Class Discussion, Class Assignment, and Video: Making Your Financial Resolution Work

Posted on December 21, 2011 by ajkeown

Teaching Tip:  This assignment works equally well as a written assignment and as a class discussion.  If used as a class discussion, it works well to show the video “Keeping Your Financial Resolutions” which is just over 3 minutes long, then opening up the class to things they feel would make good resolution items and list them on the board.  By sharing them, some students may find items that they had not thought of that they might want to control over the coming year.

As we learned in Principle 2: Nothing Happens Without a Plan, and the first step in a plan is coming up with a set of goals – that’s really what financial resolutions are.  They are goals that you might have trouble reaching – and the purpose of the “resolution” is to add a bit of disciple to achieving those goals.  Reuters has a nice video that gives some tips on how to make your financial resolutions stick titled “Keeping Your Financial Resolutions.”  And if you can make them stick, your that much closer to achieving your financial goals.  In addition, the Bank of America has an article on “New Year’s Financial Resolutions” that not only highlights how to make them work, but also suggests three financial resolutions to consider.

Even those these articles focus on New Year’s Resolutions, you should keep in mind, that financial resolutions can be made at times other than the beginning of the new year – for example, they can be made at the beginning of a term or any time.  And they’re a great way of making financial progress.

Class Discussion:

  1. Watch the video “Keeping Your Financial Resolutions,” and come up with one financial resolution for the following year that you feel is reachable.  Also, read the short article Bank of America article “New Year’s Financial Resolutions.”  What measures would you take to help achieve this resolution?  Be prepared to share this with your class.

Alternatively:

  1. Watch the video “Keeping Your Financial Resolutions,” and come up with three financial resolutions for the following year that you feel are reachable.  Also, read the short article Bank of America article “New Year’s Financial Resolutions.”  What measures would you take to help achieve this resolution?  Write a short paper responding to this assignment.
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Class Assignment: The Rising Age Gap in Financial Well-Being, Part 2

Posted on December 12, 2011 by ajkeown

In Chapter 11 we discuss investment basics and look at accumulating wealth through investing.  Obviously that involves an understanding of Principle 8: Risk and Return Go Hand in Hand, and how to budget and start the saving process as described in Chapter 2 – in effect, putting Principle 10: Just Do It! into play.

A recent Pew Research Center Survey looks at the increasingly large gap in economic well-being between the young and old in America and finds it is getting wider.  The recent Pew Research Center Report, “The Rising Age Gap in Economic Well-Being: Income, Poverty, Employment” shows that while the household median income for those households headed by Americans younger than 35 has been going down recently, it has been going up for households headed by Americans 65 and over.  And from 1967 to 2010, the change in the median household income has risen over 4 times more in percent terms for those 65 and older as opposed to those younger than 35.

The take away point from the Pew Research Center study is that young adults in America are having a very tough time relative to older Americans.

Class Assignment or Assignment:

1.  Read through the Pew Research Center Report, “The Rising Age Gap in Economic Well-Being: Income, Poverty, Employment.”   What did the report find with respect to poverty and employment of young Americans versus older Americans.  Why do you think this trend is taking place?  Be prepared to discuss this in class or write a short paper on this.

2.  You should now know the challenges you will be facing in the future and the difficulties other young Americans have in getting ahead.  Come up with two strategies you feel will help you get ahead in terms of wealth, income, and employment and be prepared to share these with your class.

Posted in 10 Principles of Personal Finance, Ch. 2, Measuring Financial Health and Making a Plan, Ch.11, Investment Basics | Tagged , , , | Leave a comment

Class Discussion or Written Assignment: The Rising Age Gap in Financial Well-Being, Part 1

Posted on December 9, 2011 by ajkeown

Principle 10: Just Do It!, introduced in Chapter 1, talks about the importance of not procrastinating – of getting started saving when you’re young and building up your wealth.  Unfortunately, that’s much easier said than done, and as a recent Pew Research Center Survey points out, there is an increasingly large gap between the wealth of the young as opposed to the old in America.

The recent Pew Research Center Report, “The Rising Age Gap in Economic Well-Being: Wealth Gap by Age” shows that while the household median net worth was $71,635 in 2009, it was only $3,662 for households headed by adults younger than 35, while for households headed by adults 65 and older the median net worth was $170,494.  Even more striking in this study was the fact that the median net worth for households headed by adults under 35 dropped by 68% between 1984 and 2009 while the median net worth for households headed by adults 65 and older went up by 42% over this same period.  The entire report is available at

All this points to an age dimension in wealth inequality – with older Americans gaining in terms of wealth relative to younger Americans.

Class Discussion or Assignment:

1.  Read through the Pew Research Center Report, “The Rising Age Gap in Economic Well-Being: Wealth Gap by Age.”   As we learned in Chapter 8, housing is a major component of wealth for Americans, and as a result, any change in the price of housing has a major impact on American wealth.  How has the recent drop in home prices impacted the different age groups of Americans?  Be prepared to discuss your findings in class or write a short paper on this question.

2.  Do you expect to buy a house soon after you graduate?  Are you worried about where home prices are headed?  Be prepared to discuss your opinion in class.

 

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Class Discussion: How does your holiday spending compare to the average?

Posted on December 6, 2011 by ajkeown

Teaching tip:  This is one of those class discussions where there isn’t a right or wrong answer, just opinions.  One way to start it out is to have everyone answer a number of questions dealing with what they think the national average is, then share then and discuss how to budget for it.  There are some excellent charts and a table that breaks down spending by age and income available from the National Retail Federation at their
“Holiday website”  – they are nice to show in class and discuss.  From there, if you would like, there is an excellent “Christmas Budget” worksheet abailable from simplemom.net that you can have them either fill out themselves or work with their family to fill out and bring it in as an assignment.  Regardless, it is a nice worksheet to provide your students.  This can also be provided to your students as a written assignment.

With “Black Friday” behind us, we are now in the heart of Holiday Season shopping.  With all the sales and advertisements in front of us it’s hard to control shoppng during the holidays.  One way to help control holiday spending is to know what others are spending – that way, if you’re above average, perhaps you need to take another look at your spending habits.

What is the average amount spent to celebrate the winter holidays?  According to the National Retail Federation “Holiday Headquarters” it is $704 for 2011, that represents an increase of 2.8% over the previous year, and retail sales in November and December 2011 are expected to be $465 billion!

At an average of $403.26, more than half of the consumer’s entire holiday budget was spent on gifts for family members. This doesn’t necessarily come as a surprise, as most big-ticket items are purchased for family members such as children, spouses and loved ones.

So, how do you control this?  As we learned in Principle 2: Nothing Happens Without a Plan, and as we saw in Chapter 2, budgeting is the key.  For that reason simplemom.com has an excellent “Christmas Budget” that will help you understand how much you are spending and then control it.

Discussion Questions:

  1. What do you think is a reasonable amount to spend to celebrate the winter holidays?
  2. Come up with two methods to save money for the winter holidays and be prepared to discuss them in class.
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Class Discussion, Class Assignment, and Video: Some Financial Mistakes to Avoid Right Now

Posted on December 5, 2011 by ajkeown

Teaching Tip:  This assignment works equally well as a written assignment and as a class discussion.  If used as a class discussion, it works well to show the video from Today Money featuring Suze Orman titled “Financial Mistakes to Avoid Right Now” which is just under 3 minutes long, then opening up the class to a discussion of the video.

The first mistake that people make that Suze points out speaks to Principle 1: The Best Protection is Knowledge.  As she notes, it’s pretty uncomfortable putting your money in a savings or checking account where you don’t earn any interest at all.  As a result, people are drawn into investments they really don’t understand – but as you should know by now, earning a 0% return is much better losing 10 or 15%.  As Suze points out, “It is better to do NOTHING than something you DO NOT UNDERSTAND”.

Suze also talks about how low interest rates draw people in to buying property they might not otherwise buy.  She also mentions TIPS which were discussed in Chapter 14 as reasonable investments.

Class Discussion

  1. Watch the video “Financial Mistakes to Avoid Right Now.” Why do you think Suze recommends them?  Write a short paper on TIPS, how they work, and why you think Suze recommends them.
  2. One of the popular alternatives to savings accounts among younger Americans is gold.  If you haven’t seen the MPR Planet Money video “Why Gold?” watch it.  Would you consider putting your savings into gold?  Where do you think gold prices are heading and why? Be prepared to share this with your class.

 

Posted in 10 Principles of Personal Finance, Ch. 1, Financial Planning Process, Ch.11, Investment Basics, Ch.14, Investing in Bonds | Leave a comment

Finance in the News & Class Assignment: Credit Reports and the Job Market

Posted on December 1, 2011 by ajkeown

As we learned in Chapter 6, your credit report and score have a major impact on the interest rate you will pay when you borrow money.  In addition, as we learned in Chapter 10, your credit score can also impact what you pay for your auto insurance.  Are those the only areas of your financial life that are impacted by your credit report and your credit score?  The answer is no.  Your ability to get a job can also be impacted by your credit report and credit score.  This may come as a surprise to many because the 1970 Fair Credit Reporting Act imposes restrictions on an employer’s use of an applicant’s or an employee’s credit history in the employment context.  But when you’re interviewing for a job and an HR person asks you to sign a consent form that will allow them access to your credit reports, what are you going to do?

It appears that the use of credit reports as a screening mechanism for hiring may be on the way out depending on where that job interview is taking place.  Mint.com recently reported in an article titled “Are Employment Credit Reports an Endangered Species?” that the California legislature passed a law that places strict restrictions on the use of credit reports in the hiring practice.  There are, of course, some exceptions, for example, those applying for law enforcement jobs and those with regular access to large amounts of money are exempted from this law.

Class Discussion:

1.  Are you surprised that your credit reports might impact your ability to get a job?

2.  The Federal Trade Commission provides consumers with information on improving their credit report in an article titled, “Building a Better Credit Report.”  Read that article and come up with a single strategy that you can implement that will help you improve your credit score.  Write a short paper on your strategy.

 

Posted in Ch. 6, Credit Cards | Tagged , , | Leave a comment

Class Discussion and Video: How to Save $10,000 in a Year

Posted on November 29, 2011 by ajkeown

Teaching Tip:  One good way to present this material is to show the Wall Street Journal video “Saving $10,000” in class (which is about 3 minutes long) and then open up a class discussion, follow that with a written assignment based upon the Wall Street Journal article “How to Save $10,000 by Next Thanksgiving.” 

In Chapter 2 we looked at the process of developing a cash budget – there we identified variable expenditures, that is, expenses over which you have complete control.  It’s the variable expenditures that can be reduced, and when you do that you’re saving money.  But we all know saving money is tough – if it wasn’t we’d all have a big stash of money in the bank.  Cutting down on this and that helps, but in the end it’s tough to make much progress, so how can you do it? Recently The Wall Street Journal took a look at the question of how to save money and came up a number of suggestions in the article “How to Save $10,000 by Next Thanksgiving.”  In addition, there is a short video, “Saving $10,000,” that covers a couple of the items suggested in the article.

So often in personal finance the steps needed to save a substantial sum of money are so painful that most people simply walk away.  The tips and suggestions in this article are quite reasonable, and while you might not be able to use them all, there are certainly some in there that you can put into practice.

Class Discussion:

  1. Read the Wall Street Journal article “How to Save $10,000 by Next Thanksgiving” and pick the items that (1) you, and (2) your parents, could implement.  Be prepared to discuss this in class.  Teaching Tip:  This could also be presented as a written assignment.
  2. Come up with one additional way to save money and estimate how much you could save in one year.  Be prepared to discuss this in class.  Teaching Tip:  This could also be presented as a written assignment.

 

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Finance in the News and Class Discussion: Investors Move Toward Cash

Posted on November 14, 2011 by ajkeown

To say the least, it’s been a troubling time in the stock market over the past few years.  As a result, many young investors are moving out of common stocks and into cash just when they shouldn’t be.  Earlier we discussed The Wall Street Journal article “The Young and the Riskless” and the fact that Risk and Return Go Hand-in-Hand as we learned in Chapter 1, Principle 8.  Moreover, in Chapter 11 in the section titled  “Meeting Your Investment Goals and the Time Dimension of Risk“ we discussed why it makes sense to take on risk when you are young and your investment time horizon is long.

This trend toward taking less risk and putting investment funds in cash was recently documented in the MFS Investment Management survey “Shift to Cash is Deliberate, Fundamental Change for Investors.”

Some of the findings of this survey were:

  • Investors surveyed had on average 26% of their portfolio in cash, with Gen Y investors (that is those between 18 and 30 years old) having the highest cash position, 30%.
  • One-quarter said they liquidated a portion of their portfolio in 2010 or 2011 because of market concerns, with 52% of Gen Y having liquidated – more than any other age group.
  • Younger investors, especially Gen Y, need to see an improvement in their personal wealth (Gen Y, 34%; Gen X (those 31-45), 30%) or overall personal situation (Gen Y, 37%; Gen X, 32%) before feeling comfortable investing in the stock market.

Discussion questions:

  1. Read the press release from the MFS Investment Management survey “Shift to Cash is Deliberate, Fundamental Change for Investors.”  Do you share the same fears that other young investors have (look at the section “Cash: driven by fear”)?  Be prepared to discuss this in class.
  2. After reading the press release from the MFS Investment Management survey “Shift to Cash is Deliberate, Fundamental Change for Investors.”  What are the financial consequences to young investors if they avoid the stock market for the reasons they give (look at the section “Cash: when will it move back to equity?”)?

 

Posted in Ch. 1, Financial Planning Process, Ch. 5, Cash Management, Ch.11, Investment Basics | Tagged , , , , , | Leave a comment

Finance in the News & Class Discussion: Gen Y (those 18 to 35) Financially Conservative , Worried about Debt, Optimistic About the Future, and Open for Help

Posted on November 12, 2011 by ajkeown

In Chapter 1 we introduce the “Ten Principles of Personal Finance.”   Two of these are Principle 8: Risk and Return Go Hand in Hand and Principle 9: Mind Games, Your Financial Personality, and Your Money.  These principles discuss the fact that while risk taking is necessary, it is also difficult to stomach for many investors.  In addition, investors tend to put more reliance on what has happened recently, and as such, in tough financial markets, they tend to shy away from risk.  A recent survey by MFS Investment Management titled “MFS Investing Sentiment Survey Offers Insight into Generation Y Investing Behaviors” looks at investing habits of those 18 to 35 and sheds light on how a lack of understanding of those two principles is causing them problems.

This survey finds that Gen Y (those age 18 to 35) investors are conservative when it comes to investing and despite their long-term time horizon, invest more like their Baby Boomer parents, who have a much shorter time horizon.  There are approximately 77 million Americans that fall into the Gen Y age group of 18 – 30 with nearly $1 trillion on the  investment table.  They represent the next wave of investors which makes the results of this survey very interesting.

What financial charateristics were uncovered in the survey?

  • 40% of Gen Y agreed with the statement “I will never feel comfortable investing in the stock market.”
  • 54% of Gen Y investors agreed that they are likely to feel overwhelmed by all the choices they have, 47% put off investment decisions, and 59% consider themselves to be savers more than investors.
  • 30% of Gen Y investors said that their primary investment objective was protecting principal/not losing money, while only 34% said their primary goal was growing assets.
  • 38% of Gen Y investors say they live paycheck to paycheck and that saving consistently is not an option.
  • 64% and 78% are optimistic about the economy and their own five-year future, respectively.
  • Of those who reviewed or rebalanced in the past 12 months, 89% of Gen Y, more than any other age group, reported an advisor playing a key role.

Discussion Question:

  1. Take a look at the results of the MFS Investment Management titled “MFS Investing Sentiment Survey Offers Insight into Generation Y Investing Behaviors,” which statements found you in agreement with the majority of Gen Y investors?
  2. Which ones did you disagree with?
  3. Do you feel your response to those questions is better than the response from the majority of Gen Y investors?  Why?  Be prepared to discuss your answer in class.
Posted in Ch. 1, Financial Planning Process, Ch.11, Investment Basics, Ch.12, Securities Markets, Ch.13, Investing In Stocks | Tagged , , , , , | Leave a comment

Finance in the News & Class Discussion: Now May Be a Time for Risk-Taking

Posted on November 11, 2011 by ajkeown

In Chapter 1 we introduce the “Ten Prinicples of Personal Finance”, and number 8 on that list is Risk and Return Go Hand–in-Hand.  It’s hard to make much of a return if you aren’t willing to take on some risk – in other words, playing it safe guarantees low returns.  Of course no one likes risk, but if you’re investing over a long period of time, you can afford to take on additional risk.  In Chapter 11, we discuss just this in the section titled Meeting Your Investment Goals and the Time Dimension of Risk.  Why does a longer time span and greater risk go hand-in-hand?  Because the longer your time horizon, the more time you have to make adjustments in your portfolio, consumption, and working habits if things don’t work out as planned.

Toward the end of Chapter 11 we looked at several model portfolios, and as you can see, they tend to decrease in risk exposure as you get older.  That’s how things should work – but lately, according to the recent Wall Street Journal article, “The Young and the Riskless,” twentysomething investors are avoiding risk – just the opposite of what they should be doing.

Certainly, not everyone is the same.  Some twentysomethings suffer from volatile salaries or job insecurity, for them, their initial investments may also be part of their emergency funds.  Still, the avoidance of risk on the part of young people has grown recently.  In fact, according to the article, in 1998 54% of young investors said they were willing to take above average or substantial risk – in 2011 that percent had dropped to 31%.

Discussion questions:

  1. For a twentysomething, what do you think is the appropriate percent of total investments to keep in stocks?  Be prepared to discuss in class.
  2. Why do you think twentysomethings have become more conservative in recent years?  Be prepared to discuss in class.
  3. Take a look at the article “The Young and the Riskless.”  At the end of the article three different investment allocations are provided, which do you think is most appropriate for you, why? Be prepared to discuss in class.
  4. Take the Investment Risk Tolerance Quiz and be prepared to share your findings with your class.
Posted in Ch. 1, Financial Planning Process, Ch.11, Investment Basics | Tagged , , , | Leave a comment