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 Game

Methods for Teaching Financial Literacy

with Economic Reasoning

CCEE Summer 2012 ProgramMillionaire GameColorado PFL and Economics Standards

July 9 13, 2012

John Brock, Professor of Record

1Colorado Council for Economic Education

FacultyJohn Brock

Director, Center for Economic EducationUniversity of Colorado, Colorado Springs

jbrock@uccs.edu

Master TeachersSocial Studies:Pam Patrick, Social Studies, Cherokee Trail HS

Mathematics:Ann Brock, retired Math teacher, Lewis-Palmer HS

Lets 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 1

Millionaire 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 false

According to answer sheet:correct answer = + 5incorrect answer = - 5

Each 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

True

DiplomaUniversity of Colorado Colorado SpringsEducationStatement 2

Most 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.

True

Earn 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

True

Save 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.

False

Save Statement 6

Many 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?

False

Save & 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.

True

EducationStatement 8

Millionaires 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.

False

Save 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 = F2

Education, Earn, Save, Invest and Insure

equals Financial Fitness

People 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, Civics

Economics: 7 Grade Level Expectations3 traditional economics, covering (although not labeled as such in the standards):microeconomics macroeconomicsinternational

4 personal financial literacy (PFL)

Standard 3: EconomicsGrade Level Expectation: High School

4. Design, analyze, and apply a financial plan based on short- and long-run financial goals

Selected 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 School

5. 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 School

6. 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 mortgages

Save (via responsible use of credit)Standard 3: EconomicsGrade Level Expectation: High School

7. 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 risk

Protect with Insurance Standard 3: EconomicsGrade Level Expectation: Eighth Grade

2. 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 Grade

2. 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 Grade

2. 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 School

2. 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 School

6. 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 School

5. 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 Grade

2. 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 Grade

2. 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 Grade

3. 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 Grade

3. 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 = F2

Education, Earn, Save, Invest & Insure

equals Financial Fitness

ScarcityWants > Availability

or,

Unlimited wants > Limited resourcesScarcity Choice Economics is: the study of choice

41

Scarcity necessitates choicepeople must choose

The 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 Problem

List the Alternatives

State the Criteria

Evaluate the Alternatives

Make a Decision

PACED44Lets 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 do

Goals will point you in a direction. Goals toward which to aim

Your values (beliefs important to you)impact your goalsGoals Have a Time FrameHow long to accomplish?

Short-term goalsUp to three years

Intermediate-term goalsBetween three and five years

Long-term goalsBeyond five yearsand Goals Can Be . . . Financial

Purchase

prom dresscarcollege educationretirement Non-Financial

Spend more time

with familywith friendsexercisingreading

Write Down Three of Your Future GoalsTwo financialOne short term and one long term

One non-financialList Some of Your GoalsFinancial Goals

Estimated Cost of Achieving GoalShort term

Long termNon-financial Goal

Short 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 helpful

Best 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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