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FINANCIAL LITERACY FOR THE ELEMENTARY CLASSROOM Day One. Sponsored by: Maryland Council on Economic Education and Towson University College of Business and Economics. Questions? Online material on Decision Making, Scarcity, Wants, Opportunity Cost. Day One Session 1 Standard One (continued) Make Informed, Financially Responsible Decisions Where have we been? Economic wants Opportunity cost Scarcity Decision making How are all of these concepts important to economics and personal finance? Households and businesses make decisions about how to use resources to achieve goals Making the Connection What resources? – skills and talents Capital – goods used in the production of final goods/services Natural – gifts of nature Human So now lets link all of these economic concepts to financial literacy material (what are these goals anyway?) Personal Finance Goals Goal: statement about what a person wants to be, to do, or to have accomplished by taking certain steps; provides direction to a plan of action. Financial Goals are things you want to accomplish that cost or involve money. For example, Debt reduction Get through holidays without debt Pay for college for my two children Retire at 70 and live comfortably Attitudes about money, saving and investing impact goals. Will talk about developing financial goals next class. What Impacts PF Decisions or Actions? Age, sex, race Family size and structure Confidence or trust (banks, investing, medical) Personality (future oriented) Income sources and level Religion Health Expectations (earnings, lifestyle, health, …) Final Decision - Where to Buy? Market – where goods, services and resources are bought and sold. Good – tangible items that are made/grown that satisfy an economic want. Services – actions that people do for one another to satisfy economic wants. Requires both a buyer (demand / consumer) and seller (supply / producer). Markets exist in many places: Face to face (school lunch, grocery store, babysitter) Phone, mail or online (eBay, craigs list, website or catalog) How do you choose market type? Personality and preferences. Types of Markets Just like many sources of income, there are many types of markets: Output market – consumers and producers efficiently determine price and quantity of output available. Output is a good or service. Labor (input) market – employers and workers efficiently determine wages and quantity of labor hired. Financial market – consumers and producers efficiently determine the price and quantity of the item (stocks, bonds, commodities) available. Philanthropy A personal or corporate interest in helping others, especially through gifts to charities, or endowments to institutions. Does NOT have to involve money: Volunteer service – working to help others in the community without being paid (read-a-thon) Charity – The voluntary provision of money, materials, or help to people in need (trick or treat for UNICEF, canned food drive) Day One Session 2 Standard Two: Relate Careers, Education and Income Why do we work? To make purchases (money does not grow on trees). Most people get money by earning it (income) in the labor market. Brainstorm (as a child) – where could you get money? What special human resources (skills and talents) do I have? How do I enjoy spending my time: Do my friends, neighbors or family need help with something? Are there capital resources I have at home or could borrow (computers, tools or art supplies) and use to earn money? Sources of Income Income from employment: Determined by education, training, interests, location, personal characteristics and luck. Largest source for most. Investment income: financial skills, personal characteristics Inheritance or gifts: intergenerational impact Jobs and Careers A job can lead to a career (pattern of activities and positions involved in an individuals lifetime of work to which the person has made a long term commitment). What impacts career choices? Education, personal characteristics, wealth, opportunities, interests, income potential (from education, training), time preference… Why care about jobs? Larger macroeconomic benefit of jobs and encouraging employment: provide income income allows for consumption consumption creates more job growth. Circular flow. Jobs How does income impact spending? Cash for consumption or saving (marginal propensity to consume) Determines access to credit (more next class) Day One Session 3 Standard Three (supplemental): Plan and Manage Money First, let’s clarify something… Saving different from investing. Some think the two are the same… they are wrong! Saving – short term Investing – long term How are these distinct? Let’s take a look… Saving One saves by reducing present consumption - a fisherman who spares a fish for use as tomorrow’s bait, reduces his present consumption in the hope of increasing it in the future. Savings are typically for short-term needs such as eating tomorrow (the fish), emergencies or upcoming expenses such as holiday season, vacation, weekend plans. Since it is short term you earn a low, fixed rate of return and can withdraw your money easily. Savings account, money market, cd, piggy bank. Investing One invests in the hope of increasing future consumption (realizing higher long-term returns). But, it is risky… Unlike bank savings, stocks and bonds over the long term have returned enough to outpace inflation, but they also decline in value from time to time. The decision about which investment to choose is influenced by factors such as yield (rate of return), risk (probability of losing money), and liquidity (how likely you are to need to convert to cash). Phew! Now that we have clarified the difference between saving and investing… let’s move on. Spending Plan (aka Budget) Budget – A plan that balances money coming in (income) with money going out (expenses). Make a list of all income sources. Make a list of all expenses. Do you have enough for everything? Use a budget to make decisions about what is most important to you. Debbie has a great budget example for you. Products at Financial Institutions Organizations that provide financial services for its clients or members. Checking account (interest bearing on some, low risk) Savings account (low interest rates, low risk) Money market account (minimum balance, interest, low risk) Certificate of Deposit (fixed term, interest, fee for early withdrawal) Mortgages Insurance Bank websites are excellent sources for information on these account types. Financial Goals We talked about these last class – they are the things you want to accomplish that cost or involve money. Goals can be short term (one year), medium term (3-5 years) and long term (5+ years). Examples include debt reduction, wealth accumulation for retirement, buy a house/car/iPhone. Developing Financial Goals Goals based on personal values What do you want to accomplish (helping others, self, community, church, family). Allow them to define – do not tell what “should” be goal. Age appropriate financial goals Time preference and young children. Budget size. Ways to earn (job opportunities) and save for future What do people need? Child or pet care (dog walking) Chores or errands for family or neighbor. Let’s have some fun. Time to play a game… Taxation Taxes are a compulsory payment by individuals or organizations to the government; fees placed on income, property, or goods to support government programs. What do taxes support? Public goods. How do taxes affect individuals, families, and communities? Services and opportunities? Reasons for paying taxes? Tragedy of the commons. Contracts with Consequences Contracts are legally enforceable written or oral agreements between two of more parties to do or not so something. Credit is a contract. Common for children: behavioral, cell phone, library card, jobs (babysitting, yard work, paper route), allowance, promises. Why enter into a contract?
