Unit 2: Money Management
Unit 2: Money Management1. Explain how limited personal
financial resources affect the choices people make. 2. Interpret
the opportunity costs of financial decisions. 3. Evaluate the
consequences of personal financial decisions. 4. Apply a
decision-making process to personal financial choices. 5. Summarize
how inflation affects spending and saving decisions. 6. Evaluate
how insurance (e.g., auto, home, life, medical and long-term
health) and other risk-management strategies protect against
financial loss. 7. Design a financial plan (budget) for earning,
spending, saving, and investing. 8. Demonstrate how to use the
services available from financial institutions. 9. Analyze the role
of the Federal Reserve in controlling the money supply.Personal
Financial PlanningFinancial Decisions & GoalsPersonal Financial
Planning: arranging to spend, save, and invest money to live
comfortably, have financial security, and achieve goalsBenefits to
Financial PlanningMore money and financial securityKnowing how to
use money to achieve goalsLess chance of going into debt you cannot
handleSteps in Financial PlanningStep 1: Determine your current
financial situationSavingsMonthly incomeMonthly expensesDebtsSteps
in Financial PlanningStep 2: Develop your financial goalsWhat is
your attitude toward money?What are your personal values?Values:
the beliefs and principles you consider important, correct, and
desirableNeeds vs. WantsNeed: something you must have to survive,
such as food, shelter, and clothingWant: something you desire or
would like to have or doSteps in Financial PlanningStep 3: Identify
your optionsExpand the current situationChange the current
situationStart something newContinue the same course of actionSteps
in Financial PlanningStep 4: Evaluate your alternativesFind
different sources of financial informationFigure out the
consequences of your choicesOpportunity Cost: trade-off, what you
give up when making one choice instead of anotherUnderstand your
risksFinancial RisksInflation Risk-uncertainty over the real future
value of your moneyInterest Rate Risk- risk an investments value
will change due to a change in interest rateIncome Risk- risk of
change in income (cash inflow)Personal Risk- loss of income,
increase in expenses, or elimination of assets due primarily to
death, poor health, old age or unemploymentLiquidity RiskLiquidity:
the ability to easily convert financial assets into cash without
loss in valueSteps in Financial PlanningStep 5: Create and use your
financial plan of actionUtilize the options you have for reaching
your financial goalsSteps in Financial PlanningStep 6: Review and
revise your planYour needs and finances will change as time goes
on, so your financial plan will need to change as wellTypes of
Financial GoalsTime Frame of GoalsShort-term goals: take one year
or less to achieveIntermediate goals: takes one to five years to
achieveLong-term goals: take more than five years to achieve
Types of Financial GoalsGoals for Different NeedsGood: physical
item that is produced and can be weighed or measuredConsumable
good- used up or depleted, replaced oftenDurable good- long
lasting, replaced infrequentlyIntangible items- cant be touched,
but can be measuredService: task that a person or machine performs
for youGuidelines for Setting GoalsGoals should be
SMARTSpecificMeasurableAttainableResults-basedTime-boundSetting
SMART Financial GoalsWhat is missing?Goal: Save money this summer
to pay for all college fees.Goal: Get a job to afford to buy a
motorcycle.Goal: Use money received as birthday gifts to pay own
monthly phone fees.Goal: Go on white water rafting trip.Influences
on Financial PlanningLife situationsGoing to college, getting
married, starting a new career, having children, moving to a new
cityInfluences on Financial PlanningEconomic Factors:Play a role in
the day-to-day financial planning and decision making for most
peopleEconomics: the study of the decisions that go into making,
distributing, and using goods and servicesEconomy: consists of the
ways in which people make, distribute, and use their goods and
servicesInfluences on Financial PlanningEconomic Factors: Market
ForcesSupply: the amount of goods and services available for
saleDemand: the amount of goods and services people are willing to
buyHigh demand or low supply will cause the price of products to
riseLow demand or high supply will cause the price of products to
dropInfluences on Financial PlanningEconomic Factors: Financial
InstitutionsProvide services that increase financial activity in
the economyBanksCredit unionsInsurance companiesInvestment
companiesFederal Reserve System: Fed, central banking organization
of the US that regulates the money supplyInfluences on Financial
PlanningEconomic Factors: Global InfluencesWe are part of a global
marketEconomy of every nation is affected by competition with other
nationsInfluences on Financial PlanningEconomic Factors: Economic
ConditionsConsumer pricesInflation: the rise in the level of prices
for goods and services, mainly caused by an increase in demand
without an increase in supplyConsumer spendingConsumer: person who
purchases and uses goods or servicesInterest ratesInterest: the
price that is paid for the use of anothers moneyOpportunity Costs
& StrategiesPersonal opportunity costsMust make choices about
how to manage your personal resourcesHealth, knowledge, skills, and
timeFinancial opportunity costsMust make choices about how you
spend moneyTime value of money: the increase of an amount of money
due to earned interest or dividends
Time Value of Money: TerminologyFuture value: the amount your
original deposit will be worth in the future based on earning a
specific interest rate over a specific period of timeAnnuity:
series of equal regular deposits; like depositing $50 each month
into your savingsTime Value of Money: TerminologyPresent Value:
amount of money you would need to deposit NOW in order to have a
desired amount of money in the futureAnnual Interest Rate: Interest
rate you are earning on your deposited fundsCalculating Simple
InterestNeed to know:Principal: original amount of money on
depositAnnual Interest RateLength of Time
Principal x Rate x Time = Interest EarnedStrategies for
Achieving Your Financial GoalsObtain financial resourcesPlanSpend
wiselySaveBorrow wiselyInvestManage riskPlan for retirementMoney
Management Strategy27Organizing Financial RecordsOpportunity Costs
and Money ManagementMoney Management: planning how to get the most
from your moneyIn order to manage your money well, you may have to
consider financial trade-offs (or opportunity costs)Consider the
factors that influence your decisions before you chose an
option28Organizing Financial RecordsPersonal Financial Documents: a
variety of materials, such as bank statements and paycheck stubsMay
also include receipts, ownership titles, birth certificates, and
tax formsTell you how much money you have and/or spend29Organizing
Financial DocumentsFirst step in effective money management is
organizing your informationBank statements, paycheck stubs,
receipts, car title, tax formsBenefits of organizing financial
documents:Quickly find needed documentsPlan and measure financial
progressHandle routine money matters (ex. paying bills on
time)Storing Financial DocumentsHome FileSimple, takes limited
spaceBank account statements, receipts, employment information, tax
records, insurance records, investment recordsSafe-Deposit
BoxesSmall, secure storage box rented at a bankCar title, birth
certificates, stock certificates, valuable documents not easily
replacedHome ComputerBudgets, check summary, personal financial
statementsPersonal Financial StatementsPersonal Financial
Statements: document that provides information about an individuals
current financial position and presents a summary of income and
spendingHelps determine what you own and oweMeasures your progress
towards goalsTrack financial activitiesOrganize financial
information32Personal Financial StatementsPersonal Balance Sheet:
(net worth statement) a financial statement that lists items of
value owned, debts owed, and a persons net worth
Net Worth: the difference between the amount you own and the
debts you owe; measure of your current financial position33Personal
Financial StatementsTo create a BALANCE SHEET:Step 1: Determine
Your AssetsAssets: any items of value that an individual or company
owns, including cash, property, personal possessions, and
investmentsWealth: the abundance of valuable material possessions
or resourcesAsset Categories: liquid assets, real estate, personal
possessions, and investments34Personal Financial StatementsAsset
Categories:Liquid Assets: cash and items that can be quickly
converted to cashReal Estate: land and any structures that are on
it, such as a house or any other building that a person or family
ownsValued at the Market Value: the price at which it would
sellPersonal Possessions: cars and any other valuable belongings
that are not real estateShould be listed at current market
valueInvestment Assets: include retirement accounts and securities
such as stocks and bonds
35Personal Financial StatementsTo create a BALANCE SHEET:Step 2:
Determine Your LiabilitiesLiabilities: debts that you oweCurrent
Liabilities: short-term debts that have to be paid within one year
(medical bills, cash loans, taxes)Long-Term Liabilities: debts that
do not have to be fully repaid for at least one year (car loans,
student loans, and mortgage loans)36Personal Financial StatementsTo
create a BALANCE SHEET:Step 3: Calculate Your Net WorthSubtract
your Liabilities from your AssetsNET WORTH = ASSETS LIABILITIES
Insolvency: a financial state that occurs if liabilities are
greater than assets; unable to pay all of your debts37Personal
Financial StatementsTo create a BALANCE SHEET:Step 4: Evaluate Your
Financial StatementsIs your net worth increasing?Is it
decreasing?Are you holding steady?Maybe you need to re-evaluate and
update your budget!38Personal Financial StatementsCash Flow
Statement: Income vs. Expenses; summary of your cash flow during a
particular period (usually a month or a year)Cash Flow: money that
actually goes into and out of your walletCash Inflow: money you
receive (INCOME)Cash Outflow: money you spend (EXPENSES)39Personal
Financial StatementsTo create a CASH FLOW STATEMENT:Step 1: Record
your income (cash inflow)List all sources of income during the
month at the exact amountGross pay- total amount of money you have
earned prior to anything being taken outTake-home pay- (net pay)
the amount of income left after taxes and other deductions are
taken out of your gross payDiscretionary income- the money left
over after paying for the essentials40Personal Financial
StatementsTo create a CASH FLOW STATEMENT:Step 2: Record your
expenses (cash outflow)Fixed expenses- more or less the same each
monthVariable expenses- may change from month to month41Personal
Financial StatementsTo create a CASH FLOW STATEMENTStep 3:
Determine your net cash flowNet Cash Flow = Income ExpensesSurplus-
extra money that can be spent or savedDeficit- more money is spent
than received
Every time your cash flow changes, so does your net worth
(balance sheet)42Personal Financial StatementsEvaluating your
financial progressDebt Ratio = Liabilities / Net WorthCompares how
much you owe to your total financial position; should be
lowLiquidity Ratio = Liquid Assets / Monthly Exp.Number of months
you would be able to pay your living expenses in case of
emergency
43Personal Financial StatementsEvaluating your financial
progressDebt-Payment Ratio = Monthly Credit Payment / Take-home
PayHow much you make that goes to pay debts; should be less than
20% each monthSavings Ratio = Amount Saved / Gross IncomeShould be
no less than 10% each monthHome Payment Ratio = House Payment/Gross
IncomeShould be less than 28%-30%
44Budgeting for Financial GoalsBudget- a plan for using money to
meet wants and needsUsing a budget, you learn to live within your
income and avoid costly debt45Budgeting for Financial
GoalsBudgeting Step 1: Set your financial goalsWhat do you want to
accomplish with your money?46Budgeting for Financial GoalsBudgeting
Step 2: Estimate your incomeInclude all income you know you may
receive for the next monthIf you are unsure about a source of
income or the amount, do not include it47Budgeting for Financial
GoalsBudgeting Step 3: Budget for Fixed ExpensesList all monthly
expenses that do not change from month to monthMortgage, automobile
payments, student loan payments, insurance premiums
PAY YOURSELF FIRST! (i.e. emergency fund or
retirement)48Budgeting for Financial GoalsBudgeting Step 4: Budget
for Variable ExpensesList all monthly expenses that change from
month to monthUtilities based on usage, food, clothingMake your
best guess as to the cost for the monthLook at previous month or
ask friends and familyConsumer Price Index- measure of changes for
commonly purchased goods and servicesIf guessing, guess
high!49Budgeting for Financial GoalsBudgeting Step 5: Budget for
Unexpected ExpensesPut aside a little money each month to pay for
unexpected itemsSet up an Emergency Fund3 to 6 months of living
expenses
This should be a fixed expense!!!50Budgeting for Financial
GoalsBudgeting Step 6: Record What You Actually SpendKeep track of
your actual income and expensesCalculate the budget varianceBudget
Variance- the difference between the budgeted amounts and what you
actually spentSurplus- you spent less money than expectedDeficit-
you spent more money than expected51Budgeting for Financial
GoalsBudgeting Step 7: Review Spending and Saving PatternsReview
financial progressAre you paying your bills on time?Do you have a
surplus or a deficit?Revise goals and adjust your budgetDo you need
to cut your expenses?Should you put more into savings?52Budgeting
for Financial GoalsHow to Budget SuccessfullyCarefully plan your
budgetCreate a practical budgetBe flexibleWrite it down and be able
to access it easilyBudgeting for Financial GoalsHow to Increase
Your SavingsPay yourself firstUse payroll deductions to
automatically place money into savings or retirement accountsSpend
LessBanking OverviewFinancial Services and InstitutionsHow to
manage your cashDaily Cash NeedsCashCredit cardATMSources of quick
cashSavingsBorrow the money
Types of Financial ServicesThree main categories:SavingsPayment
servicesBorrowingTypes of Financial ServicesSavingsTime deposit
money that is to be left for months or yearsSavings
accountCertificate of deposit (CD)Payment ServicesDemand Deposit
the money can be withdrawn at any time or on demandChecking
AccountBorrowing OptionsCredit cardsPersonal cash loansMortgageAuto
loan
Electronic Banking ServicesDirect deposit an automatic deposit
of net pay to an employees designated bank accountEmployee receives
a printed statement listing deductions, etc.Automatic Payments with
an authorization, your bank will withdraw a monthly payment from an
account on a specific dateAutomated Teller Machines (ATMs) a
computer terminal that allows withdrawal of cash from an account or
deposits made to that accountATM fees charge for the convenience of
the ATM service Avoid foreign ATMs they have additional fees
Electronic Banking ServicesDebit Card a cash card that allows
you to withdraw money or make purchases using the money in that
accountYou can spend ONLY the money in your accountLost Debit Cards
notify bank immediately -within two days usually to avoid financial
responsibility
Personal Identification Number (PIN) to be used with debit or
ATM cardNever keep your PIN with your debit cardElectronic Banking
ServicesPlastic PaymentsPoint of sale transactions a purchase by a
debit card for good or serviceMust use PIN with cardStored Value
cards prepaid cards that you can use at a specific store or for a
specific service. They are reloadable or rechargeable.
Opportunity Costs of Financial ServicesConsider all aspects when
choosing financial services including convenience and
liquidityConsider the value of your timeReevaluate your choices
occasionallyTypes of Financial InstitutionsCommercial Banks
for-profit institution that offers a full range of services:
checking, savings, and lending
Savings & Loan Associations traditionally specialized in
savings accounts and mortgages; now offers services like commercial
banks
Credit Union a nonprofit financial institutions that is owned by
its members and organized for their benefit. It offers a full range
of services. Members often have a common bond.Fees and loans rates
may be lower than commercial banks
Types of Financial InstitutionsLife Insurance Companies
investment featuresInvestment Companies purchase stocks, bond and
other securitiesFinance Companies higher-interest rate loans when
you cannot borrow elsewhere
FDIC (Federal Deposit Insurance Corporation) protects deposits
in banks that are federally chartered up to $250,000 per
account.Types of InsuranceTake Charge of Your Finances Advanced
Level
Family Economics & Financial Education Updated May 2012
Types of Insurance Slide #Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of
Arizona1.10.1.G1What is Insurance?Insurance is an arrangement
between an individual (consumer) and an insurer (insurance company)
to protect the individual against risk Family Economics &
Financial Education Updated May 2012 - Types of Insurance Slide
#Funded by a grant from Take Charge America, Inc. to the Norton
School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona Family Economics &
Financial Education Updated May 2012 Types of Insurance Slide
#Funded by a grant from Take Charge America, Inc. to the Norton
School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona1.10.1.G1Why is It important
to have insurance?Risk - chance of loss from an event that cannot
be entirely controlledEmergency savings - at least six months of
expenses set aside to cover costs of unexpected eventsInsurance
transfers (shifts) risk from an individual to an insurance
organizationis managed byWhat are examples of unexpected events
that may result in a financial loss?
Family Economics & Financial Education Updated May 2012 -
Types of Insurance Slide #Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona Family
Economics & Financial Education Updated May 2012 Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona1.10.1.G1What is an
Insurance Policy?A policy is a contract between the individual and
the insurer specifying the terms of the insurance arrangements A
premium is a fee paid to the insurer to be covered under specified
terms outlined in the policy A deductible is the amount paid out of
pocket by the policyholder for the initial portion of a loss before
the insurance coverage begins- the deductible is stated in the
policyA policyholder is a consumer who purchases the policy
Coverage - The risks covered and amount of money paid for losses
under an insurance policyExperts say that buying insurance is
buying financial security. Do you think this is true? Why or why
not?
Family Economics & Financial Education Updated May 2012 -
Types of Insurance Slide #Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona Family
Economics & Financial Education Updated May 2012 Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona1.10.1.G1An
Illustration of How Insurance WorksInsurance shifts the risk of big
loss from the individual to the insurance company
With a 1% chance that any one of them could get sick and require
$10,000 in medical careBut, no one knows who will get sickIf each
person pays $100 into a pool they will collectively have $10,000 to
cover the medical costs of the person who gets sickSo, everyone
gives up $100, but nobody loses more than $10099 people do not
collect anything, but they gain peace of mind and important
protection against a large loss Family Economics & Financial
Education Updated May 2012 - Types of Insurance Slide #Funded by a
grant from Take Charge America, Inc. to the Norton School of Family
and Consumer Sciences Take Charge America Institute at the
University of Arizona Family Economics & Financial Education
Updated May 2012 Types of Insurance Slide #Funded by a grant from
Take Charge America, Inc. to the Norton School of Family and
Consumer Sciences Take Charge America Institute at the University
of Arizona1.10.1.G1Why is it important to have insurance? Family
Economics & Financial Education Updated May 2012 - Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona Family Economics
& Financial Education Updated May 2012 Types of Insurance Slide
#Funded by a grant from Take Charge America, Inc. to the Norton
School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona1.10.1.G1The benefits of
InsurancePayments received from an insurance policy can far exceed
the premiums paid
Provides financial security and peace of mind
Why is the best outcome to have insurance but never collect on
it?
AutomobileHealthLifeDisabilityHomeowners/Renters
Family Economics & Financial Education Updated May 2012 -
Types of Insurance Slide #Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona Family
Economics & Financial Education Updated May 2012 Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona1.10.1.G1The
Insurance ProcessClaim - paperwork submitted to insurance
organization describing the accident, illness or injuryDeductible -
amount of money paid out of pocket by policyholder before the
insurance coverage beginsCo-insurance - amount of money, after
deductible, that is paid jointly by the insured and the insurance
company
Event occurs resulting in lossPolicyholder makes claim to
insurance organizationInsurance organization determines if event is
covered by policyIf so, policyholder pays a deductibleRemaining
amount owed is paid by co-insurance (if applicable) Family
Economics & Financial Education Updated May 2012 - Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona Family Economics
& Financial Education Updated May 2012 Types of Insurance Slide
#Funded by a grant from Take Charge America, Inc. to the Norton
School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona1.10.1.G1Why do insurance
policies include deductibles and co-insurance?Dollars paid from an
insurance policy are not intended to make a person better off than
before the loss happened Family Economics & Financial Education
Updated May 2012 - Types of Insurance Slide #Funded by a grant from
Take Charge America, Inc. to the Norton School of Family and
Consumer Sciences Take Charge America Institute at the University
of Arizona Family Economics & Financial Education Updated May
2012 Types of Insurance Slide #Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of
Arizona1.10.1.G1Not covered by insurance...Negligence- failure to
take ordinary or reasonable care to prevent accidents
Sooo...A deductible is the amount of risk the policyholder
assumesandRisk Avoidance means it is the consumers responsibility
to try to avoid unnecessary risk Family Economics & Financial
Education Updated May 2012 - Types of Insurance Slide #Funded by a
grant from Take Charge America, Inc. to the Norton School of Family
and Consumer Sciences Take Charge America Institute at the
University of Arizona Family Economics & Financial Education
Updated May 2012 Types of Insurance Slide #Funded by a grant from
Take Charge America, Inc. to the Norton School of Family and
Consumer Sciences Take Charge America Institute at the University
of Arizona1.10.1.G1Property & Liability InsuranceProperty
insurance - payment to insured person if his/her property is
damaged or destroyed by an accidentLiability insurance - payment to
others if a member of the insured household accidently causes harm
to other people or propertyPays for loss to insured personPays for
injury or loss to othersProvided by individuals Family Economics
& Financial Education Updated May 2012 - Types of Insurance
Slide #Funded by a grant from Take Charge America, Inc. to the
Norton School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona Family Economics &
Financial Education Updated May 2012 Types of Insurance Slide
#Funded by a grant from Take Charge America, Inc. to the Norton
School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona1.10.1.G1Types of Property
& liability Insurance
Automobile insurance - payment for liability and property
insurance on a vehicleHomeowners insurance - payment to cover
liability losses and damage/loss of home and its contentsRenters
insurance - payment for damage/loss of property in a rental unit in
addition to liability lossesIf a person drives an automobile,
automobile liability insurance is required by law Family Economics
& Financial Education Updated May 2012 - Types of Insurance
Slide #Funded by a grant from Take Charge America, Inc. to the
Norton School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona Family Economics &
Financial Education Updated May 2012 Types of Insurance Slide
#Funded by a grant from Take Charge America, Inc. to the Norton
School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona1.10.1.G1Homeowners
InsurancePeril -an event which may cause a financial loss like
fire, falling trees, lightning and othersProperty Insurance
-protects the insured from financial losses due to destruction or
damage to property or possessionsLiability Insurance- protects the
insured party from being held liable for others financial losses
Family Economics & Financial Education Updated May 2012 - Types
of Insurance Slide #Funded by a grant from Take Charge America,
Inc. to the Norton School of Family and Consumer Sciences Take
Charge America Institute at the University of Arizona Family
Economics & Financial Education Updated May 2012 Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona1.10.1.G1Homeowners
insurance coversThe home or buildingAdditional living
expensesPersonal property (contents of home-make home
inventory)Personal liabilitySpecialized
coverage-floods/earthquakes/identity theftFloaters Family Economics
& Financial Education Updated May 2012 - Types of Insurance
Slide #Funded by a grant from Take Charge America, Inc. to the
Norton School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona Family Economics &
Financial Education Updated May 2012 Types of Insurance Slide
#Funded by a grant from Take Charge America, Inc. to the Norton
School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona1.10.1.G1Renters Insurance
Family Economics & Financial Education Updated May 2012 - Types
of Insurance Slide #Funded by a grant from Take Charge America,
Inc. to the Norton School of Family and Consumer Sciences Take
Charge America Institute at the University of Arizona Family
Economics & Financial Education Updated May 2012 Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona1.10.1.G1Insured
valuesActual Cash Value- replacement cost minus depreciation
Replacement Value- full cost for replacing the itemsMore
expensive premiumsRequired by finance company holding your mortgage
Family Economics & Financial Education Updated May 2012 - Types
of Insurance Slide #Funded by a grant from Take Charge America,
Inc. to the Norton School of Family and Consumer Sciences Take
Charge America Institute at the University of Arizona Family
Economics & Financial Education Updated May 2012 Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona1.10.1.G1Homeowners
insurance cost factorsLocation-fire hydrant, crime rates,
geographic locationType of Structure-brick or woodOthers-price,
coverage amount, deductibleDiscounts-smoke alarms, security
systems, types of locks Family Economics & Financial Education
Updated May 2012 - Types of Insurance Slide #Funded by a grant from
Take Charge America, Inc. to the Norton School of Family and
Consumer Sciences Take Charge America Institute at the University
of Arizona Family Economics & Financial Education Updated May
2012 Types of Insurance Slide #Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of
Arizona1.10.1.G1Automobile Insurance Liability insurance Medical
payment insurance Uninsured or underinsured motorists insurance
Physical damage insuranceCollisionComprehensive
Family Economics & Financial Education Updated May 2012 -
Types of Insurance Slide #Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona Family
Economics & Financial Education Updated May 2012 Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona1.10.1.G1Types of
Auto InsuranceIt is the minimum amount of insurance required BY LAW
for automobiles Medical Payment Insurance covers injuries sustained
by the driver of the insured vehicle or any passenger regardless of
fault It also covers family members injured as passengers in any
car, pedestrians, or bicyclists Family Economics & Financial
Education Updated May 2012 - Types of Insurance Slide #Funded by a
grant from Take Charge America, Inc. to the Norton School of Family
and Consumer Sciences Take Charge America Institute at the
University of Arizona Family Economics & Financial Education
Updated May 2012 Types of Insurance Slide #Funded by a grant from
Take Charge America, Inc. to the Norton School of Family and
Consumer Sciences Take Charge America Institute at the University
of Arizona1.10.1.G1Bodily injuryExpressed by 3 Numbers:
100/300/50First number-maximum amount paid for injury to one
personSecond number-maximum amount the company will pay for all
injured parties in one accidentThird number-the limit for payment
for damage to the property of others Family Economics &
Financial Education Updated May 2012 - Types of Insurance Slide
#Funded by a grant from Take Charge America, Inc. to the Norton
School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona Family Economics &
Financial Education Updated May 2012 Types of Insurance Slide
#Funded by a grant from Take Charge America, Inc. to the Norton
School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona1.10.1.G1Types of Auto
InsuranceUninsured or Underinsured Motorists Insurance covers
injury or damage to the driver, passengers, or the vehicle caused
by a driver with insufficient insurancePhysical Damage Insurance
covers damages caused to the vehicle (required by finance company
if you have a loan)Collision covers a collision with another
object, car, or from a rollover Comprehensive covers all physical
damage losses except collision and other specified losses
Why would an individual want automobile insurance coverage
beyond liability (the minimum required by law)? Family Economics
& Financial Education Updated May 2012 - Types of Insurance
Slide #Funded by a grant from Take Charge America, Inc. to the
Norton School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona Family Economics &
Financial Education Updated May 2012 Types of Insurance Slide
#Funded by a grant from Take Charge America, Inc. to the Norton
School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona1.10.1.G1Car insurance cost
factorsVehicle Type- year, make, makes and models of frequently
stolen carsRating Territory- accident rate, population, theft
rateDriver Classification- age, gender, marital status, driving
record, driving habits Family Economics & Financial Education
Updated May 2012 - Types of Insurance Slide #Funded by a grant from
Take Charge America, Inc. to the Norton School of Family and
Consumer Sciences Take Charge America Institute at the University
of Arizona Family Economics & Financial Education Updated May
2012 Types of Insurance Slide #Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of
Arizona1.10.1.G1Health Insurance Health insurance provides
protection against financial losses resulting from injury, illness,
and disabilityMay cover hospital, surgical, dental, vision,
long-term care, prescription, or other major expenditures Specific
coverage depends upon the individual policy
Health care costs are extremely highLarge medical expenses could
deplete an individuals savings
Why would it be important to have health insurance? Family
Economics & Financial Education Updated May 2012 - Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona Family Economics
& Financial Education Updated May 2012 Types of Insurance Slide
#Funded by a grant from Take Charge America, Inc. to the Norton
School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona1.10.1.G1Updated statistic
and source*07/16/96*##May be purchased by the individual or through
their employer Individuals often seek coverage for dependents
(spouses and children)Many health insurance policies offer
dependent coverage but there is no requirement to do so If
dependent coverage is offered, children may stay on their parents
health care plan until age 26 with no stipulationsFederal
government website to learn about health insurance and compare
policies: http://www.healthcare.gov/index.html
Health Insurance Family Economics & Financial Education
Updated May 2012 - Types of Insurance Slide #Funded by a grant from
Take Charge America, Inc. to the Norton School of Family and
Consumer Sciences Take Charge America Institute at the University
of Arizona Family Economics & Financial Education Updated May
2012 Types of Insurance Slide #Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of
Arizona1.10.1.G1Health InsuranceProvided byAnd/orDoctors
visitsRisks CoveredMedical proceduresMental health
treatmentPreventative careHospital billsPrescription drugsVision
careDental careHealth insurance - provides money to pay for health
careEmployerIndividualIf dollars are limited, health insurance is
extremely important to protect against high medical billsGovernment
Family Economics & Financial Education Updated May 2012 - Types
of Insurance Slide #Funded by a grant from Take Charge America,
Inc. to the Norton School of Family and Consumer Sciences Take
Charge America Institute at the University of Arizona Family
Economics & Financial Education Updated May 2012 Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona1.10.1.G1Health
insurance costsCo-insurance: percentage of the medical expenses the
insured must pay in addition to deductibleCo-payment: flat fee that
insured pays every time they receive a covered service Family
Economics & Financial Education Updated May 2012 - Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona Family Economics
& Financial Education Updated May 2012 Types of Insurance Slide
#Funded by a grant from Take Charge America, Inc. to the Norton
School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona1.10.1.G1Which Insurance
policy would you choose?Janet wants to make sure she has the best
health insurance policy. She shopped around and received multiple
quotes. What are the pros and cons of each policy?Current PolicyNew
PolicyPremium amount/monthDeductible amountCo-insurance amount20%
owed by policyholder80% owed by insurance organization0% owed by
policyholder100% owed by insurance organization$300$200$200$2000
Family Economics & Financial Education Updated May 2012 - Types
of Insurance Slide #Funded by a grant from Take Charge America,
Inc. to the Norton School of Family and Consumer Sciences Take
Charge America Institute at the University of Arizona Family
Economics & Financial Education Updated May 2012 Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona1.10.1.G1What if a
Person Cannot Work or live Independently?Why are both disability
and long-term care insurance important?
Payment to replace earnings during times when workers cannot
work due to illness or injuryPayment for extended care when a
person cannot live independently (but doesnt need to be
hospitalized)Provided by employers, individuals, and/or
governmentProvided by individuals Family Economics & Financial
Education Updated May 2012 - Types of Insurance Slide #Funded by a
grant from Take Charge America, Inc. to the Norton School of Family
and Consumer Sciences Take Charge America Institute at the
University of Arizona Family Economics & Financial Education
Updated May 2012 Types of Insurance Slide #Funded by a grant from
Take Charge America, Inc. to the Norton School of Family and
Consumer Sciences Take Charge America Institute at the University
of Arizona1.10.1.G1Disability InsuranceDisability Insurance
replaces a portion of ones income if they become unable to work due
to illness or injury Insurance typically pays between 60-70% of
ones full-time wageFactors such as the length or severity of a
disability influence the percentage of income a person will receive
Family Economics & Financial Education Updated May 2012 - Types
of Insurance Slide #Funded by a grant from Take Charge America,
Inc. to the Norton School of Family and Consumer Sciences Take
Charge America Institute at the University of Arizona Family
Economics & Financial Education Updated May 2012 Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona1.10.1.G1Life
Insurance Provides money for family members or dependents when a
wage earner dies A dependent is a person who relies on someone else
financially Family Economics & Financial Education Updated May
2012 - Types of Insurance Slide #Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona Family
Economics & Financial Education Updated May 2012 Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona1.10.1.G1Life
InsuranceMay cover paid and unpaid work formerly done by the
individualHousehold production- unpaid work, such as child care or
meal preparationLife insurance- payment to beneficiaries if an
insured person diesBeneficiary- someone who receives insurance
money if the insured person diesDependent - someone who relies on
someone else for money income and careWhen would it be necessary to
purchase life insurance?
Provided by employers and/or individuals Family Economics &
Financial Education Updated May 2012 - Types of Insurance Slide
#Funded by a grant from Take Charge America, Inc. to the Norton
School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona Family Economics &
Financial Education Updated May 2012 Types of Insurance Slide
#Funded by a grant from Take Charge America, Inc. to the Norton
School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona1.10.1.G1Other types of
insuranceCredit Life Insurance: to pay debts when someone
diesIdentity Theft Insurance: to pay expenses incurred from ID
theft Family Economics & Financial Education Updated May 2012 -
Types of Insurance Slide #Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona Family
Economics & Financial Education Updated May 2012 Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona1.10.1.G1Sources of
InsuranceIn most cases, individuals acquire insurance from a
combination of sourcesIf an employer does not provide insurance, it
may be acquired individuallyHealth, disability, and occasionally
life insuranceSpecial programs for those who qualify and during
catastrophes
IndividualEmployerGovernment Family Economics & Financial
Education Updated May 2012 - Types of Insurance Slide #Funded by a
grant from Take Charge America, Inc. to the Norton School of Family
and Consumer Sciences Take Charge America Institute at the
University of Arizona Family Economics & Financial Education
Updated May 2012 Types of Insurance Slide #Funded by a grant from
Take Charge America, Inc. to the Norton School of Family and
Consumer Sciences Take Charge America Institute at the University
of Arizona1.10.1.G1Employer Provided InsurancePolicies may be
available to the employees family members (usually for additional
fees)No income taxes are paid on the in-kind incomeEmployee
benefits - products or services that add extra value for employees
beyond wagesEmployerEmployeeIn-kind income the provision of a
product or service rather than cashPayroll deduction Family
Economics & Financial Education Updated May 2012 - Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona Family Economics
& Financial Education Updated May 2012 Types of Insurance Slide
#Funded by a grant from Take Charge America, Inc. to the Norton
School of Family and Consumer Sciences Take Charge America
Institute at the University of Arizona1.10.1.G1Government
ProgramsProvide basic insurance as a part of the social safety net
to protect citizens from economic hardshipSocial Security,
Medicare, MedicaidMany programs require a work history and employer
provided participation to be eligibleUnemployment insurance,
workers compensationCan address specific catastrophesHurricane
Katrina Family Economics & Financial Education Updated May 2012
Types of Insurance Slide #Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of Arizona Family
Economics & Financial Education Updated May 2012 Types of
Insurance Slide #Funded by a grant from Take Charge America, Inc.
to the Norton School of Family and Consumer Sciences Take Charge
America Institute at the University of Arizona1.10.1.G1In
reviewInsurance is an important part of a financial planInsurance
is not intended to make an individual better off than before the
eventInsurance may be acquired from multiple sourcesEven with
insurance, an individual should still have funds to pay the
deductible and co-insuranceThere are several types of insurance for
specific purposes Family Economics & Financial Education
Updated May 2012 - Types of Insurance Slide #Funded by a grant from
Take Charge America, Inc. to the Norton School of Family and
Consumer Sciences Take Charge America Institute at the University
of Arizona Family Economics & Financial Education Updated May
2012 Types of Insurance Slide #Funded by a grant from Take Charge
America, Inc. to the Norton School of Family and Consumer Sciences
Take Charge America Institute at the University of
Arizona1.10.1.G1