Welcome to the Personal Management

Merit Badge Day 2

Objective of this Presentation: To help you pass off as many of the requirements

as you can during the Pow Wow

Requirement are from BSA Advancement ID#: 11Source: Boy Scout Requirements, #33215, revised 2004

Day 1 Assignments

Assignment Schedule• Day 1 Prepare for Day 2 Day 2

1 1a 1c

2a-b 1b(2) 2b

3a-e 8a-b 7a-e

4a-c 8c-d

5a-c 9a-e

6a-e 10a-b

Requirement #2a

This assignment takes 13 weeks—start todaya. Prepare a budget reflecting your expected income,

expenses, and savings.

• Track your actual income, expenses, and savings for 13 consecutive weeks.

• You may use the forms provided in the merit badge pamphlet, devise your own, or use a computer generated version from the website.

• When complete, present the results to your merit badge counselor.

Your Previous Assignment:Requirement 8

Requirement 8• Demonstrate to your merit badge counselor your

understanding of time management by doing the following over this next week: • A. Write a "to do" list of tasks or activities, such

as homework assignments, chores, and personal projects, that must be done in the coming week. List these in order of importance to you.

• What is a “to do” list?• Why must you prioritize this list?

Your Previous Assignment:Requirement 8 (continued)

B. Make a seven-day calendar or schedule. Put in your set activities, such as school classes, sports practices or games, jobs or chores, and/or Scout or church or club meetings, then plan when you will do all the tasks from your "to do" list between your set activities.

• Why is a calendar important?

• Why is planning so important?

• What is meant by the statement: “Those who fail to plan, plan to fail.”

Your Previous Assignment:Requirement 8 (continued)

• C. Follow the one-week schedule you planned.• Keep a daily diary or journal during each of the seven

days of this week's activities, writing down when you completed each of the tasks on your "to do" list compared to when you scheduled them.

• D. Review your "to do" list, one-week schedule, and diary/journal to understand when your schedule worked and when it did not work.

• Now discuss what you learned from this requirement and what you might do differently the next time.

Requirement 2 – To be completed in 13 weeks with your Counselor

• A. Prepare a budget reflecting your expected income (allowance, gifts, wages), expenses, and savings.

• Track your actual income, expenses, and savings for 13 consecutive weeks

• B. Compare expected income with expected expenses.

• If expenses exceed income, determine steps to balance your budget.

• If income exceeds expenses, state how you would use the excess money (new goal, savings).

Requirement 7

7. Explain the following: • 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

• What is interest?

• Interest is rent paid to borrow money. You should earn interest and not pay it. Someone said:

• Interest: them’s that understands it, earn it; and thems that don’t, pay it

Requirement 7 (continued)

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 7 (continued)

• 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 7 (continued)

• C. Explain the differences between a charge card, debit card, and credit card

• What are the costs and pitfalls of using these financial tools?

• 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 7 (continued)

What is a Charge card?• A charge card is a credit card 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.

Requirement 7 (continued)

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 7 (continued)

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 7 (continued)

• 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

Requirement 9

Prepare a written project plan demonstrating the steps below, including the desired outcome. This is a project on paper, not a real-life project.

• Examples:

• Planning a camping trip

• Developing a community service project or a school or religious event

• Creating an annual patrol plan with additional activities not already included in the troop annual plan

• Other ideas that may be interesting to you

Requirement 9 (continued)

• Discuss your written project plan with your merit badge counselor.

• A. Define the project. What is your goal?

• B. Develop a timeline for your project that shows the steps you must take from beginning to completion.

• C. Describe your project.

• D. Develop a list of resources. Identify how these resources will help you achieve your goal.

• E. If necessary, develop a budget for your project.

Requirement 10

Do the following: • Choose a career you might want to enter after

high school or college graduation. • Research the limitations of your anticipated

career and discuss with your merit badge counselor what you have learned about qualifications such as education, skills, and experience.

Step 1

Choose a realistic job based on your age and skills (fast-food restaurant, movie theatre, yard work)

Determine how many hours you would work per week

Determine how much you would make per hour

Step 2

Make a list of all basic monthly living expenses: food, clothes, rent, transportation, telephone, etc.

Ask family or friends, or call sources for help.

Step 3

Compare projected income with projected expenses• Would you have enough income to live on?• Any left for fun? Savings?

Step 4

If expenses are higher than income, could you reduce expenses or work more hours?• Could you get a higher paying job?• What skills would you need to get a higher paying

job?• Can education help you get those skills?

Discuss your final plan with your Counselor to pass this requirement off

GOOD LUCK SCOUTS!!!

Optional Material on Investing

Following is optional material that may be helpful if you have additional time.

Material on Investing

Unlike savings in a bank account, investing implies there is a risk.• There is no guarantee that you will get your money

back, or that you will earn a higher return.• Because of these greater risks, investors have a

chance to earn higher returns (increase in value) than they would from a savings account, especially over a long period of time.

Investing (continued)

The Two Basic Methods of Investing

Financial Investments take two basic forms - owned investments or loaned investments. That is, you are either a lender or an owner.

Investing: Owned Investments

An owned investment means you actually own part or all of a company, real estate, or other asset (an asset is an item of value)

You own the asset just as you own a bike or your family owns a car

Common types of owned investments are:Stock in companiesMutual Fund sharesReal EstateA personal businessGold, silver, or diamondsStamps, paintings,

or baseball cards

Investing: Loaned Investment

A loaned investment means you loan money to someone in return for its promise to repay the principal (the amount you loaned) plus interest

Notice this investment is risky because there is only a promise to repay the money, not a guarantee

Common types of loaned investments are:

Money market funds

Certificates of deposits

U.S. government bonds

Corporate and municipal bonds

Annuities

Investing (continued)

The Payoff?

• What’s the payoff for doing all this saving and investing? Why not spend all the money now?

• The reason is that saving and investing can do something special that earning money from a job cannot do - the money itself can earn money!

• Compound interest can earn interest on interest!

Investing (continued)

How do you measure Investment Performance?• The three typical measures of investment performance are

yield, profit and total return. 1. Yield – an investment’s yield is what the investment

pays you directly in income – this might be in the form of interest (bonds), dividends (stock) or rental income (real estate)

2. Profit – the money made from selling an investment for more money than you paid for it – perhaps you paid $10 for a baseball card and sold it for $15, the $5 you made on the sale if your profit

Investing (continued)

3. Total Return – the combination of an investment’s income and its increase or decrease in value since purchased – this tells the investor how much the investment actually made in dollars over the entire time the investor owned the asset

Investing (continued)

Common Types of InvestmentsTo help you understand investments, let’s

review some of the basic features of some common types of investments

Investing (continued)

Bank Savings Account• A savings account is not unlike a piggy bank you might

have kept at home. It is where you save money for a rainy day or for one of your goals. It is smart to have a savings once you begin earning or receiving money.

• There are many benefits to keeping your money at a bank rather than at home. A few of these reasons are:Money kept at a bank is insured by the federal

government against loss or theftA fire or other natural disaster could destroy your money

at homeThe bank will pay you money, called interest, on the

money you deposit in a savings account

Investing (continued)

Certificates of Deposit• Certificates of deposit, sometimes called time

deposits, are issued by banks and are loaned investments.• The investor lends the bank a specific amount

of money for a specified period of time at a specific interest rate.

• In general, the longer the period of time, the higher the interest rate.

Investing (continued)

U.S. Savings Bond• You might already own a U.S. Savings Bond. These make

popular gifts for families, grandparents, or others to buy for children.

• Basically, savings bonds are a loan to the federal government.

• The government agrees to repay the bondholder the amount invested, with interest, after a set period of time.

• Governments or companies issue bonds to raise money for certain projects, such as building roads or factories, or for general purposes.

Investing (continued)

Shares of Stock• Buying stock is an owned investment, you pay for stock in a

company and own a portion of the company.

• There are probably thousands of other people who also own stock in the company, so your ownership in the company is equal to the percentage of stock you own.

• It is easy to invest in stocks, even for a teenager, although you must be at least age 18 or set up a special custodial account with your parents or guardian.

• Since stocks are one of the most risky investments, you must be careful when buying stocks.

Investing (continued)

Shares in a Mutual Fund• Mutual funds are a good way to diversify your investments.

• A mutual fund is a company that receives money from investors and then invests that money in stocks, bonds, and other types of assets.

• Any interest, dividends, or profits the fund earns are passed back to the investors, according to the number of shares they own, minus a small percentage that funds keep to pay its operating expenses and earn a profit.

• A mutual fund is able to reduce risk because, by pooling money from shareholders, it can invest in many different types of investments.

Investing (continued)

Real Estate• Real estate is an owned investment

• Common types of owned real estate include land, homes, farms, and office buildings

• A good way to purchase real estate without all the problems associated with owing property is to purchase a REIT, a real estate investment trust, which is like a mutual fund of investment properties

Managing Risk

How do you manage risk in your life?1. Avoid it. To avoid the potential risks of driving a car, for

example, you might take the bus.

2. Reduce it. Taking a driver’s education course and wearing a seat belt reduce the chances of serious injury from an accident.

3. Retain it. You pay out of your own pocket for any loss or damage. If you have an old car, you can eliminate collision insurance, and pay to have the car repaired if in an accident. People usually do this with less expensive items.

5 Ways to Manage Risk

4. Transfer it. When people can’t avoid, reduce, or pay for financial loss themselves, they can transfer the financial risk to someone else. This is typically done through the use of insurance product.

5. Share it. When people own a business, they might want to limit the amount they could lose if the business failed. They might do this by taking on a partner or turning into a corporation.

Types of Insurance

1. Automobile insurance. Auto insurance generally will pay for damage to your car and to other cars involved if the accident is your fault. Insurance also usually covers medical payments if you or others are injured. Once you can legally drive it is the law to have automobile insurance.

2. Property insurance. Renter’s insurance pays for the replacement of personal possessions damaged or destroyed in, or stolen from, an apartment or rented home. Once you rent and eventually own a home it is good to have property insurance.

Types of Insurance (continued)

3. Medical insurance. Medical Care is expensive. Health insurance can cover most of the cost, especially major bills that could be financially devastating to an individual or a family. People of all ages are at risk of becoming ill or injured. It would be good to have medical insurance to pay for these unexpected costs.

4. Disability insurance. If you’re disabled by an accident or illness, you might not be able to continue working, and your income would stop. Disability insurance would replace most, but not all, of the income you would lose if you were unable to work.

Types of Insurance (continued)

5. Liability insurance. Personal responsibility-being responsible for yourself- carries some risk with it. For example, if you don’t shovel the snow from your sidewalk and someone slips on it, that person might sue you for the medicals costs of his or her injuries. Liability insurance pays for those costs if you are found to be legally responsible.

6. Life Insurance. Life insurance pays a specific sum of money to selected people (beneficiaries) when the person who is insured dies.

Types of Insurance (continued)

Term Life Insurance. • You buy coverage for only a certain term, or

period of time. If you renew the insurance at the end of that time, you pay higher annual premiums because you are older and chances are higher that you may die. Although, term is the least expensive type of life insurance.

Types of Insurance (continued)

Permanent Life Insurance. • It is just like term insurance, but part of the

annual premium is invested in a “cash value” account where the money can grow free of current taxes. The annual premiums initially are more expensive than the premiums of term insurance, however, the premiums may be guaranteed never to go up for as long as you live.