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