Personal Financial Literacy - Chapter 1 Section 2

All of the activities related to making and distributing goods and services in a geographic area or country An economist is a person who studies the economy Economics is the study of how choices are made by individuals and societies Sometimes referred to as the study of scarcity people‘s needs and wants are unlimited Resources are limited Because resources are scarce, businesses and individuals must make choices to meet needs and wants The economy will affect your income Your income will affect the choices you make

The United States has a market economy Market economy – an economy based on the laws of supply and demand The price for an item is set at a point that consumers are willing to pay and sellers are willing to accept Sellers charge “what the market will bear” Producers wish to increase profits Consumers wish to get high value for each dollar spent Demand The willingness and ability of consumers to buy goods and services Supply The quantity of goods and services that producers are willing and able to provide

Main source of income for most people Income Hourly pay or salary Growing job field Likely be able to earn a good income Job security Growing economy People are buying goods and services Jobs are being created Businesses are hiring workers Businesses are more likely to give pay raises and bonuses Finding and keeping a job that will provide financial security is easier in a growing economy

Slowing economy People often buy fewer goods and services Lower demand may mean businesses are not growing Workers may be laid off from their jobs Workers less likely to receive pay increases Fewer new workers are hired Finding and keeping a job can be difficult Retraining Preparing to enter a new career field when demand in your field is low

Business Cycle The alternating periods of growth and decline in the economy

Four stages of the business cycle Recovery (growth) Peak Recession (decline) Trough Recovery Economy is growing People are spending money Businesses are hiring Factories are increasing production of goods NOW is the time to save money!!

Peak Peak is the point when the economy is a robust as it can get Difficult to know when the economy has reached its peak Prices are high because demand is high

Economic decline (Recession) People slow buying Unable to pay high prices Jobs are being lost Production is slowing People spend less and less, so the economy slows down even more This is when the money you saved during growth can buy you the most You will get the best values because you have the cash to spend

Trough The bottom of an economic decline When the economy is at a standstill Remains until: People start spending again Businesses start hiring workers Production of goods begins to increase again Business cycles happen consistently over time How does the economy affect the amount of income you will make?

Tuition The expense paid by students for the instruction at a school Textbooks Fees not covered by tuition Technology Specialized equipment Supplies Living expenses Food Rent Clothing Transportation

Bachelor’s degree Earned in a four-year college or university program Public Tuition is less Larger class size More students competing for admission Private Tuition is more expensive Smaller class size More personalized attention Smaller enrollment, may be easier to gain admission No matter which type of school you attend you need to make sure they are accredited Accredited means that the school is certified to meet educational quality standards

Getting into college Good grades Good SAT or ACT scores Standardized tests Community colleges Two-year colleges where students can earn an associate’s degree Typically costs significantly less than public colleges and universities Admission tests are not required

Teach specific skills May be public or private Tuition for public is typically less than private Public technical programs often cost $5,000 or less Completion time A few months to a year or more Students must pay for books, fees, and living expenses

Some jobs require advanced training Medical doctor Lawyer Update skills as you continue in your career Master’s degree A graduate degree (beyond a bachelor’s) Requires 1-3 years of study

Doctorate Degree Requires 3-7 years of study beyond a master’s degree Often requires research May require residency or internship Tuition is higher at graduate level Graduate degree may cost $25,000 (public) to $60,000 or more (private)

Loans and Grants Financial Aid Money you receive from an outside source to help pay for education Grant Money given to pay for educational expenses that does not have to be repaid Pell Grants Federal, need-based grants State grants need-based grants through an individual state PHEAA – Pennsylvania Higher Education Assistance Agency

FAFSA Free Application for Federal Student Aid Under 23 Parents must disclose their income and assets Assets – money or things of value that are owned Savings account, house, car Student’s assets and income are also considered

Interest Money paid for the use of borrowed money For student loans: Interest is the money the student pays the lender in addition to the amount borrowed Types of student loans Subsidized student loan A loan on which interest is not charged until the student graduates Unsubsidized student loans A loan on which interest is charged from the time the loan is made Student loans do not have to be repaid until after the student graduates

Private lenders make loans to students Typically higher interest rate than those from the government Unsubsidized Need to have income and a good credit history

A gift of money or other aid awarded to a student to help pay for education Reasons scholarships are awarded: High grades Strong athletic skills High test scores Need-based Given by: Local, state, and national organizations Federal government Generally not taxable

Scholarships vary in amounts Partial scholarship Pays for some of the educational cost Full scholarship Covers the entire tuition for a degree How to find scholarships: Guidance office Financial Aid or Admissions Office of the college you wish to attend Internet search

Students who are qualified are able to work on campus and are paid at contracted rates Money received from the work reduces the amount of loans that must be repaid Must meet income requirements Must have the skills required to do the job tasks that are assigned

Some students take time off from their education to work and save money Some students go to school part-time while working full-time to pay for their courses This is a good alternative for some people, but will delay graduation for several years

Ethics A set of moral values that people consider acceptable The study of right versus wrong Being honest in your dealings is considered ethical behavior Always be truthful when filling out forms Fill in all the blanks and boxes on the form Use N/A if the information is not available or not applicable Print clearly Double-check the data you have entered Make sure the information is clear, complete, correct, and truthful