I. Financial Responsibility and Decision-Making
Standard 1: Limited financial resources compel responsible individuals to make good decisions by weighing the benefits against the opportunity cost of each alternative. An individual's goals affect their valuation of the benefits and costs of alternative choices.
Benchmarks:
An 8th grade student will know:
- All individuals have limited financial resources and must decide what to do with these resources.
- Individuals spend, save, and pay taxes with their financial resources.
- The opportunity cost of doing something is the value of the next best alternative that was not chosen.
- An individual's attitudes, values, and preferences will affect their goals as well as their valuation of the benefits and costs of any financial decision.
- Benefits or costs of a decision may be monetary or non-monetary.
- Planning by individuals helps them make decisions to accomplish their financial goals. Individuals may have to make trade-offs between short-term, intermediate-term, and long-term goals.
- All financial decisions have short, intermediate and long run consequences.
A 12th grade student or young adult will know the 8th grade benchmarks and know:
- Financial responsibilities change as one's life circumstances change.
- The interest paid on loans compensates lenders for the opportunity cost caused by the lost use of their funds.
- Costs and benefits incurred in the future are valued less than costs and benefits that are incurred today. This concept of present value is important when making decisions that balance costs paid today versus benefits received in the future (or vice-versa).
- Tax policies can impact the benefits and costs of a financial decision.
Standard 2: Federal, state, and local governments have passed laws to protect consumers. Many of these laws require disclosure of pertinent information and forbid discriminatory practices.
Benchmarks:
An 8th grade student will know:
- The federal government includes a number of consumer protection agencies. In addition, each state has a one or more consumer protection agencies to address issues of financial improprieties. Some non-governmental agencies also offer consumer protection services.
- A wide variety of state and federal laws and regulations establish the rights and responsibilities of both borrowers and lenders.
A 12th grade student or young adult will know the 8th grade benchmarks and know:
- Federal law includes many provisions to protect consumers' financial rights. The Federal Reserve writes many of the regulations that carry out consumer protection laws and enforces the regulations for banks that the Federal Reserve oversees.
- Consumers who wish to file complaints must carefully document information related to the complaint and contact the correct enforcement agency.
- Lenders are required by law to disclose all fees, methods of calculating interests, and other terms and conditions of personal loans and credit cards.
- Federal government entities, such as the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), and state agencies, regulate and monitor the securities and banking industries and combat abuse and fraud.
II. Planning and Money Management
Standard 3: An overall financial plan helps individuals and households achieve their goals for spending and saving.
Benchmarks:
An 8th grade student will know:
- A budget contains information on income, savings, taxes, and fixed and variable expenses. A budget expresses a plan over a period of time such as a week, month or year.
A 12th grade student or young adult will know the 8th grade benchmarks and know:
- A financial plan is a long-term strategy to accomplish an individual's or household's long-term goals.
- A financial plan will change as an individual's or household's situation changes.
- Good financial plans incorporate some room for unexpected expenditures.
Standard 4: Consumers can use various means of payment when purchasing goods or services. The costs associated with different payment methods can vary considerably.
Benchmarks:
An 8th grade student will know:
- As with any financial decision, an individual should compare the benefits and costs of different payment options such as stored-value cards, debit cards, or online payment systems.
- Many types of businesses or financial institutions will cash a check. The cost of cashing a check can vary considerably based on the type of financial institution or business.
A 12th grade student or young adult will know the 8th grade benchmarks and know:
- Overdrawing a bank account will result in significant fees. In order to know if a bank account has a sufficient balance to make a payment, the account must be regularly reconciled and checked for accuracy by the owner.
- Paying bills late may result in significant fees, interest charges, and lost services or repossession of property.
- On-line services such as scheduled bill payments or transfers to savings can be useful so that payments or saving deposits are not missed.
III. Credit and Debt
Standard 5: The terms and conditions of credit vary across lenders and types of borrowing. Individuals must consider the relative benefits and costs of credit opportunities.
Benchmarks:
An 8th grade student will know:
- A credit card purchase is a short-term loan while a debit card purchase is a withdrawal from a bank account.
- The interest rate and length of a loan determine the total cost of credit.
- Interest charged is calculated by multiplying the appropriate interest rate by the balance of the loan. Interest may be charged daily, monthly, quarterly or annually.
- The purchases of large and durable consumer items such as automobiles are often paid by taking out a loan.
- Credit should be used to make long-term investments, such as financing an education or purchasing a home. Using credit to purchase short-term consumption items such as clothing or vacations is generally not a good use of credit.
A 12th grade student or young adult will know the 8th grade benchmarks and know:
- When borrowing money, the borrower and lender agree to repayment terms, usually a monthly payment. The repayment of the loan includes the repayment of the principal of the loan plus interest. The total cost of a loan may be reduced by making above-minimum payments.
- Consumers can seek loans from various financial institutions, including, commercial banks, credit unions, and savings and loans. Loans may also be obtained through a variety of other businesses ranging from check-cashing stores and pawn shops to credit extended directly by a seller.
- A wide variety of student loan and home mortgage plans are available from lenders. The terms and conditions of these types of loans may vary dramatically. It is the responsibility of the borrower to fully understand the terms of the loan contract.
Standard 6: An individual's credit history significantly influences future financial opportunities and available choices.
Benchmarks:
An 8th grade student will know:
- Credit bureaus maintain credit reports on individuals. These credit reports include information on an individual's financial history including credit accounts, balances, and payment history as well as an individual's current and past addresses and employers. A credit report does not include information on deposit accounts, race and ethnicity, medical histories, or criminal record.
- Lenders rely on credit reports when setting the terms and conditions of loans offered to borrowers.
- Failure to repay a loan has significant consequences for borrowers such as negative entries on their credit report, repossession of property and garnishment of wages.
A 12th grade student or young adult will know the 8th grade benchmarks and know:
- Individuals can enhance their credit report by meeting or exceeding repayment schedules on loans and credit cards.
- Negative information on credit reports reduces credit opportunities and raises the cost of borrowing. Positive information on credit reports can lower the cost of borrowing.
- Some employers consider a job applicant's credit report in deciding whether to hire an individual.
- Consumers with excessive debt may benefit from loan consolidation and renegotiation of repayment schedules. Consumers should know about the long term impacts of such negotiations on their credit reports.
Standard 7: Many personal credit problems can be avoided or corrected by making prudent and responsible financial choices.
Benchmarks:
An 8th grade student will know:
- Prudent individuals limit their borrowing based on their ability to repay.
A 12th grade student or young adult will know the 8th grade benchmarks and know:
- The proper use of credit involves weighing the benefits against the costs. Credit should be used only when the benefits exceed the costs.
- Credit counseling services are often available to help individuals and households devise plans to manage debt repayment. When seeking such help, people should investigate the reputation of the service as well as any fees for these services. People should also inquire about the long term impacts of debt repayment plans on their credit reports.
- Personal bankruptcy may provide debt relief but it can have serious negative consequences.
IV. Saving and Investing
Standard 8: Personal saving contributes to long-term financial well-being.
Benchmarks:
An 8th grade student will know:
- Financially responsible individuals and households save by setting income aside for emergencies and future needs.
- Every saving decision has an opportunity cost in terms of forgoing goods and services today.
- Savings placed in a commercial bank or other financial institution will grow by earning interest over time.
- Compound interest can help an individual who is trying to save to achieve long-term financial goals. Compound interest can hurt an individual who has borrowed funds over the long-term.
- A checking account is a deposit of money made by an individual at a commercial bank, savings and loan, or credit union from which the individual can draw to make purchases. Terms and conditions for checking accounts can vary.
- A savings account is a deposit of money made by an individual or household at a commercial bank or other financial institution that earns interest. An individual cannot spend directly out of a savings account.
- Many deposits in commercial banks who are members of the Federal Deposit Insurance Corporation (FDIC) are insured against loss.
A 12th grade student or young adult will know the 8th grade benchmarks and know:
- The federal government encourages personal savings through a variety of employer-sponsored plans that reduce current income taxes.
- Most personal saving accounts at commercial banks and other financial institutions pay compound interest on deposits. Compound interest is money earned on both principal and previously earned interest.
Standard 9: Investing builds personal wealth and contributes to meeting financial goals.
Benchmarks:
An 8th grade student will know:
- Individuals and households invest by purchasing assets such as stocks, bonds and physical assets that earn income or appreciate in value over time.
- Every investment decision has an opportunity cost.
- Investments differ in their potential rate of return, liquidity, and level of risk.
- The real rate of return on an investment is positively related to its level of risk.
A 12th grade student or young adult will know the 8th grade benchmarks and know:
- The more uncertain the future value of an asset, the greater the potential return to investors.
- Mutual funds pool investors' deposits to purchase financial assets.
- Diversification reduces overall risk by spreading assets among several types of investment instruments.
