Methods for Teaching Financial Literacy with Economic Reasoning CCEE Summer 2012 Program Millionaire...

Methods for Teaching Financial Literacy

with Economic Reasoning

CCEE Summer 2012 Program

Millionaire Game

Colorado PFL and Economics Standards

July 9 – 13, 2012

John Brock, Professor of Record

Colorado Council for Economic Education

Faculty

• John Brock• Director, Center for Economic Education

– University of Colorado, Colorado Springs

» [email protected]

• Master Teachers– Social Studies: Pam Patrick, Social Studies,

Cherokee Trail HS– Mathematics: Ann Brock, retired Math

teacher, Lewis-Palmer HS

mailto:[email protected]

Let’s Get Started!

What Is Wealth?

Wealth = (What you own)

“Assets” “Liabilities”

minus (What you owe)

What’s a Millionaire?

• Household with a net worth (or wealth) of:

• $1,000,000 (or more)*

• Let’s play a game . . .

*Definition of millionaire often excludes primary residence.

The Millionaire Game*• Divide into two-person teams• Rules:

– Statements appear on screen.

– Each team decides

True or False.

– Circle chosen answer on sheet provided.• True or False

* Shortened version of FFFL, 2nd ed., Lesson 1

Millionaire Statements

• Statement 1:– Most millionaires

are college graduates.

• Statement 2:– Most millionaires

work fewer than 40 hours per week.

• Statement 3:– Most of America’s

millionaires are first-generation rich.

• Statement 4:– The average total

household annual income of today’s millionaires is about $120,000.

• Statement 5:– Nearly 50% of

millionaires drive current-year cars.

• Statement 6:– Many poor people

become millionaires by winning the lottery.

• Statement 7:– College graduates

earn about 60% more than high school graduates earn.

• Statement 8:– Millionaires tend to

avoid the stock market.


• Statement 10:– American families of

English ancestry are more likely to be millionaires today than households of other ethnic origins.

• Statement 9:– At age 18, you decide

not to purchase soft drinks from the vending machine and save $1.50 a day.

– You invest this $1.50 a day at 8% annual interest until you are 67.

– At age 67, your savings are almost $150,000.


How Did We Do?• For each statement, hold up the card

–T for true

–F for false

• According to answer sheet:– correct answer = + 5– incorrect answer = - 5

• Each team has 1 Millionaire card– correct (+10); incorrect (-10)

July 2012

CCEE Millionaire Champion

Sources: Millionaire Next Door, Millionaire Mind,

& Getting Rich in America

Statement 1

• Most millionaires are college graduates.

• 80% of millionaires are college graduates.

• 18% have Master’s degrees• 8% have law degrees• 6% medical degrees• 6% Ph.D.s

• True

Diploma

University of Colorado Colorado Springs

Education

Statement 2

• Most millionaires work fewer than 40 hours per week.

• About 67% of millionaires work 45 to 55 hours a week.

• False

Earn

Statement 3

• Most of America’s millionaires are first-generation rich.

• Only 19% received any wealth of any kind from a trust fund or estate.

• Fewer than 10% inherited 10% or more of their wealth.

• True

Earn

Statement 4

• The average total household income of today’s millionaires is about $120,000.

• Total income reported among millionaire households averaged $119,000 (2005). – Frugal, Frugal, Frugal

• True

Save

Statement 5• Nearly 50% of

millionaires drive current-year cars.

• Most millionaires spend under $30,000 for a car.– Only 23% drive a current-

year [new model] car.

• False

Save

Statement 6

• Many poor people become millionaires by winning the lottery.

• Few people get rich the easy way!

• Chance of winning about one in 12 million.

• Average person who plays every day have to live about 33,000 years to win once.

• In contrast, you have a one in 1.9 million chance of being struck by lightning.

• A pregnant woman has one chance in 705,000 births to have quadruplets.

– How many sets of quadruplets do you know?

• FalseSave & Invest

Statement 7• College graduates earn

about 60% more than high school graduates earn.

• In recent years the average college graduate earned 63% more than the average high school graduate did.

• True

Education

Statement 8

• Millionaires tend to avoid the stock market.

– Long term, the S&P 500 Stock Index has increased about 10% compound annual rate of return, exceeding the return on any other investment.

• False

Invest

Statement 9• At age 18, you decide not to

purchase vending machine soft drinks &save $1.50 a day.

• You invest this $1.50 a day at 8% annual interest until you are 67.

• At age 67, your savings are almost $150,000.– Because of the power of compound

interest, small savings can make a difference, • almost $300,000 in this case.

• FalseSave

Statement 10• American families of English

ancestry are more likely to be millionaires today than households of other ethnic origins.

• In the mid-to-late 1990s:• Russian

– 22% are millionaires• Scottish

– 21% are millionaires• Hungarian

– 15% are millionaires• English

– 7.7% are millionaires

• False Financial Fitness

The Moral of the Story?

• Learning outcome for our students?

• A formula for financial fitness:

E2 + S + I2 = F2

• Education, Earn, Save, Invest and Insure

• equals Financial Fitness

People who “have it all,” didn’t get there by accident. They had a plan and followed it.

(as reflected in the Millionaire Game)

The Colorado PFL Content Standards

Personal Financial Literacy: Economics

• Content Area: Social Studies (4 standards) – History, Geography, Economics, Civics

– Economics: 7 Grade Level Expectations• 3 “traditional economics,” covering (although not

labeled as such in the standards):– microeconomics – macroeconomics– international

• 4 personal financial literacy (PFL)

Standard 3: EconomicsGrade Level Expectation: High School

4. Design, analyze, and apply a financial plan

based on short- and long-run financial goals

– Selected Evidence Outcomes & 21st Century Skills:• Develop a financial plan including a budget• Describe factors affecting take-home pay• Sources of personal income• Legal and ethical responsibilities regarding taxes• Role of education in building financial security

Education + Earn(+ a bit on Saving)


5. Analyze strategic spending, saving, and investment options to achieve the objectives of diversification, liquidity, income and growth.

– Selected Evidence Outcomes & 21st Century Skills:

• Investments available for diversified portfolio• How economic cycles affect financial decisions• Investments to achieve liquidity, growth, income.• How compound interest manifests in investment and

debt situations.

Invest

Standard 3: Economics

Grade Level Expectation: High School

6. The components of personal credit to manage credit and debt.


• Analyze lending sources, services & financial institutions• Building and maintaining a credit history• Similarities & differences in revolving credit, personal

loans and mortgages

Save (via responsible use of credit)


7. Identify, develop and evaluate risk-management strategies.


• Differentiate between types of insurance• Explain function and purpose of insurance• Select and evaluate strategies to mitigate risk• Additional ways individuals can alleviate financial risk

Protect with Insurance


Grade Level Expectation: Eighth Grade

2. Manage personal credit and debt.


• Analyze benefits and costs of credit and debt.• Compare sources of credit.• When is debt useful?

Save (via responsible use of credit)


Grade Level Expectation: Seventh Grade

2. The distribution of resources influences economic production and individual choices.


• Explain the role of taxes.• Define various types of taxes.• Demonstrate the impact of taxes on individual income

and spending.• Factors influence production…supply, demand & price

Earn


Grade Level Expectation: Sixth Grade

2. Saving and investing are key contributors to financial well-being.


• Differentiate between saving and investing.• Explain how saving and investing can improve

financial well-being.• What are risky investments and why would

someone make that type of investment?

Save and Invest

• Content Area: Mathematics (4 standards)– Number Sense, Properties, & Operations– Patterns, Functions & Algebraic Structures– Data Analysis, Statistics, & Probability– Shape, Dimension, and Geometric Relationships

• Grade Level Expectations• Evidence Outcomes (PFL)• 21st Century Skills (PFL)

Personal Financial Literacy: Mathematics

Mathematics Standard 1: Number Sense


2. Formulate, represent, and use algorithms with real numbers flexibly, accurately, and efficiently.


• Describe factors affecting take-home pay and calculate the impact.

• Design and use a budget.• How much money is enough for retirement.• Is education worth the cost?

Education & Earn; and Save

Mathematics Standard 2: Algebra


6. Quantitative relationships in the real world can be modeled and solved using functions.


• Analyze the impact of interest rates.• Evaluate the costs and benefits of credit.• Evaluate various lending sources.• How much would today’s purchase cost tomorrow?

Save and Invest

Math Standard 3: Probability & Statistics


5. Probability models outcomes for situations in which there is inherent randomness, quantifying the degree of certainty in terms of relative frequency of occurrence.


• Find and interpret the expected value and standard deviation of a discrete random variable X [non-PFL].

• Analyze the cost of insurance as a method to offset risk.• How does probability relate to insurance?

Invest & Insure


Grade Level Expectation: Eighth Grade



• Analyze how credit and debt impact personal financial goals.

• Computational fluency…allows individuals to accomplish daily tasks…such as…calculating overtime pay,…calculating interest …

Earn, Save & Invest





• Solve problems involving percent of a number, discounts, taxes, simple interest, percent increase and decrease.

• Use algorithms to help individuals spend money wisely.• Use percentages to represent quantities…such as amount

and types of taxes paid…

Save and Invest



3. Proportional reasoning involves comparisons and multiplicative relationships among ratios.


• Estimate and compute unit cost of consumables sold in quantity to make purchase decisions.

• The use of ratios, rates, and proportions allows sound decision-making in daily life.

Save (via control of spending)


Grade Level Expectation: Sixth Grade

3. Quantities can be expressed and compared using ratios and rates.


• Express the comparison of two whole numbers using…part-to-part ratios, and part-to-whole ratios in real contexts, including investing and saving.

Save and Invest

The PFL Standards …

• … are summarized with our financial fitness formula:

E2 + S + I2 = F2

• Education, Earn, Save, Invest & Insure

• equals Financial Fitness

Scarcity

• Wants > Availability

– or,

• Unlimited wants > Limited resources

Scarcity Choice

• Economics is:

– the study of choice

• Scarcity necessitates choice–people must choose

The Economic Way of Thinking:Key Concept

Develop a Decision-Making Framework

for Students

• Help make decisions

– by learning a process for

more careful choice

Decision-Making Model

• Define the Problem

• List the Alternatives

• State the Criteria

• Evaluate the Alternatives

• Make a Decision

PACED

Let’s Make Another Set of Choices …

Financial Planning• Would you like to run in a race?

• So that you can plan & train appropriately– you’d want to know:

• How long is the race?

If one does not know to which port one is sailing, no wind is favorable.

Lucius Annaeus Seneca, Roman philosopher

Begin with end in mind, then develop a roadmap on how to get there.

Financial Plan Step 1: Goal Setting

• Goals – something you want:– to be– to have– to do

• Goals will point you in a direction. – Goals toward which to aim

– Your values (beliefs important to you)• impact your goals

Goals Have a Time Frame

• How long to accomplish?

– Short-term goals• Up to three years

– Intermediate-term goals• Between three and five years

– Long-term goals• Beyond five years

and …

Goals Can Be . . .

• Financial

– Purchase

• prom dress• car• college education• retirement

• Non-Financial

– Spend more time

• with family• with friends• exercising• reading

Write Down Three of Your Future Goals

• Two “financial”– One short term and one long term

• One “non-financial”

List Some of Your Goals

Financial GoalsEstimated Cost of Achieving Goal

Short term

Long term

Non-financial Goal

Short or Long term

Buyer Beware!

If it sounds too good to be true, then it probably is.

• What’s “too good to be true?”

• Recognizing “normal” rates of return can be helpful

• Best way to protect yourself from a Scam is to remember that:

There’s no such thing as a free lunch!• Speaking of scams … here’s a classic:

http://www.youtube.com/watch?v=ynPJM0Zeqqg

http://www.youtube.com/watch?v=ynPJM0Zeqqg

Methods for Teaching Financial Literacy with Economic Reasoning CCEE Summer 2012 Program Millionaire...

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