COA 4131 1st Edition Lecture 1 Outline of Current Lecture II Personal Finance III Importance of Personal Finance IV The General Economy and the Four Key Players V The Economic Cycle VI Indicators of the Direction of the Economy VII The Changing World of Work and Importance of Education Current Lecture A Personal Finance a Definition How people spend save invest and protect their financial resources i Protect insurance ii Spending is the most fun and what society wants us to do iii Grocery store is first spending for children iv We want to increase saving so then we can invest b Did you know a college graduate makes double than a high school graduate B Importance of Personal Finance a Step 1 Setting Financial Goals i What do you want to achieve figure out your goals ii Financial goals include 1 Values the principles that guide our behavior a 18 20 main values such as honesty and thrifty 2 Attitudes likes and dislikes a Millions of attitudes love hate like dislike ect 3 Goals final outcomes 4 Needs thing you absolutely must have 5 Wants things we would like to have but not have to have iii Opportunity Costs 1 Tradeoffs time money do one thing to get something else iv Risk 1 Have to think Do the costs outweigh the risks 2 Do not like it and will avoid it 3 More educated the more financial risks being taken v Inflation 1 Rising prices 2 2 increase in the past few years vi Liquidity how readily fast something can be turned into cash 1 Fastest 1 Cash 2 Checks 3 Credit debt cards vii Risk aversion avoiding risks opposite of liquidity 1 Balance out risk aversion and liquidity 2 Status Risk wearing the wrong clothes wrong laptop cell phone out of date 3 Time Risk timing should I buy this car now 4 Women are more risk averse than men b Step 2 Creating and initiating action plans i Staying on course 1 Marriage ii Expanding 1 Buying another business or merging iii Cutting back 1 Shredding or storage iv Embarking on a new course 1 Something completely new and different c Step 3 Monitoring evaluating and revising plans i It is important to evaluate your financial plan at least once a year 1 Look at income tax 2 You want to earn more money each year 3 Open enrollment companies offer you certain plans or deals but at 50 years old you do not need maternity leave so you take it off of your plan C The General Economy and the Four Key Players a Economics study of the economy how wealth is created and distributed and the powers of supply and demand i Wealth totally value of the sum of items owned 1 What it is worth ii Financial assets 1 Most are intangible such as retirement plans iii Tangible assets 1 Can be seen such as money cars or houses b Consumers i Level of living 1 Where you are right now 2 Students are not that high ii Standard of living 1 What you aspire to and where you want to be c Government i Federal Reserve System aka the Fed 1 In Washington D C 2 The bank of banks 3 Biggest public hiring employer in U S 4 Top private retailer in U S is Walmart ii Regulates the U S monetary system including maintaining money supply iii Ben Bernanke 1 14th Chairman of the Fed Reserve 2 Assumed office Feb 1 2006 3 Nationality American 4 Alma Mater Harvard MIT 5 Profession Macroeconomist and Princeton Professor d Business i Make a profit ii Want to make more each year e Media i Social media and the press D The Economic Cycle a Expansion i Growing and increasing ii Low rate of unemployment iii We want this iv The last time this happened was the 90 s think internet b Recession i Slow down ii Temporary 2007 2009 iii We do not want this c Decline Depression i More than 10 unemployment rate is decline ii More than 20 or more unemployment is depression iii You can sense it empty store fronts for sale signs iv Worst year of the Great Depression was 1933 d Recovery i Coming out of a recession ii Unemployment starts decreasing iii Average Propensity to consume percent of each dollar of income that an individual spends on average things that you consume iv No one knows how long these cycles last they are recorded afterwards v As bad as it can get just remember the next stage is right around the corner E Indicators of the Direction of the Economy a Inflation i Being steady at 2 ii Rising prices iii Haven t had deflation declining prices in over 100 years b Index of leading economic indicators i The signs ii House construction iii Unemployment c Consumer Price Index i Main indicator of inflation ii Taken twice a month iii Calculated monthly and yearly d Interest Rates i How much is the bank going to charge you e Gross Domestic Product i All things produced in one year ii UN shares this info iii GDP going up F Time Value of Money a Definition theory that the value derived from the use of money over time increases its totally by investment and reinvestment i 1 00 today invested correctly will be worth more later ii Most things go up in price but some things go down iii To buy now or wait b Present Value i What it is worth right now ii 78 current unemployment c Future Value i What they think it is going to be ii Can be predicted d Compound Interest i Excellent we always want this ii Interest is added onto previous interest iii It builds on G The Changing World of Work and Importance of Education a Age and Stage in Lifecycle i Ages 45 54 have the highest median income 1 Very attractive age group for consumption ii 25 of Americans have college degrees iii People in their 20 s are healthiest people in the country 1 Least health problems of any other age group iv Gender gap 83 cents for women for every 1 00 for men b Salary and employee benefits i Cafeteria style benefits 1 Company will let you choose what kind of insurance you want 2 May have to pay a co pay ii Salary is the most important part of what your income is going to be 1 Trying to get a good salary is critical to a good base iii The main reason people work is to earn money iv Expensive parts of U S New York City and California v Least expensive rural North Eastern U S vi 5 states with biggest population in order 1 CA 2 TX 3 NY 4 FL 5 PA vii Cost of resident housing is where the majority of money will go viii Employee benefits employer can choose to not give you them until after 6 months on the job and this is legal 1 Part time does not have to give you benefits 2 Small companies …
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