Methods for Teaching Financial Literacy with Economic Reasoning

1. Methods for Teaching Financial Literacywith Economic Reasoning CCEE Summer 2012 Program Millionaire Game Colorado PFL and Economics Standards July 9 – 13, 2012 John Brock, Professor of Record

2. Colorado Council for Economic EducationFaculty • John Brock • Director, Center for Economic Education • University of Colorado, Colorado Springs • jbrock@uccs.edu • Master Teachers • Social Studies: Pam Patrick, Social Studies, Cherokee Trail HS • Mathematics: Ann Brock, retired Math teacher, Lewis-Palmer HS

3. Let’s Get Started!

4. “Assets” “Liabilities” What Is Wealth? • Wealth = (What you own) minus  (What you owe)

5. What’s a Millionaire? • Household with a net worth (or wealth) of: • $1,000,000 (or more)* • Let’s play a game . . . *Definition of millionaire often excludes primary residence.

6. The Millionaire Game* • Divide into two-person teams • Rules: • Statements appear on screen. • Each team decides True or False. • Circle chosen answer on sheet provided. • True or False * Shortened version of FFFL, 2nd ed., Lesson 1

7. Statement 1: Most millionaires are college graduates. Statement 2: Most millionaires work fewer than 40 hours per week. Statement 3: Most of America’s millionaires are first-generation rich. Statement 4: The average total household annual income of today’s millionaires is about $120,000. Millionaire Statements

8. Statement 5: Nearly 50% of millionaires drive current-year cars. Statement 6: Many poor people become millionaires by winning the lottery. Statement 7: College graduates earn about 60% more than high school graduates earn. Statement 8: Millionaires tend to avoid the stock market. Millionaire Statements

9. Statement 10: American families of English ancestry are more likely to be millionaires today than households of other ethnic origins. Statement 9: At age 18, you decide not to purchase soft drinks from the vending machine and save $1.50 a day. You invest this $1.50 a day at 8% annual interest until you are 67. At age 67, your savings are almost $150,000. Millionaire Statements

10. How Did We Do? • For each statement, hold up the card • T for true • F for false • According to answer sheet: • correct answer = + 5 • incorrect answer = - 5 • Each team has 1 Millionaire card • correct (+10); incorrect (-10) CCEE Millionaire Champion Sources: Millionaire Next Door, Millionaire Mind, & Getting Rich in America July 2012

11. Statement 1 • Most millionaires are college graduates. • 80% of millionaires are college graduates. • 18% have Master’s degrees • 8% have law degrees • 6% medical degrees • 6% Ph.D.s • True Diploma University of Colorado Colorado Springs Education

12. Statement 2 • Most millionaires work fewer than 40 hours per week. • About 67% of millionaires work 45 to 55 hours a week. • False Earn

13. Statement 3 • Most of America’s millionaires are first-generation rich. • Only 19% received any wealth of any kind from a trust fund or estate. • Fewer than 10% inherited 10% or more of their wealth. • True Earn

14. Statement 4 • The average total household income of today’s millionaires is about $120,000. • Total income reported among millionaire households averaged $119,000 (2005). • Frugal, Frugal, Frugal • True Save

15. Statement 5 • Nearly 50% of millionaires drive current-year cars. • Most millionaires spend under $30,000 for a car. • Only 23% drive a current-year [new model] car. • False Save

16. Statement 6 • Many poor people become millionaires by winning the lottery. • Few people get rich the easy way! • Chance of winning about one in 12 million. • Average person who plays every day have to live about 33,000 years to win once. • In contrast, you have a one in 1.9 million chance of being struck by lightning. • A pregnant woman has one chance in 705,000 births to have quadruplets. • How many sets of quadruplets do you know? • False Save & Invest

17. Statement 7 • College graduates earn about 60% more than high school graduates earn. • In recent years the average college graduate earned 63% more than the average high school graduate did. • True Education

18. Statement 8 • Millionaires tend to avoid the stock market. • Long term, the S&P 500 Stock Index has increased about 10% compound annual rate of return, exceeding the return on any other investment. • False Invest

19. Statement 9 • At age 18, you decide not to purchase vending machine soft drinks &save $1.50 a day. • You invest this $1.50 a day at 8% annual interest until you are 67. • At age 67, your savings are almost $150,000. • Because of the power of compound interest, small savings can make a difference, • almost $300,000 in this case. • False Save

20. Statement 10 • American families of English ancestry are more likely to be millionaires today than households of other ethnic origins. • In the mid-to-late 1990s: • Russian • 22% are millionaires • Scottish • 21% are millionaires • Hungarian • 15% are millionaires • English • 7.7% are millionaires • False Financial Fitness

21. The Moral of the Story? • Learning outcome for our students? • A formula for financial fitness: E2 + S + I2= F2 • Education, Earn, Save, Invest and Insure • equals Financial Fitness People who “have it all,” didn’t get there by accident. They had a plan and followed it. (as reflected in the Millionaire Game)

22. The Colorado PFL Content Standards

23. Personal Financial Literacy: Economics • Content Area: Social Studies (4 standards) • History, Geography, Economics, Civics • Economics: 7 Grade Level Expectations • 3 “traditional economics,” covering (although not labeled as such in the standards): • microeconomics • macroeconomics • international • 4 personal financial literacy (PFL)

24. Standard 3: Economics Grade Level Expectation: High School 4. Design, analyze, and apply a financial plan based on short- and long-run financial goals • Selected Evidence Outcomes & 21st Century Skills: • Develop a financial plan including a budget • Describe factors affecting take-home pay • Sources of personal income • Legal and ethical responsibilities regarding taxes • Role of education in building financial security Education + Earn (+ a bit on Saving)

25. Standard 3: Economics Grade Level Expectation: High School 5. Analyze strategic spending, saving, and investment options to achieve the objectives of diversification, liquidity, income and growth. • Selected Evidence Outcomes & 21st Century Skills: • Investments available for diversified portfolio • How economic cycles affect financial decisions • Investments to achieve liquidity, growth, income. • How compound interest manifests in investment and debt situations. Invest

26. Standard 3: Economics Grade Level Expectation: High School 6. The components of personal credit to manage credit and debt. • Selected Evidence Outcomes & 21st Century Skills: • Analyze lending sources, services & financial institutions • Building and maintaining a credit history • Similarities & differences in revolving credit, personal loans and mortgages Save (via responsible use of credit)

27. Standard 3: Economics Grade Level Expectation: High School 7. Identify, develop and evaluate risk-management strategies. • Selected Evidence Outcomes & 21st Century Skills: • Differentiate between types of insurance • Explain function and purpose of insurance • Select and evaluate strategies to mitigate risk • Additional ways individuals can alleviate financial risk Protect with Insurance

28. Standard 3: Economics Grade Level Expectation: Eighth Grade 2. Manage personal credit and debt. • Selected Evidence Outcomes & 21st Century Skills: • Analyze benefits and costs of credit and debt. • Compare sources of credit. • When is debt useful? Save (via responsible use of credit)

29. Standard 3: Economics Grade Level Expectation: Seventh Grade 2. The distribution of resources influences economic production and individual choices. • Selected Evidence Outcomes & 21st Century Skills: • Explain the role of taxes. • Define various types of taxes. • Demonstrate the impact of taxes on individual income and spending. • Factors influence production…supply, demand & price Earn

30. Standard 3: Economics Grade Level Expectation: Sixth Grade 2. Saving and investing are key contributors to financial well-being. • Selected Evidence Outcomes & 21st Century Skills: • Differentiate between saving and investing. • Explain how saving and investing can improve financial well-being. • What are risky investments and why would someone make that type of investment? Save and Invest

31. Personal Financial Literacy: Mathematics • Content Area: Mathematics (4 standards) • Number Sense, Properties, & Operations • Patterns, Functions & Algebraic Structures • Data Analysis, Statistics, & Probability • Shape, Dimension, and Geometric Relationships • Grade Level Expectations • Evidence Outcomes (PFL) • 21st Century Skills (PFL)

32. Mathematics Standard 1: Number Sense Grade Level Expectation: High School 2. Formulate, represent, and use algorithms with real numbers flexibly, accurately, and efficiently. • Selected Evidence Outcomes & 21st Century Skills: • Describe factors affecting take-home pay and calculate the impact. • Design and use a budget. • How much money is enough for retirement. • Is education worth the cost? Education & Earn; and Save

33. Mathematics Standard 2: Algebra Grade Level Expectation: High School 6. Quantitative relationships in the real world can be modeled and solved using functions. • Selected Evidence Outcomes & 21st Century Skills: • Analyze the impact of interest rates. • Evaluate the costs and benefits of credit. • Evaluate various lending sources. • How much would today’s purchase cost tomorrow? Save and Invest

34. Math Standard 3: Probability & Statistics Grade Level Expectation: High School 5. Probability models outcomes for situations in which there is inherent randomness, quantifying the degree of certainty in terms of relative frequency of occurrence. • Selected Evidence Outcomes & 21st Century Skills: • Find and interpret the expected value and standard deviation of a discrete random variable X [non-PFL]. • Analyze the cost of insurance as a method to offset risk. • How does probability relate to insurance? Invest & Insure

35. Mathematics Standard 1: Number Sense Grade Level Expectation: Eighth Grade 2. Formulate, represent, and use algorithms with real numbers flexibly, accurately, and efficiently. • Selected Evidence Outcomes & 21st Century Skills: • Analyze how credit and debt impact personal financial goals. • Computational fluency…allows individuals to accomplish daily tasks…such as…calculating overtime pay,…calculating interest … Earn, Save & Invest

36. Mathematics Standard 1: Number Sense Grade Level Expectation: Seventh Grade 2. Formulate, represent, and use algorithms with real numbers flexibly, accurately, and efficiently. • Selected Evidence Outcomes & 21st Century Skills: • Solve problems involving percent of a number, discounts, taxes, simple interest, percent increase and decrease. • Use algorithms to help individuals spend money wisely. • Use percentages to represent quantities…such as amount and types of taxes paid… Save and Invest

37. Mathematics Standard 1: Number Sense Grade Level Expectation: Seventh Grade 3. Proportional reasoning involves comparisons and multiplicative relationships among ratios. • Selected Evidence Outcomes & 21st Century Skills: • Estimate and compute unit cost of consumables sold in quantity to make purchase decisions. • The use of ratios, rates, and proportions allows sound decision-making in daily life. Save (via control of spending)

38. Mathematics Standard 1: Number Sense Grade Level Expectation: Sixth Grade 3. Quantities can be expressed and compared using ratios and rates. • Selected Evidence Outcomes & 21st Century Skills: • Express the comparison of two whole numbers using…part-to-part ratios, and part-to-whole ratios in real contexts, including investing and saving. Save and Invest

39. The PFL Standards … • … are summarized with our financial fitness formula: E2 + S + I2 = F2 • Education, Earn, Save, Invest & Insure • equals Financial Fitness

40. Scarcity • Wants > Availability • or, • Unlimited wants > Limited resources

41. ScarcityChoice • Economics is: • the study of choice

42. The Economic Way of Thinking: Key Concept • Scarcity necessitates choice • people must choose

43. Develop a Decision-Making Framework for Students • Help make decisions • by learning a process for more careful choice

44. Decision-Making Model PACED • Define theProblem • List theAlternatives • State theCriteria • Evaluatethe Alternatives • Make aDecision

45. Let’s Make Another Set of Choices …

46. If one does not know to which port one is sailing, no wind is favorable. Lucius Annaeus Seneca, Roman philosopher Financial Planning • Would you like to run in a race? • So that you can plan & train appropriately • you’d want to know: • How long is the race? • Begin with end in mind, then develop a roadmapon how to get there.

47. Financial Plan Step 1: Goal Setting • Goals – something you want: • to be • to have • to do • Goals will point you in a direction. • Goals toward which to aim • Your values (beliefs important to you) • impact your goals

48. Goals Have a Time Frame • How long to accomplish? • Short-term goals • Up to three years • Intermediate-term goals • Between three and five years • Long-term goals • Beyond five years and …

49. Financial Purchase prom dress car college education retirement Non-Financial Spend more time with family with friends exercising reading Goals Can Be . . .

50. Write Down Three of Your Future Goals • Two “financial” • One short term and one long term • One “non-financial”