The Making Personal Finance Decisions curriculum teaches valuable personal finance lessons grounded in economic theory. The curriculum is divided into 10 themed units, with each unit containing two lessons. The twenty individual lessons employ a variety of teaching strategies designed to engage students in the learning process and equip them with the knowledge and skills necessary to make informed personal finance decisions.
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Lesson 1A: The Wealth Game—Factors for Success
Students play “The Wealth Game” (based on “Market Exchange and Wealth Distribution: A Classroom Simulation” by Robert B. Williams, Journal of Economic Education, Fall 1993). Students are given an initial set of colored beads with defined values that determine their wealth in one of three categories: poor, middle-class, or rich. Their task is to increase the value of their wealth by trading their beads with other students. Individual student outcomes of the game are discussed in terms of the four primary determinants of wealth: natural abilities, effort, motivation, and luck.
Lesson 1B: Making Choices and Identifying Costs
Students are introduced to the PACED decisionmaking model and grid as a guide to making personal finance choices. The grid is used to evaluate product choices based on ratings from Consumer Reports® and to demonstrate trade-offs and opportunity costs.
Lesson 2A: The Inventory Game—Net Worth and Cash Flow
Students physically move into and out of a “wallet” (a specified area in the room) and note the change in the number of students in the wallet over time, as well as the inflow and outflow rates. This demonstration is then related to the stock (an amount at a point in time) concepts of assets and liabilities and the flow (an amount per unit of time) concepts of income and expenses. Students use this distinction to determine net worth, cash flow, and the relationship between them.
Lesson 2B: Meeting Financial Goals—Rate of Return
Students are shown the two ways that investments can earn a return and then calculate the annual rate of return, the real rate of return, and the expected rate of return on various assets.
Lesson 3A: Investing in Yourself
Students perform calculations—with half the class given information to make the task easier—to demonstrate the importance of human capital in increasing a person’s productivity. They then look at the wages for various occupations and consider the role of human capital in explaining the differences in those wages.
Lesson 3B: Entrepreneurship—Working for Yourself
Students are asked to volunteer for a potentially embarrassing task (which they ultimately do not have to perform) in return for a reward, which demonstrates a characteristic of entrepreneurs. They then take a personal assessment to discover other important characteristics of entrepreneurs and determine how entrepreneurial they are based on these characteristics.
Lesson 4A: What Are Taxes For?
Students participate in an activity that demonstrates the difference between private and public goods to show why it is necessary for the government to provide some goods and services. They also participate in an activity to understand why the government redistributes some tax revenue as income to others.
Lesson 4B: Understanding Taxes
Students discuss factors that make various taxes different: bases, rates, structures, methods of collection, and level of government imposing the tax. They learn a simple tax formula and information about four common types of taxes (income, payroll, sales, and property). Students apply this knowledge to calculate for three households the total taxes paid and the net income based on their gross income and expenditures.
Lesson 5A: Making a Budget—It Is All Spending!
Students discover that all elements of a budget are essentially spending on goods and services. They are shown a process for establishing a budget.
Lesson 5B: Budget Trade-Offs—A Penny Here and a Penny There
Students participate in an activity that illustrates that budgeting is really an allocation problem. They must decide how to allocate limited income among many alternatives, which requires trade-offs. For the activity, students are given pennies representing monthly personal income to allocate for their living expenses—to purchase goods and services for housing, food, transportation, and so on.
Lesson 6A: Time Preference—Why It Is Hard to Save
Students investigate the decision to save as a choice between spending now or spending later and how people’s natural preference to enjoy goods and services now affects this decision.
Lesson 6B: Simple and Compound Interest—Why It Is Great To Save
Formulas for simple and compound interest, as well as the Rule of 72, are explained and used to illustrate the benefit of saving in general and the benefit of saving early in particular.
Lesson 7A: The Spending Decision—Colas and Hot Dogs
Students help Joe, a guy at a baseball game, decide how many colas and hot dogs to buy. Joe’s “best” choice is shown to depend on not only what Joe likes but also the amount of money he has and the prices charged.
Lesson 7B: Big Spenders
Students compare the spending behavior of two families to see how a higher saving rate can lead to not only greater savings but greater spending.
Lesson 8A: Managing Risk—Time and Diversification
Students are introduced to investment risk—the chance of losing some or all money invested. That is, the actual rate of return on an investment may vary from the projected rate of return and may even be negative. Students investigate the trade-off between the expected rate of return on an investment and the risk. Finally, they play the role of investors in a simulation that shows how time and diversification may lower risk.
Lesson 8B: Evaluating Investment Options
Students use the PACED decisionmaking model to investigate the trade-offs involved in choosing an investment.
Lesson 9A: The Three C’s of Credit
Students play the role of credit providers and assess the credit worthiness of an individual with a loan request and randomly selected borrower characteristics. Students classify those characteristics based on the three C’s of credit (capacity, character, and collateral), assess the riskiness of lending to that individual based on these characteristics, and then decide whether or not to approve or deny the loan request.
Lesson 9B: Evaluating the Benefits and Costs of Credit
Students are introduced to different types of credit and discuss some of the benefits and costs of credit. They then consider how borrowing affects a person’s net worth.
Lesson 10A: The Three D’s of Identity Theft
Students are introduced to various options for deterring and detecting identity theft. They then play a game about identity protection. They choose ways to protect their identity then face random events where their identity will either remain safe or be stolen. They learn that 100% identity protection is not possible and ways to defend themselves if identity theft occurs.
10B: Is Insurance Worth Buying?
Students learn about insurance options and possible risks. They play a game where they first choose levels of insurance coverage and then face random events. They track the cost of their insurance choices (premiums plus lost investment income) and the benefit of their choices (loss reduction) based on each event drawn. They determine whether the insurance choices they made were financially beneficial or not and why insurance may be a good idea regardless.
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