Life Cycle of Financial Planning Grade Level 9-12

Transcription

1 Life Cycle of Financial Planning Grade Level 9-12 Take Charge of Your Finances Materials provided by: Kim Knoche, Family and Consumer Sciences Educator, Forsyth High School, Forsyth, Montana Time to complete: 55 minutes National Content Standards Family and Consumer Science Standards: 1.1.1, 1.1.6, 2.1.2, 2.5.1, 2.5.4, 2.6.1, National Council on Economic Education Teaching Standards: 1, 3, 11, 12 National Standards for Business Education Career Development: Economics:VII.1 Personal Finance: II.1, III.1, III.2, III.3-4, IV.1, IV.2, IV.3, V.III.1 Objectives Upon completion of this lesson, students will be able to: Analyze lifestyle conditions which may affect one s financial situation throughout the life cycle. Identify financial needs throughout the life cycle. Apply life cycle financial planning when implementing a personal financial management plan. Introduction Everyone has financial needs which vary throughout a lifetime. Many people follow a traditional financial pattern, but unexpected life events can change the direction of a financial plan at any time. 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. The focus of a financial plan will vary depending upon the values and goals of the individual in conjunction with their lifestyle conditions. Financial planning is an ongoing process. Lifestyle Conditions: Lifestyle conditions may affect a financial plan during different stages of life. Examples of conditions include: Marital status single, married, divorces, widowed Employment status employed, unemployed, facing unemployment Age Number of dependents children, spouse, parents, other family members Economic outlook interest rates, employment level Education education level of family members, tuition needs for children Health status Each individual s financial demands vary depending upon life events. Any lifestyle condition changes may cause the person to re-evaluate strategies and goals for their financial plan. People may change or start careers or 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 November 2004 Introduction to Finance Unit Life Cycle of Financial Planning Page 1

2 Financial Life Cycle: Each individual or family will set specific financial goals to be met during their life cycle. This information is depicted on An Individual s Financial Life Cycle graph D2. The bell curve represents the traditional wealth one has over the life cycle in three stages. Stage 1: Basic Wealth Protection o 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 gaining wealth and earnings. Stage 2: Wealth Accumulation o The second stage 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 o The last stage involves giving the money to your chosen ones. The stage is also known as retirement, where consumption of wealth occurs, and involves estate planning. Personal Financial Management Pyramid: The levels which contribute to a well-managed and balanced financial plan are shown on the Personal Financial Management Pyramid D1. 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. Life Cycle Needs: A life cycle is defined as a series of stages in which an individual passes during his or her lifetime. The following are life cycle needs (activities and events) which would require financial planning for different age groups: High School: Ages Developing plan for eventual independence Preparing for career Evaluating future financial needs and resources Exploring financial systems Developing a personal system of record keeping Adult with or without Children: Ages Child-bearing Child-raising Education fund started Expand career goals Manage increased need for credit Training expenses 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 Developing a personal financial planning system Repaying debt Working Parent or Adult: Ages Upgrade career training Build education fund Head-of-household protection needs Need for greater income due to expanding needs Establish retirement goals Family Economics & Financial Education Revised November 2004 Introduction to Finance Unit Life Cycle of Financial Planning Page 2

3 Additional insurance needs Draw up will Maximize financial management by all members of household Repayment of debt Midlife: Ages Higher education for children Investments Update retirement plans Estate plans Retired: Ages 65 and over Re-evaluate and adjust living conditions and spending as related to health and income Adjust insurance programs for increasing risks Acquire assistance in management of personal and financial affairs Finalize estate plan Finalize will or letter of last instructions Repayment of debt Pre-Retirement: Ages Consolidate assets Future security Re-evaluate property transfer (estate) Investigate retirement part-time income or volunteer work Evaluate expense for retirement and current housing Meet responsibilities of aging parents In this lesson, students brainstorm activities and events which occur around different life cycle age groups which affect financial planning. Students develop a financial plan and goals for a scenario of a high school student and also apply life cycle financial planning to their own lives. Body 1. Write the following statement on the board before students enter the room. a. Everyone follows the same financial plan. 2. At the beginning of class, ask the students to read the comment on the board. Ask if it is true or false and why or why not. Have a five minute discussion about the statement. 3. Tell students this statement is NOT true because people do not have exactly the same life experiences, major life events, or financial plan. Each individual and family s life cycle financial plan will vary. Financial planning is a tool used to achieve financial success based upon the development and implementation of financial goals. Give the students examples of lifestyle conditions which may occur to change the financial plan of an individual or family including: a. Marital status single, married, divorced, widowed b. Employment status employed, unemployed, facing unemployment c. Age d. Number of dependents children, spouse, parents, other family members e. Economic outlook interest rates, employment level, salary rates f. Education education level of family members, tuition needs for children g. Health status h. For example, a 17 year-old single mother s financial plan is different than a 17 year-old student without a child. 4. Discuss An Individual s Financial Life Cycle graph D2. Family Economics & Financial Education Revised November 2004 Introduction to Finance Unit Life Cycle of Financial Planning Page 3

4 a. The bell curve represents the traditional wealth one accumulates during the life cycle in three stages. b. Stage 1: Basic Wealth Protection i. 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 gaining wealth and earnings. c. Stage 2: Wealth Accumulation i. The second stage is where a person is giving the money to self. The household head has reached peak earning years, is accumulating wealth, and approaching retirement. d. Stage 3: Wealth Distribution i. The last stage involves giving the money to your chosen ones. The stage is also known as retirement, where consumption of wealth occurs, and involves estate planning. 5. Discuss the Personal Financial Management Pyramid D1. a. *Note: The graph and pyramid represent the same idea with the graph showing the visual timeline and the pyramid listing things which occur over a life cycle. b. The levels contribute to a well-managed and balanced financial plan recommended for individuals. The levels of the pyramid starting at the bottom are as follows: i. Basic Wealth Protection quit giving it to others 1. Cash Management goal setting, emergency, cash reserve, record keeping, spending plans, net worth, and income-expense statements 2. Credit and Debt Management goal setting, credit use, avoiding credit abuse, and debt reduction 3. Risk and Tax Management goal setting, insurance, protection against economic loss, and income tax reduction ii. Wealth Accumulation giving it to yourself 1. Building Financial Security goal setting, savings plan, home ownership, and children s education iii. Wealth Distribution giving it to your chosen ones 1. Estate planning c. Discuss how building a solid financial foundation allows a person to build wealth and move up the pyramid. i. It 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. 6. Activity Have the room setup prior to class starting. a. Tape the Age Group Titles H1 around the room on large pieces of white butcher paper. b. Divide the students into groups of 3. In the groups, students must brainstorm activities and events which require financial planning for their assigned age group and write their ideas on the butcher paper. 7. After the students are finished brainstorming, gather the class back together for a group discussion. a. Take turns reading and discussing the student s ideas for each age group starting with the age group Continue to do the same for each age group one at a time (ages 18 24, 25-34, 35-44, 45-54, 55-64, and 65+). b. Have the Answer Key C1 ready to compare to the student s answers as a guide for events at certain ages. c. Remember no answers are right or wrong because the age at which events occur can drastically vary among people. 8. After the activity, read the following scenario to the students. Ask the students to come up with four specific financial goals for the person in the scenario and list a resource for each goal to help her implement the financial plan. List the financial goals and resources the students came up with on the board. Family Economics & Financial Education Revised November 2004 Introduction to Finance Unit Life Cycle of Financial Planning Page 4

5 a. Sally Smith is a 16 year-old high school junior. She values her close family and dreams of having a family of her own someday. She is also very focused on having a successful career in the future. b. *Note to teacher: This is purposefully vague to encourage students to come up with career and family ideas that represent their own values rather than simply steering towards traditional ways of life. It is important for the students to understand different interpretations of this scenario will require different resources to implement the financial plans. c. Example of a response: i. Sally wants to save $2,000 for a new computer by saving $110 each month for the next year and a half. ii. Resource part-time job 9. Discuss Sally s scenario and the answers with the students. Questions to ask include: a. How does this scenario compare to students in this room? b. What financial plan goals listed on the board could apply to students in this room? c. What other financial plan goals are applicable to high school students? d. Name some personal values and goals which affect a high school student s financial plans. How can these values and goals affect financial planning? e. List resources available to high school students to help them reach their financial plans. i. Examples: wages, summer job, investments, savings, hobbies, skills, extra-curricular activities, gifts, scholarships f. Why is it important for students to start their financial plans now? Conclusion After the activity, read the statement from the beginning of class and ask students to give reasons why it is incorrect as a closure discussion. Everyone follows the same financial plan. Assessment Hand out the Personal Life Cycle of Financial Planning worksheet A1. Students must complete this worksheet individually to analyze their current personal financial situation. Materials Personal Life Cycle of Financial Planning worksheet A1 Personal Financial Management Pyramid D1 An Individual s Financial Life Cycle Graph D2 Age Group Titles H1 Butcher paper Color markers (one different color for each group) Family Economics & Financial Education Revised November 2004 Introduction to Finance Unit Life Cycle of Financial Planning Page 5

6 .A1 Worksheet Personal Life Cycle of Financial Planning Name Total Points Earned 20 Total Points Possible Percentage Date Directions: Answer the following questions in relation to the ideas presented during the discussion to your own personal financial situation. 1. What stage of the life cycle are you at currently? (1 point) 2. State three specific financial goals in your life cycle financial plan. (3 points) 3. List three resources you currently have available to work toward your financial goals. (3 points) 4. What are three possible life cycle changes which could affect your current financial plans in the next five years? (3 points) 5. List three personal values which affect your financial planning. (3 points) 6. Why do financial plans change throughout the life cycle? (1 point) 7. List two of the financial resources you are counting on to meet your goals in the next five years: (2 points) 8. List two for the next ten years: (2 points) 9. List two other financial resources you could have to meet future needs if you were to begin to develop them now: (2 points) Family Economics & Financial Education Revised November 2004 Introduction to Finance Unit Life Cycle of Financial Planning Page 6

7 Age Group Titles H1 Game Cards High School Ages Young Adult Ages Adult with or without Children Ages Family Economics & Financial Education Revised November 2004 Introduction to Finance Unit Life Cycle of Financial Planning Page 7

8 .H1 Game Cards Age Group Titles continued Working Parent or Adult Ages Midlife Ages Pre-Retirement Ages Retired Ages 65 and older Family Economics & Financial Education Revised November 2004 Introduction to Finance Unit Life Cycle of Financial Planning Page 8