Finance
LESSON 1: MONEY AND INCOME
Mr . MacArthur
Learning Goals
Students will gain an understanding of basic finance skills so that:
1. Explain why the dollar’s purchasing power changes
2. Identify security features of banknotes and consider why they are
there
3. Calculate gross, disposable and discretionary income
4. Explain why teens have more discretionary income than parents
5. Identify the five types of personal income
What is Money?
Class Brainstorming
Forms of Legal Tender
Under federal law, legal tender must be
accepted as payment for goods and services.
The two main forms of legal tender are coins
and notes (or “bills”) at face value.
Cheques and credit cards, although widely used
and accepted as payment, are not legal tender.
No law states that they must be accepted as
payment, but they are seldomly refused.
INFLATION
In general, prices tend to rise (inflation), so
the dollar buys less from one year to the
next.
inflation is a sustained increase in the general price level of
goods and services in an economy over a period of time.
When the price level rises, each unit of currency buys fewer
goods and services.
Today, $10 buys much less than it did 30 years
ago. You have probably noticed that the prices
of clothing, magazines, and movie tickets have
increased over the past few years.
Money’s Changing Purchasing Power
Money’s true value is its purchasing power.
The paper used to print our currency is virtually worthless, as are
the metals used to make coins.
Our currency has almost no value in itself.
It is worth something only because we accept that it has a
specific value.
Although money serves as a standard of value, its
purchasing power changes as prices for goods and
services change.
Money’s Changing Purchasing Power
Purchasing power
is measured by the
Consumer Price
Index (CPI).
It measures 600
products typically
bought by
households, which
includes food,
shelter,
transportation,
clothing, and
recreation.
What is Income?
Income is money that an individual
or business receives from various
sources, such as wages, sales,
interest, or dividends.
Types of Personal Income
Personal income comes in many forms.
The major way people earn money is through a full-time job (employment).
Forms of employment income include salary, wages, commission,
piecework and profit sharing
There are other sources of income as well.
These include dividends from investments and interest from
savings accounts (will make more sense later in the unit).
Teenagers often receive income from a part-time job, or as
allowance or gifts.
How do you get your money?
Gross Income
The total amount of income received
by a person is known as his or her
gross income.
For example, Nadira Sahota is a 35-year-old
working as a sales manager. This pie chart
shows the amounts that make up Nadira’s
gross income.
Nadira earns a total of $78 500 per year
from her salary, her commission, her
investments, and interest payments. That’s
$6542 per month. This is her gross income.
Disposable Income
Nadira does not get to keep the total amount of
her gross income.
Before she receives her pay cheque, her
employer deducts income tax, a portion for her
Pension Plan and Employment Insurance.
What is left is known as take-home-pay
or disposable income.
Discretionary Income
HOWEVER, Nadira does not get to
spend all of her disposable income on
whatever she wants.
She has to spend money on mortgage
payments, food, car payments,
insurance, electricity, and other
necessities.
The income that is left after
necessities have been paid
for is called discretionary
income.
Disposable vs Discretionary
Disposable income is the amount of net income a household or individual
has available to invest, save or spend after income taxes and other
mandatory payments are made (depending on the country)
On the other hand, discretionary income is the amount of income that a
household or individual has to invest, save or spend after taxes and
necessities are paid.
Discretionary income is similar to disposable income because it's derived
from it; however, there is one key difference.
Disposable income does not take necessities into account.
Necessities a household or individual may have are rent, clothing, food, bill
payments, goods and services, and other typical expenses
Example
Show and describe the difference between
gross, disposable, discretionary income by
using the following information:
Salary: RM70,000/year
EPF: 8%
Tax: 15%
Expenses: RM2,800/month
Answer
Gross Income
70,000
Tax
15%
10,500
EPF
8%
5,600
Disposable Income
53,900
Expenses
Per month 2,800 (x12)
33,600
Discretionary Income
(yearly) or 1,691.66/month
20,300
Success Criteria
I can complete the ending review questions that
will prepare me for the Unit Quiz.