Financial Literacy Basics

Opportunity Cost and Scarcity

• Opportunity cost: The value of what you lose when choosing between options. It's the next best alternative.
• Scarcity: A fundamental economic concept; resources are limited.

Needs vs. Wants

• Needs: Essential resources for survival – food, shelter, clothing.
• Wants: Desired items, but aren't essential.

Caveat Emptor

• Caveat emptor: Latin for "let the buyer beware." Buyers are responsible for verifying the value and quality of a product or service before purchase. Be a shrewd consumer.
• Be wary of bargains that seem too good to be true.
• Read the fine print!

Financial Risks and Management Strategies

• Bankruptcy: Occurs when someone can't pay debts. Obtaining help to alleviate debts is an option.
• Financial capability: Knowledge, skills, attitude, and motivation for sound financial management.
• Emergency fund: Money set aside for unforeseen events.
• Insurance: Reduces financial impact of negative events.
• Protect your identity.
• Manage your debt load.
• Automate positive financial behaviors (e.g., automatic bill payments).
• Credit score: A number reflecting your creditworthiness.
• High scores allow for better credit terms.
• Low scores restrict access to credit & usually result in higher interest rates.

Budgeting and Financial Planning

• Budget: A plan for spending, saving and investing money to meet financial goals (short- and long-term).
• Revising and updating budgets regularly is essential.
• Cash flow: Money moving in and out.
• Positive cash flow: Income exceeds expenses.
• Negative cash flow: Expenses exceed income.
• Fixed expenses: Consistent monthly costs (rent, cell phone).
• Variable expenses: Shifting monthly costs (food, entertainment).
• Income: Money coming in.
• Expenses: Money going out.
• Account balance: Current funds in an account, or debt.

Financial Concepts

• Time value of money: Money available right now is more valuable than the same amount in the future.
  • This is based on potential investment returns/ earnings.
• Compound interest: Interest on accumulated interest, as well as the principal.
• Your interest will continually grow with compounding.
• New worth: Assets (what you own) minus liabilities (what you owe).

Lottery Winners and Bankruptcy

• Lottery winners are at higher risk of bankruptcy compared to those who don't win. 

Important Financial Concepts

• Philanthropy: Giving back time, talent, or money to causes you care about.

• Charities: Non-profit organizations that don't pay taxes, but your donations to them could qualify for tax deductions. Factors motivating donations:

  • Belief in the organization's mission (their aims & beliefs)
  • Personal connection with the charity
  • Potential financial benefits/tax deductions