Title: Unit 3: Decision Making & Money Management (Teacher Only)
Course: Kentucky Sample Personal Finance Curriculum > Section: Unit 3: Decision Making & Money Management

Description
Scarcity of resources requires individuals, organizations, and governments to make decisions. Students will explore limited resources, opportunity cost, and trade-offs. They will also learn to use the PACED decision making model.
Talking Points
1.Scarcity necessitates that a decision be made. Scarcity is not having enough resources to produce all of the goods and services that would satisfy the wants of individuals or society in general.

2.Productive resources are scarce because there are not enough of them to produce the unlimited amounts of goods and services that society wants.

3.People face scarcity of marketable resources (land, labor, capital, and entrepreneurship). This scarcity limits their ability to earn income.

4.Because of limited income and limits to their time, people must make choices about allocating/rationing what is available.

5.The PACED model provides a five-step process for making decisions:

- P- Identify the problem. Usually, the problem is related to scarcity.
- A- List alternatives—the options you will choose from.
- C- Select criteria—the things that are important to you in making the decision. E- Evaluate alternatives based on the criteria.
- D- Make a decision.

6.Even though people may face the same problem and alternatives, they may have different criteria and evaluate the alternatives differently based on those criteria. So, faced with the same problem, people do not necessarily make the same decision.

7.The PACED model is not about finding the “correct” choice for everybody; it is about making a careful, well-informed decision for yourself.

8.The fundamental consumer problem is a scarcity of resources from which consumers are able to earn income. This means that people don’t have enough income to buy all the goods and services they would like to have. Thus, they must decide how to spend (or allocate) their income in order to best satisfy their unlimited wants.

9. Two general assumptions are made about people’s preferences (or the satisfaction they get from consuming goods and services):

- More is preferred.

- Each additional unit of a particular good tends to add less satisfaction than the unit before it.

10.When buying a good or service, people evaluate the good or service according to its features. People maximize their satisfaction by purchasing those goods or services that give them the most satisfaction per dollar spent. So, their preferences, the prices of goods and services, and the prices of alternatives matter in making spending decisions.

11.Consumers may be influenced by how the price of a good is expressed. The price of products may be advertised in terms of the amount of payments for a given period of time rather than advertising the actual full price.

12.A financial goal is a monetary target to be met by a specific time in order to purchase a good or service (car, down payment on a house, college education, start-up funds for a business ,retirement, and so on).

13.Decisions people make to consume products can have positive or negative effects on others. For example, a decision to be vaccinated has effects on others because a disease is less likely to spread.

14. Financial goals are met with a systematic financial plan for saving (deciding how much to save each period), investing (deciding what financial assets to purchase with income saved), and spending.

15. People choose to donate to charity because the benefits—the satisfaction they receive—are greater than the cost of the donation.

16. A financial plan largely depends on

- The amount of the goal,

- How long a person has until the goal must be met,

- How much can be saved each period, and

- The rate of return earned on investment assets.

17. A budget is a cash-flow plan that decides how a person’s income is to be spent each period (all income each period is essentially spent on goods and services, taxes, and savings to purchase goods and services in the future).

18. There are three categories of spending in a typical monthly budget:

- Regular spending (goods and services typically purchased every month),

- Irregular spending (financed by short-term saving for goods and services purchased on a non-monthly basis during the year), and

- Future spending (financed by long-term saving, or investment, for purchasing goods and services more than a year away).

19. Making a budget involves trade-offs—allocating more spending to one item and less to other items—so one must consider the satisfaction per dollar spent on each item.

20. Governments establish laws and institutions to provide consumers with information about goods or services being purchased and to protect consumers from fraud.

21.Financial Institutions provide a variety of services to meet the needs of their customers. Common products of financial institutions includes certificates of deposit, checking/savings accounts, and money market accounts.

22. When choosing a financial professional it is important to consider their credentials and compensation methods.

Standard and Benchmarks

Kentucky Academic Studies for Career Studies- Financial Literacy Standards

FL.H. 8. Identify why people make financial choices:

1. Evaluate the role of emotions, attitudes and behavior in making financial decisions.
2. Recognize the individuals are responsible for their own financial decisions and for subsequent positive and negative consequences.
3. Analyze the opportunity costs of short and long-term financial decisions.

Fl.H.9 Apply a formal decision-making model to make financial decisions, e.g. PACED:

- Identify the Problem
- List Alternatives
- Explain Criteria
- Evaluate
- Decide

FL.H.10 Identify the components of a personal budget process:

1. Align goals with desired lifestyle expectations.
2. Develop a budget based on calculated income.
3. Identify and prioritize fixed, variable, and periodic expenses.
4. Emphasize the importance of proactive budget priorities (e.g. pay yourself first, emergency fund, insurance and charitable contributions)
5. Compare tools for tracking a budget, income and expenditures, (e.g. the envelope system, paper tracking, and online or software options).
6. Emphasize the importance of comparison shopping, buying strategies, negotiation, and sales/marketing strategies in purchasing.
7. Develop a system for maintaining personal financial documents including proper storage and disposal.

FL.H.11Identify the major types of financial institutions and their products (e.g. certificate of deposit (CD) , money market, checking/savings accounts and services.

FL. H.12 Demonstrate how to use different payment system methods including checks, debit cards, and digital services.

FL.H.13 Compare various types of financial professionals (e.g. Financial planners, counselors, certified public accountants (CPA), investment consultants and insurance agents). Their credentials, their compensation methods, selections.