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FSU COA 4131 - Personal Finance

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COA 4131 1st Edition Lecture 1 Outline of Current Lecture II. Personal FinanceIII. Importance of Personal FinanceIV. The General Economy and the Four Key PlayersV. The Economic CycleVI. Indicators of the Direction of the EconomyVII. The Changing World of Work and Importance of EducationCurrent LectureA. Personal Financea. Definition: How people spend, save, invest, and protect their financial resourcesi. Protect=insuranceii. Spending is the most fun and what society wants us to doiii. Grocery store is first spending for childreniv. We want to increase saving so then we can investb. Did you know: a college graduate makes double than a high school graduateB. Importance of Personal Financea. Step 1: Setting Financial Goalsi. What do you want to achieve; figure out your goalsii. Financial goals include:1. Values: the principles that guide our behaviora. 18-20 main values such as honesty and thrifty2. Attitudes: likes and dislikes a. Millions of attitudes- love , hate, like, dislike, ect3. Goals: final outcomes4. Needs: thing you absolutely must have5. Wants: things we would like to have but not have to haveiii. Opportunity Costs1. Tradeoffs (time, money): do one thing to get something elseiv. Risk1. Have to think, “Do the costs outweigh the risks?”2. Do not like it and will avoid it3. More educated, the more financial risks being takenv. Inflation1. Rising prices2. 2 % increase in the past few yearsvi. Liquidity: how readily/fast something can be turned into cash1. Fastest: 1. Cash, 2. Checks, 3. Credit/debt cardsvii. Risk aversion: avoiding risks, opposite of liquidity1. Balance out risk aversion and liquidity2. Status Risk: wearing the wrong clothes, wrong laptop, cell phone, out of date3. Time Risk: timing, should I buy this car now?4. Women are more risk averse than men!b. Step 2: Creating and initiating action plansi. Staying on course1. Marriageii. Expanding1. Buying another business or mergingiii. Cutting back1. Shredding or storageiv. Embarking on a new course1. Something completely new and different c. Step 3: Monitoring, evaluating, and revising plansi. It is important to evaluate your financial plan at least once a year1. Look at income tax2. You want to earn more money each year3. 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 planC. The General Economy and the Four Key Playersa. Economics: study of the economy, how wealth is created and distributed, and thepowers of supply and demandi. Wealth: totally value of the sum of items owned1. What it is worthii. Financial assets1. Most are intangible, such as retirement plansiii. Tangible assets1. Can be seen, such as money, cars, or housesb. Consumersi. Level of living1. Where you are right now2. Students are not that high ii. Standard of living1. What you aspire to and where you want to be c. Governmenti. Federal Reserve System (aka the Fed)1. In Washington D.C.2. The bank of banks3. Biggest public hiring employer in U.S.!4. Top private retailer in U.S. is Walmartii. Regulates the U.S. monetary system, including maintaining money supplyiii. Ben Bernanke1. 14th Chairman of the Fed Reserve2. Assumed office: Feb 1, 20063. Nationality: American4. Alma Mater: Harvard & MIT5. Profession: Macroeconomist and Princeton Professord. Businessi. Make a profitii. Want to make more each yeare. Mediai. Social media and the pressD. The Economic Cyclea. Expansioni. Growing and increasingii. Low rate of unemploymentiii. We want this!iv. The last time this happened was the 90’s (think-internet)b. Recessioni. Slow downii. Temporary 2007-2009iii. We do not want thisc. Decline/Depressioni. More than 10% unemployment rate is declineii. More than 20% or more unemployment is depressioniii. You can sense it- empty store fronts, for sale signsiv. Worst year of the Great Depression was 1933d. Recoveryi. Coming out of a recessionii. Unemployment starts decreasingiii. Average Propensity to consume: percent of each dollar of income that an individual spends on average things that you consumeiv. No one knows how long these cycles last; they are recorded afterwardsv. As bad as it can get, just remember the next stage is right around the corner E. Indicators of the Direction of the Economya. Inflationi. Being steady at 2%ii. Rising pricesiii. Haven’t had deflation (declining (prices) in over 100 yearsb. Index of leading economic indicatorsi. The signs ii. House constructioniii. Unemployment c. Consumer Price Indexi. Main indicator of inflationii. Taken twice a monthiii. Calculated monthly and yearlyd. Interest Ratesi. How much is the bank going to charge youe. Gross Domestic Producti. All things produced in one yearii. UN shares this infoiii. GDP going upF. Time Value of Moneya. Definition: theory that the value derived from the use of money over time increases its totally by investment and reinvestmenti. $1.00 today invested correctly will be worth more laterii. Most things go up in price, but some things go downiii. To buy now or wait?b. Present Valuei. What it is worth right nowii. 78% current unemploymentc. Future Value i. What they think it is going to beii. Can be predictedd. Compound Interesti. Excellent, we always want this!ii. Interest is added onto previous interestiii. It builds onG. The Changing World of Work and Importance of Educationa. Age and Stage in Lifecyclei. Ages 45-54 have the highest median income1. Very attractive age group for consumptionii. 25% of Americans have college degreesiii. People in their 20’s are healthiest people in the country1. Least health problems of any other age groupiv. Gender gap: 83 cents for women for every $1.00 for menb. Salary and employee benefitsi. Cafeteria style benefits1. Company will let you choose what kind of insurance you want2. May have to pay a co-payii. 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 baseiii. The main reason people work is to earn moneyiv. Expensive parts of U.S.= New York City and Californiav. Least expensive: rural North Eastern U.S.vi. 5 states with biggest population (in order): 1. CA, 2. TX, 3. NY, 4. FL, 5. PAvii. Cost of resident housing is where the majority of money will goviii. Employee benefits: employer can choose to not give you them until after 6 months on the job and this is legal1. Part time does not have to give you benefits2. Small companies do not have to give you benefitsc.


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FSU COA 4131 - Personal Finance

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