BUILDING YOURMONEY PYRAMID:

FINANCIAL PLANNING

CFE 3218V

OPEN CAPTIONEDMERIDIAN EDUCATION CORP.1994Grade Levels: 10-13+14 minutes1 Instructional Graphic Enclosed

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DESCRIPTION

Most people will earn a large sum of money over alifetime. How should they handle it? Explains thewhy’s and how’s of financial planning. The financialpyramid emphasizes savings (emergency funds),protection (various insurances), and investments (homeownership, stocks, bonds, commodities). Takingcontrol of finances now leads toward financial goalsand secure retirement. MONEY MANAGEMENTSERIES.

INSTRUCTIONAL GOALS

• To illustrate the need for and benefits of financialplanning.

• To present a strategy for financial planning.• To introduce three components of financial

planning: savings, protection, and investments.

BEFORE SHOWING

1. Read the CAPTION SCRIPT to determineunfamiliar vocabulary and language concepts.

2. Hypothesize how an unexpected problem couldimpact personal savings and current and future income.

AFTER SHOWING

Discussion Items and Questions

1. Discuss reasons for financial planning.a. Justify managing personal earnings wisely.b. Compare the money pyramid, the food

pyramid, and the ancient Egyptian pyramids.c. Justify owning a home as a way to build

financial security.d. Determine how much a savings account

investment of $10, $100, or $1000 at 6%interest will be worth after 10 years.

e. Define personal financial health.2. Discuss strategies for financial planning.

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a. Debate the use of payroll deduction savingsplans.

b. Compare stocks, bonds, and commodities.Consider risk, return, and initial cost.

c. List tips for selecting stocks for purchase andstarting a savings plan.

d. Evaluate purchasing real estate as aninvestment.

e. Summarize how to become financially healthyusing the motto “Save, Protect, Invest.”

3. Use the money pyramid to develop a personalfinancial plan for the following:

a. An individual has won a million dollars in thelottery.

b. A high school student plans to attend a four-year college after graduation.

c. A high school student plans to workimmediately after graduation.

Applications and Activities

1. Survey the school and local community.a. Can an individual ever have, make, or spend

enough money?b. Who has an emergency fund containing at

least three months’ salary, car insurance,renter’s insurance, homeowner’s insurance,health insurance, and life insurance?

c. Who invests in stocks, bonds, commodities, orreal estate?

2. Determine how much money individuals mayearn in their lifetimes.

a. Choose three diverse career options.b. Identify a typical current yearly income for

each career.c. Not counting a single raise or promotion,

determine how much money each career willearn for an individual by the age of 70.

3. Evaluate financial planning options.a. Research savings plans at a bank, savings and

loan, and credit union. Consider:

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(1) Savings accounts(2) Certificates of deposit(3) Savings bonds(4) Money market deposit accounts(5) Money market funds

b. Investigate car insurance. Consider costs,coverage options, and legal requirements.

c. Check on local prices to buy a home.Consider purchase price, down payment, andmortgage payments.

d. Research ways to reduce a tax bill. Acquire acopy of tax guidelines.

e. Investigate the reasons that commoditiestrading is very risky business.

4. Investigate retirement plans.a. How much money is needed to comfortably

retire?b. How many years of financial planning are

needed to adequately plan for retirement?c. How long does the average person spend in

retirement?d. How do personal savings, government

benefits, and job benefits work together toform a retirement package?

5. Use the money pyramid to develop a personalfinancial plan. (See INSTRUCTIONAL GRAPHICS.)

INSTRUCTIONAL GRAPHICS

One instructional graphic is included with this lessonguide. It may be enlarged and used to createtransparencies or copies.

• MONEY PYRAMID

WEBSITES

Explore the Internet to discover sites related to thistopic. Check the CFV website for related information(http://www.cfv.org).

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CAPTION SCRIPT

Following are the captions as they appear on the video.Teachers are encouraged to read the script prior toviewing the video for pertinent vocabulary, to discoverlanguage patterns within the captions, or to determinecontent for introduction or review. Enlarged copiesmay be given to students as a language exercise.

[synthesizer playing]

[upbeat piano, bass,and drums playing]

(male narrator)Big bucks...

are probablyright near

the topof your list.

We thinkwe never have,

make, or can spendenough money.

If only we'd winthe lottery--

a million dollarswould be nice.

Looking atthe money

you might makeover a lifetime

tells a different story.

If at age 21 you earn$1,500 a month--

that's $18,000 a year--

by the timeyou turn 70,

you will have earned$882,000--

nearly a million dollars,

not counting a single raiseor promotion.

With that much money,

it makes sense to manageyour earnings wisely.

Take time to plan howyou'll handle it.

It'll goa lot farther.

When living

from tank of gasto tank of gas,

having leftover moneymay seem impossible.

However, if you getin the habit of saving

you could beon solid ground

sooner than you think.

The food pyramid

shows thefive basic food groups

and outlinesgood nutritional health.

The money pyramid issimilar,

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spelling outwhat you might do

to build financial health.

Financial health encompasses

taking controlof your money now,

working to reachfinancial goals

like buying a car,a house,

or keeping an eyetoward retirement.

[grunting]

[thwak]

[thwak]

Retirement seemsa long way off.

Build your personal savings

to add to governmentor company benefits,

and you'll probably havea secure life

when you'rein your grandparents' age.

It can happenif you start building

a money pyramid now.

Like theancient Egyptian pyramids,

you build itone block at a time.

Build asolid financial foundation.

A good first goal isto have an emergency fund

containing at leastthree months' salary.

With money put aside,

having your carconk out

or being out of work,

won't seem like theend of the world.

A savings accountat a bank, savings and loan,

or credit unionat work is

a startto a savings program.

Many companies offer

a payroll deductionsavings plan

so you can setmoney aside

before you're temptedto spend it.

Savings programs havetwo purposes.

One, you accumulate money;

two, you earn money

on the money you're saving,called interest.

Suppose you deposit $1.00in a savings account

and leave itfor 10 years.

Say thebank pays you

6% of that sumfor the privilege

of using your money.

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After ten years,

that dollar will have grownto $1.76--

almost doubleyour original investment.

All you did waswait.

What if you'd deposited $10,or $100, or even $1,000?

That's the powerof saving!

Other ways of buildingan emergency fund

may net more interest.

If you think a CD isa compact disc--you're right!

It's also a certificateof deposit--

a pieceof paper

issued to youby a bank.

It's basically an IOU.

The bank agrees

to pay backyour money

with interest,at a specified time.

Maybe at birthyou received

U.S. Savings Bondsas gifts.

The government pays

people intereston these bonds

for lending themthe money.

Learn about CDs,government savings bonds

and other savings plans

such as money marketdeposit accounts

and money market fundsat a savings institution

or from a financial expert.

So many options!

It can seem complicatedat first.

The main thing isto start saving--

even small amounts.

Save changein a jar.

If you can't keepyour hands out,

pour insome water.

You won't be as temptedto fish for quarters.

The key isto pay yourself first.

After payingyour other expenses,

there probably won't beanything left.

In addition toan emergency fund,

the first levelof the money pyramid has

a sectionfor insurance.

Insurance policies protect you

from potential problems.

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You pay theinsurance company

regular small amounts,

and they promiseto protect you financially

from loss or harm

such as a car accidentor illness.

First, you'll probably havecar insurance.

It's against the law

to drivewithout automobile insurance.

If you rent an apartment,mobile home, or house,

you'll wantrenter's insurance

to cover your belongings

in case of theft,fire, or water damage.

If you own property,

homeowner's insurance will cover

damage to the structureand the contents.

You may havegroup life insurance

and health coveragethrough work

to help payyour medical bills.

If you're not insured,

unexpected problems couldeat away at

your savings, income,and future income.

Make an appointmentwith an insurance agent

to discuss at leastbasic coverage.

Do you haverenter's insurance?

(man)I don't think so.

That's a coverage

you should look into.

If you livein a complex,

and there's an accident,

you and your possessionswould be covered.

(narrator)Family or friendsmight recommend

an insurance agentyou can trust.

A solid insurance program is

part of buildingfinancial security

as is owningyour own home.

A home is usuallythe biggest investment

a personor family makes.

Once you have thedown payment for a house

and begin makingmonthly mortgage payments,

you startto build equity.

As you pay offthe home loan,

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you gradually own moreof the house,

and thefinancial institution

you borrowedthe money from, owns less.

The goal isto pay

all the moneyyou owe

until the housebelongs to you

free and clear.

When you've secured thefinancial base

on your money pyramid,

you may want to makesome investments.

Investments are moneyyou spend

in the hopeyou'll eventually make

even more money,or profit.

Two of the most popular

investments people make arein stocks and bonds.

Although the words are

often said together,

stocks and bonds are

different typesof investments.

If you bought stockin a fast-food restaurant,

you'd own a small partof the business.

If you held a bondfor the restaurant,

you'd be lendingmoney to the company,

perhaps to expandor make improvements.

Stocks represent ownership.

Bonds represent loans.

Stocks make moneycalled, dividends,

if the valueof the company

you invested ingoes up.

You lose moneyif the value drops.

That's wherethe risk is.

You can never knowfor certain

what is goingto happen.

Stock prices goup and down.

A bond paysset interest

in a specified numberof years

until the balanceyou loaned is

totally repaidto you.

If you had moneyto buy stocks now,

you might baseyour selection

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on what you know.

What clothes,what music,

what food,what games are hot?

Often companiesmaking those items

become more profitable.

Investing does takemore than instinct.

If you think you havea lot of homework now...

good investment decisionswith stocks and bonds

take lotsof research.

Some people investin real estate

to make a profit.

They might buya small house

or apartment building,

and rent the propertyto someone else

or fix it upthemselves

and sell itfor a profit.

People have made moneywith real estate.

However, you arebetter off

if you can do muchof the maintenance

and repair workyourself.

The third levelof your money pyramid,

tax management, buildson the first two.

You'll have to pay taxeson your wages

and on profitsfrom your investments.

There aremany ways

to reduceyour total tax bill.

In home ownership,you can deduct

part of the house paymentthat goes for interest--

which is most of it--

from your taxable income.

That can be a big savingsat year's end.

If you can managea down payment,

buying your own home

can be agood investment.

Your workplace may offertax advantage programs

allowing youto pay for benefits,

such as child careand health care,

with moneythat won't be taxed.

Knowing tax guidelines is

part of financial planning.

You may have heardthat porkbellies are up,

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winter wheat is tradingat a certain price,

or the valueof gold has dropped.

Porkbellies, wheat,and gold are commodities,

as are corn, coffee,sugar, soybeans, rice,

and precious metals.

People investin them

just like stocksand bonds.

Commodities trading isvery risky.

Most investors either make

or lose a lotof money.

There's not muchsafe middle ground.

Savings, investments,and tax management--

that's the waya money pyramid is built.

When you're busy

every day,

planning for the futurecan seem overwhelming.

But keep in the backof your mind...

It's not the mottoof the marines,

but it's a good wayto stay financially healthy.

Save money for emergenciesand the future.

Protect yourselfand belongings with insurance.

Make your savings growwith sound investments.

You'll be buildinga solid money pyramid

and a solid future.

Funding for purchase

and captioningof this video

was provided by theU.S. Department of Education:

PH: 1-800-572-5580 (V).

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CFE 3218 V BUILDING YOUR MONEY PYRAMID: FINANCIAL PLANNING

THE MONEY PYRAMID

COMMODITIES

TAX MANAGEMENT

INVESTMENTS

InsuranceMutual

SAVINGS, INSURANCE, AND REAL ESTATE