1. What do I do with my personal resources?
PERSONAL FINANCE
What do I do with my personal resources?

2. Rational Decision Making
I respond to incentives
Positive – a reward for making good choices/behavior (get a 10% raise for selling 80 pairs of shoes)
Negative – punishment/consequence for making poor choices (getting fired for failing to sell 80 pairs of shoes)

3. I respond predictably to incentives
Engage in activities that benefit me economically (increased income, profit, revenue)
Avoid activities that hurt me economically (decreased income, profit, revenue)

4. I make rational economic decisions
Define the problem – money is scarce, I can’t have everything I want
List the alternatives – what are my REALISTIC choices
State the criteria – what is most important to you (or what is necessary)
Evaluate the alternatives – what comes closest to what you want the most or will help you get what you want the most?
Make a Decision – rationally choose the best alternative

5. Worker’s Earnings Worker’s earnings: pay received from an employer
Determine how much a person will have to spend or save/invest for the future
Earning potential: how much a person is likely to receive in pay
Influenced by skills, education, training,
Highly successful people investment as much time/money on education and training as possible

6. Effect of Taxes on Personal Finance
Progressive tax – increases as income increases
Tax Bracket Married (FJ) Single
10% Bracket $0 – $17,400 $0 – $8,700
15% Bracket $17,400 – $70,700 $8, ,350
25% Bracket $70,700 – $142,700 $35,350 – $85,650
28% Bracket $142,700 – $217,450 $85,650 – $178,650
33% Bracket $217,450 – $388,350 $178,650 – $388,350
35% Bracket Over $388,350 Over $388,350

7. Taxes Continued Regressive Tax
Percentage paid in tax increases as income decreases
Sales tax - most common regressive tax
(7% in Effingham County)
7% of $300 = $21
Income of $10K 7% sales tax of $21 = .02 % of salary
Income of $50K – 7% sales tax of $21 = .004% of salary
Affect people of lower incomes more severly

8. Taxes Continued
Proportional Tax – everyone pays the same amount proportional to their income (also known as flat tax)
10% no matter your income…
$100K = $10K tax
$50K = $5K tax
$25K = $2.5K tax

9. WHAT DO I DO WITH WHAT’S LEFT AFTER TAXES?
Saving and Investing
Saving – Financial Institutions
Commercial Banks – receive deposits of money, extend credit and provide loans
Owned and managed by stockholders
Make money by granting loans and charging interest – interest charged (amount charged to customers for borrowing money)
Pays interest to customers who deposit money in savings accounts - interest earned (amount paid to customers for the use of their money)
Interest charged is usually MORE than interest earned

10. Financial Institutions Continued
Credit Unions
Cooperative associations that serve only their members (only certain people can join)
Offer checking and savings accounts and grant loans
Technically “non-profit” do not have to pay the same taxes as commercial banks
Offer higher interest earned rates than banks

11. Financial Institutions Continued
Savings and Loans Associations
Designed to aid home building
Make mortgage loans
Decline in numbers since 1980s
Bad business decisions
Not insured by government led to bankruptcy
Services now offered by banks and credit unions

12. Investing High Risk Low Risk High Return Low Return
Looking for a RETURN (eventual payoff) on my investment
RISK (chance of loosing investment) in hope for the payoff
KEY: MAKE SURE I WILL STILL BE OK IF I LOOSE THE MONEY

13. INVESTING CONTINUED
STOCKS – shares in a company – high risk, chance of high return.
MUTUAL FUNDS – pool of money from many investors that are used to buy a range of stocks- moderate risk, moderate return
BONDS – loans to a company or the government - low risk, low return
SAVINGS ACCOUNT – place to “store” money – minimal risk, minimal return
Why invest or save??? To have a good retirement

14. How do I get credit??? Based upon credit worthiness Assets
Income/earning potential
Credit history

15. CREDIT: GOOD, BAD & UGLY GOOD
Allows me to have goods or services now and pay later (Student loans, House, Furniture, Car)
Difficult to save entire amount to pay in lump sum

16. Credit Continued
Bad
Interest charged makes me pay more in the long run
Simple interest – applied only to the value of the principle
5% annually for 10 years = $10,000 X 5% X 10 = 5K in interest = total paid to bank of $15K for loan
Compound Interest – applied to principle and the accrued interest
A = P X [1 + r/n]nt
A – amount to be paid back
P – principle
R – interest rate
N – number of compounding periods per year
T – number of years of the loan

17. Credit Continued Ugly Failure to pay on time leads to
poor credit rating
Increased interest rates
Increased insurance rates
Limited employability

18. Insurance
Provides opportunity to share the risk with insurance company (consumer is not responsible for 100% of loss/damage/debt)
Consumer pays a premium
Usually includes a deductible (amount paid by consumer before insurer pays anything)
Insurer pays amount up to policy limits after deductible and co-pays are met

19. Types of Insurance Life – pays beneficiary upon insured’s death
Whole-life
Term-life (limited number of years)
Medical (health) – pays for covered medical care
Auto – pays for damage to auto and injuries in a covered accident
Homeowners- pays for covered damages to home
Liability – pays for damages for which insured is held legally liable (comprehensive liability usually applies to businesses)
Disability – pays part of insured’s wages while they are unable to work