1. Llad Phillips1 Summary Review Part I: 5 lectures & Guide to Personal Finance Part I: 5 lectures & Guide to Personal Finance Part II: Ch’s 1-4, O’Sullivan & Sheffrin Part II: Ch’s 1-4, O’Sullivan & Sheffrin

2. Llad Phillips2 Part I Buying a Car: Credit Buying a Car: Credit Buying a House Buying a House Financial Planning Financial Planning Investment Investment

3. Llad Phillips3 Cost of Using a Car for Several Years Depreciation in car’s market value Depreciation in car’s market value Interest Interest  opportunity cost of your money

4. Llad Phillips4 Mortgage Loans/Fixed Rate Pay back the loan with declining balance of principal owed Pay back the loan with declining balance of principal owed  build equity(ownership) slowly Pay interest(price of credit) Pay interest(price of credit)  frontloaded

5. Llad Phillips5 Financial Planning: Meeting Future Needs in Life Family Formation(significant other) Family Formation(significant other)  term insurance(protection against unforeseen death & loss of earnings) Housing Housing  space  asset: building equity(ownership) Retirement Retirement

6. Llad Phillips6 Financial Planning: Meeting Future Needs in Life(continued) Retirement Retirement  Old Way: Social Security/Pension Plan  insufficient income  IRA’s/Employer Plans[401(k);403(b)]  supplementary income

7. Llad Phillips7 Investment Budget Your Expenditures Budget Your Expenditures  Tool: income-expense statement Earn money(income) Earn money(income)  Market value of your time: human capital  Your value of your time: your taste for leisure Pay yourself first(save) Pay yourself first(save) Invest: Strategies?(Seems Complex) Invest: Strategies?(Seems Complex)  Focus Your Portfolio Choices:  cash: currency & checking account (SURVIVAL)  money market funds(Treasury Bills: 13 wk-1 yr)  bonds(Treasury Notes and Bonds: 2yr -30 yr)  stock(equity) index fund

8. Llad Phillips8 Investment(continued) Invest: Strategies (Simplify!) Invest: Strategies (Simplify!)  cash: little interest, but liquid(no waiting for $)  money market: more interest, relatively liquid  Treasury Notes (3 year or 5 year Note)  more risk unless: buy and hold  buy and hold(certain): get principal back plus interest  Stock(equity) Index Fund  market basket of stocks: diversified  buy and hold/ betting on growth of 11% per year on average Track Your Wealth: Asset-Liabilities Stmt. Track Your Wealth: Asset-Liabilities Stmt.

9. Llad Phillips9 Part II: Chapter One Scarcity Scarcity Production Possibilities Curve Production Possibilities Curve Economic way of thinking/Paradigm Economic way of thinking/Paradigm  describe the alternatives to choose among  value these alternatives  choose the best alternative

10. Llad Phillips10 Part II: Chapter Two opportunity cost opportunity cost marginal principal marginal principal diminishing returns diminishing returns spillovers(externalities) spillovers(externalities) reality(real versus nominal value) reality(real versus nominal value)  purchasing power  example: a $ today is not the same as a $ tomorrow & vice versa

11. Llad Phillips11 Part II: Chapter Three Circular Flow Circular Flow Firms Households IncomeLabor Firms Households Supply Goods Demand Goods

12. Llad Phillips12 Chapter Three (continued) absolute advantage absolute advantage comparative advantage comparative advantage Student Abby Student Bobby 1 hour per chapter 1 hour per lab 3 hours per chapter 1.5 hours per lab Both Abby and Bobby are short of time 1 chapter per lab1/2 chapter per lab Form a study group and trade knowledge Abby readsBobby hacks Each Specializes

13. Llad Phillips13 Ch. Three ( continued) Role of Government: federal-state-local Role of Government: federal-state-local  provide security(safe skies to safe streets)  enforce property rights and other laws  tax citizens to pay for these goods & serices  redistribute income

14. Llad Phillips14 Chapter Four price quantity/year price quantity/year demand/income, other prices price quantity/year demand price quantity/year demand supply