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© Copyright 2014, The Lampo Group, Inc.
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
DAVE RAMSEY
RAMSEY EDUCATION SOLUTIONS™
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DAVE RAMSEY
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Acknowledgements
The Ramsey Education Solutions team would like to give special thanks to the
following people for their contributions to this product. Their input was essential
for creating a financial literacy curriculum that empowers high school students
to make sound financial decisions for life.
Educators
Len McKnatt
ACCOUNTING/ECONOMICS TEACHER
Battle Ground Academy
Franklin, Tennessee
Leah Zimmer
FINANCIAL LITERACY TEACHER
Bremerton High School
Bremerton, Washington
Brittany Sampson
TEACHER
Lakeland High School
Lakeland, Florida
Ramona Harper
BUSINESS TEACHER
Lake Highlands High School
Richardson, Texas
Kathy Jarman
TEACHER
Helias Catholic High School
Jefferson City, Missouri
LeAnn Dinsdale
CTE TEACHER/ACTE VP
Brackenridge High School
San Antonio, Texas
Lynn Isaacks
SOCIAL STUDIES TEACHER
Academy of Creative Education
San Antonio, Texas
Eric Lambert
TEACHER
North Bullitt High School
Shepherdsville, Kentucky
Linda Brown
CTE TEACHER
Sanderson High School
Raleigh, North Carolina
Terri Winkle
TEACHER
Western Heights High School
Oklahoma City, Oklahoma
Credits
Executive Vice President
Jack Galloway
Chief Marketing Officer
Jennifer Sievertsen
Vice President of
Education Solutions
Jim King
Curriculum Design
Michelle Scott
Product Management
Brett Kozimor
Sales/Marketing/PR
Herb Jenkins
Beth Tallent
Jacqueline Garneau
Jamie Moorer
Christy Richardson
Christy Wright
Project Management
Josh Campbell
Kassidy Slamer
Lisa Mays
Content Editing/Proofing
Allen Harris
Darcie Clemen
Stephanie Thomas
Brandon Brison
Jennifer Gingerich
Danielle Britt
Jennifer Norton
Molly Pinkley
Creative Design
Brian Williams
Marcus Meazzo
Jason Miller
Steve Rupp
Video/Audio Production
Jon Melton
Diana Key
Megan Hill
Josh Fulton
Dave Oglesby
Dave DiCicco
Megan Ledford
Sara Zellner
Chris Wright
Ian Collins
Colin Fatke
Bobby Robertson
David Wilkinson
Josh Hancock
Chris Blaylock
Interactive/Web Development/UI
Ash Harris
Jon Wolski
Andrew Kallemeyn
3
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4 Foundations in Personal Finance High School Edition
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Meet the Experts
Dave Ramsey
Dave Ramsey is America’s trusted voice on money and business. He’s
authored four New York Times best-selling books: Financial Peace,
More Than Enough, The Total Money Makeover and EntreLeadership.
The Dave Ramsey Show is heard by more than 6 million listeners
each week on more than 500 radio stations. By age twenty-six he had
established a four-million-dollar real estate portfolio, only to lose it by
age thirty. Using the wisdom he gained, Ramsey rebuilt his financial
life and now teaches others how to be responsible with their money, so
they can acquire enough wealth to take care of loved ones, retire with
dignity, and give generously to others.
Rachel Cruze
Rachel Cruze is a seasoned communicator and presenter, who has
been speaking to groups as large as 10,000 for more than a decade.
The daughter of Dave Ramsey, today she uses the knowledge and
experiences from growing up in the Ramsey household to educate
America’s students and young adults on the proper ways to handle
money and stay out of debt.
Chris Hogan
A popular and dynamic speaker on the topics of financial education
and leadership, Chris Hogan also works with businesses and highprofile
clients across the country, helping them develop strategies to
increase revenues, protect wealth and secure their financial futures.
Chris is also the host of the popular EntreLeadership podcast, one
of the leading podcasts on business and leadership.
Introduction 5
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6 Foundations in Personal Finance High School Edition
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UNIT 1: SAVING AND BUDGETING
Chapter 1: Introduction to Personal Finance 8
Chapter 2: Saving 28
Chapter 3: Budgeting 48
UNIT 2: CREDIT AND DEBT
Chapter 4: Debt 72
Chapter 5: Life After High School 100
Chapter 6: Consumer Awareness 126
UNIT 3: FINANCIAL PLANNING AND INSURANCE
Chapter 7: Bargain Shopping 142
Chapter 8: Investing and Retirement 160
Chapter 9: Insurance 184
UNIT 4: INCOME, TAXES AND GIVING
Chapter 10: Money and Relationships 208
Chapter 11: Careers and Taxes 222
Chapter 12: Giving 250
GLOSSARY 270
Contents
Introduction 7
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What do other high
school students know
about spending?
We asked other high school students
if they or someone they know has
ever bought something they could
not afford.
“I haven’t, but my younger sister
always seems to need the latest
and greatest technology, and she
spends her college money on it!”
Sophomore, Louisiana
“No. But I have a family member
who once bought a house that they
ended up not being able to afford.”
Junior, New Jersey
“My dad bought a car that he could
not afford, and he ended up getting
it repossessed.”
Junior, Wyoming
“Yes. My parents buy things they
can’t afford all the time. That’s
why we’re in debt. That’s why I
need this course.”
Senior, Utah
1
CHAPTER
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Introduction
to Personal
Finance
WELCOME TO A CLASS that is going to give
you a head start on your future! Learning
how to manage your money is one of the most
important skills you can have. Why? Because
your financial decisions will have long-term
consequences, either good or bad. We’ll give
you the tools and knowledge that will help you
win with money right from the start. When it
comes to your financial future, we want you to
aim high and dream big. There’s a lot to learn,
so let’s get started!
*National Foundation for Credit Counseling, Inc.
of parents feel it is
their responsibility
to teach their kids
about money and
savings.*
81%
of American parents
surveyed thought
that a course in
personal finance
should be a high
school graduation
requirement.*
85%
UNIT 1: CHAPTER 1
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Key Terms
Get to know the language of money.
»» Consumer: A person or organization
that uses a product or service
»» Credit: The granting of a loan and the
creation of debt; any form of deferred
payment
»» Debt: An obligation of repayment owed
by one party (the debtor/borrower) to
a second party (the creditor/lender); in
most cases this includes repayment of
the original loan amount plus interest
»» Economy: A system by which goods and
services are produced and distributed
»» Financial literacy: The knowledge and
skillset necessary to be an informed
consumer and manage finances
effectively
»» Interest: A fee paid by a borrower to the
lender for the use of borrowed money;
typically interest is calculated as a
percentage of the principal (original
loan amount)
»» Loan: A debt evidenced by a “note,”
which specifies the principal amount,
interest rate and date of repayment
»» Personal finance: All of the decisions
and activities of an individual or family
regarding their money, including
spending, saving, budgeting, etc.
Learning Outcomes
Once you’ve completed this chapter’s videos, you will be asked
to return to this list and place a checkmark next to the items
you’ve mastered.
Section 1: What Is Personal Finance?
…… Describe what personal finance is.
…… Outline the components of effective financial planning.
…… Identify focuses of study throughout this course.
Section 2: Money, the American Way
…… Understand the evolution of America’s dependence
on credit.
…… Observe and analyze the “normal” American family
as it relates to personal finance.
Section 3: You and Money
…… Develop communication strategies for managing money
and discussing financial issues.
…… Evaluate your own money personality; identify your
money strengths and weaknesses.

Before You Begin
10 Foundations in Personal Finance High School Edition
INTRODUCTION
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Measure Your Progress
Before watching the video, read each statement below and mark whether you agree or disagree in the “Before”
column. Then, after watching the video, do it again using the “After” column to see if you changed your mind
on any statement.
JOURNAL QUESTION: INTRODUCTION
Can you think of a financial goal you have at this moment? Is this a long-term or a short-term goal?
Describe how you plan to achieve this financial goal.
1. I already have a strong working knowledge of
personal finance.
2. I think I have a lot to learn when it comes to
managing money.
3. Because I am a teenager, what I do now with my
money will have little effect on my financial future.
4. My parents have taught me a lot about how to
manage money.
5. Most Americans are very wealthy and will have
financial security when they retire.
Agree Disagree Agree Disagree
BEFORE AFTER
Chapter 1: Introduction to Personal Finance 11
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55% of teens surveyed
say that they want to
learn more about how
to manage their money—
particularly learning
about: investing (88%),
saving (87%), budgeting
(82%), checking accounts
(80%), and financing for big
purchases like a car or a
home (79%).
National Foundation for Credit
Counseling, Inc.
$
This is one of the most
important classes you will
ever take. We’re excited
you are joining us. Now
let’s begin!
+
“Wealth is more
often the result of
a lifestyle of hard
work, perseverance,
planning and, most
of all, self-discipline.”
The Millionaire Next Door
“ 1 CHAPTER
Section 1:
What Is Personal Finance?
MOST HIGH SCHOOL students don’t
spend their time worrying about
mortgages and investments, but they
are at an age when smaller financial
responsibilities start creeping into
their lives. Many of you are earning
allowances or have already begun
working a part-time job. So what do
you do with your money? If you’re
just putting it in your pocket and
spending without a plan, living
payday to payday could become your
normal. You need to make decisions
about what to do with your money.
Have a money plan. Set money
goals. Learning to manage money
at this stage can eliminate financial
mistakes and promote huge financial
benefits for the future.
What is personal finance? Personal
finance refers to all the financial
decisions an individual or family
must make in order to earn, budget,
save and spend money over time.
These decisions are generally based
on a variety of financial risks and
planning for the future.
12 Foundations in Personal Finance High School Edition
SECTION 1
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Two in five U.S. adults gave
themselves a C, D or F on
their knowledge of personal
finance.
National Foundation for Credit
Counseling, Inc.
$
“Wealth building isn’t
rocket science, which
is a good thing for me
(and probably you).
Winning at money
is 80% behavior and
20% head knowledge.
What to do isn’t the
problem; doing it is.
Most of us know what
to do, but we just
don’t do it. If I can
control the guy in the
mirror, I can be rich.
Find a mirror!”
DAVE RAMSEY
“
If you put into practice what
we teach, you truly can win
with money!
+
VIDEO 1.1
Key Components of Financial Planning
Directions: As you see words pop up on the left side of the
video screen, write them into the workbook blanks.
Assess your
1
situation (your income,
assets and liabilities).
Set money
2
! Make sure you have a mix of both
short-term and long-term goals.
You must write out a detailed
3
for accomplishing
your goals. This begins with your budget.
4
your plan! This involves discipline and
perseverance.
Know your money
5
.
Regularly
6
and reassess your financial plan.
Replace money
7
with money truths.
JOURNAL QUESTION: VIDEO 1.1
In what ways could you do better when it comes to managing
your money?
Chapter 1: Introduction to Personal Finance 13
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Section 2: Money, the American Way
VIDEO 2.1
A History of Credit and Consumerism
It is impossible to discuss the history of personal finance in America without
highlighting the evolution of the credit industry. Think, for a moment, about
the most recent commercial you’ve seen advertising a big ticket item like a
new car or new furniture. Do those ads target people who have “budgeted,
Credit Prior to 1917
»»Before 1917, buying things on credit was
not common. Why? Because it had never
been legal for lenders to charge interest
rates high enough to turn a profit.
»»Lending money to others was not a
money-making business. Only wealthy
people could get personal loans. Without
the possibility of profit, lending money
to the middle and lower class was not
worth the risk.
»»Small-time loan sharks (people who
offered loans at extremely high interest
rates, which was an illegal activity at the
time) existed for people in desperate
financial positions, but they were shady
operations on the fringes of society.
»»The highly evolved, highly accepted
consumer credit as we know it today
did not exist.
Credit Takes Root
»»After 1920, consumer demand for bigticket
manufactured products was on
the rise.
»»Credit laws were relaxed in an attempt to
create a mainstream, profitable alternative
to loan sharks for the working class.
»»Installment credit (type of credit that
has a fixed number of payments, also
known as revolving credit) and legalized
personal loans became big business.
»»This era made consumer credit legal
and more socially accepted.
Leveraging Credit to Escape
the Great Depression
»»In an attempt to help Americans regain
their financial footing, New Deal policymakers
came up with mortgage (home
loans) and consumer lending policies
that convinced commercial banks that
consumer credit could be profitable
despite bankers’ long-held reluctance
to lend to the working class.
“In 1917, one popular historian
described debt as ‘semislavery’
. . . (which) existed
before the dawn of history, and
it exists today.”
Debtor Nation: The History
of America in Red Ink
“
The New Deal was the legislative and
administrative program of President
F. D. Roosevelt designed to promote
economic recovery and social reform
during the 1930s.
+
PRIOR TO 1917 1929 1939
1 2 3
14 Foundations in Personal Finance High School Edition
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saved, and are ready to go make that large purchase”? Or are they more likely
to suggest that you “Buy NOW, pay LATER”? Which phrase is more familiar?
Sadly, borrowing money is so ingrained in our culture that we can’t imagine
life without it. So how did we get here? Let’s take a look.
WWII Fuels an
Economic Recovery
»»After the Great Depression, WWII
proved to be the most important economic
event of the 20th century. The war
ended the Great Depression by reviving
American industry through government
spending and consumption. In short,
the economy improved because the
war created a ton of new jobs. These
jobs provided considerable increase
in personal income and led Americans
to predict permanent improvements to
their standard of living.
The Decline Into Debt:
1970–Present
»»After 1970, consumer debt skyrocketed
not because people were borrowing
more, but because they continued
to borrow as their parents had done
since WWII. The difference was they
didn’t have the postwar period’s wellpaying
jobs.
»»Banks were willing to lend even more
because they were now making huge
profits off consumer debt. The credit
industry had become smarter than
borrowers.
»»As consumers borrowed to deal with
unexpected job losses and medical expenses,
as well as to live “the good life,”
banks were willing to continue lending.
»»Due to the clever structuring of financial
institutions, the credit world now
resembles the pre-1920s loan sharks
more than the 1950s banks.
»»In short, an old credit system premised
on rising wages and stable employment
(low-risk borrower) was reformed to accommodate
uncertain employment and
income instability (high-risk borrower).
Post World War II
Consumerism
»»Ah, the birth of the suburbs! The postwar
middle class bought the American
Dream with consumer credit. Americans
“learned” to borrow in the midst
of prosperity.
»»They borrowed because they believed
their incomes would continue to grow
into the future . . . and they were right.
Incomes rose steadily from 1945 to 1970.
»»Financial institutions lent more money,
and borrowers paid it back. Borrowing
became a post-war normalcy.
“If you will happen to your
money, then you will have
some. If you just let all your
money happen to you, you’ll
never win.”
DAVE RAMSEY
“ “Americans left governmentmortgaged
homes in
installment-financed cars to
shop on revolving credit at
shopping centers.”
Debtor Nation
“
Source: Debtor Nation: The History of America in Red Ink
1945 1970 TO THE PRESENT
4 5 6
Chapter 1: Introduction to Personal Finance 15
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“When we participate
in what the crowd
identifies as normal,
even if it is stupid, we
gain acceptance into
the club. Sometimes
we don’t even realize
what we are doing
is stupid because
we have been taught
that it’s just ‘the way
you do it,’ and so we
never ask why.”
DAVE RAMSEY
“
Today’s American Reality
Unfortunately, many American
families only have the appearance of
being financially secure. If you drive
through a middle-class neighborhood,
you might look at the manicured lawns,
nice houses and new vehicles in the
driveways and think, Wow, they’re
doing all right. I want to live like that
when I’m an adult.
The sad reality is that most of the
people in those houses are struggling
with debt in the form of mortgages, car
loans, student loans and credit cards.
Based on statistics, Americans are
horrible at saving money and planning
for retirement. They are so conditioned
to think debt is normal, they can’t
envision paying cash for a car or
even a dining room table! Americans
often spend more money than they
make. Most Americans don’t have an
emergency fund. Saving, budgeting,
retirement planning and staying out
of debt are all basic money principles,
not complex economics.
So why aren’t Americans better at
managing money? They were never
taught the right way. As you go
through this course, we will focus on
teaching you what to do with money
and then show you how to do it. Money
math is easy. It’s controlling your
money behavior that’s the challenge.
As you evaluate the “normal”
American family, consider your own
financial future.
The fact is, this doesn’t have to be your future reality.
»»You don’t have to spend more
8
than you
make just to look good in front of your friends. You can
learn basic money principles and put them into practice.
»»When you manage money well, you’ll experience deeper
9
.
»» It’s really simple! Personal finance is 80%
10
and 20% head knowledge.
»»Money
11
is easy—it’s controlling your
behavior that’s the real challenge.
»»As you think about the “
12
” American
family, remember that normal is broke. You don’t have to
be normal!
16 Foundations in Personal Finance High School Edition
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Dave’s Story
With more than 20 years of experience counseling people on
how to manage their money, Dave knows what it takes to get
control of your cash.
More than 20 years
ago, my wife, Sharon,
and I went broke. We
lost everything due
to my stupidity in
handling money, or
not handling it, as the case may be.
Hitting bottom and hitting it hard was
the worst thing that ever happened
to me and the best thing that ever
happened to me.
We started with nothing, but by the
time I was 26 years old, we held real
estate worth more than $4 million. I
was good at real estate, but I was better
at borrowing money. Even though I
had become a millionaire, I had built
a house of cards. The short version of
the story is that debt caused us, over
the course of two and a half years of
fighting it, to lose everything. We were
sued, foreclosed on, and, finally, with
a brand-new baby and a toddler, we
were bankrupt. Scared doesn’t begin
to cover it. Crushed comes close, but
we held on to each other and decided
we needed a change.
A Snapshot of the “Normal” American Family
Don’t be fooled by outside images of new cars and expensive homes. Most Americans
are struggling financially and drowning in debt.
DEBT PROFILE OF THE AVERAGE AMERICAN FAMILY*
Average Credit Card Debt (of households with credit card debt) $15,799
Average Mortgage Debt $149,667
Average Student Loan Debt $32,559
Average Car Loan Debt $13,125
This does not have to be your future reality. If you manage money well from the start and
make the decision not to use debt as a financial tool, you can avoid the stress of living paycheck
to paycheck.
* NOTE: Average credit card debt of all American households is $7,000, source: Nerd Wallet
*Federal Reserve, U.S. Census Bureau, Internal Revenue Service, manilla.com
Chapter 1: Introduction to Personal Finance 17
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“Today there are
three kinds of people:
the haves, the havenots,
and the havenot-
paid-for-whatthey-
haves.”
EARL WILSON
American columnist
“
Dave’s Story (Continued)
After losing everything, I went on a
quest to find out how money really
works, how I could get control of
it, and how I could have confidence
in handling it. I read everything I
could get my hands on. I interviewed
older rich people, people who made
money and kept it. That quest led
me to a really, really uncomfortable
place: my mirror. I came to realize
that my money problems, worries
and shortages largely began and
ended with the person in my mirror.
I also realized that if I could learn
to manage the character I shaved
with every morning, I would win
with money.
The stuff we teach in this class
represents everything I’ve learned
about money since then, from
savings and debt, to insurance and
investing. And I’m excited that my
daughter Rachel has joined me to
get this information to you before
you graduate high school. Trust me,
knowing this stuff then would have
saved me a whole lot of trouble!
What’s Your Money Personality?
StageofLife.com conducted a writing contest to
evaluate students’ attitudes toward money and
the role of money in their lives. The following was
the contest writing prompt:
“What is your relationship
with money? How do you spend
(or save) and why?”
More than 3,335 students from all 50 U.S. states
contributed a 500-word essay response. From
the essay submissions, several themes emerged:
1. FRUSTRATION: Many teens expressed negative
emotions about money: anger, frustration,
stress, distrust and even hatred.
2. ROLE MODELS: Teens are watching how their
parents treat money. In several of the essays,
the teens made a point to criticize how their
parents handle money and vowed not to “be
like them.”
3. PRAGMATIC: There was a minority voice that
did approach the topic with a more pragmatic
point of view and in some rarer cases, even
positivity. Students shared their personal
saving tips, budgeting experience and more.
4. MONEY ISN’T EVERYTHING: A good percentage
of the essays address a more universal truth:
that money isn’t everything. Yes, it’s needed to
survive, but it’s not a requirement in making
people happy.
18 Foundations in Personal Finance High School Edition
SECTION 2
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Teen money attitudes
shifted with the recent
recession.
• Nine in 10 teens say they
were affected by the
recession.
• Nearly two-thirds of
teens (64%) are more
grateful for what they
have.
• The majority (58%) of
teens say they are less
likely to ask for things
they want.
• The majority (56%) of
teens have a greater
appreciation for their
parents’ hard work.
• More than a third (39%)
of teens appreciate their
families more.
• Nearly three-quarters
(73%) of teens say it is
important to have an
emergency fund.
• More than half (51%) of
teens say it is important
to understand debt.
CBS Money Watch
$
Americans Are Being Outsmarted
Ultimately, what made our current
indebtedness possible was that it
became profitable. Yes, a debt system
that keeps Americans from achieving
wealth and makes us “slaves” to the
lender exists because it became a
profitable industry. Today, with
Americans charging more than a
trillion dollars each year on their
credit cards, one can understand
why the credit card companies are
so profitable. There is nothing wrong
with a business turning a profit; what’s
wrong is that these companies are
outsmarting Americans. That should
bother you!
Why do we allow ourselves to be outsmarted when it
comes to our own money?
»»We like
13
—lots of stuff!
»»We are told that debt is
14
. It has become
acceptable in our culture to use credit to buy things.
»»We are taught that we can
15
.
This is simply not true!
»»Our debt system keeps us from building
16
because we are constantly giving our money away to pay
for things we bought years ago.
»» In America, we are bombarded with marketing ads that
push us to buy things. “You can buy it today with no money
down and no interest for 90 days!” Sound familiar?
»»We want you to be
17
of the financial
condition of our country—and we want you to
18
it!
We will talk more about consumerism and debt in later
chapters. Right now, our focus is to be aware of the
financial “condition” of America and begin to question it.
Chapter 1: Introduction to Personal Finance 19
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
“You will either
manage your money,
or the lack of it will
always manage you.”
DAVE RAMSEY
“
Section 3: You and Money
VIDEO 3.1
Learn the Language of Money
No one is born financially smart!
Learning the language of personal
finance is the first step in becoming
money smart. The language of
money is spoken in the vocabulary
of accounting: understanding what
credits, debits, assets and liabilities
are. You’ve got to learn enough to
understand your personal financial
statements and communicate
effectively about your finances.
How smart you are with your money
will determine your financial wellbeing
in life.
»»Knowing the
19
of money allows you to
tell your money what to do.
»»That means deciding where your money is going to go
20
you get your paycheck.
»»You’ll be able to communicate effectively with
21
, financial planners and insurance agents.
»»Focus on understanding the
22
as you
move through this course.
»»You’ll become the
23
on your money. Winning
with money is not complicated, but it does involve some
basic knowledge.
JOURNAL QUESTION: VIDEO 2.1
What was Dave’s biggest lesson when it came to managing money and
building wealth?
20 Foundations in Personal Finance High School Edition
SECTIONS 2 & 3
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
“Ignorance is not lack
of intelligence; it is
lack of know-how.”
DAVE RAMSEY
“
Learning the language is the key to the game.
Learning the language of money is a
little bit like learning the language
of sports. You can’t really follow—
much less enjoy—a football game if
you don’t know what the ref is talking
about when he uses words like “blitz,”
“option” or “stunt.” But once those
terms are explained to you and you
grasp their meaning in the context of
the game, you can easily get into it and
shout for your team.
It’s the same way with money. Being
financially literate allows you to
participate in the game. And if you
really put what you learn into practice,
you can even become a coach—and
tell your money what to do! Of course,
that doesn’t mean talking to your
Benjamins. It’s about effectively
communicating with bankers,
financial planners and insurance
agents—people who provide the money
services you need in order to grow
wealth. It’s also about knowing how
to budget and what to budget for.
Understanding the language of
money will allow you to manage
your own finances effectively. You
don’t want to be dependent on outside
influences to control, shape or coerce
your financial behavior. Instead,
you will determine which level of
financial well-being you will achieve.
It’s simple. If you’re going to tell your
money what to do, you need to first
speak the language!
Become Money Smart
You don’t have to be a financial or
accounting genius to win with money.
Financial success isn’t reserved
just for the select few who actually
enjoy running spreadsheets or earn
accounting degrees. But you do need to
be what we call “money smart.” That
just means you need to understand
some basic principles.
»» First, you need to be comfortable with
24
.
»»Second, you must start learning the
25
of money.
»»Third, and this is the hardest part, you need to learn how
to manage your
26
with money.
Chapter 1: Introduction to Personal Finance 21
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Some people make more
than $100,000 per year
but are living at survival
level because they spend
everything they make
(and then some). There
are others who make
$40,000 per year but live at
a secure level. How is this
possible? They live on less
than they make!
+
What Does Winning With Money Look Like?
We can divide financial well-being into three levels.
* NOTE: These levels are not determined by income, but rather by how you manage your income.
1. Survival: At this level there are simply income, bills and
hope that there is enough money to get you to the end of the
month. Sounds like fun, right? You work for every dollar
you earn and spend everything you earn. This is the living
“paycheck to paycheck” level of financial well-being.
2. Comfort: At this level, you have a basic understanding
of money management. There are still income and bills,
how-ever, you pay yourself first! You have a small
monthly surplus that you use to save and invest. You
are slowly building wealth and moving toward being
financially secure.
3. Secure: Instead of saving and investing a small surplus,
you arrange your finances in such a way that your wealth
now generates your income. That’s right! At this level,
your money actually works for you.
On which level would you like your financial future to rest?
How You View Money Matters
The way we view money is unique
and largely dependent on our current
financial state. Even though you are
still dependent on your parents, you
are already developing a “money
personality.” Some people are really
good at saving while others are talented
at finding bargains. The fact is we all
have strengths and weaknesses; we all
have a money personality. How much
money a person has, unfortunately,
does not always dictate his or her
spending behavior. Some millionaires
hate spending while some people who
are broke can’t seem to stop buying
things. Money—or the lack of money—
can affect the way we feel about
ourselves and the way we interact
with others. Your relationship with
money is complex and dynamic.
22 Foundations in Personal Finance High School Edition
SECTION 3
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Budget
Builder
One of the most important
steps in winning with
money is to have a plan. We
are going to teach you how
to write a budget. Go to
foundationsU.com/1 for
your first budget lesson!
»»Winning with money isn’t just about understanding how
it works—it’s about putting your
27
into it.
That’s the 80% behavior we’ve talked about.
»»Money is a
28
. It’s up to you to manage it.
»»The best way to manage money is to learn how
to manage
29
.
»»You need to know your natural
30
when
it comes to money. For instance, are you more likely to
spend or save?
»»Once you know your money
31
, you
develop a financial plan that works for you.
»» It’s in recognizing who you really are that allows you the
32
to grow and learn.
During this course, as you develop
your knowledge and skills in areas like
budgeting and saving, consider your
money personality. Think about how
your parents and other adults in your
life spend and save. Reflect on your own
spending habits. Understanding the
way you think about money will help
you manage your money and make good
decisions for your financial future.
JOURNAL QUESTION: VIDEO 3.1
How do you want your financial future to look?
Chapter 1: Introduction to Personal Finance 23
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered and complete the “after” column of the Measure
Your Progress section.
Build On What You’ve Learned
Fill in the graphic organizer below.
1. 2. 3.
6. 5.
7. 4. Key Components
of Financial Planning
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
»» Personal finance is 80% behavior and 20% head knowledge.
»»Many Americans are buried in debt.
»» Learn the language of money!
24 Foundations in Personal Finance High School Edition
RECAP & REVIEW
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Take Action Challenge
The first key component of financial planning is to assess your current financial situation. This should
be pretty easy at your age. It’s important to have a clear picture of your income (money in) and expenses
(money out) before you move on to the next phases of financial planning. Complete the student financial
assessment form below.
LIST ALL INCOME SOURCES
Regular Income Source (job/allowance) Amount Pay Period (weekly, biweekly, etc.)
Irregular Income Source (babysitting, summer job, tutoring, etc.)
N/A
LIST ALL EXPENSES (auto insurance, car payment, cell phone bill, entertainment, clothing, etc.)
Expense Amount Pay Period (weekly, biweekly, etc.)
LIST ALL ASSETS (anything you own that has value: car, savings account, etc.)
Asset Value
N/A
N/A
N/A
N/A
Chapter 1: Introduction to Personal Finance 25
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Money in Review
a Consumer
b Financial Literacy
c Credit
d Loan
e Debt
f Interest
g Economy
h Personal Finance
1. _____ A fee paid by a borrower to the lender for
the use of borrowed money
2. _____ An obligation of repayment owed by one
party (debtor/borrower) to a second
party (creditor/lender)
3. _____ A person or organization that buys/uses
goods or services
4. _____ A debt evidenced by a “note,” which
specifies the principal amount, interest
rate and date of repayment (example:
house mortgage)
5. _____ The granting of a loan and the creation
of a debt; any form of deferred payment
6. _____ A system by which goods and services
are produced and distributed
7. _____ The knowledge and skillset necessary
to be an informed consumer and manage
finances effectively
8. _____ All of the decisions and activities of
an individual or family regarding their
money, including spending, saving,
budgeting, etc.
Matching
Match the following terms to the correct definition below.
Illustration
Draw a picture representation of each of the following terms.
Money personality Consumerism
26 Foundations in Personal Finance High School Edition
RECAP & REVIEW
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Multiple Choice
Circle the correct answer.
9. Learning the language of money is not that
important because you will be able to depend
on financial planners to manage your money.
a True b False
10. Which of the following is NOT a reason
credit is marketed so heavily to consumers
in the United States?
a There is strong consumer demand for big
ticket items.
b The credit industry has become extremely
profitable.
c The use of credit is not socially accepted
in the United States.
d After World War I, credit laws in the
United States were relaxed in an attempt
to create a mainstream alternative to loan
sharks for the working class.
11. During the Great Depression, New Deal
policy makers came up with mortgage
(home loans) and consumer lending policies
that convinced commercial banks that:
a Consumer credit was not a profitable
industry.
b Consumer credit could be profitable.
c Consumers would not be willing to use
credit, since borrowing money for large
purchases had not previously been an
option for the middle class.
d They would not be able to compete with
loan sharks in the industry of consumer
lending.
12. When it comes to managing money, success
is about _______% head knowledge and
_______% behavior.
a 50, 50
b 80, 20
c 60, 40
d 20, 80
Short Answer
Respond in the space provided.
13. Describe some of the mistakes Americans
often make when it comes to money.
14. Explain why understanding your money
personality is important when it comes to
developing a money plan that’s right for you.
15. Does the History of Credit and
Consumerism segment make you view the
use of credit differently than you did before?
Explain your answer.
16. Explain how marketing can affect your
decisions when it comes to spending money.
17. Does managing your money well mean that
you can’t have fun with your money? Explain
your answer.
Chapter 1: Introduction to Personal Finance 27
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
What do other high
school students know
about saving?
We asked high school students to
describe something they really wanted
and thought they had to buy, only to
realize later that they wasted their money.
“I worked and saved $250 for a guitar
that I never learned how to play.”
Junior, Michigan
“I bought some fish that I thought
I really wanted. I never fed them,
totally lost interest in them, and they
all died. What a waste of money!”
Junior, Alabama
“I really wanted this expensive
skateboard that cost $229. I had
to have it. Turned out it skated no
better than the other ones that
were a lot less expensive.”
Sophomore, Alabama
“I got a pink Coach purse that I
paid more than $200 for and have
maybe used twice.”
Junior, Florida
“I bought an $80 sweater that turned
out to be really cheap quality.”
Freshman, Tennessee
2
CHAPTER
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Saving
YOU MIGHT BE wondering why you, a
teenager, need to worry about saving money.
While saving money when you make very
little can be a challenge, it is important that
you develop a habit of saving a portion of what
you earn now. This simple habit can change
your life in the years to come. In fact, it’s the
only foolproof way of becoming a millionaire.
The best part is, anyone can do it! The earlier
you begin to save, the wealthier you can
become—it’s as simple as that!
*StatisticBrain.com
of American
families have no
savings at all.*
25%
of Americans
are not saving
for retirement.*
40%
UNIT 1: CHAPTER 2
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Key Terms
Get to know the language of money.
»» Compound interest: Interest paid
on interest previously earned;
credited daily, monthly, quarterly or
semiannually
»» Emergency fund: Five hundred dollars
in readily available cash to be used only
in the event of an emergency; the goal of
the First Foundation
»» Interest rate: Percentage paid to a
lender for the use of borrowed money
(in debt); percentage earned on invested
principal (in investing)
»» Five Foundations: The five steps to
financial success
»» Sinking fund: Saving money over time
for a large purchase
Learning Outcomes
Once you’ve completed this chapter’s videos, you will be asked
to return to this list and place a checkmark next to the items
you’ve mastered.
Section 1: Saving: An Exercise of Character
…… Identify the Five Foundations of personal finance.
…… Understand the purpose of having an emergency fund.
Section 2: Three Basic Reasons to Save Money
…… Explain the three basic reasons for saving money.
…… Understand the importance of saving for both long-term
and short-term goals.
…… Describe what a sinking fund is and identify purchases
for which you would use a sinking fund.
Section 3: The Power of Compound Interest
…… Demonstrate how compound interest works and
understand the impact of annual interest rate.
…… Describe the difference between simple and
compound interest.
…… Understand the importance of beginning to save now.

Before You Begin
30 Foundations in Personal Finance High School Edition
INTRODUCTION
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Measure Your Progress
Before watching the video, read each statement below and mark whether you agree or disagree in the “Before”
column. Then, after watching the video, do it again using the “After” column to see if you changed your mind
on any statement.
JOURNAL QUESTION: INTRODUCTION
What are your initial thoughts about saving? What do you want to learn about saving?
1. The amount of money you save depends on how
much money you earn. Simply put, you will save
more when you earn more.
2. A savings account at your bank is the best place to
put your emergency fund.
3. The two biggest factors in compound interest and
building wealth are time and the initial amount of
the investment.
4. It is okay to use your emergency fund to pay cash for
big purchases such as a TV or a cell phone.
5. You should pay yourself first before you pay bills.
Agree Disagree Agree Disagree
BEFORE AFTER
Chapter 2: Saving 31
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
THE FIVE FOUNDATIONS
are the beginner steps
for establishing and
maintaining financial
peace. These steps will
serve as your compass
or framework for your
financial success. You will
find the Five Foundations
explained in detail
throughout this course.
These are basic steps that
anyone can and should do
in order to win with money.
So start now. We want to
see you WIN!
+
“Discipline yourself
to do the things you
need to do when you
need to do them, and
the day will come
when you will be able
to do the things you
want to do when you
want to do them.”
ZIG ZIGLAR
Best-selling author and
motivational speaker
“
The most important lessons
teens want to know when
learning how to manage
money are learning to save
(35%) and understanding
how to budget (28%).
ING Direct USA Survey
$
2 CHAPTER
Section 1:
Saving: An Exercise of Character
VIDEO 1.1
The Five Foundations
THE SECOND FOUNDATION Get Out of 2
2
THE THIRD FOUNDATION Pay 3 3 for Your Car
THE FOURTH FOUNDATION Pay Cash for 4
4
THE FIFTH FOUNDATION Build 5 and 6
5
THE FIRST FOUNDATION Save a $500 1 1 Fund
32 Foundations in Personal Finance High School Edition
SECTION 1
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
You should have an
emergency fund because
unexpected things are
going to happen. Smart
people have known this
for centuries and used
to say, “In the house of
the wise are stores of
choice food and oil, but a
foolish man devours all
he has” (Proverbs 21:20).
In other words, having
some money saved away
can turn a crisis into an
inconvenience.
+
Saving Money the American Way
THE FIRST FOUNDATION is saving
an emergency fund. It is going to rain.
Even as a young adult, you need a
rainy-day fund. You’ll have many
financial goals throughout your life.
You don’t want anything to stand in
the way of paying your way through
college or buying your first house. But
emergencies will happen along the
way. Money Magazine says that 78%
of us will have a major negative event
in a given 10-year period of time. At
your age, it might be needing to pay
for a car repair. Later in life, it might
be an extended illness or an injury that
keeps you from working for several
months. Regardless of the emergency,
having money set aside—$500 at your
age—will ensure that those life events
do not devastate you financially.
Are Americans Good Savers?
A Negative Savings Rate
Back in December 2006, CNN Money reported
that Americans had a -0.6% savings rate. The
savings rate compares after-tax income to the
money people spent on a variety of items. It turns
negative when people take on additional debt such
as credit cards or car loans. The negative savings
rate meant that Americans were spending more
money than they were making in 2006. The title
of CNN Money’s article was “Americans spend
every cent and more: Critics say America’s
negative savings rate can’t be sustained and see
a recession coming. Are they right?”
Fast Forward to Today
The critics were right, and Americans faced one
of the worst recessions in our nation’s history.
If our collective spending and saving habits have an
effect on the overall economy, shouldn’t Americans
want to change their behavior? After all, when
the economy is strong, we prosper through lower
unemployment and higher incomes. When it is
weak, we suffer with high unemployment and
lower incomes.
Americans’ initial response to the economic
downturn was positive. In the summer of 2008,
the savings rate reached nearly 7%. However,
Americans did not maintain this new commitment
to saving. By 2010, Americans saved 5.5% of their
income. During 2012, that number plunged as
low as 3.3%.*
What’s the Lesson Here?
When things are good, Americans tend to behave
as though things will always be good. The reality is,
whether it’s an economic downturn or a personal
money emergency, you have to be prepared.
You need an emergency fund, an old-fashioned
rainy-day fund!
*Economic Research, Federal Reserve Bank of St. Louis
Chapter 2: Saving 33
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
TIPS FROM TEENS
ON SAVING
Bailey, 15: “I have a little
gift box that I put spare
change and bills into
when I earn baby-sitting
money. Whenever I have a
significant amount in there,
I’ll invest it or put it in the
bank. It’s important to
keep a routine. Every time
I get money, I put some of
it away.”
Adam, 16: “I recently got
a part-time job where
my paychecks are
automatically deposited
into my checking account.
I set up an automatic
transfer of $25 from my
checking to my savings
account each week. Since
it’s all done automatically,
I never actually see the
money. It is just left to pile
up in my savings account.
I’ve already saved several
hundred dollars without
doing anything!”
WHAT ABOUT YOU?
Think of a way you have
saved money or could save
money. Write it down and
then share it with
your class.
The First Foundation
»»The First Foundation is $
7
in an emergency fund.
You should do this as quickly as possible.
»»When you’re in high school, you won’t have the same
emergency expenses as your
8
(like needing
to put a new roof on the house). For you, a surprise
expense might be fixing a flat tire or replacing a broken
cell phone.
»»An emergency fund allows you to have money available
for any surprise
9
.
»» If you don’t have money saved to pay for these things,
then
10
will start looking like an easy answer.
»»Debt
11
solves problems. At best, it just delays
one problem while creating another one!
»»When you’re older and out of school, you’ll need to
12
your emergency fund into a full three
to
13
months’ worth of expenses.
»»Make sure this money is kept in the
14
and that
you ONLY use it for emergencies. You can’t keep the
money handy, because it will get spent.
»»Keep your emergency fund in a
15
savings
account away from your spending money.
34 Foundations in Personal Finance High School Edition
SECTION 1
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
80% of America’s
millionaires are firstgeneration
rich. That
means they started with
nothing, did smart stuff,
and became millionaires.
The Millionaire Next Door
+ JOURNAL QUESTION: VIDEO 1.1
What has kept you from saving in the past? Based on what you’ve
learned, how can you change this?
How Can I Save $500 Quickly?
Five hundred dollars might sound like a lot,
but you’d be amazed at how quickly you can pile
up some cash! First, make it a goal. Next, set
a target date. Goals need a timeline. Now here
are some money-making ideas:
1. If you get a regular allowance from your
parents, save it! Say goodbye to fancy
coffees, vending machine goodies and
fast food. Okay, not forever! Those are
fun treats. But try limiting yourself to a
Friday splurge and saving your money
the other days of the week.
2. Hold an auction. Gather things you don’t
use or need anymore, like expensive
clothing or your unused gaming system
(get your parents’ permission, of course)
and sell them online or at a garage sale.
You won’t believe how much money you
have in the form of unused stuff!
3. Become an entrepreneur! Hand out fliers in
your neighborhood advertising baby-sitting
or yard work services.
4. If you’re old enough and your schedule allows
it, get a part-time job on the weekends.
5. Communicate your money goals with your
parents. They might be willing to pay you
for doing extra jobs around the house or for
getting good grades.
6. If your parents (or other relatives) own a
business, they might be able to hook you up
with a part-time job there.
7. Consider tutoring. Some teens report
earning as much as $20 an hour.
8. Take advantage of summer months off of
school. Explore being a camp counselor,
golf caddy or a lifeguard.
9. Watch the local ads for people needing
pet sitters or house sitters when they go
out of town.
10. Use your skills. Think about what you are
good at. You might offer horseback riding
lessons, Spanish lessons or piano lessons.
Chapter 2: Saving 35
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
“Save a part of
your income and
begin now, for
the man with a
surplus controls
circumstances and
the man without a
surplus is controlled
by circumstances.”
HENRY BUCKLEY
Australian politician
“
So now you know about the
savings crisis in America.
You might be thinking, Yeah,
I’d like to start saving, but
I’m barely making any
money. And sometimes,
doing something fun
seems more important
than saving just a few
bucks. Besides, if I can
only save $20 or $50 a
month, is it really worth it?
The Answer: Absolutely!
By starting now, you’re
giving your money time to
grow. And when you start
young, you’ll end up with
more cash than someone
who waits.
+
Section 2:
Three Basic Reasons to Save Money
The First Foundation is simple.
Save a $500 emergency fund. Keep
in mind that $500 won’t always be
enough for your emergency fund. As you
get older and you have more financial
responsibilities like paying a mortgage
and supporting a family, you will want
to have three to six months of living
expenses set aside in your emergency
fund. How much money is that?
Well, that will depend on what your
monthly bills total at any given time.
For instance, if your living expenses
(mortgage, utilities, insurance, food,
etc.) total $3,000 a month, then you’ll
want to set aside $9,000 to $18,000 in an
emergency fund. That sounds like a lot.
But rest assured, if you are managing
your money wisely, as your income
grows so will your savings.
VIDEO 2.1
Save Money for Three Basic Reasons:
1.
16
Fund
2.
17
3.
18
Building
Emergency Fund
»»
19
are going to happen. Count on it. The
First Foundation, a beginner emergency fund, is $500.
* NOTE: Later in life this should increase to three to six months of living expenses.
»» It’s a good idea to open a separate savings account for
your emergency fund. Then, leave it alone!
»»Your emergency fund is not an investment. It is
insurance for when unexpected things happen.
»»The emergency fund is your first savings priority.
Do it quickly!
36 Foundations in Personal Finance High School Edition
SECTION 2
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
In 2012, only 27% of all
point-of-sale purchases
were made with cash, and
that number is expected
to drop to 23% by 2017.
Report published by Javelin
Strategy & Research
$
WHICH IS WISER?
Using a sinking fund
versus borrowing money
for a large purchase—you
make the call.
Say you borrow $4,000 to
purchase a dining room
set, and your interest rate
is 24% for two years.
This means you will have
payments of $211 per
month for 24 months.
So, you will pay a total of
$5,064, plus interest, for
that set.
But if you use the sinking
fund method and save the
same $211 per month for
only 18 months, you will be
able to pay cash.
When you pay cash,
you can almost always
negotiate a discount. So
you will be able to own that
furniture even earlier for
less money.
+
VIDEO 2.2
Purchases
»»The second thing you save money for is
20
.
»» Instead of
21
to purchase, pay cash by
using a
22
fund approach.
A sinking fund is a way to save
when you know you have a large
purchase coming up, like a prom
dress or new tires for your car. You
calculate the expected cost of the
item and how long you have until
you need to purchase it. Divide the
total cost of the item by the number
of months until the purchase. For
instance, if prom is five months away
and the amount you are willing to
spend is $200, you will need to save
$40 a month toward your purchase
($200 divided by 5 equals $40).
Saving over time means you will
never need to go into debt for a large
purchase. Think of it this way: You pay
yourself $40 a month, and then pay
cash instead of using a credit card and
paying someone else $40 a month plus
interest! That’s right. That dress would
end up costing you more than $200 if
you borrowed money for it.
JOURNAL QUESTION: VIDEO 2.1
Explain how having an emergency fund helps protect your wealth.
Chapter 2: Saving 37
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
“It was character
that got us out of bed,
commitment that
moved us into action,
and discipline that
enabled us to follow
through.”
ZIG ZIGLAR
American author and
motivational speaker
“
Wealth Building
»»The third thing you save money for is
23
building.
»»
24
is the key ingredient when it comes to
wealth building.
»»Building wealth is a
25
, not a sprint.
JOURNAL QUESTION: VIDEO 2.2
Why do you think so many people borrow money for large purchases
instead of using a sinking fund?
Ready to Start Saving? Read These Bank Tips First!
* REMEMBER: The emergency fund is not intended to grow wealth, so interest earned is not a factor.
»» A bank is one of the safest places to keep your
money. Since the financial crisis of 2008, the
federal government (Federal Deposit Insurance
Corporation or FDIC) increased the level of
insurance on bank accounts to $250,000 per
depositor.
»» An interest-bearing account is an account
that generates interest income on the available
balance in the account.
»» The convenience of a bank account comes
at a cost. Banks generally pay lower rates on
interest-bearing accounts than other financial
institutions that offer accounts that resemble
bank services: The most common are brokerage
cash management accounts, credit union
accounts, and mutual fund money market
accounts.
»» Inflation can eat up the interest you earn on
an interest-bearing bank account. Even a low
rate of inflation (a persistent rise in the cost
of goods and services or the decline in the
purchase power of money) generally outpaces
what banks pay on interest-bearing accounts.
38 Foundations in Personal Finance High School Edition
SECTION 2
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
IMPORTANT: Since you’re
in high school, hold off on
investing for retirement
until you have college
completely paid for. It
doesn’t make sense to
invest while, at the same
time, taking out loans for
college. We want you to
live debt free, even through
college. Make paying for
your education a priority
over investing. Once you’ve
done that, invest as soon
as possible.
+
VIDEO 2.3
Wealth Building (Continued)
»»
26
is a mathematical
explosion. You must start
27
.
* TURN THE PAGE: Follow along with the Ben and Arthur compound interest chart to see the
power of compound interest!
JOURNAL QUESTION: VIDEO 2.3
How is saving an exercise of your character?
Maybe You Can Afford That Car!
“I’m 14 and want to buy a car in a couple of years. How much money will it take to
get a good one?”
DAVE’S ANSWER: You can buy a good used car for
around $3,000. This may seem like a lot right now,
but let me show you how easy it can be. Let’s say
you work part time after school and on weekends.
If you make $100 a week and save it all, you’ll have
enough for a car in only eight months. Pretty cool,
huh? Can’t do $100 a week? Saving a little bit at
a time adds up, and you will eventually reach
your goal. Take a look at the graph below for a
few ways it can be done.
YEARS TO GOAL 0.0 0.5 1.0 1.5 2.0 2.5
$3,000 in
10 Months
$3,000 in
15 Months
$3,000 in
30 Months
| | ||| | ||| | || | ||| | | | | | ||| | | |||
| | | || | |||||| || | || |||| ||| | ||| |
|||| | || | | | || || ||| | | | | | | ||| | ||
Save $300/month
($75/week)
Save $200/month
($50/week)
Save $100/month
($25/week)
Chapter 2: Saving 39
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
The Story of Ben and Arthur
Both save $2,000 per year at 12%. Ben starts at age 19 and stops at age 26, while
Arthur starts at age 27 and stops at age 65.
2,000 2,240 19 0 0
2,000 4,749 20 0 0
2,000 7,558 21 0 0
2,000 10,706 22 0 0
2,000 14,230 23 0 0
2,000 18,178 24 0 0
2,000 22,599 25 0 0
2,000 27,551 26 0 0
0 30,857 27 2,000 2,240
0 34,560 28 2,000 4,749
0 38,708 29 2,000 7,558
0 43,352 30 2,000 10,706
0 48,554 31 2,000 14,230
0 54,381 32 2,000 18,178
0 60,907 33 2,000 22,599
0 68,216 34 2,000 27,551
0 76,802 35 2,000 33,097
0 85,570 36 2,000 39,309
0 95,383 37 2,000 46,266
0 107,339 38 2,000 54,058
0 120,220 39 2,000 62,785
0 134,646 40 2,000 72,559
0 150,804 41 2,000 83,506
0 168,900 42 2,000 95,767
0 189,168 43 2,000 109,499
0 211,869 44 2,000 124,879
0 237,293 45 2,000 142,104
0 265,768 46 2,000 161,396
0 297,660 47 2,000 183,004
0 333,379 48 2,000 207,204
0 373,385 49 2,000 234,308
0 418,191 50 2,000 264,665
0 468,374 51 2,000 298,665
0 524,579 52 2,000 336,745
0 587,528 53 2,000 379,394
0 658,032 54 2,000 427,161
0 736,995 55 2,000 480,660
0 825,435 56 2,000 540,579
0 924,487 57 2,000 607,688
0 1,035,425 58 2,000 682,851
0 1,159,676 59 2,000 767,033
0 1,298,837 60 2,000 861,317
0 1,454,698 61 2,000 966,915
0 1,629,261 62 2,000 1,085,185
0 1,824,773 63 2,000 1,217,647
0 2,043,746 64 2,000 1,366,005
0 2,288,996 65 2,000 1,532,166
Invests Running Total Age Invests Running Total
BEN ARTHUR
Arthur
invested
$78,000 and
NEVER
CAUGHT UP!
Ben invested
ONLY $16,000.
$2,288,996 vs $1,532,166
$2,000
÷ 12
$167
MONTHS
INVESTED
ANNUALLY
Saving $2,000 each
year works out to
only $167 per month!
INVESTED
MONTHLY
Ben came out
ahead by over
$700,000!
Ben stops investing;
Arthur starts investing
Grand Total
40 Foundations in Personal Finance High School Edition
SECTION 3
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
INTERESTED IN
INVESTING?
We will talk more about
investing in Chapter 8.
+
What excites you most
about investing?
“Making money without
doing anything.”
Junior, Oklahoma
“Being able to be financially
secure when I retire.”
Senior, Florida
“I am excited about what
even a small investment
can become.”
Senior, Colorado
“Having tons of money in
the end.”
Senior, New Jersey
“Patience is
golden because it
will increase the
satisfaction you take
from achieving your
goals and desires.”
DAVE RAMSEY
“
Section 3:
The Power of Compound Interest
VIDEO 3.1: THERE ARE NO FILL-INS IN THIS SECTION.
What Is Interest?
““The most powerful force in the universe is compound interest!”
ALBERT EINSTEIN, German physicist
What is interest? In investing, it
is the money the principal (original
amount invested) earns. It is typically
a percentage of the principal, paid on
a monthly, quarterly or annual basis.
Compound interest is interest paid
on interest previously earned.
Whew! Need further explanation?
Here’s an example.
Take a one-time investment of $1,000
and earn 10% on it. Your interest
earned at the end of the year is $100.
Add that to your original $1,000, and
you have $1,100.
At the end of the next year, your $1,100
is compounded at 10% interest, so your
return on investment is $110. Add that
to the $1,100, and you now have $1,210.
Your interest on $1,210 is $121.
So as time passes, the amount you earn
from interest grows. That is why it is
so important that you start as early as
possible. You have more time for your
interest to snowball and pick up more
and more snow!
How to Calculate Compound Interest
Use this simple formula to figure out the future value of a
deposit once compound interest has worked its magic.
FV=PV (1+r/m)mt
* REMEMBER: When calculating this formula, use the mathematical order of operations.
FV: The future value
PV: The present value
r: The annual rate of interest as a
decimal (5% is expressed as the
decimal 0.05)
m: The number of times per year the
interest is compounded (monthly,
annually, etc.)
t: The number of years you leave it
invested
Chapter 2: Saving 41
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Budget
Builder
Saving money is a lot easier
to do when you make it part
of your budget! Go to
foundationsU.com/2 for
your next budget lesson.
See what your investment
will be worth in 40 years!
Check out the
Investing Calculator
at foundationsU.com.
+
Compound Interest (Continued)
Inflation: Inflation is a persistent rise in the price of goods
and services over a period of time.
Time Value of Money: This principle suggests that a
certain amount of money today has different buying power
than the same amount of money in the future. This notion
exists both because there is an opportunity to earn interest
on the money and because inflation will drive prices up,
thereby changing the “value” of the money.
So let’s say you and a friend each get $100 for your
birthdays. Your friend buys designer jeans, and you put
your cash in a savings account. In two years, your money
will have earned interest. But will you have enough cash to
buy the same designer jeans?
The trade-off between money now and money later depends
on, among other things, the inflation rate and the rate of
interest you can earn by investing or saving.
The rate of return, or the interest rate, on your investment
is important to consider. We will talk about different types
of investments and rate of return in detail in Chapter 8,
Investing and Retirement.
42 Foundations in Personal Finance High School Edition
SECTION 3
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
“Most people have the
will to win; few have
the will to prepare
to win.”
BOBBY KNIGHT
Former head coach of the
Indiana Hoosiers (1971–2000)
“
How Important Is My Interest Rate?
Look at what happens to a $1,000 one-time investment with no withdrawals from
age 25 to age 65 (40 years).
$800,000 »
$700,000 »
$600,000 »
$500,000 »
$400,000 »
$300,000 »
$200,000 »
$100,000 »
0 »
$10,285
$93,050
$750,378
6% 12% 18%
ANNUAL INTEREST RATE
Where you put your
money matters!
JOURNAL QUESTION: VIDEO 3.1
Why don’t more people save for the future? Which reasons can be fixed
by having a money plan?
Chapter 2: Saving 43
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Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered and complete the “after” column of the Measure
Your Progress section.
Build On What You’ve Learned
Review: The Three Reasons to Save
Fill in the graphic organizer. What are the three things you need to save for? Describe why each is important
for your financial future. Take a look at section 2 if you need help.
SAVE FOR:
IMPORTANT BECAUSE:
1
SAVE FOR:
IMPORTANT BECAUSE:
2
SAVE FOR:
IMPORTANT BECAUSE:
3
3 Reasons to Save
44 Foundations in Personal Finance High School Edition
RECAP & REVIEW
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Take Action Challenge
See how quickly you can save your $500 emergency fund. Set a time goal and make it happen!
Emergency
Fund
Complete! $0 Chart your progress here!
$50 $100 $150 $200 $250 $300 $350 $400 $450 $500
Months Weeks Days
Goal:
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
»» The Five Foundations are your steps to Financial Peace.
»» The First Foundation: Save a $500 Emergency Fund
»» Save for emergencies, large purchases and wealth building.
Chapter 2: Saving 45
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Money in Review
a The Five Foundations
b Interest Rate
c Sinking Fund
d Compound Interest
e Emergency Fund
f Inflation
g Interest-Bearing Account
1. _____ An account that generates interest
income on the available balance in
the account
2. _____ The five steps to financial success
3. _____ A savings account that is set aside to
be used only for emergency expenses
4. _____ Interest paid on interest
previously earned
5. _____ Saving money over time for
a large purchase
6. _____ A rate which is either charged (on debt)
or paid (on investment accounts) for the
use of money
7. _____ The persistent increase in the cost of
goods and services or the persistent
decline in the purchasing power of money
Matching
Match the following terms to the correct definition below.
Illustration
Draw a picture representation of each of the following terms.
Recession Economy
46 Foundations in Personal Finance High School Edition
RECAP & REVIEW
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Multiple Choice
Circle the correct answer.
8. When it comes to saving money, the amount
you save is determined by how much you
have left at the end of the month once all of
your spending is done.
a True
b False
9. Your income level greatly affects your
saving habits.
a True
b False
10. At your age, a fully funded emergency fund
should be:
a $1,000
b $5,000
c $100
d $500
11. Which of the following is not one of the
three basic reasons for saving money?
a Large purchases
b Have money available to lend to friends
c Emergency fund
d Build wealth
12. Instead of borrowing money for large
purchases, you should set money aside in a
_____________ over time and pay with cash.
a Sinking fund
b Emergency fund
c Credit card fund
d Mortgage fund
Short Answer
Respond in the space provided.
13. What is the First Foundation? Explain how
and why the dollar amount will change as
you get older.
14. Looking back at the “Ben and Arthur” story,
how did Ben come out ahead even though he
invested less money than Arthur?
15. What two things do you consider when
evaluating the time value of money?
16. Calculate the compound interest for each
problem below.
• $1,000 at 6% interest for three years
• $500 at 18% interest for four years
• $1,500 at 12% interest for two years
17. Why do you need an emergency fund at
your age?
Chapter 2: Saving 47
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
What do other high
school students know
about budgeting?
We asked high school students
to share some tips on how to
handle money.
“Put yourself on a budget and be
wise with your money. That way
you won’t be tempted to dip into
your savings account.”
Freshman, Florida
“Get direct deposit and put money
right into your savings account.
Then only spend the money you
have left over.”
Senior, Missouri
“It’s a good idea to start saving with
your first paycheck because once
you start spending, it is hard to stop.”
Junior, Tennessee
“Expenses don’t just happen—
they’re always there. It takes
practice to save money and not
spend it all.”
Junior, Utah
“It is good to make a money plan.
You should save a percentage every
month, even if it is not a lot.”
Freshman, Texas
3
CHAPTER
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Budgeting
BECOMING WEALTHY DOESN’T happen
accidentally. It is a journey that requires
intentionality, persistence and discipline. But
with all of life’s distractions, how can you stay
focused on your money goals? A budget is the
perfect solution. It’s simple—just write down
a plan for your money and intentionally follow
it every day. Surprisingly, when you put
boundaries on your spending, you end up with
more freedom!
*National Foundation for Credit Counseling, Inc.
of U.S. adults admit
that they do not have
a budget.*
56%
of Americans do not
pay all of their bills
on time. That’s
more than 77
million people!*
33%
UNIT 1: CHAPTER 3
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Key Terms
Get to know the language of money.
»» Budget: A written cash flow plan
»» Cash Flow Statement: A summary that
shows total income and spending for a
given time period
»» Carbon Check: A copy of each check
you write
»» Envelope System: Series of envelopes
that are divided into categories (food,
entertainment, gas, etc.) and are used to
store cash for planned monthly expenses
»» Impulse Purchase: An item that is
bought without previous planning or
consideration of the long-term effects
»» Overdraft: Occurs when money is
withdrawn from a bank account and the
available balance goes below zero
»» Reconcile: To match your bank
statement with your checkbook
»» Zero-Based Budget: A cash flow plan
that assigns an expense to every dollar
of your income, wherein the total income
minus the total expenses equals zero
Learning Outcomes
Once you’ve completed this chapter’s videos, you will be asked to
return to this list of learning outcomes and place a checkmark
next to the items you’ve mastered.
Section 1: Budgeting 101
…… Understand the purpose of cash flow planning.
…… Identify reasons some people avoid having or sticking
to a budget.
…… Identify changes in personal spending behavior that
contribute to wealth building.
…… Explain the difference between a cash flow statement
and a budget.
Section 2: The Basics of Banking
…… Develop a filing system for keeping financial records,
both paper and electronic.
…… Describe recordkeeping features that financial
institutions provide for online account management.
…… Describe how to use different payment methods and
banking features.
Section 3: The Importance of Having
a Zero-Based Budget
…… Define zero-based budget.
…… Develop a plan for spending and saving that has both
long-term and short-term components.
…… Analyze how changes in circumstances can affect a
personal budget.

Before You Begin
50 Foundations in Personal Finance High School Edition
INTRODUCTION
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Measure Your Progress
Before watching the video, read each statement below and mark whether you agree or disagree in the “Before”
column. Then, after watching the video, do it again using the “After” column to see if you changed your mind
on any statement.
JOURNAL QUESTION: INTRODUCTION
On average, how much money do you spend per week? $____________________
What are your top three expenses?
1.
2.
3.
1. It is important to know how to live within my means
and have good money habits.
2. I expect and would like my parents to stop
supporting me before age 25.
3. I am knowledgeable about money management,
including budgeting and saving.
4. I am prepared to deal with the adult financial world
after school.
5. I know how to balance and reconcile my
checking account.
6. I know how to write a check.
7. I have more than $100 in savings.
Agree Disagree Agree Disagree
BEFORE AFTER
Chapter 3: Budgeting 51
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
“If you will happen
to your money, then
you’ll have some.
If you just let all
your money happen
to you, then you’ll
never win.”
DAVE RAMSEY
“
10 THINGS
MILLIONAIRES
DO NOT DO
1. Buy brand-new cars
2. Eat out on a
regular basis
3. Replace what is
not broken
4. Impulse buy
5. Carry debt
6. Visit the tanning bed
7. Buy brand-name
clothes
8. Desire instant
gratification
9. Socialize with people
who waste money
10. Spend more money
than they earn
The Millionaire Next Door
+
3 CHAPTER
Section 1: Budgeting 101
VIDEO 1.1
Cash Flow Planning
BUDGETING IS CRUCIAL to your
success. Your income is your
responsibility. If you get to retirement
with a mountain of debt and nothing
to live on, it’s no one else’s fault. But
beyond the obvious financial benefits
of managing your money well, there
are a ton of other reasons to pull out
the budget forms every month. It may
sound nerdy or old fashioned, but it
isn’t. Keeping a budget is really helpful
for everyone. A simple, written plan
can actually give you more money
to enjoy!
»»Money is
1
. It is moving all the time. So if you
don’t make your money behave, you’ll always wonder
where it went.
»»You must do a written
2
plan every
3
. A budget is your blueprint for building
wealth. You’ve got to have a game plan!
»»A budget might seem intimidating at first, but it is not as
intimidating as going broke!
* REMEMBER: Don’t try to have the perfect budget for the perfect month, because you’ll never have
one. A good cash flow plan lives and moves—it changes as your life changes.
52 Foundations in Personal Finance High School Edition
SECTION 1
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
“There are plenty
of ways to get
ahead. The first is
so basic I’m almost
embarrassed to say
it: Spend less than
you earn.”
PAUL CLITHEROE
Australian financial advisor
“
“People don’t plan to
fail, they fail to plan.”
ANONYMOUS
“
WHAT’S THE DIFFERENCE
BETWEEN A CASH
FLOW STATEMENT AND
A BUDGET?
A cash flow statement
summarizes all of the
income and outgo
(spending) over a certain
time period. A budget is a
written plan for saving,
giving and spending. The
cash flow statement is
reflective of what has
already taken place, and a
budget is a proactive plan
of what will take place.
+
VIDEO 1.2
Four Reasons People Avoid Budgets
Doing a budget or cash flow plan doesn’t sound like much
fun. In fact, people will come up with lots of excuses for not
keeping a budget.
1. It has a
4
connotation. They believe
that having a budget will constrict them and keep
them from doing what they want to do. The reality is,
managed money goes further and actually gives you
more freedom.
2. A budget has been used to
5
them. They’re
constantly hearing, “It’s not in the budget!” The purpose
of a budget is to not spend more than you make. It is not
intended to take all the fun out of your life.
3. They’ve never had a budget that
6
. Don’t
expect to write a perfect budget on your first try. You
will make mistakes. With some practice, however,
writing a monthly budget will become easier.
JOURNAL QUESTION: VIDEO 1.1
Describe in your own words what it means to have a budget.
Chapter 3: Budgeting 53
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
DESCRIBE SOME
STRENGTHS AND
WEAKNESSES YOU HAVE
WHEN IT COMES
TO MANAGING MONEY.
“I don’t spend money on
stupid things. But when I
have more money, I tend to
spend more.”
Senior, Oregon
“One of my strengths is
saving short term and not
getting into debt. One of
my weaknesses is buying
things I don’t need.”
Sophomore, New York
Four Reasons People Avoid Budgets (Continued)
4. Paralysis from
7
of what they will find. Some
people are afraid to look at their finances closely. It’s
better to face those bills or debts and begin to
proactively fix the situation. Ignoring financial distress
only allows the problem to get bigger.
JOURNAL QUESTION: VIDEO 1.2
What do you think is most challenging when it comes to keeping a
monthly budget?
Real Wealth Building Begins With Your Behavior
Often the importance of smart money-management
techniques gets overlooked. Why is it important
to manage your money well? What impact does
managing money well have on your long-term
financial well-being? Studies show that simple
changes in your spending and saving habits will
help you build wealth.
1. Live on less than you make. Don’t spend every
dollar of your paycheck.
2. Keep on learning and finding ways to grow
your income.
3. Write a monthly budget that includes saving,
giving and spending. Stick to it.
4. Plan your spending and avoid impulse
or unnecessary purchases.
5. Stay out of debt.
6. Pay yourself first. This means assigning a
portion of your income to saving and investing
every month.
7. Use gifts and “extra” income wisely. You might
be tempted to just blow money you receive
as a gift. It’s okay to use some of that money
to treat yourself to a “want.” But it’s wise to
use a portion of it toward a money goal (like
getting out of debt, saving for a car, saving for
college, etc.).
54 Foundations in Personal Finance High School Edition
SECTIONS 1 & 2
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
“This is your wealth
we’re talking about
here! Get excited!
Make those dollars
dance!”
DAVE RAMSEY
“
“Every young man
should have a hobby.
Learning how to
handle money is the
best one.”
JACK HURLEY
Boxing manager and trainer
“
It’s important to know how
much things cost before
you buy. A smart doctor
once wrote, “Suppose
one of you wants to build
a tower. What is the first
thing you will do? Won’t
you sit down and figure out
how much it will cost and
if you have enough money
to pay for it? Otherwise,
you will start building the
tower, but not be able to
finish. Then everyone who
sees what is happening
will laugh at you. They will
say, ‘You started building,
but could not finish the job’”
(Luke 14:28–30).
+
Section 2: The Basics of Banking
VIDEO 2.1
Responsible Banking
Managing your money will involve
banking. Once you’ve established cash
flow, either through employment or
an allowance from your parents, you
should open a checking account. Don’t
forget about your First Foundation:
Save a $500 emergency fund. This
money should be placed in a separate
savings account. You should consider
your checking account as your
spending account and always keep
your savings separate.
Learning how to keep your checking account
balanced is an important and necessary skill.
»»You must keep your checking account
8
.
Keeping an accurate balance of your checking account will
help you avoid the most frequent and costly mistake, the
overdraft. Each occurrence can cost an average of $35 for the
bounced check fee at your bank, plus possible store charges.
»»
9
are a sign of crisis living and sloppy,
lazy
10
habits. Remember, managing your
money is your responsibility. Managing money well is a
sign of maturity.
»»Use
11
, or carbon checks, if necessary to
keep up with your check register. Just looking at your
online statement every few days to see how much money
is in the account is not enough. Your online statement
may not reflect unprocessed checks or debit purchases.
»» If not managed and made to behave, the
12
card
is certain to become a budget buster.
Chapter 3: Budgeting 55
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Balancing Your
Checking Account
At first, keeping track of your transactions may seem tedious and unnecessary.
But once you get the hang of it, balancing a checking account is actually easy.
By keeping track, you can avoid a bunch of headaches, like bouncing a check, the
bank making mistakes with your account, or not knowing your actual balance.
Remember, when you take responsibility for your money, you’ll have more of it!
How to Do It
»» Throughout the month, write down every deposit
or withdrawal in your register. Your transactions
might include ATM withdrawals, checks you’ve
written, debit card purchases, bank fees and
paychecks.
»» Each time you make an entry in your register, add
or subtract that amount from the current balance.
»» When you receive your monthly bank statement,
record any interest accrual and bank fees in the
check register.
Compare Your Check Register and
Bank Statement Side by Side
»» Compare each transaction one by one. As you
do this, make checkmarks on both lists.
»» On the reconciliation sheet, list any debits or
deposits that are present in the register but not
present in the bank statement. Then calculate
those into your bank statement balance.
»» Compare your register balance to the statement
balance. They should be the same. If not, look
for discrepancies like outstanding checks,
unrecorded bank fees or transactions, or
bank errors.
What You’ll Need
1. Your Check Register or
Smartphone Budgeting App
2. Your Last Bank Statement or
Online Account Summary
3. A Reconciliation Sheet
(on the back of most bank statements or you
can find one online)
Things to Remember
»» If you were diligent with recording transactions
in your check register every time money went in
or out, your check register has the most current
balance.
»» Remember, the account balance from the bank
statement or ATM is not as current as your
register’s balance because they don’t account
for transactions that haven’t gone through yet.
»» Contact the bank if you think they made an
error. It happens more than you may think.
»» Don’t be discouraged on the first few tries.
Balancing your account takes practice.
The more you do it, the easier it becomes.
56 Foundations in Personal Finance High School Edition
SECTION 2
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Check Register / Smartphone Budgeting App
$ 504.56
$ 217.00
$ 700.00
$ 987.56
MINUS
EQUALS
PLUS
Total Withdrawals
Total Deposits
Ending Balance
Transaction Description Check # Date Deposit
Paycheck 8/14 700.00
List the deposit amounts in your register
that aren’t on your statement. Then total
these transactions.
$ 700.00
$ 217.00
Transaction Description Check # Date Payment
Electric Company 5672 8/14 101.00
Telephone Company 5673 8/ 16 50.00
One Stop Grocery 5674 8/ 19 66.00
List the withdrawal amounts in your
register that aren’t on your statement.
Then total these transactions.
This should be the same
as your register balance.
✓ Trans. # Date Transaction Description Payment (-) Deposit (+) Balance
Starting balance
of $564.46
Reconciliation Sheet
Bank Statement
5671 8/12 One Stop Grocery 57.40 507.06
5672 8/14 Electric Company 101.00 406.06
8/14 Paycheck 700.00 1106.06
5673 8/16 Telephone Company 50.00 1056.06
5674 8/19 One Stop Grocery 66.00 990.06
8/16 Bank Service Charge 2.50 $987.56
To reconcile your register
with your bank statement,
start with the ending balance
from your statement.
Chapter 3: Budgeting 57
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
RECONCILING or
balancing an account
refers to a process that
compares two sets of
records (yours and your
bank’s, in this case) to
make sure the balances
match at the end of a
particular time period.
+
63% of people 18 and under
have savings accounts,
and 73% of those savings
accounts were started
before the age of 3.
National Foundation for Credit
Counseling, Inc.
$
Keep Records
»»Smart money managers develop a filing system for
keeping and using financial records. You should
maintain both paper and electronic files for reference.
»»These records will be useful for filing taxes and for
disputing bank errors or fraudulent purchases.
»»You may want to check with your bank to find out what
online record keeping features they offer.
»» In this digital age, it’s easy to personalize a system that
works for you. Explore phone apps and software that may
help in many areas of personal finance like budgeting,
saving and keeping records.
Are Multiple Accounts a Good Idea?
“I just got a part-time job, and I want to make sure I save some money in case
something bad happens to my car. Do you think I should tell my parents I
want to open a checking account and a savings account?”
DAVE’S ANSWER: First, congratulations on
the new job! You’ve taken a big first step toward
financial independence.
Second, I think it’s a great idea to keep your
checking and savings accounts separate, and
here’s why. If you put all your money in one place,
it becomes too easy to dip into your savings or
emergency fund when you’re writing checks. This
defeats the original purpose of saving money.
This separation acts as a mental note and a
barrier. It’s a way of telling you that you’ve reached
your spending limit!
58 Foundations in Personal Finance High School Edition
SECTION 2
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
WHAT TEENS SHOULD
KNOW ABOUT DEBIT
CARDS
• Keep them secure at
all times.
• Pick a secure PIN
(personal identification
number).
• Trust your friends, but
not with your debit card!
• Be cautious of online
transactions. Reconciling
your account will help
you be aware of
fraudulent charges.
+
FIRST CHECKING
ACCOUNT?
Make it free checking.
There are plenty of $0
monthly fee accounts out
there. You may want to
open your first account
at your parents’ bank in
order to take advantage
of special multi-account
privileges. Either way,
shop around to get an
account with minimal or
no fees.
+
Banking Tools
Writing Checks
Checks can be used to pay bills at a
store, give a person a check if you are
short of cash, or send a check through
the mail or electronically. Checks
allow you to pay for things without
having to carry large amounts of
cash. Most stores will want some
basic information if you are using a
check, such as your address and phone
number, and most will require you to
show a photo ID.
Online Bill Pay
Online bill pay allows you to make
payments without having to write a
check and send it in the mail. After
logging into your bank’s online site,
you can specify whom you want to pay
and how much. Your bank will either
make an electronic transfer or mail a
check to satisfy the payment. A great
benefit of using online bill pay is the
option to schedule repeat payments.
Debit Card Purchases (In Store and Online)
A debit card can be used for both instore
and online purchases. Although
your debit card may have a credit card
logo on it, it is not a credit card. When
used, money is withdrawn from your
checking account for the purchase.
We recommend selecting the “credit”
option instead of “debit” when making
a store purchase. While the funds
are withdrawn from your account in
the same way, using the credit option
ensures that you are protected by
the card company’s zero-liability
policy. You will not be responsible
for unauthorized transactions. If you
do decide to use your PIN, be sure to
memorize your PIN and never carry
it with you.
Account Transfers
Account transfers allow you to move
money between your accounts.
Once you have a regular income, we
recommend setting up weekly or
monthly automatic transfers from
your checking to your savings account.
This is the easiest way to build your
savings for emergency fund or large
purchases.
Chapter 3: Budgeting 59
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
FOUR TYPES OF
EXPENSES TO
BUDGET FOR
Variable Expenses:
Expenses that vary from
month to month (e.g.,
electricity, gasoline,
groceries, clothing)
Fixed Expenses: Expenses
that remain the same
from month to month (e.g.,
rent, insurance premiums,
cable bill)
Intermittent Expenses:
Expenses that occur at
various times throughout
the year and tend to be
in large lump sums (e.g.,
tuition payments, athletic
or club dues, car repairs)
Discretionary (Non-
Essential) Expenses:
Expenses for things we
don’t need (e.g., eating out,
gifts and candy)
+
Banking Tools (Continued)
ATM
The ATM (automatic teller machine)
allows you to make withdrawals,
deposits or transfers without entering
your bank. Normally your bank will
not charge you an ATM fee when you
use their ATMs. But be aware that if
you use an ATM owned by another
bank, you will be charged a fee for your
withdrawal, usually from both your
bank and the competitor.
Mobile Banking
Mobile banking takes a lot of the
features of online banking and brings
them to your cell or smartphone. They
may also offer additional features like
text alerts and text banking. Mobile
banking features will vary from bank
to bank.
JOURNAL QUESTION: VIDEO 2.1
Explain why Dave describes overdrafts as a sign of “crisis living.”
60 Foundations in Personal Finance High School Edition
SECTIONS 2 & 3
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
THINK A CREDIT CARD
IS SAFER TO USE THAN
A DEBIT CARD?
Think again. Some people
believe that credit cards
carry a better track record
and that you’re less likely
to have your money stolen
when you use a credit card.
Sadly, those people are
wrong.
Credit cards carry a huge
risk of allowing the user
to incur debt. Debit cards
force you to pay with money
you already have. If you
hold a debit card from a
well-known name like
Visa or MasterCard, it will
have the same policy about
unauthorized charges that
credit cards have. Don’t fool
yourself into thinking that
credit cards are the “safe”
way to go. They’ll only get
you into trouble and force
you to make payments.
+ Section 3: The Importance
of Having a Zero-Based Budget
VIDEO 3.1
Cash Flow Plans Do Not Work When . . .
»»You
13
things
14
. Make sure your budget
includes everything that requires money. You may forget
and leave some things out at first, but as you get better at
budgeting, that will happen less frequently.
»»You
15
your plan. All you really
need is paper, a pen and a calculator. It’s as simple as
writing down everything that requires money each
month and putting an amount next to it.
»»You don’t actually
16
. This may sound overly
simple, but it’s easy to find reasons not to write a budget.
When this happens, remind yourself of all the reasons
you should do it.
»»You don’t actually
17
on it. Your written plan
will not work unless you actually follow it. And as you
get used to it, you may see some budget items that aren’t
realistic. That’s okay! Just adjust the budget for next
month until you get it right.
Chapter 3: Budgeting 61
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
HAVE YOU EVER
WITNESSED MONEY
AFFECTING
A RELATIONSHIP
CLOSE TO YOU?
“Yes. My dad and mom
have been struggling a lot
financially. I think it affects
their relationship.”
Junior, Colorado
“Yes. My mom and
stepdad’s relationship is
constantly strained due to
lack of money.”
Senior, Georgia
43% of parents review
bank statements with their
kids monthly.
Only 28% of children have
used online banking to
view their savings account
balance.
National Foundation for Credit
Counseling, Inc.
$
Reasons You Should Do a Cash Flow Plan
»» A written plan removes the “management by
18
”
from your finances. Seventy percent of Americans are
living paycheck to paycheck, just one missed payday away
from disaster.
»»
19
money goes further. That’s because
when you write up a budget, you’re accounting for every
single dollar of your income. You cut out all of those little
expenses that fly into your wallet like moths and eat
away at your money.
Money Affects Relationships
Consider your future relationship. The
number-one cause of strife in marriage
today is money. It’s disagreements
over debt. It’s disagreements over the
stress that debt brings. It’s not agreeing
on what we’re going to purchase and
where we’re going to spend the money
we make. When you are not on the
same page with money, you are not on
the same page in life.
»»A written plan, if actually lived and agreed on, will remove
many of the
20
in a relationship.
»» A written plan, if actually lived and agreed on, will remove
much of the
21
,
22
and
23
that
may be part of buying necessities such as food or clothing.
»»A written plan, if actually lived and agreed on, will remove
many of the
24
from your life,
consequently removing a lot of
25
.
»»A written plan, if actually lived and agreed on, will show
if you are
26
in a certain area.
62 Foundations in Personal Finance High School Edition
SECTION 3
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
IRREGULAR INCOME
Shaun sells real estate
and has what we call an
“irregular income.” That
just means his income
fluctuates from month
to month. If you’re in this
situation, you absolutely
must do a monthly budget,
but you’ll do it a little
differently.
JOURNAL QUESTION: VIDEO 3.1
Why do you think it is so common in America to spend more than
you make?
How Do You Budget With Irregular Income?
“I baby-sit from time to time for a neighbor. How do I do a budget when I don’t
know how much money I’ll make each month?”
DAVE’S ANSWER: First, make a list of all of
your expenses for the month ahead. Write down
absolutely everything that you’ll need or want to
spend money on. This includes everything from
rent to gas to savings to weekend fun money.
Write it all down.
Then, prioritize the list in order of importance. Ask
yourself, “If I only have enough to pay for one thing,
what would it be?” That’s number one. Then ask,
“If I only have enough to pay for one more thing,
what would it be?” That’s number two. Keep that
up all the way down the list.
Now you’re ready to get paid! When your check
comes in, just spend your money all the way
down the list. When the money’s gone, you’re
done spending for the month. That’s why it is so
important to prioritize the list. You may not have
enough cash for everything you want to do each
month, so make sure you’re making the best
with what you have.
Chapter 3: Budgeting 63
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Budget
Builder
It’s time to evaluate what
you spend money on and
put it in your budget.
Spending money is a
lot more fun when you
plan for it first. Go to
foundationsU.com/3 for
your next budget lesson.
51% of parents give their
children allowance, but
only 4% require them to
deposit that money into a
bank account.
38% of parents match their
children’s savings.
National Foundation for Credit
Counseling, Inc.
$
VIDEO 3.2
The Zero-Based Budget
»»The zero-based budget gives every dollar a name on
paper, on purpose,
27
the month begins. This is
the best method of budgeting since it ensures that every
dollar you make is assigned a specific purpose. Money
that is not directed toward a goal or included in a plan is
typically wasted.
»» Income minus outgo equals exactly
28
. This way
you are able to put every dollar to work for you.
»»The
29
works great
for managing spending on things that don’t normally
have a fixed monthly expense, like eating out. Decide
how much you have to spend on each specific category
and place that amount in an envelope. When the
envelope for a specific area of spending—like clothing or
entertainment—is empty, you are done spending in that
area for the month.
The Student Budget Form
»»Think you don’t have money to budget? You’ve got some
30
, you just need to think a little differently.
»» If you have a part-time
31
after school or even
if your parents give you a commission for doing
32
around the house, you’ve got some money.
64 Foundations in Personal Finance High School Edition
SECTION 3
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
YOUR BUDGET WILL
ONLY WORK IF
YOU FOLLOW IT.
Here are three tips to help
you stick to a budget.
1. Write it down. A budget
is not a form of medieval
torture! It is YOUR
game plan, where YOU
tell YOUR money what
YOU want it to do. This
isn’t rocket science!
Just give every dollar
a name on paper.
2. Stay away from places
that tempt you to
spend. If you have a
problem sticking to a
budget, you may not
yet be disciplined. If
that’s the case, stay
out of the mall or
wherever your spending
weakness occurs.
3. Use the envelope
system. Take some
envelopes, write your
budget categories on the
envelopes, and use only
that money to purchase
those items. Try only
a couple of categories
at first until you get the
hang of it. If the money
is not in there, you can’t
spend it. Easy as pie.
And remember, it takes
practice; you won’t get
it right the first time.
+
»»But it goes further than that. If your parents buy you
clothes or give you money to go out with your friends, pay
for club or athletic fees, or put gas in your car, all of those
things represent
33
that are flowing right
through your fingers.
»»All we want you to do is
34
how you’re going to
spend that money
35
you actually spend it.
That’s all a budget is!
»» Instead of having your parents pay for stuff, ask if they’ll
figure out how much money they’d end up giving you for
the month and then put it in your
36
account.
From there, it will be up to you to budget that money.
»» If your folks go along with this, then you’ll have a pile of
money to
37
every month.
»»We’ve developed a
38
budget form just for
you. So no more
39
! Starting this month,
you will do a written budget every month for the rest of
your life!
JOURNAL QUESTION: VIDEO 3.2
Explain in your own words what a zero-based budget is. Why is it
important to write a zero-based budget every month?
Chapter 3: Budgeting 65
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
IS IT A LITTLE WEIRD
FOR A TEENAGER TO
DO A BUDGET ON A $100
MONTHLY INCOME?
Yeah—it really is. Truth is,
it’s a little weird for most
adults with full-time jobs
and great big paychecks to
do a budget too! The only
thing that makes it weird is
that nobody else does it.
But guess what?
Everyone else is broke!
If you want to struggle with
money your whole life,
then go ahead and do what
everyone else does.
But if you want to win with
money, you’ve got to do a
budget—no matter how
old you are or how much
money you have.
We’re not crazy, though.
We’re not giving you a giant
binder full of spreadsheets.
We just have a basic
student budget form for
you to get used to.
If you get in the habit of
doing a budget now, you
could change your whole
financial future.
+ The Student Budget
Yes, this budget form has a lot of lines and blanks. But that’s
okay. We do that so we can list practically every expense
imaginable on this form to prevent you from forgetting
something. Don’t expect to put something on every line. Just
use the ones that are relevant to your specific situation. Now
follow the steps below to get started!
1 Add Up Your Monthly Income
Write your monthly income in the box at the bottom of the page (A),
including any money your parents give you. This is the amount you have to
spend for the month. Pretty simple, right?
2 Estimate Your Spending
Within each category, like RECREATION, there are items like Movies and
Sporting Events. Start at the top and work your way down, filling out the Budgeted
column (B) first. Then add up each subcategory and put that number in each
category’s Total box (e.g., C).
* REMEMBER: Your spending will change from month to month. Just put a “$0” in categories where
you don’t plan on spending any money.
* NOTE: The envelope icons ( ) represent good options for cash envelopes.
3 Total Each Category
Go through the form and add up all of the category Total boxes (e.g., C).
Write that grand total in the Monthly Outgo box (D). That’s how much you spend
every month.
The goal is to spend every dollar you make, but no more. So if your Outgo is
greater than your Income, you need to bring down the budgeted amount on some
items. If your Outgo is less than your Income, you need to increase the amount
in some area like College savings or Restaurants.
4 Get to Zero
Once your Outgo is the same as your Income, write a zero in the Zero box
at the bottom (E). You’re done!
66 Foundations in Personal Finance High School Edition
STUDENT BUDGET
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Start Here
To begin your journey toward financial success!
GIVING Budgeted
Charity $
Other: _____________________ $
GIVING TOTAL:
SAVING Budgeted
Emergency Fund $
College $
Car & Repairs $
Computer $
Other: _____________________ $
SAVING TOTAL:
FOOD Budgeted
Restaurants / Eating Out $
School Lunch / Snacks $
FOOD TOTAL:
CLOTHING Budgeted
Clothes $
Sports Jerseys / Apparel $
CLOTHING TOTAL:
$
$
$
$
TRANSPORTATION Budgeted
Gas $
Car Insurance $
Oil Changes $
License & Taxes $
TRANSPORTATION TOTAL:
PERSONAL Budgeted
Cosmetics / Hair Care $
Music / Technology $
Gifts $
Pocket Money $
Cell Phone $
Other: _____________________ $
PERSONAL TOTAL:
RECREATION Budgeted
Movies $
Concerts $
Sporting Events $
Other: _____________________ $
RECREATION TOTAL:
$
$
$
C
B
( + + + + + + )
$
Monthly Income
$
Monthly Outgo
– =
A D
$
E ZERO!
Chapter 3: Budgeting 67
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered and complete the “after” column of the Measure
Your Progress section.
Build On What You’ve Learned
Review Real Wealth Building Begins With Your Behavior in Section 1. Fill in the graphic organizer with the
seven wealth-building habits. Discuss with your classmates which things you are already doing well and
which habits you still need to work on.
Wealth-
Building Habits
2.
1.
3.
6.
5.
7.
4.
68 Foundations in Personal Finance High School Edition
RECAP & REVIEW
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Take Action Challenge
It’s time to practice budgeting using a variety of income levels. Go to foundationsU.com/budgetnow for
your Take Action Challenge.
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
»» Do a written budget every month!
»» Use the envelope system to help you stay on budget.
»» Commit to having good money-management habits.
Chapter 3: Budgeting 69
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Money in Review
a	Reconcile
b	Impulse Purchase
c	Cash Flow Statement
d	Budget
e	Zero-Based Budget
f Envelope System
g Carbon Check
h Overdraft
1. _____ A written cash flow plan
2. _____ The act of matching your bank
statement with your checkbook
3. _____ A cash flow plan that assigns an expense
to every dollar of your income, wherein
the total income minus the total
expenses equals zero
4. _____ An item that is bought without
previous planning or consideration
of the long-term effects
5. _____ Occurs when money is withdrawn
from a bank account and the available
balance goes below zero
6. _____ Series of envelopes that are divided
into categories (food, entertainment,
gas, etc.) and are used to store cash for
planned monthly expenses
7. _____ A summary that shows total income
and spending for a given time period
8. _____ A copy of each check you write
Matching
Match the following terms to the correct definition below.
Illustration
Draw a picture representation of each of the following terms.
Managed Money Overspending
70 Foundations in Personal Finance High School Edition
RECAP & REVIEW
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Multiple Choice
Circle the correct answer.
9. The number-one cause of divorce in North
America today is stress and disagreements
over money.
a	True
b	False
10. The envelope system works great for
managing spending on things that don’t
normally have a fixed monthly expense.
a	True
b	False
11. Which of the following is a consequence of
overdrawing your checking account?
a	Overdraft fee from your bank
b	Bounced check fee from the store
c	Stress from money mismanagement
d	All of the above
12. Doing a budget does not:
a	Make your money go further
b	Make overspending more likely
c	Show if you are overspending in an area
d	Remove guilt and shame sometimes
associated with purchases
13. Your monthly budget should include:
a	Fixed expenses
b	Variable expenses
c	Discretionary expenses
d	All of the above
Short Answer
Respond in the space provided.
14. What are the reasons cash flow plans
sometimes do not work?
15. Why is the zero-based budget the best
method of budgeting?
16. Explain why you should always have a cash
flow plan.
17. Describe the various payment options that
come with a checking account.
18. Why is it important to maintain a file of
both paper and electronic financial records?
Chapter 3: Budgeting 71
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What do other high
school students know
about debt?
We asked students why they think so
many people go into debt for things
like clothing and other purchases.
“Because they don’t think about
their bills coming up at the time
they are using their credit card.”
Senior, Nevada
“Because our whole society is
so consumed with material
things. People base their selfworth
on ‘stuff .’ ”
Junior, South Dakota
“We want everything now. We
don’t want to wait and save up
for things.”
Sophomore, Kentucky
“People go into debt because credit
card companies have made using
credit trendy. They even make the
credit cards look pretty.”
Senior, California
“People don’t keep track of
their money and are only
concerned with the now, not the
consequences later.”
Senior, Wisconsin
4
CHAPTER
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Debt
WE’VE ALL BEEN taught that we need to build
a good credit score and that debt is a financial
tool used to get the things we want. Sadly, as
you learned in Chapter 1, borrowing money
is so ingrained in our culture that we can’t
imagine life without it. The truth is, “building
a credit score” causes more harm than good.
And using debt as a “tool” displays impatience
and immaturity in money management. Debt
forces us to become slaves financially, and it
limits how we spend our money.
*Federal Reserve Survey of Consumer Finances
of undergraduate
students have a
credit card.*
76%
of undergraduate
students have
four or more
credit cards.*
48%
UNIT 2: CHAPTER 4
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Key Terms
Get to know the language of money.
»» Annual fee: A yearly fee that’s charged
by the credit card company for the
convenience of the credit card
»» Annual percentage rate (APR): Cost of
borrowing money on an annual basis;
takes into account the interest rate and
other related fees on a loan
»» Credit card: Type of card issued by a bank
that allows users to finance a purchase
»» Credit report: A detailed report of an
individual’s credit history
»» Credit score: A measure of an individual’s
credit risk; calculated from a credit report
using a standardized formula
»» Debt snowball: Preferred method of debt
repayment; includes a list of all debts
organized from smallest to largest balance;
minimum payments are made to all debts
except for the smallest, which is attacked
with the largest possible payments
»» Depreciation: A decrease or loss in value
»» Introductory rate: An interest rate
charged to a customer during the early
stages of a loan; the rate often goes up
after a specified period of time
»» Loan term: Time frame that a loan
agreement is in force, and before or at
the end of which the loan should either be
repaid or renegotiated for another term
»» Tax deduction: An expense, such as
a charitable contribution, that can be
deducted from one’s taxable income
* Note: You may also want to review the
following terms from Chapter 1: consumer,
credit, debt, interest and loan
Learning Outcomes
Once you’ve completed this chapter’s videos, you will be asked to
return to this list of learning outcomes and place a checkmark
next to the items you’ve mastered.
Section 1: Debt: Product, Not Privilege
…… Identify the costs of using various types of credit.
Section 2: Debunking the Credit Myths
…… Evaluate and refute the myths associated with debt.
…… Apply systematic decision making to identify the most
cost-effective option for purchasing a car.
…… Identify various types of mortgage loans and the most
cost-effective option for purchasing a home.
…… Evaluate ways that debt can negatively affect your
financial future and how to overcome personal debt.
Section 3: The Credit Score
…… Describe the elements of a credit score.
…… Understand how to obtain a credit report.
…… Explain how a credit score affects creditworthiness and
the cost of credit.
…… Explain the factors that affect a credit score.
…… Analyze a credit report, indicate the time that certain
negative data can be retained, and describe how to
dispute inaccurate entries.
Section 4: Credit Bureaus and Identity Theft
…… Identify organizations that maintain consumer credit records.
…… Summarize major consumer credit laws.
…… Develop a plan for protecting personal information.

Before You Begin
74 Foundations in Personal Finance High School Edition
INTRODUCTION
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Measure Your Progress
Before watching the video, read each statement below and mark whether you agree or disagree in the “Before”
column. Then, after watching the video, do it again using the “After” column to see if you changed your mind
on any statement.
JOURNAL QUESTION: INTRODUCTION
What have you heard about “building your credit score”?
Agree Disagree Agree Disagree
BEFORE AFTER
1. Co-signing a loan is a good way to help a friend
or relative.
2. Cash advance and title pawning are needed services
but should be used with caution.
3. The typical millionaire drives reliable used cars.
4. Leasing a car is a smart way to drive a newer car for
a lower monthly payment.
5. A new car is the largest purchase most consumers
make that goes down in value.
6. A home equity loan is a substitute for an emergency
fund and a good way to consolidate debt.
7. You need to have a credit card to rent a car or check
in to a hotel.
8. It is okay to use a credit card if you pay it off every month.
9. Teens are the number one target of credit card
companies today.
Chapter 4: Debt 75
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If you have a hard time
viewing debt as a product
that is sold and marketed,
maybe this will help: Total
2011 earnings for the entire
credit card industry were
$18.5 billion, which was
up from the $13.6 billion
earned in 2010.
BCS Alliance, Inc.
$
The Second Foundation is
Get Out of Debt. But don’t
stop there! Keep it up and
commit to living a debtfree
life!
+
When someone borrows
money from another, we
understand he or she has
an obligation to repay. A
study in the dictionary
will show you what this
really means. A definition
of obligation is “bound,”
which is defined as “tied; in
bonds: a bound prisoner.”
“The rich rule over the poor,
and the borrower is slave to
the lender” (Proverbs 22:7).
Don’t become a prisoner or
slave to debt!
+ 4 CHAPTER
Section 1:
Debt: Product, Not Privilege
WE LIVE IN A WORLD where it takes a
total national economic meltdown to
get most people’s attention about crazy
mortgages and stupid credit card debt!
If there’s one good thing that’s come
from the national economic mess of
2008 and beyond, it’s that some people
are finally getting the message: Debt
is dumb!
VIDEO 1.1
Debt Is Everywhere
»»Almost
1
% of Americans are living paycheck to
paycheck. A Reuters survey of 30,600 people found that
68% said it would be somewhat difficult or very difficult
if their paychecks were delayed for a week. The problem?
Overspending and way too much debt.
»»When it comes to debt, if you tell a lie or spread a
2
long enough, eventually it becomes accepted as the
3
. The truth is, debt is a product—the most
successfully marketed product in history.
THE SECOND FOUNDATION 2 Get Out of Debt
76 Foundations in Personal Finance High School Edition
SECTION 1
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Sadly, it is easier than ever
for 18-year-old college
students to get credit cards.
In response to the 2009
Credit Card Accountability,
Responsibility and
Disclosure (CARD) Act,
the credit card industry
has updated its marketing
techniques and incentives to
now include mailing credit
card offers to students and
offering promotional and
“tangible” gifts to prospective
collegiate customers. New
policies also allow students
to include student loans
as a component of the
income they cite to qualify
for credit cards.
Fox Business
$
»»The world wants us to believe that debt is a service or
reward that is offered to help consumers. This is simply
NOT true!
»»Debt has been
4
to us with such intensity
for so long that to imagine living without it requires a
complete
5
shift—a completely new way
of looking at things.
JOURNAL QUESTION: VIDEO 1.1
Explain how debt is actually a product that is bought and sold.
The Devastating Effects of Credit
In 2001, CBS’s 60 Minutes II correspondent Vicki
Mabrey reported on the devastating effects credit
card marketing had for one college student and his
mother. Sean Moyer was an 18-year-old National
Merit Scholar with future law school plans when
he headed off to the University of Texas in Dallas.
Even though he had always worked from the
time he was 16, Sean was naïve when it came to
credit cards. Like a lot of other freshmen, Sean
applied for and received his first credit card when
he got to college. Because of credit card debt,
Sean was forced to transfer to the University
of Oklahoma so he could live at home. By that
time, he was working two jobs making minimum
wage as a salesperson and gift wrapper for a
major department store. One day, his mother
knocked on Sean’s bedroom door but got no
answer. Upon entering, she found him dead;
he had hung himself in the closet. Sean Moyer
was 22 at the time with more than $14,000 of
credit card debt. His mother told 60 Minutes
II, “It just never occurred to me that you could
give a credit card to an 18-year-old making
minimum wage. When he died, he had 12 credit
cards.” In 2007, CNN ran a similar story about
credit card marketing on campuses and what
happened to Sean Moyer. They reported that
Sean’s mother still receives credit card offers
in the mail for her son, despite the fact that he
died in 1998.
Chapter 4: Debt 77
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NATIONAL DEBT: The
amount of money a country
owes. Yes, even the
government sometimes
spends money it does not
actually have. The U.S.
national debt now exceeds
$16 trillion! It is the highest
national debt in the world.
The U.S. owes about half of
that money to individuals,
companies and foreign
governments who have
bought bonds and other
investments from the
U.S. Treasury. If you have a
savings bond, then some of
that debt is owed to you!
Want to see the current
national debt? Go to
foundationsU.com/clock.
PERSONAL DEBT: The
amount of money an
individual person owes.
+
39% of incoming college
freshman already have a
credit card.
Federal Reserve Survey of
Consumer Finances
$
VIDEO 1.2
A Message From Dave
As a marketer, I have to
give the credit card
industry some credit.
They’ve done a great
job of marketing their
product. They’ve not
only gotten nearly every American
hooked on their goods, but they’ve
done it in a way that makes the
consumer feel special, accepted and
as though they’ve been done a favor.
It’s kind of scary how good a job
they’ve done, in fact.
Financial Myths Young Adults Fall For
»» The first one is the belief that you have to build
6
.
The credit industry wants you to believe this. Credit is
NOT necessary to survive. The truth is there is
7 good reason to go into debt.
»»The second myth is that you can spend money on
whatever you want while in
8
and pay for it
later when you’re making more
9
.
* REMEMBER: Taking on a lot of debt when you’re young will limit your options later in life.
»»The third myth is that you need a
10
car. You should
buy the car you can afford—with cash.
Don’t fall for these myths.
11
debt, save for
emergencies and large purchases, and learn to say no, even
when people around you won’t.
JOURNAL QUESTION: VIDEO 1.2
Explain what Dave means when he says, “The borrower is slave to the lender.”
78 Foundations in Personal Finance High School Edition
SECTIONS 1 & 2
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“Our greatgrandparents
thought
debt was a sin. Our
grandparents
thought debt was
dumb. Our parents
borrowed on a few
things. We borrow on
everything.”
DAVE RAMSEY
“
The average number of
credit cards per person
is 3.5.
Federal Reserve Survey of
Consumer Finances
$
Section 2:
Debunking the Credit Myths
A Message From Dave
We weren’t born to use debt. Our
country was not founded on easy
financing and 90-days-same-as-cash.
The great fortunes in the history of
America weren’t built on cash-back
bonuses and free airline miles. We’ve
been sold a bill of goods, and it’s a total
lie. If you tell a lie or spread a myth
often enough, loud enough and long
enough, eventually the myth becomes
accepted as truth. That’s where we are
with debt in America: trapped in the
myth that credit is a normal, healthy
part of life.
VIDEO 2.1
Money Myths
MYTH If I
12
money to a friend or relative, I will
be helping them.
TRUTH The relationship will be strained or
13
.
Which Credit Card Is Best?
“I’m going to college after I graduate and will need a credit card for various things,
such as internet access. Can you recommend one that’s better than the others?”
DAVE’S ANSWER: I never recommend using
credit cards. NEVER! You can pay for internet
access, make online purchases, and buy things
in a store with a debit card.
Using a debit card, which is connected to your
checking account, means you’re spending money
that’s actually yours. You’re not borrowing it from
some bank and then paying interest on it. If you
don’t have money in your account, you won’t be
making purchases. That’s the way it works, and
it’s the smartest thing you can do.
Credit cards are the quickest way I know to
become broke and stay broke for the rest of
your life!
Chapter 4: Debt 79
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SECURED LOANS and
UNSECURED LOANS
are the two types of loans
typically available to
borrowers.
An UNSECURED LOAN is
given to borrowers based
on their financial resources
or ability to repay the loan.
Nothing “secures” the loan.
In other words, the lender
does not have rights to a
specific asset if the loan is
not repaid. Personal loans,
student loans, and personal
lines of credit are examples
of unsecured loans.
A SECURED LOAN is
usually needed when
borrowing large amounts
of money. The loan is
“secured” with collateral. In
other words, if you default
on the loan and your house
was used as collateral,
the lender would take the
house. Secured loans
usually have lower interest
rates and longer repayment
terms. Automobile loans,
mortgages and home
equity loans are examples
of secured loans.
+
Money Myths (Continued)
MYTH By
14
a loan, I am helping out a
friend or relative.
TRUTH The bank requires a co-signer because the person
isn’t likely to
15
. Be ready to pay the loan and
have your credit damaged.
MYTH
16
, payday lending, rent-toown,
title pawning, and tote-the-note lots are needed
17
for lower income people to help them get ahead.
TRUTH These are horrible, greedy rip-offs that aren’t
needed and benefit no one but the owners of these
companies. They are what’s known as predatory lenders.
Predatory lenders are modern-day loan sharks who take
advantage of people and should be avoided at all costs. So
why is the industry still thriving? Because they offer fast
cash. But these are serious money traps. Here are reasons
you should stay away from this type of lender:
»» Payday loans are expensive. If a $100 payday loan costs you
$15 for 10 days, that’s an annual percentage rate of 400%.
»»You can get stuck in a repeat cycle. According to Center
for Responsible Lending Research, 76% of payday loans
are to pay off old payday loans.
80 Foundations in Personal Finance High School Edition
SECTION 2
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Have you ever loaned
someone money, only
to have it turn into a bad
experience?
“My friendship hasn’t been
the same since I loaned
a friend money and didn’t
get it back. I don’t trust him
anymore.”
Junior, Missouri
“A close friend of mine
bought a new car and
couldn’t afford the
payment. I loaned him
$300, then he left the state.
I couldn’t afford to take him
to court because of court
costs, so I dropped the
whole thing.”
Junior, Michigan
“I loaned $150 to a friend
who never returned it and
then claimed that I ‘gave’ it
to him.”
Senior, Missouri
“I loaned my mother more
than $2,000 to help pay for
my 19-year-old brother’s
car note and college fees.
She promised to pay me
back but it has been over
a year and a half and I
haven’t received one
payment from her. I will
never loan money again.”
Senior, Georgia
»»Debt grows fast at these rates. It’s not unusual to end up
owing 4–10 times the amount you originally borrowed.
»»Many of these companies have horrible reputations for
unethical debt collection practices.
Eighty percent of
18
in America are
first-generation rich. That means they started with
nothing, did smart stuff, and became millionaires. That’s
the opposite of what we’re talking about here.
MYTH The
19
and other forms of gambling
will make me
20
.
TRUTH The lottery is a
21
on the poor and on people
who can’t do math.
Texas Tech University did a study on the Texas Lottery and
found that, of those who play the lottery, people without a
high school diploma spent an average of $
22
a month
playing the lottery. College graduates spent $
23
a
month on average.
JOURNAL QUESTION: VIDEO 2.1
Explain why co-signing a loan is never a good idea.
Chapter 4: Debt 81
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DRIVE FREE. RETIRE RICH.
The Power of One Decision
Don’t make car payments
a way of life! What if we
decided that enough was
enough? What if we decided
to hang on to our money
instead of sending it all
to the bank in the form of
payments? What if we got
really radical and devised
a plan to make our money
work for us, instead of
letting it work for the bank?
In the Drive Free example,
the average car payment
was $475. Instead of
making those payments
to the bank or car dealer,
pay yourself instead. Then,
pay cash for your car. Do
it again and combine that
savings with the value of
your first car. That’s a major
upgrade in car without
owing the bank a dime!
Continue this plan and
start putting that $475 a
month into a good mutual
fund. The interest you’ll
earn on that mutual fund
will pay for your cars for
the rest of your life. That’s
free cars! That’s what
happens when your money
starts working for you!
+
VIDEO 2.2
The Truth About Car Loans
The Third Foundation is paying
cash for your car. We teach people
not to borrow money, period. But
there are a few more reasons to avoid
financing a new car. For instance,
when you purchase a new car, you
lose money. If you have a net worth
of $1 million, it’s not such a big deal.
But many people who buy new are
broke, living paycheck to paycheck.
And that’s why they have so much
money trouble.
MYTH
24
payments are a way of life, and you’ll
always have one.
TRUTH Staying away from car payments by driving reliable
used cars is what the typical
25
does. That
is how they became millionaires.
How many times have you heard or said, “I’ll always have
a car payment”? That’s the normal way of thinking. But
normal is broke. We want to be WEIRD! To get new results,
you have to try new things.
So think about this:
»»What if you decided to stop messing with car payments?
»»What if you invested that car payment every month
instead of giving it away to the bank?
»»What if we showed you a six-year plan that would put you
in free cars for the rest of your life?
»»What if that plan also made you a millionaire?
THE THIRD FOUNDATION 3 Pay Cash for Your Car
82 Foundations in Personal Finance High School Edition
SECTION 2
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“If you call my radio
show, struggling
to get out of debt,
you can almost
guarantee that the
first words out of my
mouth will be, ‘Sell
the car!’ If you want
to take control of
your money, you’ve
got to amputate
the out-of-control
lifestyle. For
most people, that
starts with the car
payment.”
DAVE RAMSEY
“
Three huge ways you lose when buying a new car:
1. Payments. Spreading the purchase of an automobile
over four or five years hinders your ability to pay off debt
or save money for that time.
2. Interest. Included in the payment, of course, are the
interest charges. That means you pay more than the
sticker price. It’s like buying a $20,000 vehicle for
$23,000.
3. Depreciation. This is the biggest one. If you purchase a
$20,000 car, it will be worth about $8,000 in four years.
That’s in addition to all the gasoline, maintenance and
other stuff. You could buy a $2,000 beater and get the
same use out of it for those same four years without
taking a $12,000 hit.
Save a few thousand dollars and buy a used vehicle with
cash (getting a discount by flashing the money), and you’ll
ride with a lot more peace of mind.
JOURNAL QUESTION: VIDEO 2.2
Explain how the “drive free” method of buying a car works.
Chapter 4: Debt 83
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The average new-car loan
now is at 65 months, a
term previously unheard
of. Even more distressing
is that financing for new
cars with terms from 73
months to 84 months—
that’s six- and seven-yearplus
notes—jumped 19.4%
in 2012. With these terms,
you’ll be upside down (owe
more than the car is worth)
almost as soon as you
drive off the lot!
The Wall Street Journal
$
A CAR LEASE is a longterm
rental agreement;
a form of secured longterm
debt.
+
“The rich ask, ‘How
much?’ Broke people
ask, ‘How much
down and how much
a month?’ If you can’t
pay cash, you can’t
afford it.”
DAVE RAMSEY
“
VIDEO 2.3
The Truth About Car Loans (Continued)
MYTH
26
your car is what sophisticated
financial people do. You should always lease things that go
down in value. There are tax advantages.
TRUTH Consumer Reports, Smart Money magazine and a
good calculator will tell you that the car
27
is the
most
28
way to finance and operate a vehicle.
If you own a business, you can
29
your paidfor
car on taxes without making payments for the privilege.
The way to
30
the money lost on things that
go down in value is to buy slightly
31
.
MYTH You can get a good deal on a
32
car.
TRUTH A new car loses
33
% of its value in the first
four years. This is the largest purchase most consumers
make that goes down in value.
JOURNAL QUESTION: VIDEO 2.3
Explain why leasing a car is a bad idea.
84 Foundations in Personal Finance High School Edition
SECTION 2
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WHAT DO FIXED AND
VARIABLE RATES MEAN?
With a fixed rate mortgage,
the interest rate is set
when you take out the
loan, and it will not change.
Therefore, your monthly
payments will never
change. Variable rate
mortgages (or adjustable
rate mortgages—ARM)
will start with a lower
rate. This initial rate may
stay the same for months
or years. But when this
“introductory period” is
over, your interest rate will
change and the amount of
your monthly payment will
likely go up.
+
VIDEO 2.4
Buying a House
MYTH I’ll take out a 30-year mortgage and pay
34
on it. I promise!
TRUTH Life happens and something else will always seem
more important. Never take out more than a
35
-year
fixed rate mortgage.
The ideal way to buy a house is the
100%-down plan—pay cash for the
whole house. Sounds weird, doesn’t
it? But think how much fun that would
be! No mortgage! No payments! If
paying cash for a house seems too far
out of reach, you can still buy a house
if you make wise choices. Save a down
payment of at least 10% on a 15-year
(or less) fixed rate mortgage, and limit
your monthly payment to 25% or less of
your monthly take-home pay. You can
probably qualify for a much larger loan
than what 25% of your take-home pay
will give you. But it’s not wise to spend
more on a house, because then you will
be what Dave calls “house poor.” Too
much of your income will be going out
in payments, and that will put strain
on the rest of your budget. You won’t
be able to save and pay cash for things
like furniture and cars.
15- or 30-Year Mortgage?
Let’s say you’re buying a home valued at $250,000 with a $25,000 down payment.
That would leave you with a mortgage amount of $225,000. Now let’s look at how
much you’ll pay if you choose a 15- or a 30-year repayment plan.
$500,000 »
$400,000 »
$300,000 »
$200,000 »
$100,000 »
TOTAL COST OF MORTGAGE
@ $1,899 / Month
15-YEAR PAYBACK:
$341,762
@ $1,349 / Month
30-YEAR PAYBACK:
$485,636
$485,636 – $341,762 = $143,874!
Choosing the 15-year mortgage saved you
$143,874 and it’s done in half the time!
30-Year Mortgage 15-Year Mortgage
Chapter 4: Debt 85
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MORTGAGE OPTIONS
TO AVOID
ADJUSTABLE RATE
MORTGAGES (ARMs):
An ARM is a mortgage
with an interest rate that
changes based on market
conditions. The intention
is to transfer the risk of
higher interest rates to you
and, in return, the lender
gives a lower rate up front.
Since they can qualify
for more home, many
people find this mortgage
appealing; however, as
many homeowners
learned in the economic
downturn, if your rate
adjusts higher or you lose
your job, your payment can
quickly become too much
for you to afford.
REVERSE MORTGAGES:
A reverse mortgage
is when a homeowner
borrows against the
equity in their home and
obtains monthly, tax-free
payments from the lender.
This mortgage is a bad idea
because you are putting
a paid-for home at risk,
and the fees are horrible.
In fact, the FTC claims
that reverse mortgages
have the most fraud in the
mortgage business.
+
Home Buying Tips
Get your finances in order. The first thing you should do
is make sure you are financially ready to buy a house. In
other words, you need to be debt-free with a fully funded
emergency fund.
Be certain you can afford a new home by asking
these questions:
1. Can I make at least a 10% (preferably 20%)
down payment?
2. Can I afford a 15-year fixed rate loan?
3. Can I keep the house payments at or below 25% of my
monthly take-home pay?
If you answered yes to all three questions, then you can
afford a house. You should also be debt-free with a full
emergency fund left over after closing. Otherwise, Dave
strongly suggests you wait to buy a home.
JOURNAL QUESTION: VIDEO 2.4
Explain why it is better to take out a 15-year mortgage instead of a
30-year mortgage.
86 Foundations in Personal Finance High School Edition
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“The only man who
sticks closer to you
in adversity than a
friend is a creditor.”
UNKNOWN
“
“Never spend your
money before you
have it.”
THOMAS JEFFERSON
American founding father
“
Researchers studying the
neurological impact of big
purchases hooked up an
MRI to participants and
watched their brainwave
activity. They found that
when people spend cash,
it neurologically registers
as pain.
Carnegie Mellon Magazine
$
Credit cards are moving
away from a magnetic
swipe and moving toward
chips in the cards. It’s
called RFID technology,
and all you have to do when
you use your credit card is
wave it.
+
VIDEO 2.5
Credit Cards
MYTH You need a
36
to rent a car or
make a purchase online or by phone.
TRUTH A
37
card does all of that. The only thing
you can’t do with a debit card that you can do with a credit
card is go into debt!
MYTH I pay my
38
off every month
with no annual payment or fee. I get brownie points, air
miles and a free hat.
TRUTH When you use cash instead of plastic, you spend
39
% less because spending cash hurts.
MYTH I’ll make sure my
40
gets a credit
card so he or she can learn to be responsible with money.
TRUTH Teens are a huge
41
of credit card
companies today. The reason is that the adult market is saturated.
Also, researchers have discovered that there is a strong brand
loyalty to your first credit card. Therefore, credit card
companies are competing to have their card be your first card.
JOURNAL QUESTION: VIDEO 2.5
Explain the difference between a credit card and a debit card.
Chapter 4: Debt 87
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“Rather go to bed
supperless than rise
in debt.”
BENJAMIN FRANKLIN
Author, inventor and
political theorist
“
Before McDonald’s chose
to accept credit cards, the
average ticket price was
$4.75. When they went to
credit cards, the average
ticket price went to $7.
That’s a 47% increase!
Nightline, ABC
$
VIDEO 2.6
Debt vs. Wealth-Building
MYTH Debt is a
42
. It should be used to
create prosperity.
TRUTH The
43
is slave to the lender.
When surveyed, the Forbes 400 were asked, “What is the
most important key to building wealth?”
44
% replied
that becoming and staying
45
-free was the numberone
key to wealth building.
That’s because your largest wealth-building tool is your
income. When you don’t have any payments, you have money.
What About Credit Card Rewards?
“My credit card has no annual fee, and I get money back from the credit card
company for all of my charges. I only use it for bills and I pay it off every month,
so I’m getting money from the credit card company for using their credit card.
What’s wrong with that?”
DAVE’S ANSWER: I’ve been doing financial
counseling for decades, and I’ve worked with
tens of thousands of people. During that time I’ve
repeatedly met folks who were doing exactly what
you are doing, and it has come back to bite them.
When you’re talking about credit cards, you’re
talking about a multibillion-dollar industry
designed to do just one thing—separate you from
your money. And they’re really good at it! They’re
more than willing to pay you a percentage point
back because they know you’re going to stumble
at some point—
and that’s when they pounce!
I’ve talked with hundreds of millionaires, and
I’ve never met one who said they got rich thanks
to credit card rebates. They’ve all just gone
about the business of earning money, living
on less than they make, and saving. They don’t
play with snakes because they know, sooner or
later, they’ll get bitten.
88 Foundations in Personal Finance High School Edition
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Borrowing money and failing
to pay it back has some
serious consequences. Here
are some terms commonly
used when dealing with debt
problems that have gone
too far. This is lingo you don’t
want to experience firsthand.
FORECLOSURE: Process
by which the holder of
a mortgage sells the
property of a homeowner
who has not made interest
and/or principal payments
on time as stipulated in the
mortgage contract
REPOSSESSION:
Process of a lender taking
something back (like a
car) for failure to make
payments
BANKRUPTCY: A legal
procedure for dealing with
debt when an individual
or business cannot repay
what they owe
GARNISHMENT: A courtordered
attachment that
allows a lender to take
monies owed directly from
a borrower’s paycheck;
only allowed as part of a
court judgment
SURRENDER OF
COLLATERAL: In a
bankruptcy proceeding, a
debtor can give up property
(collateral) to the creditor in
exchange for a clean slate.
DELINQUENCY: Broadly
refers to a borrower not
being current on his or her
payments
+
Steps Out of Debt
1. Quit borrowing more money!
2. You must save money.
3. Sell something.
4. Get a part-time job or work overtime (temporarily).
5. Use the debt snowball method.
Debt Snowball: List your debts in order from smallest
to largest. Pay minimum payments on all your debts
except for the smallest one, and attack that one with
intensity! Every extra dollar you can get your hands on
should be thrown at the smallest debt until it is gone.
Then you attack the second one. Every time you pay off
a debt, you add its old minimum payment to your next
debt payment. So as the snowball rolls over, it picks up
more snow. Get it?
* REMEMBER: Even if your other loans have higher interest rates, you should still start with your
smallest one first. That way you experience quick wins and build momentum along the way!
JOURNAL QUESTION: VIDEO 2.6
Which credit myths did you believe prior to hearing this lesson?
Explain why each of those are myths and not facts.
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WHAT DOES FICO
STAND FOR?
FICO stands for Fair Isaac
Corporation, the company
that created and computes
this credit score. Although
other companies also
compute credit scores,
FICO is the most trusted
and most used score.
+
The total number of
card holders in the U.S.
is 176.8 million.
Federal Reserve Survey of
Consumer Finances
$ Section 3: The Credit Score
VIDEO 3.1
What Your Credit Score Really Measures
MYTH You need to take out a credit card or car loan to
“build up your
46
.”
TRUTH The
47
score is an “I love
48
” score
and is not a measure of winning financially. In fact, it can often
mean the opposite. If you were to inherit $10 million
tomorrow, it would have NO effect on your credit score!
Some people seem to believe that the
credit score is almost as important as
oxygen and water. Most of that stems
from the fact that we’ve been beaten
over the head with the importance
of the credit score since we first
learned the difference between a
$10 bill and a $5 bill. But it’s simply
not true. Can you really live without
a credit score? Absolutely—and it’s
actually easier than you’d think. It
just takes some foresight, planning
and maybe a little patience.
Type of Debt
Debt History
Debt Levels
Duration of
the Debt
New Debt
The Five Components of the FICO Score
Don’t be fooled into thinking a FICO score measures how well you handle money.
Take a look at its five components below.
The only thing
measured
here is debt! 10%
10%
15%
35% 30%
90 Foundations in Personal Finance High School Edition
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There are a lot of
companies that measure
credit, but two major
credit scoring systems are
FICO and VantageScore
(which the three credit
bureaus jointly created).
FICO ranges from 300 to
850, and VantageScore
ranges from 501 to 990.
Remember, a credit score
measures the risk of your
not repaying debt; it is not
a measure of financial
success.
+
The average college
undergrad is carrying
about $2,169 in credit card
debt. Graduate students
carry an average of $8,162
in credit card debt.
Investopedia.com
$
CREDIT BUREAUS are
also commonly referred
to as consumer reporting
agencies or credit
reporting agencies.
+
No Credit Score? No Problem!
4. How do I rent an apartment? Most apartments will
work with you if you can provide first and last month’s
rent as well as a security deposit. Get a rental history
referral from your previous landlord. If it’s your first time
renting, you might have to look around for a little while.
But you’ll be able to find someone to work with you.
5. How do I take out a mortgage? If you don’t have a
credit score, you should focus on one thing—making sure
you have a large down payment. If you’ve never gone into
debt, that shouldn’t be too difficult, right? Without a credit
score, the down payment, as well as your job and how long
you’ve been employed in that line of work, are big factors.
You’ll also want an outstanding history of rental and
utility payments. Look for a mortgage company that uses
a process called manual underwriting, sometimes called
“non-traditional credit” or “no credit score” lending.
6. What if an employer wants to see my credit score
during the interview process? This is a growing trend,
but it mainly affects people in the financial industry—
banks, mortgage brokers, investment companies and so
on. Again, the key here is to learn their process up front
and explain why you don’t have a credit score if they ask
you about it.
JOURNAL QUESTION: VIDEO 3.1
What does a credit score measure?
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In a recent survey, one in
four teens didn’t know the
difference between a debit
card and a credit card.
MSN Money
$
VARIOUS FORMS OF
CREDIT REPAYMENT
Note: We recommend that
you NEVER borrow money.
Period.
Installment: This is credit
that you use to borrow
money and promise to
repay in equal amounts
over a specific period
of time.
Revolving Credit: This
is credit in which a
pre-established amount
of money is borrowed
repeatedly as long as the
account is in good standing.
Layaway: An agreement
in which the seller
reserves an item for a
buyer until the buyer pays
for the item in full
+
Section 4:
Credit Bureaus and Identity Theft
What Is a Credit Bureau?
»»A credit bureau is an agency that researches and collects
individual credit information and sells it for a fee to
creditors so they can make a decision on granting loans.
Typical clients include banks, mortgage lenders, credit
card companies and other financing companies.
»»Individual account information is removed from your
credit report seven years after the last activity on the
account, except for Chapter 7 bankruptcy, which stays on
for 10 years.
»»Beware of credit clean-up scams. The only information
that may be legally removed from a credit report is
inaccurate information.
»»The three main credit bureaus are: Experian,
TransUnion and Equifax.
Correcting Credit Report Inaccuracies
A recent study by the Federal Trade Commission questions
the reliability of the credit reporting industry. It is believed
that as many as 40 million Americans have a mistake on
their credit report. Twenty million have significant mistakes.
* REMEMBER: You should check your credit report annually. You can do this for free
at foundationsU.com/report.
92 Foundations in Personal Finance High School Edition
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The 2013 Identity Fraud
Report released by Javelin
Strategy and Research
states that in 2012 identity
fraud incidents increased
by more than 1 million
victims. Fraudsters stole
more than $21 billion, the
highest amount since 2009.
$
VIDEO 4.1
Identity Theft
Identity theft is the fastest growing -
49
crime in North America today.
Warning signs that you may have had your identity stolen:
»» Checks disappear from
your checkbook.
»» Your credit report shows
accounts you didn’t open.
»» A collection agency calls about a
debt you didn’t incur.
»» Bank and billing statements don’t
arrive on time.
»» You receive a bill from a credit
account you didn’t open.
»» Unauthorized charges appear on
your cell phone or bank accounts.
»» You are turned down for a loan,
mortgage or other form of credit
because of unauthorized debts on
your credit report.
What you should do if you think you are a victim:
»»Obtain a copy of your credit report and look for any
suspicious activity.
»»Place a -
50
alert on your credit bureau
report (stays on for 90 days without a police report).
»» If your purse or wallet is stolen, cancel all cards
immediately and get replacements. Also put a “stop
payment” on all lost or stolen cards.
»»File a
51
report and keep a copy of the report
for your personal records.
»»Report any suspicious charges and accounts to the
appropriate credit issuers and credit bureaus immediately
via the phone and in writing. Cancel the accounts.
Chapter 4: Debt 93
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CREDIT COUNSELING
Companies that offer
consumer credit
counseling services can
help you get better interest
rates and lower payments,
but at a price. When you use
one of these companies
and then try to get a home
mortgage loan, you will
be treated the same as if
you had filed Chapter 13
bankruptcy.
Real debt help is found only
in changing your behavior.
In short, debt management
companies are out. Hard
work is in. Change your
financial behavior and
change your life—for good.
True debt management
is about one thing: you
controlling your money.
+
HOME EQUITY LOAN
A home equity loan means
borrowing money against
your house. Like any other
debt, home equity loans
are a bad idea. They often
come with higher, variable
interest rates and if there
comes a time when you
can’t make the payments,
you risk losing your home!
+
Identity Theft (Continued)
»»Remember, this is
52
. You owe
53
and should pay nothing.
»»Contact the fraud-victim division of the three main credit
reporting companies and furnish
54
.
»» Be persistent. This will take some time. You now have a
new
55
.
Obviously, you’re never too young to be careful with
your personal information. Here are some tips to protect
yourself from identity theft:
»» Use a paper shredder and
destroy credit card offers and
other documents with your
personal information.
»» Check your credit report annually.
Many people don’t even know that
their identity has been stolen.
Bottom line, you can’t fix the
problem if you’re not aware of it.
»» Never print your Social Security
number or driver’s license
number on your checks.
»» Sign the back of your debit
card and write “PHOTO ID
REQUIRED.”
»» Create strong passwords
using a combination of letters,
characters and numbers.
»» Keep passwords and personal
information confidential.
»» Purchase identity theft
protection.
Consumer Credit Laws
The U.S. Congress enacted the Fair Credit Reporting Act
(FCRA) in 1970. The FCRA was intended to address concerns
over consumer credit report accuracy, privacy and fairness.
»»Accuracy: Prior to the FCRA, consumers were unable to
challenge errors in their credit reports. The FCRA gives
consumers the right to review the contents of their credit
report file and dispute inaccurate information.
94 Foundations in Personal Finance High School Edition
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THE FEDERAL TRADE
COMMISSION (FTC) is
one of many U.S. federal
agencies that regulate the
consumer credit system
and enforce the laws
related to it.
+
Budget
Builder
Do you already have
debt in the form of credit
cards or a car loan? Go to
foundationsU.com/4 to
learn how to tackle debt
with your budget.
The total number of credit
cards in use in the U.S. is
1.5 billion.
Federal Reserve Survey of
Consumer Finances
$
»»Privacy: To protect consumers’ privacy, the FCRA
requires that a person or organization have a
“permissible purpose” (or legitimate need) for checking a
person’s credit information.
»»Fairness: The FCRA grants consumers the right to
know if a decision to deny them credit or other adverse
action against them was based on information in a credit
report file. Creditors must notify consumers if they deny
credit based on a credit report file, and they must also tell
the consumer which of the three credit bureaus provided
the report. The act also allows consumers to receive one
free credit report per year.
* NOTE: There are several other credit laws of which you should be aware. Please refer to the
glossary under “credit laws” for more information.
JOURNAL QUESTION: VIDEO 4.1
Explain why the credit industry wants you to believe that you need a
credit score.
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Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered and complete the “after” column of the Measure
Your Progress section.
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
»» The Second Foundation: Get Out of Debt
»» The Third Foundation: Pay Cash for Your Car
»» The FICO score is an “I love debt” score!
96 Foundations in Personal Finance High School Edition
RECAP & REVIEW
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Take Action Challenge
We’ve told you that it is important to check your credit report every year, even if you don’t use credit. So why
not do it now? It’s easy and it’s free. You can get a free copy from each of the three credit agencies—
TransUnion, Experian and Equifax—once a year. Go to foundationsU.com/report to get started.
* NOTE: The vast majority of teens ages 14–18 do not have a credit file. Ideally, you will receive a simple rejection message from
AnnualCreditReport.com. However, if there is a credit file and it is full of errors, you’ll need to work on clearing them up. Contact all
three credit bureaus and consider putting a freeze on your credit.
Build On What You’ve Learned
You’ve learned that there are many myths in our culture when it comes to the use of credit. Review the chapter
and select five credit myths that were most surprising to you. Fill in both the myth and truth for each of
them in the graphic organizer below.
CREDIT MYTHS CREDIT TRUTHS
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
Chapter 4: Debt 97
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Money in Review
a Credit Report
b Loan Term
c Depreciation
d Credit Score
e Debt Snowball
f Annual Percentage Rate
g Credit Card
h Annual Fee
1. _____ Cost of borrowing money on an annual
basis; takes into account the interest
rate and other related fees on a loan
2. _____ A decrease or loss in value
3. _____ A detailed report of an individual’s
credit history
4. _____ Time frame that a loan agreement is
in force, and before or at the end of
which the loan should either be repaid
or renegotiated for another term
5. _____ Type of card issued by a bank that allows
users to finance a purchase
6. _____ A measure of an individual’s credit risk;
calculated from a credit report using a
standardized formula
7. _____ A yearly fee that’s charged by the credit
card company for the convenience of the
credit card
8. _____ Preferred method of debt repayment;
includes a list of all debts organized from
smallest to largest balance; minimum
payments are made to all debts except
for the smallest, which is attacked with
the largest possible payments
Matching
Match the following terms to the correct definition below.
Illustration
Draw a picture representation of each of the following terms.
Debt Debt Free
98 Foundations in Personal Finance High School Edition
RECAP & REVIEW
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Multiple Choice
Circle the correct answer.
9. You must establish credit in order to buy
a house.
a True
b False
10. If you are a victim of identity theft, you
are only responsible for paying back half
of the debt.
a True
b False
11. Which of the following is not a factor in
determining a FICO score?
a Paying cash for all purchases
b Getting a personal loan from a bank
c Using credit cards
d Taking out a mortgage on a house
12. Which of the following is not a good idea for
getting out of debt?
a Quit borrowing money
b Get a part-time job or work overtime
c Borrow money from your parents to pay
off the debt
d Sell something
13. Which of the following things cannot be
done with a debit card but can be done with
a credit card?
a Rent a car
b Purchase something online
c Go into debt
d Purchase an airline ticket
Short Answer
Respond in the space provided.
14. Why is an adjustable rate mortgage (ARM) a
bad idea?
15. Explain why financing a car is a bad idea.
16. Describe the negative consequences of
taking on debt. What effect can debt have on
your future?
17. What are some things you can do to protect
your personal information?
18. Explain how the debt snowball works.
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How are other
students planning for
life after high school?
We asked students what education and
career plans they have after graduation.
“I plan on going to business school
and starting my own company.”
Senior, Washington
“I plan to go to college for four or more
years and find a job that pays well.
I don’t know what yet, to be honest.”
Junior, Michigan
“I want to go to college and become a
dental assistant or a school teacher.”
Junior, Utah
“I am going to culinary arts school.”
Sophomore, Arizona
5
CHAPTER
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Life After
High School
ONCE YOU GRADUATE from high school,
a world filled with endless opportunities is set
before you. While it’s exciting, it can also
be difficult to navigate. Aside from choosing a
career, you’ll need to select an education path
that will help you achieve your individual
career goals. These choices will greatly affect
your financial well-being after college. As a
young adult, you will have a marketing target
on your back. Credit cards and student loans
might seem like an enticing solution when
money is tight, but you must be prepared to
avoid these financial hazards by having a plan.
*Education Insider
of college-bound
students have never
discussed college
funding with their
parents.*
35%
of college-bound
students have not
projected the total
amount of money
they will need to
graduate college.*
80%
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Key Terms
Get to know the language of money.
»» Free Application for Federal Student
Aid (FAFSA): A form that is completed
annually by current and prospective
college students to determine their
eligibility for financial aid
»» Grant: A form of federal or state
financial aid that does not need to be
repaid; usually given to students who
demonstrate financial need
»» Scholarship: A form of financial aid
that does not need to be repaid; usually
awarded on the basis of academic,
athletic or other achievements
»» Work study: A program that allows
students to work part time while
continuing their studies
Learning Outcomes
Once you’ve completed this chapter’s videos, you will be asked to
return to this list of learning outcomes and place a checkmark
next to the items you’ve mastered.
Section 1: Beware and Be Wise
…… Understand the long-term impact of student loans.
Section 2: Start With the End in Mind
…… Identify reasons for not taking on debt to fund
your education.
Section 3: Cash-Flow Your College Education
…… Develop a plan to attend college without acquiring debt.
…… Demonstrate how to apply for financial aid.
Section 4: Education Options for the 21st Century
…… Identify the educational requirements, training and cost
for your career of choice.
…… Analyze post-high school education and career
training options.

Before You Begin
102 Foundations in Personal Finance High School Edition
INTRODUCTION
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Measure Your Progress
Before watching the video, read each statement below and mark whether you agree or disagree in the “Before”
column. Then, after watching the video, do it again using the “After” column to see if you changed your mind
on any statement.
JOURNAL QUESTION: INTRODUCTION
Not every career requires a four-year degree. Have you researched the education requirements
for your career of choice? If so, what education options do you have? If not, research the education
requirements for your career choice(s) and write them below.
1. I have a good idea as to what college I want to attend after
graduation, and cost was a major factor in that decision.
2. I believe that it is possible to go to college debt free.
3. Everyone uses student loans to attend college. I don’t
see any reason I should be different.
4. I have considered technical school and other 21stcentury
educational options for my career of choice.
5. I have discussed with my parents how we plan to
cover the expense of my college education.
Agree Disagree Agree Disagree
BEFORE AFTER
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There is roughly $1 trillion
in total outstanding
student loan debt in the
United States today.
Consumer Finance Protection
Bureau
$
Nearly 20 million
Americans attend college
each year. Of that 20
million, close to 12 million—
or 60%—borrow annually
to help cover costs.
The Chronicle of Higher Education
$ 5 CHAPTER
Section 1: Beware and Be Wise
VIDEO 1.1
Considering all your career and
education options after high school
can be overwhelming. After all, some
of your decisions may open doors to
endless opportunities while others
may have long-term consequences.
The good news is, planning ahead for
your career and education will help you
find those opportunities. And learning
about the dangers of student loans and
credit cards will allow you to avoid
those long-term consequences of a few
bad decisions. Bottom line, you’ve got
to beware and be wise.
Wise People Invest in Themselves
Before anything else and throughout your whole life, the best
investment you can make is in yourself! Here are some ways
you can invest in yourself.
»»Charlie “Tremendous” Jones said, “Five years from
now you will be exactly the same person you are today
except for the
1
you read and the
2
you meet.”
»»First, you have got to
3
. Leaders are readers!
»» Reality TV and video games are great
4
,
but they’re just entertainment.
104 Foundations in Personal Finance High School Edition
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The average student
loan debt has now
surpassed $27,000 for an
undergraduate degree.
The Project on Student Debt
»» The average $
5
reads one nonfiction book
a month!
»»Your net
6
as an adult will be the average of the
five people you hang out with the most.
»»The people you put in your life influence your career,
your
7
and how you spend your money.
»»Have some
8
who have already had
some success.
JOURNAL QUESTION: VIDEO 1.1
What is your plan for after high school graduation?
“This debt has ruined relationships.”
“My name is Andrea, and I currently have $112,623 in debt. The short version of
my story is simply that I used student loans for my entire education, which is
how I earned a bachelor’s degree in Early Childhood Education. I’m currently a
preschool teacher’s assistant, and I only make $24,000 a year. As a result, I have
a second job and work about 80 hours a week, every single week. The majority of
‘my’ student loan debt is a ‘stupid tax,’ because I co-signed on a student loan for
an ex-boyfriend. I constantly tell my friends to work hard and save to pay cash
for everything they buy. A few of them have listened, but I pray that no one else
has to endure what I’m going through. This debt has ruined relationships, and
there are many days that I can’t quite picture the end.”
* DISCUSS: If Andrea could do college over again, what things might she choose to do differently? Why?
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During the last 20 years,
tuition has increased
at a faster rate than any
other major product or
service— four times faster
than overall inflation. After
adjusting for financial aid,
the amount families pay for
college has skyrocketed
439% since 1982.
CNN Money
$
“Do more than is
required. What
is the distance
between someone
who achieves their
goals consistently
and those who
spend their lives
and careers merely
following? The extra
mile.”
GARY RYAN BLAIR
Motivational speaker
and author
“
VIDEO 1.2
Beware of the Student Loan Myth
Not all careers require the same type
of post-secondary education. We are
going to show you how to come up with
the most cost-effective education plan
for your career of choice. If a four-year
college is the best education option for
you, we want to show you how to do it
without student loans. Believing that
student loans are a “good debt” because
they are a path to getting an education
is a myth. You can get your education
without becoming a slave to debt.
»»Our culture thinks student loan debt is okay—it seems
totally
9
. Some people even call it “good debt.”
»»When you receive your financial aid award package for
college, you’ll see a list of all different types of awards
like
10
and grants.
* BE AWARE: Student loans will be listed in your financial aid award package as well.
»»A student
11
is NOT an award! It will take years to
pay it back, plus you’ll have to pay interest.
»»
12
is owing anything to anyone for
13
reason.
»»There is no such thing as a “good debt.”
»»The total estimated student loan debt in our country is
one
14
dollars.
»»Millions of people can’t afford to make their student loan
15
every month.
THE FOURTH FOUNDATION 4 Pay Cash for College
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Studies show that 30% of
student loan borrowers
drop out of school, and
then have to find a way
to pay back their student
loans on a high school
graduate’s salary.
Washington Post
$
Debt Free
It might be tough to turn down what
society considers “good debt” and
find other ways to pay for college.
But is it worth the extra work? Yes!
If you make the sacrifice and effort
right now, you’ll keep yourself from
digging a hole you’ll have to start
climbing out of the moment you
receive your college degree. How
will you do it? By the end of this
chapter, you’ll have more options
than you can even imagine to get a
great college education completely
debt free.
A Message From Dave
Pi ling up student
loans throughout your
college career is like
keeping a monster
locked in your closet.
Every semester, that
beast gets bigger and meaner and
nastier. Then six months after you
graduate, whether you have a job or
not, that monster busts out and starts
wrecking your life! All of a sudden
you have to make every decision
based on tackling that mountain of
debt you neglected for four years. It
controls where you live, what you do,
and what kind of job you can take.
That’s definitely not a good way to
start your career!
That’s why we want to teach you how
to get through college debt free. You’ll
learn about career education and
training options, grants, scholarships,
work programs, and how to “shop” for
a college that’s within your budget.
I know college is a lot of hard work,
and I know it can be a lot of fun. I want
you to have plenty of both. But I don’t
want you to end up with a four-year
degree with 40 years of payments on
it! Do whatever it takes to stay out of
debt—whether it’s student loans or
credit cards. Then when you graduate,
you’ll really have a world of options
because you won’t be worried about the
time bomb of student loan payments
waiting for you six months later!
JOURNAL QUESTION: VIDEO 1.2
Why might people refer to student loans as “good debt”?
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Two-thirds of college
students graduate with
student loans.
CNN Money
$
Debt is normal. Be weird!
+
Section 2:
Start With the End in Mind
VIDEO 2.1: THERE ARE NO FILL-INS IN THIS SECTION.
So you’ve decided that you will
continue your education at a four-year
college. How do you plan to pay for it?
If student loans are part of your plan,
you may want to rethink that. Listen to
the stories in this chapter and decide
how you really want to begin your
post-college life.
You can start making decisions right
now that will allow you to avoid the
mounds of debt that so many young
adults begin their life with. One of
those choices is to cash-flow (pay as
you go) your college education.
Many people believe it’s impossible
to go to college without taking out
a loan. They’ll say things like, “The
economy is down,” or “Tuition is
so expensive,” or “I have no other
options.” Everyone takes out loans,
so it’s not a big deal, right? We hear
it all the time. It’s easy to think that
because it’s what we see all around us
in our culture. In fact, almost 70% of
college students graduate with debt!
But just because it’s easy to sign those
student loan notes doesn’t mean it’s
the only way. And it definitely doesn’t
mean it’s the best way.
“I regret going to college when and how I did.”
“I regret going to college when and how I did. I didn’t know how a credit card
worked when I started college at 17. I was told I would get a fantastic job and
wouldn’t have to worry about those loans. I graduated a year ago, have the
same jobs I had during college, and am deferring most of my $40,000 of loans
because I can’t pay the bills. I am desperate to be a stay-at-home mom, and
I can’t because of my loans. I worked the entire time I went to college, but all
of my money went toward my living expenses and a car, so I was not able to
put any toward tuition.”
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“It’s not hard to
decide what you
want your life to be
about. What’s hard
is figuring out what
you’re willing to give
up in order to do the
things you really
care about.”
Bittersweet: Thoughts on
Change, Grace, and Learning
the Hard Way
“
About 41% of borrowers
fall behind on their student
loan payments in the first
five years.
nytimes.com
$
Don’t Steal From Your Future
Take a look at some of these statistics:
»»The total estimated student loan debt outstanding is
more than $1 trillion.
»»Of the total outstanding student loan debt,
approximately $85 billion is past due.
»»The percentage of student loan borrowers who paid
on time without postponing payments or becoming
delinquent? A mere 37%. In other words, 63% of
borrowers had a hard time paying back their loans.
»»Nearly 30% of student loan borrowers wind up dropping
out of school, and more than 50% of borrowers at twoyear
for-profit colleges never finish.
Think about it: You don’t want to steal all of your
future possibilities from yourself by going into debt
to get your degree.
JOURNAL QUESTION: VIDEO 2.1
Imagine if your reality at age 24 was that you were $70,000 in
debt but your income was only $30,000. Write down some words
describing how you might feel.
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CASE STUDIES
Chris O. “I planned for
college ahead of time by
joining the military, saving
for years before I got out,
and getting three wellpaid
internships. When
I finished school, I had
money in the bank and no
college debt.”
Beth H. “We have twins
who just finished their
freshman year in college.
During their senior year of
high school, every other
Sunday afternoon we
spent two hours at the
kitchen table researching
scholarships and applying.
One son received $13,000
this way, the other about
$5,000 (but his school is
less expensive). When
they went to college, they
thought it would be okay to
get loans. After meeting
kids who are financing
college completely with
loans, they were glad
we insisted on working
on scholarships. My
best advice is to do
everything early and make
scholarship hunting a parttime
job. It will work.”
Section 3:
Cash-Flow Your College Education
VIDEO 3.1
What does it mean to cash-flow your college education?
To “cash-flow” simply means to pay with cash as you go,
instead of using credit or debt.
Plan Ahead
»»You need a
16
! Start now. Get help from your
parents and school counselor along the way.
»»Planning for college involves more than just ACT scores
and college applications. You must understand how much
it is going to cost (that includes tuition, books and living
expenses) and know how you are going to pay for it.
Get Good Grades
»»One thing you can do
17
is get good grades.
»»Good grades do more than just get you into the school
and career you want. They also help you get free money!
Yes, scholarships go to those who earn them.
»»Making good grades and scoring well on the ACT or SAT
will set you apart from the crowd.
»»How would you like to get paid to be a high school student?
Well, the fact is your hard work now can turn into money
later. Think about it.
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While 96% of college
students are determined
to finish college, only 46%
feel they have the financial
resources to stay in school.
Study by Noel-Levitz
$
CASE STUDIES
Kayla O. “I’m going to
finish college with an RN
degree and zero debt by
attending a community
college. I pay $4,000 a year,
while other people I know
are going to the university
up the road and spending
$20,000 a year for the
same education. In the
end, we have to take the
same national test to be
an RN, so why not keep the
$16,000?”
Shop Around
»» It’s a good idea to
18
your choices down to
six schools or less. During this process, consider each
school’s degree programs, living expenses and tuition.
»»Keep in mind that
19
doesn’t
always mean
20
. Your future
happiness, success and income will have very little to
do with the prestige or name recognition of the college
you attend.
»»Attending a community college for your first two years is
a great way to knock out your freshman and sophomore
years at a low cost. If you plan to continue your education
after your two-year degree, work closely with your
advisor to make sure the classes you take are going to
21
to your four-year university of choice.
»»Consider attending a state school instead of a private or
out-of-state school, which will have much higher tuition.
You must “shop” for the best price for your education in
the same way you comparison shop on any large
purchase. Don’t be sold on prestige!
JOURNAL QUESTION: VIDEO 3.1
Has money affected your decision on whether or not to attend college?
Why or why not?
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IS THERE A SCHOLARSHIP
OUT THERE FOR ME?
Scholarships aren’t just
for the highest scorers on
the ACT or SAT. Schools
and foundations have
broadened their criteria
to include community
involvement, after-school
work and financial status
in addition to the traditional
athletics and diversity
scholarships. Don’t
avoid the scholarship
applications requiring
essays. They can be a
good way to improve your
writing skills while earning
scholarships. Here are
some additional resources
to look into:
1. Explore your state’s
website.
2. Many businesses
have scholarships for
employees’ children.
Ask your parents to
check at their place of
employment.
3. Explore the federal
government’s website at
studentaid.ed.gov.
4. Check out the big
college organizations
for information
(collegeboard.org,
petersons.com).
+
VIDEO 3.2
Applying for Financial Aid
In order to make the most of
22 college, you’ve got to focus on the specifics like filling out
your financial paperwork, researching scholarships, and
finding part-time work opportunities.
Fill Out the FAFSA Form
»» The
23
(Free Application for Federal Student Aid)
is the first step to receiving any kind of financial aid.
Whether you are interested in scholarships, grants, loans
or other financial aids, you’ll need to submit this form.
»»The FAFSA form needs to be completed each year
you are in college. The sooner you turn in the form (by
January or February), the more likely you are to get
financial help because some federal
24
is
awarded on a first-come,
25
-served basis.
»»Remember, student loans are bad news. Make sure you
ask that the student loans be
26
from
your funding.
»»You’ll need your family’s tax information as you complete
the FAFSA. Keep in mind, if you turn it in online, the
process moves faster.
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The average cost of tuition
and fees for the 2012–2013
school year was:
• $29,056 at private
universities
• $8,655 for in-state
residents at public
universities
• $21,706 for out-of-state
residents attending
public universities (outof-
state tuition)
To find out the average cost
of tuition for this year, go to
foundationsU.com.
$
Explore Grants
»»
27
are golden.
»»Federal and state governments offer grants that are
usually need-based. The FAFSA will determine which
grants you qualify for. Examples include the Federal
28
and state-specific grants.
»»Grants are free
29
!
Research Scholarships
»»Another form of free money is
30
.
»»You should never pay to apply for scholarships.
And do not give out your Social Security number
when you apply.
Where to Find Scholarships
While merit-based scholarships are the most
popular, there are countless other types available.
If you have a unique talent or skill set, there is a
good chance of finding an award that’s just right for
you. With a little research, you’ll be amazed at both
the variety and availability of these scholarships.
Here are some types of scholarships:
»» University scholarships for academics,
athletics, clubs, etc.
»» Community scholarships like the Boys and
Girls Club or Rotary Club
»» Local business scholarships exist to promote
their organization
»» Private donors might include relatives or other
individuals
»» Student-specific scholarships exist for almost
every characteristic you can think of
»» Unique scholarships for a variety of hobbies,
talents and interests
Talk to your guidance counselor and search
online to see what award opportunities are
out there for you. Don’t be put off by a small
award. Every dollar adds up, and there is no
limit to the number of scholarships for which
you can apply.
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Eight out of every 10
students who drop out
of college say financial
trouble was the main
reason.
Attrition Study at Idaho
State University
$
“If you live like no one
else, later you can
live like no one else!”
DAVE RAMSEY
“
CASE STUDY
William M. worked full
time on the second shift
for a company that offered
tuition reimbursement.
“Burning the candle at
both ends was the hardest
thing I’ve ever done, but
it was worth it when I
finished summa cum
laude,” he said.
+
Applying for Financial Aid (Continued)
When to Visit the Financial Aid Office
»» If you get stuck at any point in the process, just stop by
your college’s
31
office.
»» If your financial situation has changed, a parent has been
laid off, or a medical situation has come up, it’s important
to visit the financial aid office. Your financial aid can be
re-evaluated and possibly increased.
»»Talk to a financial aid officer as soon as an emergency
arises. They will offer you advice, encouragement or help.
Research Work Opportunities
Get a part-time job.
»»Research shows that students who work up to
32
hours a week have the highest grade point averages of any
type of student in college because they often develop good
time-management skills.
»»Research also shows that working more than 20 hours a
week may affect your grades negatively.
Work on or off campus.
»»You can find jobs
33
that offer flexible
schedules for students in a variety of roles. These jobs
usually pay more than work study.
»»On-campus jobs may pay you directly or pay toward your
tuition bill.
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More than 78% of
freshmen plan to work
during their college years.
National Freshman
Attitudes Report
$
THINGS TO CONSIDER
The smartest investment
you can make is in yourself.
As a young adult, you
should have two goals:
continue your education
and stay out of debt.
+
»»Usually the school provides hourly positions that pay
minimum wage; the good news is you can often study as
you work. Check with the financial aid office to see what
jobs are offered.
Make Sure You Have an Emergency Fund
»» The First Foundation is to establish an emergency fund
of $500. Since you are taking this course in high school,
you should already have your emergency fund in place by
the time you graduate.
* REMEMBER: In spite of what society teaches us, credit cards are NOT emergency funds!
»»As you work in the summer and save money for your
school bill, set aside a separate amount in an emergency
fund. If something bad happens during school, you will
have some funds to fix the problem so you don’t have to
drop out of school.
Average Student Loan Balance: 2005–2012
Student loan debt is the only form of consumer debt that has grown since the peak of
consumer debt in 2008. Balances of student loans have exceeded both auto loans and credit
cards, making student loan debt the largest form of consumer debt outside of mortgages.
« $22,500
« $17,500
« $12,500
« $7,500
« $2,500
« $25,000
« $20,000
« $15,000
« $10,000
« $5,000
2005
2007
2009
2006
2008
2010
2012
2011
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CASE STUDY
Jacquelyn H.’s college
roommates thought she
was crazy because she
worked three jobs and
lived on just a few hours
of sleep. “It sure kept me
out of trouble though!”
she said. Her five years
of work experience
gave her an edge when
she graduated, and she
landed a management job
right away.
+
Live on a Zero–Based Budget
Now is a good time to review the basics of budgeting.
»»Make sure you do a monthly budget. Having a zero-based
budget is a great way to manage your money and live on
less than you make.
»» In order to live on less than you make, you’ve got to
decide ahead of time how much you’ll spend, save and
give each month. Then, stick to it!
1. Spending. Break it down into categories, like food, gas,
etc.—and make sure you keep your spending in check.
2. Saving. It’s never too early to start saving, whether it’s
for a new car, next semester’s tuition or a video game.
3. Giving. Make it a priority to help other people. Give to
your church or an organization that shares your beliefs.
Avoid Student Loans
»»Remember, you have two goals:
1. Stay in school.
2. Stay out of debt.
»»Avoid student loans! The average repayment period for
a student loan is 10 years if you make the minimum
payment each month. You will pay more interest if you
go beyond 10 years.
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THINGS TO CONSIDER
Living off campus can
cost a lot of money! You’ll
probably be excited to be
out on your own when you
begin college. But think
about the savings if you
just put that off for a year
or two. You might be wise
to reconsider that dorm or
apartment.
+
Consider Attending a School Close to Home
»»Attending a community college or state university that
allows you to live at home is a great option for reducing
the cost of living expenses, even if it is only for your first
two years of school.
» Collegedata.com reported that the average cost of room
and board in 2012–2013 ranged from $9,205 at four-year
public schools to $10,462 at private schools.
Your Determination Will Pay Off
So there it is. When it comes to college (and life in general),
debt is not the answer. You have countless options when it
comes to getting a great college education completely debt
free! It might mean working hard and planning ahead. But
when you’re out of college and you actually get to keep your
paycheck instead of sending it all to student loan debt, you
will be so glad you did.
The choices you make in the next few years will affect the
next 40 years of your life. You’ll have much more freedom
to pursue your dreams and do exactly what you want to do.
Now that’s a great way to begin your future!
JOURNAL QUESTION: VIDEO 3.2
What money-saving options will you consider in order to cash-flow
your college education?
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“Education is the
most powerful
weapon which you
can use to change the
world.”
NELSON MANDELA
Revolutionary and politician
“ Section 4:
Education Options for the 21st Century
VIDEO 4.1
Be a Lifelong Learner
Many students and their parents
believe that a four-year college degree
is necessary to compete in the job
market. College is not for everyone,
and it is possible to build a career
without investing in an expensive
college education. Twenty-firstcentury
education comes in many
forms. Remember, however, that even
if a traditional four-year college isn’t
for you, it is still important to invest
in yourself. Learning is a necessary
lifelong venture regardless of your
career choice or specific educational
needs. If you do your research, you can
be sure you’re deciding on a career
path that ref lects your passions
as well as your financial goals. It’s
important to assess what your
interests are, how you like to learn,
and what motivates you. For example,
do you like to build things, sit behind
a computer, or interact with people?
Once you’ve decided on a career,
here are some college alternatives
to consider.
Trade School
Trade schools allow students to learn basic
34
in two years or less
because technical schools typically cut out many of the
general courses required by traditional universities. Also,
since trade schools are often directly tied into the
employment needs of their region or state, prospective
employers often seek new hires from trade school
graduates.
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Certifications
Students who are looking to learn specific skills can look
into free or low-cost
35
found online,
at community colleges, or through governmentfunded
programs.
Self-Education
Start reading books, blogs and trade magazines in your
field of choice. Attend conferences and local events. Meet
people and find a mentor. You may also want to attend
online courses specific to your field.
On-the-Job Training
- -
36
training is just that. You, the
employee, train at the place of work while you are doing
the actual job. Usually a professional trainer serves as the
course instructor and uses a combination of hands-on
activities and formal classroom training.
Associate’s Degree
An associate’s
37
is a two-year degree that can
offer a variety of benefits including lower cost than fouryear
colleges, specialized training and a flexible schedule
that allows you to work while you earn your degree.
Whether it is your first step toward earning a bachelor’s
degree or the beginning of your career, an associate’s
degree may be a great option. Career fields such as fashion
design, nursing, cardiovascular technology and criminal
justice are offered at the associate’s level.
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Budget
Builder
Cash-flowing your
post-high school
education will take
some planning. Go to
foundationsU.com/5 to
build it into your budget!
“I have never let my
schooling interfere
with my education.”
MARK TWAIN
American author
“
Starting a Business
Maybe you’d like to
38
your own business. While
there is always risk involved, if you have passion and an
entrepreneurial spirit, it might be right for you. Be sure
to create a solid business plan and establish financial
resources first. Stick with a debt-free plan. Remember to
be enthusiastic about your venture. Many people who don’t
necessarily make “good” traditional students make the best
entrepreneurs because of their passion and people skills.
Be prepared to work hard and know that there will be some
bumps in the road.
Military
The military isn’t for everyone, but it has helped a lot of
people get through college debt free while giving them the
honor of serving their country.
Remember, post-secondary education is not a one-size-fitsall
plan. With so many options, you have the opportunity to
create your own educational experience that allows you to
follow your passions and meet your goals.
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CASE STUDIES
Anthony K. began working
toward a U.S. military
academy appointment
when he was a freshman
in high school. He attended
the U.S. Naval Academy,
receiving a $250,000
education for free.
Kate J.’s husband attended
college paid for by the Air
Force while they scrimped
to pay for books. He
worked part time and was
even deployed to Iraq, but
he graduated in five years
with a 4.0 grade point
average. He now has his
dream job—USAF pilot.
+
A Message From Rachel
We’ve talked a ton
about going to college,
but some of you might
feel like college isn’t for
you—and that’s okay.
There are alternatives
to getting a four-year degree, many of
which result in great career options.
Before making a firm decision to pass
up college, though, I’d like to encourage
you to do two things: ask yourself why,
and make sure you have a solid plan for
your future.
Ask yourself why you don’t feel like
college is right for you—and be honest
when you answer. Don’t lie to yourself,
okay? It may help to talk through your
reasons with a parent or adult that you
trust. You might find that you’re just
like the rest of us—a little scared of the
unknown. You know, “What will the
first day be like?” or “What if I can’t
make the grades?” Those worries are
normal—and most of them will be old
news by the second week of school.
But maybe you’ll discover college
really isn’t for you. That’s when you
need a plan. Just like other areas of
life, most successful careers aren’t
stumbled upon. They’re built with
a plan. And no, a solid plan doesn’t
include living in your parents’
basement until you meet a lovely
lady who will take over cooking and
cleaning duties from your mom. It just
doesn’t work that way, guys!
Everyone is different—and thank
goodness, right? It’s totally okay if
your life after high school doesn’t
look the same as your friends’.
What’s not okay is settling because
of uncertainties. If you’re willing
to put in the work, then you’ve got
what it takes to conquer your fears
and reach your dreams. Don’t let
anything hold you back from reaching
your potential and pursuing a career
that you love!
JOURNAL QUESTION: VIDEO 4.1
Think about what careers you might be interested in pursuing. What
type of education or training will you need to enter that field?
Chapter 5: Life After High School 121
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Chapter Summary
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
»» The Fourth Foundation: Pay Cash for College
»» Not all careers require four-year degrees.
»» Begin planning now!
Build On What You’ve Learned
Review: Securing Financial Aid
Write what you know about each of the following components of a financial aid package.
Grants:
Scholarships:
Work Study:
Loans:
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered, and complete the “after” column of the Measure
Your Progress section.
122 Foundations in Personal Finance High School Edition
RECAP & REVIEW
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Take Action Challenge
If you don’t know the educational requirements for your specific career choice, take this opportunity to research
the information. Fill in this graphic organizer with the information you gather. If you are undecided among
several career options, be sure to research the educational requirements and the cost of each career program.
NEXT STEPS:
…… Community college
…… 4-year college
…… Trade school
…… Certification
…… Self-education
…… On-the-job training
…… Start a business
…… Military
OPTION
1
COST:
$
TIME:
NEXT STEPS:
…… Community college
…… 4-year college
…… Trade school
…… Certification
…… Self-education
…… On-the-job training
…… Start a business
…… Military
OPTION
2
COST:
$
TIME:
NEXT STEPS:
…… Community college
…… 4-year college
…… Trade school
…… Certification
…… Self-education
…… On-the-job training
…… Start a business
…… Military
OPTION
3
COST:
$
TIME:
START YOUR CAREER DEBT FREE!
AFTER HIGH SCHOOL
I want to be a:
Other options
I’m considering:
I’ll prepare for this position
with one of the following educational options:
Chapter 5: Life After High School 123
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Money in Review
a FAFSA
b Work Study
c Grant
d “Good Debt”
e Scholarships
f Associate’s Degree
g Mentorship
h Trade School
1. _____ A developmental partnership through
which one person shares knowledge,
skills and perspective to foster the
personal and professional growth of
someone else
2. _____ A form of federal or state financial aid
that does not need to be repaid
3. _____ A program that allows students to work
part time while continuing their studies
4. _____ An undergraduate academic degree
awarded by colleges upon completion of
a course of study lasting two years
5. _____ A form that is completed annually by
current and prospective college students to
determine their eligibility for financial aid
6. _____ A money myth that portrays student
loans as the only financial option
when it comes to funding one’s college
education
7. _____ A merit-based form of financial aid
that does not need to be repaid; usually
offered on the basis of academic, athletic
or other achievements
8. _____ A type of higher learning school that
focuses on job skill training for specific
career fields rather than academics in
liberal arts
Matching
Match the following terms to the correct definition below.
Illustration
Draw a picture representation of each of the following terms.
Student Loans Financial Peace
124 Foundations in Personal Finance High School Edition
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Multiple Choice
Circle the correct answer.
9. Our culture thinks student loan debt is
normal and that it’s an acceptable way to
pay for college.
a True
b False
10. A four-year degree is necessary regardless
of what career you’re pursuing.
a True
b False
11. The total estimated student loan debt
outstanding (unpaid) in the U.S.
a $1 billion
b $1 trillion
c $10,000
d $7 trillion
12. Which of the following is not a good option
when it comes to paying for your education?
a Get a part-time job
b Plan ahead
c Ask your parents to take out a loan
d Fill out the FAFSA
13. Which of the following are ways that you
can invest in yourself?
a Find a mentor
b Read books
c Surround yourself with people who have
similar goals and ambitions as you
d All of the above
Short Answer
Respond in the space provided.
14. Explain how you can get an education debt
free after high school.
15. Based on what you’ve learned, do you
believe it is realistic to graduate debt free?
Why or why not?
16. Write down three reasons why you should
avoid student loans.
17. Select one of the student stories in this
chapter (section 1 or 2) and describe the
effect student loan debt had on that
person’s life.
18. What excites you the most about life after
high school?
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What do other high
school students know
about consumer
awareness?
We asked other high school students
to share their favorite television
commercials.
“I like the Super Bowl commercials.
They show how much competition
there is between companies.”
Senior, Utah
“I like the mayhem commercials
the best.”
Junior, Missouri
“My favorite is the ‘Is it better to be
faster or slower’ commercial.”
Junior, Tennessee
“I like the commercials with
the baby talking about online
investing.”
Senior, North Carolina
“I like the one where they ask the
little kids questions and they come
up with funny answers.”
Sophomore, Alabama
6
CHAPTER
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Consumer
Awareness
MARKETING IS POWERFUL! Think about
it—almost every single purchase you’ve made
started with advertising. But be careful. As
you learned in Chapter 4, debt is also marketed
to you. Some salespeople don’t want you to
think about the product’s total cost; they want
you to think in terms of how much down and
how much a month. Buyer beware!
*Marketingvox, Rand Youth Poll, Seventeen, Packaged Facts
of teens say they are
currently saving.*
40%
of teens have placed
an order online
in the past three
months.*
26%
UNIT 2: CHAPTER 6
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Key Terms
Get to know the language of money.
»» Branding: The promotion of a product
or service by identifying it with distinct
characteristics (usually associated
with public perception, quality or
effectiveness)
»» Brand recognition/awareness: Refers
to the public’s ability to recall and
recognize a brand by its logo, jingles,
packaging, etc.
»» Buyer’s remorse: Feeling regret or
concern after making a large purchase
»» Caveat emptor: Latin term for
“buyer beware”
»» Financing: To buy an item with credit;
paying over time
»» Marketing: The process of
communicating the value of a product
or service to customers
»» Opportunity cost: Refers to the financial
opportunity that is given up because
you choose to do something else with
your money
»» Significant purchase: An amount of
money you spend, usually $300, that
causes some pain to part with
Learning Outcomes
Once you’ve completed this chapter’s videos, you will be asked to
return to this list of learning outcomes and place a checkmark
next to the items you’ve mastered.
Section 1: Buyer Beware
…… Identify ways companies compete for your money.
…… Be familiar with marketing strategies that encourage
people to go into debt or finance large purchases.
…… Evaluate how peer pressure can affect spending decisions.
…… Summarize factors that influence consumer decisions.
Section 2: Buyer’s Remorse
…… List five steps you should take before making
a major purchase.
Section 3: Opportunity Cost
…… Evaluate the role opportunity cost plays
in purchasing decisions.
…… Describe the effect of inflation on buying power.

Before You Begin
128 Foundations in Personal Finance High School Edition
INTRODUCTION
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Measure Your Progress
Before watching the video, read each statement and select what you believe to be the correct answer.
Then, after watching the video, return to this activity and correct your answers if necessary.
JOURNAL QUESTION: INTRODUCTION
How does advertising affect your buying decisions?
1. What percentage of “90-days-same-as-cash” purchases are not paid in 90 days and
convert to payments?
25% 50% 75% more than 75%
2. The average cost of a 30-second television advertisement during the 2013 Super Bowl was:
$1 million $2 million $3 million $4 million
3. The average American was exposed to almost 560 advertisements daily in 1971. Today
that number is closer to:
1,500 2,500 3,000 more than 5,000
4. A Harvard University study found that for every hour of television you watch each week,
your yearly spending increases by an average of:
$50 $100 $200 $500
5. The fashion category accounts for about percent of teen spending.
10 25 40 75
BEFORE & AFTER
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WHY ARE WE SO
MARKETED TO?
The U.S. is the most
capitalistic country in the
world. Capitalism is an
economic system based
on a free market, profit
motive, open competition
and private ownership of
the means of production.
This market is driven by
the economic law of supply
and demand. Companies
promote consumer demand
by marketing their products.
+
TEEN SPENDING HABITS
AT A GLANCE
• 55–60% of teens say
their parents contribute
more than half of their
spending dollars.
• The fashion category
accounts for roughly
40% of teen budgets.
• Approximately 79% of
females and 76% of
males shop online, and
respondents indicated
that roughly 18% of their
spending is online.
2013 Taking Stock With Teens
Survey, Piper Jaffray Companies
$
6 CHAPTER
Section 1: Buyer Beware
VIDEO 1.1
The Most Marketed-to Culture in History
WE LIVE IN THE MOST marketed-to
culture in the history of the world! If
you are going to have financial peace,
you are going to have to develop a
resistance to that marketing. It’s not
that buying things is bad. But buying
too many things, with money you
don’t have, to impress people you don’t
really like—that’s a bad idea.
»» “Caveat emptor” means
1
.
»»We’re not saying that you can’t have a good time with
your money. Remember, we want you to
2
like no
one else so later you can live like no one else.
»»We want to sacrifice to win and then we want to
3
the winning. There’s nothing wrong with
buying a good product.
130 Foundations in Personal Finance High School Edition
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“He who buys what he
does not need steals
from himself.”
UNKNOWN
“
The Super Bowl is known
almost more for its
commercials than for the
football game. The average
cost of a 30-second
television spot during the
2013 Super Bowl was $4
million. These ads were
viewed in roughly 53.3
million households.
USA Today
$
»» A good salesman has a servant’s heart, knows how to
sell, and is professional—all of which can make the whole
process pretty
4
.
»»Companies use every angle to aggressively compete for
our
5
.
»»Companies that are not sophisticated and aggressive
in their marketing or do not have a marketing budget
generally do not stay open.
»»Competition is
6
for the consumer dollar.
JOURNAL QUESTION: VIDEO 1.1
Why is it important for consumers to be aware of marketing tactics?
What’s Wrong With Financing a Purchase?
“What’s wrong with buying things on 12-months-same-as-cash?”
DAVE’S ANSWER: It’s a stupid idea. First off, if I
buy the item with cash, I’ll get a better deal. Plus,
if you play with snakes, you’ll get bitten. If they
record your payment wrong and it’s late, they’ll
backcharge you through the entire term of the
deal at about 24–38% interest. You’ll spend the
next year and a half cleaning up this mess. It
actually happened with one of our clients here. If
you can’t save up and pay for the item with cash,
you can’t afford to buy it!
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For every hour of television
per week you watch, you
spend an average of $200
extra a year.
Harvard University
$
THE ECONOMIC LAW OF
SUPPLY AND DEMAND
The theory that, in a free
market economy, prices
are determined by the
interaction of supply and
demand; an increase in
supply will lower prices
if not accompanied
by increased demand,
and an increase in
demand will raise prices
unless accompanied by
increased supply.
+
VIDEO 1.2
Four Common Marketing Tactics
When you turn on the TV, listen
to the radio, surf the web, or walk
into the mall, you are stepping into
battle—a battle for your dollars.
Today, companies use every angle
imaginable to aggressively compete
for your money. The purpose of
advertising is to inform, tease and
persuade consumers to purchase
products.
When you’re aware of these techniques, you are more
7
as consumers. Here are four common marketing strategies:
1. One of the techniques is
8
selling. People
who know how to sell spend thousands of dollars and
hours sitting in a classroom learning how to talk to
you—to serve you, to
9
you in your decision to
buy their stuff.
2. The second technique is
10
. They use money
and easy payments as a marketing tool. They don’t want
you to think about how much something actually costs,
rather how much down and how much per month.
I Want to Buy Something, But Can I Afford it?
How do you know when you can afford something?
When you have the cash to pay for it! Here are
two common financing plans you should avoid:
90-Days-Same-As-Cash
If you pay within 90 days, there are no finance
fees. But if you pay late, you will be charged
interest for the entire 90 days. What if you
have good intentions of paying it off before
the 90 days is up? On average, about 80%
of customers do not pay it off in 90 days.
Life happens. The best intentions are often
interrupted by life.
Zero Percent Interest
Look out for the 0% interest trap on car loans! The
truth is that 0% financing is nothing more than a
really good marketing tool. It has worked so well
for the auto industry that other types of retailers,
particularly in furniture and electronics, have
adopted this method of marketing. In reality,
less than one third of all consumers qualify
for 0% financing. For the other two thirds, well,
they’ve got you where they want you: in the store
and wanting to buy. For those that do qualify for
0%, sellers often make up for the lost finance
charges by increasing the price of the product.
132 Foundations in Personal Finance High School Edition
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Have you ever wanted
to know what was really
important to someone?
Look at their checkbook
entries. Are they spending
a lot on “stuff” like
entertainment, clothes,
friends, etc.? People spend
their money on things most
meaningful to their heart.
“For where your treasure
is”—the money you spend
or save—“there your heart
will be also” (Matthew 6:21).
+
25% of Christmas
shoppers will still be
paying off the bills come
next Christmas! The
average consumer takes at
least six months to pay off
holiday bills.
The Wall Street Journal
If a $1,200 purchase is
charged on a credit card at
17% interest and only the
minimum payments are
made, it will take almost
20 years to pay it off and
will cost an additional
$2,076 in interest, bringing
the total cost of that $1,200
purchase to $3, 276!
The Wall Street Journal
$
VIDEO 1.3
Four Common Marketing Tactics (Continued)
3. Other media like TV, radio and internet use
11
to sell products. How does repetition
work? In advertising, repetition means repeated
exposure. Over time, repeated messages become familiar
and accepted as true. Companies behind the ads are
willing to pay for such repetition because it works!
4. When it comes to marketing they also use product
12
.
Types of Product Positioning
»»Brand Recognition: When marketing causes you to
position a product in your mind to be associated with
a certain
13
.
JOURNAL QUESTION: VIDEO 1.2
What are some of your favorite brands (soft drink, clothing, etc.)?
Why do you like them?
JOURNAL QUESTION: VIDEO 1.3
Describe one way advertising has played a role in something
you’ve purchased.
Chapter 6: Consumer Awareness 133
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Teens have cited “friends”
as the strongest influence
over their purchase
decisions for the duration
of our survey history, but
“internet” is quickly rising
in profile. Approximately
53% of females and 52%
of males indicate that
social media impacts their
purchases, with Facebook
being the most important,
followed closely by Twitter
and Instagram. But the
popularity of Facebook is
waning among teens, with
33% citing it as the most
important, down from 42%
six months ago.
2013 Taking Stock With Teens
Survey, Piper Jaffray Companies
$
The average consumer
mentions specific brands
over 90 times per week in
conversations with friends,
family and coworkers.
Word of Mouth Marketing
Association
Consumer reviews are
significantly more trusted—
nearly 12 times more—
than descriptions that
come from manufacturers.
eMarketer
+
VIDEO 1.4
Types of Product Positioning (Continued)
»»Color: Color
14
when you’re doing
product positioning. Color has an impact on consumer
reaction to a product.
»»Shelf Positioning: Companies pay for prime shelf
position in stores. It’s a
15
shelf position.
It is meant to influence impulse buying.
»»Packaging: The
16
, the look and the feel of
the package are all meant to have an impact on you.
There’s no reason to be paranoid. But marketers are very
sophisticated—so we should at least
17
.
JOURNAL QUESTION: VIDEO 1.4
Have you ever bought something you thought would make you happy,
but in the end it didn’t?
134 Foundations in Personal Finance High School Edition
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The average U.S.
household has 52 unused
items around the house
worth a total of $3,100.
eBay/Nielsen Survey
$
Describe a money goal
that you currently have.
“Saving up enough to buy a
nice used car.”
Sophomore, Kansas
“Saving $20 per week.”
Junior, Washington
“I’m trying to save up $800
for a new set of tires.”
Senior, Massachusetts
“My current money goal is
to pay off my car and save
more money for college.”
Junior, Pennsylvania
Section 2: Buyer’s Remorse
VIDEO 2.1
Significant Purchases
Your body goes through physiological
changes when you make a significant
purchase. You sweat. Your eyes dilate.
Your pulse rate changes. Proteins and
endorphins are released.
»» A “significant purchase” is normally anything over $
18
.
»»Buyer’s
19
is when you wake up the next day
and regret your purchase.
»»We all have that spoiled, grocery store kid living inside of
us. His name is
20
.
»»When it comes to spending, adults devise a
21
and
22
it.
»»When it comes to big purchases, the right way to do it is
to
23
and pay cash.
JOURNAL QUESTION: VIDEO 2.1
Can you think of anything in your home that was bought but never or
rarely used?
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“Many a man thinks
he is buying pleasure,
when he is really
selling himself to it.”
BENJAMIN FRANKLIN
Author, inventor and
political theorist
“
Budget
Builder
Thinking about making
a significant purchase?
You’ll need to save up
for that! Go to
foundationsU.com/6
to add a sinking fund
to your budget.
OPPORTUNITY COST
The true cost of something
in terms of what you have
to give up to get the item;
the benefits you would
have received by taking the
other action.
+
Section 3: Opportunity Cost
VIDEO 3.1
Develop Power Over Purchase
Because it’s always easy to spend more than you make, you
must develop
24
over
25
. It doesn’t
matter how much money you make. If you have a spending
plan and power over purchase, you can win with money.
Having power over purchase involves following these steps:
1. Wait
26
before making a purchase. Take
the time to consider whether it is a need or a want. And
make sure you’ve budgeted for it!
2. Consider your buying
27
. No amount of
stuff equals
28
or fulfillment. People
sometimes get
29
and
30
confused.
You buy fun, but you can’t buy happiness. Happiness is
where you are right now. Claim it for yourself!
3. Never buy anything you do not
31
.
Particularly financial products like insurance
or investments.
4. Consider the “
32
cost” of your money—
which means that money spent here cannot be spent there.
Whenever you make a choice, you must pass up other
opportunities. Take your time and make the right decision.
5. Seek wise
33
. Young adults who are not yet
married should find an accountability partner—someone
with whom you can discuss big purchases. Once you are
married, you should seek the counsel of your spouse.
136 Foundations in Personal Finance High School Edition
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“A budget tells us
what we can’t afford,
but it doesn’t keep us
from buying it.”
WILLIAM FEATHER
American publisher
and author
“
If you follow these steps, you will limit your spending and
make purchases that you’re proud of—and you will have
financial peace.
* NOTE: You’ll learn more about investing and retirement planning in Chapter 8.
JOURNAL QUESTION: VIDEO 3.1
Explain why it is important to develop power over purchase.
How Does Inflation Affect Your Buying Power?
INFLATION can be described as the persistent
increase in the cost of goods and services or the
persistent decline in the buying power of money.
Regardless of how you describe it, inflation
basically means your dollars buy less than they
used to. You must consider inflation when planning
for future expenses, especially retirement. So
what should you do?
1. Pay attention to the long-term rate of inflation.
This can make inflation trends more predictable.
2. Be sure to consider inflation in your investment
planning.
3. Factor a realistic inflation expectation into
your financial planning. For instance, what
might you expect your cost of living to be by
the time you retire?
1913–
1919
1970–
1979
1940–
1949
2000–
2009
1920–
1929
1980–
1989
1950–
1959
2010–
2012
1930–
1939
1990–
1999
1960–
1969
10.0% »
6.0% »
2.0% »
-2.0% »
8.0% »
4.0% »
0.0% »
9.8%
5.5%
2.0% 2.3%
5.5%
3.0%
2.6% 2.3%
1913–
2012
-0.1% -2.1%
12.0% »
Average Annual Inflation by Decade
7.1%
3.2%
Long -Term Average
Chapter 6: Consumer Awareness 137
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Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter and place a
checkmark next to the learning outcomes you’ve mastered. Review the Measure Your Progress section and
correct your answers if necessary.
Build On What You’ve Learned
Describe three instances where peer pressure has influenced your decision about a purchase.
ITEM/EVENT:
PEER PRESSURE:
1
ITEM/EVENT:
PEER PRESSURE:
3
ITEM/EVENT:
PEER PRESSURE:
2
3 Times Peer Pressure Influenced Your Purchasing Decision
138 Foundations in Personal Finance High School Edition
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Take Action Challenge
Imagine that you inherited $5,000. Come up with three things that you could do with the money. Then
describe the opportunity cost of each choice.
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
»» Don’t buy things with money you don’t have.
»» Develop power over purchase.
»» Consider the opportunity cost of your purchases.
$5,000!
inherited
Now what are you
going to do with
the money?
You
USE $5,000 FOR:
OPPORTUNITY COST:
USE $5,000 FOR:
OPPORTUNITY COST:
USE $5,000 FOR:
OPPORTUNITY COST:
1
OPTION
2
OPTION
3
OPTION
Chapter 6: Consumer Awareness 139
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Money in Review
a Opportunity Cost
b Significant Purchase
c Branding
d Buyer’s Remorse
e Financing
f Caveat Emptor
g Marketing
h Brand Recognition
1. _____ To buy an item with credit; paying
over time
2. _____ The promotion of a product or
service by identifying it with distinct
characteristics (usually associated
with public perception, quality or
effectiveness)
3. _____ Latin term for “buyer beware”
4. _____ An amount of money you spend, usually
$300, that causes some pain to part with
5. _____ Refers to the financial opportunity that
is given up because you choose to do
something else with your money
6. _____ Feeling regret or concern after making a
large purchase
7. _____ Refers to the public’s ability to recall
and recognize a brand by its logo, jingles,
packaging, etc.
8. _____ The process of communicating
the value of a product or service to
customers
Matching
Match the following terms to the correct definition below.
Illustration
Draw a picture representation of each of the following terms.
Inflation Power Over Purchase
140 Foundations in Personal Finance High School Edition
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Multiple Choice
Circle the correct answer.
9. As a consumer, you should consider inflation
in your investment and retirement planning.
a True
b False
10. If you don’t have cash on hand, financing a
significant purchase is a good option.
a True
b False
11. Which of the following is not a need?
a Food
b Housing
c Eating out
d Utilities
12. The purpose of advertising is to:
a Inform the consumer
b Tease the consumer
c Persuade the consumer
d All of the above
13. Which of the following is not a common
marketing strategy?
a Providing financing options
b Making the customer do product research
c Personal selling
d Repetition
Short Answer
Respond in the space provided.
14. Explain why financing a purchase is a bad idea.
15. Why should you always consider
the opportunity cost when making
a significant purchase?
16. What are the five steps you should take
before making a significant purchase?
17. What effect does inflation have on
purchasing power?
18. Summarize factors that influence
consumer decisions.
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What do other high
school students
know about bargain
shopping?
We asked other high school students
to describe how they have saved
money on a purchase.
“I negotiated the price of my
vehicle by pulling cash out of my
pocket. I got it for $350 less than
the asking price.”
Senior, Oklahoma
“I cut coupons with my dad when I
was little. When we went shopping,
he would give me the money he
saved by using the coupons.”
Junior, Maine
“I find and purchase products
online for cheaper than they are in
the store. This saves me both time
and money.”
Senior, Oregon
“I bought a $500 dress for $45 at
a consignment shop—and I looked
like a million dollars at prom
that spring!”
Senior, California
“I waited a couple of months for
the price to go down on something
I wanted and then bought it.”
Junior, Georgia
7
CHAPTER
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Bargain
Shopping
EVEN IF YOU’RE not a spender by nature,
finding a great bargain on something you
really want will send a rush down your
spine. It’s just plain fun to find a deal!
However, if you want to find the absolute
best bargains, you will need to do three
things: learn how to negotiate, have
patience, and know where to find great
deals. Now let the fun and games begin!
*Charles Schwab Teens & Money Survey (2011)
of teens say they
know how to shop
for the best deal
when making
a purchase.*
66%
of teens consider
themselves super
savers as opposed
to big spenders.*
77%
UNIT 3: CHAPTER 7
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Key Terms
Get to know the language of money.
»» Auction: A public sale in which property
or items of merchandise are sold to the
highest bidder
»» Consignment shop: Retail store where
people sell items and the owner of the
shop gets a percentage of the sale
»» Cost-benefit analysis: The process
of quantifying costs and benefits of
a decision
»» Estate sale: Type of yard sale with
more items, usually the entire contents
of a household
»» Foreclosure: Process by which the
holder of a mortgage sells the property of
a homeowner who has not made interest
and/or principal payments on time as
stipulated in the mortgage contract
»» Integrity: Having to do with a person’s
honesty and moral attributes
»» Markup: The difference between the
wholesale price and retail price
»» Negotiate: To bargain for a lower price
»» Walk-away power: The ability to walk
away from a purchase when negotiating
Learning Outcomes
Once you’ve completed this chapter’s videos, you will be asked to
return to this list of learning outcomes and place a checkmark
next to the items you’ve mastered.
Section 1: Bargain Shopping: Part of a Healthy
Financial Plan
…… Understand how shopping for bargains is part of a
healthy financial plan.
…… Analyze and use the three keys to getting bargains:
Learn how to negotiate, have patience, and know where
to find great deals.
Section 2: The Seven Basic Rules of Negotiating
…… Develop skills for negotiating deals on products or services.
…… Understand that integrity and honesty are important
when it comes to negotiating with others.
Section 3: Places to Find Great Deals
…… Know the best places to shop for deals.
…… Evaluate the benefits of not buying brand-name products,
taking advantage of seasonal shopping, buying slightly
outdated products, etc.

Before You Begin
144 Foundations in Personal Finance High School Edition
INTRODUCTION
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Measure Your Progress
Before watching the video, read each statement below and mark whether you agree or disagree in the “Before”
column. Then, after watching the video, do it again using the “After” column to see if you changed your mind
on any statement.
JOURNAL QUESTION: INTRODUCTION
Explain the best deal you’ve ever negotiated.
1. Most of the items at a pawn shop are stolen.
2. Learning to be quiet is actually a powerful tool
in negotiation.
3. A seller who senses that you are attached to an item
will be less likely to negotiate a deal.
4. In certain circumstances, it is okay to stretch the
truth to get a bargain.
5. Most countries, except for the U.S., use negotiating
as a way of life.
Agree Disagree Agree Disagree
BEFORE AFTER
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BARGAINING is a type
of negotiation in which
the buyer and seller of a
good or service dispute
the price that will be paid
and the exact nature of the
transaction. Bargaining
is an alternative pricing
strategy to fixed prices.
+
16–18% of Americans will
shop at a thrift store during
a given year; about 12–15%
will shop at consignment/
resale shops.
America’s Research Group
$
“The bargain that
yields mutual
satisfaction is the
only one that is apt to
be repeated.”
B.C. FORBES
Scottish financial journalist
and author
“ 7 CHAPTER
Section 1: Bargain Shopping:
Part of a Healthy Financial Plan
VIDEO 1.1
It’s Okay to Want a Better Deal
THIS IS GOING TO BE A FUN LESSON!
It’s about how to buy stuff and get the
best possible bargain. When you get
a good deal the right way, everyone
wins. You get what you want, and the
seller gets your money, which is what
he wants. You both feel good about it.
Does negotiating with someone sound
strange? Americans are horrible
at it. You need to think globally.
Practically everywhere outside the
U.S., negotiation is a way of life. If
you’ve ever traveled outside the U.S.,
you’ve seen it.
Bottom line: It’s okay to want a better
deal. In fact, saving money should be
a part of your healthy financial plan.
It’s not immoral to want to save more
of your hard-earned money. You’re
not hurting the other party as long
as you follow some basic principles
of negotiating.
It’s proper to get a great deal if you:
1. Have in no way
1
the truth.
2. Have not set out to
2
the other party.
3. Have created a -
3
deal.
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People in other cultures
routinely use negotiation
when buying and selling
goods.
+
“Let us never
negotiate out of fear.
But let us never fear
to negotiate.”
JOHN F. KENNEDY
35th president of the
United States
“
The First Key to Getting Huge Bargains
»»The first key to opening the door to huge bargains is
learning to
4
everything. Everything is
negotiable! Make getting a bargain a way of life.
»»Win-win deals really work, so don’t be
5
to ask
for the deal. If you gather information from the people
you are dealing with, you both can get 100% of what you
want. Then there is no harm done to either party, making
it a win-win scenario.
JOURNAL QUESTION: VIDEO 1.1
Why do you think it’s so uncommon for people in our culture to negotiate?
The Benefits of Being a Wise Consumer
Being a wise consumer involves developing
a variety of skills—from product research to
careful comparative analysis. The benefits are
not just cost-related. Wise consumers also enjoy
improved health and the knowledge that they have
made a positive impact on the larger social and
even global environment. Using a cost-benefit
analysis approach to your buying decisions will
make you a wise consumer.
HOME ECONOMICS: Making the right choices
as a consumer will usually yield savings. Follow
the bargain shopping tips in this chapter for
great savings.
HEALTH: Making informed decisions about what
foods to buy will promote your physical health.
SOCIETY: Your choices as a consumer have
an impact on the larger social and even global
environment and economy. Decisions like whether
to buy a product manufactured overseas or pay
more to support your local business community
are things to consider.
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“The love of truth is
the stimulus to all
noble conversation.
This is the root of all
the charities. The
tree which springs
from it may have a
thousand branches,
but they will all
bear a golden and
generous fruit.”
ORVILLE DEWEY
American minister
“ Section 2:
The Seven Basic Rules of Negotiating
VIDEO 2.1
Negotiate With Integrity
Getting a great deal doesn’t happen by accident, nor
does it always happen just because you bothered to ask.
Remember, this is a negotiation, and that means it’s a
conversation with give and take. Here are what we call
“The Lucky Seven” rules that can help you make the most
of every single negotiation:
1. When negotiating, always tell the absolute
6
.
Not telling something you know to be true is also lying.
JOURNAL QUESTION: VIDEO 2.1
Explain why it is not necessary to purchase product
replacement warranties.
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Do you have any
experience negotiating
overseas?
“I bartered in Mexico and
paid $3 for a ring that
started at $10.”
Senior, Florida
“It’s so fun to negotiate in
Germany and see how low
you can get the seller to go
on his price.”
Junior, New Mexico
“I got a $50 chain for $15.”
Junior, Michigan
“Once I negotiated and paid
half the price listed.”
Senior, Missouri
“You can bargain at the straw
market in the Bahamas. I
talked the sales rep at a
purse shop down from $150
to $40.”
Senior, Georgia
VIDEO 2.2
Know How to Score a Good Deal
2. Use the power of
7
. The use of cash is becoming
less and less common. But if you walk into a store
fanning yourself with a handful of bills, you’ll get some
attention—and increase your power of negotiation.
Here’s why:
• Cash is
8
.
• Cash is
9
.
• Cash has
10
.
3. Understand and use “ -
11
power.” If
you are not prepared to walk away from the purchase,
you will lose your ability to negotiate. Don’t get
emotionally attached to the item.
JOURNAL QUESTION: VIDEO 2.2
Explain how you can get a better deal on something using cash rather
than credit.
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More than two-thirds of
teenage girls say they
shop at low-budget stores
and outlets, along with
55% of guys.
Business Insider
$
HOW DOES THE
GOOD GUY, BAD GUY
TECHNIQUE WORK?
One salesperson pretends
to be your friend, helping
you get the best deal. But
every time you get close
to making the deal, the
salesperson (the “good
guy”) says he has to get
his manager’s approval
for that price. He goes
away and comes back
claiming his manager
(the “bad guy”) won’t
approve the deal. Dave
recommends bypassing
the good guy, bad guy
technique by requesting to
speak directly to someone
who has the authority to
negotiate the deal.
+
VIDEO 2.3
Know How to Score a Good Deal (Continued)
4.
12
. Don’t talk too much. If you’re trying
to buy something, it’s not your job to come up with a
good price. Make the seller work for your business.
5. “That’s not
13
.” When the person
trying to make the sale gives the price, just look him
in the eye and say those words. Then be silent. At that
point, it’s up to him to change the deal.
6. The
14
guy,
15
guy technique is a
negotiating tool that you should be aware of.
When negotiating with a salesperson, don’t fall for
this. Neutralize the situation by going around the
salesperson. Communicate directly with the
supervisor who has the authority to negotiate the deal.
JOURNAL QUESTION: VIDEO 2.3
Explain why silence is powerful when negotiating a deal.
150 Foundations in Personal Finance High School Edition
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THE MOST COMMON
TYPES OF CONSUMER
FRAUD
According to a survey
issued by the Federal
Trade Commission,
the most common
types of consumer
fraud reported were
for bogus weight-loss
products, nonexistent
foreign lotteries,
unauthorized buyer club
enrollments, dishonest
prize promotions and
fraudulent work-athome
programs. The
FTC study also found the
following results:
• 25- to 34-year-olds
issued the most
complaints.
• Those without high
school diplomas were
more likely to be fraud
victims.
• Those who reported
having more debt than
they could handle were
more likely to be victims
of frauds involving
credit repair and debt
consolidation.
$
VIDEO 2.4
Seal the Deal
7. Use the “If I” -
16
technique. You
use this one near the end of the deal, after you’ve pretty
much figured out the lowest price possible. The point is
to agree to a price, but then throw something else into
the deal. For example, “Okay, if I take the car for that
price, you’ve got to throw in new wipers and floor mats.”
“T he Lucky Seven” rules can get you incredible deals on the
stuff you buy every day, but they only work if you actually
use them. Have some fun with them and enjoy the process!
If you are patient, willing to negotiate, and educated about
what items are on sale during certain seasons, you’ll be
saving big before you know it.
The Second Key to Getting Huge Bargains
The second key to opening the door to huge bargains is
having
17
. Our collective, consumer lack of
patience always makes headlines whenever a hot new tech
gadget comes out, doesn’t it? Those who buy the moment
something new hits the market will always pay the highest
price. Save some money—be patient!
Don’t get
18
to a purchase. Being emotionally
attached to a purchase will always cost you more money.
Think about those $50 concert T-shirts!
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There are currently
more than 25,000 resale,
consignment and Not For
Profit resale shops in the
United States.
The Association of Resale
Professionals
$
The Third Key to Getting Huge Bargains
The third key to opening the door to huge bargains is
knowing
19
to
20
deals. Finding great
buys is like a treasure hunt. The more you sniff out bargains,
the better you’ll be at it.
* REMEMBER: Really good deals aren’t necessarily found underneath a giant banner that reads
“SALE!” Don’t fall for a “lower” price that’s still not a good price.
JOURNAL QUESTION: VIDEO 2.4
Why is bargain shopping an important part of a healthy financial plan?
Don’t Get Stuck With Seller’s Remorse
“I have used your tips for negotiating, and they really work. But how can I
get the most money for items I sell? I don’t want to get ripped off, and I’m not
sure how to go about this wisely. Do you have any tips?”
DAVE’S ANSWER: That’s a good question,
and you are right, you don’t want to get ripped
off when you sell things. First, don’t play all
your cards face up. The buyer will see that you
really need the money. Make it clear that you
have walk-away power as a seller. If you can’t
get the price you want, just walk away from
the deal. In the case of antiques or collectible
items, get them appraised and sell them slightly
below that price. Showing the buyer that you
are selling for less than the appraisal will make
them feel like they are getting a deal. At the
same time, you’ll know it was a win-win deal
because you were armed with information. Try
these things, and like everything else, you will
get better with practice.
152 Foundations in Personal Finance High School Edition
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BARTER is the exchange
of goods or services
without the use of money;
to trade.
+
SIMPLE TIPS ON STORE
RETURN POLICIES
Store return policies must
balance two purposes—
customer service and
profits. While stores don’t
want to lose customers
over restrictive return
policies, they also need to
control costs by restricting
returns. Here are some
tips for store returns:
1. Familiarize yourself with
the store’s return policy
prior to your purchase.
2. Hold on to your receipts.
3. Keep the labels and
price tags on the item.
4. Don’t delay. There
is usually a time
restriction included in
store return policies.
TIME Business & Money
+
Section 3:
Places to Find Great Deals
VIDEO 3.1
Another thing you can do is
21
something of value,
either goods or just your
22
. When it comes
to specific places to find great deals, we can give you some
ideas. But remember, the trick is to be a little creative.
There really isn’t a “one-size-fits-all” spot to find good
deals, so you’ll have to learn the basics and then apply them
to your own location.
Where to Find Great Deals
1.
23: Typically, private sellers aren’t
trying to make a sale for profit; they’re just trying to
get some money out of the stuff they don’t need or want
anymore. Also, they are usually motivated and willing
to negotiate for a lower price because the stuff is in
their way. This makes for a win-win situation.
2.
24 sales and public 25: You
can find great deals at these places, but you have to be
careful. It’s easy to get excited and end up paying more
than retail for things. It’s best to be prepared. Before
bidding at an auction, you should know exactly what
you’re bidding on, how much it’s worth, and what you’re
willing to pay. Then don’t go past that line.
3. Couponing: The trick to coupons is to only use them
on the items you need to buy.
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You may not be the
bargain-hunting,
negotiating type, but if
you’re going to make the
most of your money, you’ll
have to start looking for
ways to save money by
shopping for big bargains.
+
Where to Find Great Deals (Continued)
4. 26: You can always find good deals
at garage sales.
5. Repo lot: You can get good deals on cars. Again, you
need to do your homework to know what you’re buying
and what it’s worth. You also need to be willing to
compromise on things like the color of the car.
6. 27: This is one of the best places to
hone your bargain-buying skills!
7. Refunds and rebates: Always follow up with refunds
or rebates on purchases. Those dollars can add up!
8.
28: Avoid foreclosure sales until
you are really educated on the process. But you can find
good deals on foreclosed homes.
9.
29 shops: These items are cleared with the
police department and are highly regulated. Pawn
shops are great places to buy things.
Everyday Bargain Hunting Really Adds Up!
“I’ve heard you teach people to always watch for deals and ask for bargains
on whatever they want to buy. Have you ever totaled up how much money
you’ve saved in a single year by bargaining?”
DAVE’S ANSWER: No, I haven’t. That might
be a fun experiment to try sometime. I do
know that one year my wife added up all of
the money she saved by using coupons at the
grocery store, and it came to more than $600
that year—just by using coupons to buy things
we were going to buy anyway. Seeing those
savings really made an impact on how we feel
about bargain hunting and using coupons to
save money.
154 Foundations in Personal Finance High School Edition
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Budget
Builder
In Chapter 6, you added
a significant purchase
goal to your budget. While
you are building your
sinking fund, you should
be developing a plan
to get the best deal on
your big purchase. Go to
foundationsU.com/7 for
your next budget lesson.
10. Online 30: While there is a possibility
of getting burned, it’s also possible to find great deals.
11.
31 ads: These will link you to
individual sellers.
12. Consignment sales: You can either buy at a discount
or sell your used items through consignment.
13. Conventions: Vendors at conventions and trade shows
are virtually willing to give their stuff away because
they don’t want to pack it up and take it back home!
JOURNAL QUESTION: VIDEO 3.1
Have you ever used social media to get a great deal on something?
How to Help Stretch Your Hard-Earned Money
1. Keep your eye on the calendar. If you buy your
winter clothes in the summer and your summer
clothes in the winter, you can literally save
hundreds. Even if you buy a car or house during
the off seasons, you can save big. That whole
supply-and-demand thing really is true!
2. Get outdated technology. Be willing to buy last
year’s models of TVs, computers and digital
cameras, and you can save tons. Chances
are the bells and whistles added to the latest
versions aren’t worth the extra money!
3. Comparison shop. You may always shop at one
particular store, but venture out to find big
bargains at stores you may have never visited
before. Discount stores and second-hand shops
are fantastic places to find deals! You can even
hop online to find sites that compare products
and stores to help you find the best value.
4. Make a deal. Don’t be afraid to negotiate for a
lower price. If you’re shopping with cash, your
chances of making a sweet deal are a lot better.
5. Buy off-brands when possible. Don’t be married
to a label. If the product serves the purpose
and has comparable quality, save some money
by buying a less popular brand.
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Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered and complete the “after” column of the Measure
Your Progress section.
Build On What You’ve Learned
It’s time to review “The Lucky Seven” rules of negotiation. Fill in the graphic organizer below.
1. 2. 3.
6. 5.
7. Rules of Negotiation 4.
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
»» It’s okay to negotiate!
»»When negotiating, be patient and honest.
»» Be a wise consumer.
156 Foundations in Personal Finance High School Edition
RECAP & REVIEW
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DECIDE: WOULD YOU MAKE THE PURCHASE? Y N EXPLAIN YOUR ANSWER:
Take Action Challenge
Wise consumers always do a cost-benefit analysis before making a big purchase. This just means you analyze
the costs and benefits of your purchase. Let’s say you receive $250 in birthday cash and are trying to decide
if you should use it to buy a new phone. Determine whether each statement below is a cost or benefit of your
purchase. Then write a statement about whether you would choose to make the purchase or not, and why.
COST BENEFIT
COST BENEFIT
COST BENEFIT
COST BENEFIT
?
The cost of the phone is $200 if you extend your contract for 2 years.
You can use the phone for research at school.
You won’t be able to buy that new gaming system you wanted.
COST or BENEFIT?
COST You won’t get to save the entire $250. BENEFIT
The new phone would work better and have updated features.
NOW
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Money in Review
a Foreclosure
b Markup
c Walk-Away Power
d Cost-Benefit Analysis
e Auction
f Consignment Shop
g Estate Sale
h Integrity
i Negotiate
1. _____ Having to do with a person’s honesty
and moral attributes
2. _____ Retail store where people sell items and
the owner of the shop gets a percentage
of the sale
3. _____ The ability to walk away from
a purchase when negotiating
4. _____ Process by which the holder of a
mortgage sells the property of a
homeowner who has not made interest
and/or principal payments on time as
stipulated in the mortgage contract
5. _____ A public sale in which property or
items of merchandise are sold to
the highest bidder
6. _____ The process of quantifying costs and
benefits of a decision
7. _____ The difference between the wholesale
price and retail price
8. _____ Type of yard sale with more
items, usually the entire contents
of a household
9. _____ To bargain for a lower price
Matching
Match the following terms to the correct definition below.
Illustration
Draw a picture representation of each of the following terms.
Wise Consumer The Power of Cash
158 Foundations in Personal Finance High School Edition
RECAP & REVIEW
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Multiple Choice
Circle the correct answer.
10. Using cash gives you more bargaining
power than using credit.
a True
b False
11. Being married (or emotionally attached)
to a purchase will cause you to lose
bargaining power.
a True
b False
12. Getting the best deal on a purchase involves
doing all of the following except:
a Having patience
b Being first in line for a new product
c Negotiating
d Shopping around to find the best deal
13. Which of the following is typically not a
good place to find a deal?
a Consignment shops
b Individuals
c Mall
d Online auctions
14. Which of the following describes why using
cash is a great bargaining tool?
a Cash is visual.
b Cash has immediacy.
c Cash is emotional.
d All of the above
Short Answer
Respond in the space provided.
15. Summarize the benefits of being a
wise consumer.
16. Explain how walk-away power can be used
as a negotiating tool.
17. What role does research play in getting good
deals on purchases?
18. Why is honesty an important component
of bargaining?
19. Describe the cost benefit of buying slightly
outdated products.
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8
CHAPTER
What do other high
school students know
about investing?
We asked high school students to
describe the weirdest get-rich-quick
scheme they’ve ever heard of.
“Someone told me that I could get
rich selling food door to door. After
three days of embarrassment, I
ended up only $5 richer.”
Junior, Michigan
“I know about a chain letter where
you put $1 in an envelope, include
six addresses, and send it out to
the top address. Eventually people
are supposed to send you $1 each.”
Junior, Alabama
“People think you can go to
Hollywood and become a street
performer until a big-time
producer discovers you and you
become a rich actor.”
Junior, Missouri
“I’ve heard people say you can go
to Alaska and work in a canning
plant to get rich.”
Senior, Wyoming
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Investing and
Retirement
AS YOU CONSIDER a good time to begin
investing and retirement planning, think back
to Ben and Arthur in Chapter 2. The fact is,
you want to start planning and preparing for
your financial future now! Dave’s friend and
best-selling author Zig Ziglar once said, “If
you aim at nothing, you will hit it every time.”
Remember, the sooner you start investing, the
sooner your money can begin to work for you!
The magic of compound interest works best
when given lots of time to do its thing.
* Teens & Money Survey, Charles Schwab
of teens would like
their parents to talk
more about how to
invest money.*
44%
of teens say that
learning more about
money management,
including budgeting,
saving and investing,
is one of their top
priorities.*
75%
UNIT 3: CHAPTER 8
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Key Terms
Get to know the language of money.
»» Diversification: The practice of dividing
the money a person invests between
several different types of investments in
order to lower risk
»» Investing: The process of setting money
aside to increase wealth over time
for long-term financial goals such
as retirement
»» Investment: Account or arrangement
in which a person puts his/her money
for long-term growth; invested money
should not be used for a suggested
minimum of five years
»» Liquidity: Quality of an asset that permits
it to be converted quickly into cash without
loss of value; availability of money
»» Portfolio: A list of your investments
»» Risk: Degree of uncertainty of return on
an asset; in business, the likelihood of
loss or reduced profit
»» Risk-Return Ratio: Relationship of
substantial reward compared to the
amount of risk taken
»» Share: Piece of ownership in a company,
mutual fund or other investment
»» Stocks: Securities that represent part
ownership or equity in a corporation
»» Tax-Favored Dollars: Money that is
invested, either tax deferred or tax free,
within a retirement plan
Learning Outcomes
Once you’ve completed this chapter’s videos, you will be asked
to return to this list and place a checkmark next to the items
you’ve mastered.
Section 1: Investing 101
…… Explain how investing builds wealth and helps meet
financial goals.
…… Examine the relationship between diversification and risk.
…… Identify regulatory agencies and their functions.
Section 2: Types of Investments
…… Evaluate investment alternatives: money markets, bonds,
single stocks, mutual funds, annuities and real estate.
…… Explain the Rule of 72.
…… Identify different types of retirement plans.
…… Explain how taxes affect the rate of return on investments.
…… Understand how pre-tax and after-tax investments work.
…… Understand how the stock market works.
…… Be familiar with the various retirement account
tax treatments.
…… Develop a plan for investing; describe how to buy and
sell investments.
Section 3: Employer Benefits & Retirement Plans
…… Analyze the components of an employer benefits package.
…… Explain how compound interest works.

Before You Begin
162 Foundations in Personal Finance High School Edition
INTRODUCTION
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Measure Your Progress
Before watching the video, read each statement below and mark whether you agree or disagree in the “Before”
column. Then, after watching the video, do it again using the “After” column to see if you changed your mind
on any statement.
JOURNAL QUESTIONS: INTRODUCTION
List your initial thoughts about investing. What do you want to learn about investing?
1. You can start investing with a small amount of money.
2. The more sophisticated the investment, the more
money you get in return.
3. With virtually all investments, as the risk goes up, so
does the potential return.
4. It’s difficult to find an investment with a long-term
record that averages 12%.
5. It is okay to borrow money if you are going to invest it.
Agree Disagree Agree Disagree
BEFORE AFTER
Chapter 8: Investing and Retirement 163
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THINGS TO CONSIDER
The smartest investment
you can make is in yourself.
As a young adult, you
should have two goals:
continue your education
and stay out of debt.
+
While 79% of American
millionaires use brokers
for guidance, they make
their own investment
decisions.
The Millionaire Next Door
$ Section 1: Investing 101
REMEMBER, the goal is to build
wealth. You can and should save
money for your emergency fund and
for purchases. Then, once you’re sure
that you have your post-secondary
education paid for, you should begin
to invest a portion of your income.
How does investing build wealth?
Investing allows your money to work
for you. You’ll be amazed at how your
money, when invested wisely, can
begin to grow!
Investing will help you reach your
long-term financial goals, such as
retirement. In this chapter, we are
going to give you the tools to achieve
lifelong financial well-being.
VIDEO 1.1
Basic Rules of Investing
»»Keep it
1
, stupid! Investing doesn’t have
to be complicated, and there is really no trick to it. Never
invest money in anything you do not understand!
THE FIFTH FOUNDATION 5 Build Wealth and Give
8 CHAPTER
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“Diversification is a
protection against
ignorance.”
WARREN BUFFETT
Famous American investor
“
People with a bachelor’s
degree or higher have
unemployment rates
that are about half the
unemployment rate of
people with just a high
school diploma.
Bureau of Labor Statistics
A bachelor’s degree on
average increases lifetime
income by $1.2 million
as compared with a high
school diploma.
Journal of Student Financial Aid
$
THROUGHOUT THE
STOCK MARKET’S
HISTORY
100% of 15-year periods
made money.
$
VIDEO 1.2
Basic Rules of Investing (Continued)
»»Never invest purely for
2.
If what you are investing in is primarily a tax deal, then
it is probably not a good investment. Your motivation
should be to make money, not save on taxes.
»»Never invest using 3 money. Never
borrow money, period. Borrowing money is a particularly
bad idea for an investment because it increases the
risk of the investment. And if you lose the money, you are
still left with payments on it.
Diversification
““Here’s the thing to remember: Money is like manure. Left in one
pile, it stinks—spread around, it will grow things.”
DAVE RAMSEY
»»
4
is a risk-management
technique that mixes a wide variety of investments within
a portfolio. The rationale behind this technique is that
having a variety of investments will yield higher returns
and lower risk.
JOURNAL QUESTION: VIDEO 1.1
As a young adult, what is the most important thing you can invest in?
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Risk Return Ratio and Liquidity
»»The risk return ratio is used by investors to compare
the expected return of an investment to the amount of
risk they take to get the return. This ratio is calculated
mathematically by dividing the amount you stand to lose
if the price goes down (risk) by the amount of profit you
expect to make (return). With virtually all investments,
as the
5
goes up, so does the potential return.
»»Liquidity refers to assets that can be easily bought or
sold (liquid assets). When discussing investments,
6
is availability. As there is more liquidity,
there is typically
7
return.
The Power of Diversification
What would happen if two people each invested $10,000—one diversifies, the other
does not—and left it alone for 25 years?
« $110K
« $120K
« $90K
« $70K
« $50K
« $30K
« $10K
« $100K
« $80K
« $60K
« $40K
« $20K
Investor 2:
More than
$116,000
because of
diversification!
Investor 1:
Just
$57,254
without
diversification!
Investor 1 invests:
$10,000 for 25 years at 7%
compounded annually
Investor 2 invests:
$2,000 and loses it all
$2,000 in his cookie jar
$2,000 at 5% return
$2,000 at 10% return
$2,000 at 15% return
The
difference
is almost
$59,000!
166 Foundations in Personal Finance High School Edition
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U.S. SECURITIES
AND EXCHANGE
COMMISSION (SEC):
The government agency
responsible for regulating
the stock market. It was
created in 1934 to increase
public trust after the 1929
stock market crash and
the years of the Great
Depression.
FEDERAL DEPOSIT
INSURANCE
CORPORATION (FDIC):
The U.S. federal agency
that insures deposits in
commercial banks. It was
created to restore public
trust in banks after the
1929 stock market crash.
FDIC replaced the former
Federal Savings and Loan
Insurance Corporation in
1989.
FEDERAL RESERVE: The
central (federal) banking
system of the United States
INTERNAL REVENUE
SERVICE (IRS): A U.S.
federal agency responsible
for collecting taxes and
for the interpretation and
enforcement of the Internal
Revenue Code (laws)
+
Section 2: Types of Investments
VIDEO 2.1
Money Markets
»»A market in which short-term financial instruments
such as certificates of deposit (CD), Treasury bills,
commercial papers and bank deposits are traded. New
York is the major money market, followed by London
and Tokyo.
»»A CD is a
8
,
typically at a bank. It is a savings account with a
slightly higher interest rate because of a longer savings
commitment (i.e. six months, one year, etc.).
»»A money market account is a
9
-risk bank
savings account with check-writing privileges.
JOURNAL QUESTION: VIDEO 1.2
If you were giving advice to a friend, what would you say are the most
important things to know about investing?
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CASE STUDY
Harry, a bright young man,
was fresh out of college
when Bob approached
him with an investment
opportunity that sounded
too good to pass up.
“I’ve got some property on
a potential oil field,” Bob
said. “For only $750 you
can buy a share of the
land. You’d be crazy not to
get in on this investment.”
Bob, an expert salesman,
promised Harry would
become rich and sealed
the deal with a simple
appeal: “Harry, this is a
great way to diversify your
portfolio.”
Thirty years later, after
all the oil was pumped
out, Harry still hadn’t
seen any money from
his “investment.” It turns
out that Bob was offering
rights to land that he
didn’t have the right to
sell, scamming people by
selling “phantom shares.”
Harry’s risky attempt to
diversify cost him $750.
What would have
happened if he had put
that money in a mutual
fund with a 12% return
instead? He would now
have $22,469.
+
Money Markets (Continued)
»» These are great for your 10
due to their liquidity (accessibility) and stability.
»»Money market investments are low-risk, and therefore,
have low returns.
Single Stocks
»» Single stock investing carries an extremely
11
degree of risk.
»»When you buy stock, you are buying a small piece of
12
in the company.
»»Your return comes as the company increases in
13
or pays you, its owner, some of the
profits (dividends).
Bonds
»»A bond is a
14
instrument by which the company
owes you money; a form of I.O.U. The company that issued
the bond makes regular interest payments to the bond
holder and promises to pay back or redeem the face value of
the bond at a specified point in the future (maturity date).
»»Your return is the fluctuation in price and the
15
rate paid.
»»Few individuals do well with
16
purchases.
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WAR BONDS (ALSO
KNOWN AS DEFENSE
BONDS): The last time the
United States issued war
bonds was during World
War II. Issued by the U.S.
government, they were
named war bonds after
the Japanese attack on
Pearl Harbor, Dec. 7, 1941.
The purpose of war bonds
was to finance military
operations during war
time. The bonds yielded a
mere 2.9% return after a
10-year maturity.
DIVIDEND: Distribution of
a portion of a company’s
earnings, decided by the
board of directors, to a
class of its shareholders;
generally distributed in the
form of cash or stock
+
“October. This is one
of the peculiarly
dangerous months
to speculate in stocks.
The others are July,
January, September,
April, November,
May, March, June,
December, August,
and February.”
MARK TWAIN
American author
“
»»Examples include Treasury bonds (a bond issued by the
U.S. government that bears fixed interest) and savings
bonds (in the United States, a bond that can be bought
from the federal government).
»» Bonds are typically low risk and low return on investment.
VIDEO 2.2
Mutual Funds
»»A mutual fund is an investment vehicle made up of a
pool of
17
collected from many investors for
the purpose of investing in securities such as stocks,
bonds, money market instruments and similar assets.
»»Portfolio managers manage the pool or
18
and attempt to increase the value of the fund in order to
produce capital gains and income for the fund’s investors.
»»A mutual fund portfolio is structured and maintained to
match the investment objectives stated in its prospectus.
»»Your
19
comes as the value of the fund
is increased.
JOURNAL QUESTION: VIDEO 2.1
Explain why single stocks carry a high degree of risk.
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THE STANDARD
DIVERSIFICATION PLAN
25% Growth Stock Mutual
Fund (Mid-Cap): Fund that
buys stock in mediumsized
companies that have
experienced some growth
and are still expanding
25% Growth and Income
Stock Mutual Fund (Large-
Cap): Fund comprised of
large, well-established
companies
25% Aggressive Growth
Stock Mutual Fund
(Small-Cap): Fund that
seeks to provide maximum
long-term capital growth
from stocks of primarily
smaller companies; the
most volatile fund
25% International Stock
Mutual Fund: Fund that
contains international or
overseas companies
+
Mutual Funds (Continued)
»» The main advantage of mutual funds is that they give small
investors access to professionally managed, diversified
portfolios of stocks, bonds and other securities.
»»Mutual funds are good
20
-term investments.
»»A mutual fund portfolio that is
properly diversified will have
investment dollars spread equally
among four different classes of
financial assets. Remember, the
overall diversification of your mutual
fund portfolio means lower risk. We
recommend 25% in each of these four
classes. Compared to other
investments, if you use this strategy,
you would have moderate risk.
JOURNAL QUESTION: VIDEO 2.2
Which are a better investment, stocks or mutual funds?
Explain your answer.
25%
Large-
Cap
25%
Small-
Cap
25%
International
25%
Mid-Cap
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KNOW THE RULE OF 72!
The Rule of 72 is a quick
way to calculate the length
of time it will take to double
a sum of money. Divide 72
by the expected interest
rate to determine the
number of years (i.e. 72
divided by 8% = 9 years).
+
THE ROTH IRA is named
for Sen. William Roth of
Delaware, who authored
this section of the Taxpayer
Relief Act of 1997.
+
VIDEO 2.3
Qualified Plans
A qualified plan is a -
21
investment
(which means it has special tax treatment).
Examples of qualified plans include:
Individual Retirement Arrangement (IRA)
When it comes to IRAs, everyone with an
22
is eligible.
Remember: IRA is not a type of investment at a bank.
It is the
23
on virtually any type
of investment.
Roth IRA
»» The Roth IRA is funded with after-tax money, which allows
you to use the money in your Roth tax free in retirement.
»» After five years, you can make -
24
, penaltyfree
withdrawals of earnings under these conditions:
1. Over 59 and a half years old
2. Because of death or disability
3. First-time home purchase
Investing money pretax is different than investing money
after tax. There are no taxes when you cash out a Roth, so it
forces you to invest more.
* NOTE: There are limits (based on total household income) to the annual contribution amounts.
These amounts can change based on inflation. Go to foundationsU.com to check out the current
contribution phase-out limits. As an adult, you should invest 15% of your household income into
Roth IRAs and pretax retirement plans.
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EDUCATION SAVINGS
PLAN (529 PLAN): A savings
plan operated by a state
or educational institution
designed to help families set
aside funds for future college
costs. It is named after
Section 529 of the Internal
Revenue Code, which created
these types of savings plans
in 1996.
TAX-DEFERRED: The
key advantage of stashing
money in a tax-deferred
retirement account isn’t
just that you’ll pay less to
the government this year,
but that your investments
will compound faster than
in a taxable account. The
result is usually a larger
retirement nest egg even
after the funds are taxed
upon withdrawal.
+ Annuities
»» An annuity is a
25
account sold by an
26
company, designed to provide
payments to the holder at specified intervals, usually
after retirement.
»»The holder is taxed at the time of distribution or
withdrawal, making this a tax-deferred arrangement.
»»
27 annuities have a low interest rate of around
5%; they have high fees and are a bad investment option.
»»
28 annuities are mutual funds sheltered by
the annuity, which allows the mutual fund to grow
29
.
Make the Most of Your Inheritance
“I’m 21 and currently in college. Next month, I’ll be receiving an inheritance of about
$40,000. I don’t know anything about stocks, mutual funds or CDs, but I don’t want
to lose all this money. I don’t have any debt, so what should I do?”
DAVE’S ANSWER: I’m glad you’re asking
questions. One of the fastest ways to lose
money is to put it into an investment that you
don’t understand.
You don’t need to change your major to
finance to make this happen, but you do have
a $40,000 responsibility that you didn’t have
before. For now, a simple savings account
is fine. I’d park $30,000 in there and just
forget about it for a while. Then use $5,000
to set up an emergency fund and maybe blow
$5,000 on some things just for you. After
all, spending and having fun with money is
still important!
But here’s something to think about once
you’ve educated yourself on investing. If you
put that remaining $30,000 in a good growth
stock mutual fund, by the time you’re ready to
retire you’ll be looking at about $5.5 million.
Talk about being able to retire with dignity
and change your family tree!
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62% of those who make
financial investments
rarely change their
strategy.
Survey by 24/7 Wall St./Harris
$
Real Estate
»»You should have lots of
30
before using real
estate as an
31
. Real estate is
usually held as part of a larger portfolio and is generally
considered an alternative investment.
»»Real estate is land plus anything permanently fixed to it,
including buildings and natural resources.
»» Real estate is the
32
liquid consumer investment.
»» Benefits of investing in real estate include higher returns
for a given level of risk. By adding real estate to a portfolio,
you could maintain your portfolio returns while
decreasing risk.
»»Another benefit of real estate is your ability to influence
its value. As a tangible asset, an investor can increase the
value of the property through a variety of improvements.
»»Other special considerations when investing in real estate:
• It is costly to buy, sell and maintain.
• It requires management.
• It can be difficult to acquire.
• The investment market is cyclical based on supply
and demand.
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SPECULATIVE:
Purchasing risky
investments that present
the possibility of large
profits, but also post a
higher-than-average
possibility of loss
+
Horrible Investments
»»Gold: Gold has a 50-year track record of 4.1% returns.
That’s about the rate of inflation.
»»Commodities:
33
are agricultural
or mining products. All commodities are traded, but since
no one really wants to transport all those heavy materials,
what is actually traded are commodities futures contracts—
an agreement to buy or sell a commodity at a specific date
in the future at a specific price. Both commodities and
futures are bad investments because they result in price
distortions and are highly volatile.
»»Day trading: This is the buying and selling of stock
purchases each day through the practice of speculation.
Evidence shows the vast majority of investors lose
money in day trading.
»»Viaticals: This is when someone with a terminal disease
sells his life insurance policy for less than face value. The
buyer then cashes in the full amount at the original owner’s
death. There are a lot of scam artists surrounding this type
of investment, and investors often incur legal risks.
What Is the Stock Market?
The stock market is a generic term that encompasses the
trading of securities. This trading takes place in stock
exchanges. There are three major stock exchanges in the
United States:
1. Formed in 1792, the New York Stock Exchange (NYSE) is
the largest organized stock exchange in the United States.
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TIPS ON BUYING AND
SELLING INVESTMENTS
1. Set your investment
goals and consider a
time frame (ie: getting
married and buying a
house, five years; having
kids and buying a bigger
house, 10 years; college
tuition for kids, 18 years;
retirement, 40 years).
2. Learn the different
types of investments.
3. Choose an investment
broker. Remember,
they work for you!
We recommend one
with the heart of a
teacher. NEVER invest
in something you don’t
completely understand.
4. Understand basic
investment strategies
and identify ones
that will help you
reach your goals.
5. Build your portfolio and
be sure to diversify so
that all your eggs are
not in one basket!
6. Stick to your investment
strategy. Remember:
100% of the 15-year
periods in the stock
market’s history
have made money.
+
2. The American Stock Exchange (AMEX) was known
before 1951 as the American Curb Exchange. That’s
because trading was conducted on the curb of Wall and
Broad streets in New York City. The American Stock
Exchange has less stringent listing requirements than
the NYSE, so it attracts many smaller companies.
3. Another of the major stock exchanges, NASDAQ stands
for the National Association of Securities Dealers
Automated Quotation System. Unlike the NYSE and the
AMEX, there isn’t any physical location for the exchange;
trading is done by computer. The American Stock
Exchange and NASDAQ have merged but maintain their
own names and identities.
The overall performance of the stock market is evaluated
in many different ways. The Dow Jones Industrial
Average is one measure of the stock market.
A security is a financial asset (such as a stock or bond)
that can be bought and sold; a tradable financial asset.
“ Bear vs. Bull Market”
The terms bull market and bear market describe upward
(bullish) and downward (bearish) market trends.
JOURNAL QUESTION: VIDEO 2.3
What is real estate? Why is it considered an investment?
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WHAT’S THE DIFFERENCE
BETWEEN SAVING
AND INVESTING?
Any money set aside
for five years or less is
considered saving.
Money set aside for
more than five years is
considered investing.
+
Section 3: Employer Benefits
and Retirement Plans
VIDEO 3.1
As you enter the workforce, it’s a good idea to be familiar
with the components of an employee benefits package.
Employee benefits are various -
34
compensations provided to employees in addition to their
normal wages or salaries. The purpose of employee benefits
is to increase the financial security of staff members, and in
doing so, improve worker retention across the organization.
Common employee benefits are retirement plans,
savings plans,
35
, leave (sick, vacation, etc.), stock
purchase, educational reimbursement, incentive plans and
cafeteria plans. In addition to considering salary when you
are offered employment with a company, you should also
evaluate the employer’s benefits package.
Anticipating the Future
“I am 19 years old and working in my family’s business. I live at home with my
parents, I’m not in college, and my car is completely paid for. How should I start
saving for a house and retirement? I want to make sure I am doing everything I
can to avoid financial problems in the future. What do I need to do?”
DAVE’S ANSWER: Your first goal should be to
save three to six months of your income (since
you don’t really have any expenses). This will
be your full emergency fund. Then you should
save for anything you plan on doing in the next
few years, like getting married or buying a home.
On top of that, you should invest into a Roth IRA.
The current contribution limit is $5,500 per year,
which comes out to about $458 per month. You
can do less than that, but not more. If you start
that now, you will be extremely wealthy when
you retire.
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WHERE DOES THE TERM
401(K) COME FROM?
401(k) refers to the
section of the tax code
that discusses this sort
of retirement plan, as do
403(b) and 457.
+
Employer Retirement Plans
»»Simplified Employee Pension Plan (SEP): A selfemployed
person may deduct up to 15% of their net profit
on the business by investing in a SEP.
»»
36
is a retirement savings plan offered by a
corporation to its employees. The employee contributes
money to the 401(k) from his/her gross pay, and the
money in the account grows tax deferred. In some cases,
employers will match the employee’s contribution,
but you should fund your plan whether your company
matches or not.
»»403(b) is found in
37
organizations such as
churches, hospitals and schools.
»»457 is deferred compensation, which means you are
deferring or putting off compensation. Usually this is
available for
38
employees.
»»Do not use a Guaranteed Investment Contract (GIC)
or bond funds to fund your plan. This is like a CD inside
of your 401(k). You will only make about 3–4%, and it will
not help you win long term.
»»Pre-tax contributions are taken from your gross
income before taxes. Taxes are due upon withdrawal.
»»After-tax contributions are taken from your net
income after taxes. No taxes are due upon withdrawal.
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WINNING THE LOTTERY
does not guarantee peace
of mind when it comes to
your financial future.
In fact, Ellen Goodstein of
bankrate.com reported
that just the opposite
happened to some lottery
winners—they went broke.
Saving and investing have
nothing to do with the
amount of money you make
or get. It is about making it
a priority and being smart
with your money.
+
Rollovers
If you leave a job and have money saved in your employer’s
retirement plan, always roll that money into an IRA using a
direct rollover, which allows you to avoid taxes and penalties.
Retirement Loans
Never borrow on your
39
. Never!
Even though you pay yourself back some interest, it is
nowhere close to what you would have earned if you had left
the money in the investment.
Can Anyone Become a Millionaire?
The Power of Compound Interest
Whether you have never stepped foot in a bank
or you are actively saving and investing for your
future, all it takes is a little effort and a lot of
patience to become confident in your financial
decisions. One awesome thing that you can take
advantage of is compound interest. It may sound
like an intimidating term, but it really isn’t once
you know what it means. Here’s a little secret:
Compound interest is a millionaire’s best friend.
It’s really free money. Seriously. But don’t take
our word for it!
Let’s take another look at the story of Ben and
Arthur from Chapter 2. Remember that Ben
invested $16,000 over eight years, and Arthur
invested $78,000 over 39 years. Believe it or not,
Ben came out ahead . . . $700,000 ahead! How
did he do it? Starting early is the key. He put in
less money but started eight years earlier. That’s
compound interest for you! It turns $16,000 into
almost $2.3 million! Since Ben invested earlier,
the compound interest kicked in sooner.
What You Can Do Now
The trick is to start as soon as possible. You
should start investing as soon as you have your
college education funded. A survey by Charles
Schwab found that 24% of young adults believe
that because they are young, saving money isn’t
important. Looks like we just blew that theory out
of the water! That same survey also discovered
that only 2% of young adults say they know how
to invest money to make it grow. Why not change
that statistic and learn how to become a smart
investor with your money? Remember, waiting
just means you make less money in the end. So
get moving!
178 Foundations in Personal Finance High School Edition
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Budget
Builder
So you’re ready to invest?
Your investment dollars
will need to be part of
your monthly budget. Go
to foundationsU.com/8 to
update your budget!
JOURNAL QUESTION: VIDEO 3.1
Why do you think it is important to consider both salary and benefits
when applying for a job?
Chapter 8: Investing and Retirement 179
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Build On What You’ve Learned
So you currently don’t have any money to invest? Brainstorm at least five job options for teens and list
them below.
1.
2.
3.
4.
5.
Chapter Summary
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
»» Invest to build wealth and meet financial goals.
»»When investing, diversification lowers risk.
»» Employee benefits often include insurance and retirement plans.
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered and complete the “after” column of the Measure
Your Progress section.
180 Foundations in Personal Finance High School Edition
RECAP & REVIEW
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Take Action Challenge
1 Review: Risk Return Ratio
The risk return ratio applies to any type of investment. Any time you invest money into something
there is a risk, whether large or small, that you might not get your money back. In turn, you expect a
return, which compensates you for bearing this risk. In theory, the higher the risk, the more you should
receive for holding the investment, and the lower the risk, the less you should receive.
2 Directions
Plot the following investments on the risk return continuum below. If you’ve forgotten the level
of risk for any of the investment types, refer to earlier in the chapter for review.
a Money Market Accounts
b Single Stocks
c Bonds
d Mutual Funds
e Fixed Annuities
f Real Estate
RISK RETURN RATIO CONTINUUM: The relationship between risk and return on investment
RISK AMOUNT
ANNUAL RETURN
Low risk,
low growth
potential
High risk,
high growth
potential
1
2
Chapter 8: Investing and Retirement 181
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Money in Review
a 401(k)
b Investment
c IRA
d Liquidity
e Mutual Fund
f Portfolio
g Risk
h Share
1. _____ A list of your investments
2. _____ Quality of an asset that permits it to be
converted quickly into cash without loss
of value
3. _____ A piece of ownership in a company,
mutual fund or other investment
4. _____ A retirement savings plan offered by
a corporation to its employees; the
employee contributes money from his/
her gross pay, and the money grows
tax deferred
5. _____ Account or arrangement in which
one would put their money for longterm
growth
6. _____ Degree of uncertainty of return on
an asset
7. _____ Pool of money managed by an
investment company and invested
in multiple companies
8. _____ Tax-deferred arrangement for
individuals with earned income;
individual retirement arrangement
Matching
Match the following terms to the correct definition below.
Illustration
Draw a picture representation of each of the following terms.
Diversification Stock
182 Foundations in Personal Finance High School Edition
RECAP & REVIEW
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Multiple Choice
Circle the correct answer.
9. A single stock would be a good place to keep
your emergency fund.
a True
b False
10. Diversification lowers risk with investing.
a True
b False
11. Long-term investments properly diversified
include the following mutual funds:
a Growth, growth and income, bond,
aggressive growth
b Growth, balanced, international, bond
c International, bond, aggressive growth,
growth
d Growth, growth and income,
international, aggressive growth
12. Which of the following is a good
investment option?
a Gold
b Viaticals
c Futures
d Mutual funds
13. Which statement is true about liquidity?
a The less liquid the investment,
the less return
b The more liquid an investment,
the more return
c The more liquid an investment,
the less return
d Both a and b
Short Answer
Respond in the space provided.
14. Explain why you should never invest using
borrowed money.
15. Explain the risk return ratio.
16. Why do single stocks carry a high degree of
risk? Why do mutual funds carry less risk?
17. What is the Rule of 72? How is it calculated?
18. Is real estate a liquid investment?
Explain your answer.
Chapter 8: Investing and Retirement 183
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What do other high
school students know
about insurance?
We asked teens to tell us why they
think insurance is necessary.
“Insurance is something that will
pay for medical help. It’s money
for any medical problems you will
have now or in the future.”
Junior, Mississippi
“There are different types of
insurance to insure different
things like your house or car. Then
there is life insurance, which will
help your family if you die.”
Sophomore, Florida
“Everyone needs life insurance,
which some people also call ‘death
insurance.’”
Senior, Missouri
“Insurance covers liability and
protects you. It provides cash for
accidental occurrences.”
Senior, Florida
9
CHAPTER
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Insurance
AS A HIGH SCHOOL STUDENT, insurance
may not seem that important. However,
it’s incredibly important to be prepared for
unexpected disasters. An illness, injury or car
accident that occurs without the necessary
insurance coverage can completely ruin your
finances. Having an emergency fund and a
budget and staying out of debt will help you
win with money. But without the proper
coverage, even the best financial plan can’t save
you from thousands of dollars of unexpected
medical expenses. You never know what the
future holds. As you get older, you’ll find that
you need insurance when you least expect it!
1 ABC News
2 InsuranceQuotes.com
of American renters
have renter’s
insurance.1
34%
of tenants
incorrectly think a
landlord’s insurance
will cover them if
their property is
destroyed due to
fire, theft, etc.2
48%
UNIT 3: CHAPTER 9
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Key Terms
Get to know the language of money.
»» Beneficiary: The recipient of assets
passed on from the death of a friend or
relative
»» Claim: Paperwork filed with an
insurance company in order to get them
to cover a loss for someone they insure
»» Coverage: Applies to the amount
of protection you have through an
insurance company in the event of a loss
»» Deductible: Amount you must pay
before you begin receiving any benefits
from your insurance company
»» Liability: The state or quality of being
obligated according to law or equity
»» Out-of-pocket expense: Specific amount
of money that you pay when insurance
only covers a portion of costs
»» Policy: Describes the type of coverage in
an insurance agreement
»» Premium: Amount you pay monthly,
quarterly, semiannually or annually to
purchase different types of insurance
»» Will: A legally enforceable declaration of
how a person wishes his or her property
to be distributed after death
Learning Outcomes
Once you’ve completed this chapter’s videos, you will be asked to
return to this list of learning outcomes and place a checkmark
next to the items you’ve mastered.
Section 1: Protecting Your Wealth
…… Explain why insurance is an essential part of a healthy
financial plan.
…… Identify ways to lower the cost of insurance premiums.
…… Identify insurance for the types of risks that young adults
might face.
Section 2: Basic Types of Coverage
…… Identify common types of risks.
…… Distinguish between necessary and unnecessary types
of coverage.
…… Understand the importance of identity theft protection.
…… Understand the importance of property and
liability protection.
Section 3: The Importance of Life Insurance
…… Differentiate between term and cash value life insurance.
…… Explain how one becomes self-insured.
…… Examine the purpose and importance of a will.
Section 4: Insurance to Avoid
…… Know what types of insurance to avoid and why.

Before You Begin
186 Foundations in Personal Finance High School Edition
INTRODUCTION
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Measure Your Progress
Before watching the video, read each statement below and mark whether you agree or disagree in the “Before”
column. Then, after watching the video, do it again using the “After” column to see if you changed your mind
on any statement.
JOURNAL QUESTION: INTRODUCTION
What do you think is the purpose of insurance?
1. Insurance rates can vary depending on the company,
and I can save money if I shop around.
2. I must always have collision insurance on my
automobile, even if it’s an old car that’s not worth much.
3. If an employer offers me health insurance but
requires me to pay part of the premium, it is not a
good deal, and I shouldn’t get it.
4. I only need to have renter’s insurance if I have a lot of
valuable items.
5. Everyone should have life insurance.
Agree Disagree Agree Disagree
BEFORE AFTER
Chapter 9: Insurance 187
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“It is unwise to hope
for the best without
preparing for the
worst.”
ANONYMOUS
“ 9 CHAPTER
Section 1:
Protecting Your Wealth
VIDEO 1.1
The Role of Insurance in Your Financial Plan
WE GET IT. Insurance may be one
topic where you begin to yawn a little
bit. Let’s face it: No one really likes
spending money on insurance. There
are many other things that are more
fun to spend money on. But, while
we hope we never have to use it,
insurance is a necessary part of a
healthy financial plan. Why? Because
insurance transfers the financial
risk of life’s major catastrophes.
Chances are that something major
and unexpected is going to happen
at some point during your lifetime.
Insurance will protect your wealth
during those events.
»»While paying insurance premiums may feel like you’re
losing money, in the end it really helps you
1
more of it.
»»It’s important to remember that insurance is a
financial product, which means that the buyer
should beware. When the consumer is
2
with
3
, the consumer makes
different decisions.
188 Foundations in Personal Finance High School Edition
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Property and Casualty
(P&C) insurance is a $442
billion industry (2011 net
premiums written).
Insurance Information Institute
Thirty-five insurance
companies are listed
on the 2012 Fortune
500 annual ranking
of America’s largest
corporations. Eighteen of
these top companies are in
the P&C insurance sector.
Fortune Magazine
$
»» Insurance is an essential financial planning tool. You’ll
want to make sure you get only the coverage you need at
the best possible price.
»»The purpose of insurance is to
4
risk.
»»Without proper insurance, certain losses can
5
you. Conventional wisdom says that
you should transfer risk.
»» Insurance puts an
6
over your life, the
hard work that you’ve done, the money you’ve saved, and
the money that you have to invest.
The 7 Basic Types of Coverage Needed
1. Homeowner’s or Renter’s Insurance
2. Auto Insurance
3. Health Insurance
4. Disability Insurance (when you are established
in your career)
5. Long-Term Care Insurance (when you are 60 or older)
6. Identity Theft Protection
7. Life Insurance (when you have dependants who rely
on your income)
Chapter 9: Insurance 189
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RAISE YOUR
DEDUCTIBLE TO KEEP
THE PREMIUMS DOWN.
Calculate how much you’re
saving and compare that
with the extra expense
you will have if you suffer a
loss. It has to be worth the
cost to transfer risk.
Any time you’re shopping
for insurance, go to an
independent insurance
agent and let them shop
among many different
plans and companies.
Health, disability, auto,
homeowner’s, identity
theft, long-term care
and life insurance catch
the big stuff. You handle
the little stuff with an
emergency fund and solid
financial planning.
+
Ways to Save Money on Your Premium
»» If you have a full emergency fund, the best way to keep
your premiums down is to raise your
7
.
* NOTE: An emergency fund for high school and college students is typically $500 or more;
for adults, it should be a full three to six months of living expenses.
»»A deductible is what you have to pay out of pocket before
the insurance company kicks in any money.
»»Make sure you carry adequate liability. Liability covers
property damage and medical bills if you’re at fault in a
car wreck or if someone gets hurt on your property.
»»Consider dropping your collision on older cars. That’s the
insurance that pays to fix your own car.
JOURNAL QUESTION: VIDEO 1.1
Explain why insurance is an important part of your financial plan.
190 Foundations in Personal Finance High School Edition
SECTIONS 1 & 2
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
WHAT KINDS OF
INSURANCE DO I NEED
AFTER HIGH SCHOOL?
After high school, you’ll
probably need to have four
types of insurance:
1. Car
2. Health
3. Identity Theft
4. Renter’s
+ Section 2:
Basic Types of Coverage
VIDEO 2.1
Basic Parts of Auto Insurance
Auto insurance protects you against
financial loss if you are in a car accident
or if something else causes damage to
your car. Here are the basic components
of an auto insurance policy:
»»Liability covers medical costs and property damage of
the other driver if you get in a wreck and it’s your fault.
It is the least expensive part of your car insurance. You
should always get really good coverage limits.
Need Another Reason to Pay Cash for Your Car?
“My car was recently totaled, but I had full-coverage insurance. The problem
is the bank is asking for $3,000 in 30 days because I did not have gap
insurance. What is gap insurance? I thought I would finally be done with
these car payments because the insurance would take care of everything, but
now I have this bill. What can I do? ”
DAVE’S ANSWER: Gap insurance covers the
difference between what you owe on a car and
what the insurance company says it is worth.
That is what happened to you. Your full-coverage
policy paid for the current value of the car, but
that is less than what you owe the bank. Since
you no longer have the car as collateral, the bank
is calling their note.
Gap insurance can be pretty expensive, which
is another reason not to buy a new car on credit.
The minute you drive off the car lot with a new
car, it loses value and if you get into an accident,
there will be a gap that you are responsible for
unless you have this gap insurance. All you can
do right now is pay the bank what you owe and
move on, lesson learned.
Chapter 9: Insurance 191
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BEFORE DROPPING
COLLISION ON YOUR CAR,
CONSIDER THIS: Since
collision insurance rates
have dropped over the
years, you’ll want to do a
break-even analysis to
see how many years you’d
need to go without a
wreck for it to make
sense. For example, if you
have a $4,000 car and
dropping collision would
save you $800 a year on
premiums, you’d need to
go five years without a
wreck to break even.
+
BREAK-EVEN ANALYSIS:
Method used to evaluate
the wisdom of a financial
decision by determining
the length of time it will
take for the cost of the
decision to be recouped
+
Basic Parts of Auto Insurance (Continued)
»»Medical payment coverage pays for all accidentrelated
medical costs incurred by you or your family
members within three years of an accident.
»»Collision insurance covers damage to your car if it is
hit by another car or object. If you owe money on your
car, the lien holder will require collision coverage. It’s
still not a bad idea even if you own your car or if it’s old.
The insurance coverage will replace your car if totaled in
a wreck—and you won’t be stuck walking.
»»Comprehensive coverage takes care of damage to
your car not caused by a collision. If your car is stolen,
damaged by fire, flood or hail for example, your policy
will pay to repair or replace it.
»»Uninsured/underinsured motorist protection
covers your costs if you are injured by an uninsured
motorist or if you are injured in a hit-and-run accident.
192 Foundations in Personal Finance High School Edition
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According to the federal
Centers for Disease
Control and Prevention
(CDC), crash rates per mile
driven for 16- to 19-yearolds
are four times higher
than those of older drivers.
This makes teen drivers the
most expensive to insure.
$
How Can I Get a Good Deal on
Car Insurance as a Teen Driver?
»»Get good grades. Insurance companies assume that if
you’re a responsible student you are more likely to be a
responsible driver.
»»Take a driver education class.
»» Shop around. Insurance is a product! Make sure you are
getting the best deal for your money.
»» Stay on your parents’ policy through college if possible in
order to benefit from multi-car discounts.
Top Things to Know About Auto Insurance
1. You’re a statistic. To an insurer, you’re not a
person—
you’re a set of risks. An insurer bases
its decisions on your “risk factors,” including
some things that may seem unrelated to
driving a car.
2. Insurers differ. Prices can vary from company
to company. You can save money by comparison
shopping.
3. Don’t just look at price. A low price is no bargain
if an insurer takes forever to service your claim.
Research the insurer’s record for claims service,
as well as its financial stability.
4. Go beyond the basics. Although most states
require only a minimum of liability coverage,
you should look for a minimum coverage of
$500,000.
5. Demand discounts. Insurers provide
discounts to reward behavior that reduces
risk. However, Americans waste $300
billion a year because they forget to ask
for discounts!
6. At claims time, your insurer isn’t necessarily
your friend. Your idea of fair compensation
may not match that of your insurer. Their job
is to restore you financially. Your job is to prove
your losses so that you get what you need.
7. Prepare before you have to file a claim.
Keep your policy updated and reread
it before you file a claim so there are
no surprises.
Chapter 9: Insurance 193
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The average renter’s policy
costs about $16 per month.
National Association of Insurance
Commissioners
Most people don’t
realize how affordable
renter’s insurance is. An
InsuranceQuotes.com
survey found that 60% of
renters believed renter’s
insurance must cost
$250 a year or more; 21%
guessed it would cost
$1,000 or more.
$
Homeowner’s and Renter’s Insurance
When you’re ready, the purchase of
a home is likely one of the largest
single purchases you will ever make.
It will need to be protected through a
homeowner’s insurance policy. This
policy will cover the costs of repairing
or replacing your home in the event
that it is damaged or destroyed by fire,
storms, theft and a variety of other
possible causes.
»»Homeowner’s insurance should be “guaranteed
8
cost” instead of extended
replacement cost.
»»When you are ready to move out of your parents’ house,
you need to have
9
insurance, which covers
the
10
of the renter’s apartment in the event
of fire, storm or theft.
»»
11
liability policies are a good buy once
you have some assets. An umbrella policy gives you
additional liability protection above your other policies.
JOURNAL QUESTION: VIDEO 2.1
What are some ways you can save on car insurance?
194 Foundations in Personal Finance High School Edition
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GROUP VS. INDIVIDUAL
HEALTH PLANS
A group health plan is an
employee benefit plan
maintained by an employer
or by an organization
(such as a union) that
provides medical care
for participants and/or
their dependents through
insurance, reimbursement
or otherwise. The two
main advantages of group
plans are that they spread
the risk over the entire
group to keep premiums
stable and they cannot
deny you coverage based
on health issues.
A smaller percentage of
Americans are covered
through individual health
insurance plans that are
purchased in the open
market—meaning that
they are not provided by
a group or an employer.
People generally choose
this option because
they are self-employed,
retired early, or do not
have a spouse with group
coverage. These plans
are sometimes more
expensive than group
plans and can deny
coverage if you have a
history of poor health.
+
VIDEO 2.2
Health Insurance
You may think that because you are young and healthy
that health insurance is not necessary, but you’d be
wrong. Everyone needs to have health insurance. Medical
emergencies due to injury or illness can occur to anyone at
any time. And with the ever-rising cost of health care, you
need to be prepared.
Save on Your Health Insurance Premiums
»» Just like with auto insurance, staying on your parents’
health insurance policy until you’re out of school and on
your own will lower your costs.
»» Increase your
12
and /or coinsurance amount.
»» Increase your -
13
, but never decrease
your maximum pay. Stop-loss is your maximum out-ofpocket
expense.
»» See if an
14
, a Health Savings Account, would
make sense for your situation.
»»The HSA is a -
15
savings account
for medical expenses that works with a high-deductible
insurance policy.
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On average, the cost of
a trip to the hospital via
ambulance is anywhere
from $350 to as much as
$2,000.
howmuchisit.org
In a recent study,
researchers found that
the average charge for
an emergency room visit
came out to $1,233, which
is 40% higher than the
average American rent
right now, $871 per month.
The Washington Post
$
The Basic Components of Health Insurance
»»Basic health insurance policies cover hospital, surgical
and physician expenses.
»»Major medical expense insurance covers medical costs
that are in excess of those covered by basic health insurance.
»»Dental and eye insurance plans cover only expenses
for dental work and expenses related to eye care.
»»A copayment is an amount of money you pay to help
cover a portion of your medical costs. Copayments
may be a set amount or a percentage of the total cost,
depending on your insurance policy.
»»A deductible is the amount you must pay before you begin
receiving any benefits from your insurance company.
* NOTE: There are currently many changes going on in our health care system. It’s important
for you to stay educated on these changes and how they relate to your health insurance needs.
JOURNAL QUESTION: VIDEO 2.2
Explain why having health insurance is important even if you are
young and healthy.
196 Foundations in Personal Finance High School Edition
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REAL LIFE
Some companies will
do anything to make a
buck—including insurance
companies. Here are a few
bizarre examples of actual
insurance plans available:
• Alien abduction
insurance
• Pet insurance
• Wedding insurance
+
VIDEO 2.3
Long-Term Care Insurance
Long-term care is care that you need if you can no longer
perform everyday tasks by yourself. Causes may be chronic
illness, injury, disability or advanced age. Your odds of
needing this level of care increase as you get older.
»»Long-term care insurance is for
16
homes,
assisted living facilities or in-home care.
»»A good long-term care policy will include
-
17
care.
»»You should not buy long-term care insurance until
age
18
. The probability of a nursing home stay
before age 60 is almost zero.
»»At least
19
% of people over the age of 65 will require
long-term care at some point.
»»Long-term care insurance is not the same as disability or
short-term medical care.
JOURNAL QUESTION: VIDEO 2.3
At what stage of life will the cost of your healthcare needs be
most expensive?
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THINGS TO REMEMBER
ABOUT DISABILITY
INSURANCE
Disability insurance is
a long-term solution.
Your short-term needs
should be covered by a full
emergency fund of three to
six months of expenses.
Buy disability with aftertax
dollars. If you become
disabled and you bought
disability insurance with
pre-tax dollars, your
disability income will
be taxable.
+
OCCUPATIONAL
DISABILITY: Type of
insurance that provides
an income in case the
insured becomes unable to
perform the job he/she was
educated or trained to do
+
VIDEO 2.4
Disability Insurance
Disability insurance is designed to replace
20
lost due to a short-term or permanent disability. It basically
provides an income for you if you have an accident or health
condition that prevents you from working. Once you are
working full time to support yourself, you will need to have
disability coverage.
»»Try to buy disability insurance that pays if you cannot
perform the job that you were
21
or
educated to do.
»»That is called
22
or “own occ”
disability. Many times, this is only available for two years.
»»Beware of -
23
policies covering less
than five years. Short-term disability should be covered
by your emergency fund, staying out of debt, and having a
money plan.
»»Disability insurance is most affordable if it is offered
through your employer.
»» Your coverage should be for
24
% of your current income.
»»The
25
period is the time between the
disabling event and when the payments actually begin.
A
26
elimination period will
27
your
premium cost.
198 Foundations in Personal Finance High School Edition
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• 38% of ID theft victims
had a debit or credit card
number stolen.
• 43% of all ID theft is a
result of stolen wallets
and paperwork.
• About 11% of all identity
theft occurs through the
internet.
• 40% of victims report
profound stress in their
personal lives as a result
of identity theft.
identityhawk.com
$
WHITE-COLLAR CRIME:
Financially motivated,
nonviolent crime
+
DO I HAVE TO
PROVIDE MY SOCIAL
SECURITY NUMBER
TO ANY BUSINESS OR
GOVERNMENT AGENCY
THAT ASKS?
Go to foundationsU.com/
sshelp to find out when
it’s necessary and when
it’s not!
+
Identity Theft Protection
The fastest growing white-collar
crime in North America today is
identity theft. Identity theft happens
when someone gains unauthorized
access to your personal information.
According to identityhawk.com, young
adults ages 18 to 24 are at the highest
risk. It takes people in this age range 132
days on average to notice fraudulent
activity on their accounts.
»»Don’t buy identity theft protection that only provides
credit report
28
. Credit report monitoring
is something you can, and should, do yourself.
»»Good protection includes
29
services
that assign a
30
to clean up the mess. This
means someone else will spend the time it takes to clean
up the mess so you won’t have to.
Remember, insurance is all about transferring risk. In this
case, you’re paying someone to take on the risk of cleaning
up the aftermath of your stolen identity. This is someone
who is ready, willing and able to go to battle with banks and
creditors that will come after you to collect the debts that
the thief created in your name.
JOURNAL QUESTION: VIDEO 2.4
Explain why identity theft protection is so important.
Chapter 9: Insurance 199
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WHAT DOES IT MEAN TO
BE SELF-INSURED?
If you follow the Five
Foundations, you will begin
investing when you finish
school and begin working
in your career. Then, when
you are 57 years old and
the kids are grown and
gone, the house is paid for,
you have no debt, and you
have $700,000 in mutual
funds, you’ll become
self-insured. That means
when your 20-year term is
up, you shouldn’t need life
insurance at all—because
with no kids to feed, no
house payment, and
$700,000 in the bank, your
spouse will be financially
secure in the event of
your death.
+ Section 3:
The Importance of Life Insurance
VIDEO 3.1
Life insurance provides a monetary payout to
beneficiaries (the person or people you elect to receive
money or other assets) in the event of your death. The
financial risk associated with death is the loss of income
necessary to support your family.
»» Life insurance is to replace lost income due to
31
.
»»Two Types of Life Insurance:
1.
32
insurance is for a specified period, is
substantially cheaper, is easy to understand, and has
no savings plan built into it. It has one job and one job
only: It replaces your income when you die.
2.
33
insurance is normally for life and
is more expensive because it funds a savings plan.
»»The most common insurance myth is that the need for
life insurance is a
34
situation.
»» If you save, invest, stay out of debt, and have a solid
financial plan, you will eventually become -
35
.
200 Foundations in Personal Finance High School Edition
SECTION 3
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»»When purchasing life insurance, you should buy only
low-cost level term. Level term means you pay the same
amount for the entire term of the policy.
JOURNAL QUESTION: VIDEO 3.1
Which type of life insurance is the better option, term or cash value?
Explain your answer.
The Purpose and Importance of Estate Planning
“I’m a teenager. Why should I care about a will now?”
DAVE’S ANSWER: Once you turn 18, you will
need to create a will. The truth is you have no
idea when you’ll pass away. It’s not pleasant to
think about, but it’s important to be ready. You’ll
have valuable items that will be left behind, and
you do not want the state deciding where your
money or belongings should go.
A will includes your final wishes for your family
and friends, so take your responsibility seriously.
You should identify people in your life who will
receive these valuables, or assets. Do not rely on
your state government to distribute your wealth.
* NOTE: Get more information on creating a will by completing the Chapter 9 activity “What’s With the Will?”
Chapter 9: Insurance 201
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Budget
Builder
Insurance isn’t exciting.
But it is necessary
and so appreciated
when you need it! Go to
foundationsU.com/9 to
build insurance premiums
into your budget.
Section 4 : Insurance to Avoid
VIDEO 4.1
Bad Ideas in the Insurance World
»»
36
life/disability: pays off a borrower’s debt
if that borrower dies or becomes disabled (your term life
insurance already covers this)
»»Credit
37
protection: insures your credit card
debt (you should avoid owning a credit card, period)
»»
38
and hospital indemnity insurance: insures
you against cancer or other medical issues (your health
insurance already covers this)
»»Accidental
39
: insures you against unexpected
accidents that cause your death (your term life insurance
already covers this)
»»Any insurance with
40
, investments
or refunds: anything that combines insurance with
investments is a bad idea
»»Prepaid
41
policies: if invested instead, this
money would pay for the burial policy many times over
»»
42
life insurance: pays off your home
mortgage if you die unexpectedly or become disabled
(your term life insurance, which is 10 to 15 times
cheaper, already covers this)
202 Foundations in Personal Finance High School Edition
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»»Any kind of
43
coverage: any extra
insurance on top of your existing insurance (remember,
you only need one policy for each type of insurance); the
two insurance companies fight over who pays the bills
and nothing gets accomplished
JOURNAL QUESTION: VIDEO 4.1
What is duplicate coverage, and why should you avoid it?
Cash Value vs. Term + Roth IRA
Cash value life insurance is a bad investment. Consider this:
« $1.375M
« $1.500M
« $1.125M
« $875K
« $625K
« $375K
« $125K
« $1.250M
« $1.00M
« $750K
« $500K
« $250K
AGE 30 AGE 50 AGE 70
FOR $145 A MONTH, you could have
$125,000 in cash value insurance.
OR, for that same $145, you could pay
$10 a month for $400,000 in 20-year
term insurance and invest $135 into
a Roth IRA. If you start at age 30 your
investment will be worth:
At Age 70
Term + Roth IRA: $133,000
Cash Value: $27,500
Term + Roth IRA: $1,500,000
Cash Value: $65,000
At Age 50
Chapter 9: Insurance 203
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Take Action Challenge
Garret owns an older car worth about $5,000. He thinks he is paying too much for auto insurance and wants
to find out how he can save money. He decides to look into raising his deductible from $250 to $1,000. By
doing this, he can save $200 per year. Use the break-even analysis (found in Section 2): If Garret raises the
deductible, will it be worth the risk? Defend your answer.
Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered and complete the “after” column of the Measure
Your Progress section.
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
»»Managing risk is a major part of a healthy financial plan.
»» The purpose of insurance is to transfer risk.
»» Insurance is a product—be a wise consumer!
204 Foundations in Personal Finance High School Edition
RECAP & REVIEW
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Build On What You’ve Learned
Complete the graphic organizer below.
TYPE OF INSURANCE NEEDED FINANCIAL RISK COVERED STAGE OF LIFE NEEDED
1. Homeowner’s or Renter’s
2.
Cost of damage to your vehicle,
liability and medical in the event
of an accident or other event that
may damage your vehicle
3. Health
You should always have
health insurance.
4.
Your income in the case of illness
or injury that prevents you from
working
5. At age 60 and above
6. Identity Theft Protection
The cost of hiring someone who
has the time and knowledge to
clean up the mess
7.
When you have
dependants who rely on
your income until you
become self-insured
Chapter 9: Insurance 205
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Money in Review
a Deductible
b Policy
c Claim
d Premium
e Liability
f Coverage
g Out-of-Pocket Expense
1. _____ Specific amount of money that you pay
when insurance only covers a portion
of costs
2. _____ Paperwork filed with an insurance
company in order to get them to cover a
loss for someone they insure
3. _____ Describes the type of coverage in an
insurance agreement
4. _____ Amount you pay monthly, quarterly,
semiannually or annually to purchase
different types of insurance
5. _____ Applies to the amount of protection you
have through an insurance company in
the event of a loss
6. _____ Amount you must pay before you
begin receiving any benefits from your
insurance company
7. _____ The state or quality of being obligated
according to law or equity
Matching
Match the following terms to the correct definition below.
Illustration
Draw a picture representation of each of the following terms.
Financial Risk Insurance
206 Foundations in Personal Finance High School Edition
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Multiple Choice
Circle the correct answer.
8. Raising your deductible may be a good option
when it comes to lowering your premium, but
it is important to do a break-even analysis
before making that decision.
a True
b False
9. Financially, it makes sense to stay on your
parents’ auto insurance policy through
college if possible.
a True
b False
10. Which of the following would not be a
huge financial risk (and, therefore would
not require insurance) if you had a full
emergency fund of $500 or more?
a A car accident
b A lost cell phone
c A medical emergency
d Stolen identity
11. The time between the disabling event and
the beginning of payments in your disability
coverage is called:
a Deductible
b Out of pocket
c Stop gap
d Elimination period
12. A life insurance policy that covers a specific
period of time is called:
a Whole life
b Term
c Universal
d Level
Short Answer
Respond in the space provided.
13. What does it mean to “transfer risk”?
14. Explain the importance of liability protection.
15. Why should life insurance not be used as
an investment?
16. Explain how someone becomes self-insured.
17. What are some unnecessary types of
insurance? Why are these unnecessary?
Chapter 9: Insurance 207
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What do other high
school students know
about money and
relationships?
We asked high school students if
they’ve ever witnessed money affecting
a relationship close to them.
“Money is always a strain at my
house. At least every other day, my
parents fight about money.”
Junior, Michigan
“When my parents fight, it is
usually concerning a large
purchase that they didn’t discuss.”
Senior, Wyoming
“My parents fought all the
time about money and are now
divorcing.”
Senior, Alabama
“Money was the cause of my
parents’ divorce when I was
5 years old.”
Senior, Oklahoma
“I argue with my parents all the time
about money. I don’t understand
why they say no to giving me the
spending money I ask for, even
though we seem to be fine financially.”
Junior, Florida
10
CHAPTER
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Money and
Relationships
MONEY AND RELATIONSHIPS go hand in
hand, which means the way you handle your
money affects everyone around you. Hard to
imagine, right? Well it’s true. Whether you
save, overspend, are generous in your giving,
or often borrow from friends—people notice.
Your current and future relationships will
all be influenced by how you handle money.
So let’s make it a priority now to learn more
about this topic.
*Charles Schwab Teens & Money Survey (2011)
of teens receive a
weekly allowance
of, on average, just
over $16 per week.*
34%
of teens are
borrowing money.
On average they owe
$252. They most
frequently owe money
to their parents,
school or friends.*
28%
UNIT 4: CHAPTER 10
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Key Terms
Get to know the language of money.
»» Accountability: The quality or state of
being responsible, liable or answerable
»» Free Spirit: A person who thinks
that everything will work out fine and
typically hates to deal with the details
»» Nerd: A person who is picky about
budgeting and details
»» Time poverty: A situation in which
a person is lacking time, which leads
to stress
»» Value system: A person’s priorities,
beliefs and standards that affect how he
or she views the world
Learning Outcomes
Once you’ve completed this chapter’s videos, you will be asked to
return to this list of learning outcomes and place a checkmark
next to the items you’ve mastered.
Section 1: Understanding Your Money Personality
…… Identify differences among people’s values and attitudes
as they relate to money.
…… Evaluate your own money personality.
Section 2: Marriage and Money
…… Evaluate how discussing important financial matters
with household members can reduce conflict.
…… Understand how having a budget or a money plan can
reduce conflict.
Section 3: Communication Is Key
…… Understand the value of discussing individual and
shared financial responsibilities.
…… Develop communication strategies for discussing
financial issues.
…… Integrate healthy communication about money with
parents, friends and others.

Before You Begin
210 Foundations in Personal Finance High School Edition
INTRODUCTION
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Measure Your Progress
Before you watch the Money and Relationships video, take the following survey to see if you have more Free
Spirit or Nerd tendencies. Check the characteristics that best describe you.
JOURNAL QUESTION: INTRODUCTION
What are your initial thoughts about money and relationships? What do you want to learn
about money and relationships?
Creative
Spontaneous
Less organized and not concerned
about rules
Late for meetings, dates,
appointments—most everything
Easygoing
Number-oriented (enjoy working
with numbers)
Rule followers
Organized
On time for everything
Slow and steady when making
decisions
FREE SPIRITS tend to be: NERDS tend to be:
Chapter 10: Money and Relationships 211
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“Your priorities,
passions, goals and
fears are shown
clearly in the flow of
your money.”
DAVE RAMSEY
“
Information not otherwise
sourced in this section is
based on Dave Ramsey’s
personal experience
counseling families for
more than 20 years.
+ 10 CHAPTER
Section 1:
Understanding Your Money Personality
VIDEO 1.1
Values and Attitudes
HOW DO YOUR VALUES RELATE TO
MONEY? If you value security, you
are more likely to be a saver. If you
value freedom and spontaneity,
you’re probably more likely to spend.
When handling money, it’s difficult
to balance who you are with what
you should do. Being aware of your
money personality will help you
create a plan to accommodate both.
When it comes to relating with others
about money, it’s important to also
consider their values.
Men, Women and Money (Over-Generalizing)
Men and women generally approach money in very
different ways. Of course, not all men and women will
relate to money in this way, but there are some patterns
that have proved themselves over and over again.
The flow of money in a family represents the
1
1
under which that family operates. Where your
money goes is an indication of what is important to you.
212 Foundations in Personal Finance High School Edition
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“Personal
relationships are the
fertile soil from which
all advancement,
all success, all
achievement in real
life grows.”
BEN STEIN
American actor, writer
and commentator
“
More teen girls than boys
report saving their money
for small purchases like
music or clothes. (27%
boys, 36% girls)
More teen boys than girls
report saving their money
for bigger purchases, like a
car. (48% boys, 37% girls)
Charles Schwab Teens
& Money Survey (2011)
$
Emergency Fund Savings
»»Men: “It’s boring and not
2
enough.”
»»Women: “It’s the most
3
key to our
financial plan.”
Shopping
»»Men get good deals by
4
. They want to win.
»»Women get good deals by
5
. They enjoy
the process.
Financial Problems
»»Men lose -
6
when money problems
pop up, because money usually represents a scorecard
to them.
»»Women experience
7
or even
8
when
money problems arise. With women, money usually
represents
9
.
JOURNAL QUESTION: VIDEO 1.1
Have you ever witnessed money affecting a relationship close to you?
Chapter 10: Money and Relationships 213
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HOW TEENS LEARN TO
MANAGE MONEY
• 82% Parents
• 65% Real-Life Experience
• 49% School
Charles Schwab Teens
& Money Survey (2011)
$
FINANCIAL CONTRACTS
AND RESPONSIBILITIES
A lease is a contractual
arrangement calling for
the lessee (user) to pay
the lessor (owner) for the
use of property. A more
common term is rental
agreement.
Contracts or legal
documents not only
define the legal rights or
privileges of the parties
involved, but also define
the duties and obligations
of the parties. Contracts
and written agreements
are “binding documents,”
which when properly
written and signed become
enforceable by law.
+
Section 2: Marriage and Money
VIDEO 2.1
It takes teamwork! If men and women
are so different, who is supposed to
do the financial decision making in
a marriage? BOTH! Handling money
is the responsibility of both people
in a relationship. Although one
person might have a natural gift for
budgeting and working with numbers,
the decision making has to be done
together. Communication, teamwork
and consistency are all important
elements of handling family finances.
»»The number-one cause of divorce in America is money
10
. If it’s the number-one problem, that means it
is also the number-one opportunity to improve a marriage.
»»When you agree on your spending, that means that you
also agree on your value system.
»»The
11
likes doing the budget because it gives them
control, and they feel like they are taking care of loved ones.
»»The
12
feels controlled, not cared for,
and can appear irresponsible to the Nerd.
In a marriage, you are financially
accountable to one another. That’s
why having a monthly budget is
so important. Not only does it tell
your money what to do, but it also
represents two people agreeing on
what they want their money to do.
JOURNAL QUESTION: VIDEO 2.1
Would you describe yourself as a Nerd or a Free Spirit when it comes
to handling money? Explain your answer.
214 Foundations in Personal Finance High School Edition
SECTIONS 2 & 3
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According to a recent
Charles Schwab Teens &
Money Survey (2011), 9 out
of 10 teens say they were
“affected by the recession,”
causing major shifts in
perspective that include
a greater appreciation
for what they have and an
increased awareness of
financial hardship.
Section 3: Communication Is Key $
VIDEO 3.1
The Budget Committee Meeting
»»The budget committee meeting is a great way to learn
how to communicate and avoid conflict when it comes to
money and marriage.
»»The Nerd should be the one to prepare the budget, but the
decision making must be done by both people.
»»Remember the basics of budgeting: You spend every
dollar on paper before the month begins. Every dollar has
a name or a purpose.
Will My Boyfriend’s Credit Score Affect Me?
“My boyfriend’s credit is in bad shape, and we’re thinking about getting
married someday. Will his bad credit rating affect mine? My credit is in
good shape right now.”
DAVE’S ANSWER: Marrying someone with a bad
credit rating will not affect your score. In other
words, the black marks on his credit rating don’t
jump across the aisle onto your report as soon
as he slips the ring on your finger.
After you’re married, your husband will be listed
as “spouse” on your report. Then, if they pull
your report for any reason, they’ll see that half
of your “team” has had some problems in the
past. When the two of you decide to buy a home,
it may be difficult if there are still problems with
his credit report.
But the big issue here is that you seem to have
differing views on money management. Make sure
you go through premarital counseling together
and begin the process of working together to make
monthly budgets. If you get married, money is
going to be a big part of your lives for a long time.
Agreeing on your goals now will set the foundation
for your dreams.
Chapter 10: Money and Relationships 215
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PRACTICAL TIPS FOR
COMMUNICATING WITH
OTHERS ABOUT MONEY
1. Listen. Communicating
with others isn’t just
about expressing
your own wants and
needs—it’s also about
listening to what others
want and need.
2. Pick the right time
and place. Starting a
conversation with your
mom or dad two minutes
before they need to
leave for work is not
ideal. Make sure there
is time for both of you
to have a relaxed and
complete conversation.
3. Be honest. When
it comes to money
and relationships,
honesty is key.
4. Seek counsel. You’re
young, and there will
be money mistakes
in your future. One
of the best ways to
avoid these mistakes
is to seek advice from
trusted adults—even
if it’s not the answer
you want to hear.
5. Communicate your
money goals. Let your
parents and others
close to you know
about your goals.
Doing this will help
provide accountability
and encouragement
along the way.
+
How to Talk to Your Parents About Money
Some of you have parents who pay for everything. Others
have parents who won’t give you a dime—if you want
something, even if it’s important, it’s your responsibility.
The rest of you may have parents who fall somewhere in
the middle.
You can’t control your parents, but what you can do is
13
to them. If you want to learn how to manage money
before taking on the bills and responsibilities of an adult, you
need to be in open communication with your parents.
Talk about your
14
. Share your thoughts on money,
what you want to start paying for, and the things you may
need help paying for.
15
your parents’ decisions. Don’t beg or
manipulate. The goal here isn’t to get more money out of your
parents. Instead, it’s to become responsible and independent
with the money you have.
Singles and Money
It won’t be long before you’re an adult
managing your own money and
paying your own bills. You’ll find that
managing your money alone creates
some unique challenges. You go from
being accountable to your parents to
making all your choices on your own,
which can make it easy to get off track
when it comes to your financial goals.
Single adults need to be proactive
about having financial accountability
in their lives.
»»
16
and fatigue can lead to poor
money management. Young singles who are in college
or just getting started in their career typically pour all
of their time and energy into that. It’s easy to let your
216 Foundations in Personal Finance High School Edition
SECTION 3
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“When you learn to
respect others, you
will see yourself
improve in selfesteem,
happiness
and fulfillment.”
SHARON RAMSEY
“
MONEY TOPICS TEENS
WOULD LIKE TO TALK
ABOUT WITH THEIR
PARENTS
1. How to invest money
2. Their career aspirations
3. How to budget money
+
Budget
Builder
Is your money personality
and value system evident
in your budget? Go to
foundationsU.com/10 for
your next budget lesson.
busy life keep you from reconciling your account, much
less writing a budget each month. If you let this happen,
financially you’ll end up just treading water and not
going anywhere. Even with a tight schedule, managing
your money must remain a priority.
»»Beware of
17
buying, which can be brought
on by
18
or even by the “I owe it to myself”
syndrome. With no one’s opinion or input to worry about,
single adults can rationalize almost any expense. If
you’re single, you have a greater responsibility to manage
your money because no one is looking over your shoulder.
It’s up to you!
»»A written plan gives the single person empowerment,
self-accountability and
19
. You must do a
budget every month! A written plan gives you peace of
mind and keeps you on track to reach your goals.
»»Develop an
20
relationship. This is
someone with whom you discuss major
21
and your budget. Accountability friends must love you
enough to be brutally honest and promise to do so for
your own good.
JOURNAL QUESTION: VIDEO 3.1
How will this chapter change the way you talk to your parents about money?
Chapter 10: Money and Relationships 217
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Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter and place a
checkmark next to the learning outcomes you’ve mastered. Review the Measure Your Progress section to
see if any of your answers have changed.
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
»» How you handle money will affect your relationships.
»» Know your money personality.
»» Communication is key!
218 Foundations in Personal Finance High School Edition
RECAP & REVIEW
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Take Action Challenge
Reflect on your self-portrait. Think about your money personality and values. Now consider your spending
and saving habits. In the space below, write about how your money personality and values relate to how you
handle your money.
Build On What You’ve Learned
Draw a picture of yourself in the space below (a stick figure will work fine). Label your drawing with elements
of your money personality and values. Compare your drawing with your peers’. In what ways are your money
personalities and values similar? In what ways are they different?
Chapter 10: Money and Relationships 219
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Money in Review
a Nerd
b Value System
c Time Poverty
d Free Spirit
e Accountability
1. _____ A person who is picky about budgeting
and details
2. _____ The quality or state of being responsible,
liable or answerable
3. _____ A situation in which a person is lacking
time, which leads to stress
4. _____ A person who thinks that everything
will work out fine and typically hates to
deal with the details
5. _____ A person’s priorities, beliefs and
standards that affect how he or she
views the world
Matching
Match the following terms to the correct definition below.
Illustration
Draw a picture representation of each of the following terms.
Conflict Respect
220 Foundations in Personal Finance High School Edition
RECAP & REVIEW
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Multiple Choice
Circle the correct answer.
6. Communicating about financial issues and
goals in a relationship can reduce conflict.
a True
b False
7. When it comes to managing money, your
personality and values have no importance.
a True
b False
8. Which of the following present challenges
to managing money as a single adult?
a Time poverty
b Being accountable to no one
c Impulse buys
d All of the above
9. When it comes to communicating with
others about money, you should not:
a Listen
b Manipulate
c Pick the right time and place
d Be honest
10. When married couples do not share goals
and values in how they manage money,
which of the following can occur?
a Conflict
b Divorce
c Stress
d All of the above
Short Answer
Respond in the space provided.
11. Describe some general differences in
how men and women relate with money.
12. How does communication about
important financial matters in households
reduce conflict?
13. How does having a budget reduce conflict
in relationships?
14. Summarize challenges you’ll face managing
money as a young single adult.
15. Summarize ways that you can overcome the
challenges you listed in question 14.
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What do other high
school students know
about taxes?
We asked other high school students
how they think taxes will affect them.
“Many people struggle with
understanding how they work
(like me).”
Junior, Louisiana
“We all have to pay them, and
sometimes we get taxes back.”
Sophomore, Texas
“They are taken out of every
paycheck.”
Senior, Minnesota
“You pay taxes on everything you
own, but then they give you a tax
return or something like that.”
Junior, Illinois
11
CHAPTER
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Careers
and Taxes
IT MIGHT SEEM overwhelming to consider
all the career opportunities in the world
today and have to land on just one. But now is
an important time to start selecting, preparing
and planning for your future career.
Obviously, income is important. But when it
comes to careers, it’s not just about money.
The goal of your professional life should be to
devote yourself to your passion and calling,
finding somewhere and some way to make a
living by working in your strengths.
*Junior Achievement Teens and Careers Survey 2012
of teens do not know
anyone who works
at their dream job.*
35%
of teens said their
chosen career will
require four or more
years of college.*
66%
UNIT 4: CHAPTER 11
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Key Terms
Get to know the language of money.
»» Earned income: Any income (wages/
salary) that is generated by working
»» Income tax: Tax paid out by anyone who
earns an income
»» Passive income: Money earned on a
regular basis with little or no effort
required to maintain it. Some things that
produce passive income are real estate,
intellectual property like books or
internet content, or a business in which
the owner is not actively involved.
»» Personal branding: The process by
which we “market” ourselves to others;
involves highlighting personal strengths,
interests and unique qualities and
identifying goals
»» Portfolio income: Income generated by
selling an investment at a higher price
than you paid for it
»» Property taxes: Taxes paid by anyone
who owns property such as land, a
home or commercial real estate
»» Résumé: A brief account of one’s
professional or work experience and
qualifications, often submitted with an
employment application
»» Sales tax: Tax on goods and services
that goes to your state or local
government
»» Social Security: A federal insurance
program funded by taxpayer dollars
that provides benefits to people who
are retired, unemployed or disabled
Learning Outcomes
Once you’ve completed this chapter’s videos, you will be asked to
return to this list of learning outcomes and place a checkmark
next to the items you’ve mastered.
Section 1: Self-Assessment
…… Identify your personal strengths and weaknesses.
Section 2: Goal Setting
…… Clarify your educational and career goals.
…… Understand the components of goal setting.
Section 3: You Won’t Love the Entry Level
…… Understand the value of entry-level jobs.
…… Identify valuable work attributes outside of your general
skill set.
Section 4: Best Practices of Successful People
…… Identify the best practices of successful people.
…… Develop a résumé.
…… Analyze the interview process and develop personal
interview skills.
Section 5: Income and Taxes
…… Describe factors affecting take-home pay.
…… Identify sources of personal income.
…… Identify different types of taxes.
…… Be familiar with various documents for reporting taxes.
…… Analyze the costs and benefits of paying taxes and the
cost of government services.

Before You Begin
224 Foundations in Personal Finance High School Edition
INTRODUCTION
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Measure Your Progress
The majority of this chapter is about choosing a career that blends your strengths, interests, abilities and
personality traits. Whether you are going to college or straight into the workforce, you will need to be able to
answer some basic questions about yourself. The answers to these questions will not only help guide you in
your career path, but they will prepare you for interviews as well. Take some time to answer these questions:
JOURNAL QUESTION: INTRODUCTION
1. What are your interests?
2. What are your career goals?
3. How would you describe yourself?
4. Describe your ability to work as part of a team.
Chapter 11: Careers and Taxes 225
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“The mindset today
is you have to know
who you are and
how you function in
the market. That’s
the only security
you have.”
DAVE RAMSEY
“
• 43% of teens are “very
confident” they will
someday have their
dream job.
• 71% of teens would
consider giving up their
dream job for one that
paid a higher salary.
Junior Achievement Teens
and Careers Survey 2012
$ Section 1: Self-Assessment
VIDEO 1.1
A Message From Dave
THE JOB MARKET
is changing, so you
must be prepared to
change with it. My
grandfather was an
incredible man. He
was one of my heroes, actually. He
entered the workforce during one of
the most difficult periods in American
history, the Great Depression. Life
wasn’t easy back then, but he enjoyed
his work, loved his family, and poured
himself into both. He started in the
accounting department at Alcoa,
an aluminum company, as a very
young man, and over time he grew into
one of their head cost accountants.
Grandpa stayed with Alcoa for 38
years, until the day he retired from
the workforce. He left with a gold
watch and a pension, as well as the
satisfaction of knowing he’d devoted
his entire working life to a single
company. Those days are gone in
America. Companies, products,
services, startups and shutdowns
are moving faster today than ever
before. The rate of change going on
in the workplace is mind-blowing!
My grandfather, God love him, would
be completely out of place in today’s
market. Throughout this course, we
focus almost entirely on the “outgo.”
That is, we budget and plan how to
spend and save our money. That’s what
the Five Foundations are all about,
right? It’s how we tell our money what
to do once it leaves our hands. In this
chapter we switch gears and examine
your income.
11 CHAPTER
226 Foundations in Personal Finance High School Edition
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“Winning isn’t
everything, but
wanting to win is.”
VINCE LOMBARDI
Former NFL coach
“
“Just because you’re
good at something
doesn’t make it
a strength. You also
must have a passion
for what you’re
doing—that’s what
qualifies it as
a strength.”
MARCUS BUCKINGHAM
Author
“
Consider This When Choosing a Career Path
»»Deciding on a career is not as hard as you think.
Ask yourself: What do you love to do? What are you
1
good at? What hobbies and interests
do you already have that you could turn into a career?
»»You can experiment by getting a part-time job,
volunteering, or just
2
someone on a job you
are interested in. While you are there, ask questions!
»» Invest time in
3
your decision rather than
spending time
4
it later.
»»Remember, just because a particular job pays well
doesn’t mean it will be something you
5
.
»»Don’t get money and happiness
6
!
»»The job market constantly changes—and so do
7
.
Even if you decide the career you chose doesn’t fit you
10 years from now, it’s not the end of the world. It’s
actually
8
.
»»What’s most important is that you do what you love;
do what you’re naturally good at. If you do that with
9
, you won’t have to worry about money.
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“It’s not how much
money we make that
ultimately makes us
happy between nine
and five. It’s whether
our work fulfills us.”
Outliers: The Story of Success
“
Young adults go through
an average of seven jobs
during their 20s.
Society for the Study
of Emerging Adulthood
$
“It took me a long
time to learn that
dreamers are a dime
a dozen. The world is
lousy with dreamers.
Doers? They’re rare.
They’re the ones
who actually change
the world.”
JON ACUFF
“
Identify Your Personal Strengths
and Weaknesses
The average worker today will have 10
different jobs by age 40 and could have
as many as 20 different jobs during his
or her working lifetime. Unlike past
generations of Americans, the modern
workforce finds security not in the
longevity of their employment with a
single, stable company, but rather in
understanding who they are and what
they want to be doing. The focus has
shifted away from the big corporations
and toward the individual’s strengths
and passions.
VIDEO 1.2
A Message From Jon
How to Stay Positive
Everyone has them:
those nagging voices
of fear and doubt. They
only get loud when you
do things that matter.
And since you’re going to do a lot of
things that matter, you can expect
some voices headed your way. So what
can you do? You’re going to beat your
voices by doing three things:
1. 10 them down. Voices are invisible bullies,
and they hate when you make them visible. The best way
to do that is to write them down in a simple notebook.
They can’t stand to be documented, because the minute
they are, you can see how stupid they are. Lies hate the
light of day.
JOURNAL QUESTION: VIDEO 1.1
What are some of your personal strengths and weaknesses?
228 Foundations in Personal Finance High School Edition
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“Hard work is a
prison cell only
if the work has no
meaning.”
MALCOLM GLADWELL
Best-selling author and speaker
“
“The future belongs
to those who believe
in the beauty of their
dreams.”
ELEANOR ROOSEVELT
Former First Lady of
the United States
“
2. 11 them with truth. Never argue with a
voice. That’s a never-ending tangled discussion you
won’t escape from any time soon.
3. 12 your voices. Do you know what fear and
doubt fear? Community. One of fear and doubt’s chief
aims is to make you feel alone—like you’re the only one
who feels a certain way. Fear wants to isolate you. As
long as you keep your fear to yourself, no one can tell you
the truth about it.
Build Your Brand
Most people know what a brand is.
Who makes your favorite shoes or soft
drink? But do you know why branding
is important when selling a product?
Companies spend a lot of money
on developing their specific brand
message. A brand is meant to tell the
“story” of a product through creative
packaging and advertising in order to
distinguish it from the competition.
Personal branding has the same
purpose. It’s simply a process of
identifying your skills, experiences
and strengths and marketing those
in the most effective way. You want
to leverage your education and
personal attributes for success. For
example, say you spend a semester of
college studying Spanish in a thirdworld
country. You would want to be
intentional about how you market
that unique experience on your
résumé. What you learned and how
you grew as an individual were just
as important as the skill of speaking
a foreign language.
JOURNAL QUESTION: VIDEO 1.2
Write down what your negative voice says about you. Refute that voice
with the truth and share it with others.
Chapter 11: Careers and Taxes 229
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The DISC is a popular
system originally based on
the work of an American
psychologist named
William Moulton Marston
in the 1920s.
TEST YOURSELF
Go to foundationsU.com
and take the DISC
Personality Profile.
+
“The way to succeed
is to identify your
strengths and
weaknesses, then
seek goals that fit
those strengths
and weaknesses
using tactics and
strategies that
take advantage
of your strengths
and sidestep your
weaknesses.”
JOHN T. REED
American businessman,
author and investor
“
VIDEO 1.3: THERE ARE NO FILL-INS FOR THIS SECTION
Just Because You’re Good at Something
Doesn’t Make It a Strength
According to Marcus Buckingham,
author of Go Put Your Strengths
To Work, “most people think your
strengths are what you’re good at,
and your weaknesses are what you’re
bad at.” He explains that this isn’t a
good way to measure your strengths
and weaknesses. There may be a lot
of things that you’re good at but hate
doing. Just because you’re good at
something doesn’t make it a strength.
You also must have a passion for what
you’re doing—that’s what qualifies it
as a strength. “A better definition of
a strength,” says Buckingham, “is an
activity that makes you feel strong. And
a weakness is an activity that makes
you feel weak. Even if you’re good at
it, if it drains you, that’s a weakness.”
You Never Outgrow Who You Are
Even though your knowledge and
work experience will change
throughout your life, you’ll never
outgrow who you are. Everyone has
natural tendencies, strengths and
weaknesses that are intertwined with
who they are as people. You cannot
leave it up to someone else to tell you
what you should do with your life—not
your parents, your friends or your
teachers. Your career must engage
your strengths, not silence them. For
example, if you have high energy and
love interacting with others, then a
job that requires you to sit at a desk
all day where you are isolated from
others probably would not be a good
fit for you.
JOURNAL QUESTION: VIDEO 1.3
Which careers compliment your passions and strengths?
230 Foundations in Personal Finance High School Edition
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DISC Personality Profile
Understanding your own strengths and weaknesses should be a top priority.
Remember, people who only work for money are miserable because there is no
fulfillment or meaning in their careers. You must find something that blends
your skills, abilities, personality traits, values, dreams and passions.I
S
D
C
Implementor Conductor Persuader
Promoter Relator
Analyzer
Coordinator
Supporter
FAST
SLOW
TASKS PEOPLE
Stabilizing
CHARACTERISTICS
Loyal; Dislikes conflict; Amiable;
Calm; Can seem unenthusiastic;
Understanding; Team player
CONCERNED WITH
Why
ANIMAL
Golden Retriever
40% POPULATION
Cautious
CHARACTERISTICS
Detail-oriented; Can seem rigid;
Analytical; Resistant to change;
Logical; Can be too serious
CONCERNED WITH
How
ANIMAL
Beaver
25% POPULATION
Decisive
CHARACTERISTICS
Driver; Results-oriented;
Overlooks details; Focuses on the
bottom line; Can hurt feelings
CONCERNED WITH
When
ANIMAL
Lion
10% POPULATION
Interactive
CHARACTERISTICS
Expressive; Can lose focus;
Persuasive; Good at speaking;
Likes entertaining; Impulsive
CONCERNED WITH
Who
ANIMAL
Otter
25% POPULATION
Chapter 11: Careers and Taxes 231
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“What causes you to
hit goals is not the
things you’re willing
to do to accomplish
them. It’s the things
you’re willing to
sacrifice.”
DAVE RAMSEY
“
SET YOUR GOALS!
In which areas of life do you
most need to set goals? Go
to foundationsU.com/wheel
to take Zig Ziglar’s Wheel
of Life Quiz.
+ Section 2: Goal Setting
VIDEO 2.1
Goal-Setting Categories
It is important to have a goal for each area of your life.
»»Career
»»Financial
»» Spiritual
»»Physical
»»Education
»»Family
»» Social
What Kind of Job Do You Want After Graduation?
Take a look at the graph below to see what fields of employment teens are most
interested in.
35% »
25% »
15% »
5% »
30% »
20% »
10% »
31%
18%
30%
14%
11%
23%
13%
16%
Science,
Technology,
Engineering
or Math
Medical or
Dental
Arts Public
Service
Business Start
My Own
Business
Sports Another
Field
2012 Teens and Careers Survey by Junior Achievement and the ING Foundation
232 Foundations in Personal Finance High School Edition
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OTHER IMPORTANT
ELEMENTS OF
GOAL SETTING
• Make sure you have
some accountability.
Share your goals with
the people closest
to you. Give them
an opportunity to
encourage you along
the way.
• Eliminate distractions.
It’s important not to let
yourself get sidetracked.
• Write goals in the
positive, not the
negative. Focus on what
you’re going to achieve,
not what you’re going to
give up.
• Read your goals on a
regular basis. Post them
where you can see them.
• Make your goals
challenging, but
attainable. For longterm
goals, try breaking
them into smaller steps.
Is walking from fuzzy
goal to real action easy to
do? Not always. But the
clearer your goals are,
the more likely you are to
actually reach them.
Ready to be an effective
goal setter? Go to
foundationsU.com/goals to
use our Goal Tracker tool.
+
Goal Guidelines
How do you take a goal from fuzzy and undefined to crystal
clear and actionable? Your goals must:
»»Be 13. How will you know you’ve
achieved your goal? Give yourself a time limit and some
other measure of achievement.
»»Be 14. Don’t just say, “I am going to save for a
car.” Have a specific car and a specific price in mind.
»»Have 15. If your goal has no end
in sight, you’ll get discouraged. Plan to accomplish your
goals by a specific date.
»»Be 16 goals. Example: If you want to be a doctor
and, therefore, you go to medical school, great! If your
parents want you to be a doctor and, therefore, you go to
medical school, I don’t want to be your patient! You may
accomplish a goal that someone else has set for you, but
you won’t be passionate about it.
»»Be 17 down. Writing your goals down gives
you clarity and focus. A written goal is also a powerful
reminder that you can use to keep you on track.
JOURNAL QUESTION: VIDEO 2.1
Describe a recent goal you set for yourself. What did you do to make
reaching that goal a success?
Chapter 11: Careers and Taxes 233
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MORE THAN JUST
A SUMMER JOB
In recent years fewer and
fewer teenagers have
been working during
the summer months.
With youth employment
declining, young people
are losing the opportunity
to develop important
life skills that will help
them climb the corporate
ladder in later years. It’s
these “first jobs” that help
young people develop the
perseverance, humility,
flexibility, hard work,
respect, teamwork and
commitment that make
one successful in an adult
career. Something to
consider!
+ Section 3:
You Won’t Love the Entry Level
VIDEO 3.1
What Will Life Be Like When You Move Out?
Maybe you’re assuming that when
you’re on your own, you’ll have as big
of a house and as nice of a car and
take the same kind of vacations as
your parents. And you aren’t alone;
59% of your peers believe they will
do even BETTER financially than
their parents. But here’s the deal: Your
parents didn’t have those things when
they were starting out. Just ask them
what life was like when they were
starting out. Listen to the story of
their humble beginnings—their first
apartment or car or where they went
out to eat for dinner.
The truth is—having the same lifestyle as your
parents won’t be automatic or immediate.
»»Average rent on a one-bedroom apartment in most cities
is about $
18
a month! Water and electricity—which
are kind of important—we’re talking $200 a month. Food
will cost you about $250 a month—and yes, that’s for just
one person. That’s $1,200 a month already!
»»College graduates who actually get a job in their field
out of college might start out with $35,000 to $45,000
a year. But if you factor in the graduates who are
unemployed or underemployed because they can’t find
work in their career field, the average salary drops to
around $
19
.
»»Don’t expect to see all of that $27,000 come home with
you. That’s because
20
will eat up 20 to 25% of
your paycheck.
234 Foundations in Personal Finance High School Edition
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“Choose a job you love,
and you will never
have to work a day in
your life.”
CONFUCIUS
Chinese teacher, politician
and philosopher
“
“In order to succeed,
your desire for
success should be
greater than your
fear of failure.”
BILL COSBY
American comedian,
actor and author
“
»»That only leaves you about $600 a month for things like
transportation, clothes, cable and a cell phone—not
to mention saving,
21
and having fun with
your friends.
»»You might think having a full-time job means you’ll be
able to go out and buy whatever you want. But that’s just
not real life. That’s why it’s crucial to know how to
22
now!
Someday you’ll think back to your
first car with one working window
or your thrift-store coffee table and
you’ll laugh—because they were pieces
of junk, sure, but also because those
little sacrifices paved the way for a
great future.
It takes time and being smart with
your money to build wealth. So get
an education, budget your income,
save for big items, and invest early for
your future. As you move up in your
career, your income will grow—and
if you do what we teach, you will win
with money.
JOURNAL QUESTION: VIDEO 3.1
Describe a work experience that has helped you develop valuable career
attributes such as a strong work ethic, respect, commitment, etc.
Overtime and Extra Jobs
Many people work extra jobs or
overtime in order to pay off debt. If
you have debt, attack it now by picking
up extra work opportunities. Once you
are out of debt, or if you are wise and
avoid debt altogether, these jobs will
be a thing of the past.
Chapter 11: Careers and Taxes 235
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“What I know is that
if you do work that
you love and work
that fulfills you, the
rest will come. I
truly believe that the
reason I’ve been able
to be so financially
successful is because
my focus has never,
ever for one minute
been money.”
OPRAH WINFREY
American television host,
actress and philanthropist
“
“Money won’t make
you happy . . . but
everybody wants
to find out for
themselves.”
ZIG ZIGLAR
American author and
motivational speaker
“
13% of teens want to
start their own business
someday.
Junior Achievement Teens and
Careers Survey 2012
$
Section 4:
Best Practices of Successful People
VIDEO 4.1: THERE ARE NO FILL-INS FOR THIS SECTION
Take notes in the spaces provided.
Five Things Successful People Always Do
1. They start. _ __________________________________________
2. They fight fear. _______________________________________
3. They ignore haters. _ __________________________________
4. They stay humble and hungry. _________________________
5. They give to others. _ __________________________________
A Message From Dave on Contentment
Over the years, I’ve
been able to talk to a
lot of men and women
at a l l d i f ferent
income levels and at
all different levels of
wealth. I’ve met people making
$150,000 who are flat broke and
up to their eyeballs in debt, and
I’ve met people making $50,000
who are debt-free, building wealth,
and winning with money. How’s
that possible? How can someone
be winning at $50,000 while
someone else is losing—big time—at
$150,000? The answer may surprise
you. I think this one thing is so
fundamental that it’s impossible to
be successful without it. I’m talking
about contentment.
Five Lands on the Road to Awesome
1. Learning _____________________________________________
2. Editing _______________________________________________
3. Mastering ____________________________________________
4. Harvesting ___________________________________________
5. Guiding ______________________________________________
236 Foundations in Personal Finance High School Edition
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KEYS TO MAKING
MENTORSHIP A REAL
BENEFIT
• Choose wisely. The goal
of this relationship is
to improve your habits
and values as you
work toward your goals.
Often, your mentor will
be older than you and in
the next stage of life, so
you can gain from their
experiences.
• Take action. If all you
do is meet with your
mentor, you’re not
going to get much from
the relationship. Even
the best mentoring
relationship is a failure if
you don’t follow through
and act on what you’ve
learned.
• Change it up. You may
find that you need
different mentors as
you progress through
different stages of life.
One last thought:
Mentoring is a cycle. Keep
it going and return the
favor of all the wisdom you
received from your mentor
by being willing to become
a mentor yourself someday.
+
“As iron sharpens
iron, so one person
sharpens another.”
Proverbs 27:17
“
VIDEO 4.2: THERE ARE NO FILL-INS FOR THIS SECTION
A Story About Mentorship
““I was lucky to have the right heroes. Tell me who your heroes are
and I’ll tell you how you’ll turn out to be. The qualities of the one
you admire are the traits that you, with a little practice, can make
your own, and that, if practiced, will become habit forming.”
WARREN BUFFETT, Legendary investor
Warren Buffett, billionaire and
chairman of Berkshire Hathaway,
knows the value of a mentor. Buffett’s
father, a stockbroker, was his first
mentor. He guided young Warren as
he spread his business and investing
wings at an early age.
Buffett’s next mentor was Ben Graham,
author of The Intelligent Investor,
and Buffett’s professor at Columbia
University. Following in the footsteps
of these “heroes,” Buffett became one
of the wealthiest men in the world,
eventually mentoring another one
of the wealthiest men in the world,
Bill Gates.
Whatever your goals in life, if you
desire success, find a person who
has achieved success and follow in
their footsteps.
JOURNAL QUESTION: VIDEO 4.1
Look back at Jon’s list of “Five Things Successful People Always Do.” Which
of these comes naturally to you? Which of these do you struggle with?
JOURNAL QUESTION: VIDEO 4.2
Describe someone you consider to be a success. What qualities make
this person seem successful?
Chapter 11: Careers and Taxes 237
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TO FIND A JOB, EXPAND
THREE CIRCLES
1. Geography: Be willing to
work a greater distance
from home or move to
another city if necessary.
2. Industry: Don’t get
caught up looking
for a specific job title.
Be willing to look at
related career fields.
3. Permanence: If a
full-time position is not
available, be willing to
work part time or as a
temporary employee.
Small circles will limit you,
e.g., “I only want to work in
advertising in a full-time
position in Nashville.”
Expand the circles, e.g.,
“I will work anywhere in the
Southeast, in advertising,
marketing or corporate
communications
and will take part-time
contract work.”
+
Your résumé should include
a Results paragraph at
the top. This is just one
or two lines that highlight
something important you’ve
accomplished. In high
school, your key results may
be limited to community
service or extracurricular
activities. That’s okay!
Employers just want to see
that you’ve actually done
something.
+
VIDEO 4.3
Job Search and Résumé Basics
Job Hunting
»»Companies do not start out looking for
23
.
They have a specific
24
, and they need someone
to meet it.
»»Develop a strategy: Identify your
25
job/employer
and
26
everything you can about them.
Applying for a Job
When it is time to contact the
company, think of it like starting a
new relationship with a person. After
you target the companies where you
would most like to work, you are going
to contact them at least three times.
1. Introduction
27: The primary purpose of an
introduction letter is to introduce yourself to a company.
This is usually your first point of contact with a business.
2. Cover letter and résumé: Your cover letter should
be specific to the position you are applying for, relating
your experience, skills and experience to the position for
which you are applying. Your résumé should present your
background and skills to an employer.
3. Phone follow-up: Make sure your initial introduction
letter and résumé are followed with more personal
contact with the employer.
Interviews and jobs come from persistent follow-up and
28
.
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RESULTS
Named “Employee of the Month” three times in the past year at Jeffrey’s Grille. Youngest coaching
assistant for Lamponia Middle School wrestling team. Saved a life through CPR. More to come.
EDUCATION
Washington High School
Projected graduation date: May 20XX | GPA: 3.4
WORK EXPERIENCE
YMCA, Lamponia (20XX–present)
• Ensured safety of all patrons at the swimming pool
• Coordinated swimming instructions for 50 students each summer
Jeffrey’s Grille, Lamponia (20XX–present)
• Managed prepping station for salads and fries
• Provided a clean dining environment by wiping off tables and cleaning dishes
VOLUNTEER POSITIONS
Coaching Assistant, Lamponia Middle School l Wrestling Program (20XX–20XX)
• Exercised quick decision-making skills to coach wrestlers during matches
• Planned and instructed practices, including skills training for 32 wrestlers
• Prepared facilities for tournaments including coordinating concessions, referees
and scorekeepers
EXTRACURRICULAR ACTIVITIES
Junior Varsity Wrestling Team, Lamponia High School (20XX–present)
Iron Man Award
Wrestling Clubs
Thompson County Wrestling Club, Hopeville Jr. Wrestling Club, Lamponia Wrestling Club
JOhN Q. PUbLIC
402111 Little Drive | Lamponia, TN 13579
[email protected] | 555.123.4567
Sample Résumé
Building a solid résumé is a key step toward landing a job. Take a look at the
sample below. What do you see that you might want to add to your résumé?
Chapter 11: Careers and Taxes 239
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10 CAREER FIELDS
LIKELY TO FLOURISH
IN 2020
1. Data crunching
2. Counseling
and therapy
3. Scientific research
4. Computer engineering
5. Veterinarians
6. Environmental and
conservation science
7. Some healthcare fields
8. Management
9. Finance
10. Entrepreneurship
usnews.com
$
VIDEO 4.4
Interviews: Dave’s Advice
»»Present yourself well. You are the
29
, so
make it the best one available. Be on
30
, address
everyone by
31
, offer a firm, confident
32
, and maintain
33
contact
at all times.
»»Designate a time to
34
after the interview
—and DO IT!
How Can I Land a Job Without Any Experience?
“What kind of things can you put on a part-time job application that will
make you stand out from everyone else?”
DAVE’S ANSWER: Experience is a great thing to
have when you’re looking for a job. Every employer
wants to know that a potential employee can
do the job.
But even if it’s your first “real” job, you probably
have experience you didn’t think about. Babysitting
is great experience. It’s even better if the
parents will give you a good recommendation. If
parents feel comfortable with you caring for their
child, surely a fast-food manager can trust you
to flip a few burgers.
If you’re in band, hold a seat on the student
council, or even play sports, these things can
catch a manager’s eye. They all show that you’re
willing to work, commit to something, and take
on responsibility.
JOURNAL QUESTION: VIDEO 4.3
What do you think is the most important thing to remember when
looking for a job?
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“Think beyond
your lifetime if you
want to accomplish
something truly
worthwhile.”
WALT DISNEY
American animator, film
producer, entrepreneur and
philanthropist
“
In American culture, too
many people spend a
lifetime chasing wealth
in a career that they hate.
Or they work an excessive
number of hours every
week. “Do not wear
yourself out to get rich;
have the wisdom to show
restraint” (Proverbs 23:4).
Do something you love
and that is fun for you! If
you make a lot of money,
great! But if you don’t, at
least you will have spent a
lifetime doing something
that was rewarding. Money
should never become your
primary motivation.
+
Interview Basics
Before an Interview
»»Research the company. You will need to be prepared to
answer questions such as, “What do you know about our
company?” and “Why do you want to work here?”
»»Practice with a friend and prepare to answer commonly
asked interview questions (you can research these online).
During the Interview
»»Dress professionally and be well-groomed.
»»Do not slouch or chew gum.
»»Arrive 10 to 15 minutes early.
»»Be personable. Connect with the interviewer.
»»Be yourself. You will be perceived as authentic
and trustworthy.
»»Be organized. Bring extra copies of your résumé and
a notepad to jot things down.
»»Keep it positive. Never say anything negative about past
employers or work experiences.
»» Show interest and be enthusiastic. Ask questions that
build on your interview discussion.
Chapter 11: Careers and Taxes 241
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TAXPAYER OBLIGATIONS,
INTEREST AND
PENALTIES
As a taxpayer, there are
certain legal obligations
you are expected to meet
when managing your taxes.
If you fail to pay your taxes
on time, it can result in
IRS penalties, and in turn,
compounding interest that
can make your tax debt
much larger. The IRS has
the power to garnish your
pay, take money from your
bank account, or place a
lien against or seize your
personal property.
+
“All misfortune is but
a stepping stone to
fortune.”
HENRY DAVID THOREAU
American author, poet
and abolitionist
“
Interview Basics (Continued)
»»Do not bring up the issue of salary during your first
interview. Find out all you can about the general salary
levels of the company beforehand. If the employer asks
you about salary expectations, try to give a general answer.
»»Ask your interviewer when you can expect to hear
from them.
After the Interview
»»Take time to write down some notes about anything that
might influence your decision of whether or not to accept
the position.
»»Write a thank-you note to the employer within 48 hours
of the interview, even if you are not interested in the job.
JOURNAL QUESTION: VIDEO 4.4
Summarize what Jon Acuff means when he talks about being willing
to expand your “Three Circles” when looking for a job.
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THE INTERNAL
REVENUE SERVICE (IRS)
The IRS is the federal
government agency
responsible for tax
collection and tax law
enforcement. It was
created during the Civil
War in 1862 to enact a
national income tax to pay
for war expenses.
+
When you get your first
job, you will quickly notice
that a portion of your pay
is taken out of your check
for taxes. Taxes are a
required contribution to
local, state and federal
governments and are
used to fund government
programs, infrastructure
and agencies such as the
military, public schools
and roads.
+ Section 5: Income and Taxes
NOTE: THERE ARE NO VIDEOS FOR SECTION 5
Benjamin Franklin said, “Only two
things in life are certain: death and
taxes.” The government relies on
the revenue taxes create to meet
their expenses and pay for services
such as roads, education and social
services. While the specifics differ
from state to state, the government
taxes three economic bases to pay for
its programs: income, consumption
and wealth. Like it or not, taxes are a
part of everyday life.
Taxes on Income
Income taxes are taxes paid out by
anyone who earns an income. April 15
is the day that income tax filings are
due in the United States. If you have
overpaid throughout the year, you will
receive a tax refund. If it is determined
that you have underpaid, you will have
an additional tax payment due. You
will pay both federal and state income
taxes (unless you live in a state that
does not have an income tax). Income
taxes are often subject to deductions or
credits based on individual financial
circumstances.
On your pay stub, you will notice three
taxes taken out or deducted from
your paycheck. These are commonly
referred to as withholdings. When you
are hired by a company, you will fill out
a federal tax form called a W-4. The
information on this form is the basis
for determining how much income
tax should be withheld from your
paycheck. Payroll taxes, as these are
commonly known, are a tax on income.
Hence, you file an income tax return
with the government every year you
earn income.
The Three Taxes Are:
1. Federal income tax, which is used to support government
programs. This is where the federal government gets much
of its money. You work. They spend.
2. State income tax, which is used to support state
services (if you work in a state without a state income
tax, you will not have this withholding)
Chapter 11: Careers and Taxes 243
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KNOW THE DIFFERENCE:
GROSS vs NET INCOME
What do gross pay and
net pay mean? Gross pay
is what you make before
any deductions. If a job
is advertised as having a
$40,000 salary, then that’s
the gross pay. Net pay
is what’s left after taxes,
health benefits and other
deductions are taken out
of your check. So a gross
pay of $40,000 would
become something like a
net pay of $30,084.
+
For more information
and educational
activities on taxes, go to
foundationsU.com/taxes.
+
3. FICA (Federal Insurance Contribution Act) tax
pays for benefits that workers and families receive for
either Social Security or Medicare. This tax is a flat tax
(meaning the rate is constant). A single rate of 12.4% is
applied to your income. Half of this tax is paid for by the
employee in the form of payroll withholding. The other
half is paid by the employer.
Taxes on Wealth
The primary tax on wealth is property tax.
»»Property tax is the main source of revenue for local
governments. Taxes on land, private homes and
business property are property taxes.
»» Some states tax certain types of personal property.
This might include cars, boats and recreational vehicles.
»»Taxes on wealth include inheritance, estate and gift taxes.
Taxes on Consumption
The primary taxes on consumption are sales and excise tax.
»» Sales tax is tax on goods and services that goes to your
state or local government. Sales tax is used by states as a
source of their income, and each state sets its own tax rate.
»»Excise tax is levied on certain goods produced within
a country and is sometimes referred to as luxury tax.
This is used by both the state and federal government.
Taxes on items such as gasoline, beer, liquor, cigarettes
and airplane tickets are excise taxes.
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Budget
Builder
As your income changes,
so will your budget! Go to
foundationsU.com/11 for
your next budget lesson.
In the latest annual survey
for the National Association
of Colleges and Employers,
companies planning to
hire were most interested
in grads who had majored
in engineering, business,
accounting, computer
science or economics.
Unfortunately, many
students prefer majors
such as social sciences,
history, education and
psychology, which aren’t in
high demand.
+
Three Types of Income
* NOTE: All types of income are taxed.
1. Earned income: Any income (wages/salary) that is
generated by working. Earned income is taxed at a
higher rate than any other type of income.
2. Portfolio income: Income generated by selling an
investment at a higher price than you paid for it.
Portfolio income is sometimes referred to as “capital
gains” because that’s how the money is taxed by the
federal government. Portfolio income is often taxed at
very high rates, sometimes as high as earned income.
3. Passive income: Money earned on a regular basis with
little or no effort required to maintain it. Some things
that produce passive income are real estate, intellectual
property like books or internet content, or a business in
which the owner is not actively involved. Passive income
often allows for the most favorable tax treatment.
JOURNAL QUESTION: SECTION 5
Describe some costs and benefits associated with paying taxes.
Chapter 11: Careers and Taxes 245
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Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a checkmark
next to the learning outcomes you’ve mastered. Review the Measure Your Progress section.
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
»» Know your personal strengths and weaknesses.
»» Set goals.
»»Taxes on income include federal, state and FICA taxes.
246 Foundations in Personal Finance High School Edition
RECAP & REVIEW
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Take Action Challenge
Create your résumé. If you already have a résumé, compare it to our sample in Section 4 and make sure that
it has each component. Remember, your résumé will require updating every time you change jobs or complete
different education levels. Go to foundationsU.com/resume to access a quick and easy résumé building tool.
Build On What You’ve Learned
Use the graphic organizer below to describe the three types of income.
The 3 Types of Income
EARNED INCOME:
1
PASSIVE INCOME:
3
PORTFOLIO INCOME:
2
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Money in Review
a Cover Letter
b Portfolio Income
c Personal Branding
d Property Taxes
e Résumé
f Earned Income
g Social Security
h Income Tax
1. _____ The process by which we “market”
ourselves to others; involves highlighting
personal strengths, interests and
unique qualities and identifying goals
2. _____ Taxes paid out by anyone who earns
an income
3. _____ A letter that is always accompanied by
a résumé; used to inform a prospective
employer of your interest and
capabilities as they relate to a specific
employment opportunity
4. _____ A brief account of one’s professional or
work experience and qualifications
5. _____ Income generated by selling an
investment at a higher price than you
paid for it
6. _____ A federal insurance program funded by
taxpayer dollars that provides benefits
to people who are retired, unemployed
or disabled
7. _____ Any income (wages/salary) that is
generated by working
8. _____ Taxes paid by anyone who owns
property such as land, a home or
commercial real estate
Matching
Match the following terms to the correct definition below.
Illustration
Draw a picture representation of each of the following terms.
Networking Passive Income
248 Foundations in Personal Finance High School Edition
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Multiple Choice
Circle the correct answer.
9. Once you’ve defined your dream, your goals
should be the practical application of how
you’re going to accomplish your dream.
a True
b False
10. Taxes are an optional contribution to local,
state and federal governments.
a True
b False
11. The Internal Revenue Service (IRS) is the
federal government agency responsible for
a Writing tax laws
b Tax collection and tax law enforcement
c Keeping the unemployment rate low
d Filling out your tax forms
12. What is the difference between gross pay
and net pay?
a Gross pay describes your pay after
deductions; net pay is before
b Gross and net pay are the same
c Net pay describes your pay after
deductions; gross pay is before
d None of the above
13. Sales tax and excise tax are both taxes on
a Wealth
b Income
c Property
d Consumption
Short Answer
Respond in the space provided.
14. Would you do something you did not like
in order to make a higher income? Why or
why not?
15. Why is it important to understand different
personality styles?
16. What are some important things to do when
interviewing for a job?
17. What is the difference between gross and
net income?
18. Jon gave you a great deal of practical
information on achieving success and
reaching your goals. What was your
biggest takeaway from his lesson?
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What do other high
school students know
about giving to others?
We asked teens to describe
something—big or small—they had
done to help others.
“I created a charity organization
called ‘Cash for Candy’ to help a
little girl in Guatemala pay for a
surgery her family could not afford.”
Junior, New York
“I listen when anyone needs
someone to talk to and give some
helpful advice.”
Freshman, Kansas
“I did a food drive for a family who
lost their house in a fire awhile ago.”
Senior, Connecticut
“I have helped others by doing
service projects with my Boy
Scout Troop.”
Senior, South Dakota
12
CHAPTER
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Giving
MANY HIGH SCHOOL students want to help
others; they are just not sure how to go about
it. It’s easy as a young adult to see someone
in need—a charity that you care about,
a ministry that matters—and feel helpless
because you don’t have a lot of money to give.
Finding extra time and resources to help
others is not always easy. In this chapter we
are going to highlight the importance of
serving others and help you identify ways
you can give . . . starting now!
*National Philanthropic Trust
of households give
to charity.*
65%
of high-net-worth
households give
to charity.*
98%
UNIT 4: CHAPTER 12
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Key Terms
Get to know the language of money.
»» Core Values: Traits or qualities that
represent an individual’s highest priorities,
deeply held beliefs and motivating forces;
one’s guiding principles
»» Legacy: Anything handed down from
the past; something that someone has
achieved that continues to exist after they
are gone
»» Nonprofits: Organizations that use money
raised to achieve their goals rather than
distributing them as profit
»» Philanthropy: Means “love of humanity”;
identifying and exercising one’s values in
giving and volunteering
Learning Outcomes
Once you’ve completed this chapter’s videos, you will be asked to
return to this list of learning outcomes and place a checkmark
next to the items you’ve mastered.
Section 1: False Perceptions
…… Identify your core values.
…… Identify your own specific talents and evaluate ways
you could use those talents to help others.
Section 2: Make an Impact
…… Identify ways in which giving benefits both the giver and
the receiver.
Section 3: Give Your Time and Talents
…… Identify various types of charitable giving (time,
money, talents).
…… Examine various areas of need in your own community.
…… Identify a variety of charitable organizations.
Section 4: Define Your Legacy
…… Explain the concept of leaving a legacy.
…… Illustrate the importance of giving to others throughout
your life, starting now.

Before You Begin
252 Foundations in Personal Finance High School Edition
INTRODUCTION
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Measure Your Progress
Before watching the video, read each statement below and mark whether you agree or disagree in the “Before”
column. Then, after watching the video, do it again using the “After” column to see if you changed your mind
on any statement.
JOURNAL QUESTION: INTRODUCTION
Do you feel as though giving is an important part of your financial plan? Why or why not?
1. I can name three national or international charitable
organizations where I have recently volunteered my
time or would like to volunteer in the near future.
2. I would like to help others, but I don’t know how to go
about doing it.
3. I can list five of my core values or principles in which
I strongly believe.
4. I can think of three families and/or organizations in
my community that need my help.
5. Only people who have a lot of money are able to help
those in need.
Agree Disagree Agree Disagree
BEFORE AFTER
Chapter 12: Giving 253
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“You give but little
when you give of
your possessions. It
is when you give of
yourself that you
truly give.”
KAHLIL GIBRAN
Lebanese philosopher
“
DESCRIBE THE MOST
RECENT THING YOU
HAVE GIVEN TO OTHERS:
“I worked in my church’s
nursery this week.”
Sophomore, Maryland
“I volunteered my time to
watch a special needs
child, and it was the most
rewarding experience. I
got more joy out of it just by
seeing the little girl’s smile.”
Junior, Mississippi
“I volunteer at our local
nursing home on Tuesdays
and Thursdays after school.”
Senior, Ohio
“I help our elderly neighbor
with her grocery shopping
every month since she
can’t drive.”
Junior, Missouri
12 CHAPTER
Section 1: False Perceptions
VIDEO 1.1
I Am Just One
CONGRATULATIONS! You have made
it to the end of your personal finance
course. We’ve taught you to save,
budget, avoid debt, invest and . . .
give? Well that’s really what this
chapter is about. If you follow the
principles we’ve taught you, you will
achieve wealth. That’s so exciting!
But managing money isn’t just about
wealth. Remember when we said that
money is like a mirror: It reflects
what’s important to the person
who holds it. We can’t complete a
course on personal finance without
talking about the joy and value
of helping others. That’s why the
Fifth Foundation is Build Wealth
and Give.
»»We often hear about people who are hurting—families with
no food, adults with no homes, kids with no parents.
»» In these moments, our world can seem so big. We might
think, “I wish I could do something,” but at the same time
realize, “I am just
1
person.”
THE FIFTH FOUNDATION 5 Build Wealth and Give
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“Some people give
time, some money,
some their skills
and connections,
some literally give
their life’s blood.
But everyone has
something to give.”
BARBARA BUSH
Former First Lady of the
United States
“
Recent studies show
that the largest source
of charitable giving
came from individuals
at $217.79 billion, or 73%
of total giving; followed
by foundations ($41.67
billion/14%), bequests
($24.41 billion/8%) and
corporations ($14.55
billion/5%).
National Philanthropic Trust
$
CHARITABLE
ORGANIZATION: An
organization set up to
provide help and raise
money for those in need
AID: To give money, food or
other help to a country or
organization that needs it
+
»»The good news is, you can make a huge difference in the
life of someone else, even if your action is
2
.
»»One of the most important and rewarding things you can
do is
3
!
Giving money away produces more joy than anything
money can buy. And time spent helping and serving others
can be just as meaningful. You might only be one person,
but you can make a difference!
What the World Says About You
Maybe you’re already wanting to help others, but you’re
just not sure how to go about it. You might even feel okay
not helping because it doesn’t seem like you can afford
it. You’ll give when you’re older, when you’ve got a bigger
bank account. That’s when you’ll really be able to make a
difference, anyway!
»»The fact is, you can get started right away with what
you’ve got
4
. That means, if you’re working, you
can use a portion of your money to benefit someone else.
»»But even if you don’t have money to give, you’ve still got
YOU! Start with what you have today and give of
5
by volunteering your time and talents.
»»To do that, first you’ll need to know what
6
to you.
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“I am only one, but
still I am one; I
cannot do everything,
but still I can do
something; I will
not refuse to do the
something I can do.”
HELEN KELLER
American author, political
activist and lecturer
“
What the World Says About You (Continued)
At times, our culture can send you
the message that, as a teen, all you
really care about is your cell phone,
music and hanging out with friends.
You might begin to feel like, Is that
it? Is that who I am? You mistake
society’s portrayal of teenagers as
your own reflection.
»»Don’t be fooled! The reality is, you are
7
.
»»Begin the process of discovering the real you! We’re
talking about your
8
, your interests and your
passions. The things that make you, YOU.
»»Before you can help others, you’ve got to know your own
9
—the things that matter most to you.
Knowing what you value will help you
select an organization or charity to
serve. If you can identify your talents,
you can discover more specific ways
to serve. You may not have a steady
income in your life right now, but
that doesn’t mean you have nothing
to offer. Giving can be in the form of
time, money or abilities.
What Do You Value Most?
Circle the 10 qualities that are most important to you from the list below.
1 2 3
respectful
trustworthy
spiritual
forgiving
confident
loving
hard-working
giving
unique
leader
compassionate
accountability
peaceful
loyal
accepting
sensitive
kind
joyful
humorous
honest
patient
committed
energetic
helpful
self-controlled
excellence
communication
intellect
assertive
cooperative
creative
persistent
fair
unifying
competitive Now List
Your Top 3
These are the qualities
you value the most,
or your core
values.
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“The happiest people
in the world are those
who do the most for
others.”
BOOKER T. WASHINGTON
American educator, author
and speaker
“
APPLYING YOUR GIFTS
List some of your talents
and hobbies.
1.
2.
3.
Now think of one way
you could use one of your
talents to help others.
+
Your Values
Your values make you, YOU. People
generally give of themselves to causes
that are important to them. Your
values are the beliefs and attitudes
that guide your daily behavior. When
you decide to help others, make sure
that you focus on a need that you can
be passionate about and that is in line
with your personal values.
You’ve identified what is important
to you. Now let’s see what you’re good
at. Everyone has talents and gifts that
can be used to help others.
Here are some examples of how other high school
students have used their talents to help others:
»»Maggie loves working with animals. She and her family
have raised four guide dogs for the blind.
»» Charlene’s friends say that she has a kindness about her and
a gift for putting others at ease. She knows what it’s like to
be a new student in a big school because her family moved
when she was in middle school. Now she makes it a point to
reach out to other new students to make them feel welcome.
»»Tim is excellent in math and offers free tutoring to his
peers after school two days a week.
»»Frank is a star basketball player at his high school. On
Saturday mornings he volunteers to referee youth games
at his local community center.
JOURNAL QUESTION: VIDEO 1.1
Complete the values and talents activities before responding to the
journal question. How can giving of your time and talents align with
your core values?
Chapter 12: Giving 257
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“Money is neither my
god nor my devil. It
is a form of energy
that makes us more
of who we already are,
whether it’s greedy
or loving.”
DAN MILLMAN
Former world champion
athlete and author
“
Americans give billions
of dollars to charities
every year.
National Philanthropic Trust
$
OUTREACH: The practice
of providing help and
advice to people in a
community before they
have to ask for it
DONOR: Someone who
gives things such as
money or goods to an
organization, especially
one that helps people
+
Section 2: Make an Impact
VIDEO 2.1
Open Hands Build Wealth
Money is important, but people are
more important. Being wealthy is
not an end—it is a means to an end.
That end is helping people. The
truth is, when you hold your money
with a clenched fist, it destroys your
relationships. You end up placing more
value on money than people. So make
a decision right now to put people first.
»»When you hold your money with an
10
hand, life
looks a lot different.
»» It may take a little longer to reach your financial goals, but
you’re investing in something far more
11
.
»»When you give, you
12
a person’s life permanently.
»»The joy of giving lasts longer than the happy feeling you
get when you spend money on
13
.
»» It’s okay to spend money on yourself. Just make sure you
spend money to
14
other people as well.
»»Need another reason to give? It’s just plain
15
!
You don’t need a lot of money to help
others. You just need to be willing to
start. We think that giving 10% of
your income is a good goal. If that’s
too much, then just give what you can.
If you don’t have any money to give,
no problem! Give of your time, your
talents, your energy. The point is, you
can give. The measure of a person is
not how much money they make, it’s
how they use the money and how they
help others.
258 Foundations in Personal Finance High School Edition
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“Wealth is a sacred
trust to be managed
for the good of others.”
ANDREW CARNEGIE
American industrialist
and philanthropist
“
81% of high-net-worth
donors cite “giving back to
the community” as a chief
motivation for giving.
National Philanthropic Trust
$
Give Now and Always
John D. Rockefeller was a businessman
in the late 1800s and early 1900s. He
became one of the wealthiest people
in America during his lifetime. But
Rockefeller is not just remembered
for his wealth. It’s what he did with
his money that we remember him for
generations later.
Rockefeller spent the last 40 years of his life as a
philanthropist. The money he gave made huge progress
in
16
, medicine and scientific research.
He also gave generously to churches, built hospitals and
colleges, and was even well-known for handing out money
to people as he walked down the street.
Rockefeller began giving long before he became rich. He
understood the importance of starting small and gave out of
his first paycheck, which was only $1.50. He
17
giving when he didn’t have much money, and he continued
to give as his salary grew into the hundreds, thousands and
eventually millions.
Case Study: Finding Comfort in Giving
A teenager in Ohio was grieving over the death
of her 89-year-old great-grandmother. “Some of
her last words were, ‘I don’t want anybody to be
upset.’” But Samantha was upset. She decided,
“Maybe I can’t be happy right now, but I can do
things to make other people happy.”
Samantha began doing small acts of kindness,
like paying for the meal of a person behind her in
line at McDonald’s. She decided that, in honor of
her grandmother, she would perform 89 random
acts of kindness. She discovered that seeing the
reaction of people made her feel good.
Over time, Samantha’s giving included buying
meals for others at restaurants, donating items to
the Humane Society, and baking a birthday cake
for a friend. She enjoyed giving so much that she
began to inspire others to give on her Facebook
page 89 Acts of Kindness. She offered packets
with good-deed suggestions that included a
photo and bio of her late grandmother, Virginia.
Doing good for others was a fitting tribute to
Virginia. “She was like the Golden Rule put in
motion,” Samantha said. “And she was a really
big influence in my life.”
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TIPS FOR DONATING
MONEY
1. Be proactive in your
giving. Take time
to identify which
causes are most
important to you.
2. Check the charity’s
commitment to
accountability and
transparency.
3. Obtain copies of the
charity’s financial
records and determine
what percentage of
funds raised are used on
salaries and overhead
(cost of running the
organization). You
should feel confident
that most of the money
you give is concentrated
on the cause you are
supporting and not on
administration costs.
4. Concentrate your
giving on just a few
well-run organizations.
Unlike investing, when
spending your charitable
dollars, diversification
is not a good thing.
5. Make a long-term
commitment. Smart
donors support their
favorite charities
for the long haul.
+
Give Now and Always (Continued)
By starting where you are today, you
18
character
for the future.
The more you give, the more you are fulfilled and the more
you want to give. It’s a great cycle to be on. Giving is not
a matter of moving money from your wallet to a charity
or collection plate; it is a matter of realizing that there
are others less fortunate than you and you have a genuine
desire to help them. Money is just one way to do that.
By helping someone, you give them encouragement, hope
and relief. The more people you help, the more joy you
will experience!
JOURNAL QUESTION: VIDEO 2.1
When you are doing your monthly budget, why do you think it is
important to have “giving” placed at the very top?
Start Here
To begin your journey toward financial success!
GIVING Budgeted
Charity $
Other: _____________________ $
GIVING TOTAL:
SAVING Budgeted
Emergency Fund $
College $
Car & Repairs $
Computer $
Other: _____________________ $
SAVING TOTAL:
FOOD Budgeted
Restaurants / Eating Out $
School Lunch / Snacks $
FOOD TOTAL:
CLOTHING Budgeted
Clothes $
Sports Jerseys / Apparel $
CLOTHING TOTAL:
$
$
$
$
TRANSPORTATION Budgeted
Gas $
Car Insurance $
Oil Changes $
License & Taxes $
TRANSPORTATION TOTAL:
PERSONAL Budgeted
Cosmetics / Hair Care $
Music / Technology $
Gifts $
Pocket Money $
Cell Phone $
Other: _____________________ $
PERSONAL TOTAL:
RECREATION Budgeted
Movies $
Concerts $
Sporting Events $
Other: _____________________ $
RECREATION TOTAL:
$
$
$
c
b
( + + + + + + )
$
Monthly Income
$
Monthly Outgo
– =
a D
$
E ZERO!
CHAPTER 3 : budgE T ing 20
Make Giving a Priority
Giving is the first
category in the Student
Budget form as a
reminder to always put
giving first!
260 Foundations in Personal Finance High School Edition
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TIPS FOR DONATING
NON-CASH ITEMS
1. Determine whether or
not the items you wish
to donate are useful.
2. Consider selling your
items and donating the
proceeds to charity.
Donating cash instead of
goods allows charities
greater flexibility in
spending the money so
that it reaches people
who need it the most.
3. Start locally to find the
right charity in order to
avoid transportation
costs that can lower the
impact of your donation.
+
“Volunteers are not
paid not because
they are worthless,
but because they are
priceless.”
AUTHOR UNKNOWN
“
“You’ve got to live like
no one else so later
you can GIVE like no
one else!”
DAVE RAMSEY
“ Section 3:
Give Your Time and Talents
VIDEO 3.1
Money Is Not the Only Way to Give
Giving is one of the most important
and rewarding parts of your financial
journey. Since you are going to make
sure that you stay completely debt
free, you will have that much more
money to spend, invest and give. Just
remember that money given produces
more joy than it could ever buy!
As you are working toward your
financial goals, like saving your $500
emergency fund, money to give may
seem hard to come by. That’s when
you can find creative ways to give.
You can give your time, your talents,
your knowledge or your services to
help other people.
»»Our culture is so “me” focused.
»»A powerful thing happens when we
19
others—
we stop focusing on ourselves. We stop being consumed
by our own struggles, our looks and the things we want.
»»When we give to others we are saying, “Right now the
needs of this person matter
20
.” That’s why giving
more than money—giving of yourself—is so powerful!
»»Andy Stanley says, “Giving up something now for
something better later is not a sacrifice. It is an
21
.”
Each person you give to produces
a new story and a new thrill. It is a
feeling that never grows dull. Having
fun with money is good, but you will
tire of movies and clothes. In a way,
giving is a lot like compound interest—
you put some in, but you get much
more out! Try it! When you’re in line
at a coffee shop, offer to pay for the
coffee of the person behind you and
see how it makes you feel. That feeling
and the feeling of the person your
generosity impacted is much more
valuable than $5!
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“The best thing about
giving of ourselves is
that what we get is
always better than
what we give. The
reaction is greater
than the action.”
ORISON SWETT MARDEN
American author
“
GIVING IS CONTAGIOUS
Amidst holiday cheer, a
customer in the drive-thru
line of a local coffee shop
decided to pay for the
coffee of the customer
behind him. He had no
idea that his small act of
kindness would spark
three full hours of giving. A
total of 228 customers who
followed decided to “pay it
forward” by paying for the
coffee of the person behind
them in line! People inside
the store joined in the fun
as well. “There was a lot of
energy in the store,” said
the general manager. “Our
team was really excited
and shouting out the
number of pay-it-forwards
all morning.”
+
Ways You Can Give Now
Here are some practical ways you can volunteer in your
community. This is just a start. Be creative! Consider your
personal talents and skills.
»» With every season, clean out
the clothes you no longer use and
donate them to your local
homeless shelter. Get your friends
involved so that, together, you
can donate even more!
»» Offer to tutor a peer or younger
child who is struggling in a subject
you happen to be good at. Your
school counselor may be able to
help set this up.
»» Offer to be a mentor to an
underprivileged youth in
your community.
»» Volunteer to help at a Special
Olympics event.
»» Volunteer at your local
animal shelter.
»» Adopt a senior citizen as a friend/
mentor and commit to spending
time with him/her each week.
»» Rake leaves, shovel snow, or clean
gutters for a senior citizen.
»» Teach Sunday school.
»» Participate in a 5k run for your
favorite charity.
»» Befriend new students and eat
lunch with them, introduce
them to your friends, and offer
to help them find a class, etc.
»» Write a letter or send a care
package to a soldier overseas.
»»Write a thank you letter to a
teacher who had a positive effect
on you.
»» Do extra chores around your
house without being asked.
»» Help a younger brother or sister
with his or her homework.
JOURNAL QUESTION: VIDEO 3.1
List some areas of need in your school or community (youth programs,
homeless shelter, humane society, recycling, roadside cleanup, nursing
home, etc.).
1.
2.
3.
262 Foundations in Personal Finance High School Edition
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“Let us not be
satisfied with just
giving money.
Money is not enough,
money can be got,
but they need your
hearts to love them.
So, spread your love
everywhere you go.”
MOTHER TERESA
Indian Roman Catholic nun
“
There are approximately
1 million charitable
organizations in the
United States.
National Philanthropic Trust
$
The top four national
volunteer activities are
fundraising (26.6%), food
collection or distribution
(23.5%), general labor or
transportation (20.5%), and
tutoring or teaching (19%).
National Philanthropic Trust
$ Section 4: Define Your Legacy
VIDEO 4.1
Legacy
Why are we talking so much about giving? Wasn’t this
course supposed to be about personal
22
? How
is giving connected?
The act of giving—putting yourself out there for the sake of
another person, building relationships, and sacrificing your
time and energy—creates a legacy. It gives
23
to the journey of your life.
You can be remembered for any number of things:
»» athletic ability
»» musical gifts
»» sense of humor
»» kindness
»» anger
»» attitude
»» selfishness
»» generosity
What you can do today—yes, even in high school—is ask
yourself, How do I want to be remembered?
You can make a lot of money and be wildly successful; you
can go after your dreams and accomplish each and every
one of them. But to what end? If you’re giving of yourself,
you’re building a legacy to be proud of. After all, your
24
is the impact you have on the world—and it
shows the world what really matters to you.
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TAX BENEFITS OF GIVING
Your primary motivation
for giving should be the
simple desire to help
others. However, since this
is a course on personal
finance, we also want you
to be aware of the great
tax benefits that come
with giving. Here are some
things you should know.
• A gift to a qualified
charitable organization
may entitle you to a
charitable contribution
deduction against your
income tax if you itemize
deductions.
• A contribution to a
qualified charity is
deductible in the year
in which it is paid.
• Most, but not all,
charitable organizations
qualify for a charitable
contribution deduction.
• There are limits to how
much you can deduct,
but they’re very high.
• Certain rules exist for
non-cash donations.
• Remember to document
your charitable
contributions.
+
TAX DEDUCTION: A
reduction in the gross
amount of income on
which a tax is calculated
+
Summary of the Five Foundations
We know that by following these steps, you will build
wealth. The sky is the
31
! As you do, be intentional
with your money. Take care of your needs and commit to
helping others along the way! Keeping an open hand and an
open
32
means you will leave behind an amazing
legacy someday.
The bottom line is, as a high school student, you’ve got the
opportunity to take all of the
33
we’ve
taught you and apply them to your own situation. You control
your future! That’s so exciting! You’ve got your whole life
ahead of you. Where you’re from, your family background,
what you’ve been told by others—those things don’t define you.
YOU define you. Success isn’t easy, but it’s
34
for anyone who is willing to go after it.
So what will your future look like? What will your legacy be?
THE SECOND FOUNDATION Get Out of 26
2
THE THIRD FOUNDATION Pay 27 3 for Your Car
THE FOURTH FOUNDATION Pay Cash for 28
4
THE FIFTH FOUNDATION Build 29 and 30
5
THE FIRST FOUNDATION Save a $ 25 1 Emergency Fund
264 Foundations in Personal Finance High School Edition
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“We make a living
by what we get, we
make a life by what
we give.”
WINSTON CHURCHILL
Former Prime Minister of the
United Kingdom
“
Budget
Builder
Okay everyone, we’ve
shown you how and why to
give to those in need. Now
it’s time to commit. Go to
foundationsU.com/12
to make giving first in
your budget.
Recent studies show that
the majority of charitable
dollars go to churches
(32%), education (13%),
human services (12%),
and grant-making
foundations (9%).
National Philanthropic Trust
$
A Message From Jon
The Generosity of Future Me
It would be silly to
pretend there are
two different people
working the same day
under the same name,
Jon Acuff, but you’d be
surprised how many people do that
when it comes to money. Especially
regarding the “G” word.
I’m talking about giving. When
you get intense about beating debt
(and reaching other money goals),
sometimes it’s easy to make the
mistake of thinking that giving is
something that will come later. And
when we talk about later, it’s fun to
imagine how generous future me is
going to be.
“Right now, giving doesn’t really fit into
the plan. But in the future? Down the
road? I’m going to be like Bill Gates!
I’ll probably just rent a hot air balloon
and drop stacks of cash out of it. I’ll
play Natasha Bedingfield music as I do
this and get people dancing and really
enjoying the full depth of my amazing
generosity. Gonna change the world,
man, really change the world.”
But you know the truth about “future
me”? He or she is incredibly slippery.
Just when you think the future has
finally arrived, something else comes up.
Something more important or critical
or . . . well, I can start giving later.
You want to beat debt and have longterm
success with everything Dave
Ramsey talks about? Say good night to
future me. Start giving today. Budget
some giving right now. You don’t have
to go crazy. Giving time and money is
important no matter where you are
in the Five Foundations, that’s why
Dave put it at the top of the student
budget form!
The truth is, future me won’t know
how to be generous with a lot unless
present me learns how to be generous
with a little.
So give a little.
JOURNAL QUESTION: VIDEO 4.1
When have you been impacted because someone gave their time,
money or talents to help you? How did this affect you?
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Chapter Summary
Check for Understanding
Now it’s time to check your learning! Go back to the Before You Begin section for this chapter. Place a
checkmark next to the learning outcomes you’ve mastered and complete the “after” column of the Measure
Your Progress section.
Build On What You’ve Learned
Fill in the graphic organizer with each of the Five Foundations. Put a checkmark next to each of the foundations
you have accomplished.
THE SECOND FOUNDATION 2
THE THIRD FOUNDATION 3
THE FOURTH FOUNDATION 4
THE FIFTH FOUNDATION 5
THE FIRST FOUNDATION 1
COMPLETE? THE FIVE FOUNDATIONS (WRITE THESE OUT)
266 Foundations in Personal Finance High School Edition
RECAP & REVIEW
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Take Action Challenge
Look at your Five Foundations chart. For each foundation that you have not completed, write a brief summary
of how you intend to meet that goal. Be sure to include a time goal for each of the foundations.
STEPS TO MEET YOUR FOUNDATION GOAL TIME
1
2
3
4
5
Big Ideas
The following Big Ideas are intended to provide clear focus and purpose to the lessons. Read each statement
and think about how what you’ve learned will affect your current and future decisions. Then, in the space
provided, write an “I believe” statement for each of the Big Ideas.
»» People are more important than money.
»» Discover your values, interests and passions—then give!
»» Your legacy is the impact you make on the world.
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Money in Review
a Legacy
b Core Values
c Nonprofits
d The First Foundation
e The Fourth Foundation
f Philanthropy
1. _____ Organizations that use money raised
to achieve their goals rather than
distributing them as profit
2. _____ Means “love of humanity”; identifying
and exercising one’s values in giving and
volunteering
3. _____ Pay cash for college
4. _____ Anything handed down from the past;
something that someone has achieved
that continues to exist after they are gone
5. _____ Save a $500 emergency fund
6. _____ Traits or qualities that represent an
individual’s highest priorities, deeply
held beliefs and motivating forces; one’s
guiding principles
Matching
Match the following terms to the correct definition below.
Illustration
Draw a picture representation of each of the following terms.
Charitable Giving Your Core Values
268 Foundations in Personal Finance High School Edition
RECAP & REVIEW
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Multiple Choice
Circle the correct answer.
7. You have to wait until you have a large
income before you can help others.
a True
b False
8. One financial benefit of giving money to
charity is that your contribution may be
tax deductible.
a True
b False
9. Which of the following should be a
consideration when selecting a nonprofit
to which you’d like to contribute?
a Your values and beliefs
b The charity’s commitment to
accountability and transparency
c How well run the organization is
d All of the above
10. Is it better to give to many charities
or just a few?
a Many
b Just a few
c Doesn’t matter
d None at all
11. What percentage of households give
to charity?
a 100%
b 20%
c 65%
d 5%
Short Answer
Respond in the space provided.
12. Why is it important to give money, time
or talents?
13. What does it mean to leave a legacy?
14. Write down something you learned in
this chapter.
15. If you could start a charity, what would it be?
Who would you help and in what way? Why?
16. How can giving to others have a positive
impact on you?
Chapter 12: Giving 269
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270 Foundations in Personal Finance High School Edition
401(k): Defined contribution plan offered by a
corporation to its employees, which allows employees to
set aside tax-deferred income for retirement purposes;
in some cases, employers will match their contributions
403(b): Retirement plan similar to a 401(k) plan, but
one that is offered by non-profit organizations, such as
hospitals, schools and some charitable organizations,
rather than corporations; employees set aside taxdeferred
dollars
457 plan: Non-qualified, deferred compensation plan
established by state and local governments for taxexempt
government agencies and tax-exempt employers;
eligible employees are allowed to make salary deferral
contributions to the 457 plan; earnings grow on a taxdeferred
basis and contributions are not taxed until the
assets are distributed from the plan.
529 plan: College savings plan that allows individuals
to save on a tax-deferred basis in order to fund future
college and graduate school expenses of a child or
beneficiary; generally sponsored by a state, these are
professionally managed investments
12b-1 fee: An annual fee that some mutual funds charge
to pay for marketing and distribution activities
A
Accelerated payment: Making bi-weekly payments on
your mortgage that makes one additional payment on
your mortgage annually
Accountability: The quality or state of being responsible,
liable or answerable
Adjustable rate mortgage (ARM): Home loan secured
by a deed of trust or mortgage in which the interest rate
will change periodically (i.e., annually); typically adjusted
based on a published index such as the Treasury Bill or
LIBOR; brought on as a result of high interest rates in
the early 1980s as a way for banks to transfer the risk of
higher interest rates to the consumer
Aggressive growth stock mutual fund: Mutual fund that
seeks to provide maximum long-term capital growth
from stocks of primarily smaller companies or narrow
market segments; dividend income is incidental; the
most volatile fund; also referred to as a small-cap fund
Allowance: Money given to a child by his/her parent/
guardian, typically on a weekly basis
Amoral: Lacking morals; neither good nor bad
Amortization table: Breakdown showing how much of
each regular payment will be applied toward principal
and how much toward interest over the life of a loan; also
shows the gradual decrease of the loan balance until it
reaches zero
Annuity: Contract sold by an insurance company,
designed to provide payments to the holder at specified
intervals, usually after retirement; the holder is taxed
at the time of distribution or withdrawal, making this a
tax-deferred arrangement
Annual fee: A yearly fee that’s charged by the credit card
company for the convenience of the credit card
Annual percentage rate (APR): Cost of borrowing money
on an annual basis; takes into account the interest rate
and other related fees on a loan.
Appreciation: An increase in value
Asset: Anything that is owned by an individual; with
respect to saving and investing, assets are generally
categorized as liquid (cash) and capital (investment)
assets
Glossary
LICENSED TO: HEBRON 9TH GRADE CENTER UNLIMITED SCHOOL LICENSE
Glossary 271
Asset allocation: The process of deciding how
investment dollars will be apportioned among various
classes of financial assets, such as stocks, bonds and
cash investments
Asset classes: Major categories of financial assets
or securities. The three primary classes are common
stocks, bonds and cash investments
ATM card: Automated teller card which allows you to
make transactions in automated teller machines
Auction: A public sale in which property or items of
merchandise are sold to the highest bidder
Auto insurance: Insurance to protect a car owner in the
event of an accident or damage to a vehicle
Average annual return: The rate of return on investments
averaged over a specific period of time. It is determined
by adding together the rates of return for each year and
dividing by the number of years in the calculation
B
Back-end load: Sales commission paid when the investor
sells mutual fund shares; sometimes phased out over
several years; also called redemption fee or contingentdeferred
sales charge
Balanced fund: A mutual fund that invests in more than
one type of financial asset: stocks, bonds, and in some
cases, cash investments
Balloon mortgage: A home loan in which the sum of the
monthly payments is insufficient to repay the entire loan;
a final payment comes due, which is a lump sum of the
remaining principal balance
Bankruptcy: Legal procedure for dealing with debt
problems of individuals and businesses; specifically
a legal court case filed under one of the chapters of
Title 11 of the United States Code (also see Chapter 7
bankruptcy, Chapter 11 bankruptcy, and Chapter 13
bankruptcy)
Bargain: A deal obtained when negotiating and paying a
lesser price than asked for an item
Beneficiary: The recipient of assets passed on from the
death of a friend or relative
Bond: A debt instrument where an issuer such as a
corporation, municipality or government agency owes
you money; a form of I.O.U.; the issuer makes regular
interest payments on the bond and promises to pay back
or redeem the face value of the bond at a specified point
in the future (the maturity date)
Bond mutual fund: Mutual funds that buy bonds
Branding: The promotion of a product or service by
identifying it with distinct characteristics (usually
associated with public perception, quality or
effectiveness)
Brand recognition/awareness: Refers to the public’s
ability to recall and recognize a brand by its logo, jingles,
packaging, etc.
Break-even analysis: Method used to evaluate the wisdom
of a financial decision by determining the length of time it
will take for the cost of the decision to be recouped
Budget: A written cash flow plan
Buyer’s remorse: Feeling regret or concern after
making a large purchase
C
Capital gain: A positive difference between an asset’s
price when bought and its price when sold; the opposite
of capital loss
Capital gains distribution: Payment to mutual fund
shareholders of any gains realized during the year on
securities that have been sold at a profit. Capital gains
are distributed on a “net” basis after subtracting any
capital losses for the year. When losses exceed gains
for the year, the difference may be carried forward and
subtracted from future gains.
Capital loss: A negative difference between an asset’s
price when bought and its price when sold; the opposite
of capital gain
Carbon check: A copy of each check you write
Career: Your line of work
Cash flow statement: A summary that shows total
income and spending for a given time period
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272 Foundations in Personal Finance High School Edition
GLOSSARY
Cash investments: Investments in interest-bearing bank
deposits, money market instruments and U.S. Treasury
Bills or notes
Cash value insurance: Also known as permanent life
insurance; premiums include a death benefit and a plan
to build savings within the policy; two main types are
whole life and universal life; significantly more expensive
than term life insurance
Caveat emptor: Latin term for “buyer beware”
C.D.: Certificate of Deposit, usually at a bank; savings
account with a slightly higher interest rate because of a
longer savings commitment (i.e., six months, one year, etc.)
Chapter 7 Bankruptcy: Chapter of the Bankruptcy Code
providing for liquidation of the debtor’s assets in order to
repay the creditors; certain assets or aggregate value of
assets of the debtor may be exempt based on state law
Chapter 11 Bankruptcy: Reorganization bankruptcy,
usually involving a corporation or partnership; generally
includes a plan of reorganization to keep a business alive
and pay creditors over time
Chapter 13 Bankruptcy: Chapter of the Bankruptcy
Code providing for an individual to repay debts over
time, usually three to five years; debtor makes periodic
payments to the bankruptcy trustee, who in turn pays
the creditors; sometimes includes adjustments to debt
balances within the bankruptcy
Checking account: Account set up to maintain daily
financial activities. Users can draft checks for payment,
issue deposits into their accounts, and keep track of their
debit card transactions through their checking account.
Claim: Paperwork filed with an insurance company in
order to get them to cover a loss for someone they insure
Co-insurance: In a health insurance policy, after you pay
the deductible the insurance company pays a percentage
and you pay a percentage; 80/20–insurance pays 80%
and you pay 20%
Collision: Portion of auto insurance that covers losses
due to vehicle damage in an accident
Commission: A fee paid for providing a service
Commodities: A food, metal or fixed physical substance
that investors buy or sell, usually via future contracts
Communication: A process by which information is
exchanged between individuals
Compensation: The total wage or salary and benefits
that an employee receives
Compound interest: Interest paid on interest previously
earned; credited daily, monthly, quarterly or semiannually
Comprehensive: Pays for damage to your car that is not
a result of an accident
Consignment shop: Retail store where people sell items
and the owner of the shop gets a percentage of the sale
Consumer: A person or organization that uses a product
or a service
Contact letter: A letter informing a prospective employer
that you are interested in working for their company
Contents insurance: Insurance policy that covers
personal possessions in a home or apartment
Conventional loan: Mortgage obtained through the
Federal National Mortgage Association (FNMA), which
insures against default; generally includes a down
payment of 5-20% or more
Copay: In regards to health insurance, paying a set
amount per medical visit
Core values: Traits or qualities that represent an
individual’s highest priorities, deeply held beliefs, and
motivating forces; one’s guiding principles
Cost-benefit analysis: The process of quantifying costs
and benefits of a decision
Cover letter: Similar to a contact letter but is used to
inform the prospective employer of your interest and
capabilities as they relate to a specific employment
opportunity; always accompanied by a résumé
Coverage: Applies to the amount of protection you have
through an insurance company in the event of a loss
Cosigning: Offering to guarantee someone else’s loan;
becoming responsible for loan repayment if the borrower
defaults
Credit: The granting of a loan and the creation of debt;
any form of deferred payment
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Glossary 273
Credit bureau: An agency which collects the credit
history of consumers so that creditors can make
decisions about granting loans
Credit card: Tool used to finance a purchase
Credit disability: Insurance that pays for financed items
or purchases if you become disabled and are unable to
earn an income
Credit Laws:
»» Fair Credit Reporting Act (1971): Federal law
governing the reporting of debt repayment
information; establishes when a credit reporting
agency may provide a report to someone; states
that obsolete information must be taken off (7 to 10
years); gives consumers the right to know what is in
their credit report; requires that both a credit bureau
and information provider (i.e., department store)
have an obligation to correct wrong information;
gives consumers the right to dispute inaccurate
information and add a 100-word statement to their
report to explain accurate negative information;
gives consumers the right to know what credit
bureau provided the report when they are turned
down for credit
»» Fair Credit Billing Act (1975): Federal law that
covers credit card billing problems and applies to
all open-end credit accounts (i.e. credit cards and
overdraft checking); states that consumers should
send a written billing error notice to the creditor
within 60 days (after receipt of first bill containing
an error), which the creditor must acknowledge
in 30 days; requires the creditor to investigate and
prohibits them from damaging a consumer’s credit
rating while a dispute is pending
»» Fair Debt Collection Practices Act (1978): Federal
law that prohibits debt collectors from engaging
in unfair, deceptive, or abusive practices when
collecting debts; requires collectors to send a
written notice stating the name of the creditor and
the amount owed; prohibits contacting the consumer
if he or she disputes the debt in writing within 30
days (unless collector furnishes proof of the debt);
requires collectors to identify themselves on the
phone and limits calls to between 8:00 a.m. and 9:00
p.m. unless the consumer agrees to another time;
prohibits calling the consumer at work if requested
»» Equal Credit Opportunity Act (1975): Federal law
that ensures consumers are given an equal chance
to receive credit; prohibits discrimination on the
basis of gender, race, marital status, religion,
national origin, age or receipt of public assistance;
prohibits lenders from asking about plans to have
children, or refusing to consider consistently
received alimony or child support payments as
income; grants the consumer legal rights to know
why he or she was denied credit
»» Truth in Lending Act (1969): Federal law that
mandates disclosure of information about the cost
of credit; mandates that the finance charge (i.e., all
charges to borrow money, including interest) and
the annual percentage rate (APR) must be displayed
prominently on forms and statements used by
creditors; provides criminal penalties for willful
violators, as well as civil remedies; protects against
unauthorized use of one’s credit card, limiting
personal loss to $50 if the card is lost or stolen
»» Fair Credit and Charge Card Disclosure Act (1989):
Portion of the Truth in Lending Act that mandates
a section on credit card applications that describes
key features and cost (i.e., APR, grace period for
purchases, minimum finance charge, balance
calculation method, annual fees, transaction fees for
cash advances, and penalty fees such as over-thelimit
fees and late payment fees)
Credit life: Insurance that pays for financed items or
purchases in the event of your death
Credit report: Report showing your payment history
Credit score: A measure of an individual’s credit risk;
calculated from a credit report using a standardized
formula
Credit union: Not-for-profit cooperatives of members
with some type of common bond (i.e., employer) that
provide a wide array of financial services, often at a
lower cost than banks
Currency: Money
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GLOSSARY
D
Day trading: Establishing and liquidating the same
position or positions within one day’s trading
Debit card: Type of card, often bearing the seal of a major
credit card company, issued by a bank and used to make
purchases; unlike a credit card, the money comes directly
out of a checking account; also called a check card
Debt: An obligation of repayment owed by one party (the
debtor/borrower) to a second party (the creditor/lender);
in most cases this includes repayment of the original
loan amount plus interest
Debt consolidation: Act of combining all debts into one
monthly payment, typically extending the terms and the
length of time required to repay the debt
Debt snowball: Preferred method of debt repayment;
includes a list of all debts organized from smallest to
largest balance; minimum payments are made to all
debts except for the smallest, which is attacked with the
largest possible payments.
Deductible: Amount you must pay before you begin
receiving any benefits from your insurance company
Deduction: An amount subtracted from something
especially as an allowance against tax
Deed: The legal document conveying title to a property
Deflation: A broad, overall drop in the price of goods and
services; the opposite of inflation
Delinquency: Broadly refers to not being current on your
payments
Depreciation: A decline in the value of property; the
opposite of appreciation
Direct deposit service: A service that electronically
transfers all or part of any recurring payment, including
dividends, paychecks, pensions and Social Security
payments directly to a shareholder’s account
Direct transfer: Movement of tax-deferred retirement
plan money from one qualified plan or custodian to
another; results in no immediate tax liabilities or
penalties, but requires IRS reporting
Disability insurance: Policy that insures a worker in the
event of an occupational mishap resulting in disability;
compensates the injured worker for lost pay
Disposable income: Amount of money left over after all
necessities and expenses are paid
Dividend distribution: Payment of income to mutual
fund shareholders from interest or dividends generated
by the fund’s investments
Diversification: The practice of dividing the money
a person invests between several different types of
investments in order to lower risk
Dividend: Distribution of a portion of a company’s
earnings, decided by the board of directors, to a class
of its shareholders; generally distributed in the form of
cash or stock
Down payment: The part of the purchase price of a
property that the buyer pays in cash and does not finance
with a mortgage
Duplicate checks: Type of checks that make duplicate
copies as you write them out
E
Earned income: Any income (wages/salary) that is
generated by working
Economy: A system by which goods and services are
produced and distributed
Educational Savings Account (ESA): After-tax college
fund that grows tax-free for educational uses; eligibility
based on parents’ annual income
Elimination period: Amount of time that lapses after a
disabling event before the insurance company begins to
pay benefits
Emergency fund: Five hundred dollars in readily
available cash to be used only in the event of an
emergency; the goal of the First Foundation
Employee benefit: Something of value that an
employee receives in addition to a wage or salary.
Examples include health insurance, disability insurance,
discounted childcare, etc.
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Glossary 275
Employer-Sponsored Retirement Savings Program:
Tax-deferred savings plans offered by employers that
provide a federal tax deduction, tax-deferral of contributions
and earnings, and in some cases employer matching. They
include 401(k) plans for corporate employees, 403(b) plans
for employees of schools and non-profit organizations, and
Section 457 plans for state and local government employees.
Entrepreneur: A person who starts a business
Envelope system: Series of envelopes that are divided
into categories (food, entertainment, gas, etc.) and are
used to store cash for planned monthly expenses
Equity: The value of a piece of property over and above
any mortgage or liabilities related to it
Estate sale: Type of yard sale with more items, usually
the entire contents of a household
Excise tax: A tax levied on the purchase of certain
non-essential consumer goods such as tobacco, airline
tickets, etc.
Expense: The cost of goods or services
Expense ratio: The percentage of a fund’s average
net assets used to pay annual fund expenses. The
expense ratio takes into account management fees,
administrative fees, and any 12b-1 marketing fees
Extended replacement cost: Part of homeowner’s
insurance policy that pays a percentage beyond the
insured price of the home for purposes of rebuilding it
in the event of a catastrophic loss. If you do not update
this, it will not cover the appreciation of your home (e.g.
house is insured for $200,000, but the value goes up to
$300,000, you are covered for the $200,000 plus whatever
the coverage states).
F
Federal Deposit Insurance Corporation (FDIC): A
federal institution that insures bank deposits
Federal Housing Administration (FHA): Federally
sponsored agency chartered in 1934 whose stock is
currently owned by savings institutions across the United
States. The agency buys residential mortgages that
meet certain requirements, sells these mortgages in
packages, and insures the lenders against loss.
Federal Insurance Contributions Act (FICA):
Government legislations that funds Social Security
Federal Reserve System: The monetary authority of
the United States, established in 1913, and governed
by the Federal Reserve Board located in Washington
D.C. The system includes 12 Federal Reserve Banks and
is authorized to regulate monetary policy as well as to
supervise Federal Reserve member banks, bank holding
companies, international operations of US banks, and US
operations of foreign banks.
Fee table: A table, placed near the front of a mutual
fund’s prospectus, disclosing and illustrating the
expenses and fees a shareholder will incur
Financial goals: Short-, immediate, and long-term goals
that require money and guide a person’s future plans and
savings decisions
Financial literacy: The knowledge and skill base
necessary to be informed consumers and manage their
finances effectively
Financial plan: A plan of action that allows a person
to meet not only the immediate needs but also their
long-term goals
Financial resources: Financial assets that can be
accessed when necessary
Financing: To buy an item with credit; paying over time
Fiscal: Having to do with money
Fiscal year: Accounting period covering 12 consecutive
months over which a company determines earnings and
profits. The fiscal year serves as a period of reference for
the company and does not necessarily correspond to the
calendar year.
Five Foundations: The five steps to financial success
Fixed annuity: Type of annuity that guarantees a certain
rate of return; see annuity
Fixed income securities: Investments, such as bonds,
which provide current income from a fixed schedule of
interest payments. While the level of income offered by
these securities is predetermined and usually stable,
their market value may fluctuate
Fixed rate: An interest rate that does not change over time
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276 Foundations in Personal Finance High School Edition
GLOSSARY
Forbearance: Agreement of a lender to suspend
foreclosure proceedings and allow a debtor to “catch up”
a past due account over a specified period of time; lender
grants a postponement of loan payments for a set period
of time, giving the borrower time to make up for overdue
payments
Foreclosure: Process by which the holder of a mortgage
sells the property of a homeowner who has not made
interest and/or principal payments on time as stipulated
in the mortgage contract
Fraud: A seller’s intentional deception of a buyer, which
is illegal
Free Application for Federal Student Aid (FAFSA):
A form that is completed annually by current and
prospective college students to determine their eligibility
for financial aid
Free spirit: A person who thinks that everything will
work out fine and typically hates to deal with the details
Front-end load: Sales commission that is paid up-front
when shares of a mutual fund are purchased
Fund family: A group of mutual funds sponsored by the
same organization, often offering exchange privileges
between funds and combined account statements for
multiple funds
Futures: A term used to designate all contracts covering
the sale of financial instruments or physical commodities
for future delivery on a commodity exchange
G
Garnishment: Court-ordered attachment that allows a
lender to take monies owed directly from a borrower’s
paycheck; only allowed as part of a court judgment
Goal: The result of achievement toward which effort is
directed
Grace period: Time period during which a borrower can
pay the full balance of credit due with no finance charges
Grant: A form of federal or state financial aid that does
not need to be repaid; usually given to students who
demonstrate financial need
Gratuity: An amount paid beyond what is required
usually to express satisfaction with service quality; also
known as a tip
Gross income: A person’s total income prior to
withholdings and deductions
Gross National Product (GNP): Measures an economy’s
total income. It is equal to Gross Domestic Product,
plus the income abroad accruing to domestic residents,
minus income generated in domestic market accruing to
non-residents.
Growth and income mutual fund: A fund that buys
stocks in larger, more established companies, mediumsized
companies or growth stocks; also called a largecap
fund
Growth stock mutual fund: A fund that buys stock in
medium-sized companies that have experienced some
growth and are still expanding; also called a mid-cap
fund
Guaranteed renewable: If you have a 20-year policy,
the insurance has to provide coverage after 20 years
regardless of health; it will only be more expensive
because you are older
Guaranteed replacement cost: Part of homeowner’s
insurance policy that pays for the full cost of replacing
damaged property without a deduction for depreciation
and without a dollar limit
H
Health insurance: Covers you in the event of illness or
injury
Health savings account (HSA): A health insurance plan
for self-employed people containing a large deductible.
Money saved in this account grows tax deferred. It can
be used for medical care with no penalties and no taxes,
and may be kept if unused.
Home equity loan (HEL): Credit line offered by mortgage
lenders that allows a homeowner to borrow money
against the equity in their home
Home warranty: An agreement that ensures the
structural soundness of a home
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Glossary 277
Homeowner’s insurance: Policy that covers a loss due to
damage, theft or injury within one’s home
House poor: A condition of having a disproportionately
high house payment that limits one’s ability to maintain
the home and/or meet necessities
I
Impulse purchase: An item that is bought without previous
planning or consideration of the long-term effects
Income: Earnings from work or investment
Income fund: A mutual fund that invests in bonds and
stocks with higher than average dividends
Income risk: The possibility that income from a mutual
fund or other investment will decline either as a fund’s
assets are reinvested or when a fixed income investment
matures and is replaced with a lower-yielding investment
Income tax: Tax paid out by anyone who earns an income
Index: A statistical benchmark designed to reflect
changes in financial markets or the economy. In
investing, indexes are used to measure changes in
segments of the stock and bond markets and as
standards against which fund managers and investors
can measure the performance of their investment
portfolios.
Index fund: A mutual fund that seeks to match the
performance of a predetermined market benchmark or
index
Individual retirement arrangement (IRA): Tax-deferred
arrangement for individuals with earned income and
their non-income-producing spouses; growth is not
taxed until money is withdrawn; contributions to an IRA
are often tax-deductible
Inflation: Rate at which the general level of prices for
goods and services rise
Inflation hedge: An asset rising in value, which helps
one to keep up with the rising cost of inflation. Real
estate can be a great inflation hedge.
Integrity: Having to do with a person’s honesty and
moral attributes
Interest: Charge for borrowed money generally defined
as a percentage; money paid to savers and investors by
financial institutions, governments, or corporations for
the use of their money (such as a 2% return on money
held in a savings account)
Interest-only loan: A mortgage where you only pay the
interest
Interest rate: Percentage paid to a lender for the use
of borrowed money (in debt); percentage earned on
invested principal (in investing)
Interest rate risk: The risk that a security or mutual
fund will decline in price because of changes in market
interest rates
Internal Revenue Service (IRS): Federal agency
responsible for the collection of federal taxes, including
personal and corporate, Social Security, and excise and
gift taxes
International stock mutual fund: Mutual fund that
contains international or overseas companies
Introductory rate: An interest rate charged to a
customer during the early stages of a loan; the rate often
goes up after a specified period of time
Investing: The process of setting money aside to
increase wealth over time for long-term financial goals
such as retirement
Investment: Account or arrangement in which a person
puts his/her money for long-term growth; invested
money should not be used for a suggested minimum of
five years
Investment advisor/manager: The individual who
manages a portfolio of investments; also called a
portfolio manager or a money manager
Investment objective: A mutual fund’s performance
goal, such as long-term capital appreciation, high
current income, or tax exempt income
Investors: People investing in securities, such as stocks
and bonds, or other investments, to achieve long-term
financial goals
Interview: A meeting between an employer and an
applicant; the employer asks the applicant questions to
assess whether he or she has the right social skills and
intelligence suitable for the workplace
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278 Foundations in Personal Finance High School Edition
GLOSSARY
J
Job: A regular activity performed in exchange for payment,
especially as one’s trade, occupation, or profession
L
Large-cap fund: Funds comprised of large, wellestablished
companies
Lease: A long-term rental agreement, and a form of
secured long-term debt
Legacy: Anything handed down from the past; something
that someone has achieved that continues to exist after
they are gone
Level term: This means you pay the same amount for
the entire term of the policy
Liability: The state or quality of being obligated
according to law or equity
Liability insurance: Policy that protects an individual
in the event of a lawsuit due to injury on one’s personal
property or as the result of an automobile accident
Life insurance: Type of insurance designed to replace
income lost due to death; traditionally two types: term
and cash value
Liquidity: Quality of an asset that permits it to be
converted quickly into cash without loss of value;
availability of money
Loan: Temporary borrowing of a sum of money
Load fund: Mutual fund that sells shares with a sales
charge of typically 2-6% of the net amount sold; some
no-load funds also levy distribution fees permitted by
Article 12b-1 of the Investment Company Act. These are
typically 0.25%; a true no- load fund has no sales charge.
Loan term: Time frame that a loan agreement is in force,
and before or at the end of which the loan should either
be repaid or renegotiated for another term
Loan to value (LTV): Value of a property versus the
amount borrowed against it; example: a 70/30 LTV
means that the property owner owes 70% of the item’s
worth and owns 30% of the item’s worth
Long-term care insurance: Policy that covers the cost
of nursing home or in-home care; recommended for
everyone over age 60
Long-term coverage: Coverage for an extended period
of time
Long-term disability: Disability insurance designed to
replace lost income for a period of five years or greater
Loss: The negative difference between total revenue
from a business or investment minus total expense
Low-load fund: Mutual fund that charges a sales
commission equal to 3% or less of the amount invested
M
Management fee: The fee paid by a mutual fund to its
investment advisor
Marketing: The process of communicating the value of a
product or service to customers
Market risk: The possibility that an investment will fall
in value due to a general decline in financial markets
Markup: The difference between the wholesale price and
retail price
Maximum pay: The amount an insurance company will
pay before you are dropped from coverage. With health
insurance keep at least a one million dollar maximum pay
Medicare: Federal government program that pays for
certain health care expenses for citizens 65 or older;
managed by the Social Security Administration
Mid-cap fund: Mutual fund containing a group of
medium-sized companies that are growing
Money: Currency and coin that are guaranteed as legal
tender by the government
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Glossary 279
Money market fund: Mutual fund that seeks to maintain
a stable share price and to earn current income by
investing in interest-bearing instruments with shortterm
(usually 90 days or less) maturities
Money order: A financial instrument backed by a deposit
at a certain firm, such as a bank, that can be easily
converted to cash
Mortgage: Loan secured by the collateral of some
specified real estate property, which obligates the
borrower to make a predetermined series of payments
Mortgage life insurance: Insurance policy that pays off
the remaining balance of the insured person’s mortgage
at death
Mutual fund: Pool of money managed by an investment
company and invested in multiple companies, bonds,
etc.; offers investors a variety of goals depending on the
fund and its investment charter; often used to generate
income on a regular basis or to preserve an investor’s
money; sometimes used to invest in companies that are
growing at a rapid pace
Myth: Information that has been passed on but is not true
N
Need: Economic goods and services that are basic for
living such as food, clothing, and shelter
Negotiate: To bargain for a lower price
Nerd: A person who is picky about budgeting and details
Nest egg: Sum of money earmarked for ongoing living
expenses at retirement or when employment income
otherwise stops
Net asset value (NAV): The market value of a mutual
fund’s total assets, less its liabilities, divided by the
number of outstanding shares
Nonprofits: Organizations that use money raised to
achieve their goals rather than distributing them as profit
No-load mutual fund: Open-ended investment company
whose shares are sold without a sales charge; might
include other distribution charges, such as Article 12b-1
fees, but a true no-load fund has neither a sales charge
nor a distribution fee
O
Objective: A goal or plan
Occupational disability: Type of insurance that provides
an income in case the insured becomes unable to
perform the job he/she was educated or trained to do
Opportunity cost: Refers to the financial opportunity that
is given up because you choose to do something else
with your money
Out-of-pocket expense: Specific amount of money that
you pay when insurance only covers a portion of costs
Owner financing: Type of home loan in which the
existing owner acts as the mortgage holder; payments
are made to the owner rather than to a mortgage
company or bank
Overdraft: Occurs when money is withdrawn from a
bank account and the available balance goes below zero
P
Paradigm: Your belief system; the way you see or
perceive things
Passive income: Money earned on a regular basis with
little or no effort required to maintain it. Some things
that produce passive income are real estate, intellectual
property like books or internet content, or a business in
which the owner is not actively involved.
Pawn shop: Retail establishment selling items that have
been traded as security for a cash loan
Payroll deduction: Amount subtracted from a paycheck,
either by government requirement (mandatory taxes,
Social Security, etc.) or at the employee’s request (health
insurance, retirement plan, etc.)
Permanent disability: Disabilities that are ongoing and
are not expected to end
Personal branding: The process by which we “market”
ourselves to others; involves highlighting personal strengths,
interests and unique qualities and identifying goals
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280 Foundations in Personal Finance High School Edition
GLOSSARY
Personal finance: The decisions which an individual or
a family unit is required to make to obtain, budget, save,
and spend money over time
Philanthropy: Means “love of humanity”; identifying and
exercising one’s values in giving and volunteering
Policy: Describes the type of coverage in an insurance
agreement
Portfolio: A list of your investments
Portfolio income: Income generated by selling an
investment at a higher price than you paid for it
Portfolio transaction costs: The costs associated with
buying and selling securities, including commissions on
trades, dealer mark-ups on bonds, bid-asking spreads,
and any other miscellaneous expenses. These costs are
not included in the expense ratio.
Pre-authorized checking (PAC): System of automatic
payment processing by which bills, deposits, and
payments are handled electronically and at regular
intervals or on a predetermined schedule
Pre-paid tuition: Paying for college ahead of time by
accumulating units of tuition
Pre-tax retirement plan: A type of retirement plan
where you put money in before taxes have been taken
out, but must pay taxes on the money at the time of
withdrawal
Premium: Amount you pay monthly, quarterly, semiannually
or annually to purchase different types of
Insurance
Principal: Original amount of money invested, excluding
any interest or dividends; also called the face value of
a loan
Priority: Level of high importance or great urgency
Private mortgage insurance (PMI): Policy paid by the
mortgage borrower that protects the lender against loss
resulting from default on a mortgage loan
Profit: The positive difference between total revenue
from a business or investment minus total expense
Property taxes: Taxes paid by anyone who owns property
such as land, a home or commercial real estate
Pro rata: Debt repayment plan by which the borrower
repays each lender a fair percentage of the total debt
owed when one cannot make the minimum payments on
one’s debt
Prospectus: Official document that contains information
required by the Securities and Exchange Commission to
describe an investment
R
Rate of return: Return on an investment expressed as a
percentage of its cost; also called yield
Realtor: An intermediary who receives a commission
for arranging and facilitating the sale of a property for a
buyer or a seller; also referred to as a Real Estate Broker
or an Agent
Reconcile: To match your bank statement with your
checkbook
Redemption fee: Fee charged by some mutual funds for
selling (redeeming) shares
Refunding: Sending in proofs of purchase to receive
cash back or free gifts
Reinvestment: Use of investment income or dividends to
buy additional shares
Rent: Periodic fee for the use of property
Rental real estate: Buying real estate to rent out as an
investment
Renter’s insurance: Type of insurance that provides
coverage for accidents, damages and losses in a rental
(apartment or house) or dormitory. Renter’s insurance
provides coverage for personal belongings and liability
that may occur from an accident in the insured home
Replacement cost: Insurance that pays the actual
cost of replacing your home and its contents after a
catastrophic event
Repo lot: A place where items that have been
repossessed are offered for sale
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Glossary 281
Restoration services: Part of identity theft insurance
that assigns a counselor to clean up the mess made
when your identity was stolen
Résumé: A brief account of one’s professional or work
experience and qualifications, often submitted with an
employment application
Retailer: One who buys a product to re-sell
Reverse mortgage: Used to release the home equity in
a property. The home owner either makes no payments
and the interest is added to the lien of the property, or
receives monthly payments thereby increasing the debt
each month.
Risk: Degree of uncertainty of return on an asset; in
business, the likelihood of loss or reduced profit
Risk-return ratio: Relationship of substantial reward
compared to the amount of risk taken
Rollover: Movement of funds from a tax-deferred
retirement plan from one qualified plan or custodian to
another; incurs no immediate tax liabilities or penalties,
but requires IRS reporting
Roth IRA: Retirement account funded with after-tax
dollars that subsequently grows tax free
Roth 401(k): Employer-sponsored retirement savings
account that is funded with after-tax dollars and
subsequently grows tax free
Rule of 72: A quick way to calculate the length of time
it will take to double a sum of money. Divide 72 by the
expected interest rate to determine the number of years
(72 divided by 8% = 9 years).
Rule of 78: Pre-payment penalty in a financing contract; the
portion of a 90-days-same-as-cash agreement that states
that the entire loan amount plus the interest accumulated
over the first 90 days becomes due immediately
S
Salary: Payment for work, usually calculated in
periods of a week or longer. Salary is usually tied to the
completion of specific duties over a minimum, but not
maximum, number of hours. (See wage.)
Sales tax: Tax on goods and services that goes to your
state or local government
Saving: The process of setting aside money until a future
date instead of spending it today. The goal is to provide
for emergencies, short term goals, and investments.
Savings account: Accounts at financial institutions that
allow regular deposits and withdrawals. The minimum
required deposit, fees charged, and interest rate paid
varies among providers.
Savings bond: Certificate representing a debt; example:
U.S. savings bond is a loan to the government in which
the government agrees to repay to the bondholder the
amount borrowed, with interest; government bonds are
issued in face value denominations from $50 to $10,000,
with local and state tax-free interest and semi-annually
adjusted interest rates.
Savings & loan associations (S&Ls): Financial
institutions that provide loans and interest bearing
accounts which are federally insured
Scholarship: A form of financial aid that does not need
to be repaid; usually awarded on the basis of academic,
athletic or other achievements
Sector fund: A mutual fund that invests its shareholders’
money in a relatively narrow market sector, e.g.
technology, energy, the internet, or banking
Security: The state of being free from danger or threat
Self-esteem: A confidence and satisfaction in yourself
Self-insured: Condition of wealth at which time one no
longer needs an outside insurance policy to cover a loss
Share: Piece of ownership in a company, mutual fund or
other investment
Short-term disability: Minimal period of incapacitation;
often used to describe an insurance policy that insures
one’s income for the immediate future following an
incapacitating event
Short-term policy: Insurance policy that only covers a
minimal period of time
Significant purchase: An amount of money you spend,
usually $300, that causes some pain to part with
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282 Foundations in Personal Finance High School Edition
GLOSSARY
Simple interest: Interest credited daily, monthly,
quarterly, semi-annually, or annually on principal only,
not previously credited interest
Simple IRA: Salary deduction plan for retirement
benefits provided by some small companies with fewer
than 100 employees
Simplified employee pension plan (SEPP): Pension plan
in which both the employee and the employer contribute
to an individual retirement account; also available to the
self-employed
Sinking fund: Saving money over time for a large purchase
Small-cap fund: Mutual fund that invests in companies
whose market value is less than $1 billion; largely
consists of smaller, more volatile companies; also called
aggressive growth stock mutual fund
Social Security: A federal insurance program funded by
taxpayer dollars that provides benefits to people who are
retired, unemployed or disabled
Speculative: Purchasing risky investments that present
the possibility of large profits, but also pose a higherthan-
average possibility of loss
Stock markets:
»» National Association of Securities Dealers Automated
Quotation System (NASDAQ): The electronic stock
exchange run by the National Association of Securities
Dealers for over the counter trading. Established in
1971, it is America’s fastest growing stock market and
a leader in trading foreign securities and technology
shares. The NASDAQ uses market makers who trade for
their own account and profit on the spread between bid
and ask prices. Although once the province of smaller
companies, NASDAQ today is where many leading
companies are traded.
»» New York Stock Exchange (NYSE): The NYSE traces
its origins back more that 200 years to the signing
of the Buttonwood Agreement by 24 New York City
stockbrokers and merchants in 1792. The NYSE
utilizes a trading floor for traditional exchanges where
buyers and sellers meet directly–that is, brokers
representing investors on each side of the transaction
come together on a price.
Stocks: Securities that represent part ownership or
equity in a corporation
Stop-loss: Total out-of-pocket expense for health
insurance; once reached, insurance will pay 100 percent
T
Take-home pay: The amount of money one has available
after taxes have been taken out of their pay; total wage,
salary, commissions, and/or bonuses minus payroll
deductions
Tax: A government fee on business and individual
income, activities, products, or services
Tax credit: An amount that a taxpayer who meets certain
criteria can subtract from tax owed
Tax deduction: Expense that a taxpayer is allowed to
deduct from taxable income; examples include money
paid as home mortgage interest and charitable donations
Tax deductible: The effect of a tax deduction, such as
charitable contributions and mortgage interest
Tax-deferred income: Dividends, interest, and
unrealized capital gains on investments in a qualified
account, such as a retirement plan, in which income is
not subject to taxation until a withdrawal is made
Tax exempt: Investments whose earnings are free from
tax liability
Tax exemptions: Amount that a taxpayer who meets
certain criteria can subtract from a taxable income; see
tax credit and tax deduction
Tax-favored dollars: Money that is invested, either tax
deferred or tax free, within a retirement plan
Taxable income: Income subject to tax; total income
adjusted for deductions, exemptions and credits
Teamwork: Cooperative and coordinated effort on the
part of a group of persons acting together in the interest
of a common goal
Term insurance: Life insurance coverage for a specified
period of time
Time poverty: A situation in which a person is lacking
time, which leads to stress
Timeshare: A form of vacation property ownership
where a company sells a small segment of time (usually
a week) to a customer. The use and costs of running the
property are shared among all of the customers, now
owners, who bought into the timeshare.
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Glossary 283
Time value of money: Money at the present time is
worth more than the same amount in the future
Title insurance: Coverage that protects a policyholder
from future challenges to the title of a property that may
result in loss of the property
Total return: The change in percentage over a particular
period in the value of an investment; including any
income from the investment and any change in its
market value
Track record: The past history of something; with
investments, look at the five or ten year record
Turnover rate: A measure of a mutual fund’s trading
activity. Turnover is calculated by taking the lesser of
the fund’s total purchases or total sales of securities
(not counting securities with maturities under one year)
and dividing by the average monthly assets. A turnover
rate of 50% means that during a year, a fund has sold
and replaced securities with a value equal to 50% of the
fund’s average net assets.
U
Umbrella liability insurance: High-limit insurance
policy that acts as a protective covering over your home
and car insurance against liability caused by an accident
Underwriter: A firm that buys an issue of securities
from a company and resells it to investors; in general, a
party that guarantees the proceeds to the firm from a
security sale, thereby in effect taking ownership of the
securities
Unearned income: Money received for which no
exchange was made, such as a gift
Uniform Gifts to Minors Act (UGMA): Legislation
that provides a tax-effective manner of transferring
property to minors without the complications of trusts or
guardianship restrictions
Uniform Transfers to Minors Act (UTMA): Law similar
to the Uniform Gifts to Minors Act (UGMA) that extends
the definition of gifts to include real estate, paintings,
royalties, and patents
Universal life: Type of life insurance policy, similar to
cash value, but with better projected returns
Unrealized capital gain/loss: An increase/decrease in
the value of a stock or security (mutual fund) that is not
“realized” because the security has not yet been sold for
a gain or a loss
V
Veterans Administration (VA) loan: Type of mortgage
loan designed to benefit veterans that allows for a true
zero-down mortgage; generally more expensive than a
conventional mortgage
Value fund: Mutual fund that emphasizes stocks of
companies whose growth prospects are generally
regarded as sub-par by the market, resulting in stocks
typically priced below average based on such factors as
revenue, earnings, book value, and dividends
Value system: A person’s priorities, beliefs and
standards that affect how he or she views the world
Variable annuity: Annuity that has a varying rate of
return based on the mutual funds in which one has
invested; also see annuity
Variable life: Type of life insurance that is similar to
cash value, but buys into mutual funds to project better
returns
Viatical: Contractual arrangement in which a business
buys life insurance policies from terminally ill patients
for a percentage of the face value
Vocation: What you do for a living that is your “calling”
Volatility: Fluctuations in market value of a mutual fund
or other security; the greater a fund’s volatility, the wider
the fluctuations between high and low prices
W
W-4: A federal tax form filled out by an employee to
indicate the amount that should be withheld from his/her
paycheck for taxes
Wage: Payment for work, usually calculated in periods of
an hour rather than longer (see salary)
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284 Foundations in Personal Finance High School Edition
GLOSSARY
Walk-away power: The ability to walk away from a
purchase when negotiating
Wants: Desires for economic goods or services not
necessary in order to survive
Wealth: Accumulating assets such as money and
possessions, often as a result of saving or investing
Will: A legally enforceable declaration of how a person
wishes his or her property to be distributed after death
Withholding: A portion of employee’s wages or salary
deducted for taxes
Whole life insurance: Type of insurance that contains a
low-yield savings plan within the insurance policy; more
expensive than term life insurance
Work ethic: How motivated, loyal and honest you are in
your work
Work study: A program that allows students to work part
time while continuing their studies
Y
Yield: The annualized rate at which an investment earns
income, expressed as a percentage of the investment’s
current price
Z
Zero-based budget: A cash flow plan that assigns an
expense to every dollar of your income, wherein the total
income minus the total expenses equals zero
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