Lesson Plans and Handouts from Gregg J. Zogby, Wellington C. Mepham High School

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1 Lesson Plans and Handouts from Gregg J. Zogby, Wellington C. Mepham High School As presented in the W!SE Webinar for Financial Literacy on October 30, 2014 Table of Contents Types of Investments... Pages 2-5 Saving vs. Investing: What is the difference?...pages 6-9 Insurance Basics...Pages Understanding Auto Insurance.... Pages

2 Types of Savings Options/Investments Stocks are certificates of ownership in a corporation. Companies issue stock to raise money to grow their businesses, and sometimes pay their shareholders with dividends when the company makes money (they do not have to do this). If companies are making money, though, the value of the stock will rise. History has shown that over time, stocks tend to give investors high returns. If companies lose money, however, a stock can become worthless, sometimes within a matter of months. Certificates of Deposit (CD s) are special savings accounts. You commit to depositing your money for a specified period of time (anywhere from six months to 5 years). In return, the bank pays you an Annual Percentage Yield (APY), which is based on how much you deposit. The yield also depends on whether the interest is simple or compound. These are FDIC insured. Real Estate is property one owns. It refers to a number of categories: homes, apartment buildings and land. People sometimes buy land on a hunch that people will move there and want to buy homes. Owning real estate can be very rewarding financially if things go as planned, but neighborhoods, economies and government regulations can change in unforeseeable ways, which can cause the value of real estate to drop. Bonds are IOU s issued by governments and businesses. Basically, people loan governments or businesses money, and receive a legal promise in writing (called a bond) to repay the loan with interest. Bonds are generally safer than stocks, but the higher the interest rate offered on the bond, the riskier the bond is said to be. Treasury Bills (T-Bills) are short term loan notes. They are issued by the United States government in denominations of $1,000. People typically buy the T-Bill for $20 to $30 less than the face value, and receive the face value at maturity (3 months to one year). These are basically guaranteed by the US government. 2

3 Hypothetical Investors Grandma Hamilton, 85, who wants to make sure her money, is still around in 3 years. Mr. Hamilton, 34, who wants to retire in 30 years and is willing to take some risk. Brother Hamilton, 40, who makes good money, is a risk taker, and thinks that parts of NYC are going to become very popular among home buyers in a few years. Sister Hamilton, 28, who wants to put a down payment on a house in year, but does not want her money locked away. Uncle Hamilton, 55, who likes to invest money when there is a legal written commitment to involved in the transaction. 3

4 Name Evaluate the Investments Directions: Use the information on the back of the sheet to help evaluate the investments. Then, determine which types of people each investment would be most suitable for. The list appears on the other side. Note: Short-term = 1-5 years money Medium-term = 7-15 years Long-term = years Low Risk: Little to no chance of losing Medium Risk: Some chance of losing money High Risk: Good chance of losing money Investment Option (Read Definition) Stocks Time Factor (Shortterm, Medium term or Long term investment) Level of risk (low, medium, high) Suitable for whom and why? CD s Real Estate Bonds T-Bills 4

5 Evaluate the Investments Answer Key Directions: Use the information on the back of the sheet to help evaluate the investments. Then, determine which types of people each investment would be most suitable for. The list appears on the other side. Note: Short-term = 1-5 years money Medium-term = 7-15 years Long-term = years Low Risk: Little to no chance of losing Medium Risk: Some chance of losing money High Risk: Good chance of losing money Investment Option (Read Definition) Stocks Time Factor (Shortterm, Medium term or Long term investment) Medium Term to Long Term Level of risk (low, medium, high) Medium to High Suitable for whom and why? Mr. Hamilton CD s Short Term Low Grandma Hamilton Real Estate Long term Medium to High Brother Hamilton Bonds Short Term to Medium Term Low to Medium Uncle Hamilton T-Bills Short Term Low Sister Hamilton 5

6 Name I. Saving is for short-term financial goals Saving vs. Investing: What is the Difference? A) By short-term we mean a few months to a few years B) You are trying to preserve the value of your money C) You do not want to take great risks with your money Examples: Saving for a car, saving for college; saving for a vacation. II. Investing is for long-term financial goals A) By long-term we mean 10 years or more B) You are trying to increase the value of your money C) You can take greater risk with your money because if things don t work out, you still have time on your side Example: Retirement III. How does money grow when your are saving or investing? A) Your money earns a rate of interest or a rate of return (ROR) There are two main types: 1. Simple: Your money earns interest on the only 2. Compound: Your money earns interest on the and previous year s. How does it work? (over) 6

7 Year Let s assume that you want to save $100. The bank offers you an interest rate of 8% Total Using Compound Simple Interest Adds Interest Simple Interest Adds 1 $8.00 $108 $8.00 $108 2 $8.00 $116 $9.00 $117 3 $8.00 $124 $9.00 $126 4 $8.00 $132 $10.00 $136 5 $8.00 $140 $11.00 $147 6 $8.00 $148 $12.00 $159 7 $8.00 $156 $12.00 $171 8 $8.00 $164 $14.00 $185 9 $8.00 $172 $15.00 $200 Total Using Compound Interest A) What seems to be the obvious difference between simple and compound interest? B) Why is this happening? IV. There is a mathematical rule that can help us determine how long it will take our money to double in value. It is known as the Rule of 72. You divide 72 by the absolute value of any interest rate to calculate the number of years it will take your investment to double in value. Practice How many years will it take $100 to grow to $200 if the interest rate or rate of return is: A) 1% B) 2% C) 4% D) 6% E) 8% F) 12% V. There is a relationship between the risk you take and potential financial reward! 7

8 Name I. Saving is for financial goals Saving vs. Investing: What is the Difference? A) By short-term we mean B) You are trying to of your money C) You do not want to take with your money Examples: Saving for a car, saving for college; saving for a vacation. II. Investing is for financial goals A) By long-term we mean B) You are trying to of your money C) You can take with your money because if things don t work out, you still have time on your side Example: Retirement III. How does money grow when your are saving or investing? A) Your money earns a or a There are two main types: 1. Simple: Your money earns interest on the only 2. Compound: Your money earns interest on the and previous year s. How does it work? (over) 8

9 Year Let s assume that you want to save $100. The bank offers you an interest rate of 8% Total Using Compound Simple Interest Adds Interest Simple Interest Adds 1 $8.00 $108 $8.00 $108 2 $8.00 $116 $9.00 $117 3 $8.00 $124 $9.00 $126 4 $8.00 $132 $10.00 $136 5 $8.00 $140 $11.00 $147 6 $8.00 $148 $12.00 $159 7 $8.00 $156 $12.00 $171 8 $8.00 $164 $14.00 $185 9 $8.00 $172 $15.00 $200 Total Using Compound Interest A) What seems to be the obvious difference between simple and compound interest? B) Why is this happening? IV. There is a mathematical rule that can help us determine how long it will take our money to double in value. It is known as the Rule of 72. You divide 72 by the absolute value of any interest rate to calculate the number of years it will take your investment to double in value. Practice How many years will it take $100 to grow to $200 if the interest rate or rate of return is: A) 1% B) 2% C) 4% D) 6% E) 8% F) 12% V. There is a relationship between the risk you take and potential financial reward! 9

10 Name Economics Mr. Zogby Insurance Basics Risk is the chance that something unexpected will occur. Risk management means that people can use various ways to deal with personal or financial loss. One way to do this is to transfer (pass on) risk to a third party. That s where insurance companies come in; many people use insurance companies to help them manage big financial risks. Important Insurance Terms: Matching Column Insurance: Insurance Company: Policy: Premium: Coverage: Deductible: Claim: A) Request for payment to cover financial losses B) Contract purchased that enables protection C) Fee charged to holder of the policy D) Protection against possible financial loss E) Risk sharing business; agrees to pay for losses F) Outlines what is to be protected and in what amount G) set amount that policyholder must pay out of pocket Question: What are some things for which people often purchase insurance policies for? Why? Category of Insurance Why People Buy It 10

11 Home and Property Insurance Homeowner s Insurance: coverage that provides protection for (damage to personal property and injuries to others) Homeowner s insurance covers your up to a portion of the insured value of the home. (between 55%-75%). For example, a home insured for $80,000 might have $56,000 (70%) worth of coverage for household belongings. If something does happen to your personal property, you must and that it belonged to you. To make this process easier, you can create (a list of personal belongings with purchase dates and cost information). Video recordings and photographs are a good way to make this easier) How do insurance companies base claim settlements on personal property? A) Actual Cash Value (ACV) payment is based on replacement cost of an item. Depreciation. B) Replacement Value: person receives full cost of an item. Depreciation is not considered. C) If you have especially expensive items (jewelry, flat screen TV s) it is advisable to purchase coverage that extends to these items called a. What if I rent my home or apartment? Renter s Insurance is available, which covers a tenant s personal property in the event of damage to a tenant s property 11

12 Home and Property Insurance Homeowner s Insurance: coverage that provides protection for your residence and its associated financial risks (damage to personal property and injuries to others) Homeowner s insurance covers your household belongings up to a portion of the insured value of the home. (between 55%-75%). For example, a home insured for $80,000 might have $56,000 (70%) worth of coverage for household belongings. If something does happen to your personal property, you must prove what it was worth and that it belonged to you. To make this process easier, you can create a household inventory (a list of personal belongings with purchase dates and cost information). Video recordings and photographs are a good way to make this easier) How do insurance companies base claim settlements on personal property? A) Actual Cash Value (ACV) payment is based on replacement cost of an item minus depreciation. Depreciation is the loss of the value of an item as it gets older. B) Replacement Value: person receives full cost of repairing or replacing an item. Depreciation is not considered. C) If you have especially expensive items (jewelry, flat screen TV s) it is advisable to purchase coverage that extends to these items called a floater policy. What if I rent my home or apartment? Renter s Insurance is available, which covers a tenant s personal property in the event of damage o a tenant s property 12

13 Insurance Unit Lesson 1 Aim: What is insurance and why do people buy it? Curricular Goals: By the end of the lesson students will be able to: 1. define key terms associated with insurance 2. explain why insurance is a necessity 3. identify the difference between actual cash value and replacement value methods of compensation Key Competencies By the end of the lesson students will be able to: 1. communicate though oral expression social science principles, concepts and themes (#3) 2. communicate though written expression social science principles, concepts and themes (#4) 3. recognize and understand the basic economic principles that govern societies (#10) General Study Skills 1. listening 2 applying previous knowledge 3. critical thinking 4. note taking Instructional Materials: Insurance Basics Home and Property Insurance Overhead: Household Inventory Strategies 1 Whole class discussion/participation 2. Reading Comprehension Assessment: Circulate room during activity; listen and respond to student answers to questions. Conduct debriefing after individual activity. Motivation: How many of you like baseball? I have often heard people say that if a team is winning 2-1 in the 8 th inning, it would be a good thing for the team to score insurance runs. What does that mean? How does the Federal Government reassure people that they will not lose the money they have deposited in a savings account? Why is this a big deal? What does insurance protect against? Note Aim. 13

14 Procedure 1. Conduct Motivational Exercise 2. Distribute reading Insurance Basics Call on students to read aloud. Is traveling by car risky? Why? Why not? Is there a way to: Avoid injury by traveling in a car? How? Minimize risk of injury by traveling in a car? How? How does passing risk on to an insurance company help all of us? Name some insurance companies How do you think they make money? 2. Ask students to list categories for which people often by insurance. 3. As students share answers, write answers on overhead, so that those who did not get the answers can copy. 4. Distribute outline notes on Home and property insurance Why do you think people take out insurance policies on their homes? Show overhead of household inventory Is it worth it to go through all of this trouble to create a household inventory? Why? Why not? Name some things that depreciate. Which of the two methods would you prefer to have on your policy? Which do you think costs more? Why? Is it worth it for renter s to get insurance? Why? Why not? Summary: Does insurance buying have any place in one s financial planning decisions? Why? Why not? 14

15 Insurance Unit Lesson 3 Aim: What should a consumer understand about auto insurance options? Curricular Goals: By the end of the lesson students will be able to: 1. Describe the ways in which auto insurance protects people 2. Explain the factors that affect auto insurance premiums 3. Identify strategies to reduce the premiums on pays Key Competencies By the end of the lesson students will be able to: 1. communicate though oral expression social science principles, concepts and themes (#3) 2. communicate though written expression social science principles, concepts and themes (#4) 3. recognize and understand the basic economic principles that govern societies (#10) General Study Skills 1. listening 2 applying previous knowledge 3. critical thinking 4. strategic reading Instructional Materials: Auto Insurance Basics Strategies 1 Whole class discussion/participation 2. Reading Comprehension Assessment: Circulate room during activity; listen and respond to student answers to questions. Conduct debriefing after eliciting answers. Motivation: How many of you drive? What are your biggest expenses in affording the car? How much do you pay for your car insurance? Would you say that it is expensive? Why? Why not do without insurance? Note Aim Procedure 1. Conduct Motivational Exercise 2. Distribute handout Auto Insurance Basics Call on students to read first section 15

16 Which of these coverage options are mandatory? (A, B, C) Which are optional? (D, E) What do you think happens to your premium as you add more coverage options? 3. Call on students to read through second section. Explain numbers to students. What coverage do you have? Look it up when you go home today. 4. Call on students to read through section III Ask students to explain how each factor affects the premium one pays. As students answers, write answers one overhead. 5. Instruct students to write answers to section IV. 6. Call on students to share answers. Write answers on overhead. Summary: If auto insurance is a necessity, what are some things you can do as a consumer/ responsible individual to make sure you get the right coverage? 16

17 Name Economics Mr. Zogby Auto Insurance Basics I. How does auto insurance protect you? A) Liability Coverage: pays for bodily injury to other people and damage to property B) Medical Payments: protects you, family members and any other passenger in your car. It covers hospital bills, doctor s fees, etc. C) Uninsured Motorist: additional coverage you buy to protect against damages caused by an uninsured motorist D) Underinsured Motorist: You buy a policy that protects you in case another motorist does not have enough coverage E) Collision: Pays to repair damage to you car if it is damaged by another car or object. A deductible applies when a car is damaged. In recent years, many insurance companies have offered a No Fault insurance policy option. Under this policy, the injured party in an accident receives a set amount of money from his or her own insurance company, regardless of who was at fault. The purpose of this option is to reduce the number of lawsuits against insurance companies. More lawsuits mean rising premiums and less profit for insurance companies. II. When purchasing an auto insurance premium, what do the numbers mean? III. What factors affect the insurance premium one pays? A) Vehicle Type B) Rating Territory 17

18 C) Driver Classification 1. Age 2. Gender 3. Marital Status 4. Assigned Risk Pool (people who cannot get insurance at normal rates; assigned by state to insurance companies) D) Features on Car (Anti-Lock Brakes, Airbags Alarms, etc.) IV) What can I do to reduce my auto insurance premiums? A) Increase Deductibles For Collision B) Cancel Collision C) Defensive Driver s Course D) Shop around 18

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