Download Lesson 18 - Managing Risk (PPT) - Montana Council on Economic

LESSON 18
MANAGING RISK
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
"Denial is a common tactic that substitutes
deliberate ignorance for thoughtful planning."
Charles Tremper
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
LESSON 18 – MANAGING RISK
Risk Defined
• A common definition of risk is “Any uncertainty
which, if it occurs, will have an effect on achievement
of one or more objectives.” This generic definition
allows us to apply risk management to a broad range
of activities, wherever we can define distinct
objectives.
• This includes personal risk management, identifying
and managing uncertainties that could affect
achievement of our personal objectives.
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 18.1
LESSON 18 – MANAGING RISK
It’s Risky Out There
• What’s the risk in
■ Having a breakfast sandwich and a hot drink at a fast-food
restaurant before school?
■ Driving to school?
■ Listening to your music or texting friends during class time?
■ Playing tennis after school?
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
LESSON 18 – MANAGING RISK
What is personal risk management?
• A well-constructed financial plan has two parts
■ Wealth creation is designed to build and preserve capital
based on the assumption that you will have continued good
health and live to a certain age.
■ Wealth preservation is known as risk insurance and is
concerned with assessing your financial circumstances and
ensuring that your assets and resources are protected. Risk
insurance is a simple means of transferring risks from
individuals who cannot afford to retain the risks, to insurers
who can.
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 18.2
LESSON 18 – MANAGING RISK
Flipping Out Over the Cash
• Imagine that I have a brief case filled with $150,000
in cash.
• Option One: You keep the cash.
■ You can have the $150,000 right now! No strings attached.
• Option Two: Double or nothing.
■ Based on a double or nothing coin flip, you can have $0 if you
lose the coin toss or $300,000 if you win.
• Which option would you choose?
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 18.4
LESSON 18 – MANAGING RISK
Auto Insurance
• Auto insurance provides financial protection from
losses due to an auto accident or other damage.
• Types of auto insurance coverage:
■ Collision provides for the repair or replacement of the car
damaged in an accident.
■ Liability covers the cost of property damage or injuries to
others caused by the policy owner.
■ Comprehensive covers the cost of damage to an auto as a
result of fire, theft, or storms.
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 18.5
LESSON 18 – MANAGING RISK
Renters’, Health, and Disability
• Renters’ insurance provides financial protection in case
of loss of personal possessions in a rental unit due to
theft, fire, water damage, and so forth.
• Health insurance provides payment for certain health
care costs.
■ Basic health covers office visits, lab work, hospital costs, and
routine care up to a certain limit.
■ Major medical provides protection against catastrophic
illness.
• Disability insurance provides income over a specified
period of time when a person is ill or unable to work.
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 18.6
LESSON 18 – MANAGING RISK
Life Insurance
• Life insurance provides financial protection to
dependents of the policy owner when the policy owner
dies.
■ Term life offers protection for a specified period of time. If you
don’t die within that time, you don’t get the money (which is a
good thing, remember?).
■ Permanent life offers protection that remains in effect during
the lifetime of the insured and acquires a cash value.
■ Or you can purchase a variable plan which combines both.
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 18.3
LESSON 18 – MANAGING RISK
Diversification Can Reduce Risk
• Diversification means replacing a single risk with a large
number of smaller risks.
• Asset diversification means spreading your investment
funds out over various investment options such as stocks,
bonds, and mutual funds.
• Stock diversification means spreading stock ownership risks
out over many companies of different sizes, in different
sectors, and in different locations.
• Insurance diversification means spreading some of the other
risks you face – arising from car accidents, theft, and fire –
out over other insurance policy holders.
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY