Personal Finance Personal Finance EconomicsEconomics

SSEPF1 The student will apply rational decision SSEPF1 The student will apply rational decision

making to personal spending and saving choices.making to personal spending and saving choices. a. Explain that people respond to a. Explain that people respond to

positive and negative incentives in positive and negative incentives in predictable ways. predictable ways.

b. Use a rational decision making b. Use a rational decision making model to select one option over model to select one option over another. another.

c. Create a savings or financial c. Create a savings or financial investment plan for a future goal.investment plan for a future goal.

a. Explain that people respond to positive and a. Explain that people respond to positive and negative incentives in predictable ways.negative incentives in predictable ways.

People will decide to perform an act if People will decide to perform an act if offered a positive incentiveoffered a positive incentive Ex. Complete chores for an allowanceEx. Complete chores for an allowance

People will decide not to perform a People will decide not to perform a task if offered a negative incentivetask if offered a negative incentive

- Ex. Most people do not commit - Ex. Most people do not commit crimes because of the fear of going to crimes because of the fear of going to jailjail

b. Use a rational decision making model b. Use a rational decision making model to select one option over another. to select one option over another.

Decision making modelDecision making model AlternativeAlternative AlternativeAlternative

Choice 1- Choice 1- Sleep late Sleep late Choice 2Choice 2 –wake up early to –wake up early to studystudy

BenefitsBenefits Enjoy more sleepEnjoy more sleep

Have more energy during the Have more energy during the dayday

Better grade on testBetter grade on test

Teacher and parental approvalTeacher and parental approval

Personal satisfactionPersonal satisfaction

DecisionDecision Sleep lateSleep late wake up early to studywake up early to study

Opportunity CostOpportunity Cost Extra study timeExtra study time Extra sleep timeExtra sleep time

Benefits ForgoneBenefits Forgone Better grade on testBetter grade on test

Teacher and parental approvalTeacher and parental approval

Personal satisfactionPersonal satisfaction

Enjoy more sleepEnjoy more sleep

Have more energy during the Have more energy during the dayday

c. Create a savings or financial c. Create a savings or financial investment plan for a future goal.investment plan for a future goal.

What I wantWhat I want What It CostsWhat It Costs What I Can DoWhat I Can Do When I Can When I Can Get ItGet It

Short-Term Short-Term Goal Goal (achievable in 6 (achievable in 6 months or less)months or less)

Prom dressProm dress $200$200 Earn and save Earn and save $20/ week from $20/ week from baby sittingbaby sitting

10 weeks from 10 weeks from nownow

Long- Term Long- Term Goal (takes a Goal (takes a year or more to year or more to save for)save for)

Used carUsed car $2000$2000 Save $10/week Save $10/week from allowance from allowance and get after-and get after-school job; school job; save $30/weeksave $30/week

1 year from 1 year from nownow

SSEPF2 The student will explain that banks and SSEPF2 The student will explain that banks and other financial institutions are businesses that other financial institutions are businesses that

channel funds from savers to investors. channel funds from savers to investors. a. Compare services offered by a. Compare services offered by

different financial institutions. different financial institutions. b. Explain reasons for the spread b. Explain reasons for the spread

between interest charged and interest between interest charged and interest earned. earned.

c. Give examples of the direct c. Give examples of the direct relationship between risk and return. relationship between risk and return.

d. Evaluate a variety of savings and d. Evaluate a variety of savings and investment options; include stocks, investment options; include stocks, bonds, and mutual funds. bonds, and mutual funds.

a. Compare services offered a. Compare services offered by different financial by different financial

institutions.institutions.TypesTypes DescriptionDescription ServicesServices

Commercial banksCommercial banks For indiv. And businessFor indiv. And business Checking, savings, money Checking, savings, money market, CD, loansmarket, CD, loans

Savings & LoanSavings & Loan Intended for home Intended for home owners- long term owners- long term financingfinancing

Mortgages, savingsMortgages, savings

Savings BanksSavings Banks Deposits and low risk Deposits and low risk investmentsinvestments

Gov’t bonds, and some Gov’t bonds, and some offer services like offer services like commercial bankscommercial banks

Credit UnionsCredit Unions Non profit owned by their Non profit owned by their membersmembers

Checking, savings, low Checking, savings, low rate loansrate loans

b. Explain reasons for the spread b. Explain reasons for the spread between interest charged and interest between interest charged and interest

earned.earned. In its basic form, banks take the money deposited in them and In its basic form, banks take the money deposited in them and

loan out a portion of these savings to people who apply for loan out a portion of these savings to people who apply for them. By charging interest on the loans, banks make money. them. By charging interest on the loans, banks make money. The more money on deposit, the more loans they can make, The more money on deposit, the more loans they can make, which is why some banks offer very generous checking which is why some banks offer very generous checking policies. The interest on the loans is always more than the policies. The interest on the loans is always more than the interest paid out to depositors for their money; if it wasn’t, a interest paid out to depositors for their money; if it wasn’t, a bank would go out of business very quickly. bank would go out of business very quickly.

Ex. They may charge you 5% interest on a loan and pay out Ex. They may charge you 5% interest on a loan and pay out 3% interest to depositors. The bank would make a 2% profit3% interest to depositors. The bank would make a 2% profit

c. Give examples of the direct c. Give examples of the direct relationship between risk and relationship between risk and

return.return. Whatever the investment, in finance, with risk Whatever the investment, in finance, with risk

comes reward. People willing to invest money comes reward. People willing to invest money in riskier ventures—such as young companies in riskier ventures—such as young companies in emerging fields—run a high chance of in emerging fields—run a high chance of losing their entire investment, but they also losing their entire investment, but they also stand to make the most of their investment if stand to make the most of their investment if the venture is successful. So high risk, high the venture is successful. So high risk, high return and low risk, low return.return and low risk, low return.

Risk vs. ReturnRisk vs. Return A man has $100 to invest and hopes to receive A man has $100 to invest and hopes to receive

10 times the amount back ($1,000) by the end 10 times the amount back ($1,000) by the end of 5 years. This could be BEST accomplished of 5 years. This could be BEST accomplished byby

A A placing the money in a savings and loan accountplacing the money in a savings and loan account B B depositing the money in a commercial bank depositing the money in a commercial bank

accountaccount C C purchasing $100 worth of stock in a start-up purchasing $100 worth of stock in a start-up

companycompany D D buying $50 worth of bonds and investing $50 in buying $50 worth of bonds and investing $50 in

a mutual funda mutual fund

This man is ambitious; not only does he want This man is ambitious; not only does he want an incredible rate of return (tenfold) but he an incredible rate of return (tenfold) but he wants it in a short amount of time. Therefore, wants it in a short amount of time. Therefore, he needs the riskiest investment option he needs the riskiest investment option possible, which is choice possible, which is choice CC. All other options . All other options would earn some money, but not as much or as would earn some money, but not as much or as fast.fast.

d. Evaluate a variety of savings and d. Evaluate a variety of savings and investment options; include stocks, investment options; include stocks,

bonds, and mutual funds.bonds, and mutual funds. OptionsOptions Income Income

generatedgenerated Growth Growth potentialpotential

Risk levelRisk level

SavingsSavings SteadySteady Little or noneLittle or none LowLow

BondsBonds Very steadyVery steady Little or noneLittle or none LowLow

Common stockCommon stock VariableVariable GoodGood High riskHigh risk

Preferred Preferred stockstock

Less variable Less variable than common than common stockstock

GoodGood Moderate riskModerate risk

Mutual fundsMutual funds VariableVariable GoodGood moderatemoderate

SSEPF3 The student will explain how changes in SSEPF3 The student will explain how changes in monetary and fiscal policy can have an impact on an monetary and fiscal policy can have an impact on an

individual’s spending and saving choices.individual’s spending and saving choices. a. Give examples of who benefits and a. Give examples of who benefits and

who loses from inflation. who loses from inflation. b. Define progressive, regressive, b. Define progressive, regressive,

and proportional taxes. and proportional taxes. c. Explain how an increase in sales c. Explain how an increase in sales

tax affects different income groups. tax affects different income groups.

a. Give examples of who a. Give examples of who benefits and who loses from benefits and who loses from

inflation.inflation. LosersLosers

Inflation generally harms an individual because wages tend Inflation generally harms an individual because wages tend to rise more slowly than prices. There are a variety of to rise more slowly than prices. There are a variety of factors involved. Over time, workers will demand more factors involved. Over time, workers will demand more money to keep up with having to pay higher prices, but in money to keep up with having to pay higher prices, but in the short run inflation causes an increase in prices. If this the short run inflation causes an increase in prices. If this increase is not matched by a similar increase in wages, increase is not matched by a similar increase in wages, workers will find that their paycheck can no longer workers will find that their paycheck can no longer purchase all the items they once purchased.purchase all the items they once purchased.

WinnersWinners When prices rise faster than wages, it stands to reason that When prices rise faster than wages, it stands to reason that

firms would benefit from the effects of inflation. In the firms would benefit from the effects of inflation. In the short term this is true.short term this is true.

b. Define progressive, b. Define progressive, regressive, and regressive, and

proportional taxes.proportional taxes.Type of taxType of tax DescribeDescribe exampleexample

ProgressiveProgressive % Increase % Increase with incomewith income

Income taxIncome tax

RegressiveRegressive % Goes % Goes down with down with incomeincome

Sales taxSales tax

proportionalproportional Constant % Constant % at all at all income income levelslevels

Flat taxFlat tax

c. Explain how an increase c. Explain how an increase in sales tax affects different in sales tax affects different

income groups.income groups. Like the different types of income taxes, a change to Like the different types of income taxes, a change to

the sales tax affects different income groups in the sales tax affects different income groups in different ways. Since all consumers purchase different ways. Since all consumers purchase essential goods like food, a high sales tax on food essential goods like food, a high sales tax on food would affect poor people more than wealthy people would affect poor people more than wealthy people because both groups will be paying the same tax rate because both groups will be paying the same tax rate for the same good. This is one reason why food is for the same good. This is one reason why food is often not subject to a sales tax. However, food served often not subject to a sales tax. However, food served at a restaurant typically is subject to a sales tax, since at a restaurant typically is subject to a sales tax, since eating out is not considered a necessity.eating out is not considered a necessity.

SSEPF4 The student will evaluate the SSEPF4 The student will evaluate the costs and benefits of using credit.costs and benefits of using credit.

a. List factors that affect credit a. List factors that affect credit worthiness. worthiness.

b. Compare interest rates on loans b. Compare interest rates on loans and credit cards from different and credit cards from different institutions. institutions.

c. Explain the difference between c. Explain the difference between simple and compound interest rates. simple and compound interest rates.

a. List factors that affect a. List factors that affect credit worthiness.credit worthiness.

Capacity = ability to repay debtCapacity = ability to repay debt Capital = income plus savings Capital = income plus savings

availableavailable Character = willingness to repay Character = willingness to repay

debtdebt Collateral = property used to Collateral = property used to

secure loansecure loan

b. Compare interest rates on loans b. Compare interest rates on loans and credit cards from different and credit cards from different

institutions.institutions. Many people sign up for their first credit card to start Many people sign up for their first credit card to start

building up their credit. By making small purchases building up their credit. By making small purchases and then paying the entire amount each month, and then paying the entire amount each month, people can show that they are able to take small loans people can show that they are able to take small loans and then repay them promptly. However, this does and then repay them promptly. However, this does not always work out as planned. People sometimes not always work out as planned. People sometimes run up charges to their credit cards impulsively and run up charges to their credit cards impulsively and then find they are unable to pay the entire amount then find they are unable to pay the entire amount owed. If they can’t do this, they can keep the credit owed. If they can’t do this, they can keep the credit card by paying a smaller amount of the total owed, card by paying a smaller amount of the total owed, but any unpaid amount will be subject to the interest but any unpaid amount will be subject to the interest rate associated with that credit card.rate associated with that credit card.

b. Compare interest rates on loans b. Compare interest rates on loans and credit cards from different and credit cards from different

institutions.- continuedinstitutions.- continued Although credit cards are convenient, consumers pay for Although credit cards are convenient, consumers pay for

this convenience with high interest rates. Interest rates this convenience with high interest rates. Interest rates around 18% are not uncommon, and the rates are usually around 18% are not uncommon, and the rates are usually variable, meaning they can rise fairly suddenly. Interest on a variable, meaning they can rise fairly suddenly. Interest on a credit card typically accrues on a monthly basis. Overall, credit card typically accrues on a monthly basis. Overall, taking out a loan or using some other form of credit can be taking out a loan or using some other form of credit can be very helpful in a variety of instances. very helpful in a variety of instances.

People who take out a mortgage to buy a house must pay People who take out a mortgage to buy a house must pay interest over a long period of time, but that time is spent interest over a long period of time, but that time is spent under the roof of under the roof of their their house (which is often accruing in house (which is often accruing in value). In every case, a consumer must balance the benefit value). In every case, a consumer must balance the benefit of having access to additional money with the cost of having access to additional money with the cost associated with the interest and the possible financial associated with the interest and the possible financial difficulties than can result from defaulting on a loan.difficulties than can result from defaulting on a loan.

c. Explain the difference between c. Explain the difference between simple and compound interest rates. simple and compound interest rates. The interest rate is the percentage amount of The interest rate is the percentage amount of

payment by borrowers to the lender. An annual payment by borrowers to the lender. An annual interest rate of 5% on a $100 loan would translate interest rate of 5% on a $100 loan would translate to an interest payment of $5 each year, sinceto an interest payment of $5 each year, since

5% = 0.055% = 0.05 5%($100) = (0.05)(100) = $55%($100) = (0.05)(100) = $5 After one year, the person would now owe $105. After one year, the person would now owe $105.

With a With a simple simple interest rate, the interest is interest rate, the interest is determined annually with the determined annually with the original original loan amount. loan amount. In the second year, the interest would again be $5, In the second year, the interest would again be $5,

so a person would owe $105 + $5 = $110 after the so a person would owe $105 + $5 = $110 after the second year.second year.

c. Explain the difference between c. Explain the difference between simple and compound interest rates.- simple and compound interest rates.-

continuedcontinued With a With a compound compound interest rate, future interest is interest rate, future interest is

determined with the determined with the existing existing amount owed. In the amount owed. In the second year of a compound debt, the interest would second year of a compound debt, the interest would bebe

5% (105) =5% (105) = (0.05)(105) = $5.25(0.05)(105) = $5.25 $105 + $5.25 = $110.25$105 + $5.25 = $110.25 so the compound interest rate is greater than the so the compound interest rate is greater than the

simple interest rate. The current difference is only a simple interest rate. The current difference is only a quarter ($110 versus $110.25), but compound interest quarter ($110 versus $110.25), but compound interest can really build up over time.can really build up over time.

SSEPF5 The student will describe how insurance SSEPF5 The student will describe how insurance and other risk-management strategies protect and other risk-management strategies protect

against financial loss.against financial loss. a. List various types of insurance a. List various types of insurance

such as automobile, health, life, such as automobile, health, life, disability, and property. disability, and property.

b. Explain the costs and benefits b. Explain the costs and benefits associated with different types of associated with different types of insurance; include deductibles, insurance; include deductibles, premiums, shared liability, and asset premiums, shared liability, and asset protection. protection.

a. List various types of insurance such as a. List various types of insurance such as automobile, health, life, disability, and automobile, health, life, disability, and

property.property. In addition to the many kinds of house and In addition to the many kinds of house and

auto insurance policies available, there are also auto insurance policies available, there are also many kinds of insurance policies for people, many kinds of insurance policies for people, including health, disability, and life insurance. including health, disability, and life insurance. Health insurance is designed to pay for Health insurance is designed to pay for medical costs; disability insurance provides medical costs; disability insurance provides people with income in case they become people with income in case they become injured or are unable to work at a job; and life injured or are unable to work at a job; and life insurance provides a monetary payment when insurance provides a monetary payment when the insured person dies.the insured person dies.

b. Explain the costs and benefits associated with b. Explain the costs and benefits associated with different types of insurance; include deductibles, different types of insurance; include deductibles, premiums, shared liability, and asset protection.premiums, shared liability, and asset protection.

In general, all insurance policies allow a person or business In general, all insurance policies allow a person or business to pay a relatively small amount of money (a to pay a relatively small amount of money (a premiumpremium) in ) in the present to purchase the present to purchase asset protection asset protection against the against the possibility of a future financial loss caused by an unforeseen possibility of a future financial loss caused by an unforeseen event. Assets that can be protected range from one’s home event. Assets that can be protected range from one’s home to one’s health. Most insurance policies include a to one’s health. Most insurance policies include a deductible deductible that stipulates the amount of money the insured that stipulates the amount of money the insured must pay when a claim is filed with the insurance company. must pay when a claim is filed with the insurance company. Purchasing insurance involves Purchasing insurance involves shared liability shared liability between the between the insurer and the insured. This means that the insurance insurer and the insured. This means that the insurance company assumes a pre-determined amount of financial company assumes a pre-determined amount of financial liability for a claim that the insured might file because the liability for a claim that the insured might file because the insured has paid premiums for the financial protection.insured has paid premiums for the financial protection.

While delivering the mail, a postman gets struck in the While delivering the mail, a postman gets struck in the arm by a passing car. An ambulance takes him to the arm by a passing car. An ambulance takes him to the hospital, and after x-rays and other tests are done, the hospital, and after x-rays and other tests are done, the doctor states that no bones were broken and no permanent doctor states that no bones were broken and no permanent damage was done.damage was done.

Which of the following types of insurance would be MOST Which of the following types of insurance would be MOST beneficial for the postman as a result of this accident?beneficial for the postman as a result of this accident?

A A autoauto B B disabilitydisability C C healthhealth D D lifelife

If the driver of the car had auto insurance, this If the driver of the car had auto insurance, this insurance might pay for the hospital bills, but the insurance might pay for the hospital bills, but the question asks about insurance question asks about insurance for the postmanfor the postman, so , so choice choice A A is not correct. The postman was not fatally is not correct. The postman was not fatally injured, so life insurance is not going to be used. If injured, so life insurance is not going to be used. If bones had been broken or other injuries suffered that bones had been broken or other injuries suffered that would keep the postman from returning to work, then would keep the postman from returning to work, then choice choice BB, disability, might be an option. However, the , disability, might be an option. However, the doctor pronounced the postman fine, so all that doctor pronounced the postman fine, so all that remains are the costs of medical bills. These will be remains are the costs of medical bills. These will be covered by health insurance, choice covered by health insurance, choice CC..

SSEPF6 The student will describe how the SSEPF6 The student will describe how the earnings of workers are determined in the earnings of workers are determined in the

marketplace.marketplace. a. Identify skills that are required to a. Identify skills that are required to

be successful in the workplace. be successful in the workplace. b. Explain the significance of b. Explain the significance of

investment in education, training, investment in education, training, and skill development.and skill development.

a. Identify skills that are required to be a. Identify skills that are required to be successful in the workplace. successful in the workplace.

investment in education, training, and skill investment in education, training, and skill development (increased human capital leads development (increased human capital leads to productivity)to productivity)

b. Explain the significance of investment b. Explain the significance of investment in education, training, and skill in education, training, and skill

development.development. Investment in these areas lead to more Investment in these areas lead to more

productivity in the workforceproductivity in the workforce

2 factors that increase 2 factors that increase wageswages

In general, the two factors that can boost the wages of In general, the two factors that can boost the wages of a particular job are demand for that service and the a particular job are demand for that service and the training requirements needed for the job. High training requirements needed for the job. High demand raises wages because it allows the limited demand raises wages because it allows the limited supply of labor force in that area to ask for more supply of labor force in that area to ask for more money and get it. Additional training (educational or money and get it. Additional training (educational or job specific) also raises wages because there is an job specific) also raises wages because there is an opportunity cost associated with this unpaid training, opportunity cost associated with this unpaid training, and this opportunity cost must be offset with a higher and this opportunity cost must be offset with a higher wage. Otherwise, no one will undertake the job.wage. Otherwise, no one will undertake the job.

Sample Questions for Content Sample Questions for Content Domain VDomain V

1. On which of the following do people pay a 1. On which of the following do people pay a regressive tax?regressive tax?

A A their earned incometheir earned income B B interest earned on their savings accountsinterest earned on their savings accounts C C stocks purchased for investmentsstocks purchased for investments D D goods purchased for their personal usegoods purchased for their personal use

2. A good example of the effect of 2. A good example of the effect of education on income would be thateducation on income would be that

A A employees who learn to perform high-employees who learn to perform high-risk jobs always get paid morerisk jobs always get paid more

B B workers who learn to make high workers who learn to make high demand products are well paiddemand products are well paid

C C only job applicants with high school only job applicants with high school diplomas get job interviewsdiplomas get job interviews

D D people with college degrees usually people with college degrees usually earn more than those with less educationearn more than those with less education

3. A woman is considering purchasing a 3. A woman is considering purchasing a new lawn mower that costs $120. While new lawn mower that costs $120. While employed, the woman does not currently employed, the woman does not currently have enough money in her account to pay have enough money in her account to pay for this item. Which of the following for this item. Which of the following financial institutions would be the MOST financial institutions would be the MOST likely to help her buy the lawn mower?likely to help her buy the lawn mower?

A A payday loan companypayday loan company B B credit unioncredit union C C savings and loansavings and loan D D commercial bankcommercial bank

4. Which factor MOST often has the 4. Which factor MOST often has the greatest role in determining the greatest role in determining the amount of money that workers earn amount of money that workers earn during their careers?during their careers?

A A their credit worthinesstheir credit worthiness B B their education leveltheir education level C C the location of the business for which the location of the business for which

they workthey work D D the size of the business for which they the size of the business for which they

workwork

Answers to sample Answers to sample questionsquestions

1. Answer: 1. Answer: D D Standard: Standard: Types of Income Types of Income TaxesTaxes

Choices Choices A A and and B B involve progressive involve progressive taxation. People only pay taxes on taxation. People only pay taxes on dividends that stocks pay (choice dividends that stocks pay (choice CC), ), not the stock itself. People often pay a not the stock itself. People often pay a sales tax on goods purchased for their sales tax on goods purchased for their personal use. A sales tax is a regressive personal use. A sales tax is a regressive tax, so choice tax, so choice D D is the correct answer.is the correct answer.

2. Answer: 2. Answer: D D Standard: Standard: Workers in the MarketplaceWorkers in the Marketplace Choice Choice A A is usually true, but it is not “always” true, is usually true, but it is not “always” true,

so the use of the word so the use of the word always always makes this an incorrect makes this an incorrect choice. Choice choice. Choice B B sounds good at first, but high-sounds good at first, but high-demand products are not always very expensive, so demand products are not always very expensive, so workers might not get paid much to produce low-cost workers might not get paid much to produce low-cost items. The use of the word items. The use of the word only only makes choice makes choice C C untrue, leaving only choice untrue, leaving only choice DD. Choice . Choice D D accurately accurately reflects the fact that additional learning increases reflects the fact that additional learning increases human capital and comes with an opportunity cost human capital and comes with an opportunity cost that is usually offset by a higher wage.that is usually offset by a higher wage.

3. Answer: 3. Answer: A A Standard: Standard: Types of Financial Types of Financial InstitutionsInstitutions

The amount of money in question is rather small The amount of money in question is rather small compared to a mortgage loan or business loan. compared to a mortgage loan or business loan. Savings and loan companies do not specialize in this Savings and loan companies do not specialize in this type of loan, and the question does not mention type of loan, and the question does not mention whether the woman is a member of any credit union. whether the woman is a member of any credit union. However, it does state that she is employed, which However, it does state that she is employed, which means she could probably use her upcoming means she could probably use her upcoming paycheck to secure a small loan from a payday loan paycheck to secure a small loan from a payday loan company (choice company (choice AA).).

4. Answer: 4. Answer: B B Standard: Standard: Workers in Workers in the Marketplacethe Marketplace

It is possible that choices It is possible that choices A, CA, C, and , and D D have a role in determining have a role in determining workers' income levels, but choice workers' income levels, but choice B B most often has the greatest role and most often has the greatest role and is the correct answer.is the correct answer.