Personal Finance in the News: The Mortgage Settlement – Class Discussion and Teaching Video

Posted on February 23, 2012 by ajkeown

Teaching Tip:  Jean Chatzky has a short (3-4 minute) video from the Today show on the new “Mortgage Settlement” that summarizes what took place.

In mid-February, 2012, the Justice Department announced a $25 billion settlement deal between 49 state attorneys general and the federal government and the five largest loan servicers:

Ally/GMAC

Bank of America

Citi

JPMorgan Chase

Wells Fargo

This law suit was was brought as the result of charges of “robo-signings” on foreclosure documents – or as stated in the National Mortgage Settlement website the “agreement settles state and federal investigations finding that the country’s five largest loan servicers routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct” – which is illegal.

The settlement will provide some relief for homeowners in danger of losing their homes, and it will also make it easier for current borrowers to refinance. The deal also seeks to reform mortgage-lending practices, minimizing the chances that these foreclosure problems will happen again.

$25 billion is a lot of money, so who benefits from this deal?  Three sets of borrows will get some relief: (1) homeowners needing loan modifications now – they get help refinancing at current, low interest rates, (2) homeowners who are current on their payments but owe more than the value of their home – they also get help refinancing at current, low interest rates, and (3) borrowers who have lost their homes due to foreclosure – they will receive cash payments with $1.5 billion distributed to 750,000 borrowers.

In Chapter 8 of Turning Money Into Wealth we take you through the many steps and considerations that are involved in making “the most expensive decision” you are likely to ever make by introducing you to the “Smart Buying Approach”.  Remember Principle 1: The Best Protection is Knowledge” – you will find that there is a lot to know when buying a house and the housing bubble crisis proves that this decision should not be made without doing your homework!

Discussion Questions:

  1. Do you think this settlement will increase or decrease the number of foreclosures next year?  Be prepared to defend your opinion in class.
  2. How much in the way of mortgage relief per borrower and how many borrowers might be involved? (Use the “Questions and Answers on the Mortgage Settlement” from USAToday to answer this question.)
  3. After watching the Today Show video were you surprised at how this settlement money will be divided?  Do you think the amount of money being proposed will really make a difference to the homeowner?  Why or why not. Write a 1 page response.
  4. Read through the NPR article “The Mortgage Deal: A Reality Check” – do you think the problem will be solved by this action? Why or why not.  Write a 1 page response.
Posted in Ch. 7, Consumer Loans, Ch. 8, Home and Auto | Tagged , , , , , , , , , | Leave a comment

Class Assignment: Financial Words of Wisdom

Posted on February 21, 2012 by ajkeown

One of the best financial blogs is “The Color of Money” by Michelle Singletary which appears every Wednesday and Saturday in the Washington Post and is syndicated in over 100 newspapers.

If you’d like to see what Michelle is writing about, just check out the listing of her “Color of Money” columns on the Washington Post website.  She also has her own website, MichelleSingletary.com, which includes a number of interesting features.  One of those features is the ”Questions & Answers” section, which is divided up into questions on credit, debt, kids & money, love & money, college students, retirement, and disaster preparation.  Each one of those sections opens with a topical question from a reader and then provides an answer from Michelle.

Also on Michelle’s site is a listing of her favorite quotes.  For example, on debt, she lists a quote from Earl Wilson, “This would be a much better world if more married couples were as deeply in love as they are in debt” – certainly, that quote would fit in quite well in the Chapter 8 section in Personal Finance: Turning Money into Wealth titled “Tying Things Together: Debt and the Real World.”  On investing she quotes Kin Hubbard, who said, “The safe way to double your money is to fold it over once and put it in your pocket” – a quote that ties in well with the Chapter 11 section “A Look at Risk-Return Trade-Offs.

Assigment questions:

  1. Pick two quotes and write a short essay on each, explaining why you liked that quote and why it has meaning in your financial life.
  2. Find another financial quote that you like and write a short essay on why you like it.  Be prepared to share the quote with your class.
Posted in Ch. 8, Home and Auto, Ch.11, Investment Basics | Tagged , , , , , , , , | Leave a comment

Class Discussion and Assignment: A Look at Discretionary Spending in the United States

Posted on February 17, 2012 by ajkeown

Teaching Tip:  Mint.com has a great exercise called, “How Little Things Add Up,” that students can either do in class (if they have access to the internet) or before class.  It will give them an estimate of how much they spend each month on those “little things” like ATM fees, bottled water, energy drinks, movies, and more.  If done outside of class, have your students bring the write-up in and share their results with the class.  The primary assignment here is to focus in on at least two of these “little things” that can be reduced or eliminated.  The answers to this could either be discussed in class or handed in as a written assignment.

In Chapter 8 of Personal Finance: Turning Money into Wealth we look at Smart Buying, in fact, we even have a principle, Principle 6: Waste Not, Want Not – Smart Spending Matters.  What we are really talking about is how to make sure you get the most out of your discretionary income. After all, discretionary income refers to what’s left after taxes and the basic necessities like food, shelter, and clothing have been paid for – in effect, discretionary income is what’s left for investing, saving, and spending on non-basic needs, that is, the fun stuff.  Not only is it the most fun to spend, but it’s also easy to spend money on discretionary items without thinking.   That’s where you can get into trouble.  Take another look at your results from the “How Little Things Add Up” exercise.

Exactly how much you spend on discretionary items depends upon how much discretionary income you have.  Mint.com recent put together an infograph titled “Discretionary Dough: How Much Extra Cash Do Americans Have?” that not only looks at what Americans do with their discretionary income, but it also highlights, as you might expect, the fact that upper income Americans account for a large portion of discretionary spending.

Discussion questions:

  1. Look at the personality traits at the bottom of the mint.com infograph “Discretionary Dough: How Much Extra Cash Do Americans Have?”  Of the eight statements, how many of your answers line up with the answers given by the groups with highest and lowest levels of discretionary spending? Discuss in a short paper or be prepared to share your results with your class.
  2. Work through the mint.com exercise, “How Little Things Add Up,” what was your level of monthly spending on discretionary items?  What “little item” spending category surprised you the most?  What two “little items” could you reduce or eliminate, and how much would that save you per month?  Be prepared to share this with your class.
Posted in Ch. 8, Home and Auto | Tagged , , , , | Leave a comment

Class Assignment and Discussion: Money Lessons from the “New Girl,” Zooey Deschanel

Posted on February 15, 2012 by ajkeown

On the television series “New Girl,” Zooey Deschanel plays “Jess” Day, a cute, perky teacher who moves with three guys into an apartment she found on Craigslist after breaking up with her boyfriend.  In real life, she’s just broken up with her husband, Ben Gibbard, who is the lead singer for Death Cab for Cutie.  While this is a sad event for all involved, and one that deserves privacy, it is also one that that we can learn some financial lessons from.  Divorce is also a major Financial Life Event – Life Event 10: Divorce – from Chapter 18, and if you aren’t as wealthy as Zooey, the financial impact of divorce makes a bad situation all the worse.  Moreover, with over 40 percent of all first marriages ending in divorce, this is a life event that affects many of us. Not only are money problems the major cause of divorce, but divorce usually leads to reduced income and the burden of expenses that were formerly shared.

When Zooey recently filed for divorce, her lawyer filed an “income and expense declaration” detailing what she spends each month and also her net worth.  As you might expect, with an income of around $95,000 per month, her spending patterns aren’t typical of what we saw when we looked at the spending patterns of Americans in Chapter 2.  That said, she does a pretty good job of living frugally, although when you make as much as she makes, her spending habits are no doubt more extensive than yours.  The LearnVest Financial Planning website takes a look at Zooey’s budget as compiled in her divorce filing in the article “Zooey Deschanel’s Budget: What She Could Do Differently”.  The article recaps her financial picture, analyzes her spending and saving habits, and in general has great things about Zooey’s handling of her money.

Discussion questions:

  1. Zooey spends quite a bit of money on groceries, about $1,000 per month (she’s a vegan, and this may or may not have something to do with that), but it’s only about 1% of her total income.  Looking at the article “Mapping Global Food Spending,” how does the percent Zooey spends compare to spending on food around the world?  What about this surprises you?  What do some of the higher percentages mean in terms of lifestyle?  Be prepared to discuss in class.
  2. If you were Zooey, what might you do differently?  Be prepared to discuss in class.
Posted in Ch. 2, Measuring Financial Health and Making a Plan, Ch.18, Financial Life Events | Tagged , , , , , , | Leave a comment

Class Assignment and Discussion: Finding out a bit about yourself – Life Values Quiz

Posted on February 12, 2012 by ajkeown

Teaching Tip:  This “Life Values Quiz” can be taken in class if computer connections are available, or if not, it should be assigned as an outside the class exercise.  If not all students have computer connections, but you as the instructor do, you can pick out two or three students to do the quiz in class.  Then, in front of the class, work through the quiz with them as they answer the questions, discussing their responses as you go along – then view the results as a class.

In Chapter 1 of Turning Money Into Wealth we introduce the 10 Principles of Personal Finance, and Principle 9 on that list is Mind Games, Your Financial Personality and Your Money.  This principle focuses on the fact that because of the way we are wired, we all have built-in biases that we don’t know about that have an impact on how we make our financial decisions. If you understand these biases, you can control them, and if you recognize what your financial personality is, you can take it out of the process and avoid some of the pitfalls you’d otherwise be subject to.

The purpose of this exercise is to give you some insights into your inner, social, physical, and financial life values.  Why is this an important exercise?  Because without an understanding of your life values, you can’t gain an understanding of your finanical personality.

The “Life Values Quiz” was put together by Smart About Money.org National Endowment for Financial Education® (NEFE®), an independent, nonprofit foundation which for more than 30 years has been committed to educating Americans on a broad range of financial topics and empowering them to make positive and sound decisions to reach their financial goals.  The “Life Value Quiz” scores you on inner, social, physical, and financial life values, and while you get a score, there is not a correct or incorrect score.  The point is to gain a better understanding of how and why you make the decisions you make.

Class Assignment and Discussion:

  1. Take the Life Values Quiz.  What were your scores?  Be prepared to share them with your class.  Did your results surprise you?
  2. As a written assignment: Take the Life Values Quiz.  Print out your scores and write a one page paper on whether or not these results seem to make sense, use some examples from your recent behavior to support your opinion.
Posted in 10 Principles of Personal Finance, Ch. 1, Financial Planning Process | Tagged , , , , | Leave a comment

Class Discussion and Written Assignment: Help for a Recent Graduate

Posted on February 8, 2012 by ajkeown

Teaching Tip:  Chris Farrell is the economics editor for Marketplace Money, the personal finance show by American Public Media.  He also writes a column for American Public Media titled Marketplace Getting Personal.  In that column he fields questions from readers on a variety of personal finance issues and topics. In a recent article titled “Good education.  Good job.  Now what?” Chris addresses some questions from Romas, who just finished graduate school.  This article brings a number of topic covered in Chapters 2, 7, and 16 together along with Principle 5: Stuff Happens, or the Importance of Liquidity.  This assignment fits in both early and late in the course – with an early presentation allowing you to discuss some of the tradeoffs that will be looked at later.

One way to keep assignments fresh is to pull some personal finance questions from Chris Farrell’s column and let the students take a stab at answering them with a short written response.  Then in class show them Chris’s response and recommendation and have a discussion comparing their written answer with Chris’s.  Did they approach the question the same way?  How did the student’s response compare to Chris’s?

Class Assignment:  Romas, from Berkeley, CA has just finished graduate school, and he needs some personal financial advice.  Like most of us finish any schooling, be it graduate or undergraduate, he finds he is in serious debt to the tune of  $72,000.  The good news is that the interest rate on his borrowing is pretty low, between 2.1% and 2.6%.  Fortunately for Romas things aren’t too bleak, he worked before going back to school and as a result has about $28,000 in a 401(k) retirement plan, and about $10,000 in a defined benefit plan from his old job.  In addition, he just received about $8,000 in an inheritance.  Since he didn’t say anything about being married or having children, let’s assume he’s single and without children – and he does have a job, but there’s some risk there – it’s a start-up, with a bit of an unknown future.

Romas has several questions:  What should his financial priorities be?  Repayment of school loans? Saving for retirement? Putting money into an emergency fund?  How much?  What about IRAs and Roth IRAs?

Assignment question:

  1. Write a short response with your recommended action to Romas.  Be prepared to defend your recommendation in class.
Posted in Ch. 2, Measuring Financial Health and Making a Plan, Ch. 7, Consumer Loans, Ch.16, Retirement Planning | Tagged , , | Leave a comment

Class Discussion and Video: The Facebook IPO

Posted on February 6, 2012 by ajkeown

Teaching Tip:  Marketplace.org has a four-minute video titled, “What’s an IPO?”  It is definitely short enough that it can be shown in class or assigned as homework viewing outside of class.  Regardless of how it’s used,  it does a great job of explaining exactly what an IPO is.

In Chapter 12 of Turning Money into Wealth we discuss Initial Public Offerings or IPOs.  Generally when IPOs are discussed the company that is going public is a little known firm trying to raise cash so it can grow.  But at the beginning of February 2012, the firm that announced it is planning on selling stock to the public for the first time through an IPO is a household name – in fact, it’s one that you most likely know very well, Facebook.  It’s not just that there are around 845 million members around the globe, but many of those members are using it most of the time.

There are a bunch of great articles chronicalling the Facrebook IPO, and here are some of the best:

  • “Facebook Sets Historic IPO” from The Wall Street Journal – this link sends you to the article, and just below the title to the article are a number of tabs that will take you to a video about the IPO, a slideshow, interactive graphics on who’s who at facebook, and stock quotes of recent IPOs.
  • “Facebook IPO: A look at what we learned from the filings” from the Washington Post – this link sends you to an article where you’ll learn how much the main characters at Facebook make (you might want to be sitting down while you read this) and you’ll also learn about the strong relationship Facebook has with Zynga, the social gaming company.
  • “An open (Face)book” is a great video from Marketplace.org on the Facebook IPO.  One of the points it brings up is that Facebook now has to make money.
  • “Facebook IPO: How does Facebook make its money?”  So how does Facebook make money?  That’s what this article deals with.

Discussion questions:

  1. Would you buy shares of Facebook?  Why or why not?  Be prepared to discuss this in class.
  2. Do you have any idea what the company is worth?  How might you determine that?  Be prepared to discuss this in class.  Take a look at some recent IPOs in the graphic “IPO: Go, No-Go?” Are you surprised at their performance?  Why or why not? Be prepared to discuss this in class.
Posted in Ch.12, Securities Markets | Tagged , , , | Leave a comment

Finance in the News: Suze Orman Introduces “The Approved Card from Suze Orman” – a Prepaid Debit Card

Posted on February 1, 2012 by ajkeown

The Wall Street Journal article “Invasion of the Star-Studded Debit Cards” presents Suze Orman as the latest celebrity to introduce a prepaid debit card.   Ms. Orman follows in the steps of hip-hop mogul Russell Simmons and the Kardashians (although, the Kardashian Kard was pulled after Kourtney, Khloe, and Kim pulled their endorsement just before the card went public).

Orman claims her card is “better than cash” and “safer than cash” and went on to say in the MSNBC article, “The truth behind Suze Orman’s new debit card,” “I decided to create The Approved card after I heard from so many people who were being taken advantage of by the tricks and traps of the banking industry. I want to help people who need a low-cost alternative to what’s out there, and who want to manage their money responsibly.”

To say the least, she has created a real controversy, she’s been criticized by some who question whether someone peddling advice, should also use their name for money making schemes.  In addition, some have questioned whether “The Approved Card from Suze Orman” (which is the name printed on the card) is as good as she says it is, she has responded by calling them “idiots.”

To say the least, there has been a lot written about it lately, and as you know from Principle 1: The Best Protection is Knowledge, you want to know about any financial instrument before you put money into it.  Some of the more interesting write-ups on The Approved Card are:

From Marketplace Your Money, “Suze debuts new show, new card” (By the way, one of the fellows Suze calls “an idiot” is Odysseas Papadimitriou, chief executive of CardHub, and a former executive with Capital One.)

From USA Today, “Suze or not, look closely at celebrities’ prepaid cards”

From Reuters columnist John Wasik, “The troubling fine print of Suze”

From SmartMoney, “Sizing Up Suze Orman’s New Prepaid Card”

From Consumer Reports, “Suze Orman comes out with her own prepaid debit card”

From CardHub.com, “Suze Orman Prepaid Card Evaluation”

From TheBottomLine on msnbc.com, Herb Weisbaum, The Consumer Man, “The truth behind Suze Orman’s new debit card”

And Suze’ presentation of the card’s benefits on “The Approved Card Website”

Discussion questions:

1.  Will the card improve your credit history? To answer this, check out Herb Weisbaum’s The Consumer Man blog, “The truth behind Suze Orman’s new debit card.”  Prepare a short write-up answering this question.

2.  What is your opinion of The Approved Card?  Who do you think it might be appropriate for and why?  Prepare a short write-up answering this question.

Posted in Ch. 5, Cash Management | Tagged , , , , | Leave a comment

Class Assignment and Discussion: The Napkin Assignment

Posted on January 27, 2012 by ajkeown

Teaching Tip and Assignment:  One of the best personal finance columnists around is Carl Richards, a certified financial planner and founder of Prasada Capital Management.  On his blog “Bucks, Making the Most of Your Money”in the New York Times, Carl not only writes about personal finance issues, but also has produced a continuing series of back-of-the-napkin drawings called “The Sketchpad: Personal Finance on a Napkin.”  To say the least, they are extremely clever.  For example, he has one that appears as two circles with a small area of intersection.  One circle is titled “Buying real estate w/o doing the math” while the other is titled “Running a marathon w/o training.”  The intersection of those two circles is darkened and an arrow points to that darken area and says “Hurts a lot!”  He then has a column that explains the point of the napkin drawing and the personal finance lesson that can be learned from it.

Once these napkin drawings are introduced to your students, you will find that many of them will return to that website on their own.  Here are two effective ways to introduce this website to your students.

Assignment:

Pick six different napkin drawings from “The Sketchpad: Personal Finance on a Napkin” and provide them to your students without the explanatory Carl’s column that accompanies them.  Either outside of class or in class have your students write a short explanation of what they think he is trying to convey with one of the drawings.  Then, in class, have them share their responses with the rest of the class.

Posted in 10 Principles of Personal Finance, Ch. 8, Home and Auto | Tagged , , | Leave a comment