Life Cycle of Financial Planning Note-Taking Guide

Transcription

1 Life Cycle of Financial Planning Note-Taking Guide L1 Note taking guide Total Points Earned 42 Total Points Possible Percentage Name Date Class Many people follow a during their life Financial planning: BUT Everyone has a. Financial goals: S Factors that influence financial planning M Lifestyle Conditions: Financial goals should be SMART goals! A R T Family Economics & Financial Education Revised May 2010 Introduction to Finance Life Cycle of Financial Planning Page 10

2 L1 Note taking guide Life cycle: Life Cycle Events Financial Life Cycle Label and describe each financial life cycle stage: Stage 1: Stage 2: High School Ages Young Adult Ages Adult With or Without Children Ages Working Parent or Adult Ages Midlife Ages Stage 3: List two life cycle events for each age group below: Pre- Retirement Ages Retired Ages 65 and older Family Economics & Financial Education Revised May 2010 Introduction to Finance Life Cycle of Financial Planning Page 11

3 A1 Life with Sally Total Points Earned Total Points Possible Percentage Name Date Class Part 1: Life with Sally as a High School Student Directions: Read the following scenario and answer the questions that follow to help Sally develop a personal financial plan. Sally Smith is a 16 year-old high school junior. She values her family and dreams of having a family of her own. She is very focused on having a successful career in the future. Sally has a part-time job as a lifeguard at the local pool. She makes $250 per month at this job, and her only expense is paying for personal entertainment, such as going to movies friends. She has not made any plans for after she graduates high school, but she has been saving money from her job to use for her undecided plans after graduation. Sally s mom has helped her manage her money, and she has been able to save $1000 to use for plans after high school. Sally enjoys staying busy, so she is a member of her school s swimming team, orchestra, and choir. Sally enjoys making music and has considered being a music teacher. However, Sally also enjoys taking woodworking classes and has considered a career in woodworking or carpentry. 1. What values does Sally have that will affect her personal financial plan? 2. What stage of the financial life cycle is Sally currently in? How will this affect Sally s financial plan? 3. What are Sally s current life cycle needs? 4. How do Sally s current life cycle needs affect her personal financial plan? 5. Use the information above to help Sally begin developing a financial plan by writing two SMART financial goals for her. a. Goal 1 Family Economics & Financial Education Revised May 2010 Introduction to Finance Life Cycle of Financial Planning Page 12

4 A1 b. Goal 2 6. List a resource that is available to Sally to help her achieve each of her financial goals. a. Resource for Goal 1 b. Resource for Goal 2 7. Why is it important for Sally to start her financial planning today? 8. Identify three personal values, goals, and/or personal choices which can affect a high school student s financial plan. Part 2: Life with Sally as a Young Adult Directions: Sally is now 23 years old. After high school, she chose to attend college to become a music teacher. Sally graduated from college last month and has now accepted a full-time job as the Choir director at a local high school. The personal choices she made during college are now affecting her financial plan. Below are two scenarios that reflect the choices Sally could have made during her years in college. Read each scenario and answer the questions that follow to examine how financial planning is influenced by personal choices. Scenario 1: During college, Sally decided to put all of her focus into school. She did not have a part-time job, so she used her student loans and credit cards to pay for her living expenses. By the time Sally graduated college she had a very large amount of credit card debt and student loans that she now has to pay back. By only making the minimum payments, she calculated that it will take her ten years to pay back her student loans and credit card debt. With the salary from her new job as a teacher, she has no money left to use for entertainment, savings, or retirement investing after her living expenses, student loans, and credit cards have been paid for each month. Sally decided to take a second job working a few evenings per week, so she can at least have some extra money every month to use for entertainment. She has calculated that she will earn an extra $200 per month that can be used for entertainment, savings, or additional debt repayment. Family Economics & Financial Education Revised May 2010 Introduction to Finance Life Cycle of Financial Planning Page 13

5 A1 9. Have Sally s values and goals changed since she was 16 years old? Explain. 10. Is Sally in a different financial life cycle stage at this point in her life than she was at 16? If so, how will this affect Sally s current financial plan? 11. Have Sally s life cycle needs changed since she was 16? 12. Use the information above to create new SMART financial goals for Sally at this point in her life. a. Goal 1 b. Goal How has Sally s financial plan changed since she was 16? 14. How have Sally s personal choices affected her financial plan? Scenario 2: Sally used the lifeguarding skills she obtained during high school to get a part-time job at the recreational center at her college. She started working as a lifeguard and was soon promoted to assistant manager because of her work ethic and excellent grades in her college courses. As assistant manager of the recreational center, Sally received a scholarship every semester to help pay for her school, and she was able to graduate with no student loan debt. With her new job as a teacher, she is able to pay all of her living expenses, as well as put money into savings and her retirement plan every month. She has given herself a budget of $100 per month for entertainment and other personal expenses. 15. Have Sally s values and goals changed since she was 16 years old? Explain. Family Economics & Financial Education Revised May 2010 Introduction to Finance Life Cycle of Financial Planning Page 14

6 A1 16. Is Sally in a different financial life cycle stage at this point in her life than she was at 16? If so, how will this affect Sally s current financial plan? 17. Have Sally s life cycle needs changed since she was 16? 18. Use the information above to create new SMART financial goals for Sally at this point in her life. a. Goal 1 b. Goal How has Sally s financial plan changed since she was 16? 20. How have Sally s personal choices affected her financial plan? Family Economics & Financial Education Revised May 2010 Introduction to Finance Life Cycle of Financial Planning Page 15

7 A2 Personal Financial Plan Total Points Earned 19 Total Points Possible Percentage Name Date Class Directions: Answer the following questions regarding your personal financial plan. 1. List three personal values which affect your financial planning. (3 points) 2. What stage of the financial life cycle are you currently in? How will this affect your personal financial plan? (2 points) 3. What are your current life cycle needs? (1 point) 4. How will your current life cycle needs affect your personal financial plan? (1 point) 5. Use the information above to develop two SMART financial goals for yourself. (2 points) a. Goal 1 b. Goal 2 6. List a resource that you currently have available to help reach each of your financial goals. (2 points) a. Resource for Goal 1 b. Resource for Goal 2 Family Economics & Financial Education Revised May 2010 Introduction to Finance Life Cycle of Financial Planning Page 16

8 A2 7. Identify three life cycle changes that could occur in your life in the next five years that could change your personal financial plan. (3 points) 8. List two of the financial resources you are counting on to meet your goals in the next five years. (2 points) 9. List two of the financial resources you are counting on to meet your goals in the next ten years. (2 points) 10. Why do financial plans change throughout the life cycle? (1 point) Family Economics & Financial Education Revised May 2010 Introduction to Finance Life Cycle of Financial Planning Page 17

9 Life Cycle PhotoView A3 Directions: Interview an adult family member or friend to collect information about their personal financial life cycle. In addition to collecting information, collect pictures of the interviewee throughout various points in their life cycle. The pictures collected should depict events, values, goals, life cycle needs, and lifestyle conditions that had an impact on the interviewee s financial plan throughout their life. If pictures are not available, then clip art and/or symbols that represent the adult s life cycle story can be used instead. If the poster option is used, pictures could also be drawn by hand. After the interview is completed, use the information and pictures collected to create a poster or a PowerPoint presentation summarizing the interviewees financial life cycle. The Life Cycle PhotoView rubric B1 is used to grade the poster and PowerPoint presentation. The poster or PowerPoint presentation should include: 1. A short biography of the interviewee. This could be integrated throughout the poster or PowerPoint presentation. Make sure to include the interviewee s age and their relationship to the interviewer. 2. A minimum of five graphics (pictures, clipart, symbols, drawings). 3. A caption for every graphic describing its significance to the interviewee s financial life cycle. Possible Interview Questions: 1. How have your financial needs changed throughout your life? 2. What events in your life do you believe have had the greatest impact on your financial plan? 3. How did these events specifically affect your financial plan? 4. How have your values and goals affected your financial plan? 5. What are your current financial needs? Name of Adult Interviewed: Signature of Adult Interviewed: Phone number: Family Economics & Financial Education Revised May 2010 Introduction to Finance Life Cycle of Financial Planning Page 19

10 Life Cycle PhotoView Rubric B1 Rubric Name: Date: Participation Content Graphics Captions Quality of Work Exemplary - 3 Satisfactory - 2 Unsatisfactory - 1 Rating Weight Score Participant used time well throughout the project. Participant focused on getting the project done and never distracted others during class. The project completes the objective of using graphics to tell the interviewee s financial life cycle story. The project includes a short biography of the interviewee. At least five graphics are used in the project. Each graphic contains a caption explaining its significance to the interviewee s financial life cycle. The final product is high-quality and reflects the participant s best work and effort. Participant did not use time well throughout the project and was not focused on getting the project done. Participant never distracted others during class. The project does not complete the objective of using graphics to tell the interviewee s financial life cycle story. The project includes a short biography of the interviewee. Only four graphics are used in the project. Some graphics contain a caption explaining its significance to the interviewee s financial life cycle. Participants made an effort to make a quality product. Participant did not use time well throughout the project and was not focused on getting the project done. Participant distracted others during class. The project does not complete the objective of using graphics to tell the interviewee s financial life cycle story. The project did not include a short biography of the interviewee. Three or less graphics are used in the project. Few graphics contain a caption explaining its significance to the interviewee s financial life cycle. Participants made no effort to create a quality final product. Total Points Earned Total Points Available 45 Percentage Family Economics & Financial Education Revised May 2010 Introduction to Finance Life Cycle of Financial Planning Page 20

11 F1 Life Cycle of Financial Planning Financial Planning Family Economics and Financial Education Financial needs continually change throughout an individual s lifetime. Many people follow similar financial patterns during their life. However, everyone has an individualized financial plan that is dependent on many different factors in an individual s life. Financial planning is a tool used to achieve financial success based upon the development and implementation of financial goals. It is important to use financial planning to help a person avoid financial difficulties. By having well-written financial goals and implementing them into a financial plan, a person will have the means to achieve the standard of living they desire. An individual s values, goals, personal choices, major life events, lifestyle conditions, and life cycle needs work together to determine the details of an individual s financial plan. As these factors change, so does an individual s financial plan. Financial planning is an ongoing process that is affected by expected as well as unexpected events. Financial Goals Factors that Influence Financial Planning Many people follow a similar financial pattern during their life, but everyone has an individualized financial plan. Financial goals are specific objectives to be accomplished through financial planning. Goals should be consistent with personal values and attitudes. Financial goals should be SMART goals. Specific Measureable Attainable Realistic Time Bound State exactly what is to be done with money involved. Write the exact dollar amount. Determine how it can be reached, Do not set the goal for something unattainable or unrealistic. Specifically state when the goal needs to be reached. Lifestyle conditions Lifestyle conditions are affected by an individual s values, goals, personal choices, major life events, and life cycle needs. Any lifestyle condition changes may require an individual to re-evaluate their financial plan. People may change careers, start careers, or start families late in life. For example, a single 40 year-old with no children will be focusing on different financial plans than a married 40 year-old with 2 children. Family Economics & Financial Education Revised May 2010 Personal Finance Unit Life Cycle of Financial Planning Page 1

12 Family Economics and Financial Education Financial Life Cycle Although everyone has a specific financial plan, there is a typical financial life cycle pattern that applies to most people. A life cycle is defined as a series of stages in which an individual passes during his or her lifetime. This life cycle pattern includes three stages. The amount of time it takes to move through the financial life cycle varies for every individual or household F1 Stage 1: Basic Wealth Protection The beginning of the curve is where a person quits giving money to others and is the family formation stage for many people. This is when an individual may be beginning to earn money, continuing education, starting a job or career, and/or starting a family. The individual should be focusing on building financial security. Stage 2: Wealth Accumulation The second stage goes beyond financial security and is where a person is giving the money to self. The household head has reached peak earning years, is accumulating wealth, and approaching retirement. Stage 3: Wealth Distribution The last stage involves giving the money to your chosen ones. This stage involves the consumption of wealth, usually during retirement. Personal Financial Management Pyramid The levels which contribute to a well-managed and balanced financial plan are shown on the Personal Financial Management Pyramid. It starts with basic financial requirements on the bottom, focuses on wealth accumulation in the middle, and moves up the pyramid to distribution of wealth as the final financial plan. The pyramid is based on a hierarchy where decisions at one level affect the other levels. As a person moves up the pyramid, their financial plan becomes more complex. Family Economics & Financial Education Revised May 2010 Personal Finance Unit Life Cycle of Financial Planning Page 2

13 Family Economics and Financial Education Life Cycle Needs Financial needs change throughout an individual s life cycle. Specific life cycle needs are affected by an individual s values, goals, personal choices, life events, and lifestyle conditions. However, people in certain age groups tend to have similar life cycle needs. The table below gives examples of life cycle needs (activities and events) which would require financial planning for different age groups. High School: Ages F1 Developing a plan for eventual independence Preparing for a career Evaluating future financial needs and resources Exploring financial systems banks, etc. Developing a personal system of record keeping Young Adult: Ages Establishing a household Training for a career Earning financial independence Determining insurance needs Establishing credit Establishing savings Creating a spending plan Developing a personal financial identity Adult with or without children: Ages Child-bearing Child-raising Starting an education fund for children Expanding career goals Managing increased need for credit Discussing and managing additional insurance needs Creating a will Working Parent or Adult: Ages Upgrading career training Developing protection needs for head-of-household Establishing retirement goals Building on children s education fund Need for greater income due to expanding needs Midlife: Ages Assisting with higher education for children Updating retirement plans Investing Developing estate plans Pre-Retirement: Ages Consolidating assets Re-evaluating property transfer (estate) Evaluating expenses for retirement and current housing Planning future security Investigating retirement part-time income or volunteer work Meeting responsibilities of ageing parents Retired: Ages 65 and over Re-evaluating and adjusting living conditions and spending as related to health and income Adjusting insurance programs for increasing risks Finalizing will or letter of last instructions Acquiring assistance in management of personal and financial affairs Finalizing estate plans People in certain age groups tend to have similar life cycle needs. Family Economics & Financial Education Revised May 2010 Personal Finance Unit Life Cycle of Financial Planning Page 3