Unit 2: Money Management 1. Explain how limited personal financial resources affect the choices...
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Unit 2: Money Management 1. Explain how limited personal financial resources affect the choices people make. 2. Interpret the opportunity costs of financial decisions. 3. Evaluate the consequences of personal financial decisions. 4. Apply a decision-making process to personal financial choices. 5. Summarize how inflation affects spending and saving decisions. 6. Evaluate how insurance (e.g., auto, home, life, medical and long-term health) and other risk-management strategies protect against financial loss. 7. Design a financial plan (budget) for earning, spending, saving, and investing. 8. Demonstrate how to use the services available from financial institutions. 9. Analyze the role of the Federal Reserve in controlling the money supply.
Unit 2: Money Management 1. Explain how limited personal financial resources affect the choices people make. 2. Interpret the opportunity costs of financial
Unit 2: Money Management 1. Explain how limited personal
financial resources affect the choices people make. 2. Interpret
the opportunity costs of financial decisions. 3. Evaluate the
consequences of personal financial decisions. 4. Apply a
decision-making process to personal financial choices. 5. Summarize
how inflation affects spending and saving decisions. 6. Evaluate
how insurance (e.g., auto, home, life, medical and long-term
health) and other risk-management strategies protect against
financial loss. 7. Design a financial plan (budget) for earning,
spending, saving, and investing. 8. Demonstrate how to use the
services available from financial institutions. 9. Analyze the role
of the Federal Reserve in controlling the money supply.
Slide 2
Personal Financial Planning
Slide 3
Financial Decisions & Goals Personal Financial Planning:
arranging to spend, save, and invest money to live comfortably,
have financial security, and achieve goals
Slide 4
Benefits to Financial Planning More money and financial
security Knowing how to use money to achieve goals Less chance of
going into debt you cannot handle
Slide 5
Steps in Financial Planning Step 1: Determine your current
financial situation Savings Monthly income Monthly expenses
Debts
Slide 6
Steps in Financial Planning Step 2: Develop your financial
goals What is your attitude toward money? What are your personal
values? Values: the beliefs and principles you consider important,
correct, and desirable Needs vs. Wants Need: something you must
have to survive, such as food, shelter, and clothing Want:
something you desire or would like to have or do
Slide 7
Steps in Financial Planning Step 3: Identify your options
Expand the current situation Change the current situation Start
something new Continue the same course of action
Slide 8
Steps in Financial Planning Step 4: Evaluate your alternatives
Find different sources of financial information Figure out the
consequences of your choices Opportunity Cost: trade-off, what you
give up when making one choice instead of another Understand your
risks
Slide 9
Financial Risks Inflation Risk-uncertainty over the real future
value of your money Interest Rate Risk- risk an investments value
will change due to a change in interest rate Income Risk- risk of
change in income (cash inflow) Personal Risk- loss of income,
increase in expenses, or elimination of assets due primarily to
death, poor health, old age or unemployment Liquidity Risk
Liquidity: the ability to easily convert financial assets into cash
without loss in value
Slide 10
Steps in Financial Planning Step 5: Create and use your
financial plan of action Utilize the options you have for reaching
your financial goals
Slide 11
Steps in Financial Planning Step 6: Review and revise your plan
Your needs and finances will change as time goes on, so your
financial plan will need to change as well
Slide 12
Types of Financial Goals Time Frame of Goals Short-term goals:
take one year or less to achieve Intermediate goals: takes one to
five years to achieve Long-term goals: take more than five years to
achieve
Slide 13
Types of Financial Goals Goals for Different Needs Good:
physical item that is produced and can be weighed or measured
Consumable good- used up or depleted, replaced often Durable good-
long lasting, replaced infrequently Intangible items- cant be
touched, but can be measured Service: task that a person or machine
performs for you
Slide 14
Guidelines for Setting Goals Goals should be SMART Specific
Measurable Attainable Results-based Time-bound
Slide 15
Setting SMART Financial Goals What is missing? Goal: Save money
this summer to pay for all college fees. Goal: Get a job to afford
to buy a motorcycle. Goal: Use money received as birthday gifts to
pay own monthly phone fees. Goal: Go on white water rafting
trip.
Slide 16
Influences on Financial Planning Life situations Going to
college, getting married, starting a new career, having children,
moving to a new city
Slide 17
Influences on Financial Planning Economic Factors: Play a role
in the day-to-day financial planning and decision making for most
people Economics: the study of the decisions that go into making,
distributing, and using goods and services Economy: consists of the
ways in which people make, distribute, and use their goods and
services
Slide 18
Influences on Financial Planning Economic Factors: Market
Forces Supply: the amount of goods and services available for sale
Demand: the amount of goods and services people are willing to buy
High demand or low supply will cause the price of products to rise
Low demand or high supply will cause the price of products to
drop
Slide 19
Influences on Financial Planning Economic Factors: Financial
Institutions Provide services that increase financial activity in
the economy Banks Credit unions Insurance companies Investment
companies Federal Reserve System: Fed, central banking organization
of the US that regulates the money supply
Slide 20
Influences on Financial Planning Economic Factors: Global
Influences We are part of a global market Economy of every nation
is affected by competition with other nations
Slide 21
Influences on Financial Planning Economic Factors: Economic
Conditions Consumer prices Inflation: the rise in the level of
prices for goods and services, mainly caused by an increase in
demand without an increase in supply Consumer spending Consumer:
person who purchases and uses goods or services Interest rates
Interest: the price that is paid for the use of anothers money
Slide 22
Opportunity Costs & Strategies Personal opportunity costs
Must make choices about how to manage your personal resources
Health, knowledge, skills, and time Financial opportunity costs
Must make choices about how you spend money Time value of money:
the increase of an amount of money due to earned interest or
dividends
Slide 23
Time Value of Money: Terminology Future value: the amount your
original deposit will be worth in the future based on earning a
specific interest rate over a specific period of time Annuity:
series of equal regular deposits; like depositing $50 each month
into your savings
Slide 24
Time Value of Money: Terminology Present Value: amount of money
you would need to deposit NOW in order to have a desired amount of
money in the future Annual Interest Rate: Interest rate you are
earning on your deposited funds
Slide 25
Calculating Simple Interest Need to know: Principal: original
amount of money on deposit Annual Interest Rate Length of Time
Principal x Rate x Time = Interest Earned
Slide 26
Strategies for Achieving Your Financial Goals Obtain financial
resources Plan Spend wisely Save Borrow wisely Invest Manage risk
Plan for retirement
Slide 27
Money Management Strategy
Slide 28
Organizing Financial Records Opportunity Costs and Money
Management Money Management: planning how to get the most from your
money In order to manage your money well, you may have to consider
financial trade-offs (or opportunity costs) Consider the factors
that influence your decisions before you chose an option
Slide 29
Organizing Financial Records Personal Financial Documents: a
variety of materials, such as bank statements and paycheck stubs
May also include receipts, ownership titles, birth certificates,
and tax forms Tell you how much money you have and/or spend
Slide 30
Organizing Financial Documents First step in effective money
management is organizing your information Bank statements, paycheck
stubs, receipts, car title, tax forms Benefits of organizing
financial documents: Quickly find needed documents Plan and measure
financial progress Handle routine money matters (ex. paying bills
on time)
Slide 31
Storing Financial Documents Home File Simple, takes limited
space Bank account statements, receipts, employment information,
tax records, insurance records, investment records Safe-Deposit
Boxes Small, secure storage box rented at a bank Car title, birth
certificates, stock certificates, valuable documents not easily
replaced Home Computer Budgets, check summary, personal financial
statements
Slide 32
Personal Financial Statements Personal Financial Statements:
document that provides information about an individuals current
financial position and presents a summary of income and spending
Helps determine what you own and owe Measures your progress towards
goals Track financial activities Organize financial
information
Slide 33
Personal Financial Statements Personal Balance Sheet: (net
worth statement) a financial statement that lists items of value
owned, debts owed, and a persons net worth Net Worth: the
difference between the amount you own and the debts you owe;
measure of your current financial position
Slide 34
Personal Financial Statements To create a BALANCE SHEET: Step
1: Determine Your Assets Assets: any items of value that an
individual or company owns, including cash, property, personal
possessions, and investments Wealth: the abundance of valuable
material possessions or resources Asset Categories: liquid assets,
real estate, personal possessions, and investments
Slide 35
Personal Financial Statements Asset Categories: Liquid Assets:
cash and items that can be quickly converted to cash Real Estate:
land and any structures that are on it, such as a house or any
other building that a person or family owns Valued at the Market
Value: the price at which it would sell Personal Possessions: cars
and any other valuable belongings that are not real estate Should
be listed at current market value Investment Assets: include
retirement accounts and securities such as stocks and bonds
Slide 36
Personal Financial Statements To create a BALANCE SHEET: Step
2: Determine Your Liabilities Liabilities: debts that you owe
Current Liabilities: short-term debts that have to be paid within
one year (medical bills, cash loans, taxes) Long-Term Liabilities:
debts that do not have to be fully repaid for at least one year
(car loans, student loans, and mortgage loans)
Slide 37
Personal Financial Statements To create a BALANCE SHEET: Step
3: Calculate Your Net Worth Subtract your Liabilities from your
Assets NET WORTH = ASSETS LIABILITIES Insolvency: a financial state
that occurs if liabilities are greater than assets; unable to pay
all of your debts
Slide 38
Personal Financial Statements To create a BALANCE SHEET: Step
4: Evaluate Your Financial Statements Is your net worth increasing?
Is it decreasing? Are you holding steady? Maybe you need to
re-evaluate and update your budget!
Slide 39
Personal Financial Statements Cash Flow Statement: Income vs.
Expenses; summary of your cash flow during a particular period
(usually a month or a year) Cash Flow: money that actually goes
into and out of your wallet Cash Inflow: money you receive (INCOME)
Cash Outflow: money you spend (EXPENSES)
Slide 40
Personal Financial Statements To create a CASH FLOW STATEMENT:
Step 1: Record your income (cash inflow) List all sources of income
during the month at the exact amount Gross pay- total amount of
money you have earned prior to anything being taken out Take-home
pay- (net pay) the amount of income left after taxes and other
deductions are taken out of your gross pay Discretionary income-
the money left over after paying for the essentials
Slide 41
Personal Financial Statements To create a CASH FLOW STATEMENT:
Step 2: Record your expenses (cash outflow) Fixed expenses- more or
less the same each month Variable expenses- may change from month
to month
Slide 42
Personal Financial Statements To create a CASH FLOW STATEMENT
Step 3: Determine your net cash flow Net Cash Flow = Income
Expenses Surplus- extra money that can be spent or saved Deficit-
more money is spent than received Every time your cash flow
changes, so does your net worth (balance sheet)
Slide 43
Personal Financial Statements Evaluating your financial
progress Debt Ratio = Liabilities / Net Worth Compares how much you
owe to your total financial position; should be low Liquidity Ratio
= Liquid Assets / Monthly Exp. Number of months you would be able
to pay your living expenses in case of emergency
Slide 44
Personal Financial Statements Evaluating your financial
progress Debt-Payment Ratio = Monthly Credit Payment / Take-home
Pay How much you make that goes to pay debts; should be less than
20% each month Savings Ratio = Amount Saved / Gross Income Should
be no less than 10% each month Home Payment Ratio = House
Payment/Gross Income Should be less than 28%-30%
Slide 45
Budgeting for Financial Goals Budget- a plan for using money to
meet wants and needs Using a budget, you learn to live within your
income and avoid costly debt
Slide 46
Budgeting for Financial Goals Budgeting Step 1: Set your
financial goals What do you want to accomplish with your
money?
Slide 47
Budgeting for Financial Goals Budgeting Step 2: Estimate your
income Include all income you know you may receive for the next
month If you are unsure about a source of income or the amount, do
not include it
Slide 48
Budgeting for Financial Goals Budgeting Step 3: Budget for
Fixed Expenses List all monthly expenses that do not change from
month to month Mortgage, automobile payments, student loan
payments, insurance premiums PAY YOURSELF FIRST! (i.e. emergency
fund or retirement)
Slide 49
Budgeting for Financial Goals Budgeting Step 4: Budget for
Variable Expenses List all monthly expenses that change from month
to month Utilities based on usage, food, clothing Make your best
guess as to the cost for the month Look at previous month or ask
friends and family Consumer Price Index- measure of changes for
commonly purchased goods and services If guessing, guess high!
Slide 50
Budgeting for Financial Goals Budgeting Step 5: Budget for
Unexpected Expenses Put aside a little money each month to pay for
unexpected items Set up an Emergency Fund 3 to 6 months of living
expenses This should be a fixed expense!!!
Slide 51
Budgeting for Financial Goals Budgeting Step 6: Record What You
Actually Spend Keep track of your actual income and expenses
Calculate the budget variance Budget Variance- the difference
between the budgeted amounts and what you actually spent Surplus-
you spent less money than expected Deficit- you spent more money
than expected
Slide 52
Budgeting for Financial Goals Budgeting Step 7: Review Spending
and Saving Patterns Review financial progress Are you paying your
bills on time? Do you have a surplus or a deficit? Revise goals and
adjust your budget Do you need to cut your expenses? Should you put
more into savings?
Slide 53
Budgeting for Financial Goals How to Budget Successfully
Carefully plan your budget Create a practical budget Be flexible
Write it down and be able to access it easily
Slide 54
Budgeting for Financial Goals How to Increase Your Savings Pay
yourself first Use payroll deductions to automatically place money
into savings or retirement accounts Spend Less
Slide 55
Banking Overview
Slide 56
Financial Services and Institutions How to manage your cash
Daily Cash Needs Cash Credit card ATM Sources of quick cash Savings
Borrow the money
Slide 57
Types of Financial Services Three main categories: Savings
Payment services Borrowing
Slide 58
Types of Financial Services Savings Time deposit money that is
to be left for months or years Savings account Certificate of
deposit (CD) Payment Services Demand Deposit the money can be
withdrawn at any time or on demand Checking Account Borrowing
Options Credit cards Personal cash loans Mortgage Auto loan
Slide 59
Electronic Banking Services Direct deposit an automatic deposit
of net pay to an employees designated bank account Employee
receives a printed statement listing deductions, etc. Automatic
Payments with an authorization, your bank will withdraw a monthly
payment from an account on a specific date Automated Teller
Machines (ATMs) a computer terminal that allows withdrawal of cash
from an account or deposits made to that account ATM fees charge
for the convenience of the ATM service Avoid foreign ATMs they have
additional fees
Slide 60
Electronic Banking Services Debit Card a cash card that allows
you to withdraw money or make purchases using the money in that
account You can spend ONLY the money in your account Lost Debit
Cards notify bank immediately -within two days usually to avoid
financial responsibility Personal Identification Number (PIN) to be
used with debit or ATM card Never keep your PIN with your debit
card
Slide 61
Electronic Banking Services Plastic Payments Point of sale
transactions a purchase by a debit card for good or service Must
use PIN with card Stored Value cards prepaid cards that you can use
at a specific store or for a specific service. They are reloadable
or rechargeable.
Slide 62
Opportunity Costs of Financial Services Consider all aspects
when choosing financial services including convenience and
liquidity Consider the value of your time Reevaluate your choices
occasionally
Slide 63
Types of Financial Institutions Commercial Banks for-profit
institution that offers a full range of services: checking,
savings, and lending Savings & Loan Associations traditionally
specialized in savings accounts and mortgages; now offers services
like commercial banks Credit Union a nonprofit financial
institutions that is owned by its members and organized for their
benefit. It offers a full range of services. Members often have a
common bond. Fees and loans rates may be lower than commercial
banks
Slide 64
Types of Financial Institutions Life Insurance Companies
investment features Investment Companies purchase stocks, bond and
other securities Finance Companies higher-interest rate loans when
you cannot borrow elsewhere FDIC (Federal Deposit Insurance
Corporation) protects deposits in banks that are federally
chartered up to $250,000 per account.
Slide 65
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 65 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 TYPES OF INSURANCE Take Charge of Your Finances Advanced
Level
Slide 66
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 66 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 66 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
WHAT IS INSURANCE? Risk is the uncertainty about a situations
outcome- may be an unpredictable event which leads to loss or
damage Insurance is an arrangement between an individual (consumer)
and an insurer (insurance company) to protect the individual
against risk
Slide 67
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 67 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 67 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
WHY IS IT IMPORTANT TO HAVE INSURANCE? Risk - chance of loss from
an event that cannot be entirely controlled Emergency savings - at
least six months of expenses set aside to cover costs of unexpected
events Insurance transfers (shifts) risk from an individual to an
insurance organization is managed by What are examples of
unexpected events that may result in a financial loss?
Slide 68
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 68 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 68 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
WHAT IS AN INSURANCE POLICY? A policy is a contract between the
individual and the insurer specifying the terms of the insurance
arrangements A premium is a fee paid to the insurer to be covered
under specified terms outlined in the policy A deductible is the
amount paid out of pocket by the policyholder for the initial
portion of a loss before the insurance coverage begins- the
deductible is stated in the policy A policyholder is a consumer who
purchases the policy Coverage - The risks covered and amount of
money paid for losses under an insurance policy Experts say that
buying insurance is buying financial security. Do you think this is
true? Why or why not?
Slide 69
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 69 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 69 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
AN ILLUSTRATION OF HOW INSURANCE WORKS Suppose there are 100 people
in a group Insurance shifts the risk of big loss from the
individual to the insurance company With a 1% chance that any one
of them could get sick and require $10,000 in medical care But, no
one knows who will get sick If each person pays $100 into a pool
they will collectively have $10,000 to cover the medical costs of
the person who gets sick So, everyone gives up $100, but nobody
loses more than $100 99 people do not collect anything, but they
gain peace of mind and important protection against a large
loss
Slide 70
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 70 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 70 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
Helps limit financial losses when an accident occurs Helps an
individual/family be prepared for the unexpected Plays a large role
in most financial management plans WHY IS IT IMPORTANT TO HAVE
INSURANCE?
Slide 71
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 71 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 71 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
THE BENEFITS OF INSURANCE Payments received from an insurance
policy can far exceed the premiums paid Provides financial security
and peace of mind Why is the best outcome to have insurance but
never collect on it? Automobile Health Life Disability Homeowners/
Renters
Slide 72
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 72 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 72 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
THE INSURANCE PROCESS Claim - paperwork submitted to insurance
organization describing the accident, illness or injury Deductible
- amount of money paid out of pocket by policyholder before the
insurance coverage begins Co-insurance - amount of money, after
deductible, that is paid jointly by the insured and the insurance
company Event occurs resulting in loss Policyholder makes claim to
insurance organization Insurance organization determines if event
is covered by policy If so, policyholder pays a deductible
Remaining amount owed is paid by co- insurance (if applicable)
Slide 73
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 73 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 73 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
WHY DO INSURANCE POLICIES INCLUDE DEDUCTIBLES AND CO-INSURANCE?
When the act of insuring an event increases the likelihood it will
occur Deductibles and co-insurance place some of the loss on the
policyholder Reduce the problem of moral hazard Not locking a car
or parking it in a theft-prone area in hopes it will be stolen and
automobile insurance will pay for a new vehicle For example Dollars
paid from an insurance policy are not intended to make a person
better off than before the loss happened
Slide 74
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 74 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 74 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
NOT COVERED BY INSURANCE... Negligence- failure to take ordinary or
reasonable care to prevent accidents Sooo... A deductible is the
amount of risk the policyholder assumes and Risk Avoidance means it
is the consumers responsibility to try to avoid unnecessary
risk
Slide 75
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 75 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 75 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
PROPERTY & LIABILITY INSURANCE Two parts Property insurance -
payment to insured person if his/her property is damaged or
destroyed by an accident Liability insurance - payment to others if
a member of the insured household accidently causes harm to other
people or property Pays for loss to insured person Pays for injury
or loss to others Provided by individuals
Slide 76
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 76 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 76 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
TYPES OF PROPERTY & LIABILITY INSURANCE Automobile insurance -
payment for liability and property insurance on a vehicle
Homeowners insurance - payment to cover liability losses and
damage/loss of home and its contents Renters insurance - payment
for damage/loss of property in a rental unit in addition to
liability losses If a person drives an automobile, automobile
liability insurance is required by law
Slide 77
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 77 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 77 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
HOMEOWNERS INSURANCE Homeowners Insurance -combines property and
liability insurance into one policy to protect a home from damage
costs due to perils Peril -an event which may cause a financial
loss like fire, falling trees, lightning and others Property
Insurance -protects the insured from financial losses due to
destruction or damage to property or possessions Liability
Insurance- protects the insured party from being held liable for
others financial losses
Slide 78
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 78 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 78 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
HOMEOWNERS INSURANCE COVERS The home or building Additional living
expenses Personal property (contents of home-make home inventory)
Personal liability Specialized coverage-floods/earthquakes/identity
theft Floaters
Slide 79
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 79 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 79 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
RENTERS INSURANCE Renters Insurance protects the insured from loss
of the contents of the dwelling rather than the dwelling itself
Necessary because a landlords insurance policy on the dwelling does
not cover the renters personal possessions Covers major perils,
provides liability protection and provides for additional living
expenses if the dwelling is rendered uninhabitable
Slide 80
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 80 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 80 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
INSURED VALUES Actual Cash Value- replacement cost minus
depreciation Replacement Value- full cost for replacing the items
More expensive premiums Required by finance company holding your
mortgage
Slide 81
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 81 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 81 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
HOMEOWNERS INSURANCE COST FACTORS Location-fire hydrant, crime
rates, geographic location Type of Structure-brick or wood
Others-price, coverage amount, deductible Discounts-smoke alarms,
security systems, types of locks
Slide 82
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 82 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 82 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
AUTOMOBILE INSURANCE Automobile Insurance - arrangement between an
individual (consumer) and insurer (insurance company) to protect
the individual against risk from automobile accidents Liability
insurance Medical payment insurance Uninsured or underinsured
motorists insurance Physical damage insurance Collision
Comprehensive
Slide 83
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 83 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 83 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
TYPES OF AUTO INSURANCE Liability Insurance covers the insured if
injuries or damages are caused to other people or their property It
is the minimum amount of insurance required BY LAW for automobiles
Medical Payment Insurance covers injuries sustained by the driver
of the insured vehicle or any passenger regardless of fault It also
covers family members injured as passengers in any car,
pedestrians, or bicyclists
Slide 84
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 84 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 84 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
BODILY INJURY Expressed by 3 Numbers: 100/300/50 First
number-maximum amount paid for injury to one person Second
number-maximum amount the company will pay for all injured parties
in one accident Third number-the limit for payment for damage to
the property of others
Slide 85
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 85 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 85 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
TYPES OF AUTO INSURANCE Uninsured or Underinsured Motorists
Insurance covers injury or damage to the driver, passengers, or the
vehicle caused by a driver with insufficient insurance Physical
Damage Insurance covers damages caused to the vehicle (required by
finance company if you have a loan) Collision covers a collision
with another object, car, or from a rollover Comprehensive covers
all physical damage losses except collision and other specified
losses Why would an individual want automobile insurance coverage
beyond liability (the minimum required by law)?
Slide 86
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 86 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 86 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
CAR INSURANCE COST FACTORS Vehicle Type- year, make, makes and
models of frequently stolen cars Rating Territory- accident rate,
population, theft rate Driver Classification- age, gender, marital
status, driving record, driving habits
Slide 87
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 87 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 87 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
HEALTH INSURANCE Health insurance provides protection against
financial losses resulting from injury, illness, and disability May
cover hospital, surgical, dental, vision, long-term care,
prescription, or other major expenditures Specific coverage depends
upon the individual policy Health care costs are extremely high
Large medical expenses could deplete an individuals savings Why
would it be important to have health insurance?
Slide 88
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 88 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 88 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
May be purchased by the individual or through their employer
Individuals often seek coverage for dependents (spouses and
children) Many health insurance policies offer dependent coverage
but there is no requirement to do so If dependent coverage is
offered, children may stay on their parents health care plan until
age 26 with no stipulations Federal government website to learn
about health insurance and compare policies:
http://www.healthcare.gov/index.html
http://www.healthcare.gov/index.html HEALTH INSURANCE
Slide 89
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 89 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 89 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
HEALTH INSURANCE Provided by And/or Doctors visits Risks Covered
Medical procedures Mental health treatment Preventative care
Hospital bills Prescription drugs Vision care Dental care Health
insurance - provides money to pay for health care Employer
Individual If dollars are limited, health insurance is extremely
important to protect against high medical bills Government
Slide 90
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 90 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 90 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
HEALTH INSURANCE COSTS Co-insurance: percentage of the medical
expenses the insured must pay in addition to deductible Co-payment:
flat fee that insured pays every time they receive a covered
service
Slide 91
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 91 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 91 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
WHICH INSURANCE POLICY WOULD YOU CHOOSE? Janet wants to make sure
she has the best health insurance policy. She shopped around and
received multiple quotes. What are the pros and cons of each
policy? Current PolicyNew Policy Premium amount/month Deductible
amount Co-insurance amount 20% owed by policyholder 80% owed by
insurance organization 0% owed by policyholder 100% owed by
insurance organization $300$200 $2000
Slide 92
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 92 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 92 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
WHAT IF A PERSON CANNOT WORK OR LIVE INDEPENDENTLY? Disability
insurance Long-term care insurance Why are both disability and
long-term care insurance important? Payment to replace earnings
during times when workers cannot work due to illness or injury
Payment for extended care when a person cannot live independently
(but doesnt need to be hospitalized) Provided by employers,
individuals, and/or government Provided by individuals
Slide 93
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 93 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 93 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
DISABILITY INSURANCE Disability Insurance replaces a portion of
ones income if they become unable to work due to illness or injury
Insurance typically pays between 60-70% of ones full-time wage
Factors such as the length or severity of a disability influence
the percentage of income a person will receive
Slide 94
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 94 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 94 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
LIFE INSURANCE Life insurance is a contract between an insurer and
policyholder specifying a sum to be paid to a beneficiary upon the
insureds death A beneficiary is the recipient of any policy
proceeds if the insured person dies Provides money for family
members or dependents when a wage earner dies A dependent is a
person who relies on someone else financially
Slide 95
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 95 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 95 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
LIFE INSURANCE May cover paid and unpaid work formerly done by the
individual Household production- unpaid work, such as child care or
meal preparation Life insurance- payment to beneficiaries if an
insured person dies Beneficiary- someone who receives insurance
money if the insured person dies Dependent - someone who relies on
someone else for money income and care When would it be necessary
to purchase life insurance? Provided by employers and/or
individuals
Slide 96
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 96 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 96 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
OTHER TYPES OF INSURANCE Credit Life Insurance: to pay debts when
someone dies Identity Theft Insurance: to pay expenses incurred
from ID theft
Slide 97
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 97 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 97 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
SOURCES OF INSURANCE Long-term care, property and liability
insurance In most cases, individuals acquire insurance from a
combination of sources If an employer does not provide insurance,
it may be acquired individually Health, disability, and
occasionally life insurance Special programs for those who qualify
and during catastrophes Individual Employer Government
Slide 98
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 98 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 98 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
EMPLOYER PROVIDED INSURANCE Insurance premiums paid by Policies may
be available to the employees family members (usually for
additional fees) No income taxes are paid on the in-kind income
Employee benefits - products or services that add extra value for
employees beyond wages Employer Employee In-kind income the
provision of a product or service rather than cash Payroll
deduction
Slide 99
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 99 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 Types of Insurance Slide 99 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
GOVERNMENT PROGRAMS Provide basic insurance as a part of the social
safety net to protect citizens from economic hardship Social
Security, Medicare, Medicaid Many programs require a work history
and employer provided participation to be eligible Unemployment
insurance, workers compensation Can address specific catastrophes
Hurricane Katrina
Slide 100
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide 100 Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona
1.10.1.G1 Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide 100 Funded by a grant from Take
Charge America, Inc. to the Norton School of Family and Consumer
Sciences Take Charge America Institute at the University of Arizona
IN REVIEW Insurance is an important part of a financial plan
Insurance is not intended to make an individual better off than
before the event Insurance may be acquired from multiple sources
Even with insurance, an individual should still have funds to pay
the deductible and co- insurance There are several types of
insurance for specific purposes