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Methods for Teaching Financial Literacy with Economic Reasoning

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Methods for Teaching Financial Literacy with Economic Reasoning. CCEE Summer 2012 Program Millionaire Game Colorado PFL and Economics Standards July 9 13, 2012 John Brock, Professor of Record. Colorado Council for Economic Education Faculty. John Brock - PowerPoint PPT Presentation

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The Stock Market GameMethods for Teaching Financial Literacywith Economic ReasoningCCEE Summer 2012 ProgramMillionaire GameColorado PFL and Economics StandardsJuly 9 13, 2012John Brock, Professor of Record1Colorado Council for Economic EducationFacultyJohn BrockDirector, Center for Economic EducationUniversity of Colorado, Colorado Springsjbrock@uccs.edu Master TeachersSocial Studies:Pam Patrick, Social Studies, Cherokee Trail HSMathematics:Ann Brock, retired Math teacher, Lewis-Palmer HSLets Get Started!What Is Wealth?Wealth = (What you own) AssetsLiabilitiesminus (What you owe)Whats a Millionaire?Household with a net worth (or wealth) of:$1,000,000 (or more)*Lets play a game . . . *Definition of millionaire often excludes primary residence. The Millionaire Game*Divide into two-person teamsRules:Statements appear on screen.Each team decides True or False.Circle chosen answer on sheet provided.True or False* Shortened version of FFFL, 2nd ed., Lesson 1Millionaire StatementsStatement 1:Most millionaires are college graduates.Statement 2:Most millionaires work fewer than 40 hours per week.Statement 3:Most of Americas millionaires are first-generation rich.Statement 4:The average total household annual income of todays millionaires is about $120,000.Statement 5:Nearly 50% of millionaires drive current-year cars.Statement 6:Many poor people become millionaires by winning the lottery.Statement 7:College graduates earn about 60% more than high school graduates earn.Statement 8:Millionaires tend to avoid the stock market.Millionaire StatementsStatement 10:American families of English ancestry are more likely to be millionaires today than households of other ethnic origins.Statement 9:At age 18, you decide not to purchase soft drinks from the vending machine and save $1.50 a day. You invest this $1.50 a day at 8% annual interest until you are 67. At age 67, your savings are almost $150,000.Millionaire StatementsHow Did We Do?For each statement, hold up the cardT for trueF for falseAccording to answer sheet:correct answer = + 5incorrect answer = - 5Each team has 1 Millionaire cardcorrect (+10); incorrect (-10)July 2012CCEE Millionaire ChampionSources: Millionaire Next Door, Millionaire Mind, & Getting Rich in AmericaStatement 1Most millionaires are college graduates.80% of millionaires are college graduates.18% have Masters degrees8% have law degrees6% medical degrees6% Ph.D.s TrueDiplomaUniversity of Colorado Colorado SpringsEducationStatement 2Most millionaires work fewer than 40 hours per week.About 67% of millionaires work 45 to 55 hours a week. FalseEarn Statement 3Most of Americas millionaires are first-generation rich.Only 19% received any wealth of any kind from a trust fund or estate.Fewer than 10% inherited 10% or more of their wealth. TrueEarn Statement 4The average total household income of todays millionaires is about $120,000.Total income reported among millionaire households averaged $119,000 (2005). Frugal, Frugal, Frugal TrueSave 14Statement 5Nearly 50% of millionaires drive current-year cars.Most millionaires spend under $30,000 for a car.Only 23% drive a current-year [new model] car. FalseSave Statement 6Many poor people become millionaires by winning the lottery.Few people get rich the easy way! Chance of winning about one in 12 million. Average person who plays every day have to live about 33,000 years to win once. In contrast, you have a one in 1.9 million chance of being struck by lightning. A pregnant woman has one chance in 705,000 births to have quadruplets. How many sets of quadruplets do you know? FalseSave & Invest Statement 7College graduates earn about 60% more than high school graduates earn.In recent years the average college graduate earned 63% more than the average high school graduate did. TrueEducationStatement 8Millionaires tend to avoid the stock market.Long term, the S&P 500 Stock Index has increased about 10% compound annual rate of return, exceeding the return on any other investment. FalseInvestStatement 9At age 18, you decide not to purchase vending machine soft drinks &save $1.50 a day. You invest this $1.50 a day at 8% annual interest until you are 67. At age 67, your savings are almost $150,000.Because of the power of compound interest, small savings can make a difference, almost $300,000 in this case. FalseSave Statement 10American families of English ancestry are more likely to be millionaires today than households of other ethnic origins.In the mid-to-late 1990s:Russian22% are millionairesScottish21% are millionairesHungarian15% are millionairesEnglish7.7% are millionaires False Financial FitnessThe Moral of the Story?Learning outcome for our students?A formula for financial fitness: E2 + S + I2 = F2Education, Earn, Save, Invest and Insureequals Financial FitnessPeople who have it all, didnt get there by accident. They had a plan and followed it. (as reflected in the Millionaire Game)The Colorado PFL Content StandardsPersonal Financial Literacy: EconomicsContent Area: Social Studies (4 standards) History, Geography, Economics, CivicsEconomics: 7 Grade Level Expectations3 traditional economics, covering (although not labeled as such in the standards):microeconomics macroeconomicsinternational4 personal financial literacy (PFL)Standard 3: EconomicsGrade Level Expectation: High School4. Design, analyze, and apply a financial plan based on short- and long-run financial goalsSelected Evidence Outcomes & 21st Century Skills:Develop a financial plan including a budgetDescribe factors affecting take-home paySources of personal incomeLegal and ethical responsibilities regarding taxesRole of education in building financial securityEducation + Earn(+ a bit on Saving) Standard 3: EconomicsGrade Level Expectation: High School5. Analyze strategic spending, saving, and investment options to achieve the objectives of diversification, liquidity, income and growth. Selected Evidence Outcomes & 21st Century Skills:Investments available for diversified portfolioHow economic cycles affect financial decisionsInvestments to achieve liquidity, growth, income.How compound interest manifests in investment and debt situations.Invest Standard 3: EconomicsGrade Level Expectation: High School6. The components of personal credit to manage credit and debt. Selected Evidence Outcomes & 21st Century Skills:Analyze lending sources, services & financial institutionsBuilding and maintaining a credit historySimilarities & differences in revolving credit, personal loans and mortgagesSave (via responsible use of credit)Standard 3: EconomicsGrade Level Expectation: High School7. Identify, develop and evaluate risk-management strategies. Selected Evidence Outcomes & 21st Century Skills:Differentiate between types of insuranceExplain function and purpose of insuranceSelect and evaluate strategies to mitigate riskAdditional ways individuals can alleviate financial riskProtect with Insurance Standard 3: EconomicsGrade Level Expectation: Eighth Grade2. Manage personal credit and debt. Selected Evidence Outcomes & 21st Century Skills:Analyze benefits and costs of credit and debt.Compare sources of credit.When is debt useful?Save (via responsible use of credit)Standard 3: EconomicsGrade Level Expectation: Seventh Grade2. The distribution of resources influences economic production and individual choices. Selected Evidence Outcomes & 21st Century Skills:Explain the role of taxes.Define various types of taxes.Demonstrate the impact of taxes on individual income and spending.Factors influence productionsupply, demand & priceEarnStandard 3: EconomicsGrade Level Expectation: Sixth Grade2. Saving and investing are key contributors to financial well-being. Selected Evidence Outcomes & 21st Century Skills:Differentiate between saving and investing.Explain how saving and investing can improve financial well-being.What are risky investments and why would someone make that type of investment?Save and InvestContent Area: Mathematics (4 standards)Number Sense, Properties, & OperationsPatterns, Functions & Algebraic StructuresData Analysis, Statistics, & ProbabilityShape, Dimension, and Geometric RelationshipsGrade Level ExpectationsEvidence Outcomes (PFL)21st Century Skills (PFL)Personal Financial Literacy: MathematicsMathematics Standard 1: Number SenseGrade Level Expectation: High School2. Formulate, represent, and use algorithms with real numbers flexibly, accurately, and efficiently.Selected Evidence Outcomes & 21st Century Skills:Describe factors affecting take-home pay and calculate the impact.Design and use a budget.How much money is enough for retirement.Is education worth the cost?Education & Earn; and SaveMathematics Standard 2: AlgebraGrade Level Expectation: High School6. Quantitative relationships in the real world can be modeled and solved using functions.Selected Evidence Outcomes & 21st Century Skills:Analyze the impact of interest rates.Evaluate the costs and benefits of credit.Evaluate various lending sources.How much would todays purchase cost tomorrow?Save and InvestMath Standard 3: Probability & StatisticsGrade Level Expectation: High School5. Probability models outcomes for situations in which there is inherent randomness, quantifying the degree of certainty in terms of relative frequency of occurrence.Selected Evidence Outcomes & 21st Century Skills:Find and interpret the expected value and standard deviation of a discrete random variable X [non-PFL].Analyze the cost of insurance as a method to offset risk.How does probability relate to insurance?Invest & InsureMathematics Standard 1: Number SenseGrade Level Expectation: Eighth Grade2. Formulate, represent, and use algorithms with real numbers flexibly, accurately, and efficiently.Selected Evidence Outcomes & 21st Century Skills:Analyze how credit and debt impact personal financial goals.Computational fluencyallows individuals to accomplish daily taskssuch ascalculating overtime pay,calculating interest Earn, Save & InvestMathematics Standard 1: Number SenseGrade Level Expectation: Seventh Grade2. Formulate, represent, and use algorithms with real numbers flexibly, accurately, and efficiently.Selected Evidence Outcomes & 21st Century Skills:Solve problems involving percent of a number, discounts, taxes, simple interest, percent increase and decrease.Use algorithms to help individuals spend money wisely.Use percentages to represent quantitiessuch as amount and types of taxes paidSave and InvestMathematics Standard 1: Number SenseGrade Level Expectation: Seventh Grade3. Proportional reasoning involves comparisons and multiplicative relationships among ratios.Selected Evidence Outcomes & 21st Century Skills:Estimate and compute unit cost of consumables sold in quantity to make purchase decisions.The use of ratios, rates, and proportions allows sound decision-making in daily life.Save (via control of spending)Mathematics Standard 1: Number SenseGrade Level Expectation: Sixth Grade3. Quantities can be expressed and compared using ratios and rates.Selected Evidence Outcomes & 21st Century Skills:Express the comparison of two whole numbers usingpart-to-part ratios, and part-to-whole ratios in real contexts, including investing and saving.Save and InvestThe PFL Standards are summarized with our financial fitness formula: E2 + S + I2 = F2Education, Earn, Save, Invest & Insureequals Financial FitnessScarcityWants > Availabilityor,Unlimited wants > Limited resourcesScarcity Choice Economics is: the study of choice41 Scarcity necessitates choicepeople must chooseThe Economic Way of Thinking:Key ConceptDevelop a Decision-Making Framework for StudentsHelp make decisions by learning a process for more careful choice43Decision-Making ModelDefine the ProblemList the AlternativesState the CriteriaEvaluate the AlternativesMake a DecisionPACED44Lets Make Another Set of Choices Financial PlanningWould you like to run in a race?So that you can plan & train appropriatelyyoud want to know:How long is the race? If one does not know to which port one is sailing, no wind is favorable. Lucius Annaeus Seneca, Roman philosopher Begin with end in mind, then develop a roadmap on how to get there.Financial Plan Step 1: Goal SettingGoals something you want:to beto haveto doGoals will point you in a direction. Goals toward which to aimYour values (beliefs important to you)impact your goalsGoals Have a Time FrameHow long to accomplish?Short-term goalsUp to three yearsIntermediate-term goalsBetween three and five yearsLong-term goalsBeyond five yearsand Goals Can Be . . . Financial Purchase prom dresscarcollege educationretirement Non-FinancialSpend more timewith familywith friendsexercisingreadingWrite Down Three of Your Future GoalsTwo financialOne short term and one long termOne non-financialList Some of Your GoalsFinancial GoalsEstimated Cost of Achieving GoalShort termLong termNon-financial GoalShort or Long termBuyer Beware! If it sounds too good to be true, then it probably is.Whats too good to be true?Recognizing normal rates of return can be helpfulBest way to protect yourself from a Scam is to remember that:Theres no such thing as a free lunch!Speaking of scams heres a classic:http://www.youtube.com/watch?v=ynPJM0Zeqqg

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