanceEconomics!

Various ways to deal with potential personal or financial loss, hence the need for Insurance!

Risk Management!

The payment you make to an insurance company in exchange for its promise of protection and help.

Insurance Premium

The amount of the loss you must pay out of your own pocket before the insurance company begins to reimburse you!As low as $100 to $1,000

Deductible

Mandatory for those who drive a car! Georgia law: “all drivers must have some level of coverage for altercations on the road!”

Auto Insurance

Liability Insurance: It pays for bodily injury to other people and damage to property Pays for other people’s law suit against you & car repairs and hospitalization for those you hit! NOT YOU!

Auto Insurance

Medical Payments: coverage that protects you, your family members and anyone riding with you in your car!

Auto Insurance

Uninsured motorist: one without insuranceif one hits you, your own insurance has to pay for it

Auto Insurance

Underinsured: a policy on yourself that protects you in case another motorist does not have enough coverage

Auto Insurance

Collision: Coverage that pays to repair your car if it’s damaged in an accident by colliding with another vehicle or object!Deductible does apply here!

Auto Insurance

Protects you from everything except a collision, such as damage caused by theft, hail, flood, vandalism, etc.

Auto Insurance

Pays for medical bills in case of illness or injury! Usually as part of employee benefit package (group policy) You can be a dependent now on

parents policy until 26, after that must get own policy (individual policy)

Policies will cover you through college as long as full time student!

Health Insurance

Protects your material possessions (clothes, TV, appliances, furniture, bike, computer etc.) against fire, theft, flood!

Homeowners ins. Also protects property against damages listed above

Renters ins.: protects your stuff & not building when you rent! Deductibles do apply here!

Property Insurance

Protects people who depend on you in case of your untimely death. Not recommended for single

people Married but wife works, maybe

you need it! Married with children, stay home

mom, definitely need it! 2 types:

Term: pure protection Whole life: offers protection,

and a savings accountLife Insurance

AFLAC! Pays your income from a job if you are sick

or physically unable to work for long periods of time (mainly for food, gas, utilities & rent) Pays 60% to 70% of your full time wage

Short term: good for up to two years Long term: from one year up to

retirement For many, even more important

than life ins.

Disability Insurance

Protection against Lawsuits! Protects from costly legal

fees & multi-thousand dollar settlements

Usually part of homeowner “umbrella” policy

Protects all areas of life!

Liability Insurance

Credit! http://www.youtube.com/watch?v=cjrG1Qz

nxLY

Personal Finance!

The Rise/Fall of American Economy

It allows you to obtain the use of money you do not have:

Not free, or magic money, comes @ at a fee

Why Use credit?

1. Helps people acquire assets (good/services that retain or increase value ex. House, jewelry etc.)

2. Happier life by allowing one to acquire a want now and pay during use or later, no waiting!

Advantages of credit

1. Irresponsible use leads to large fees over long periods of time

2. using too much credit in relation to income

Disadvantages of Credit

Financial Institutions: Commercial Banks (Wells Fargo, Bank of

Am. Etc.) Saving & Loans institutions (one

depositors savings there becomes another's loan)

Credit Unions (by Professional Org. for members) ex. Fulton Teacher’s Credit Union

Consumer Finance Companies: Companies like BestBuy & Kohl’s etc… offer

financing for their products for

Sources of Credit

The fee that the financial institutions charge customers seeking a loan

Or A fee a financial institution pays a

customer for letting it store and loan out its money

What is interest?

Both sides: The customer using credit: gets

something of value that he/she values The Lender: gets full money back plus

the interest fee However, who bares all the risk?

Winners of credit trans.

The Higher the risk: the probability of you paying back the loan, plus interest in a set time, the higher the interest, or no loan!

The lower the risk: have assets of value or a good long history of borrowing & paying back, the lower the interest!

Risk & Interest

Secured loan: A loan that is backed by assets of value

are secured loans because in case of default the asset can be sold to pay it off = lower interest rate!

Unsecured loan: A loan that is not backed by anything,

making it much more risky = higher interest rate!

Secured vs. Unsecured Loan

Those assets of value such house, car, expensive jewelry, antiques, art work etc… that are used to back up secured loans!

Its 6th period, you lie to Mr. Pak and say you need to use the bathroom so you can get out of parking lot earlier, Mr. Pak calls you out on it and says you can only go if you leave your phone here with me, your phone becomes collateral as you are a high risk loan! Get it? Suddenly the urgency of bathroom use, GONE!

What is collateral?

Savings & Investments!

Personal Finance!

A place for people to deposit their paycheck or enough money for monthly access to take care of everyday needs

Extremely low to no interest No/Low risk FDIC

Checking Account

A place to store a short term rainy day fund for emergencies and such, also to serve as draft protection in linkage to checking account

Very small interest rate Low risk/no risk FDIC

Savings Account

A larger version of savings/checking account, with limited accessibility, and plan to keep in place for longer period

Low interest rate Low risk FDIC

Money Market Account

A loan to a bank for a fixed period of time at a fixed interest rate, it can be set at different increments, and time periods, can be rolled over

Low interest rate of 0.5% to 1.5% Low risk FDIC

Certificate of Deposit (CD)

Long term investments by anyone as a one time deal for retirement purposes, usually for those without a plan offered by their employer, or as a supplemental to those with an employer plan (401 K)

Annual maximum contribution of $3500 Medium to high potential for growth Risky depending on content of investment

Individual Retirement Account (IRA, ROTH)

Ownership in public companies, buy shares of company in hope that they appreciate in value, potential for very large growth over a long period of time

Very high risk, high reward Probably the best investment option and

most popular

Stocks!

IOUs by companies and government as a way of borrowing money, paid back with interest, over a set time period, at varying increments

The longer the time, higher the interest Low risk for government, medium to high

for corporate

Government/Corporate Bonds

Pooling of money by a few investors to purchase a basket of different investments, some to produce income, some for long term growth & retirement

Ran by a fund manager does all buying/selling Allows for diversification in a variety of

investments

Mutual Funds

Buying of property (land or buildings) in hope of generating a profit; the idea is also appreciation of value of land and building!

Imagine if in 1985 you had bought 1000 acre of land in city of Milton for less than $300,000, how much today?

MILLIONS!!!!!!!!!

Real Estate!

Unique items that are relatively rare in number!

Not many deal in it so Very high risk Prices very volatile Paintings, sculptures, baseball cards,

antiques, classic cars, beanie babies, cabbage patch dolls etc….

Collectibles!