Financial literacy: income and decisions (lesson 1)  (Page 2/9)

• Name an item that might increase (or decrease) in value the longer that you own it. Why would it be worth more (or less) over time?

Step 2.- Before starting the discussion with the students about the question of Step 1 is important to the instructor to clarify these concepts that will help you answer the questions above.

• Money is a way to store, measure, and exchange value.

• In the U.S., money is printed by the Department of the Treasury of the federal government.

• As people and businesses use the money to buy, borrow, and invest, it passes through many hands, including individuals, businesses, and financial institutions, like banks. Whenever one person or group spends money, another person or group gains money. Money is constantly moving through our economy in a never-ending cycle.

• If you deposit money at a financial institution, like a bank, they’ll often reward you by adding a small amount of extra money called interest on a regular schedule. A dollar in your hand today is worth more than a dollar you’ll receive in the future because you can invest the dollar you have today and earn interest on it over time. This is called the time value of money.

• Inflation means an increase in the general price of goods and services, i.e., a decrease in the purchasing power of the dollar. The U.S. government attempts to keep the value of the dollar steady, but even so, prices can go up. Because inflation means an overall rise in the price of goods and services, in general you need more dollars to pay for things.

• Assets are anything of value owned by a person or company. Examples of personal assets include savings, houses, cars, and stocks. Examples of business assets include cash, equipment, and inventory.

• A liability is money an individual or business owes to someone else: a debt.

• To build wealth, the value of what you own (your assets) needs to be more than the amount you owe to others (your liabilities).

• To appreciate means to increase in value or price over time. For example, a well-maintained home in a nice neighborhood may potentially go up in value, or appreciate, over time.

• The opposite of appreciation is depreciation. This means to decrease in value or price over time. For example, a new car typically begins to decrease in value as soon as the owner drives it off the car dealer’s lot.

• If you want to build wealth, focus on buying assets likely to go up in value, or appreciate, over time.

Step 3.- Use these or similar questions to start students thinking about the benefits of encourage a sound money management and how it relates to them (refer to Visual 2 ):

• What are some future goals you have that are going to require saving money?

• What are some things you never seem to have enough money for? How could creating a personal budget help you afford those things?

• When you go shopping for a particular item, how do you decide whether the price is fair?

• What are some things you could learn about someone by looking at his/her personal budget? If you were to look at the personal budgets of three different 18-year olds, what do you think some of the similarities (and differences) might be?