Personal Management
Troop 395
Fall 2011
Brandon Fentress
Ranse Stokes
Requirement 1*
Do the following:
A. Choose an item that your family might want to purchase that is considered a major
expense.
B. Write a plan that tells how your family would save money for the purchase identified
in requirement 1a.
1. Discuss the plan with your merit badge counselor
2. Discuss the plan with your family
3. Discuss how other family needs must be considered in this plan.
C. Develop a written shopping strategy for the purchase identified in requirement 1a
1. Determine the quality of the item or service (using consumer publications or
rating systems).
2. Comparison shop for the item. Find out where you can buy the item for the best
price. (Provide prices from at least two different price sources.) Call around; study
ads. Look for a sale or discount coupon. Consider alternatives. Can you buy the
item used? Should you wait for a sale?
Requirement 2*
Do the following:
A. Prepare a budget reflecting your expected income (allowance,
gifts, wages), expenses, and savings. Track your actual income,
expenses, and savings for 13 consecutive weeks. (You may use
the forms provided in this pamphlet, devise your own, or use a
computer generated version.) When complete, present the results
to your merit badge counselor.
B.
Compare expected income with expected expenses.
1. If expenses exceed income, determine steps to balance
your budget.
2. If income exceeds expenses, state how you would use
the excess money (new goal, savings).
Requirement 3 (in Class)
Discuss with your merit badge counselor FIVE of the following concepts:
A. The emotions you feel when you receive money.
B. Your understanding of how the amount of money you have with you affects your
spending habits.
C. Your thoughts when you buy something new and your thoughts about the same
item three months later. Explain the concept of buyer's remorse.
D. How hunger affects you when shopping for food items (snacks, groceries).
E. Your experience of an item you have purchased after seeing or hearing
advertisements for it. Did the item work as well as advertised?
F. Your understanding of what happens when you put money into a savings
account.
G. Charitable giving. Explain its purpose and your thoughts about it.
H. What you can do to better manage your money.
Requirement 4 (in Class)
Explain the following to your merit badge counselor:
A. The differences between saving and investing, including reasons
for using one over the other.
B. The concepts of return on investment and risk.
C. The concepts of simple interest and compound interest and how
these affected the results of your investment exercise.
Requirement 4A
Saving – “A Scout is Thrifty”
•
Income not spent
•
•
Putting money into something for
hope of profit
•
Purchase of financial instruments
(stocks or mutual funds) to gain
positive returns in the form of
interest, dividends or appreciation.
•
Investment comes with varying
degrees of risk of loss of all or part
of your money
•
Must try to determine if the risk is
worth the investment (sometimes
this is hard!)
Money in a bank, safe, cookie jar..
•
Reducing expenditures (refinancing
your mortgage, eliminating soft
drinks to save money)
•
Associated with lower or “no” risk
•
Protected by the Federal
government if in a bank.
•
Investing
Saving (increased in net worth) vs.
Savings (one part of your assets)
Requirement 4B
Return on Investment (ROI)
•
Rate of profit
•
Rate of return
•
The ratio of money gained or lost
on the investment relative to the
amount of money invested
•
A percentage value
•
Can be negative or positive
(hopefully always positive!) (e.g.,
+50%  or -20% )
Risk
•
Usually associated with return. In
general, the more risk you take, the
more return you can expect – but
the converse is also true, meaning
that the less risk you take, the
lower amount of return you can
expect.
•
Sometimes you can manage risk
by not “putting all of your eggs in
one basket”…this is known as
diversification.
•
The concept of risk tolerance is
important when considering where
to invest.
Requirement 4C
Simple Interest
•
What is interest? A fee paid on
borrowed assets, the price paid for
borrowed money.
•
The “rent” of money
•
Simple interest is the interest
earned on the deposit amount, or
principal.
•
$100 into an account that earns 6
percent interest annually, that
investment would be worth $106 at
the end of the year.
Compound Interest
•
Compound interest pays interest
on the principal, but also pays
interest on the interest earned.
•
See example in MB pamphlet for
$100 invested over 10 years at
10% compounded interest, but, to
take advantage of this – you must
reinvest the interest in order to
grow your principle and utilize the
advantage of compounding to get
to $159.39!
Requirement 5*
Select five publicly traded stocks from the business section of the
newspaper. Explain to your merit badge counselor the importance of
the following information for each stock:
A. Current price
B. How much the price changed from the previous day
C. The 52-week high and the 52-week low prices
Which Business Model wins?
$1,000 invested buys 16.67 shares @ $60 each
Your investment would have grown to a current value of
$4,167…..an increase of 316% !!!
$1,000 invested buys 3,333 shares @ 0.30 cents each
Your investment would have shrunk to a current value of
$200…decrease of -80% !!!
Requirement 6 (in Class)
Pretend you have $1,000 to save, invest, and help prepare yourself for the future.
Explain to your merit badge counselor the advantages or disadvantages of saving or
investing in each of the following:
A. Common stocks
B. Mutual funds
C. Life insurance
D.
A certificate of deposit (CD)
E.
A savings account or U.S. savings bond
Common Stocks – 6A
•
A form of ownership in a company (usually comes
with voting rights)
•
Can pay dividends and provide capital appreciation
•
Has the most risk of the investments on our list.
Mutual Funds – 6B
•
A professionally managed investment that pools money from many investors
and typically invests in stocks, bonds, short-term money instruments, other
mutual funds, etc.
•
The fund’s manager buys and sells the fund’s investments in line with the
fund’s investment objective. Fund objectives can be geographical, industry
specific, strategic for growth, income or preservation, or tax preferred, etc…
•
Mutual funds can have added investment expenses, so it is important to
choose wisely.
•
Mutual funds are generally less risky than individula stocks due to a
diversification of their investments.
•
Mutual funds are relatively liquid assets, which means you can withdraw
your money easily – and it is easy to add money to your original investment.
Life Insurance – 6C
•
A contract between the policy owner and the insurer, where
the insurer agrees to pay a designated person (the
beneficiary) a set amount of money upon the death of the
insured. In return, the insured individual pays an annual
amount, known as the premium, to the insurance company.
•
Term insurance is essential to have during a persons
working years, as it provides the family protection from lost
income and coverage of debts if one dies. It is not an
investment, but does provide “piece of mind”.
•
Whole life insurance can be considered an investment, but
generally, there are better choices for investment that offer
better flexibility.
Certificate of Deposit – 6D
•
CD’s are insured deposits that pay a fixed interest rate over
a specific period of time. Rates are currently very low.
•
Longer periods of time are usually associated with relatively
higher rates of return.
•
CD’s are not liquid assets and there are usually penalties for
early withdrawal if you need your money.
•
CD’s are very conservative way to preserve your money, but
they are not good investments at this time.
Savings Account vs. US Savings Bond – 6E
Savings Account
•
•
•
Accounts maintained by retail financial
institutions (e.g., State Employee’s Credit
Union) that pay interest but cannot be
used directly as money (for example, by
writing a check)
These accounts allow depositors a way to
save money.
They are highly regulated in the US and
may come with additional restrictions and
penalty fees imposed by the individual
banks themselves
US Savings Bond
•
US Treasury security is
government debt
•
Considered safe investments
because they are backed by the
federal government
•
Series EE (pay for half of face
amount and interest is variable)
and Series I (pay full face value
plus variable interest announced
every 6 years) further described in
the MB pamphlet
Requirement 7 (in Class)
Explain to your merit badge counselor the following:
A. What a loan is, what interest is, and how the annual percentage rate (APR)
measures the true cost of a loan.
B. The different ways to borrow money.
C. The differences between a charge card, debit card, and credit card. What are
the costs and pitfalls of using these financial tools? Explain why it is unwise to make
only the minimum payment on your credit card.
D. Credit reports and how personal responsibility can affect your credit report.
E. Ways to eliminate debt
Loan and Interest - 7A
Loan
•
Interest and APR
An agreement between a lender and a
borrower where the borrower must pay
back the principal and (usually, unless it’s
your parents!) interest.
•
Simple interest rate is not the whole
story
•
Annual percentage rate (APR) – takes
into account fees and other costs over
a year period
•
Usually over a fixed amount of time
•
Charges based on: amount you borrow,
fees charged by lender, interest rate, time
for repayment
•
Extra fees add up quickly and will
increase the cost of the loan
•
Penalties for late/missed payments
•
•
Affects your credit rating and ability to
obtain further loans
Take care when comparing loans:
lower payments could be longer to pay
off a loan
•
Best to shop to investigate fees and time
periods
•
Try to get a loan where you can pay it
off early without penalty fees
Loan Amortization schedule for borrowing $100k at 6% over 30 years
Payment
Amount
Principal
Interest
Balance
1
$599.55
$99.55
$500.00
$99,900.45
2
$599.55
$100.05
$499.50
$99,800.40
3
$599.55
$100.55
$499.00
$99,699.85
4
$599.55
$101.05
$498.50
$99,598.80
5
$599.55
$101.56
$497.99
$99,497.24
6
$599.55
$102.06
$497.49
$99,395.18
7
$599.55
$102.57
$496.98
$99,292.61
8
$599.55
$103.09
$496.46
$99,189.52
9
$599.55
$103.60
$495.95
$99,085.92
10
$599.55
$104.12
$495.43
$98,981.79
350
$599.55
$567.54
$32.01
$5,833.87
351
$599.55
$570.38
$29.17
$5,263.49
352
$599.55
$573.23
$26.32
$4,690.26
353
$599.55
$576.10
$23.45
$4,114.16
354
$599.55
$578.98
$20.57
$3,535.18
355
$599.55
$581.87
$17.68
$2,953.31
356
$599.55
$584.78
$14.77
$2,368.52
357
$599.55
$587.71
$11.84
$1,780.81
358
$599.55
$590.65
$8.90
$1,190.17
359
$599.55
$593.60
$5.95
$596.57
360
$599.55
$596.57
$2.98
$0.00
Totals
$215,838.19
$100,000.00
$115,838.19
Different Ways to Borrow Money – 7B
•
Parents/relatives (may not charge interest)
•
Banks (for things too expensive to buy like cars and
houses) – will charge interest, usually lower total
charges/fees/interest the quicker you pay it back
•
Charge and Credit Cards (will charge varying
amounts of interest and interest adds up quickly if
only the minimum monthly charge is paid)
Charge Card vs. Credit Card – 7C
Charge Card
Credit Card
•
A plastic card that provides an
alternative to paying cash when
making purchases
•
A plastic card that provides an
alternative to paying cash when
making purchases
•
An agreement that the debt
incurred on the charge card will be
paid in full by the due date (usually
every 30 days) or be subject to
severe late fees and restrictions on
charge use.
•
An agreement that the debt
incurred on the credit card does not
need to be paid in full and no late
fee is charged so long as the
minimum payment is made at
specified intervals (e.g., monthly)
•
Credit cards come with a credit
limit that cannot be exceeded
•
Some places may not accept
certain types of credit cards
•
May not have a credit limit
•
Some places may not take certain
charge cards
How Credit Cards Can Affect You – 7D
•
Because debt is part of life in the US, companies track credit
records for everyone
•
Can demonstrate good buying and loan repayment behavior
to future lenders and employers – a Scout is thrifty!
•
Poor choices can get you into serious debt and will
accompany you for many years
•
You may be refused future credit
•
You may lose your house or car (see news about local
house foreclosures or just walk around your neighborhood)
Ways to Eliminate/Reduce Debt – 7E
•
Stop buying things you don’t need
•
Pay cash for purchases
•
Cut up credit cards if you can’t stop from using them
•
Reduce the number of credit cards that you have
•
Make a budget to track income and expenses
•
Try to earn extra money to help pay off debts
Why is Minimum Payment Unwise? – 7C
•
If the loan (debt amount) is not paid off at the
end of the month, a finance charge will be
added to the balance
•
The longer it takes to pay off the balance, the
more the loan costs you.
•
Interest can be expensive! Many cards charge
18% a year or more. The longer it takes to
pay off the balance, the more expensive the
items you bought become.
Requirement 8*
Demonstrate to your merit badge counselor your understanding of time
management by doing the following:
A. Write a "to do" list of tasks or activities, such as homework assignments, chores,
and personal projects, that must be done in the coming week. List these in order of
importance to you.
B. Make a seven-day calendar or schedule. Put in your set activities, such as
school classes, sports practices or games, jobs or chores, and/or Scout or church or
club meetings, then plan when you will do all the tasks from your "to do" list between
your set activities.
C. Follow the one-week schedule you planned. Keep a daily diary or journal during
each of the seven days of this week's activities, writing down when you completed
each of the tasks on your "to do" list compared to when you scheduled them.
D. Review your "to do" list, one-week schedule, and diary/journal to understand
when your schedule worked and when it did not work. With your merit badge
counselor, discuss and understand what you learned from this requirement and what
you might do differently the next time.
Requirement 9*
Prepare a written project plan demonstrating the steps below, including the desired
outcome. This is a project on paper, not a real-life project. Examples could include
planning a camping trip, developing a community service project or a school or religious
event, or creating an annual patrol plan with additional activities not already included in
the troop annual plan. Discuss your completed project plan with your merit badge
counselor.
A. Define the project. What is your goal?
B.
Develop a timeline for your project that shows the steps you must take from
beginning to completion.
C.
Describe your project.
D. Develop a list of resources. Identify how these resources will help you achieve your
goal.
E.
If necessary, develop a budget for your project.
Requirement 10*
Do the following:
A. Choose a career you might want to enter after high school or
college graduation.
B. Research the limitations of your anticipated career and discuss
with your merit badge counselor what you have learned about
qualifications such as education, skills, and experience.
Types of Careers
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•
•
•
•
•
•
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Banker
Loan Officer / Underwriter
Financial Planner
Investment Advisor
Financial Analyst
Time Management Expert (e.g., Personal
Productivity Expert)
Teacher/Professor of Economics
Certified Public Accountant