1 Personal Financial I Literacy H MikfJ - f.a-vc H Sherry J. Roberts PEARSON 1 Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo
Detailed Contents Chapter 1 Overview of Personal Finance 2 Opening Case 3 What Is Personal Financial Planning? 4 The Vocabulary of Personal Finance 4 Steps to Personal Financial Planning 5 The Need for Personal Financial Planning 7 Benefits of Good Financial Decision Making 8 What Are You Planning for? 9 Education 9 Emergencies/Rainy Day Fund 9 Buying a Car 10 Buying a Home 10 Having a Family 10 Retirement 10 Charitable Giving 11 Sources of Information ll The Internet 11 Judging the Advice of Financial Planners/Advisors and Financial Information 11 Chapter Review 13 Summary 13 Key Terms and Concepts 13 What Do You Know? 13 What Are Your Finance Math Skills? 14 What Would You Do? 15 What Are the Connections? 16 Teamwork 16 Essential Question Activities 16 Test Prep Questions 17 Unit 1 Financial Responsibility & Decision Making 19 Chapter 2 The Financial Plan 20 Opening Case 21 What Is a Financial Plan? 22 The Components of Your Financial Plan 23 COMPONENT ONE: A Plan for Your Budgeting and Taxes 23 COMPONENT TWO: A Plan for Managing Your Liquidity 26 COMPONENT THREE: A Plan for Your Financing 27 COMPONENT FOUR: A Plan for Managing Your Risk 28 COMPONENT FIVE: A Plan for Your Investing 28 COMPONENT SIX: A Plan for Your Retirement 29 COMPONENT SEVEN: A Plan for Communicating and Keeping Records 29 Chapter Review 30 Summary 30 Key Terms and Concepts 30 What Do You Know? 30 What Are Your Finance Math Skills? 31 What Would You Do? 32 What Are the Connections? 32 Teamwork 33 Essential Question Activities 33 Test Prep Questions 34 Chapter 3 Financial Decision Making 36 Opening Case 37 Cash Flow and Your Financial Future 39 Step-by-Step Decision Making Process 40 STEP 1: Establish Your Financial Goals 40 STEP 2: Evaluate Your Current Financial Position 42 STEP 3: Identify and Evaluate Options for Accomplishing Your Goals 43 STEP 4: Pick the Best Plan 44 STEP 5: Periodically Evaluate Your Plan 45 STEP 6: Revise Your Financial Plan as Necessary 46 Chapter Review 47 Summary 47 Key Terms and Concepts 47 What Do You Know? 47 What Are Your Finance Math Skills? 48 What Would You Do? 49 What Are the Connections? 49 Teamwork 49 Essential Question Activities 50 Test Prep Questions 50 Chapter 4 Budgets and Balance Sheets 52 Opening Case 53 Creating a Budget 54 STEP 1: Create a Personal Cash Flow Statement 54 STEP 2: Turn Your Cash Flow Statement into a Budget 55 Working with and Improving Your Budget 56 Assessing the Accuracy of the Budget 57
Creating a Personal Balance Sheet 58 Assets 58 Liquid Assets 58 Household Assets 58 Investments 59 Liabilities 60 Net Worth 61 Changes in Your Personal Balance Sheet 61 Analysis of Your Personal Balance Sheet 61 Budgeting and Your Financial Plan 62 Chapter Review 63 Summary 63 Key Terms and Concepts 63 What Do You Know? 63 What Are Your Finance Math Skills? 64 What Would You Do? 65 What Are the Connections? 65 Teamwork 65 Essential Question Activities 66 Test Prep Questions 66 Unit 2 Income & Careers 69 Chapter 5 Careers and Education 70 Opening Case 71 Determining a Career Path 72 Education and Skill Requirements 74 Job Availability 74 Compensation 75 Sources of Career Information 77 Books on Careers 77 Field Trips and Speakers 78 Job Experience 78 Internships 78 Contacts 78 Getting the Skills You Need 79 Training Programs 79 Education 80 Expanding Your Education 81 Job Application Process 82 Resume 84 Cover Letter 85 Internet Job Searches and Applications 85 Chapter Review 87 Summary 87 Key Terms and Concepts 87 What Do You Know? 87 What Are Your Finance Math Skills? 88 What Would You Do? 89 What Are the Connections? 90 Teamwork 90 Essential Question Activities 90 Test Prep Questions 91 Chapter 6 Paying Taxes 94 Opening Case 95 Tax Basics 96 Sales Taxes 96 Real Estate Taxes 97 Payroll Taxes 97 The Internal Revenue Service 98 Understanding Payroll Taxes 102 Social Security and Medicare 102 Personal Income Taxes 103 Filing Taxes 104 Filing Status 105 Gross Income or Total Income 105 Adjusted Gross Income 106 Deductions and Exemptions 107 Refund or Payment 108 Taxes and Your Financial Plan 108 Chapter Review 109 Summary 109 Key Terms and Concepts 109 What Do You Know? 109 What Are Your Finance Math Skills? 110 What Would You Do? Ill What Are the Connections? 112 Teamwork 112 Essential Question Activities 112 Test Prep Questions 113 Chapter 7 Insuring Your Health and Your Life 116 Opening Case 117 The Importance of Health Insurance 118 Sources of Health Insurance 118 Health Care Costs 119 Health Insurance Features and Terms 121 Indemnity Plans Versus Managed Care 121 Family Coverage 121 Group Plans 122 Location Restrictions 122 Preexisting Conditions 122 Cancellation Options 122' Deductibles 122 Coverage Limits 123 Co-insurance 123 Provider Networks 123 Auto Policies 124 Life Insurance 124 Role of Life Insurance 124 Types of Life Insurance 125
Getting Insurance 126 Chapter Review 128 Summary 128 Key Terms and Concepts 128 What Do You Know? 128 What Are Your Finance Math Skills? 129 What Would You Do? 130 What Are the Connections? 131 Teamwork 131 Essential Question Activities 131 Test Prep Questions 132 Chapter 8 The Economy and You 136 Opening Case 137 Economics and Your Financial Plan 138 Demographic Factors 139 The Graying of America 139 Immigration 140 Social Security 140 Factors in the Larger Economy 142 Business Cycles 142 Inflation and Purchasing Power 144 Globalization 145 Chapter Review 147 Summary 147 Key Terms and Concepts 147 What Do You Know? 147 What Are Your Finance Math Skills? 148 What Would You Do? 149 What Are the Connections? 149 Teamwork 150 Essential Question Activities 150 Test Prep Questions 150 Unit 3 Spending r Credit 153 Chapter 9 Obtaining and Protecting Your Credit 154 Opening Case 155 The Basics of Credit for Consumers 156 Types of Credit 156 Advantages of Using Credit 157 Disadvantages of Using Credit 157 Credit Rights and Consumer Credit Laws 158 Building Good Credit 159 Your Credit History 160 Credit Bureaus and Credit Scoring 160 Credit Reports 161 Credit Score 161 Threats to Your Credit: Identity Theft 164 Identity Theft Tactics 164 Protecting Against and Reacting to Identity Theft 165 Monitor Your Credit Report 166 Chapter Review 167 Summary 167 Key Terms and Concepts 167 What Do You Know? 167 What Are Your Finance Math Skills? 168 What Would You Do? 169 What Are the Connections? 170 Teamwork 170 Essential Question Activities 170 Test Prep Questions 171 Chapter 10 Personal Loans and Purchasing Decisions 174 Opening Case 175 Personal Loans 176 Why Take a Personal Loan? 176 The Personal Loan Process 177 Loan Contract 178 Secured and Unsecured Loans 178 Financing a Home 179 Mortgage Loans 180 Other Costs of Buying a Home 181 Home Equity Loans 181 Buying Versus Renting a Home 182 The Importance of Homeowner's and Renter's Insurance 183 Financing Your Education 185 Federal Stafford Loans 185 Federal Perkins Loans 185 The Reality of Student Loans 186 Financing Your Car 186 Leasing Versus Buying a Car 187 The Importance of Car Insurance 189 Chapter Review 190 Summary 190 Key Terms and Concepts 190 What Do You Know? 190 What Are Your Finance Math Skills? 191 What Would You Do? 192 What Are the Connections? 192 Teamwork 193 Essential Question Activities 193 Test Prep Questions 193 Chapter 11 Credit Cards and Other Forms of Credit 198 Opening Case 199 How Credit Cards Work 200
Ease of Availability and Use 200 Applying for a Credit Card 201 Types of Credit Cards 204 Credit Card Features 204 Credit Limit 205 Overdraft Protection 205 Annual Fee 205 Incentives to Use the Card 205 Prestige Cards 206 Grace Periods 206 Cash Advances 206 Financing or Interest Charges 206 Prepaid Cash Cards 207 Tips on Using Credit Cards 208 Use a Credit Card Only If You Can Cover the Bill 208 Impose a Tight Credit Limit on Yourself 208 Pay Credit Card Bills First 208 Use Savings If Necessary 209 If You Experience Credit Card Debt Problems 209 Other Risky Credit Arrangements 210 Payday Lending 211 Tax Refund Loans 211 Pawn Shops 212 Cell Phone Leases 213 Chapter Review 214 Summary 214 Key Terms and Concepts 214 What Do You Know? 214 What Are Your Finance Math Skills? 215 What Would You Do? 216 What Are the Connections? 216 Teamwork 217 Essential Question Activities 217 Test Prep Questions 218 Unit 4 Saving & Investing 223 Chapter 12 Banking Procedures and Services 224 Opening Case 225 Banks and Financial Institutions 226 Depository Institutions 226 Nondepository Institutions 227 Choosing a Bank 227 Banking Basics: Checking Accounts 227 How Checking Accounts Work 227 NOW Accounts 228 Debit Cards 228 Using Your Checking Account 228 Balancing Your Account 229 Other Banking Services 231 Safety Deposit Boxes 231 Cashier's Checks, Money Orders, and Traveler's Checks 231 Arrangements for Credit Payment 231 Other Online Services 232 Deposit Insurance 232 FDIC 233 NCUSIF 233 The Federal Reserve and the Banking System 233 Multiple Roles 234 Price Stability 234 Monetary Policy 234 Chapter Review 237 Summary 237 Key Terms and Concepts 237 What Do You Know? 238 What Are Your Finance Math Skills? 239 What Would You Do? 239 What Are the Connections? 240 Teamwork 240 Essential Question Activities 241 Test Prep Questions 241 Chapter 13 Methods of Saving 246 Opening Case 247 Interest and Your Savings 248 Interest Rates on Deposits 248 Market Rates of Interest 249 Liquidity 249 Types of Bank Accounts 249 Checking and NOW Accounts 249 Interest Bearing Savings Accounts 250 Certificates of Deposit (CDs) 250 Money Market Deposit Account (MMDA) 251 About Credit Unions 252 APY and Comparing Savings Options 252 Retirement Savings Options 252 Individual Retirement Accounts (IRAs) 253 Employer-Sponsored Retirement Plans 255 Annuities 256 Chapter Review 257 Summary 257 Key Terms and Concepts 257 What Do You Know? 257 What Are Your Finance Math Skills? 258 What Would You Do? 259 What Are the Connections? 260 Teamwork 260 Essential Question Activities 260 Test Prep Questions 261
Chapter 14 Methods of Investing Opening Case 267 Why Invest? 268 Investing in Stocks 269 Stock Exchanges 269 The Behavior of Investors 270 Example of a Stock Transaction 273 Investing in Bonds 274 How Bonds Work 274 Types of Bonds 275 Buying Bonds 276 Mutual Funds 276 Other Ways of Investing 277 Real Estate 278 Owning a Business 278 Chapter Review 279 Summary 279 Key Terms and Concepts 279 What Do You Know? 279 What Are Your Finance Math Skills? 280 What Would You Do? 281 What Are the Connections? 282 Teamwork 283 Essential Question Activities 283 Test Prep Questions 283 266 Estate Planning 296 Your Will 297 Estate Taxes 297 Trusts 297 Chapter Review 299 Summary 299 Key Terms and Concepts 299 What Do You Know? 299 What Are Your Finance Math Skills? 300 What Would You Do? 301 What Are the Connections? 301 Teamwork 302 Essential Question Activities 302 Test Prep Questions 302 Glossary 305 Index 309 Chapter 15 Planning for the Future 288 Opening Case 289 Time Value of Money 290 Future Value Versus Present Value 291 Compound Interest Versus Simple Interest 292 The Concept of an Annuity 292 Using Financial Calculators 293 Rule of 72 293 Managing Your Investments 294 Diversification 294 Risk and Return Trade-Off 295 Too Good to Be True? 295 Retirement Planning and Time Value Concepts 296