Title: Description: Earning Income
Course: Personal Finance Sample "STANDARD" Syllabus - for Canvas Upload > Section: Unit 2: Earning Income

Students will learn about sources of income for most people and the type of income related to each source. They will learn about human capital and the return to investments in human capital. They will learn about government transfer programs. They will also learn about income and payroll taxes, gross income, and net income.

Talking Points
1. People earn income by providing resources in the marketplace.

- a. If they provide labor, they receive income in the form of a wage or salary.
- b. If they provide natural resources—land or trees or resources found underground—they earn rent.
- c. People can earn interest income from letting other people borrow their money.
- d. People earn interest when they keep money in savings accounts and certificates of deposit (CDs). People also earn interest, dividends, and capital appreciation or gains through financial investments that they make.
- e. People who own or start new businesses (entrepreneurs) earn income in the form of profit.

2. Some people receive income support from the government because they have low incomes or because they qualify in some other way for government assistance. For example, some people who are retired receive Social Security payments and some people with low incomes are eligible for welfare payments. Both Social Security and welfare payments are transfer payments because money is transferred from those currently working to those receiving Social Security or welfare payments.

3. The choices people make over their lifetimes about education, jobs, and careers affect their incomes and their opportunities

4. People with more education and more job skills tend to earn higher incomes than those with less education and fewer job skills.

5. Getting more education and learning new job skills can increase a person’s human capital and productivity. Human capital is the education and skills that a person possesses.

6. Investing in human capital involves obtaining more education and more job skills. Such investments generally pay off with higher levels of income over a lifetime. However, there are opportunity costs associated with obtaining education, training, and skills.

7. A career is based on working at the same type of job/occupation or profession for many years. Different careers require different types of education and training.

8. People choose jobs or careers for which they are qualified based on the income they expect to earn and the benefits they expect to receive. Benefits include things such as health insurance coverage and retirement plans. People also make choices based on expected job satisfaction, independence, risk, family, or location.

9. Income earned from working and most other sources of income are taxed. Taxes are required payments to the government. Governments use the revenue from these taxes to operate and provide goods and services.

10. Taxes that most people pay on income include

- a. federal income taxes and, in some states, a state income tax;
- b. payroll taxes for the Federal Insurance Contributions Act (FICA), which include both Social Security payments and Medicare payments; and
- c. taxes on interest and dividends earned as well as taxes on capital gains.

11. The amount of income tax and FICA paid affects net pay.

- a. Gross pay is the amount people earn for the work that they do.
- b. Net pay is the amount people receive after taxes and other deductions are taken out.

12. The amount of income tax held out of a person’s paycheck depends on the amount the person earns and the information reported on the person’s W-4 form. The form tells employers what factors to consider when determining the amount of tax the employee pays and includes whether the employee

- a. is single or married,
- b. is the head of a household, or
- c. has a spouse who is employed.

13. Another factor that affects an employee’s net pay is deductions for employee benefits. For example, if the company offers health care, typically an employee pays a portion of the monthly cost. This payment is deducted from the employee’s pay. And, if the company provides a 401(k) or Roth 401(k) retirement account, the employee’s contributions are deducted each pay period either before or after taxes are paid, depending on the type of retirement account.

14. Once all taxes and other payments are deducted from a paycheck, the amount remaining is net pay.

15. Once people pay their obligated bills, the amount remaining is their disposable income.

Standard and Benchmarks
National Standards for Financial Literacy
Standard 1: Earning Income
Income for most people is determined by the market value of their labor, paid as wages and salaries. People can increase their income and job opportunities by choosing to acquire more education, work experience, and job skills. The decision to undertake an activity that increases income or job opportunities is affected by the expected benefits and costs of such an activity. Income also
is obtained from other sources such as interest, rents, capital gains, dividends, and profits.

Grade 12 Benchmarks
1. People choose jobs or careers for which they are qualified based on the income they expect to earn and the benefits, such as health insurance coverage or a retirement plan, that they expect to receive.

2. People choose jobs or careers for which they are qualified based on non-income factors, such as job satisfaction, independence, risk, family, or location.

3. People vary in their willingness to obtain more education or training because these decisions involve incurring immediate costs to obtain possible future benefits. Discounting the future benefits of education and training may lead some people to pass up potentially high rates of
return that more education and training may offer.

4. People can make more informed education, job, or career decisions by evaluating the benefits and costs of different choices.

5. The wage or salary paid to workers in jobs is usually determined by the labor market. Businesses are generally willing to pay more productive workers higher wages or salaries than less productive workers.

6. Changes in economic conditions or the labor market can cause changes in a worker’s income or may cause unemployment.

7. Taxes are paid to federal, state, and local governments to fund government goods and services and transfer payments from government to individuals. The major types of taxes are income taxes, payroll (Social Security) taxes, property taxes, and sales taxes.

8. People’s sources of income, amount of income, as well as the amount and type of spending affect the types and amounts of taxes paid.