Personal Finance Notes - Unit 1 Saving and Spending - 2024 PDF

Personal Finance Miss Riley Zhu [email protected] WEEK 1 Learning Intention: Understanding how our values impact our relationship with money. Key vocabulary: Finance- basically anything to do with money and investments. Financial goals- our goals that relate to money! (dur...

Personal Finance Miss Riley Zhu [email protected] WEEK 1 Learning Intention: Understanding how our values impact our relationship with money. Key vocabulary: Finance- basically anything to do with money and investments. Financial goals- our goals that relate to money! (dur)  1.1 Values 1. Complete the table on p.3-4 2. Complete the Money Values Survey 3. Money Quote Activity WEEK 1 cont. Learning Intention: To understand the difference between our needs and wants and create some personalised savings goals.  1.2 Needs and Wants A need is something necessary to live and function. (e.g. basic food, clothing, shelter and medical care) SPEND! A want is something that we desire to improve our quality of life, but we could live without. (e.g. phones, tvs, jet skis, ?) SAVE!  1.2 Needs and Wants You need to spend on your needs and save for your wants. Being able to tell the difference between the two in a given situation is critical to good financial management. $30 $200 E.g. if you need new shoes, what do you buy?  If you feel that you need to have a way of communicating with others, where does your need end and your want begin? Is the latest iPhone model a need or a want?  Take away When it comes to personal finance; spend on your needs and save for your wants. Make sure you have enough for your essentials first, and then anything left over can be saved or spent on things that increase your quality of life. Complete Needs vs Wants Scenarios (p. 8-10) Bean Game 1.3 Goals Complete Vision board (p.11) Complete Savings Goals (p.12) 2. Budgeting WEEK 2 Learning Intention: Understand how budgeting works and why it is important. Key Vocab: Income: Money received, usually as payment for working or through ownership of capital. Expense: The cost incurred in or required for something; the money that something costs you or that you need to spend in order to do something. These can be fixed- the same from month to month (e.g. rent, repayments)- or variable- different from month to month (e.g. spending, entertainment, food).  What is Budgeting? A budget is a financial tool that records all your income (money coming in) and expenses (money going out via spendings) over a set period of time. Budgeting, therefore, is the act of making a budget!  Why is Budgeting Important? Budgets are useful and important for two main reasons; 1. They help you understand whether you are living within your means; that is, whether you are spending less than you earn. Spending more than you earn on a regular basis is generally considered to be financially unhealthy and will likely result in you going into expensive and unnecessary debt. 2. They can empower you to take control of your finances and achieve your financial goals sooner in life, just like the one that you mentioned above!  2.1 Living Within Your Means In order to know whether you are living within your means (spending less than you earn), you need to learn how to create a budget. Tasks 1. Read p. 13-15 in the U1 Booklet 2. Complete Budget Scenarios WS  Homework Complete your VISION BOARD on p.11 and your SAVING GOALS on p. 12 Banqer High Subscription $15 is due at the end of Week 1. Please pay via Compass Event. Note it is a compulsory payment so please remind your parents to pay it on time.  Learning intention Continue to familiarise yourself with budgeting and be confident in create a budget To be able to link budgeting to achieving financial goals  2.3 Achieving Financial Goals Complete questions on pages 16-18 Banqer High Homework Last time: Payment is due Complete your VISION BOARD on p.11 and today!!! your SAVING GOALS on p. 12  Budgeting Videos Budgeting basics- https://www.youtube.com/watch?v=sVKQn2I4HDM&ab_channel=TwoCents What is a budget- https://www.youtube.com/watch?v=CbhjhWleKGE&ab_channel=PragerU Budgeting for teens- https://www.youtube.com/watch?v=TfdZDmgXP14&ab_channel=TheBlissBea n https://www.youtube.com/watch?v=0Wz5cG39UNI&ab_channel=AlanaLuma rque Simple ways to budget and save money- https://www.youtube.com/watch?v=2jUZF0gRjJk  Optional: Moneysmart budget planner Using the MoneySmart Budget Planner complete the following; ○ Create TWO fictional profiles and plug their fictional income and expenses into the budget planner ○ Note down whether your budget is in surplus or not and by how much ○ Copy the annual spending breakdown pie chart into your notebook  CFT- BUDGETING See Learning Task  APK ‘The earlier you start saving and investing the better.’ Why is this true? WEEK 3 Learning Intentions: Understand the concept of interest Calculate simple and compound interest in various real life scenarios Key vocab: Interest (simple and compound)- to be covered Deposit- a sum of money paid into a bank or building society account. Loan- a sum of money that is borrowed and expected to be paid back with interest Principal- original amount of money deposited, invested or loaned (prior to any interest being calculated) THINK, PAIR, SHARE. 1. What is interest? 2. Who pays interest and who receives it?  INTEREST Interest is an amount that is paid regularly for the use of borrowed money, usually expressed as an annual percentage of the sum of money lent (the interest rate). In other words, it is the percentage of money that we; earn on top of money invested (or deposited) AND pay on top of the amount borrowed when we take out loans. 3.1 What is interest Read 3.1 Complete Practicing Percentages WS  3.2 SIMPLE INTEREST Simple interest is a quick and easy For example, say a student obtains a method of calculating the interest that simple-interest loan to pay one year of will be charged on a loan. university fees, which costs $18,000, and It is a fixed percentage of the principal the annual interest rate on the loan is amount that was borrowed or lent. 6%. The student repays the loan over three years. The amount of simple Simple Interest Formula = P x I x N interest paid is: P = Principal amount I = Annual interest rate N = Loan period (number of years) $3,240 = $18,000 × 0.06 × 3 and the total amount paid is: $21,240 = $18,000 + $3,240  CALCULATE THE SIMPLE INTEREST PAYABLE IN THIS EXAMPLE Example: Simple Interest Formula = P x I x N P = Principal amount A young entrepreneur takes out a loan of I = Annual interest rate $35,000 to buy a van for his cake delivery N = Loan period (number of years) business. The annual interest rate on the loan is 7% and they need to repay the loan over a 5 year period. The amount of simple interest he will paid is: $? = $.____ × _____ × ______ and the total amount paid is: $? = $_____ + $_______  THINK PAIR SHARE Choose one of the following questions to discuss with a partner 1. What does it mean to earn interest on interest? 2. Why is it that the more money you have, the faster your money grows?  APK Jim takes out a loan of $20,000 to purchase equipment for his locksmiths business. The annual interest rate on the loan is 6% and he needs to repay the loan over a 3 year period. The amount of simple interest he will paid is: P X I X N = 20,000 X 0.06 X 3 = $3,600 Total money Jim need to repay is $23,600  Would you rather…? Who earns more interest? Option one Option two Put $500 into a saving Put $300 into a saving account that earns 2% account that earns 2.7% simple interest for 5 years. simple interest for 4 years.  Learning intention To understand how to calculate the compound interest  Compound Interest  3.3 COMPOUND INTEREST Compound interest is the interest on a deposit, investment or loan that is calculated based on both the initial principal and the accumulated interest from previous periods. It is known as ‘interest on interest,’ and will make a sum grow at a faster rate than simple interest, which is calculated as a fixed percentage of the principal amount. Let’s unpack this!  COMPOUND INTEREST Interest is extra money you earn on money you have in a savings account (or investment). So, if you have a balance of $1000 in your account and the interest rate for that account is 4% per annum (yearly), you will earn $40 interest after the first year. When you leave your original money in the account plus that interest, you can earn even more interest. I.e. if you leave the $1040.00 in your account, you will then earn 4% of $1040 in the following year– $41.60 This is called ‘compound interest’. It does not seem like much, but the earlier you start, the more you will end up with (if you leave your money alone!). SIMPLE INTEREST VS. COMPOUND INTEREST 1100 1150 1200 1250  SIMPLE VS COMPOUND INTEREST RECAP Simple Interest- earning interest on the initial deposit (or investment) only. Compound Interest- earing interest on the initial deposit (or investment) and previous interest payments (interest on interest!)  STARTING EARLY MATTERS! Page 4 Example  Would you rather…? Who earns more interest? Option one Option two Put $5,000 into a saving account Put $4,500 into a saving that earns 5% compound account that earns 4.3% interest for 2 year. compound interest for 3 years.  Example (10 mins) Eva takes a loan from a bank to buy a painting. Eva has borrowed $150,000 from the bank and intends to repay this Eva takes a loan from a bank to buy a block of land. Eva has borrowed $150,000 from the bank amount over 10 years. The bank gave Eva an compounding and intends to repay this amount over 10 years. interest rate of 4% which compounds on a annual basis. The bank gave Eva a simple interest rate of 4%. 1. How much interest does Eva pay? 1. How much interest does Eva? 2. What is the total amount Eva has to pay back in 10 years? P×I×N = 150,000×4%×10= 60,000 2. What is the total amount Eva has to pay back Stretch: Draw a graph to represent the interest that is paid in 10 years? back. Draw one bar graph showing the interest paid each year, and a line graph showing the cumulative interest paid over 150,000+60,000=210,000 time.  Watch the video https://www.youtube.com/watch?v=xb5RayO1KEo https://www.abc.net.au/education/financial-literacy-what-is-compound-inte rest/13623530  Compound interest explained https://www.youtube.com/watch?v=lNK95khKvSk Alternatively you can use this Compound Interest calculator - https://moneysmart.gov.au/budgeting/compound-interest-calculator https://www.calculatorsoup.com/calculators/financial/compound-interest-calculator.php  Learning intention To distinguish between simple interest and compound interest  Compound interest Start early matters! Compound interest is the interest on a deposit, investment or loan that is calculated based on both the initial principal and the accumulated interest from previous periods. It is known as ‘interest on interest,’ and will make a sum grow at a faster rate than simple interest, which is calculated as a fixed percentage of the principal amount.  Activating prior knowledge Which of the following graphs represents simple interest and which one represents compound interest?  Compare the Pair (10 mins) James has invested $20,000 into a Bank Account that offers a simple interest rate of 8% per annum. Jordan has invested $20,000 into a bank account that offers a compounding interest rate of 5% per annum. Over the course of a 20 year period which option would you select. Would you choice differ it was over a 10 year period? Draw a line graph to show both options and how they grow over time. Have a go at using excel if you would like.  Fixed Interest v Variable Interest Rate Fixed Interest - refers to a rate given that remains the same over time. Variable Interest - refers to a rate given that changes over time. https://www.youtube.com/watch?v=QktBe5JUge0  Activity (10 mins) 1. Research and find the interest rate payable of one bank that you are familiar on a mortgage loan, a personal loan and a credit card. Explain the differences in the rates - why do you think they vary so much? Mortgage loan Personal loan Credit card 2.Visit the Moneysmart mortgage calculator (https://moneysmart.gov.au/home-loans/mortgage-calculator) and calculate the interest payable from the following examples: ○ Loan amount: $550,000, Interest rate: 2.5%, Fees: $0, Term: 30 years ○ Loan amount: $550,000, Interest rate: 4%, Fees: $0, Term: 30 years 3. Copy the graph from question 2 above into your workbooks  Investigate Try to find the fixed and variable rates offered by the following banks. 1. Commonwealth Bank 2. NAB 3. Westpac 4. ANZ 5. Which bank would you borrow from if you were interested in a fixed rate? What about if you were interested in a variable rate? 6. What do you think might be one benefit of using borrowing money using a fixed rate? 7. Why might you elect to borrow money using a variable interest rate? 8. Which rate do you think would it be easier to budget for?  Learning intention review To understand simple and compound interest and be able to explain the difference between them. To calculate simple and compound interest in various real life scenarios  Simple VS Compound Interest Recap Simple Interest- earning interest on the initial deposit (or investment) only. Compound Interest- earing interest on the initial deposit (or investment) and previous interest payments (interest on interest!)  Activity - Using Excel (10 minutes) How can we use excel to show and calculate simple and compound interest? Let use the following example.You invest $10,000 in a simple interest account offering 10% interest per annum.Your sister invests $10,000 in a compound interest account offering 10% per annum. Use excel to calculate the interest earned and balance of this investment. Create a graph to showcase the two.  Banquer High Subscription $15 Three people haven’t paid  Use the Moneysmart Compound interest calculator In the video, after 10 years, Romesh has $13,439 while Lucia has $27,196. They both have accounts that earn 3% interest, compounded annually. a. Romesh begins to deposit $100 monthly into the account. How much does he accumulate after 12 years? b. Lucia stops depositing $100 monthly after 10 years. How much does she accumulate after 12 years? c. How much should Romesh deposit every month in those 12 years to exceed Lucia’s amount at the end of the 12 years?  Think-Pair-Share When can compound interest work against you? If you have a loan or credit card, compound interest can quickly add up.Your interest rate compounds daily, so the quicker you can pay these off, the quicker you can get compound interest working positively on your savings. COMPOUND INTEREST- EXTENSION Prepare compound interest calculations using a spreadsheet- worksheet https://www.youtube.com/watch?v=lNK95khKvSk&ab_channel=Canstar https://www.youtube.com/watch?v=wf91rEGw88Q&ab_channel=Investopedia Loan activity 1. Research and find the interest rate payable on a mortgage loan, a personal loan and a credit card. Explain the differences in the rates - why do you think they vary so much? 2. Visit the Moneysmart mortgage calculator (https://moneysmart.gov.au/home-loans/mortgage-calculator) and calculate the interest payable from the following examples: 1. Loan amount: $550,000, Interest rate: 2.5%, Fees: $0, Term: 30 years 2. Loan amount: $550,000, Interest rate: 4%, Fees: $0, Term: 30 years 3. Copy the graph from question 3 above into your workbooks Learning intention review: What is the difference between simple and compound interest?  AT Unit 1 topic test next Monday 05/08 WEEK 3 Learning Intention: Understand the role of banks and how to use savings and transaction accounts effectively. Key vocabulary: Bank- a for-profit financial institution licensed to receive deposits, make loans and offer other financial services (e.g. insurance, currency exchange) Risk- exposure to danger, harm or loss How many of these banks can you name? Which of these are the Big 4?  4.2 Basic bank services Everyday (Transaction) accounts: Often more formally known as a ‘checking’ or ‘transaction’ account, an everyday account is for daily personal use. They are designed for more frequent use, paying bills, spending, and withdrawing as you need. Savings accounts: This type of account offers a safe place to deposit money. In return for your deposits, the bank pays you interest. These accounts typically have less freedom to move money around, withdraw money, or use it on a day to day basis, and are often online only (ie. with no card attached so you can’t use an ATM to withdraw their funds).  Read Booklet p9-10 Other bank services Online Banking: Allows customers to manage their accounts, transfer funds, pay bills, and view statements electronically. Loans: Providing financial assistance through various types of loans such as personal loans, auto loans, mortgages, etc. Credit Cards: Offering a line of credit for purchases, with the option to pay off the balance over time or in full each month. Investment Services: Assisting customers in managing their investments, retirement accounts, and other financial assets. Advantages of opening a bank account Keeps your money safe Makes paying bills easier Provides detailed bank statement to track your money Offers ability to get cash from an ATM  Bank accounts for teens- https://www.youtube.com/watch?v=CAc5DOM-Xhs&ab_channel=BankofAmerica Best savings accounts- https://9now.nine.com.au/today/the-best-saving-accounts-to--maximising-your-money /a831951c-3da3-4fcd-b540-5e3665702d61  4.3 The role of the bank Depositors Banks Borrowers higher interest interest