methods for teaching financial literacy with economic reasoning
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Methods for Teaching Financial Literacy with Economic Reasoning. CCEE Summer 2012 Program Millionaire Game Colorado PFL and Economics Standards July 9 – 13, 2012 John Brock, Professor of Record. Colorado Council for Economic Education Faculty. John Brock - PowerPoint PPT PresentationTRANSCRIPT
Methods for Teaching Financial Literacy
with Economic Reasoning
CCEE Summer 2012 ProgramMillionaire Game
Colorado PFL and Economics Standards
July 9 – 13, 2012
John Brock, Professor of Record
Colorado Council for Economic Education
Faculty• John Brock
• Director, Center for Economic Education– University of Colorado, Colorado Springs
• Master Teachers– Social Studies: Pam Patrick, Social Studies,
Cherokee Trail HS
– Mathematics: Ann Brock, retired Math teacher, Lewis-Palmer HS
Let’s Get Started!
What Is Wealth?
Wealth = (What you own)
“Assets” “Liabilities”
minus (What you owe)
What’s a Millionaire?
• Household with a net worth (or wealth) of:
• $1,000,000 (or more)*
• Let’s play a game . . .
*Definition of millionaire often excludes primary residence.
The Millionaire Game*• Divide into two-person teams• Rules:
– Statements appear on screen.
– Each team decides True or False.
– Circle chosen answer on sheet provided.• True or False
* Shortened version of FFFL, 2nd ed., Lesson 1
Millionaire Statements
• Statement 1:– Most millionaires
are college graduates.
• Statement 2:– Most millionaires
work fewer than 40 hours per week.
• Statement 3:– Most of America’s
millionaires are first-generation rich.
• Statement 4:– The average total
household annual income of today’s millionaires is about $120,000.
• Statement 5:– Nearly 50% of
millionaires drive current-year cars.
• Statement 6:– Many poor people
become millionaires by winning the lottery.
• Statement 7:– College graduates
earn about 60% more than high school graduates earn.
• Statement 8:– Millionaires tend to
avoid the stock market.
Millionaire Statements
• Statement 10:– American families of
English ancestry are more likely to be millionaires today than households of other ethnic origins.
• Statement 9:– At age 18, you decide
not to purchase soft drinks from the vending machine and save $1.50 a day.
– You invest this $1.50 a day at 8% annual interest until you are 67.
– At age 67, your savings are almost $150,000.
Millionaire Statements
How Did We Do?• For each statement, hold up the card
–T for true
–F for false
• According to answer sheet:– correct answer = + 5– incorrect answer = - 5
• Each team has 1 Millionaire card– correct (+10); incorrect (-10)
July 2012
CCEE Millionaire Champion
Sources: Millionaire Next Door, Millionaire Mind, & Getting Rich in America
Statement 1
• Most millionaires are college graduates.
• 80% of millionaires are college graduates.
• 18% have Master’s degrees• 8% have law degrees• 6% medical degrees• 6% Ph.D.s
• True
Diploma
University of Colorado Colorado Springs
Education
Statement 2
• Most millionaires work fewer than 40 hours per week.
• About 67% of millionaires work 45 to 55 hours a week.
• False
Earn
Statement 3• Most of America’s millionaires
are first-generation rich.
• Only 19% received any wealth of any kind from a trust fund or estate.
• Fewer than 10% inherited 10% or more of their wealth.
• True
Earn
Statement 4• The average total household
income of today’s millionaires is about $120,000.
• Total income reported among millionaire households averaged $119,000 (2005). – Frugal, Frugal, Frugal
• True Save
Statement 5• Nearly 50% of
millionaires drive current-year cars.
• Most millionaires spend under $30,000 for a car.– Only 23% drive a current-
year [new model] car.
• False
Save
Statement 6
• Many poor people become millionaires by winning the lottery.
• Few people get rich the easy way!
• Chance of winning about one in 12 million.
• Average person who plays every day have to live about 33,000 years to win once.
• In contrast, you have a one in 1.9 million chance of being struck by lightning.
• A pregnant woman has one chance in 705,000 births to have quadruplets.
– How many sets of quadruplets do you know?
• False
Save & Invest
Statement 7• College graduates earn
about 60% more than high school graduates earn.
• In recent years the average college graduate earned 63% more than the average high school graduate did.
• True
Education
Statement 8
• Millionaires tend to avoid the stock market.
– Long term, the S&P 500 Stock Index has increased about 10% compound annual rate of return, exceeding the return on any other investment.
• False
Invest
Statement 9• At age 18, you decide not to
purchase vending machine soft drinks &save $1.50 a day.
• You invest this $1.50 a day at 8% annual interest until you are 67.
• At age 67, your savings are almost $150,000.– Because of the power of compound
interest, small savings can make a difference, • almost $300,000 in this case.
• False Save
Statement 10• American families of English
ancestry are more likely to be millionaires today than households of other ethnic origins.
• In the mid-to-late 1990s:
• Russian– 22% are millionaires
• Scottish– 21% are millionaires
• Hungarian– 15% are millionaires
• English– 7.7% are millionaires
• False Financial Fitness
The Moral of the Story?• Learning outcome for our students?• A formula for financial fitness:
E2 + S + I2 = F2
• Education, Earn, Save, Invest and Insure• equals Financial Fitness
People who “have it all,” didn’t get there by accident. They had a plan and followed it.
(as reflected in the Millionaire Game)
The Colorado PFL Content Standards
Personal Financial Literacy: Economics
• Content Area: Social Studies (4 standards) – History, Geography, Economics, Civics
– Economics: 7 Grade Level Expectations• 3 “traditional economics,” covering (although not
labeled as such in the standards):– microeconomics – macroeconomics– international
• 4 personal financial literacy (PFL)
Standard 3: EconomicsGrade Level Expectation: High School
4. Design, analyze, and apply a financial plan based on short- and long-run financial goals
– Selected Evidence Outcomes & 21st Century Skills:
• Develop a financial plan including a budget• Describe factors affecting take-home pay• Sources of personal income• Legal and ethical responsibilities regarding taxes• Role of education in building financial security
Education + Earn(+ a bit on Saving)
Standard 3: EconomicsGrade Level Expectation: High School
5. Analyze strategic spending, saving, and investment options to achieve the objectives of diversification, liquidity, income and growth. – Selected Evidence Outcomes & 21st Century Skills:
• Investments available for diversified portfolio• How economic cycles affect financial decisions• Investments to achieve liquidity, growth, income.• How compound interest manifests in investment and
debt situations.Invest
Standard 3: EconomicsGrade Level Expectation: High School
6. The components of personal credit to manage credit and debt. – Selected Evidence Outcomes & 21st Century Skills:
• Analyze lending sources, services & financial institutions• Building and maintaining a credit history• Similarities & differences in revolving credit, personal
loans and mortgages
Save (via responsible use of credit)
Standard 3: EconomicsGrade Level Expectation: High School
7. Identify, develop and evaluate risk-management strategies. – Selected Evidence Outcomes & 21st Century Skills:
• Differentiate between types of insurance• Explain function and purpose of insurance• Select and evaluate strategies to mitigate risk• Additional ways individuals can alleviate financial risk
Protect with Insurance
Standard 3: Economics
Grade Level Expectation: Eighth Grade2. Manage personal credit and debt.
– Selected Evidence Outcomes & 21st Century Skills:
• Analyze benefits and costs of credit and debt.• Compare sources of credit.• When is debt useful?
Save (via responsible use of credit)
Standard 3: Economics
Grade Level Expectation: Seventh Grade2. The distribution of resources influences economic
production and individual choices.
– Selected Evidence Outcomes & 21st Century Skills:
• Explain the role of taxes.• Define various types of taxes.• Demonstrate the impact of taxes on individual income
and spending.• Factors influence production…supply, demand & price
Earn
Standard 3: Economics
Grade Level Expectation: Sixth Grade2. Saving and investing are key contributors to
financial well-being.
– Selected Evidence Outcomes & 21st Century Skills:
• Differentiate between saving and investing.• Explain how saving and investing can improve
financial well-being.• What are risky investments and why would
someone make that type of investment?Save and Invest
• Content Area: Mathematics (4 standards)– Number Sense, Properties, & Operations– Patterns, Functions & Algebraic Structures– Data Analysis, Statistics, & Probability– Shape, Dimension, and Geometric Relationships
• Grade Level Expectations• Evidence Outcomes (PFL)• 21st Century Skills (PFL)
Personal Financial Literacy: Mathematics
Mathematics Standard 1: Number Sense
Grade Level Expectation: High School2. Formulate, represent, and use algorithms with
real numbers flexibly, accurately, and efficiently.
– Selected Evidence Outcomes & 21st Century Skills:
• Describe factors affecting take-home pay and calculate the impact.
• Design and use a budget.• How much money is enough for retirement.• Is education worth the cost?
Education & Earn; and Save
Mathematics Standard 2: Algebra
Grade Level Expectation: High School6. Quantitative relationships in the real world can
be modeled and solved using functions.
– Selected Evidence Outcomes & 21st Century Skills:
• Analyze the impact of interest rates.• Evaluate the costs and benefits of credit.• Evaluate various lending sources.• How much would today’s purchase cost tomorrow?
Save and Invest
Math Standard 3: Probability & Statistics
Grade Level Expectation: High School5. Probability models outcomes for situations in which
there is inherent randomness, quantifying the degree of certainty in terms of relative frequency of occurrence.
– Selected Evidence Outcomes & 21st Century Skills:
• Find and interpret the expected value and standard deviation of a discrete random variable X [non-PFL].
• Analyze the cost of insurance as a method to offset risk.• How does probability relate to insurance?
Invest & Insure
Mathematics Standard 1: Number Sense
Grade Level Expectation: Eighth Grade2. Formulate, represent, and use algorithms with real
numbers flexibly, accurately, and efficiently.
– Selected Evidence Outcomes & 21st Century Skills:
• Analyze how credit and debt impact personal financial goals.
• Computational fluency…allows individuals to accomplish daily tasks…such as…calculating overtime pay,…calculating interest …
Earn, Save & Invest
Mathematics Standard 1: Number Sense
Grade Level Expectation: Seventh Grade2. Formulate, represent, and use algorithms with real
numbers flexibly, accurately, and efficiently.
– Selected Evidence Outcomes & 21st Century Skills:
• Solve problems involving percent of a number, discounts, taxes, simple interest, percent increase and decrease.
• Use algorithms to help individuals spend money wisely.• Use percentages to represent quantities…such as amount
and types of taxes paid…
Save and Invest
Mathematics Standard 1: Number Sense
Grade Level Expectation: Seventh Grade3. Proportional reasoning involves comparisons and
multiplicative relationships among ratios.
– Selected Evidence Outcomes & 21st Century Skills:
• Estimate and compute unit cost of consumables sold in quantity to make purchase decisions.
• The use of ratios, rates, and proportions allows sound decision-making in daily life.
Save (via control of spending)
Mathematics Standard 1: Number Sense
Grade Level Expectation: Sixth Grade3. Quantities can be expressed and compared using
ratios and rates.
– Selected Evidence Outcomes & 21st Century Skills:
• Express the comparison of two whole numbers using…part-to-part ratios, and part-to-whole ratios in real contexts, including investing and saving.
Save and Invest
The PFL Standards …
• … are summarized with our financial fitness formula:
E2 + S + I2 = F2
• Education, Earn, Save, Invest & Insure• equals Financial Fitness
Scarcity
• Wants > Availability
– or,
• Unlimited wants > Limited resources
Scarcity Choice
• Economics is:
– the study of choice
• Scarcity necessitates choice–people must choose
The Economic Way of Thinking:Key Concept
Develop a Decision-Making Framework
for Students
• Help make decisions
– by learning a process for more careful choice
Decision-Making Model
• Define the Problem
• List the Alternatives
• State the Criteria
• Evaluate the Alternatives
• Make a Decision
PACED
Let’s Make Another Set of Choices …
Financial Planning• Would you like to run in a race?
• So that you can plan & train appropriately– you’d want to know:
• How long is the race?
If one does not know to which port one is sailing, no wind is favorable.
Lucius Annaeus Seneca, Roman philosopher
Begin with end in mind, then develop a roadmap on how to get there.
Financial Plan Step 1: Goal Setting
• Goals – something you want:– to be– to have– to do
• Goals will point you in a direction. – Goals toward which to aim
– Your values (beliefs important to you)• impact your goals
Goals Have a Time Frame• How long to accomplish?
– Short-term goals• Up to three years
– Intermediate-term goals• Between three and five years
– Long-term goals• Beyond five years and …
Goals Can Be . . .
• Financial – Purchase
• prom dress• car• college education• retirement
• Non-Financial– Spend more time
• with family• with friends• exercising• reading
Write Down Three of Your Future Goals
• Two “financial”– One short term and one long term
• One “non-financial”
List Some of Your Goals
Financial GoalsEstimated Cost of Achieving Goal
Short term
Long term
Non-financial Goal
Short or Long term
Buyer Beware! If it sounds too good to be true,
then it probably is.• What’s “too good to be true?”• Recognizing “normal” rates of return can be helpful• Best way to protect yourself from a Scam is to
remember that:There’s no such thing as a free lunch!
• Speaking of scams … here’s a classic:http://www.youtube.com/watch?v=ynPJM0Zeqqg