Essential Question for Sept. 21, 2012 Unit 2: Personal Finance EQ #1) How can your money work for you? Standards: SSEPF 1-5

How do people make choices? People respond to incentives in a predictable way. People work hard and are more productive if the incentive to work hard is there People weigh the marginal benefit against the marginal cost If, Benefit > Cost, then people will purchase.

Net Income vs. Gross Income Gross Income is the amount of money that you make. Net income is the amount that you actually bring home. Where does the rest go? Taxes, insurance, retirement, etc...

how do we save? The formula for savings Disposable income minus consumption

Creating a Budget 1) List all things that you wish to include 2) Prioritize them 3) Price each item and then keep a running total

Sample Budget itemprice % of Income 1) Charitable Giving 2) Rent/Mortgage 3) Food 4) Utilities 5) Car 6) Gasoline What is not on this budget? TV, Movies, Sports, Hobbies, Insurance, Retirement, Savings.....

Neatly Create your own budget. Work with your neighbor to ensure that you have covered all areas. Is there anything that you forgot to include that he/she reminded you? How much money must you net in order to successfully have this budget? What quality are the products on your list?

How much are you worth? (Net Wealth) Calculating your net wealth. Your total assets minus what you owe.

Budget Project

Essential Question for Sept. 20, 2012 Unit 2: Personal Finance EQ #2) Why is insurance important ? Standards: SSEPF 1-5

Protecting What You Have Insurance Key Terms Premium-Monthly Payment Deductible-Payment before a policy will pay out in the event of a claim

Protecting What You Have Types of Insurance Home owners Renters Health Disability Automotive Insurance allows someone else to share the risk of a a financial loss.

Essential Question for Sept. 18, 2012 Unit 2: Personal Finance EQ #3) What is the difference in a progressive and a regressive tax? Standards: SSEPF 1-5

Taxes Progressive Tax a step system that requires those who make more money to pay a high percentage of their income in taxes U.S. Income tax Regressive tax a tax system that places more of a burden on the poor than on the wealthy Sales tax Why?

Taxes pecial option tax Like SPLOST Proportional Tax Tax on some property at a percentage which does not change based on the value Property tax

Effect of Income Taxes Tax increase = more money is taken out; therefore, a person is likely to spend less. i.e. purchase fewer goods or purchase “inferior goods.” Tax decrease = less money is taken out; therefore, a person is likely to spend more, save more, invest more. Business owners are likely to invest more and expand.

Essential Question for Sept. 18, 2012 Unit 2: Personal Finance EQ #4) What is credit? Standards: SSEPF 1-5

Credit- goods or services recieved now for the promise to pay back later. Credit is the rating that signals your ability to pay back loans to lenders (Credit Score) Interest--the price of the loan, it is a percentage of the loan to be paid back along with the initial principal borrowed the loaner receives interest (interest earned) the borrower pays the interest (interest charged)

Credit Credit score is a number that gives lenders an idea of the risk/reward of loaning money 3 C’s of credit Collateral--Some thing that is of value used to back a loan. (interest rates may be lower for a person with good collateral because the lender has a recourse of payment is not made.) Character Capacity--ability to pay back a loan

Credit Score 3-digit FICO number Ranges from (sort of) Big 3-TransUnion, Equifax, Experian Innovis, PRBC Each uses its own data reporting and therefore has a slightly different score. Actual formula is secret Misinformation is the responsibility of the individual to get fixed. 35% 30% 15% 10%

how do we save? The formula for savings Disposable income minus consumption

Essential Question for Sept. 18, 2012 Unit 2: Personal Finance EQ #5) How can one raise income levels? Standards: SSEPF 1-5

How to increase income Education: Studies have shown that the higher the education the higher the average income...thus more disposable income. Jobs that require skills that many need but few have will pay more, the demand for some jobs are high while the labors trained to do the job are few...salaries in those fields go up.

Why do pro quarterbacks make so much money? The demand for a top notch quarterback is very high...teams owners want to win and have a player that can be the face of the team While the number of people who have the skills and ability (the supply of laborers for that job) are very few. $18 Million guarantee ($96m over 6 years) $41.7 Million Rookie $72m over 6 years)

Essential Question for Sept. 18, 2012 Unit 2: Personal Finance EQ #5) What is investment, and how can compound interest help you or hurt you? Standards: SSEPF 1-5

Investments 3 Rules of investing Buy and Hold Start Early (Let your money grow) Diversify

Types of investments and their risks Stocks Mutual Funds Bonds Municipal Bonds are issued through Local or state government Federal Bonds are issued through the Federal government CDs Savings High Risk may lead to High Return or total loss Low Risk should not result in total loss but will not yield high returns either

How does a bank work?

Types of interest in investing Simple Interest Compound Interest Interest rates can be fixed-they are always the same, or they can be variable-they change with the market

Sample Problems $500 principal 10 years at 5% simple interest 500 x x 10 $ years total interest But we started with $500 so the total of what we have is the interest plus what we started. $750.00

Sample Problem $300 principal after 3 years 10% compound interest compounded annually 300 x.10 $30 +=$330 x.10 $33 +=$363 $36.30 $399.30