Financial Literacy: A New Direction for Colorado

1. Financial Literacy: A New Direction for Colorado Dr. Teresa Yohon Colorado State University

2. Objectives Introduce financial literacy and economic concepts Provide lessons that can be used in the classroom Provide resources in the financial literacy area

3. Introduction • Colorado Financial Literacy standards (DRAFT) • Jump$tart 2006 Literacy test • Can also complete online • http://www.savingadvice.com/quiz.php?quiz=7&page=quiz What are the difficult financial concepts for students?

4. Economic Way of Thinking(From: Financial Fitness for Life—Teacher Guide, NCEE) • People choose. • All choices involve cost. • People respond to incentives in predictable ways. • People create economic systems that influence choices and incentives. • People’s choices have consequences for the future.

5. Wants vs. Needs • Wants are the unlimited desires that you have for goods and services. • Needs are goods and services that you require to survive. Economists are moving away from using “needs”. There are only wants!

6. What is a Necessity? Pew Research – What Americans Need 2006-2009 http://pewsocialtrends.org/assets/pdf/luxury-or-necessity-2009.pdf What has decreased in value as a necessity? --Car -- Clothes dryer --Air conditioning --TV -- Home computer --Cell phone --Internet -- Cable TV --Microwave --iPod -- Dishwasher --Flat screen TV

7. Opportunity costs Opportunity cost: the value of the best forgone alternative to any decision. Tradeoff is the idea that you have to give up something to get something else. The tradeoff can be money, time, or completing a different activity.

8. Scarcity Scarcity: when the available resources are insufficient to satisfy your wants. Economic decisions need to be made.

9. Economic Decision Making Define the problem List alternatives State criteria (what’s important to you) Weigh criteria Evaluate alternatives Make a decision

10. Emotions and Finances A + B = C Activating Belief Consequences Event Bad test? ? Self Worth Stress Love and Marriage Thoughts, feelings, and behaviors

11. Lessons Should I Use Credit or Not? http://www.econedlink.org/lessons/index.php?lesson=158&page=teacher Staying Afloat Financially in the 21st Centuryhttp://www.econedlink.org/lessons/index.php?lesson=792&page=teacher

12. Weighted Decision Grid

13. Emotions and Finances Teaching ideas: • Collect ads that promote easy credit to lure customers to purchase • Create a list of things that may appeal to consumers (e.g., attractive people, being part of a group, vanity, etc.) • Develop a list of consumer purchasing incentives and how they use emotions

14. Economic Way of Thinking SNL skit:http://consumerist.com/consumer/clips/snl-skit-dont-buy-stuff-you-cant-afford-252491.phpYouTube: http://www.youtube.com/watch?v=nFY0HBkUm8o

15. Financial Goal Setting (from NEFE) S.M.A.R.T. Goals— • Specific – knowing exactly what we want – i.e., $1 million investment portfolio • Measurable – ability to track progress • Actionable – knowing the steps needed to achieve the goal – i.e., by saving and investing our money • Realistic – being in the realm of possibility – i.e., $1 million is within our saving and investing abilities • Timely – knowing when the goal will be achieved – i.e., 2017

16. Types of Goals • Short-term (0 to 2 years) • Where does the money come from for short-term goals? • Intermediate-term (3 to 10 years) • Where does the money come from for intermediate-term goals? • Long-term (15+ years) • Where does the money come from for long-term goals?

17. The Typical Millionaire (From Building Wealth, Dallas Federal Reserve) 1. Most millionaires inherited their wealth. 2. Most millionaires earn more than $500,000 per year. 3. College graduates earn about twice what high school graduates earn over a 40-year work life. 4. People who are self-employed rarely become millionaires. 5. All millionaires wear expensive clothes. 6. Millionaires usually drive new cars. 7. Many millionaires drop out of college to start work. 8. It is impossible to save enough to be a millionaire.

18. Building Your Wealth Building Wealth (Typical Millionaire list from this resource) http://dallasfed.org/ca/wealth/index.cfm Link to all Federal Reserve educational materials http://www.federalreserveeducation.org/fred/

19. Accounting Equation Assets = Liabilities + Owner’s Equity (Net worth) What are Wealth-creating assets? • Possessions that generally increase in value over time or provide a return Introduce: Depreciation

20. Balance Sheet • Assets (things owned by a business) • Current (things to be used by a business within a year) • Fixed • Liabilities (things owed by a business) • Current (things owed by a business within a year) • Long-term • Owner’s equity or Net worth (difference between assets and liabilities)

21. Building Net Worth John is the president and CEO of a software company. He owns 60% of the stock in the company. He loves helicopters and built a pad next to his house so he could land his new helicopter on the property. He has a mortgage on the house and a loan for the helicopter. Create a balance sheet that shows John’s assets and liabilities.

22. Credit for Beginners • http://www.econedlink.org/lessons/index.php?lesson=326&page=teacher • Worksheet #1 • Credit Card Mystery • http://www.econedlink.org/lessons/index.php?lesson=EM28&page=teacher • Update students knowledge of: • Bankruptcy • Credit card rules • Credit reports

23. Other Credit Lessons Information on Student Credit Cards • http://www.cardtrak.com/cards/categories/student.html Who is credit worthy? • http://www.econedlink.org/lessons/docs_lessons/481_em481_Who_is_Creditworthy1.pdf Free credit reports • http://www.ftc.gov/freereports

24. Credit worthiness Use cases and ask students if the person if credit worthy (example) • Capacity • Character • Collateral

25. Growing Money Compound interest: http://www.moneychimp.com/calculator/compound_interest_calculator.htm Present Value: The present value is the total amount that a series of future payments is worth now. Looking at present value • http://www.practicalmoneyskills.com/calculators/ • http://www.timevalue.com/calculators/present-value-calculator.aspx

26. Future Value Retirement and future value • http://www.bestofamerica.com/mm/pub/advice/futureValue/futureValue.html Simple future value calculator • http://www.timevalue.com/calculators/future-value-calculator.aspx Compound interest calculator • http://www.econedlink.org/personalfinance Value of higher education • http://calculators.aol.com/tools/aol/college02/tool.fcs

27. Lessons Calculator-Amortization http://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx Lesson: Benefits of Investing Early • http://www.econedlink.org/lessons/index.php?lesson=603&page=teacher

28. Resources • Banzai http://www.teachbanzai.com/ • Practical Money Skills http://www.practicalmoneyskills.com/ • Council for Economic Education www.econedlink.org • Smart About Money http://www.smartaboutmoney.org/

29. Resources • National Endowment for Financial Education www.nefe.org • What’s My Score http://www.whatsmyscore.org • It All Adds Up http://www.italladdsup.org • LifeSmarts http://www.lifesmarts.org/

30. Wrap-up • Questions? • Resources • Workshop spotlight Light bulbs