NORTH DAKOTA PERSONAL FINANCE EDUCATION Financial Responsibility and Decision Making: Where It All Begins Leader Guide Learner Objectives Students will: Examine the role of fi nancial decisions in their fi nancial literacy and security May 2010 Before the Program Read through all the materials. Decide what you will cover. Highlight those areas. Break up into as many classes as you need to cover the core objectives. Make handout materials or provide the NEFE HSFPP student workbooks. Notes on the Program This is a basic introduction to understanding the impact of financial decisions on fi nancial capability and literacy. Try to pick out the portions that fi t both your time frame and your participants knowledge level. Italicized comments are notes to the instructor.
North Dakota Standards Addressed Family and Consumer Sciences FCS 1.2 - Identify transferable and employability skills FCS 2.1 - Identify consumer rights and responsibilities FCS 2.5 - Demonstrate management of fi nancial resources to meet the goals of individuals and families across the lifespan Social Studies: Economics E 3 - Understand economic concepts and the characteristics of various economic systems English Language Arts ELA 2 - Engage in the reading process ELA 3 - Engage in the writing process ELA 4 - Engage in the speaking and listening process ELA 6 - Understand and use principles of language Jump$tart Competencies Addressed Overall competency: Apply reliable information and systematic decision making to personal financial decisions Standard 1: Take responsibility for personal fi nancial decisions. Standard 2: Find and evaluate fi nancial information from a variety of sources. Standard 3: Summarize major consumer protection laws. Standard 4: Make fi nancial decisions by systematically considering alternatives and consequences. Standard 5: Develop communication strategies for discussing financial issues. Standard 6: Control personal information. Overall competency: Organize personal finances and use a budget to manage cash flow Standard 4: Apply consumer skills to purchase decisions. Standard 5: Consider charitable giving. Standard 6: Develop a personal fi nancial plan Participant Materials Handouts, or provide students with individual copies of the National Endowment for Financial Education (NEFE) High School Financial Planning Program (HSFPP) student workbook, which includes most of the materials covered. Available without charge. Ordering information at http://hsfpp.nefe.org/. Other Resources TEEN CONSUMER COMPETITION - LifeSmarts www.lifesmarts.org/ LifeSmarts is a fl exible classroom or group activity that teaches teens to be smart and responsible consumers and citizens. The content and competition questions focus on fi ve key areas of consumer knowledge that teens need to know to function effectively in today s marketplace. These are: Personal fi nance Health and safety Environment Technology Consumer rights and responsibilities FTC Identity Theft Web Site www.ftc.gov/bcp/edu/microsites/idtheft/ Guest Speakers North Dakota Attorney General s Office Consumer Protection and Antitrust Division www.ag.state.nd.us/cpat/cpat.htm The Consumer Protection and Antitrust Division (CPAT) assists consumers by enforcing the state s consumer fraud laws, which prohibit misleading and deceptive practices in connection with the sale or advertisement of merchandise. CPAT investigates and prosecutes consumer fraud cases, mediates individual consumer complaints and educates the public on how to avoid becoming victims of fraud. If you have a consumer problem or question, call the Consumer Protection Division at (701) 328-3404, (800) 366-6888 (TYY) or toll free at (800) 472-2600. 2
Slide 1 Slide 3 Financial planning is a thought process based on what each of us considers most important. What do we want to achieve in life? What do we want to be, do and have? A fi nancial plan helps us identify the end result we want, fi gure out how to get there and stay on track to achieve it. Slide 2 Have your parents ever refused to buy you some things you really wanted? Maybe they were new clothes, tickets to a show or the latest electronic gadgets, and you just didn t have enough money to buy them yourself. Have you ever wanted to buy something big, such as your own computer or car? Or dreamed about becoming a multimillionaire and retiring at 40? Doing all of these things is possible for you if you get savvy about managing your money. In this unit, you will begin your journey toward savvy money management by learning about the fi nancial planning process. People who have it all didn t get there by accident. They made a fi nancial plan and followed it. You will use what you learn in this unit to create your own personal fi nancial plan. Later, we ll build upon this by discussing ways to follow it and other aspects of managing your money. 3 How can you use this in your life? You will use what you have learned in this unit to create your own personal financial plan. In the process of creating your financial plan, you will: Examine the value of having a process of planning how to use money Create personal fi nancial SMART goals Analyze how money is received and used Use the decision-making process to create a fi nancial plan Identify guidelines to implement a personal fi nancial plan Monitor and modify a personal fi nancial plan You will know you have succeeded when: Your fi nancial plan includes at least one short-term SMART goal (zero to three months) Your fi nancial plan includes at least one intermediate-term SMART goal (three months to one year) Your fi nancial plan includes at least one long-term SMART goal (more than one year) Your fi nancial plan includes a [week/month] record of how your money has been received and used You show your decision-making process to allocate your money You describe at least two factors that will impact your plan You list at least three strategies to use to follow your plan You explain how you will monitor your plan
Do You Need It or Do You Want It? Slide 4 Let s face it; sometimes we say we need things that we actually don t. Needs are the very basic things we must have to survive. Wants are the things that make life more interesting and fun, but you could live without them if you had to. You need food to eat, but you want to eat pizza out with your friends. You need a place to live, but you want a TV in your room. You need some clothes to wear, but you want those designer jeans. Everyone has wants, but when your wallet is looking thin, needs have to come fi rst. We begin with learning the difference between needs and wants. Because resources are limited, we must learn to prioritize our goals, and needs usually come first. Having wants Is OK. Wants often motivate us to succeed. The key is being able to distinguish between a want and a need and to use that understanding when we make important choices and decisions. Decision making plays an important role in the fi nancial planning process. We must make choices to maximize our ability to accomplish our goals with limited resources. Making effective decisions involves a set process, which we may not even realize we re using. Of course, some decisions will create the need to make even more decisions. Having enough money to spend on every single want is rare. Studies show that even multimillionaires believe they need about twice what they have to feel worry-free. So everyone has to make choices and set priorities. A good fi nancial plan helps you through that process. For example, the plan makes you think about your needs and wants. Polarity Activity Time: 10 minutes Materials: Two signs, one labeled NEED and the other WANT; masking tape Directions: Hang signs at opposite ends of the room. Arrange students in the center of the room between the two signs. Tell the students that you are going to name something (see ideas below). Each person should decide whether the item named is a need or a want and should move to the respective end of the room. After everyone has moved to one end or the other, survey a few members from each group. Ask the individuals why they think something is either a need or a want; ask for examples. Ideas for the NEED or WANT list: Automobile Telephone Newspaper Athletic shoes Business suit Slide 5 Delayed gratifi cation is waiting to enjoy something and incorporates careful planning. Can you think of other benefits of delayed gratifi cation? Discuss the benefits of delaying a purchase. Ideas to consider: Saving for a down payment on a car Waiting to buy a video game until the price is discounted 4
Slide 6 Values are the beliefs and practices in your life that are very important to you. So many things can infl uence your values: your parents, other family members, friends, your religion, things you read and experiences you have. Your values even may change through time as you learn and do new things. Values are a huge infl uence on your goals. The point is that you have a set of values. And they affect all the choices you make, including your choices about money. Maybe you believe donating money to charity is important. Or maybe you d rather have money in the bank than a new car of your own. These types of beliefs and practices reveal your values about money. Knowing what they are makes it much easier to create a plan for getting the things you really want. Have students complete the Values Survey Activity found in the NEFE materials. (See Supplementary Materials - SM1-3.) Slide 7 Goal setting is the foundation of the fi nancial planning process. You probably know that a goal is something for which you aim. It s something you want to be, do or have at some future time. It points you in the direction you need to take. Achieving a goal gives you a sense of accomplishment, which spurs you on to setting new goals for even bigger and better things. So learning to identify and set clear goals is key to your success in life. If one of your personal goals is to go to college the same year you graduate from high school, you know you have to take the ACTs, decide which schools to apply to, and mail applications by certain deadlines. Knowing what you re aiming for makes mapping out a process to see what you have to do to meet your goal a lot easier. But if you don t set the clear goal of going to college the same year you graduate from high school, you easily could miss some of the things you need to do to meet your goal. Setting clear financial goals is also important. Finding the money for a June trip to Florida Is easier if you decide in January that this is what you want, then make a plan to save for it, instead of trying to scrounge up the money to go at the last minute. One thing you need to know about your goals is how long you expect they will take to accomplish. Goals that you want to achieve within the next three months are called short-term goals. Goals that are set for three months to a year are called intermediateterm goals. Long-term goals are ones that will take you more than a year to achieve. 5
Slide 8 Smart goals are specifi c, measurable, attainable, realistic and time-limited. (Refer to slide.) Slide 9 Here is an example of SMART goals. Assignment: Have each student come up with SMART goals for something they want out of life. Slide 11 The second step in the financial planning process is to analyze information and fi nd out where your fi nances stand so you can see exactly how much money you re getting and how much you re spending or saving. Let s start with your income. Where do you get money from? Do you receive an allowance? Do you have a job or your own business? How much do you earn each week? Next, how much money do you spend each week and on what are you spending it? Do you owe money to anyone for the stuff you ve bought? Whether you got a loan to buy your fi rst car or you borrowed money from your parents to buy a new jacket, you owe money to others and need to be aware of that debt. Questions such as these are critical because their answers have a direct impact on your ability to achieve your fi nancial goals. Being a Responsible Spender You have a choice when handling money. Life is a lot easier if you handle it wisely and respectfully and take personal responsibility for your decisions and actions. Slide 10 Financial goals are accomplished by applying the ongoing, fi ve-step fi nancial planning process represented by the graphic (see Slide 10 - The Five- Step Financial Planning Process). We already have discussed setting SMART goals. Let s look at analyzing information next. How are you going to make sure you stay on track to meet your fi nancial goals? In later units, we ll talk about specific things you can do with your money to help you stay on target. But one thing you can do today is to fi nd someone, such as a family member, to encourage you to be accountable for your goals. Share the goals you wrote down earlier. Talk about your plan. Then ask him or her to check in with you once a week or so to see how you re doing. Your odds of success are much better if you have a partner to help motivate you. Working with someone almost always is easier than doing it alone. 6
One way to be a responsible spender is to be able to fi nd and evaluate fi nancial information from a variety of sources. When making purchases, consider unbiased product ratings, such as those provided by Consumer Reports. Another way is to become familiar with major consumer protection laws. For more information, visit www.ftc.gov/bcp/consumer.shtm There are links to various U.S. consumer protection laws and information on the following topics: Automobiles Credit Diet, Health and Fitness E-commerce and the Internet Energy and Environment Franchise and Business Opportunities At Home Identity Theft Investments Privacy Products and Services Scholarship and Employment Services Telemarketing Telephone Services Tobacco Travel Bring in Consumer Reports magazines so students can become familiar with them. Have students track income and spending for a week. Have students team up to provide reports on various consumer protection laws. Making Decisions Step Three is creating a plan. Slide 12 Financial planning requires making many decisions, and making decisions about money can be particularly challenging because so many things come into play. For one, you have the facts of the situation, such as your spending log. But many other things can affect your decisions as well: your mood, values, culture, habits, and opinions of your friends and parents. Some decisions are easy, such as deciding which movie to see. Of course, others are more complicated and require more thought. But whether the decision is easy or hard, everyone follows a basic process: the six stages of decision making that you may not even realize you already go through. So let s see how this works by analyzing an easy decision. Pretend you re going to see a movie with your friends and it s sold out. What do you do? Of course, not all decisions are created equal. Some are just a blip on the radar screen, while others will have a lasting impact on your life. In fact, some of the personal and financial decisions you make today will affect decisions you will make far into the future. For example, if you take out a loan to buy a car, you could be making payments on it for the next fi ve years. So for the next 60 months, you will have less money to put toward other things you may want. 7
Slide 13 Here is a decision-making process that can help you make good fi nancial decisions: 1. Identify your SMART goal. Yes, you still want to see a movie. 2. Establish your criteria. Consider what type of movie you want to see, when you want to watch the movie and how much money you want to spend. By identifying your expectations in advance, you can eliminate choices that don t meet your wants and needs. 3. Examine your options. Think about whether you want to buy tickets now for a later showing of the sold-out movie, see another one that will be starting soon or rent a movie to watch at home. 4. Weigh the pros and cons. Consider how your options meet your criteria. You really don t want to wait a couple of hours, and another fi lm you want to see is playing soon. 5. Make your decision. Decide which option best meets your criteria. Decide to buy the tickets for the movie that is playing now. 6. Evaluate results. Afterward, talk with your friends about whether you liked the movie. Two of the most important elements in the decision-making process are examining your alternatives and analyzing your outcomes. So let s look at these two elements a little further. Slide 14 Often a major decision leads to several smaller ones, sometimes called satellite decisions. Once you ve decided to buy a car, you have to decide what kind of car to buy, how much money to put down, what dealer to buy it from and when to buy it. These are satellite decisions, which may lead to even more satellite decisions. Let s say you know which car you want. Now you have to decide which color and options package to get. Discussion Ask the following questions: What infl uences your decisions on minor purchases? Major purchases? By thinking about criteria in advance, how might a person save time or money? How does one decision affect others? Slide 15 Related to the decision-making process is the fi nancial planning process. Your fi nancial decisions are all part of your overall fi nancial plan. 8
Step Four: Implement the Plan, Making It Happen Guidelines for Sticking With Your Plan Slide 16 Write your goals on an index card or fi nd pictures of your goal and post them in a place you ll see every day. Tell other people about your goals. Also, ask someone to check in with you about your progress; knowing someone is going to ask about it is good motivation. Many people find that talking about money is diffi cult. Unfortunately, not talking about money can have severe consequences. Many couples cite money problems as a factor in divorce. Consumers fi nd they have been taken advantage of when they do not ask for estimates before buying goods and services. And many families are forced to deal with additional stress after the death of a loved one when fi nancial matters were not communicated beforehand. Some key points to remember when talking about money are: Remember that individual values, attitudes and goals influence money behaviors. Take ownership of your own money decisions and attitudes. Take responsibility for the consequences of your fi nancial decisions. When you re going to spend money, decide how much you ll need ahead of time and take only that amount so you re not tempted to spend more. Review your plan regularly so you know when you re starting to stray and can make adjustments quickly. What might hold you back from meeting your goals? You need to consider any potential roadblocks that may affect your ability to meet your fi nancial goals. Some roadblocks are beyond your control. For example, the concert tickets you want might be sold out, or your paycheck might be small because you weren t scheduled to work as many hours as originally planned. Anticipate any roadblocks, and leave room for fl exibility in your fi nancial plan. How are you going to make sure you stay on track to meet your fi nancial goals? In later units, we ll talk about specifi c things you can do with your money to help you stay on target. But one thing you can do today is to fi nd someone, such as a family member, to encourage you to be accountable for your goals. Share the goals you wrote down earlier. Talk about your plan. Then ask him or her to check in with you once a week or so to see how you re doing. Your odds of success are much better if you have a partner to help motivate you. Having someone to help almost always is easier than doing it alone. Slide 17 Step Five: Monitoring and Modifying Your Plan Once you start implementing your fi nancial plan, you need to check to make sure that you re staying on track. The best way is to decide to review your plan and your progress at regular intervals, such as every two weeks or every month. The more often you do this, the sooner you ll catch yourself if you start straying off course. A plan isn t meant to be written in stone. It s a living document that should change as things in your life change. You may run into unexpected obstacles or expenses. Your goals may change, or your resources may vary. You may even receive money that you didn t expect. That s just life, and it s totally normal. Therefore, you should review your plan whenever you have signifi cant changes in your life. This includes whenever your fi nances change, such 9
as getting a promotion and a raise or quitting your job. But it includes life changes as well. For example, you might start dating someone or move to a new city. All of these events can create a need to update your fi nancial plan. Mock Family Events Activity Time: 10 minutes Materials: Cards with mock family scenarios Directions: Write family scenarios on index cards. Arrange students into family groups based on the card scenarios. Tell the students that they will be grouped into mock family situations, and distribute one scenario card to each group. Tell the family groups to think about what types of fi nancial decisions might need to be made for the given scenario. After the teams have developed their lists, discuss any similarities and differences in types of fi nancial decisions. Ask the families to identify at least two potential unexpected events that might impact the family fi nancial planning. Ideas for family scenarios Newly married couple in their 20s, rent home, two full-time jobs Single parent with two school-age children, owns home, full-time job Couple in their 60s, one spouse selfemployed, one spouse working part time, own home Couple in their 40s, two teenagers, one of whom is graduating from high school Single, in his or her 30s, rents apartment, anticipates job layoff Slide 18 Most people agree that you can fi nd the most enjoyment with your money through a combination of spending, saving and sharing. By having a fi nancial plan based on smart goals that relate to your personal values, you can succeed! Other North Dakota Resources Slide 19 The NDSU Extension Service does not endorse commercial products or companies even though reference may be made to tradenames, trademarks or service names. This publication may be copied for noncommercial, educational purposes in its entirety with no changes. Requests to use any portion of the document (including text, graphics or photos) should be sent to NDSU.permission@ndsu.edu. Include exactly what is requested for use and how it will be used. For more information on this and other topics, see: www.ag.ndsu.edu County commissions, North Dakota State University and U.S. Department of Agriculture cooperating. North Dakota State University does not discriminate on the basis of race, color, national origin, religion, sex, gender identity, disability, age, status as a U.S. veteran, sexual orientation, marital status, or public assistance status. Direct inquiries to the Vice President for Equity, Diversity and Global Outreach, 205 Old Main, (701) 231-7708. This publication will be made available in alternative formats for people with disabilities upon request, (701) 231-7881. 10