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INTRODUCTION TO PERSONAL FINANCE LEARNING OUTCOMES Section 1: What is Personal Finance Section 2: Money, the American Way Section 3: You & Money SECTION 1 WHAT IS PERSONAL FINANCE Financial Decisions an Individual or Family must make in order to earn, budget, save, and spend their money. Decisions are based on a variety of financial risks and planning for the future. Why is it Important? Teenagers Face small financial responsibilities that start to creep into their life. KEY COMPONENTS OF FINANCIAL PLANNING 1. You Must ASSESS your financial situation (income, assets, and liabilities). 2. Set Money GOALS. Make sure you have a mix of both short-term & long-term goals. 3. You MUST write out a detailed plan. This is your Budget. 4. Execute your Plan – Discipline & Perseverance 5. Know Your Money Personality. 6. Monitor & Reassess your Plan SECTION 2 HISTORY OF CREDIT & CONSUMERISM Credit Prior to 1917 Buying things on credit was Uncommon Illegal for lenders to charge interest rates high enough to make a profit. Lending money was not a money making business. Small loan sharks offered loans at EXTREMELY high interest rates After 1920 Consumer demand for big ticket manufactured items increased. Credit laws were relaxed as an attempt to mainstream alternatives to loan sharks to the working middle class. HISTORY OF CREDIT & CONSUMERISM Great Depression In attempt to help Americans regain their financial footing New Deal policymakers came up with mortgage & consumer lending policies that convinced commercial banks that consumer credit could be profitable. WWII Fuels an Economic Recover Proved to be the most important economic event in the 20th century. Revived the American industry through government spending and consumption War created jobs which provided an increase in income and a permanent improvement to the standard of living HISTORY OF CREDIT & CONSUMERISM Post WWII Consumerism Birth of the Suburbs Post-war middle class bought the American Dream with credit. Learned to borrow money in the midst of prosperity. Borrowed because they believed incomes would grow. Incomes grew steadily from 1945-1970 Banks lent more money and borrows paid it back. Borrowing became normal Decline into Debt After 1970, consumer debt skyrocketed b/c people continued to borrow the same way, but without the post-war well paying jobs. Banks were making HUGE profits so they lent more & more. Credit Industry became smarter than the borrowers. Credit world now resembles the pre-1920 “loan sharks” Credit System Now been reformed to accommodate uncertain employment and income stability (high-risk borrower) INSTEAD of…. Low Risk Borrower that had rising wages and stable employment. TODAY’S REALITY Many Families only have the appearance of being financially secure. Manicured Lawns, Nice Houses, & New Vehicles are a Mirage – THEY AREN’T ACTUALLY OWNED. Most of these people are in debt Car Loans, Student Loans, Credit Cards, Mortgage/Homes Why are American’s not better at managing their money? They have never been taught the RIGHT WAY! DEBT PROFILE Debt Profile of American Family Average Credit Card Debt $15,799 Average Mortgage (Home) Debt $149,667 Average Student Loan Debt $32,559 Average Car Loan Debt $13,125 THIS DOES NOT HAVE TO BE YOUR FUTURE REALITY Learning to Manage your money well from the start can avoid stress and living paycheck to paycheck. AMERICANS ARE BEING OUTSMARTED Debt Becoming Profitable has led to our current debt system. Americans today, charge more than $1 trillion. There is nothing wrong with a business turning a profit – the problem is American’s are being outsmarted. 1. 2. 3. 4. 5. We LIKE Stuff! We are told Debt is NORMAL. We are taught that we can BUY HAPPINESS Our debt system keeps us from building wealth. Become AWARE of it & QUESTION it! SECTION 3 LEARNING YOUR LANGUAGE OF MONEY NO ONE is born Financially Smart! Learning the Language of Personal Finance is the 1st step to becoming Money Smart. The language of money is spoken in a vocabulary of: Accounting Understanding Credits, Debts, assets, and liabilities You must learn enough to understand your personal financial statements and communicate effectively about your finances LEARNING YOUR LANGUAGE OF MONEY Knowing the language of money allows you to tell your money what to do. Decide where your money is going before you get your paycheck. You’ll be able to communicate with bankers, financial planners, and insurance agents. Focus on understanding the vocabulary & you’ll become an expert on your money. BECOME MONEY SMART 1. Be comfortable with BASIC Math. Adding, Subtracting, Multiplying, Dividing, Percents 2. Start learning the language of money. 3. Manage your Behavior with Money. WINNING WITH MONEY 1. Survival: Hope that there is enough money to pay the bills. You work for every dollar you earn and spend everything you earn. 2. Comfort: have a basic understanding of money management, you have a SMALL monthly surplus, you learn to save and invest – slowly building wealth. 3. Secure: Instead of saving and investing a small surplus, you arrange your finances that wealth generates your income. You MAKE your money work for you! HOW YOU VIEW MONEY MATTERS WINNING WITH MONEY 80% Behavior & 20% Knowledge DISCUSSION QUESTIONS: 1. Can you think of a financial goal you have at this moment? Is this a long-term or short-term goal? Describe your plan to achieve this financial goal. 2. In what ways could you become better when it comes to managing your money? 3. Why is it important to set money goals? 4. In what ways are people different when it comes to managing money? 5. What can you do to make sure your future financial reality does not include debt? BE SURE TO ANSWER THESE QUESTIONS – IN DETAIL – AND UPLOAD YOUR RESPONSES TO THE NOTES/PODCAST ASSIGNMENT ON CANVAS.
