Indiana Department of Financial Institutions

MAP YOUR FINANCIAL

FUTURE


A Mini-Lesson for:
elementary and secondary teachers
adult and community educators
students and parents
This mini-lesson includes learning objectives, background information, discussion
questions, an activity and sources of additional information.
Objectives
This activity is designed to help students clarify how they feel about their short-
term and long-term goals and to understand how this contributes to the
success of personal financial planning.
Learners will:
istinguish between short-term and long-term goals
!dentify the opportunity cost of spending or saving decisions.

"#plain how saving helps to satisfy future wants.

$se understanding of opportunity cost to suggest how to make better
saving and spending decisions.

ECONOMIC CONCEPTS
%ll decisions involve trade-offs & gaining something and giving something up.
'eople make decisions about spending and saving. !f people save, they will
have money to satisfy the ne#t most favored want. (hen people spend, they
give up the opportunity to save. !n either case, they incur an opportunity cost:
and the decision they face is choosing the option with the lower opportunity cost.
)ver time, saving accumulate a larger amount.
The three reasons for saving are:
to purchase planned goods or services in the future*
to buy goods or services that people suddenly see and want* and
to deal with emergencies and une#pected events.
Map your financial future - Take time to list your financial goals, along with a
realistic plan for achieving them. +ou can go places you want to go without a
roadmap - but seldom on the first try.
Plan for wants* consider trade-offs and opportunity cost. Learn good money
management. ,ee where you can start saving. -ap out short-term goals and
long-term goals.
Consider need vs. wants. Think about the items you purchase on a regular
basis. o you really .need. the items/ 0an you do without it/ o you think you
could get it later on sale/ (here can you save/ These are some questions you
need to answer for good money management.
Taking control of your financial situation helps reduce the an#iety of not knowing
whether you have the money to pay your bills when they are due. !t is important
to have a sense of control over money, rather than letting money have control
over you. 1uilding assets improves the quality of life for you and your family.
1udgeting will help you build assets.
,ee -ini-Lesson: A COLLEGE !"DE#! $"DGE! at
http:22www.in.gov2dfi2education2-iniLessons2college.htm.
,ee (eb ,ites on $ud%ets at http:22www.in.gov2dfi2education2budget.htm.
,ee Money mart Courses at
http:22www.in.gov2dfi2education2-oney3,mart2money3smart3training3program.ht
m
% budget will also help develop short and long term goals.
(hen you have developed a budget, you can see more clearly where you can
cut some e#penses and start saving. !t is import to start saving at an early age.
!t is a habit that is good to get into.
4or ideas where to put your savings, see (eb ,ites: Mini&Lesson & C'ildren
and Money and $an(in%.
DISCUSSION UESTIONS AND
TOPICS
5. 6ave students discuss the amount of time they consider to be short, medium,
or long. 6ow does age affect one7s idea of time/


8. %sk students to list the things they want to have in the future and to indicate
the goods and services they would be willing to save for.

9. 6ave students define the term :want. ;% desire that can be satisfied by
consuming goods or services.<


=. %sk students to give e#amples of the opportunity cost of spending or saving
decisions they have made in the past. efine opportunity cost as the highest
valued alternative that must be given up because another option is chosen.

>. (hat might you have to give up to reach each of your savings goals/ (hen
you decide to save, do you consider what you have to give up?your
opportunity cost/ @emind students that when they decide to save, they value
saving ;or what they are saving for< more than what they are giving up. !f they
don7t value saving more, they will decide not to save.


ACTI!ITY
5. 6ave students make a budget and decide how much they can save on a
regular basis.
2. !nstruct students to fold a sheet of paper ;55A by 5=A< in thirds and label one
section short-term goals, another medium-term goals, and another long-term
goals. $sing the list they had made of the things they want to have in the future,
have them write these items under the heading that reflects the amount of time
they will need to save in order to acquire them.
9. @eview with students the value of setting saving goals and the difference
between short-term and long-term goals.
=. 6ave them design their personal strategy for meeting their short-term goals
while, at the same time, planning for medium-term and long term goals. ,aving
decision require trade-offs between short-term and longer-term goals. Trade-offs
involve giving up some of one thing to get some of another thing.
6ave students take the ,avings and !nvestment BuiC on the Internet or ;Print
)ui* in Ado+e<. 'rint the Answers to t'e avin%s and Investment )ui* in
%dobe.
6and out 1rochure.
OT"ER RELATED UI##ES
,ave your class ta(e t'e Allowance and pendin% Plan )ui* on t'e
Internet or Print )ui* in Ado+e.
Print t'e Answers to t'e Allowance and pendin% Plan )ui* in Ado+e.
,ave your class ta(e t'e Money -esponsi+ility )ui* on t'e Internet or
Print )ui* in Ado+e.
Print t'e Answers to t'e Money -esponsi+ility )ui* in Ado+e.
,ave your class ta(e t'e $ud%et )ui* on t'e Internet or Print )ui* in
Ado+e.
Print t'e Answers to t'e $ud%et )ui* in Ado+e
SOURCES OF ADDITIONAL INFORMATION
Artic$es
Accounts That Give Piggy Banks a Run For The Money, by ebra
Dussbaum.The Dew +ork Times, p. 4E, ;Fune 9G, 5HHI<.
Students Tackle a Subject With Interest learning the !unda"entals o!
investing can be a #ro!itable lesson, by Martha M. Hamilton. The
Washington Post, p.WH9, (March 4, 1997).
%oo&s'P()*+$ets
$oo(s written on the stock market.
$i#linger%s Money S"art $ids &and #arents' too(), 1odnar, Fanet, Dational
1ook Detwork. Telephone: ;JGG<8>9-I=EI. K58.H>.
*ou and Money' Invest"ent $it !or Fourth to Si+th Graders %vailable free
from: 4idelity !nvestments, ;JGG< >==-IIII
,eb Sites
ee our .e+ ite on !eac'in% $asic Economics to 'elp Parents teac' t'eir
c'ildren +asic economics.
Additional teac'in% information/ !'e Copernicus Education Gateway
!eac'ers Guide !'e Art of $ud%etin%0 Money -esponsi+ility0 avin% and
Investin%0 $an(in% services0 and Allowance and pendin% Plan.
CCCs for 1ids (ord games to teach children about the benefits of saving their
money
avin%
Investin% for 1ids
2oun% Investors #etwor(
1idtoc(
"0)Dnections ;%dobe<:
.'y .e ave ;Lrades M-8<
My Money ;Lrades =, >, N I<
Life of a Dollar $ill ;Lrades =-J<
-oad to -oota ;Lrades 8-E<
M 3 M Interestin% ;Lrades I-J<
Once "pon a Dime ;Lrades I-H<
$an(in% $asics ;Lrades E-58<

(hen it comes to savings, interest is what
itOs all about. !nterest is what a borrower
pays a lender for the use of the lenderOs
money.
(hen you deposit money in a savings
account, a money market account, an
interest-bearing checking account or a
certificate of deposit ;0<, youOre lending
that financial institution your money. The
institution uses that money to make loans
essentially, borrowing money from you
and paying you interest for the right to use
your money to lend to someone else.
)f course, the institution then charges that
loan customer an even higher interest rate
to more than recover the interest itOs
paying you. !nterest is calculated as a
percentage of the amount of the loan.
!nterest can get complicated, especially
when the terms .rate. and .yield. are
involved.
+ou may see a K5G,GGG 0 with a >-
percent annual interest rate ;%'@<, but
right ne#t to it is the annual percentage
yield ;%'+< number and itOs higher.
!'e difference +etween rate and yield
is determined +y 'ow fre4uently
interest is paid0 and 'ow it is paid.
@ate is the nominal, or stated, interest
rate on the investment. !f you have a 0
with a >-percent nominal rate, then
interest is calculated by multiplying >
percent by the amount invested and by
the fraction of a year the money is
invested.
LetOs say interest pays annually. % K5G,GGG
investment will earn K>GG in interest.
;K5G,GGG # > percent # 5 year.< (hen an
investment pays interest annually, its rate
and its yield are the same.
The more frequently interest is paid, the
higher the yield. ThatOs because the
interest payment is credited to the 0 and
it starts earning interest along with the
invested principal.
!f the > percent 0 paid interest semi-
annually, the si#-month interest payment
would be K8>G, ;K5G,GGG # > percent # .>
years.<
The K8>G payment starts earning interest
and earns KI.8> in interest during the ne#t
si# months, ;K8>G # > percent # .> years.<
ThatOs what compounding interest is all
about.
The first 0 earned K>GG in interest after
a year and the second 0 earned
K>GI.8> in interest. The rate and yield on
the first 0 is > percent. The rate on the
second 0 is > percent, but its yield
;%'+< is >.GI percent. !f interest was paid
daily, the rate would be > percent but the
yield ;%'+< would be >.59 percent.
These yield computations assume that the
interest is reinvested in the 0 at the 0Os
nominal rate.
Always s'op for t'e +est Annual
Percenta%e 2ield.
"o- Interest R(tes
(re Deter)ine.
!nterest rates are affected by a number of
factors. The 4ederal @eserve, which is
charged with maintaining the stability of
the nationOs financial system, raises or
lowers short-term interest rates in an effort
to maintain that stability.
The 4ed regularly takes these actions in
response to economic e#pansions and
contractions that the country goes through
on a fairly routine basis. ,hort-term rates
are raised in e#pansions good times
to keep the economy from building too
fast and risking inflation, which is caused
by too much money chasing too few
goods and services. @aising rates makes
it more e#pensive for companies and
individuals to borrow money.
The 4ed will lower short-term rates when
the economy is contracting slowing
down. Lowering rates makes it less
e#pensive to borrow money, the idea
being that businesses and consumers will
buy more products and services and
speed the economy up a bit and keep the
economy from sinking into a recession.
% recession happens when consumers
hold on to their money and donOt buy the
products and services that keep
companies afloat and employees
employed.
(hen the 4ed cuts short-term rates, it is
cutting the rate that banks charge each
other to borrow money. Those cuts are
eventually passed on to businesses and
consumers. The same thing happens in
reverse when the 4ed raises short-term
rates.
)ther factors affect interest rates, too, but
on a more irregular basis. % crisis
involving the foreign oil-producing nations,
for e#ample, could have a major economic
impact that could affect interest rates.
Long-term interest rates arenOt affected by
economic conditions as much as short-
term rates, but there is a trickle down
factor and they reflect the impact
eventually.
(hat works for you, as a saver, works
against you as a borrower. (hen rates
are high, youOre earning a hefty amount of
interest for your deposits, but youOre going
to pay a high interest rate if you need to
borrow.
.'en rates fall0 you don5t %et muc'
interest on your savin%s0 +ut it5s a lot
c'eaper to +orrow money.
0all our toll-free number or write to the
address on the cover for a copy of any of
the brochures or for further consumer
credit information.
SA!IN/S
%ASICS
Un.erst(n.in0
S(vin0s
DEPA-!ME#! OF FI#A#CIAL I#!I!"!IO#
0onsumer 0redit ivision
9G ,outh -eridian ,treet, ,uite 9GG
!ndianapolis, !ndiana =I8G=
95E-898-9H>>
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