Time to Plan

Financial Decisions and Goals


Whether you are spending, saving or investing money, planning can help you to make big or small financial decisions. The financial planning process has 6 STEPS to help you reach your goals.

Teens and Money

MONEY, MONEY, MONEY--Show me the MONEY!

     but, Are you Ready?

Teens face a lot of money problems. Many say they do not manage their own money at all. According to a 2012 Junior Achievement USA/Allstate Foundation survey, over 1/4 of teens do not expect to be able to support themselves financially until after the age of 25. 

According to the same survey, only 56 percent of teens think they will be financially as well off, or better off, than their parents. Many students will wind up in hundreds of thousands of dollars of debt in the few years after graduating from high school, with a combination of student loans, credit cards, car loans, and mortgages.

Teens do not have confidence in their ability to handle their finances and their time, and this course is directed at changing that. Instead of working without goals, students will learn how to develop goals and achieve them. 


Instead of habitually over-spending, students will learn the techniques of managing their finances with longer-term goals. Instead of thinking about how to spend resources they did not earn, students will learn how to imaginatively create wealth. 

Instead of joining the 30% percent of student loan borrowers who are delinquent on their payments (and that's not counting those in deferment or grace periods), students will learn to avoid debt traps.

I teach this course from the point of view of a parent of young adults, and I show students how the real world works. In parts of the course, I bring my 15+ years of experience as a teacher of Economics, Business Law, Accounting, Computer Technology, Marketing and Finance to bear, as well as my experience as a Personal Business Owner, Conference Center Manager, and Mechanical Contractor to show students how broader economic events, business decisions, marketing and management can affect their personal finances.

Financial Struggles of Teens

Timothy Terrell - June 22, 2013

According to a 2012 Junior Achievement USA/Allstate Foundation survey, only 40 percent of teens say that they "manage their money in some manner." Only 56 percent of teens think they will be financially as well off, or better off than, their parents.

This is down from 89 percent in a 2011 survey. And many teens are planning to be dependent on their parents for an extended period of time--over one fourth of respondents to the survey said that they do not expect to be able to support themselves financially until after the age of 25.

Parents of today's teens grew up in a less complicated time--a teen's finances in the 1970s or 1980s would have consisted of a wad of cash and maybe a savings account mostly managed by parents. Spending was usually on a cash basis. Holding a debit card would have been unusual for a teen, and online transactions were nonexistent.

Today's teen is faced with a wide array of financial management options, from debit cards to PayPal and smartphone apps. Banks have special accounts for teens with options for parental oversight and money transfers. But the prevalence of electronic payment options means that spending can easily get out of control. Teens still need to know the basics, such as how to read a bank statement and how to budget. Many large purchasing decisions are made in the late teens and early twenties. With offers of large amounts of credit starting in the college years, teens need to know early on how to make wise decisions about borrowing and spending.

Teens have a wonderful opportunity to get off to a good start financially. For most teens, the vast majority of necessary expenses are covered by parents. The financial freedom that affords should be taken advantage of. Working 40 hours a week at only $9 an hour for 10 weeks per summer can put around $10,000 in a teen's account over three summers. A higher-paying job, part-time work during the school year, or an entrepreneurial venture could boost that sum considerably. What teens do now with those earnings from work, plus monetary gifts, can make a big difference when they establish their own household just a few years from now. It could mean paying cash for what other young adults are buying on credit, capital for a small business, or a head start on a down payment for a modest house.

As I teach my own children and the personal finance class for a local home school co-op, I want to explain how to avoid these common mistakes:

Working without a plan/goals
Impulse buying
Forgetting the full cost of items
Lending money to friends
Out-of-control spending on small items, leaving nothing for big-ticket items
Poor priority-setting
Thinking about spending, and ignoring earning

Developing financial self-discipline and appropriate priorities can be one of the greatest accomplishments of a teenager. Since financial problems can lead to or aggravate so many other life problems, such as stress (and accompanying health problems), marital difficulties, a derailed career, and disputes with extended family, getting off to a good start in these early years is vital.

One of the most important financial decisions in the late teen years is whether or not to go to college, and if so, how to pay for it. Student loans can be a crippling expense early in life, amounting to a car payment or even a house payment. The weight of the debt shows up in default statistics: In 2013, according to a New York Federal Reserve study, 11.7 percent of student loan borrowers are delinquent--90 days or more late on payments. That figure includes student loans that are in deferment or grace periods, where borrowers are temporarily not required to make payments. If those loans are left out, over 30 percent are delinquent. That is up from less than 20 percent in 2004. Student loan debt, according to Constantine von Hoffman of Moneywatch, was the only kind of household debt that continued to rise throughout the recent recession, and the total debt--nearly $1 trillion--has eclipsed credit card debt and is now the second largest category of debt after mortgages.

There are ways to avoid this financial catastrophe. I believe that personal finance courses for teens should emphasize entrepreneurship. As an economist in the Austrian tradition (following the thinking of Ludwig von Mises and Friedrich Hayek), I teach my college students of the importance of entrepreneurial behavior to a growing economy. Teens need to be introduced to the career option of entrepreneurship, so that they can make an informed decision about the costs and benefits of higher education. Given some ideas, encouragement, ambition, and a small amount of capital, most teens can do quite well for themselves in a small business. That could be lawn maintenance, eBaying, baking or crafts, photography, or a number of creative endeavors that provide confidence as well as real-life lessons that will never be forgotten.

Building good financial habits now will help teens immeasurably in the future. When they are able to put a large down payment on a house, give generously, pay cash for a car instead of borrowing, or weather a crisis with a healthy emergency fund, they will be glad they made wise decisions while still in high school.

WHAT TO DO:

Read the following article:
http://blogs.wsj.com/juggle/2010/04/26/when-it-comes-to-money-teens-need-reality-check/

WHAT DO YOU THINK: Copy and Paste the following questions and comment into your BLOG and write responses to these questions. Use complete sentences and provide as much detail as necessary to thoroughly answer the question.

1. What kind of DEBT can you expect to have after college?
2. Do you think that your parents manage their money well? Explain. What would you do the same, what would you do differently?
3. Write a paragraph or two about how you expect your lifestyle to be like when you have completed your education and entered into the workforce.

What would be your response to the following comment?:

The Millennials have seen their Baby Boomer parents leverage themselves to the hilt to finance lifestyles they could not otherwise afford. These kids have no idea where the money comes from, nor do they care as long as Mom and Dad continue to supply them with smart phones and North Face jackets. Once they finish college, the Millennials will finally learn, one way or another, the harsh reality that working for one's money is rather difficult.

Student Activity Three -- How do Economic Factors Affect Decision Making?

Economy: Does it Really Effect Me?

Changing economic factors affect the decisions we make. Using the internet, most likely the search engine GOOGLE, possible online publications such as the Wall Street Journal, use any resource that is available to you for economic news. Obtain information about current economic trends that influence various savings, investing, spending, and borrowing decisions. Using the table below, and filling in the each field with as much detail as necessary to completely demonstrate understanding to your reader, provide your interpretation of recent trends (last two to four years), and then also describe the influences on these trends on financial decisions.

What are Economic Factors:

The set of fundamental information that affects a business or an investment's value. Various economic factors need to be taken into account when determining the current and expected future value of a business or investment portfolio. For a business, key economic factors include labor costs, interest rates, government policy, taxes and management.

EXAMPLE:
       Economic Factor                          Recent Trend                         Possible Influence
         Rise of                               Increase                      Property values
 Building Permits                        in my Area                    may increase might
                                                                                     be a good time to
                                                                                     sell land or house

Student Activity Two - What Decision-Making Strategies have you Tried Using?

Please read the following two articles on the decision making strategies that we develop. A strategy is a plan or system that we design to complete a task--in this case make a decision.

Decision-Making Strategies

[link to Article Site]

You have to make decisions both large and small throughout every single day of your life. 

• What do you want to have for breakfast? 
• What time should you meet a friend for dinner? 
• What college should you go to? 
• How many children do you want to have?

When faced with some decisions, you might be tempted to just flip a coin and let chance determine your fate. In most cases, we follow a certain strategy or series of strategies in order to arrive at a decision. For many of the relatively minor decisions that we make each and every day, flipping a coin wouldn't be such a terrible approach. For some of the complex and important decisions, we are more likely to invest a lot of time, research, effort, and mental energy into coming to the right conclusion.

So how exactly does this process work? The following are some of the major decision-making strategies that you might use:

The Single-Feature Model

This approach involves hinging your decision solely on a single-feature. For example, imagine that you are buying soap. Faced with a wide variety of options at your local superstore, you decide to base your decision on price and buy the cheapest type of soap available. In this case, you ignored other variables (such as scent, brand, reputation, and effectiveness) and focused on just a single feature.

The single-feature approach can be effective in situations where the decision is relatively simple and you are pressed for time. However, it is generally not the best strategy when dealing with more complex decisions.

The Additive Feature Model

This method involves taking into account all the important features of the possible choices and then systematically evaluating each option. This approach tends to be a better method when making more complex decisions.

For example, imagine that you are interested in buying a new camera. You create a list of important features that you want the camera to have, then you rate each possible option on a scale of -5 to +5. Cameras that have important advantages might get a +5 rating for that factor, while those that have major drawbacks might get a -5 rating for that factor. Once you have looked at each option, you can then tally up the results to determine which option has the highest rating.

The additive feature model can be a great way to determine the best option among a variety of choices. As you can imagine, however, it can be quite time consuming and is probably not the best decision-making strategy to use if you are pressed for time.

The Elimination by Aspects Model

The elimination by aspects model was first proposed by psychologist Amos Tversky in 1972. In this approach, you evaluate each option one characteristic at a time beginning with whatever feature you believe is the most important. When an item fails to meet the criteria you have established, you cross the item off your list of options. Your list of possible choices gets smaller and smaller as you cross items off the list until you eventually arrive at just one alternative.

Making Decisions in the Face of Uncertainty

The previous three processes are often used in cases where decisions are pretty straightforward, but what happens when there is a certain amount of risk, ambiguity, or uncertainty involved? For example, imagine that you are running late to your psychology class. Should you drive above the speed limit in order to get there on time, but risk getting a speeding ticket? Or should you drive the speed limit, risk being late, and possibly get docked points for missing a scheduled pop quiz? In this case, you have to weigh the possibility that you might be late for your appointment against the probability that you will get a speeding ticket.

When making a decision in such a situation, people tend to employ two different decision-making strategies: 

the availability heuristic and the representativeness heuristic

Remember, a heuristic is a rule-of-thumb mental short-cut that allows people to make decisions and judgments quickly.

The Availability Heuristic: When we are trying to determine how likely something is, we often base such estimates on how easily we can remember similar events happening in the past. For example, if you are trying to determine if you should drive over the speed limit and risk getting a ticket, you might think of how many times you have seen people getting pulled over by a police officer on a particular stretch of highway. If you cannot immediately think of any examples, you might decide to go ahead and take a chance, since the availability heuristic has led to you judge that few people get pulled over for speeding on your particular route. If you can think of numerous examples of people getting pulled over, you might decide to just play it safe and drive the suggested speed limit.

The Representativeness Heuristic: This mental shortcut involves comparing our current situation to our prototype of a particular event or behavior. For example, when trying to determine whether you should speed to get to your class on time, you might compare yourself to your image a person who is most likely to get a speeding ticket. If your prototype is that of a careless teen that drives a hot-rod car and you are a young business-woman who drives a sedan, you might estimate that the probability of getting a speeding ticket is quite low.

The decision-making process can be both simple (such as randomly picking out of our available options) or complex (such as systematically rating different aspects of the existing choices). The strategy we use depends on various factors, including how much time we have to make the decision, the overall complexity of the decision, and the amount of ambiguity that is involved.

What do you think? Do you use any of these strategies or plans in the times that you are making a decision? Decisions can be simple and they can be difficult, does it matter? Can you use the same strategy for either?

Here's the Second Article: (Don't worry it's shorter)

Decision Making Strategies

There are a number of strategies that you can employ to improve your decision making.

Clarify decision difficulties

List the things that make your decision a difficult one. Once you clearly define the problems, the solutions are often easier to see.

List how you can obtain support

Don’t underestimate the help available from friends, relatives, counselors, and others. Although the decision must ultimately be yours, you don’t have to go through the decision making process alone.

Consider whether a deeper issue may be complicating things

For example, parental pressure, lack of confidence, or motivational problems that may be clouding your decision.

Consider a full range of alternatives using a decision matrix

There could be alternatives that you may not see at first glance. Talking to others is one of the best methods to explore such alternatives.

Spend time clarifying your goals

Decisions should be put within a larger context. If you do not have clear goals, you will find it difficult to make wise choices. Once your goals are clear, the best choice between alternatives often becomes more evident.

Make sure that you have a realistic view of the consequences

It is common to overestimate the negative consequences of a decision. Keep things in perspective.

Seek additional help

If you typically have difficulty making any decision of importance, schedule an appointment with a psychologist in the Counseling Center to explore your decision-making style.

Use a step-by-step decision making process

Clarify the decision. What needs to be decided?

Identify your options. 

Narrow down your list of options to those you consider most viable.

Consider pros and cons. 

What are the advantages and disadvantages of each option?

Choose among the options. 

This is the point in the process where you must assume the most responsibility; a choice must be made and you are the only one who can make it.

Take some action. 

How are you going to implement the decision?

Review your decision. 

Continue to gather information after a decision is made and revise your decision as necessary.

Adapted from Gary Lynn Harr’s book, Career Guide: Road Maps to Meaning in the World of Work, 1995.

Student Activity One -- Making Decisions

• What are you trying to decide?
• What decision making strategies have you used?
• How do economic decisions affect decision making?
• What purpose does it serve to be prepared for the decisions that you will be making in your life-time?

These questions and others like them are fair questions to ask, especially at the age level that you are at right now. You are in the process, at this very moment, in your life of developing a set of standards, a set of "rules" that you are going to use for your future--ever heard the phrase, "This is just how I do things?"

Well, that PHRASE is exactly right--and those "things" are subject to the rules that you will develop for yourself--starting right now.

Embedded in this post is a worksheet that you will complete. At the end of the worksheet a questions is asked: "Would you like to email a copy of your answers to yourself?" Maybe you should check "YES" and then hold onto these answers and in a few years compare them to, "Just how you do things."

QUIZ - Decision Making Process

Answer the following questions for the Decision Making Process Quiz. Please work on your own, and write as complete answers as possible to improve your opportunity for a high score.

How to EMBED a document in your BLOG

Here is something NEW to LEARN!

In computer lingo, EMBEDDING, is to create a space in your code (HTML) to force the viewing of a file in the page that you are designing.

You can EMBED documents, Slide Presentations, Movies, Music, and more.

You will need to EMBED your submissions for lessons in this class in your BLOG. Here is a video that demonstrates exactly HOW to do just that: (by the way, this video is embedded in this post).

OK, so now you know how to EMBED, but what about changing the SIZE of the WINDOW that your paper is EMBEDDED in?

This is done in your HTML code, and is easy to do, just follow the steps:

1. COPY the following:   height="500" width="95%"
2. Go back and edit your POST
3. Switch to HTML view (just like in the video) 
4. Scroll down to the CODE that copied into the post that has your paper embedded
5. Place your cursor right after the code "<iframe" and just before the "scr=" code.
6. Paste the code you copied into the line, it should look like this:

<iframe hieght="500" width="95%" src="https://docs.google.com/document/d/1sB9fH3tlrbXkq4XwYkIqz1u-8G_uKQ8EOa0NcyXN1Rg/pub?embedded=true" ></iframe>

Now click the UPDATE button and your document window should be much bigger.

Decision Making Process

An Official UMass Dartmouth Web Page/Publication. © 2015 Board of Trustees of the University of Massachusetts. 
University of Massachusetts Dartmouth • 285 Old Westport Road • Dartmouth, MA 02747-2300
Phone: 508 999-8000 • TDD: 508 999-9250 • Privacy • Contact UMass Dartmouth

Step 1: Identify the decision to be made. You realize that a decision must be made. You then go through an internal process of trying to define clearly the nature of the decision you must make. This first step is a very important one.

Step 2: Gather relevant information. Most decisions require collecting pertinent information. The real trick in this step is to know what information is needed, the best sources of this information, and how to go about getting it. Some information must be sought from within yourself through a process of self-assessment; other information must be sought from outside yourself-from books, people, and a variety of other sources. This step, therefore, involves both internal and external “work”.

Step 3: Identify alternatives. Through the process of collecting information you will probably identify several possible paths of action, or alternatives. You may also use your imagination and information to construct new alternatives. In this step of the decision-making process, you will list all possible and desirable alternatives.

Step 4: Weigh evidence. In this step, you draw on your information and emotions to imagine what it would be like if you carried out each of the alternatives to the end. You must evaluate whether the need identified in Step 1 would be helped or solved through the use of each alternative. In going through this difficult internal process, you begin to favor certain alternatives which appear to have higher potential for reaching your goal. Eventually you are able to place the alternatives in priority order, based upon your own value system.

Step 5: Choose among alternatives. Once you have weighed all the evidence, you are ready to select the alternative which seems to be best suited to you. You may even choose a combination of alternatives. Your choice in Step 5 may very likely be the same or similar to the alternative you placed at the top of your list at the end of Step 4.

Step 6: Take action. You now take some positive action which begins to implement the alternative you chose in Step 5.

Step 7: Review decision and consequences. In the last step you experience the results of your decision and evaluate whether or not it has “solved” the need you identified in Step 1. If it has, you may stay with this decision for some period of time. If the decision has not resolved the identified need, you may repeat certain steps of the process in order to make a new decision. You may, for example, gather more detailed or somewhat different information or discover additional alternatives on which to base your decision.

LESSON ASSIGNMENT: As you can see, there exists many factors to how we has human being reason through the decision making process. Read through the article from the University of Dartmouth on the decision making process. Also, view the slideshow that is derived from the curriculum of Practical Money Skills for Life. On pages 3 through 7 are terms (BOLD text). The pages are titled, "Factors that Can Influence a Decision", "Common Decision Making Practices", "Economic Influences on Decision Making", "Risks Associated with Decision Making", and "Opportunity Costs, and the Time Value of Money".

Each of these pages discuss and define terms that are an effect on the decision making process. Using GOOGLE Docs, list each term from each page, following each term write several sentences that describe why that particular term would have an effect on your decision making.

You may use the document below to record your answers to the lesson assignment, just click on the link. Or, you may create your own document in GOOGLE Docs. You must EMBED your document in your class BLOG for submission.

<CLICK HERE> to download document to your DRIVE be sure to go to FILE and click MAKE A COPY to copy this document to your DRIVE