Methods for Teaching
Financial Literacy
with Economic Reasoning
CCEE Summer 2012 Program
Millionaire Game
Colorado PFL and Economics Standards
July 9 – 13, 2012
John Brock, Professor of Record
Colorado Council for Economic Education
Faculty
• John Brock
• Director, Center for Economic Education
– University of Colorado, Colorado Springs
» jbrock@uccs.edu
• Master Teachers
– Social Studies:
Pam Patrick, Social Studies,
Cherokee Trail HS
– Mathematics:
Ann Brock, retired Math teacher,
Lewis-Palmer HS
Let’s Get Started!
What Is Wealth?
Wealth = (What you own) minus (What you owe)
“Assets”
“Liabilities”
What’s a
Millionaire?
• Household with a net worth (or wealth) of:
• $1,000,000 (or more)*
• Let’s play a game . . .
*Definition of millionaire often excludes primary residence.
The Millionaire Game*
• Divide into two-person teams
• Rules:
– Statements appear on screen.
– Each team decides
True or False.
– Circle chosen answer on
sheet provided.
• True or
False
* Shortened version of FFFL, 2nd ed., Lesson 1
Millionaire Statements
• Statement 1:
– Most millionaires are
college graduates.
• Statement 2:
– Most millionaires
work fewer than 40
hours per week.
• Statement 3:
– Most of America’s
millionaires are firstgeneration rich.
• Statement 4:
– The average total
household annual
income of today’s
millionaires is about
$120,000.
Millionaire Statements
• Statement 5:
– Nearly 50% of
millionaires drive
current-year cars.
• Statement 6:
– Many poor people
become millionaires
by winning the lottery.
• Statement 7:
– College graduates earn
about 60% more than
high school graduates
earn.
• Statement 8:
– Millionaires tend to
avoid the stock market.
Millionaire Statements
• Statement 9:
– At age 18, you decide not
to purchase soft drinks
from the vending machine
and save $1.50 a day.
– You invest this $1.50 a
day at 8% annual interest
until you are 67.
– At age 67, your savings
are almost $150,000.
• Statement 10:
– American families of
English ancestry are
more likely to be
millionaires today than
households of other
ethnic origins.
How Did We Do?
• For each statement, hold up the card
– T for true
– F for false
CCEE
Millionaire
Champion
• According to answer sheet:
– correct answer
– incorrect answer
= +5
= - 5
• Each team has 1 Millionaire card
– correct (+10); incorrect (-10)
July
2012
Sources: Millionaire Next Door, Millionaire Mind,
& Getting Rich in America
Statement 1
• Most millionaires are college
graduates.
Diploma
• 80% of millionaires are college
graduates.
•
•
•
•
18% have Master’s degrees
8% have law degrees
6% medical degrees
6% Ph.D.s
University of Colorado
Colorado Springs
• True
Education
Statement 2
• Most millionaires work
fewer than 40 hours per
week.
• About 67% of
millionaires work 45 to
55 hours a week.
•
False
Earn
Statement 3
• Most of America’s millionaires
are first-generation rich.
• Only 19% received any wealth of any
kind from a trust fund or estate.
• Fewer than 10% inherited 10% or
more of their wealth.
•
True
Earn
Statement 4
• The average total household
income of today’s millionaires is
about $120,000.
• Total income reported among
millionaire households averaged
$119,000 (2005).
– Frugal, Frugal, Frugal
• True
Save
• Nearly 50% of
millionaires drive
current-year cars.
Statement 5
• Most millionaires spend
under $30,000 for a car.
– Only 23% drive a currentyear [new model] car.
•
False
Save
• Many poor people become
millionaires by winning the lottery.
Statement 6
• Few people get rich the easy way!
• Chance of winning about one in 12 million.
• Average person who plays every day have to
live about 33,000 years to win once.
• In contrast, you have a one in 1.9 million
chance of being struck by lightning.
• A pregnant woman has one chance in
705,000 births to have quadruplets.
– How many sets of quadruplets do you
know?
•
False
Save & Invest
Statement 7
• College graduates earn
about 60% more than high
school graduates earn.
• In recent years the average
college graduate earned
63% more than the
average high school
graduate did.
•
True
Education
Statement 8
• Millionaires tend to avoid the
stock market.
– Long term, the S&P 500 Stock
Index has increased about 10%
compound annual rate of return,
exceeding the return on any other
investment.
•
False
Invest
• At age 18, you decide not to
purchase vending machine soft
drinks &save $1.50 a day.
• You invest this $1.50 a day at 8%
annual interest until you are 67.
• At age 67, your savings are almost
$150,000.
Statement 9
– Because of the power of compound
interest, small savings can make a
difference,
• almost $300,000 in this case.
•
False
Save
• American families of English
ancestry are more likely to be
millionaires today than households
of other ethnic origins.
Statement 10
• In the mid-to-late 1990s:
• Russian
– 22% are millionaires
• Scottish
– 21% are millionaires
• Hungarian
– 15% are millionaires
• English
– 7.7% are millionaires
•
False
Financial Fitness
The Moral of the Story?
• Learning outcome for our students?
• A formula for financial fitness:
E2 + S + I2 = F2
• Education, Earn, Save, Invest and Insure
• equals Financial Fitness
People who “have it all,” didn’t get there by accident.
They had a plan and followed it.
(as reflected in the Millionaire Game)
The Colorado PFL
Content Standards
Personal Financial Literacy:
Economics
• Content Area: Social Studies (4 standards)
– History, Geography, Economics, Civics
– Economics: 7 Grade Level Expectations
• 3 “traditional economics,” covering (although not
labeled as such in the standards):
– microeconomics
– macroeconomics
– international
• 4 personal financial literacy (PFL)
Standard 3: Economics
Grade Level Expectation: High School
4. Design, analyze, and apply a financial plan
based on short- and long-run financial goals
– Selected Evidence Outcomes & 21st Century Skills:
•
•
•
•
•
Develop a financial plan including a budget
Describe factors affecting take-home pay
Sources of personal income
Legal and ethical responsibilities regarding taxes
Role of education in building financial security
Education + Earn
(+ a bit on Saving)
Standard 3: Economics
Grade Level Expectation: High School
5. Analyze strategic spending, saving, and investment
options to achieve the objectives of diversification,
liquidity, income and growth.
– Selected Evidence Outcomes & 21st Century Skills:
•
•
•
•
Investments available for diversified portfolio
How economic cycles affect financial decisions
Investments to achieve liquidity, growth, income.
How compound interest manifests in investment and
debt situations.
Invest
Standard 3: Economics
Grade Level Expectation: High School
6. The components of personal credit to manage credit
and debt.
– Selected Evidence Outcomes & 21st Century Skills:
• Analyze lending sources, services & financial institutions
• Building and maintaining a credit history
• Similarities & differences in revolving credit, personal
loans and mortgages
Save
(via responsible use of credit)
Standard 3: Economics
Grade Level Expectation: High School
7. Identify, develop and evaluate risk-management
strategies.
– Selected Evidence Outcomes & 21st Century Skills:
•
•
•
•
Differentiate between types of insurance
Explain function and purpose of insurance
Select and evaluate strategies to mitigate risk
Additional ways individuals can alleviate financial risk
Protect with Insurance
Standard 3: Economics
Grade Level Expectation: Eighth Grade
2. Manage personal credit and debt.
– Selected Evidence Outcomes & 21st Century Skills:
• Analyze benefits and costs of credit and debt.
• Compare sources of credit.
• When is debt useful?
Save
(via responsible use of credit)
Standard 3: Economics
Grade Level Expectation: Seventh Grade
2. The distribution of resources influences economic
production and individual choices.
– Selected Evidence Outcomes & 21st Century Skills:
• Explain the role of taxes.
• Define various types of taxes.
• Demonstrate the impact of taxes on individual income
and spending.
• Factors influence production…supply, demand & price
Earn
Standard 3: Economics
Grade Level Expectation: Sixth Grade
2. Saving and investing are key contributors to
financial well-being.
– Selected Evidence Outcomes & 21st Century Skills:
• Differentiate between saving and investing.
• Explain how saving and investing can improve
financial well-being.
• What are risky investments and why would
someone make that type of investment?
Save and Invest
Personal Financial Literacy:
Mathematics
• Content Area: Mathematics (4 standards)
–
–
–
–
Number Sense, Properties, & Operations
Patterns, Functions & Algebraic Structures
Data Analysis, Statistics, & Probability
Shape, Dimension, and Geometric Relationships
• Grade Level Expectations
• Evidence Outcomes (PFL)
• 21st Century Skills (PFL)
Mathematics Standard 1: Number Sense
Grade Level Expectation: High School
2. Formulate, represent, and use algorithms with
real numbers flexibly, accurately, and efficiently.
– Selected Evidence Outcomes & 21st Century Skills:
• Describe factors affecting take-home pay and
calculate the impact.
• Design and use a budget.
• How much money is enough for retirement.
• Is education worth the cost?
Education & Earn; and Save
Mathematics Standard 2: Algebra
Grade Level Expectation: High School
6. Quantitative relationships in the real world can
be modeled and solved using functions.
– Selected Evidence Outcomes & 21st Century Skills:
•
•
•
•
Analyze the impact of interest rates.
Evaluate the costs and benefits of credit.
Evaluate various lending sources.
How much would today’s purchase cost tomorrow?
Save and Invest
Math Standard 3: Probability & Statistics
Grade Level Expectation: High School
5. Probability models outcomes for situations in which
there is inherent randomness, quantifying the degree of
certainty in terms of relative frequency of occurrence.
– Selected Evidence Outcomes & 21st Century Skills:
• Find and interpret the expected value and standard
deviation of a discrete random variable X [non-PFL].
• Analyze the cost of insurance as a method to offset risk.
• How does probability relate to insurance?
Invest & Insure
Mathematics Standard 1: Number Sense
Grade Level Expectation: Eighth Grade
2. Formulate, represent, and use algorithms with real
numbers flexibly, accurately, and efficiently.
– Selected Evidence Outcomes & 21st Century Skills:
• Analyze how credit and debt impact personal financial
goals.
• Computational fluency…allows individuals to
accomplish daily tasks…such as…calculating overtime
pay,…calculating interest …
Earn, Save & Invest
Mathematics Standard 1: Number Sense
Grade Level Expectation: Seventh Grade
2. Formulate, represent, and use algorithms with real
numbers flexibly, accurately, and efficiently.
– Selected Evidence Outcomes & 21st Century Skills:
• Solve problems involving percent of a number, discounts,
taxes, simple interest, percent increase and decrease.
• Use algorithms to help individuals spend money wisely.
• Use percentages to represent quantities…such as amount
and types of taxes paid…
Save and Invest
Mathematics Standard 1: Number Sense
Grade Level Expectation: Seventh Grade
3. Proportional reasoning involves comparisons and
multiplicative relationships among ratios.
– Selected Evidence Outcomes & 21st Century Skills:
• Estimate and compute unit cost of consumables sold in
quantity to make purchase decisions.
• The use of ratios, rates, and proportions allows sound
decision-making in daily life.
Save
(via control of spending)
Mathematics Standard 1: Number Sense
Grade Level Expectation: Sixth Grade
3. Quantities can be expressed and compared using
ratios and rates.
– Selected Evidence Outcomes & 21st Century Skills:
• Express the comparison of two whole numbers
using…part-to-part ratios, and part-to-whole ratios in
real contexts, including investing and saving.
Save and Invest
The PFL Standards …
• … are summarized with our financial
fitness formula:
E2 + S + I2 = F2
• Education, Earn, Save, Invest & Insure
• equals Financial Fitness
Scarcity
• Wants > Availability
– or,
• Unlimited wants > Limited resources
Scarcity  Choice
•
Economics is:
– the study of
choice
The Economic Way of Thinking:
Key Concept
• Scarcity necessitates choice
–people must choose
Develop a
Decision-Making Framework
for Students
• Help make decisions
– by learning a process for
more careful choice
PACED Decision-Making Model
• Define the Problem
• List the Alternatives
• State the Criteria
• Evaluate the Alternatives
• Make a Decision
Let’s Make Another
Set of Choices …
Financial Planning
• Would you like to run in a race?
• So that you can plan & train appropriately
– you’d want to know:
• How long is the race?
 Begin with end in mind, then develop
a roadmap on how to get there.
If one does not know to which port
one is sailing, no wind is favorable.
Lucius Annaeus Seneca, Roman philosopher
Financial Plan Step 1: Goal Setting
• Goals – something you want:
– to be
– to have
– to do
• Goals will point you in a direction.
– Goals toward which to aim
– Your values (beliefs important to you)
• impact your goals
Goals Have a Time Frame
• How long to accomplish?
– Short-term goals
• Up to three years
– Intermediate-term goals
• Between three and five years
– Long-term goals
• Beyond five years
and …
Goals Can Be . . .
• Financial
– Purchase
• prom dress
• car
• college education
• retirement
• Non-Financial
– Spend more time
• with family
• with friends
• exercising
• reading
Write Down Three of
Your Future Goals
• Two “financial”
– One short term and one long term
• One “non-financial”
List Some of Your Goals
Financial Goals
Short term
Long term
Non-financial Goal
Short or
Long term
Estimated Cost of
Achieving Goal
Buyer Beware!
If it sounds too good to be true,
then it probably is.
• What’s “too good to be true?”
• Recognizing “normal” rates of return can be helpful
• Best way to protect yourself from a Scam is to
remember that:
There’s no such thing as a free lunch!
• Speaking of scams … here’s a classic:
http://www.youtube.com/watch?v=ynPJM0Zeqqg