An 8-week journey through interactive lessons, discussions, and hands-on simulations.
Though not exhaustive, this roadmap highlights the key concepts that form the foundation of the curriculum.
Getting Started: Welcome to InvestED! This week is all about getting to know each other and understanding what's ahead.
Class Overview: We'll review the course structure, expectations, and the exciting journey that awaits.
Pretest: A brief assessment to help us understand your current financial knowledge.
Looking Ahead: Take a look through this roadmap to preview what you'll be learning over the next 8 weeks!
Definition: The system of money, goods, and services within a country.
Economy's Effect on Stock Market: When more people have jobs and spend money, companies do well, which can increase stock prices.
Supply: The amount of a product available for sale.
Demand: How much people want to buy a product.
Interaction: How supply and demand affect prices:
Example: If demand is high but supply is low, prices go up (e.g., popular limited edition toy during Christmas time)
Example: If supply is high but demand is low, prices go down (e.g., paper phone books)
Scarcity: Limited resources mean people have to make choices between what they can and cannot have.
Opportunity Cost: The value of the next best thing you give up when making a choice.
Example: Choosing to buy a bike instead of saving for a gaming console, or vice versa.
Definition: When prices rise over time.
Effects:
Why we want some inflation: Moderate inflation encourages spending and investment, avoiding economic stagnation.
Levels of inflation:
Too little: Below ~2%, risks deflation and slow growth
Good zone: Around 2% (target for many central banks)
Too much: Above 5-10%, leads to reduced purchasing power and economic instability
Intrinsic Value: The true worth of a stock based on the company's financial health, performance, and growth potential, independent of market perceptions.
Extrinsic Value: The influence of external factors—such as market sentiment, trends, and speculation—on the perceived worth of a stock, often disconnected from its fundamentals.
Example: A tech stock might increase in price because investors anticipate a major product launch, even if the company's financial situation remains unchanged.
Market Price: The current trading price of a stock, based on a combination of its intrinsic value (fundamentals) and extrinsic value (market sentiment and external factors). This is why a stock can be deemed "overvalued" or "undervalued" compared to its intrinsic value.
Definition: A financial plan to manage income, expenses, and savings.
Steps to Create a Budget:
1. Determine Income: Figure out how much money you earn.
2. List Expenses: Write down all fixed and variable costs.
3. Categorize Spending: Split expenses into needs, wants, and savings.
4. Set Spending Limits: Decide how much you'll spend in each category.
5. Track Spending: Monitor your expenses to stay within your limits.
6. Adjust and Review: Update your budget as your financial situation changes.
50/30/20 Rule: Spend 50% on needs, 30% on wants, and save 20% (Ideally, as income grows, you can increase your savings percentage).
Envelope System: Use cash in labeled envelopes for each spending category to control expenses physically.
Emergency Fund: Money set aside for unexpected expenses, like car repairs.
Short-Term Savings: For goals within 1-2 years, like a vacation.
Long-Term Savings: For big goals like buying a home or retiring.
Pay Yourself First: Save a portion of your income before spending.
Set Specific Goals: Decide how much to save and by when.
Avoid Impulse Spending: Think before making unplanned purchases.
Utilize Interest: Open savings accounts or investments that grow your money.
Definition: Borrowed money you pay back with interest.
Types of Loans:
• Personal Loan: For expenses like medical bills.
• Mortgage: To buy a house, with the house as collateral.
• Auto Loan: To buy a car, with the car as collateral.
• Student Loan: For education costs.
• Business Loan: For starting or growing a business.
• Home Equity Loan: Allows borrowing against the value of your home.
Definition: The cost of borrowing money, usually expressed as a percentage of the loan amount.
Interest Rate Ranges:
• High-Interest Debt: 15%–30% (Credit cards, payday loans)
• Low-Interest Debt: 2%–7% (Mortgages, student loans, auto loans)
Typical Interest Rates by Loan Type:
• Personal Loan: 5%–36%
• Mortgage: 3%–7%
• Auto Loan: 4%–10%
• Student Loan: 3%–8%
• Business Loan: 4%–13%
• Home Equity Loan: 4%–8%
Definition: Protection against financial loss.
Types of Insurance:
• Health: Covers medical expenses.
• Auto: Covers car damage and accidents.
• Homeowner: Protects your home and belongings.
• Life: Pays money to your beneficiaries if you pass away.
• Disability: Provides income if you can't work due to injury or illness.
Premiums: Regular payments for coverage.
Deductibles: What you pay out of pocket before insurance covers expenses.
Coverage Limits: The maximum amount insurance will pay.
Exclusions: Specific conditions and events that aren't covered by your insurance policy (extremely important to know what you are and aren't covered on).
Definition: Money that you owe to a lender, often with interest.
Good Debt vs. Bad Debt:
• Good Debt: Debt taken on for investments in your future, such as student loans for education or a mortgage for buying a home, which can build long-term wealth.
• Bad Debt: Debt taken on for non-essential purchases or things that lose value quickly, like credit card debt from unnecessary luxury goods. High-interest rates on bad debt can quickly lead to financial strain.
Collateral: An asset, such as a home or car, that can be seized by a lender if you fail to repay a secured loan. It serves as security for the lender in case of default.
Secured vs. Unsecured Debt:
• Secured Debt: A loan backed by collateral—an asset like a house or car—that the lender can seize if you fail to repay the loan. Examples include mortgages and auto loans.
• Unsecured Debt: A loan not backed by collateral, where the lender relies on your creditworthiness to repay. Common examples include credit card debt and personal loans.
Definition: The ability to borrow money with the agreement to repay it later, typically with interest.
Credit Cards: A form of credit that allows you to borrow money up to a certain limit and repay it over time, often with interest if the balance isn't paid in full each month.
Definition: A numerical value that shows how trustworthy you are at repaying borrowed money. It is based on your credit history and current financial behavior.
Impact: A higher credit score makes it easier and cheaper to borrow money, often resulting in lower interest rates and better loan terms.
Definition: Small pieces of ownership in a company that you can buy.
Shares: Units of ownership in a company.
Stock Exchange: A place where stocks are bought and sold.
Market Capitalization: The total value of a company (total # of shares outstanding × price).
Blue-Chip Companies: Large stable companies like Apple or Google with high liquidity (many buyers and sellers of the stock at any given time).
Dividends: Payments made by a company to its shareholders from its profits (dividend yield differs by company).
Bull Market: Overall, the stock market is rising.
Bear Market: Overall, the stock market is falling.
Diversification: Spreading investments across multiple assets to reduce risk.
Growth Investing: Buying stocks in companies expected to grow in the future.
Dividends Investing: Buying stocks with high dividend yields and reinvesting the dividends.
ETFs: Funds that group multiple stocks together, reducing risk. Allows for investors to conveniently diversify holdings.
S&P 500: An ETF that takes 500 of the largest U.S companies and bundles them up into one asset (good indicator of the overall market).
Income Statement: Shows a company's revenues, expenses, and profits or losses over a specific period.
Balance Sheet: Provides a snapshot of a company's assets, liabilities, and shareholders' equity at a given point in time.
Cash Flow Statement: Tracks the cash coming in and going out of a company, divided into operating, investing, and financing activities.
Taxes: Mandatory payments individuals and businesses make to fund government programs and services.
Income Tax: A tax on money earned from jobs, investments, and other sources. Paid by individuals and businesses, often through direct payments or payroll deductions.
Payroll Tax: Automatically deducted from employees' paychecks to fund Social Security and Medicare programs.
Sales Tax: A tax added to the purchase price of goods and services.
Property Tax: A tax on real estate (e.g., land, buildings), based on the property's assessed value.
Capital Gains Tax: A tax on profits from selling assets, such as stocks, bonds, or real estate.
Public Education: Public schools, colleges, and financial aid programs.
Public Healthcare: Medicaid, Medicare, and public health programs.
Social Security: Monthly benefits for retired or disabled individuals.
Infrastructure: Funding for roads, bridges, airports, water supply systems, and energy grids.
Defense and Security:
Military: National defense and veteran programs.
Emergency Services: Police, firefighters, and disaster relief programs.
Penalties for Non-Compliance:
Late Filing: Filing your tax return past the deadline may result in penalties
Underpayment: If you pay less than what you owe, you may face additional fines and interest charges.
The Role of the IRS:
Collecting Taxes: Ensuring individuals and businesses pay what they owe.
Administering Tax Laws: Implementing laws created by Congress.
Providing Resources: Offering tools, forms, and assistance for taxpayers.
Enforcing Compliance: Investigating cases of fraud or non-payment and issuing penalties.
Final Test Today! Good luck!
Review Guide: Use this roadmap page as your study guide! Each section contains key concepts that will be covered in the final test.
Important Note: Please remember to bring all course materials back to class for the final session.
Thank You: We hope these financial lessons will help guide your future decisions!