Unit 2A Test Prep

Go through and read each slide, then answer the questions afterwards. This grade will go into the grade book.

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Directions:

How to Budget

An important skill to use to master life

Financial Institutions

SSEPF2 Explain that banks and other financial institutions are businesses that channel funds from savers to investors. 

Why this matters...

Understanding financial institutions is one part of the bigger picture of learning about how to take care of and manage your money

Why do financial institutions exist? In short, to make money.

How do they make money?

interest charged > interest earned

Banks and other finanical institutions loan the money that we give them to other people at a higher rate other people

Open Ended

In one sentence, how do Financial institutions make money?

Financial Institutions

• Bank- provides a safe means to store earnings. Typically, banks also offer direct deposit (where a person’s paycheck goes directly into his or her account), check-writing services, debit and credit cards, loans (personal, home equity, business),and other services. 

• Credit Union- similar to a bank; the difference is that a credit union only provides these services to its members. Members own and control the institution. Credit unions often offer higher interest rates on deposits and lower interest rates on loans than banks.

Financial Institutions

• Payday Loan Company- a payday loan company gives out small loans in return for a portion of the upcoming paycheck. Payday loan companies generally charge much higher interest on loans than other institutions. 

• Title Pawn Lender- provide short-term loans to individuals. Usually, those accessing loans through title pawn lenders lack access to other types of short-term loans like credit cards. Loans are based on an individual’s collateral. Lenders can sell the collateral to cover the value of an outstanding loan if the borrower cannot repay. Fees usually much higher than a bank

Multiple Select

What financial institution requires collateral to take out a loan?

• Payday loan company

• Bank

• Title Pawn Lender

• Credit Union

Risk vs Return

The higher the potential return offered by a savings or investment opportunity, the more risky the savings or investment usually are. WIth lower risk is lower return.

Risk- The likelihood that you lose your investment

Return- The money earned off of the investment

Types of Investments

• Savings Accounts- Savings accounts are bank accounts in which people put savings to which they need easy access. The Federal Deposit Insurance Corporation (FDIC) most types of bank deposits up to $250,000. Money held in a very low interest savings account is likely to erode in value over time. Most bank pay less than 1% interest on savings. 

• Certificates of Deposit- (CDs) are products offered by banks. Buying a CD means you will earn a higher rate of return than on a regular savings account. The higher rate of return results from the saver agreeing to keep the funds in the CD for a specified period, usually between 1 months to 10 years. The longer the period, the higher the interest rate. People who save in CDs and need to withdraw their funds early will pay a fee for early withdrawal. 

Types of Investment

• U.S. Treasury Bonds – You loan the U.S. government money. The government pays you a guaranteed rate of return. Since the U.S. government repays its debts, the rate of return is low. Bonds are safe but also carry an inflation risk if interest paid is not higher than the inflation rate. 

• Stock– One of the more risky ways to invest. When purchasing stock in large companies your investment could be safer, but your rate of return is likely to be lower. If you invest in new companies or companies with a new product, the potential return is high if the company succeeds, so is the risk

• Mutual Funds- Provide more protection against loss because the investment is spread across many different companies rather than just one company. You may also select funds that reflect specific levels of risk or your values. Long term investing tends to give a greater return than short-term investing. Over a 20-year period, the stock market returns on average 7-8%. However, when holding stocks for only 5 to 10 years, the average rate of return drops to 1- 2%.

Retirement Accounts

• 401K- This is provided through an employer which will sometimes offer a percentage of matching funds.

• Individual Retirement Accounts (IRA)- Roth IRAs allow contributors to pay taxes today and withdraw the funds they contributed tax-free in the future. The contributor will still have to pay taxes on any “gaines” they withdraw from their account in retirement. A traditional IRA allows contributors to put money away before taxes are paid. The taxes are paid on the money when it is withdrawn during retirement.

Multiple Select

If I wanted to start saving for retirement, but my job did not provide this investment, which of the following should I invest in?

• savings account

• IRA

• 401k

• Certificate of Deposit

Open Ended

It is important to start saving money for your future as soon as you can. define one of the following: stock investment, cetificate of deposit, or U.S. treasury bond. (be sure to include the risk and reward in your definition)

Poll

Does your family have and use a budget?

• Yes

• No

• Not sure

Income - how much money is coming in

Your job calculates how much you earned, and how much is going to be withheld.

You should ALWAYS ALWAYS review your pay-stub.

Mistakes do happen. It is up to you to tell your employer if there is a mistake. It is YOUR money after all, right?

Make sure you are getting paid correctly and that any deductions are correct.

Poll

I always review my pay-stub every payday.

• Yes

• No

Expenses

You need to know how much you are spending

• Write down your repeating bills

• Keep track of your spending

To create a budget you must

• know how much money you have coming it

• know how much money you have going out

• know WHERE you are spending your money

Poll

How much do you spend on eating out each month?

• Less than $20

• Between $20 and $75

• Over $75

There basically two "types" of spending

• Fixed

• Variable

Fixed Expenses

These are predictable, regular costs, which tend to be large - like rent; car payments; and student loan payments.

Variable Expenses

These are expenses that can change from month to month. For example - groceries; the electric bill; and eating out.

Mandatory or optional?

Some expenses you MUST have and pay - like your rent. Some you can choose NOT to spend - like Starbucks every morning.

Multiple Select

Which of these are fixed expenses?

• Car insurance

• Starbucks

• Rack Room

• Cell Phone

Multiple Select

Which of these would be mandatory expenses?

• Rent

• Car Insurance

• Unlimited Data on phone

• Tanning salon

How do you get started?

• Does your bank have an app?

• Does their app allow you to classify transactions?

• If you answer no to either of these then ...

You need to be able to track all your spending and income

• You can download an app specifically designed for budgeting and tracking.

• These apps often can tap into all your financial accounts and combine the data

• You can also go old school - paper or a spreadsheet

• There are MANY downloadable templates for use with spreadsheets or paper

Poll

Take a look at your bank's app. Are you able to label/classify various transaction?

• Yes I can

• No I cannot

• I don't have the app for my bank

• I don't have a bank account

Multiple Choice

Money you earn from working

• Income

• Paycheck

• Gross Pay

• Net Pay

Multiple Choice

How you get that money you worked for

• Income

• Paycheck

• Gross Pay

• Net Pay

Multiple Choice

Length of time between paychecks.

Example: Can be twice a month, once a month, or once a week. 

• Rate

• Pay period

• Paycheck

• Deposit

Multiple Choice

How much you earn per hour of working. Also called "wage"

• Income

• Deposit

• Gross Pay

• Rate

Multiple Choice

If you worked from 8:30 am to 12:00 pm, took a break, and came back at 1:00 pm and left for the day at 4:30 pm, how many hours did you work?

• 5.5 hours

• 7 hours

• 6.5 hours

• 9 hours

​Overtime

​Overtime is the amount of pay for employees who worked over 40 hours. By federal law, employers are required to pay employees 1.5 times their regular rate.

Open Ended

If you make $10 per hour, how much would you get paid per hour for overtime?

Multiple Choice

Money you earn BEFORE taxes are taken out. 

• Gross Pay

• Net Pay

Multiple Choice

Money you earn AFTER taxes are taken out.

• Gross Pay

• Net Pay

Open Ended

What does income have to do with math?

What is the FAFSA?

FAFSA stands for Free Application for Federal Student Aid (FAFSA^®)

Multiple Choice

FAFSA stands for what?

• Free Application for Federal Student Aid

• Free Apples for Funding Small Animals

• Free Application for College Loans

• Fair Application for Study Abroad

1. What is the chance that a FAFSA applicant will

get some type of financial aid for college?

a) 35%
b) 55%
c) 85%
d) 100%

FAFSA FAST FACTS | OCTOBER 8, 2021 EDITION | NEXT GEN PERSONAL FINANCE

1. What is the chance that a FAFSA applicant will

get some type of financial aid for college?

a) 35%
b) 55%
c) 85%
d) 100%

FAFSA FAST FACTS | OCTOBER 8, 2021 EDITION | NEXT GEN PERSONAL FINANCE

Multiple Choice

What is the chance that a FAFSA applicant will get some type of financial aid for college?

• 35%

• 55%

• 85%

• 100%

Multiple Choice

2. How much does it cost to file the FAFSA each year?

• $85.00

• It depends on your family's income

• It depends on what college you go to

• It's free

Multiple Choice

3. When does the FAFSA officially open each year?

• October 1

• October 15

• November 1

• November 15

Multiple Choice

4. Which of the following people does NOT need to file a FAFSA?

• Adam, a senior in high school applying to community college.

• Sarah, a senior in college applying to grad school.

• Gina, a senior in college taking a gap year before joining the military.

• Yunior, a part-time student enrolling as a full-time student next year.

Multiple Choice

5. Why should you avoid giving your personal information over the phone if you didn't initiate the call?

• To protect yourself from getting too much aid

• To protect yourself from identity theft

• To ensure the public can access your information

• You actually can give your information over the phone without any concerns.

Poll

Do you plan on getting financial aid for college?

• Yes

• No