21st Century Student FinLit -Getting Personal SW

STUDENT WORKBOOK

THE 21ST CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY GETTING PERSONAL

SUSAN MULCAIRE

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GETTING PERSONAL PRODUCT PREVIEW

STUDENT WORKBOOK

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The 21st Century Student’s Guide to Financial Literacy – Getting Personal (Student Workbook) PRODUCT PREVIEW Copyright © Susan Mulcaire 2017 This document is copyrighted. Reproducing or sharing this document with other users is a violation of copyright and intellectual property laws. All rights reserved. The content of this book and the teaching methods are protected by intellectual property laws. c21 Publishing grants permission to noncommercial users to provide instruction based on the content of this book, however no part of this publication may be reproduced in whole or in part, stored in a retrieval system or transmitted in any form, by any means, electronic, mechanical, photocopying, recording or otherwise, for any commercial or noncommercial use whatsoever without the express written permission of the publisher. All materials in The 21st Century Student’s Guide to Financial Literacy – Getting Personal have been prepared for information purposes only to permit students to learn general principles of financial literacy and personal money management. Nothing in these materials constitutes professional legal or financial management advice. Nothing contained in these resources is a substitute for obtaining advice from a qualified accountant, professional investment advisor or attorney. Any commercial business, product, services, or websites referenced in this book are included for informational and instructional purposes only. No endorsement is made or intended by the author of any of the commercial businesses, products, services, or websites reference in the materials. Always seek independent professional advice about your specific money management issue, financial or legal goals! 1 2 3 4

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Printed in the United States of America ISBN 978-0-9836906-4-1

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TABLE OF CONTENTS

Unit 1: Earning an Income Chapter 1: Getting Personal: You and Your Money . . . . . . . . . . . . . . . . . . . . . . 1 Defining financial literacy; introduction to course themes; income vs. wealth; wealth and financial security; income and class division in America; gender pay inequality debate. Chapter 2: Battle of the Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Retail and consumer banks, savings & loans; savings accounts, checking accounts, MMA and time deposits; avoiding bank fees and penalties; alternatives to traditional banking; deposit insurance; virtual currency controversy. Chapter 3: A Job That Pays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Job vs. career; education’s link to income, earnings and unemployment; job security and job satisfaction; career choices; postsecondary planning; college alternatives; future resume; copy cat careers. Chapter 4: Pay. It’s More Than a Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Compensation; salary and employee benefits; Social Security; healthcare insurance; workers compensation; disability insurance; pensions and retirement plans; employee stock purchase plans; perks; FMLA; freelancing; the job interview. Chapter 5: Honey, They Shrunk My Paycheck! . . . . . . . . . . . . . . . . . . . . . . . . 83 Paycheck withholdings and deductions; OASDI; federal and state income taxes; IRS forms W-2, W-4, 1099,1040; deciphering a pay stub; exploring flat tax vs. progressive tax. Chapter 6: The Global Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 A career overseas; multinational companies; overseas job search; work visas and permits; shortage occupations; developing cross-cultural skills; H1b Visa controversy. Unit 2: Building Wealth Chapter 7: The Credit Conundrum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 The pros and cons of credit; credit and the economy; APR; credit report and credit score; student loans; exploring FICO; the FAFSA; free college controversy. Chapter 8: Supersize Your Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 Savings; establishing savings goals; simple vs. compound interest; the Rule of 72; developing a savings habit in the 21st century; exploring income and wealth disparity in America. Chapter 9: Home is Where the Mortgage or Lease Is . . . . . . . . . . . . . . . . . . . . . 151 Homeownership; buying a home; amortization and appreciation; mortgages; rental agreements; building wealth through homeownership vs. renting; rent control vs. free market debate. PRODUCT PREVIEW

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Chapter 10: Your Risky Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 Risks of an underfunded retirement; 401K plans and IRAs; calculating retirement benefits; 21st century challenges to funding retirement; age discrimination; Social Security benefits; Speak up about Social Security! Chapter 11: Investing 101 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 Investing basics; risk and reward; stocks, bonds, mutual funds; real estate; commodities; mutual funds; portfolio diversification; return on investment; capital gains tax; Wall Street Reform student podcasts. Chapter 12: Small Biz Whiz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 Traits and skills of a small business owner; LLC, corporation, partnership, sole proprietorship, franchise; calculating a profit margin; building wealth through a small business; small business owner survey. Unit 3: Protecting and Preserving Wealth Chapter 13: Credit Card Craze . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 Consumer debt in America; credit card rates, penalties, and fees; grace periods; the credit card time line; how to read a credit card statement; responsible credit card ownership; predatory lending debate. Chapter 14: The Beauty of the Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 Benefits of the personal budget; wants vs. needs; living within a budget; making a budget; exploring personal budget apps and programs; the federal balanced budget controversy. Chapter 15: Protect What You’ve Earned . . . . . . . . . . . . . . . . . . . . . . . . . . 283 Insurance terms and concepts; homeowners insurance; auto coverage; healthcare insurance; HMO vs. PPO; term life insurance vs. whole life; making an insurance claim; protecting yourself from identity theft. Chapter 16: Share with Care! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309 The risks of shared ownership; forms of joint ownership; joint tenancy vs. tenancy in common; risks of co-borrowing, co- signing and guarantees; faux fiancés financial compatibility challenge. Chapter 17: How to Lose it All... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329 Addiction’s impact on income, education and wealth-building; gambling addiction; short term and long term financial impact of a criminal conviction; lifestyle debate: single vs. married? Chapter 18: Resolving Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351 Insolvency; bankruptcy chapters 7, 11, & 13; liquidation, reorganization and debt restructuring; non-dischargeable debt; exempt property; limitations of bankruptcy; debt management agreements; reflecting on financial literacy. PRODUCT PREVIEW

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GETTING PERSONAL: YOU ANDYOUR MONEY

C H A P T E R 1

W here do you see yourself in 20 years? What will your life-style be? Will you be enjoying the perks of great financial success, or barely able to keep a roof over your head or food on the table? What are your personal financial goals? Q: I expect to be… a. Crazy rich (Think Bill Gates, Mark Zuckerberg…) b. Rich c. Moderately well off d. Living paycheck-to-paycheck e. Flat broke, without a penny to your name You probably believe (or at least hope), that you’ll experience moderate, if not great, financial success. The reality is, however, too many people do not have the skills or knowledge they need to meet their financial challenges or understand their financial risks. They are not financially literate . This lack of skills and knowledge about money is contributing to rising consumer debt, unstable financial futures, income and wealth disparity, and poverty. Whether you live the lifestyle of the rich and famous, are moderately comfortable and secure, or crash and burn into a pit of debt and financial despair depends a great deal on whether you are financially literate. Let’s get started exploring the knowledge and skills you’ll need to live an a, b or c lifestyle, and how to avoid a lifetime of d and e!

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Learning Goals By the end of this chapter you will be able to: • State the elements of comprehensive financial literacy • Compare income and wealth • List key features of U.S. socioeconomic classes • Explain the significance of the FPL • Summarize the relationship of wealth to financial security • (Opt.) Argue for or against Gender Pay Gap reforms

Chapter Resources: The Pew Research Center has an income calculator that enables comparison of income by education, age, race or ethnicity, and marital status. (Search Pew Research Center Income Calculator. ) Investopedia.com is a good go-to site for financial terms and definitions with easy to understand explanations of complex financial instruments and concepts.

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WHAT DOES THAT MEAN?

TERM

DEFINITION

blue collar worker

an occupational classification of workers who perform physical labor jobs such as plumbing and construction. “BLS”; a division of the U.S. Department of Labor that collects and analyzes data on labor economics. an income level below which people and families are eligible for certain U.S. government assistance programs and benefits. the ability to understand how money works, how money is earned and managed, and wealth built. the combined incomes of all people over the age of 15 sharing a particular household. money received on a regular basis for providing a good or service, or earned through investments. a measure of income ranging from $16,000 to $35,000, depending on number of household members. a socioeconomic term used to describe people who have some postsecondary education without advanced degrees and work in lower-level, white-collar professions; a subdivision of the middle class. a socioeconomic term used to describe people who earn an annual income of $35,000 to $200,000. the process of earning, budgeting, saving, investing, spending, or otherwise managing personal finances. the dollar amount that divides income distribution into two equal groups; half of the group having income above the median and half below. the total value of a person’s assets minus their debts; a measurement of an individual’s wealth. the ability to move up in socioeconomic class and increase your wealth for such things as home ownership, a car, an education, and other quality of life items. a socioeconomic term used to describe individuals who are well-educated, earn between $100,000 and $200,000 and work at high-level, white-collar positions; a subdivision of the middle class. ownership of valuable assets including cash, real estate, investments, and material possessions.

Bureau of Labor Statistics

Federal Poverty Level (FPL)

financial literacy

household income

income

the study of the relationship between economics and social behavior. PRODUCT PREVIEW

low income

lower-middle class

middle class

money management

median income

net worth

socioeconomics social mobility

upper middle class

wealth

wealth-building

strategies and practices which increase net worth.

white collar worker

occupational classification of workers who perform professional or managerial jobs, usually in an office setting.

Access vocab ashcards at www.c21publishing.com

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I. What is Financial Literacy? Course Objectives. Welcome to your financial literacy course based on The 21st Century Student’s Guide to Financial Literacy – Getting Personal. If you have already taken the financial literacy course based on The 21st Century Student’s Guide to Financial Literacy – Going Global, you will see that, in this course we are going small. We are moving from a global, world-wide exploration of money, commerce, innovation, and entrepreneurship, to exploring how money works on a personal, individual level. Relevance. When learning a new subject, students often ask “ Why do I need to know this? How does this information relate to anything in my life?” They wonder how the information is relevant to them. You’ll never ask such questions in this course. Money and your ability to manage your money impacts your life every day and will become even more important as you get older. Financial literacy is defined as the ability to understand how money works, how money is earned and managed, and wealth built. Comprehensive financial literacy includes knowing how money works on a global or macro level and how it works on a personal everyday or micro level. This course addresses personal financial management. Together, these courses Going Global and Getting Personal , enable you to develop comprehensive financial literacy . Course Themes: Earn-Build-Protect At this stage of your life, you probably believe that you will experience some level of financial success in your lifetime. You probably assume that you will, at least, live comfortably with a nice home, a career, a car, enough food, decent clothes, and a few of life’s finer things like travel or tickets to awesome concerts. The fact is, most Americans face serious financial challenges. America is a financially illiterate country. Few people have even basic personal finance and money management skills. Moreover, financial illiteracy is an equal opportunity offender. It impacts men and women, young and old, of any race and and across socio-economic lines. Course Themes. This course is built around three financial literacy themes which are key to your personal financial success: Earning an income, building wealth, and protecting the wealth you build: Earning an Income. Unit One explores issues and topics related to earning an income , including income, employment, employee benefits, taxes and withholding, and salary. We’ll examine how education impacts earnings potential. We’ll compare banks and other financial institutions where you deposit your earnings. We’ll do some career exploration and, because your generation is quite globally-mobile, we will examine some of the the challenges of earning an income by pursuing a career overseas. Building Wealth. Unit Two is devoted to the theme of wealth-building . Your ticket to prosperity is not just a good job and salary. That’s only the start. What you do with the income you earn, how you manage your money, and the tools you utilize to convert your income into wealth are key. We’ll also explore the notion of debt, and how some types of debt can be a tool for building wealth. We’ll look at how wealth is built through savings, retirement plans, homeownership, and investments. Protecting Wealth. Unit Three is all about preserving and protecting wealth . In other words, we’ll focus on avoiding the things that can cause you to lose the wealth you’ve built. We’ll learn about the wealth-preserving benefits of a budget, explore how to manage credit card debt, and review different types PRODUCT PREVIEW

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of insurance for protecting your assets, including home, car, healthcare, and life insurance. We’ll review less obvious, but devastating ways hard-earned wealth can be lost, such as the risks of co-ownership and co-signing, addiction, gambling, and crime. Finally, we will explore the civilized world’s way of preserving a little wealth and dignity in the face of overwhelming financial loss: bankruptcy!

Fin Lit Trivia Fin Lit Trivia Fin Lit

II. What is Income? Income is the money you earn on a regular basis from a job or other income-producing activity . This can be in the form of a salary, hourly wage, tips, or commission . For most people it simply means the money you get paid to work. If the job ends, so do your earnings. Income is regular and fairly immediate. With a job, you get paid within a relatively short period — usually every two weeks. Award money and money earned from investments are also counted as income.

Free Money for Everyone!

In 2016, Switzerland held a vote on a pro- posal to automatical- ly provide $2500 per month to every adult citizen. The proposal was defeated.

In America, income is important because it determines many things about how your life plays out. Income determines the amount of taxes you pay, your lifestyle, and even impacts your health and life expectancy . Income dictates your level of social mobility , which is the ability to move up in social class and gain more opportunity to build wealth for things like a nice home, a car, an education for your kids, and other quality of life items. Types of Income. There are many different types of income , all of which are tracked by the U.S. Government through the Bureau of Labor Statistics (BLS) . The government tracks how much money people make and the sources of that money because such data provides insight into the financial health of the nation. BLS data is an indicator of socioeconomic trends , such as how income is distributed across the U.S. population. The data reveals how much income the richest American families earn, how much income the average American family earns, and how many American families earn below-average income. Income is also tracked by age, race, gender, and location . PRODUCT PREVIEW

Personal income

This includes a person’s salary and wages, distributions from a retirement fund, investments, and more. This refers to the total amount of money available for an individual to spend or save after taxes have been paid . This refers to the combined earnings of everyone in a household over the age of 15 . Generally, these are members of a family or extended family who live under the same roof, and share or combine expenses. It does not include a roommate arrangement. A household can consist of just one person. This is the dollar amount that divides income distribution in the U.S. into two equal groups ; half of the population has income above that amount and half has an income below that amount. As of 2016, the median income in the U.S. is $51,939. Median incomes are also tracked by state .

Disposable Personal Income (“DPI”) Household income.

Median income

Reflect on Learning: Can you recall sources and features of income? Income is money earned from a job, usually received on a regular basis and immediate basis. If the job ends, the income stops. Income provides social mobility and the opportunity to build wealth.

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III. Income and Class in America Degrees vs. Diplomas. Education is the leading factor in determining how much income people earn . BLS statistics prove that college graduates out- earn high school graduates by far. In 2015, the median salary of young adults with a bachelor's degree was $59,124. The median salary of a worker with only a high school diploma was $35,256. Woe be the poor soul who never even graduates high school: Their median wage was just $25,636. Over a lifetime, a college graduate stands to make almost a million dollars more than a high school graduate. Households with higher incomes tend to have higher levels of education. Households with lower incomes tend to have lower levels of education. Income by Class. American society is divided by socioeconomists into three income classes: upper class, middle class , and lower income class . Each of these is further divided into subdivisions . It is the amount of income earned annually which primarily determines what class a person or household fits in to. Let’s take a closer look at America by socioeconomic class : Upper Class. The upper class is often referred to as the “5 percent” which is the percentage of Americans who make more than $200,000 annually . This is the smallest and wealthiest class but ironically, the class with the broadest range of incomes because it includes subcategories of The Rich and the Super Rich . The Rich make up the top 1 percent of the nation’s income with incomes of $500,000+. The Super Rich make up the top .01% of the 1%, earning in excess of $77 million per household each year. Much of their income is derived from investments, so even their money makes money! Typically, people in the Upper Class are very well-educated.

The Super Rich = 0001% of 1%

The Rich = 1%

aka “5%”

M I D D L E

C L A S S

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L O W

E R C L A S S

Middle Class. About 50% of American households qualify as middle class . That means they earn an income of about $35,000 to $200,000. The middle class has two subdivisions: upper middle and lower middle. Upper Middle Class. This is a sub-division of the middle class . It is generally composed of people who are well-educated, often with post- graduate degrees such as a master’s degree or law degree, who earn higher salaries. Many have prestigious occupations such as doctors, lawyers, financial managers, software developers, and business managers. These are referred to as white collar workers . They have low unemployment levels. Incomes in this group range between $100,000–200,000.

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Disparity Despair? In 2014, the richest .01% of the American population — the Super Rich — owned 11% of all wealth in the country. Source: National Bureau of Economic Research

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Lower Middle Class. Generally, this subdivision of the middle class includes households with incomes in the range of $35,000–100,000. People in this group usually have a bachelor’s degree or trade certification and moderate job security, meaning moderate levels of unemployment. They are sometimes called the worker class . Some lower middle class occupations are nurses, police officers, customer service representatives, and office workers. This class also includes blue collar workers such as construction workers, plumbers, iron and steel workers, aircraft mechanics and machinists. These days, however, many skilled blue collar jobs, such as working on an oil rig or as an aircraft engineer, have excellent job security. Lower Income Class. This is the class that earns the least. It is made up of the subdivisions of Low Income and Poverty Level . Low Income. This subdivision of the Lower Income class includes clerical, agriculture, and service workers with low incomes and minimal job security. Common household incomes range from $16,000 to $35,000. They are sometimes referred to as the working poor and have some high school education. Some low income occupations are cook, cashier, retail sales clerk, and child care worker. Poverty Class. This is a subdivision of the Lower Income class. People with incomes in this class live at or below the Federal Poverty Level (“FPL”) . The FPL is a measure of income issued annually by the U.S. Department of Health and Human Services which used to determine eligibility for certain government assistance programs and benefits . In 2014, there were 46.7 million people living in poverty in America. People below the FPL are often unemployed, and or have difficulty finding even part time work. They have little education and may be high school dropouts. In fact, 31% of young adults without a high school diploma live in poverty. Currently, the FPL is defined as having an annual income at or below $11,770 for individuals and $15,930 for a family of 2. Many benefit programs exist at both the state and federal levels to help struggling low income and poverty level households. Some widely-used federal programs include: And the winner is... Median incomes are also tracked by state . Maryland is the nation’s richest state with a median income of over $73,971. Mississippi is the poorest, with a median income of $39,680. Source: US Census Bureau (2015) Fin Lit Trivia Fin Lit Trivia Fin Lit Trivia PRODUCT PREVIEW

Head Start

promotes pre-school education for low income families provides food purchasing and nutrition assistance to low-income individuals and families provides school lunches at low or no cost to students helps low-income families pay electricity and gas bills

Supplemental Nutrition Assistance Program (“SNAP”) National School Lunch Program (“NSLP”) Low-Income Home Energy Assistance Program (“LIHEAP”) Children’s Health Insurance Program (“CHIP”)

provides benefits for health insurance to families with children provides health insurance to low income families and others

Medicaid

Reflect on Learning: People in the same socioeconomic class and making about the same amount of money can have very different lifestyles depending on where they live. How might the lifestyle of a person living in Little Rock, Arkansas making a solidly middle class income of $75,000 annually differ from a person making that same amount and living in San Francisco? Answer: In Little Rock, Arkansas $75,000 is going to buy you a substantially

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better lifestyle than that same amount in San Francisco, where housing costs and other costs of living are very high. The Pew Research Center’s income calculator enables an exploration of income by class, race, gender and geography. Check it out!

IV. What is Wealth? Income ≠ Wealth. Here’s an important financial literacy concept: Income and wealth are not the same things. Income is based on what you earn. Wealth is a broader and much more complex concept. It is the sum of the values of all of the things you own (such as a home, bank and retirement accounts, and investments like stocks or bonds) minus your debt . Wealth is also referred to as net worth . Wealth (net worth) is built

Total Assets - Debt Net Worth

by transforming income into the ownership of things that hold or increase their value over time . The distinctions between income and wealth are important for you to understand because different financial literacy concepts, terms, skills, and strategies apply to each. The Importance of Money Management. Earning a high income does not necessarily mean you are or will be wealthy. Conversely, earning a low income does not necessarily mean you will not be able to build wealth. Obviously, earning a high income makes it easier to save money and make investments. However, someone with a relatively low income who has good money management skills can become wealthier than someone with a high income who doesn’t manage their money well. People who become wealthy understand the importance of good financial management. People who don’t have money management skills often work their whole lives and never build wealth or improve their financial condition. Many people think money management is only for rich people. That is wrong. Everyone needs to have money management skills because they are key to building wealth and financial security at every income level. PRODUCT PREVIEW The Importance of Wealth. Building wealth is ultra-important because wealth provides long term financial security and stability . It provides access to a better education, better medical care, housing and other things that affect your quality of life. Unless you build wealth, you will always be dependent on income. That means you may always be just one disruption, such as a job loss or illness, away from having no money and no means of support. If you want to be financially secure one day, rather than living paycheck to paycheck, you must build wealth. Topics and concepts related to building wealth are covered in Unit 2. Wealth-building as a Job. Building wealth takes effort and lots of discipline. After all it’s a natural human tendency to want to spend the money you earn on fun and luxury. To be happy and secure in the long run, however, you must fight the urge for immediate material gratification . Once you are earning an income, you must actively manage your money, always saving and investing a portion for your future. You must develop an awareness of and control over your financial habits. Think of wealth-building as your future second job . Just like preparing for an income-earning career, you must prepare for your job as a wealth builder. Both require education, knowledge, a specific set of skills, and a strategy. In fact, you are already engaged in one essential future wealth-building activity: getting educated! Building wealth starts with getting a good education. Wealth = Health Wealthy Americans live up to six years longer than poor Americans. This is called the longevity gap — and it's widening! Fin Lit Trivia Fin Lit Trivia Fin

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Reflect on Learning: Do you understand the differences between income and wealth? What are some examples of income? What are examples of wealth? Imagine you earn an Upper Class income of $200,000 per year. You rent a killer apartment and stock the closet full of designer clothes. You take pricey vacations, buy tech gadgets, and eat out every night. At the end of the year, what is the value of the things you actually own? Have you built your net worth? Even though you have a high income, you have built almost no wealth. Wealth building is all about systematically transforming part of your income into the ownership of things that hold or increase their value over time. That requires money management skills.

THE BIG PICTURE

Being financially literate means understanding how money works both globally and on a personal, money management level. Income and wealth are not the same things. Income is earned; wealth is built from income. Both activities require quite a bit of effort, strategy, skills, and discipline. There are three main classes of income that define American society: Upper, middle and lower. Each class is further divided into subclasses. There are a number of social programs to assist low income families and families living in poverty. There are many factors that influence socioeconomic status. Financial literacy is one of them. You are already engaged in the most important aspect of earning an income and building wealth: Getting an education.

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PONDER AND PREDICT As you move up into a career, you will need a place to safely and securely store the money you earn. As a result, you will develop a close personal relationship with a very old institution. Can you guess what it is? Write your predictions here. In the next chapter, find out if you're right. ______________________________________________________ ______________________________________________________

__________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________

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DEBATE, PERSUADE, INFORM Gender Pay Gap: Myth or Reality?

A recent report by the Bureau of Labor Statistics found that, on average, women earn considerably less than men. In 2014, female full-time workers made only 79 cents for every dollar earned by men — a gender wage gap of 21 percent. Proponents of Gender Pay Gap reform argue that the gap is attributable to gender discrimination and that it exists across the board in nearly all industries. They believe that reforms and regulations are necessary to protect women from paycheck discrimination.

Opponents of reform claim that the disparity in pay is a result of the fact that women select lower paying careers or job industries more often than men. They also claim that the wage gap can be attributed to women having different work histories than men or being more likely to take time off to care for children. Your job: research gender pay inequality. Does gender bias account for the fact that women earn less, on average, than men? If so, what kind of reforms can correct this bias? Or is there a logical and equitable explanation for the gender pay gap? Be prepared to debate either side of this issue, supporting your argument with facts. Consider using Sweet Search (sweetsearch.com) to locate librarian-approved, credible content. __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ PRODUCT PREVIEW

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Reflecting on… You andYour Money

LET’S PRACTICE

Name: _____________________________________________________________________________

The Saga of Eloise and Franklin It’s all too common a story. Lots of people with astronomical salaries are flat broke as soon as they lose their job. Why? Because they did not use their earnings to build wealth. Let’s observe! Read the profiles below and answer the questions that follow.

Hi. I’m Eloise. I graduated from college about ten years ago. My degree is in fashion marketing. When I graduated, I dreamed of working for a big design house in New York City. I wasn’t able land my dream job, so I moved back home to live with my parents and save money. I got a sales job at an indie store in my hometown. In my free time, I wrote a blog advising young designers how to navigate the world of fashion marketing. I built a following and I started charging a fee for my services. Eventually I got clients and started my own business. I invested most of what I earned in my company, but also managed to invest about 10% in stocks. I’m proud to say that over the years, I’ve built a successful small business. I pay myself $60,000 a year and continue to invest 10% of my salary. Now I own over $50,000 in stocks. A year ago I married Gunnar. He’s a graphic artist with a degree in computer science. He works for a big video game company. He also makes $60,000 a year and has $50,000 in his employee retirement account. We’re excited because we just bought our first house! It cost $250,000. It has a basement apartment that we rent out to a local college student for $400 a month. Our home loan is $200,000. We also have car loans of about $20,000, but hardly any credit card debt. My business is valued at about $200,000. In 10 years, Gunnar and I want to take a year off work to travel around the world.

PRODUCT PREVIEW

Franklin here. I graduated from college about 10 years ago. My degree was in very high demand. I started working for this new tech company that offered me such a sweet deal: $100,000 a year in salary! With a high income like that, I figured I’d be rich enough to retire in about 20 years. It was so cool. The first thing I did was buy that sports car I’ve always wanted. I rented an apartment in an area that is a little expensive, but super hip. I like designer clothes, so I bought plenty of those. And vacations? First class all the way, baby! Right now I’ve got about $30,000 in credit card debt. Five years after I started my job, I was just 28 and making $125,000 a year! That’s when I said to myself “Franklin, it’s time to get serious about life and start building some wealth.” Anyway, I managed to save about $10,000 before my company merged with another tech company. A lot of employees, including me, were let go. Now I’m clipping coupons and counting change. I’ve run through my savings so I’ve moved back in with my mom. She earns barely $16,000 per year, so it’s a struggle for her to support us both. I’m job hunting, but so far — no luck.

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Chapter 1 | Getting Personal: You and Your Money

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LET’S PRACTICE

Name: _____________________________________________________________________________

Answer the following questions: 1. Eloise and Franklin are about the same age. What other personal data do they have in common? _ ______________________________________________________________________________ _ ______________________________________________________________________________ 2. What does building wealth mean? What things did Eloise do to build wealth ? _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ 3. Between Eloise and Franklin, who had more income ? _____________ 4. What steps did Franklin take to build wealth ? _ ______________________________________________________________________________ 5. What are Eloise’s and Gunnar’s assets ? (What things of value that make up their wealth?) _ ______________________________________________________________________________ _ ______________________________________________________________________________ 6. Calculate Eloise and Gunnar’s approximate net worth . _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ 7. What are/were Franklin’s assets ? _ ______________________________________________________________________________ 8. Calculate Franklin’s approximate net worth . _ ______________________________________________________________________________ _ ______________________________________________________________________________ 9. Even if Franklin had not lost his job, would he realize his retirement dream if he continued to manage his money like this for the next 15 years? Why or why not? _ ______________________________________________________________________________ PRODUCT PREVIEW

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THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY

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Name: _____________________________________________________________________________

10. Recall that household income refers to the combined earnings of everyone in a household over the age of 15. What is Eloise and Gunnar’s annual household income ? _ ______________________________________________________________________________ _ ______________________________________________________________________________ 11. To what economic class do Eloise and Gunnar belong? _ ______________________________________________________________________________ 12. If Eloise and Gunnar continue their disciplined approach to building wealth, will they be able to afford that year of travel? ______ 13. What was Franklin’s personal income before he lost his job? _______________ 14. To what socio-economic class did Franklin belong before losing his job? __________________ 15. What is Franklin’s household income when he moves back in with his mother? _ ______________________________________________________________________________ 16. To what socio-economic class does Franklin belong after losing his job? _ ______________________________________________________________________________ 17. What does FPL stand for? Are Franklin and his mother living at or below the FPL ? _ ______________________________________________________________________________ 18. Based on their household income, what government assistance programs might Franklin and his mother be qualified for? Describe them and tell how they are abbreviated. _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ 19. What three financial literacy themes is this course built around? _ ______________________________________________________________________________ 20. Franklin thought that because he was highly paid, he was wealthy. Explain to Franklin the differences between income and wealth . _ ______________________________________________________________________________ _ ______________________________________________________________________________ PRODUCT PREVIEW

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Chapter 1 | Getting Personal: You and Your Money

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Name: _____________________________________________________________________________

Income, Earnings, and Class in America

1. When learning a new subject, do you ever ask “Why do I need to know this? How does this information relate to anything in my life?” In your own words, tell at least three ways financial literacy and money management are relevant to your future. _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ 2. How are earning an income and building wealth different? What are some similarities? _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ _ ______________________________________________________________________________ 3. The median income in the U.S. is currently $51,939. What percentage of the country makes more than this? What percentage of the country makes less than this? Explain what median income is. _ ______________________________________________________________________________ _ ______________________________________________________________________________ 4. Median incomes are also tracked by state. What is the median income in your state? ________________ 5. In 2014, the richest .01% of the American population owned about _____ of all of the wealth in the country. 6. The upper class is the smallest class, but the income range is very broad: $200,000 to $77 million+. What accounts for this wide range? _ ______________________________________________________________________________ 7. Social mobility refers to a. a shift in population between states as measured by the U.S. census b. the ability to move up in socioeconomic class and increase your wealth c. federal transportation statistics d. the ability to seek employment overseas 8. T F Someone with a relatively low income who has good financial management skills can become wealthier than someone with a high income who doesn’t manage their money well. PRODUCT PREVIEW

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THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY

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LET’S PRACTICE

Name: _____________________________________________________________________________

9. Education is a leading factor in determining how much income people earn. Can you explain how education and wealth are related ? _ ______________________________________________________________________________ _ ______________________________________________________________________________ 10. Below is a graphic of the three U.S. income classes and their subclasses. Write 3-5 facts about each in the spaces indicated.

The Super Rich = 0001% of 1%

The Rich = 1% PRODUCT PREVIEW M I D D L E aka “5%”

C L A S S

L O W

E R C L A S S

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Chapter 1 | Getting Personal: You and Your Money

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LET’S PRACTICE

Name: _____________________________________________________________________________

Are You Financially Literate? Chapter 1 Quiz 1. Everything you will learn in The 21st Century Student’s Guide to Financial Literacy – Getting Personal falls into which of the following financial literacy themes? a. Jobs–Economy–Retirement b. Wealth–Income–Savings and Investing c. Earning Income–Building Wealth–Protecting Wealth d. Earning Wealth–Preserving Income–Investing Time 2. Reflect on the following statement: “Income is earned, but wealth is built.” Briefly state the difference between income and wealth. _ ____________________________________________________________________ _ ____________________________________________________________________ _ ____________________________________________________________________ 3. T F The strongest determinant of income and class is education. 4. T F Households with higher income tend to have lower levels of education. 5. List two reasons why it is necessary to build wealth in order to be financially secure, even if you have a high income. _ ____________________________________________________________________ _ ____________________________________________________________________ _ ____________________________________________________________________ 6. Which of the following is NOT true about income distribution in the U.S.: a. The lifestyle quality associated with different income levels is different in various areas of the country b. The Super Rich own 3% of all wealth in the country c. Over 45 million people in the United States live beneath the Federal Poverty Line d. Income of $100,000–$200,000 qualifies for “Upper Middle Class Status” 7. Tell whether each of the following would qualify as wealth or as income. Explain your answer. a. Josh earns $20 per hour working at a car dealership. ____________________________________________________________________ PRODUCT PREVIEW

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THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY

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Name: _____________________________________________________________________________

b. Olga keeps at least $5000 in her savings account at all times. ____________________________________________________________________ c. Chris made $200 in tips last Saturday waiting tables at the restaurant where he works. ____________________________________________________________________ d. Aurelio’s uncle gave him $100 for his birthday, and Aurelio used it to purchase stock in a public company. ____________________________________________________________________ ____________________________________________________________________ 8. Which of the following is NOT a form of Federal Assistance for households with low income? a. Supplemental Nutrition Assistance Program b. Children’s Health Insurance Program c. American Basic Income Supplement d. Head Start 9. In your own words, offer at least three reasons why building wealth can be difficult. _ ____________________________________________________________________ _ ____________________________________________________________________ _ ____________________________________________________________________ _ ____________________________________________________________________ _ ____________________________________________________________________ 10. T F If your income is below the median income, you could be in the upper middle class. 11. List three different sources of income . _ ____________________________________________________________________ _ ____________________________________________________________________ 12. Federal assistance programs assist low-income households with all of the following EXCEPT: a. education PRODUCT PREVIEW

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b. wealth-building c. health insurance d. home energy and electricity

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Chapter 1 | Getting Personal: You and Your Money

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Name: _____________________________________________________________________________

13. List 2 reasons why it is useful for the government to collect data on the income levels of Americans. _ ____________________________________________________________________ _ ____________________________________________________________________ _ ____________________________________________________________________ 14. Financial literacy ______________________________. a. has both personal and global aspects. b. is something only trained professionals develop. c. is pointless without a high income. d. is different depending on what job you have. 15. Roger has a high income, but net worth of just $5000. Regina has a moderate income, but net worth of $150,000. Neither have sources of income other than their jobs. What might account for the differences in wealth? _ ____________________________________________________________________ _ ____________________________________________________________________ _ ____________________________________________________________________ 16. Charles makes $35,000 per year as a transportation supervisor coordinating the deliveries of goods and maintenance of trucks for large trucking company in Iowa. His wife, Charlene, makes $41,000 as an agricultural inspector. They have a total of $105,000 in their retirement accounts. They own a small home valued at about $125,000. They have $5000 in a savings account, $1500 in credit card debt and a home loan of $60,000. What is their net worth? (Explain your answer.) _ ____________________________________________________________________ _ ____________________________________________________________________ _ ____________________________________________________________________ _ ____________________________________________________________________ 17. Which of the following choices is NOT an example of a wealth building strategy? a. applying for a job with higher pay b. moving to a less expensive apartment and investing the savings c. purchasing real estate d. playing the lottery PRODUCT PREVIEW

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