Life in United States: Family Finance Simulation

1. Welcome to Life in…United States …a Family Finance Simulation Developed by: Family Economics & Financial Education Project Take Charge America Institute - University of Arizona Funded by a grant from Take Charge America, Inc.

2. Create a spending plan Incorporate the decision making process into daily life Demonstrate the relationship between income and education Provide realistic insights into the costs of living associated with the spending plan process Objectives

3. What is “Life In…” ? • Family finance simulation • Emulates the “real life” constraints households encounter when managing their finances • All costs are national averages • United States Census Bureau, United States Department of Labor, Bureau of Labor Statistics, United States Department of Agriculture, National Coalition on Health Care, and various private businesses • Simulation is an average community in the United States • 25 individuals in 18 households

4. Background information • Background Information • Describes individual and/or family values, needs and wants • Family dynamics and lifestyle choices are explained • Occupational Outlook Handbook guides • Nature of work, working conditions, training required, job outlook and earnings • Read carefully to learn more about your new identity

5. What are Spending plans? • Spending Plan • A financial statement used to assist in money management comprised of income and expenses • Income - money earned or received • Expenses - money spent • Fixed Expenses - stay the same every month, due on a certain date • Flexible Expenses - vary month to month, can be decreased or eliminated

6. Major expenditure Percentages • Identify the average percent of net income spent in a specific category • Use as a guide when making spending decisions • Percentages should be adjusted to meet individual values, needs and wants • Other includes items such as: • Clothing • Personal care • Entertainment • Donations

7. What to complete • Goal of “Life in…” • Make spending plan decisions to meet the needs of the family by balancing their income and expenses • Assignments to complete • Setting a Financial Goal worksheet 3.18.4.A1 • Guided Spending Plan worksheet 3.18.4.A2 • Spending Plan Statement 3.18.4.A3

8. Life in…United States

9. Who are you? • Review your profile • Remember to consider the family’s values, needs and wants when making decisions • All items printed in red text must be included in the spending plan

10. Setting a financial goal • Set a financial goal • Financial goals provide direction when creating a spending plan • Behind Spending Plan tab, complete each section of a SMART goal • Review profile and consider the family’s values, needs and wants • Set SMART financial goal • A financial goal will be recorded on question #2 on the Guided Spending Plan

11. Understanding the paycheck • Under the profile tab review the paycheck(s) for your scenario • Review all elements of a paycheck • Gross income • Payroll deductions • Net income

12. Complete the following: • Based upon your paycheck, question #3 in the Guided Spending Plan will include the following: • Gross income • All paycheck deductions • Calculate net income • For dual-income families, add both paychecks together

13. Saving • A person should save 10% of net income • Determine what amount you will be saving or investing • Guided Spending Plan question #4 is the savings component

14. Housing • Housing, on average, is 30% of an households net income • The information sheet describes basic terminology, renting vs buying, mortgages, how to determine insurance costs and various types of insurance • Guided Spending Plan Question #5 is where housing information will be recorded

15. Housing Purchase Rent Must include all items in red in your spending plan Rent Laundromat (when applicable) If you have a pet, your rental unit must allow for them and applicable fees paid Renter’s insurance is not required, but recommended $15.83/mo. for $25,000 coverage • Must include all items in red in your spending plan: • Mortgage • Insurance • Property taxes • Repairs and maintenance Only choose a house available for the type of location in which you live!

16. Housing Amenities • Required amenities • Power • Water/sewer • Garbage • Some rentals include all or some of the required amenities • Optional amenities • Internet • Cellular phone • Home phone line • Cable/Satellite • Recycling

17. Transportation • Transportation, on average, is 20% of a households net income • The information sheet describes basic terminology, new vs. used, automobile financing, how to determine insurance costs and various types of insurance • Transportation information will be recorded on question #6 of the Guided Spending Plan worksheet

18. Transportation Transportation options: Things to know: All items in red must be included in the spending plan Payment Insurance Fuel costs Repairs and maintenance If an alternative option is chosen, it must be appropriate for the location • Purchasing new: • Not pre-owned, warranty, wide selection • Purchasing used: • Costs less, lower insurance rates, depreciates more slowly • Alternative options: • Less expensive than a vehicle • Availability is limited in some locations Some profiles indicate transportation choices the family has made

19. Food • Food, on average, is 15% of a households net income • Food information will be recorded on question #7 of the Guided Spending Plan worksheet

20. Types of Food Plans • Thrifty • Generic brands • Canned fruits and vegetables • No junk food • Chicken and hamburger • Low-cost • Generic brands • Some fresh fruit and vegetables • Chicken, hamburger, turkey, ham • Moderate-cost • Mostly fresh fruit and vegetables • Both name brand and generic • Variety of meats • Liberal • Organic • Name brands • Fresh fruit and vegetables • Variety of meats including steak and lobster

21. Insurance • Insurance, on average, is 7% of a households net income • The information sheet describes basic terminology, how to determine insurance costs and various types of insurance • Insurance information will be recorded on question #8 of the Guided Spending Plan worksheet

22. Cost of Raising Children • Select the appropriate table based upon single or two parent families and income • Record total on the Guided Spending Plan #9

23. Credit card statements America’s Debt • A 2007 survey of college students said that one-third of students reported having two credit cards or more, while 12% had three or more credit cards • College students carry an average of $1,035 of credit card debt (this does not include college loans) • Source: Buffalo State College, Financial Literacy Key to Prevent College Student Credit Card Debt, October 2007, http://www.newswise.com/articles/view/534061 • Congratulations! • Your monthly credit card bill has arrived • Guided Spending Plan Question 10 • Identify how much debt, if any, was received • Need to include at least the minimum payment

24. Personal Profile Expenses • Review personal profile and record all expenses printed in red • Hobbies, activities, medical expenses, pets, charity donations, extra bills, habits, etc. • Expenses identified in red are valued or necessary and can not be eliminated • Incorporate any expenses not already included in the Average Expenditures section of the Guided Spending Plan question # 11

25. Chance cards • Each day brings new surprises… • Why a spending plan is a “plan” for how to allocate your money • Spending plans are always evaluated and adjusted based upon life's events • Guided Spending Plan Question # 12 • Identify what chance card was received • Incorporate that chance card into your spending plan

26. Balancing the spending plan • Guided Spending Plan Question #13 • Transfer all income and expense subtotals throughout the worksheet onto this chart • Subtract the total expenses from the total income • Your balance must equal zero • Make changes as necessary • If there is a net gain, where will the extra money be allocated? • If there is a net loss, identify what changes may be made? • Identify decisions made to have the spending plan balance

27. Creating the Spending Plan Statement • Write your revised goal on the Spending Plan Statement • Transfer all income and expense information to the Spending Plan Statement • Identify the percentage of net income spent on each category

28. Discussion

29. Reflection • Identify two things you learned as a result of completing this simulation which you will employ in your daily life in the next five years. • Do you feel that insurance is an essential component of a financial plan? Why or why not? • How did working with a partner and discussing options influence decisions? Was it hard, easy? • What do you feel is the most difficult component of creating a spending plan which families encounter?