Financial Literacy Skills

1. Financial Literacy Skills Unit 5: Understanding Investing and Home Ownership

2. Objective 1: Define terms related to investing. • asset • bond • compound interest • diversify • dividend • inflation • Interest • liquid • mutual fund • opportunity cost • return • risk • principal • stock • tax rate

3. Objective 2: Discuss the risks and benefits of various investment options. • Every type of investment carries some risk. • In general, the higher the risk, the higher the potential rate of return. The lower the risk, the lower the potential rate of return. • The asset class with the least risk is cash equivalents. • Bondsare riskier than cash equivalents, and have a higher potential rate of return. • Stocksare the riskiest asset class and have the highest potential rate of return.

4. Objective 2: Discuss the risks and benefits of various investment options. • Another way to invest is to buy assets such as real estate, gold, art, or other items that are expected to increase in value. • With any type of investment, but especially with lower-risk investments, you have a risk of your investment earning less than the inflation rate, which means your money is worth less than it was when you put it into the investment.

5. Objective 2: Discuss the risks and benefits of various investment options. • Experts recommend that you diversify your investments by investing in several different areas. • Some investments are tax-deferred.

6. Objective 3: Discuss sources of retirement income. • Social Security • Employer pension • Employer-sponsored retirement plan • Personal investments

7. Objective 4: Compare the advantages and disadvantages of renting and owning a home. • Home repairs and maintenance • Taxes • Start-up costs • Insurance • Investment value • Risk • Restrictions • Cost stability

8. Objective 5: List common responsibilities of a renter and homeowner. Renter: • Monthly rent payment • Utility installation fees, deposits, and monthly bills (telephone, cable, electricity, etc.) • Renter’s insurance • Security deposit • Upkeep of the interior of the apartment or house • Repairs beyond normal “wear and tear”

9. Objective 5: List common responsibilities of a renter and homeowner. Homeowner: • Homeowner's insurance • Maintenance and upkeep of interior and exterior • Mortgage payment • Property taxes • Repairs • Utility installation fees, deposits, and monthly bills • Homeowner’s association fees, if any

10. Objective 6: Discuss tenant’s rights. • Security deposits must be returned with 30 days after the landlord receives a written request. • All electrical, plumbing, heating, air conditioning, and other facilities and appliances must be kept in good working order unless you agree otherwise in writing.

11. Objective 6: Discuss tenant’s rights. • If your landlord does not make needed repairs, you can provide written notice that you will do one of the following if the repair is not made within 14 days: • Move out 30 days after the date of your written notice, ending your lease. • Make the repair yourself, if it costs less than $100, and subtract it from your next rent payment.

12. Objective 6: Discuss tenant’s rights. • If an essential service fails due to something the landlord did, renters have the following options: • End your lease and move immediately. • Temporarily suspend your lease and move out (paying no rent) until the matter is taken care of. • Sue the landlord for the difference between the value of the home with the service and the value of the home without the service. • Make your own arrangements for the service and deduct the cost from your rent.

13. Objective 6: Discuss tenant’s rights. • Landlords must keep common areas (such as the lobby of an apartment building) safe and clean. • Tenants can recover actual damages when a landlord fails to honor an agreement. • A landlord cannot raise the rent, decrease services, or evict a tenant for filing a lawsuit or grievance with a government agency or for participating in a tenant's group.

14. Objective 6: Discuss tenant’s rights. • A landlord cannot enter the home without notice unless there is an emergency. • Tenants have a basic right to be free of discriminatory acts based on race, religion, age, gender, etc.

15. Objective 7: List tenants’ responsibilities. • Pay the rent on time. • Stick to the lease agreement. • Report problems. • Take care of the property.   • Accept responsibility for the entre lease.

16. Objective 8: State the information frequently included in a lease. • Address • Amount of security deposit required, the conditions which must be met before the deposit is returned, and when it will be returned • Amount of rent to be paid; where and when it should be paid, and applicable grace period and late fees • Clause stating that final inspection of the premises will be made in the tenant's presence • Date of occupation and period of time for which lease is effective

17. Objective 8: State the information frequently included in a lease. • Description of premises • Details concerning subletting • House rules for tenants • Provision for changing the lease • Responsibility for utility costs • Responsibility for maintenance and decorating • Right of the landlord to inspect premises • Rules for keeping pets • Signatures of tenant and landlord

18. Objective 9: Arrange in order the steps in leasing a house or apartment. • Determine where you want to live, what type of dwelling you want, and how much you can afford to pay. • Check various sources to determine what is available. • Inspect the house or apartment you are considering. • Check available services and facilities. • Read the lease or written agreement carefully. • Find out which bills are paid with the rent and which bills are the tenant’s responsibilities. • Sign the lease. • Keep a copy of the lease for your personal records.

19. Objective 10: Investigate utility fees and deposits.

20. Objective 11: Interpret a lease.

21. Objective 12: Define terms related to mortgages. • amortize • down payment • equity • principal • private mortgage insurance (PMI) • term

22. Objective 13: Distinguish among types of mortgages. • “80/20” mortgage • Adjustable rate mortgage (ARM) • Conventional • Interest-only • Rural Housing Service • Federal Housing Administration (FHA) insured • Graduated payment • Veterans Administration (VA) guaranteed

23. Objective 14: Arrange in order the steps in buying a home. • Determine your budget and begin to arrange for financing. • Contact a trusted real estate agent and begin looking at potential houses in your price range. • Inspect potential houses for defects, neighborhood issues, etc. • Have the house inspected by a professional home inspector. • Make an offer on the house and enter into a sales agreement with the seller. • Close the purchase.

24. Objective 15: State guidelines for estimating a budget for housing. • For most people, your total housing expense (including mortgage and/or rent, taxes, insurance, and utilities) should be no more than one third of your take-home income • Another guideline is that your total monthly payments for debt should be no more than 36% of your pre-tax income. • One more guideline is that your mortgage should be no more than 2.5 times your annual pre-tax income.

25. Objective 16: Calculate monthly and yearly mortgage budgets according to housing budget guidelines.

26. End of Unit 5