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Financial Literacy Basics

1. Financial Literacy Basics. 1.1. Introduction to Financial Literacy. Objectives. Describe the initial steps for creating a financial plan Discuss the importance of setting goals as a part of financial planning. Key Terms. financial literacy personal financial planning financial plan

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Financial Literacy Basics

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  1. 1 Financial Literacy Basics

  2. 1.1 Introduction to Financial Literacy

  3. Objectives • Describe the initial steps for creating a financial plan • Discuss the importance of setting goals as a part of financial planning

  4. Key Terms • financial literacy • personal financial planning • financial plan • need • want • consumer • good • service • values • value system • ethics • priority • standard • resource • goal

  5. Essential Question Why is it important to plan your financial future?

  6. Planning Your Future To manage money successfully, you need to be educated about money matters Financial literacy is the possession of a body of financial knowledge, a set of basic skills, and the ability to apply knowledge and skills to make informed and responsible financial choices

  7. Planning Your Future (Continued) • Personal financial planning- Process of setting financial goals and developing plans to reach financial needs • Average high school grad earns $1 mil. • Average college grad earns well over $2 mil. • A financial planis an overview of an individual’s current financial position and strategies to meet future financial aspirations

  8. Planning Your Future (Continued) • Needs are necessities a person must have to survive • Ex. Food , Clothing, and Safety • Wants are things that a person desires but can live without • Ex. Newest phone, expensive jewelry

  9. Planning Your Future (Continued) • A consumeris someone who purchases goods and services for their own use • Goods are tangible items that can be touched, used, and purchased, such as food or clothing • Services are intangible activities that another person usually performs for a fee • Ex. house cleaning or completing tax returns

  10. Planning Your Future (Continued) • Values are principles and beliefs that a person considers important • A value system is the overall structure of values and goals that guides a person’s behavior and provides a sense of direction in life • Ex. If being loyal ranks high in your system, you will have your friends back.

  11. Planning Your Future (Continued) • Ethics are the moral principles or beliefs that direct a person’s behavior - AKA right (ethical) and wrong (unethical) • Priority – Set by ranking goals by order of importance • A standard is an established measure of quality, value, or quantity • Ex. Safety standards, professional standards (Doctors and Lawyers)

  12. Planning Your Future (Continued) • A resource is a supply of something that can be used when needed • Human resources (Internal) • Knowledge, experience, skills • Nonhuman resources are external • Money, time, equipment

  13. Planning Your Future (Continued) • Resources are scarce • Time, energy, money are limited! Planning makes the most of them • Resources are manageable (to meet goals) • Ex. Saving money for a big ticket item • Resources are related to one another • Resources can be combined to reach a goal • Ex. Plenty of time and little money? Check several stores for the best value

  14. Goals • A goal is an objective to be attained in a specific amount of time • There are different types of goals • to be goals • Relate to personality and character as well as career choices • to do goals • What I want to accomplish • Learn a skill, or go to college • to have goals • Easy to identify and constantly change • I want to have a….

  15. Goals Is the goal realistic and possible? Can I break big goals into smaller pieces? Can I measure my progress? What will the goal cost in time, money, and effort? Will I still want the goal by the time I am able to reach it?

  16. Goals Life is full of conflicting goals and difficult choices. When goals conflict your priorities and values will help you choose wisely

  17. Section 1.1 Review • What factors should be taken into consideration when creating a financial plan? Creating a plan starts with analyzing your needs and wants, values, and ethics. It also takes into consideration your personal priorities, standards, and available resources. • Name examples of positive ethical behavior. Ethical behavior calls for honesty, fairness, reliability, respect, courage, tolerance, civility, and compassion.

  18. Section 1.1 Review (Continued) • How are priorities set? Priorities are set by ranking goals in order of their importance. • List the two types of resources that can be used to meet goals. Human resources and nonhuman resources. • What are three types of goals? Three types of goals are to be goals, to do goals, and to have goals.

  19. 1.2 Managing Your Personal Finances

  20. Objectives • Discuss strategies for making financial decisions • List the steps used for systematic decision-making • Determine how to manage limited resources to reach personal goals

  21. Key Terms • financial competence • cost-benefit analysis • marginal benefit • marginal cost • law of diminishing marginal utility • trade-off • opportunity cost • systematic decision-making • management • personal information management (PIM)

  22. Essential Question Why must financial strategies be applied when making choices about how to spend money?

  23. Making Economic Decisions Economic decisions can be made out of habit, on impulse, and by failing to act Financial competence is having the ability to understand basic topics related to finance, such as wisely making, spending, and saving money

  24. Making Economic Decisions (Continued) Cost-benefit analysis is a method of weighing the costs against the benefits of an action, a purchase, or a financial decision Calculate the cost, put a value on the benefits, and compare the results This applies to economic decisions of consumers, businesses, and governments

  25. Making Economic Decisions (Continued) • Marginal analysis measures the added benefit, versus the added cost, of one more unit of a product • The change in total benefit of using one additional unit is the marginal benefit • The change in total cost of using one more unit is the marginal cost • The law of diminishing marginal utility states the marginal benefit of using each additional unit tends to decrease as the quantity used increases

  26. Making Economic Decisions (Continued) A trade-off is the choice you give up when you make one choice over another Opportunity cost is the value of the option you gave up

  27. Making Economic Decisions (Continued) Do not spend more than you can afford Establish priorities and plan carefully Needs should be covered before wants Your financial future is in your hands

  28. Systematic Decision-Making Systematic decision-making is a process of choosing a course of action after evaluating available information and weighing the costs and benefits of alternative actions and their consequences This process can help you arrive at the best course of action

  29. Systematic Decision-Making Goodheart-Willcox Publisher

  30. Managing Resources Management is the process of organizing and using resources to achieve predetermined objectives Personal information management (PIM) is a system that individuals use to acquire, organize, maintain, retrieve, and use information The stages of management include planning, action, and evaluation

  31. Managing Resources (Continued) • Planning involves identifying goals, obstacles, and resources • What goals do you want to have or achieve? • What obstacles stand between you and your goals? What must you overcome? • What resources can you use to overcome the obstacles and reach your goals?

  32. Managing Resources (Continued) Goodheart-Willcox Publisher

  33. Managing Resources (Continued) Goodheart-Willcox Publisher

  34. Managing Resources (Continued) • Action involves using your resources to achieve your goals • Successful action depends on determination and flexibility • Determination keeps you focused • Flexibility helps you find ways to revise and improve your plans

  35. Managing Resources (Continued) • Evaluation is a continuous process • What worked? • What did not? • How could you make it better next time? • Evaluation improves management skills for the future

  36. Managing Resources (Continued) Goodheart-Willcox Publisher

  37. Section 1.2 Review • What are some of the unplanned ways people make decisions? People make decisions out of habit, on impulse, and by failing to act. • List four strategies that individuals, families, businesses, and government apply when making financial decisions. Cost-benefit analysis, marginal analysis, trade-offs, and opportunity costs.

  38. Section 1.2 Review (Continued) • What are the five steps in systematic decision-making? The five steps in systematic decision-making are: define the decision to be made; explore all alternatives; choose the best alternative; act on your decision; evaluate your solution or decision. • Name three stages of management. Planning, action, and evaluation.

  39. Section 1.2 Review (Continued) • What two personal characteristics are key in reaching goals? Determination and flexibility are key characteristics in reaching goals.

  40. 1.3 Financial Influencers

  41. Objectives • Identify and explain factors that impact an individual’s financial future • Describe how the government influences the economy • Explain how globalization influences a person’s finances

  42. Key Terms • economic condition • recession • inflation • interest • demographics • culture • technology • media • entitlement • globalization

  43. Essential Question What factors influence your financial future?

  44. Your Financial Future • There are many important factors and forces that influence your financial life now and in the future • economic conditions • demographics • culture • changing technology

  45. Your Financial Future (Continued) Economic conditions are the state of the economy at a given time Recession is a period of slow or no economic growth Inflation is a period of rising prices Interest is the amount that is paid for using money

  46. Your Financial Future (Continued) Demographics are the statistical characteristics of a population Culture is the beliefs, behaviors, and other characteristics common among members of a group or society

  47. Your Financial Future (Continued) • Technology is the application of science and research to human life and environments • Media is forms of communication designed to reach a large number of people • television • radio • Internet

  48. Government and the Economy • An entitlement is a government program that provides financial benefits to eligible citizens based on their legal rights • Medicaid • Medicare • Social Security

  49. Globalization and Your Finances Globalization is the worldwide spread and integration of production, markets, communications, and technology

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