SEATING CHART(Back)

Stage & Podium (Front)

Welcome to Day 2! Please find your Group Leader and begin passing off the requirements that you have finished with them. We will begin shortly.

H

E

B

Back 10 Rows(Please don’t sit here)

G

D

A

Back 10 Rows(Please don’t sit here)

I

F

C

Back 10 Rows(Please don’t sit here)

Personal ManagementMerit Badge – Day 2

Objective of this presentation:To help you pass of as many requirementsas you can by the end of today!

BSA Advancement ID#: 11Source: Boy Scout Requirements, #33215Revised Oct. 25, 2007Instructor(s):

Review of your timeline

Where are we? Where will we be after today?

From last time (pass off everything but Req. 2):

Req. 1: Shopping Strategy – Pass off today! Req. 2: Budget – Continue, pass off in 11 weeks! Req. 5: 5 Stocks – Pass off today! Req. 8: To Do List & Schedule – Pass off today! Req. 9: Written Project – Pass off today! Req. 10: Career Research – Pass off today!

New material for today, Day 2 (pass off everything else):

Req. 3: Discuss “Feelings on $$” – Begin & pass off today! Req. 4: Discuss “Investing” – Begin & pass off today! Req. 6: Discuss “$1,000” – Begin & pass off today! Req. 7: Discuss “Debt” – Begin & pass off today!

Requirement #3Discuss $ Topics

3. Discuss with your merit badge counselor FIVE of the following concepts:

a. The emotions you feel when you receive money.

b. Your understanding of how the amount of money you have with you affects your spending habits.

c. Your thoughts when you buy something new and your thoughts about the same item three months later. Explain the concept of buyer's remorse.

Requirement #3Discuss $ Topics – Cont’d

d. How hunger affects you when shopping for food items (snacks, groceries).

e. Your experience of an item you have purchased after seeing or hearing advertisements for it. Did the item work as well as advertised?

f. Your understanding of what happens when you put money into a savings account.

g. Charitable giving. Explain its purpose and your thoughts about it.

h. What you can do to better manage your money.

Requirement #4Discuss “Investing”

4. Explain the following to your merit badge counselor:

A. The differences between saving and investing, including reasons for using one over the other.▪ Saving: to put money aside, usually in a bank account for

future use.▪ The return you earn is generally very low but certain

▪ Investing: to invest money to make even more money in the future.▪ The return is generally higher but uncertain

▪ Generally you save for short-term goals, and invest for long-term goals.

B. What is return on investment?▪ Return on investment is the money received from investing divided by the

amount of money invested. In other words, it is a % increase in the money you invest.▪ What is risk?

Risk can be many things, but generally relates to uncertainty. The less certain a return, generally the higher the risk.

C. What is the difference between simple interest and compound interest? How do these affected the results of your investment exercise?▪ Simple interest is interest on principle only.

▪ Example: $1,000 invested for 1 year at 10% simple interest…

$1,000 x 10% $100 in interest

So… $1,000 in principle + $100 in interest = $1,100 total

Requirement #4Discuss “Investing”

Requirement #4Discuss “Investing”

Compound Interest is “interest on interest”

Example: $1,000 invested for 5 years at 10% compounding…▪ $1,000 x 10% = $100 in interest (same as simple interest for year 1)▪ So, $1,000 + $100 = $1,100 total (same as simple interest for year 1)

▪ Then, for year 2 (the first year of compounding), we do:▪ $1,100 x 10% = $110 in interest▪ So, $1,100 in principle + $110 in interest = $1,210 total

Time Initial Balance Interest New BalanceYear 1 1,000$ 100$ 1,100$ Year 2 1,100 110$ 1,210 Year 3 1,210 121$ 1,331 Year 4 1,331 133$ 1,464 Year 5 1,464$ 146$ 1,611$

Simple vs. Compound InterestInterest can harm or help you - EARN it, don’t PAY it!

$1000 at a 10% rate

Compound vs. Simple Interest Over 10 Years

$1,000$1,100

$1,500

$2,000

$1,000$1,100

$1,611

$2,594

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Today Year 1 Year 5 Year 10

Compound Interest

Simple Interest

Simple vs. Compound InterestInterest can harm or help you - EARN it, don’t PAY it!

$1000 at a 10% rate

Compound vs. Simple Interest Over 45 Years

$5,500

$72,890

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Year 15 Year 20 Year 25 Year 30 Year 35 Year 40 Year 45

Compound Interest

Simple Interest

Requirement #6Discuss “Invest $1,000”

6. Pretend you have $1,000 to save, invest, and help prepare yourself for the future. Explain to your merit badge counselor the advantages or disadvantages of saving or investing in each of the following:

a. Common stocks

b. Mutual funds

c. Life insurance

d. A certificate of deposit (CD)

e. A savings account or U.S. savings bond

What are common stocks?▪ Stocks are pieces of ownership in a listed company

Advantages▪ Higher returns over the long-term

Disadvantages▪ Higher risk

Requirement #6Discuss “Invest $1,000” – cont’d

What are mutual funds?▪ Mutual funds are portfolios of securities (stocks, bonds, or

cash) managed by an investment company

Advantages▪ Professionally run▪ Immediate diversification

Disadvantages▪ No control over taxes▪ May not outperform benchmarks

Requirement #6Discuss “Invest $1,000” – cont’d

What is life insurance?▪ Life insurance is a contract that will pay money to your

beneficiaries should you die Advantages

▪ Life insurance payments are tax-free▪ Cash value life insurance grows tax-free

Disadvantages▪ Cash value life insurance is very expensive▪ You have to die to get paid

Requirement #6Discuss “Invest $1,000” – cont’d

What are Certificates of Deposit (CDs)?▪ CDs are savings accounts held with a financial institution for a

specific time

Advantages▪ Returns are higher than savings accounts▪ Returns are guaranteed

Disadvantages▪ Returns are lower than other instruments

Requirement #6Discuss “Invest $1,000” – cont’d

What are U.S. Savings bonds?▪ U.S. Savings Bonds are bonds issued by the US government

Advantages▪ Returns are higher than general savings accounts▪ Returns are tax-free if used for education

Disadvantages▪ Returns are lower than other instruments

Requirement #6Discuss “Invest $1,000” – cont’d

Taxable Assets(Non-Retirement Investments)

Retirement Assets(Investments like IRAs, 401Ks, etc)

1. Basics: Emergency Fund and Food Storage(Liquid funds, US treasuries, savings accounts, MMMFs, CDs)

Investing: The Hourglass Bottom

2. Core: Broad Market Index or Mutual Funds(Large Cap U.S. funds in core industries)

3. Diversify: Broaden andDeepen your Asset Classes

(International & emerging markets, mid-cap, small-cap)

4. Opportunistic:Individual Stocksand Sector Funds

Investment Strategy

7. Explain the following:

A1. What is a loan?▪ A loan is an agreement to borrow money and to repay a

specific amount of money (principle and interest) each period. It is also called credit.

A2. What is interest?▪ Interest is money you pay to borrow money. The Key to

Interest is: Earn it, Don’t pay it!!

Requirement #7Discuss “Debt”

A3. How does the annual percentage rate (APR) measure the true cost of a loan? ▪ The APR reflects the true percentage rate of a loan. It takes

into account various fees and other costs over a year. The APR is always higher than the simple interest rate on a loan.

▪ Before you borrow:▪ Ask what the total cost of the loan will be in dollars and cents.

▪ Find out the amount of all fees – they add up quickly.

▪ Don’t always choose the loan with the lowest payment. A lower payment may mean a longer repayment period and you will pay more in total interest charges.

Requirement #7Discuss “Debt” – Cont’d

B. What are the different ways to borrow money?▪ Money can be borrowed many different ways. From

cheapest to more expensive, it is:▪ Loans from family and parents▪ Loans from Credit Unions and S&Ls▪ Loans from banks▪ Credit cards▪ In-store financing▪ Payday lenders

▪ Generally, the worse your credit the more you will pay to get a loan

Requirement #7Discuss “Debt” – Cont’d

C. Explain the differences between a charge card, debit card, and credit card.▪ What is a Charge card?

▪ A charge card is a credit card but typically is restricted to purchases from a particular company, like a department store or a gasoline company.

▪ Most charge cards are like a credit card in that you don’t have to pay off all of your charges, or your entire balance, at one time.

▪ What is a Debit card?▪ A debit card is a credit card that works like a check. The amount is

electronically deducted (debited) from your checking account and paid into the store’s bank account.

▪ What is a Credit card? ▪ A credit card is a card issued by a bank and can be used to pay for

any product as long as the seller accepts the card.

Requirement #7Discuss “Debt” – Cont’d

▪ What are the costs and pitfalls of using these financial tools (cards)? ▪ They are expensive and charge very high interest rates

(>20%)▪ They obligate future earnings to payments▪ They encourage consumption, not saving

▪ Why it is unwise to make only the minimum payment on your credit card?▪ Companies want you to pay only the minimum balance as it

will take you years to pay off the card and they will charge thousands in interest costs

Requirement #7Discuss “Debt” – Cont’d

D. What are credit reports and how does personal responsibility affect your credit report?▪ Credit reports are reports of information collected by credit

bureaus from subscribers, creditors, public court records, and the consumer

Why are credit reports important?▪ Credit reports help financial institutions determine if you will

likely pay back a loan. If your credit report is good, there is a much higher likelihood that you will pay back a loan and hence, more likely a financial institution will lend you money

Requirement #7Discuss “Debt” – Cont’d

Requirement #7Discuss “Debt” – Cont’d

E. What are some ways to eliminate debt? ▪ The best is don’t go into debt in the first place▪ Pay off your highest cost debt first▪ Pay more than the minimum amount—as much as you can▪ Consider plastic surgery (cutting up your credit cards) if you

can’t stop using your cards

Interest can help or harm you. Earn it, don’t pay it!

It is a rule of our financial and economic life in all the world that interest is to be paid on borrowed money. . . Interest never sleeps nor sickens nor dies; it never goes to the hospital; . . it never visits nor travels; it is never laid off work; it never works on reduced hours; it never pays taxes; it buys no food, it wears no clothes. . . Once in debt, interest is your constant companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it;. . .and whenever you get in its way or cross its course or fail to meet its demands it crushes you. So much for the interest we pay. Whoever borrows should understand what interest is, it is with them every minute of the day and night. (J. Reuben Clark, conference address, April 6, 1938)

Requirement #4Discuss “Investing”

Finish Line CONGRATULATIONS!!

By now you should have successfully passed off all the requirements except for your personal budget. Finish your budget over the next 11 weeks and pass it off to your local merit badge counselor.

Have a fun Saturday!

Requirement #4Discuss “Investing”

▪ Compound Interest is “interest on interest”▪ Example:

▪ $1000 investment, 12% interest rate, compounded monthly▪ So, monthly interest = 12% / 12 months = 1% per month

Month Initial Balance Interest New BalanceJan $ 1,000.00 $ 10.00 $ 1,010.00 Feb 1,010.00 10.10 1,020.10 Mar 1,020.10 10.20 1,030.30 Apr 1,030.30 10.30 1,040.60 May 1,040.60 10.41 1,051.01 Jun 1,051.01 10.51 1,061.52 Jul 1,061.52 10.62 1,072.14 Aug 1,072.14 10.72 1,082.86 Sep 1,082.86 10.83 1,093.69 Oct 1,093.69 10.94 1,104.62 Nov 1,104.62 11.05 1,115.67 Dec $ 1,115.67 $ 11.16 $ 1,126.83

Total Interest Earned $ 1,126.83