Chapter 2

PERSONAL FINANCE KPIs

Most every organization uses metrics to determine success.  Also referred to as key perfor­mance indicators (KPIs), these numeric measurements can be used to assess financial success and progress toward goals. When selecting personal financial KPIs, be sure to: (1) identify what’s important to you for your financial goals; (2) create a system to track your progress, in writing, with a computer file, or an app; (3) involve all household members in the decision process.

Some common KPIs you might consider monitoring include:

  • Credit score, which is affected by missed debt payments and involves your ability to access loans in the future.
  • Savings rate is vital for future major purchases and planning for retirement. Financial advisors recommend saving 10-15 percent of your income.
  • Discretionary spending measures a person’s level of expenses related to meals out, fancy clothes, vacations, and other non-necessities, so money can be saved for more important goals.
  • Net worth (total assets minus total liabilities) measures financial health progress, which can increase by paying off debts and increasing saving and investing.

More creative KPIs are available for advanced personal financial planning. The Financial Health Index combines several financial metrics to provide a measure of overall financial health. The Financial Independence Number indicates the amount of money needed to live off the investment returns of your net worth. Living Within Means Index measures if necessary expenses are covered by a person’s income.

For additional information on KPIs for personal finance, go to:

Article #1

Article #2

Teaching Suggestions

  • Have students create a visual design that might be used to monitor progress for one or more personal finance key performance indicators.
  • Have students talk to others about actions they take to monitor their financial progress.
  • Refer students to the Road Map/Dashboard feature at the end of each chapter of Personal Finance or Focus on Personal Finance to view additional examples of key performance indicators.

Discussion Questions 

  1. What are the benefits and limitations of personal finance KPIs?
  2. What are other KPIs that might be valuable indicators of personal finance success?

 

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Financial Literacy for Children

A lifetime of skillful financial decisions starts with experiential learning at a young age. To increase financial literacy for the next generation, consider these actions:

  • Give children a payday. Instead of a weekly allowance with simply giving money, create a system of earning these funds. Connect their household chores to earned amounts with a weekly payday. This practice can teach a child that people are paid for work to earn money for their living expenses.
  • Create awareness of opportunity cost. Every financial decision has trade-offs. Once money is spent, that money is not available for other uses. Keeping money in a clear jar allows the young person to visually see what funds are available, and when the money is gone.
  • Allow children to experience borrowing. If a child wants to buy something but does not have the money, set up a signed loan agreement with repayment terms. Also create a plan for the amount owed to be taken from future household earnings. Have the young person physically pay the money to better understand how credit works.
  • Connect them in the budgeting process. Include children in the discussion of family finances and the household budget to help them understand where money is spent. Consider creating a chart with spending amounts, or use slips of paper representing money that are used to pay the bills each month.
  • Teach wants vs. needs. Shoes or a clothing item may be a need but not a high-fashion version. To cover the cost of the higher-priced item, young people should be required to earn the amount for the additional expense.
  • Use money games. These activities can help children understand earning, saving, wise spending and other basics of money management for a financially sound future.

For additional information on financial literacy for children, click here.

Teaching Suggestions

  • Have students conduct online research to locate other actions used by parents to teach their children smart spending and wise money management.
  • Have students talk to parents to obtain suggestions that might be used to teach wise money management to children.

 Discussion Questions 

  1. What are the financial, social, and relational benefits of children learning smart spending and wise money management early in life?
  2. Describe possible money management learning activities for children that involve creative use of technology.
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Giving A 6-Year-Old A Debit Card to Teach Wise Spending…Really!!

Kids are no longer using a piggy bank to obtain financial responsibility. Instead, digital tools, such as debit cards and apps, are the basis for learning smart spending and wise money management.  Many of these products are prepaid cards that help kids track their spending, and also include customizable oversight features for parents.  Some available products include:

  • FamZoo (famzoo.com) makes use of parent-paid interest to encourage saving. Common users of the app are preteen and young teenagers, but may also be used for kids from preschool to college.
  • Greenlight (greenlightcard.com) allows parents to control the stores at which the debit card can be used. Greenlight plans to introduce an investing feature to move users to a higher level of financial literacy.
  • gohenry (gohenry.com) is an app for kids (ages 8 to 18), but may be used by younger children. The emphasis is on building money management confidence in a safe setting while learning to spend and save.
  • Current (current.com) is a custodial bank account aimed at teenagers. Parents may also open accounts for younger children.

These products allow parents to channel digital funds to their children to pay weekly allowances. Also, kids may divide their money into accounts for saving, spending, and donating to charity.  Most apps have a monthly fee, ranging from $3 to $5.

When using prepaid debit cards with children, consider the following:

  • Spend time talking about why the kids want to buy various items, and why certain household tasks earn money and others do not. Expand the Connect the discussion to talk about total family finances as well as money attitudes and values.
  • Allow freedom to make spending decisions to give kids experience at managing money, and to make mistakes from which they will learn.
  • Ask older kids to buy household items, even though they might be reimbursed. Buying shampoo, toothpaste, and snacks will prepare them for when they are on their own. Also consider billing them for monthly expenses, such as the cost of their cell phone.

For additional information on prepaid debit cards for kids, click here.

Teaching Suggestions

  • Have students conduct online research to evaluate apps that might be used by parents to teach their children smart spending and wise money management.
  • Have students talk to parents to obtain suggestions that might be used to teach wise money management to children.

Discussion Questions 

  1. What are the financial, social, and relational benefits of children learning smart spending and wise money management early in life?
  2. Describe some possible money management learning activities for children that do not involve the use of technology.
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Beware: Subscription Services

With growing numbers of video streaming services and product box programs, these subscriptions are becoming the newest budget buster. These seemingly small monthly charges add up, lowering a person’s ability to save along with a potential for increased debt. These ongoing financial commitments leave people with a lower percentage of free cash flow, or unencumbered income.

Subscription service spending is often overlooked especially when the payments are on auto pilot. A $4 or $8 monthly fee may not seem like much. However, research indicates that subscription services are an increasing financial burden as most people underestimate the amount. In one study, 84 percent of respondents estimated monthly spending on these services at about $80; the actual amount was over $110. In addition to video steaming services, people sign up for automatic monthly shipments of beer, wine, contact lenses, cosmetics, meal kits, pet food, razors, vitamins, and other products.

For additional information on subscription services, click here.

Teaching Suggestions

  • Have students survey several people to determine the types and amounts of subscription services being used.
  • Have students create a financial analysis for amounts saved over several years by reducing or eliminating subscription services.

Discussion Questions 

  1. What factors influence a person’s decision to use a subscription service?
  2. Describe suggested actions that a person might take to reduce or eliminate subscription services.
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Meet the “Henrys” (high earners not rich yet)

Many young people making high salaries still say they feel broke. A “Henry,” short for “high earners not rich yet,” is someone who lives an extravagant lifestyle combined with their student loans has very little money left over.  These “working rich” place a strong emphasis on travel, and often limit their spending on food and clothing in order to afford luxury trips.  While many have a desire to get their finances in order, very few take appropriate actions to do so.

Henrys are characterized by a higher-than-average income, little or no savings, and a feeling of low material wealth. Most of their earnings go toward current living expenses rather than building wealth with investments.

For additional information on high earners not rich yet, click here.

Teaching Suggestions

  • Have students conduct online research to determine various financial attitudes and behaviors of people in different age categories and life situations.
  • Have students prepare a video that recommending actions to the people described in the article.

Discussion Questions 

  1. What factors might be influencing the financial activities of the people described in the article?
  2. Describe possible financial concerns associated with these financial attitudes and behaviors, and recommend corrective actions that might be taken.
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Kakeibo: The Japanese art of saving money

Kakeibo, pronounced “kah-keh-boh” and translates as “household financial ledger,” is a method used in Japan for managing personal finances. For over 100 years, this system has helped people make smarter money decisions.

Similar to other budgeting systems, kakeibo is designed to help you understand your relationship with money by recording all financial inflows and outflows. As proven by research, this recordkeeping method emphasizes physically writing your financial activities making you more aware of bad money habits. Kakeibo can help you become completely honest about your spending with the use of four categories: (1) needs, (2) wants, (3) culture, such as books and museum visits, and (4) unexpected – medical expenses or car repairs.

Kakeibo encourages you to ask yourself these questions before buying any non-essential items, or things you buy on impulse:

  • Can I live without this item?
  • Based on my financial situation, can I afford it?
  • Will I actually use it? Do I have the space for it?
  • How did I come across it in the first place? (Did I see it in a magazine? Did I come across it after wandering into a gift shop out of boredom?)
  • What is my emotional state in general today? (Calm? Stressed? Celebratory? Feeling bad?)
  • How do I feel about buying it? (Happy? Excited? Indifferent? And how long will this feeling last?)

In addition, to spend more mindfully, Kakeibo recommends that you:

  1. Leave the item for 24 hours.
  2. Don’t let major “sales” tempt you.
  3. Check your bank balance regularly.
  4. Spend in cash.
  5. Put reminders in your wallet – use a sticker: “Do you REALLY need this?!”
  6. Change the environments that cause you to spend.

For additional information on kakeibo, go to:

Link #1

Link #2

Link #3

Teaching Suggestions

  • Have students conduct a survey to determine reactions to this budgeting system among people in different age categories and life situations.
  • Have students prepare a visual summary of some of the characteristics of the budgeting system.

 Discussion Questions 

  1. What elements of this budgeting system might people find beneficial? What are possible drawbacks?
  2. If you were to implement this system for your life, which actions would you select to do first?
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Avoiding Personal Finance Nonsense

Many personal finance reports are published with advice that may not provide the best guidance. In an effort to avoid buzzwords and troubling phrases, consider these suggestions:

  • determine who conducted the research; a company may sponsor a study that lacks the rigor of academic or government researchers.
  • be wary of research that reports feelings or predictions rather than actual behaviors and actions of respondents.
  • consider the number of people in the study and how the respondents were selected.
  • avoid generalizations that about a certain age group, such as Millennials, Baby Boomers, or Generation X.

Don’t revise your money management activities based on some survey or research report. If your current actions are working, then you are on the correct path.

For additional information on avoiding personal finance nonsense, click here.

Teaching Suggestions

  • Have students conduct online research to locate a recent personal finance study to evaluate the validity of the advice offered in the report.
  • Have students create a video presentation reporting both valid and nonsense personal finance advice.

Discussion Questions 

  1. What problems could occur if a person uses inappropriate financial advice?
  2. In addition to the suggestions in the article, what actions might a person take to determine the validity of personal finance advice?
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Financial Planning for a Career Change

When considering a career change, the following financial suggestions are offered:

  • have an appropriate amount of savings for unexpected expenses during the transition.
  • create a budget to live frugally; cut living costs to be prepared for sudden expenses.
  • reassess your investment portfolio to reduce risk exposure and possibly eliminate fees.
  • seek advice from a financial advisor.
  • determine how a career switch might impact your ability to save.

For additional information on financial advice when changing careers, click here.

Teaching Suggestions

  • Have students talk to a person who recently changed jobs to obtain information about their experiences.
  • Have students create a video presentation with suggested actions when planning to change careers.

Discussion Questions 

  1. What relationship exists between a person’s career choice and money management activities?
  2. Describe additional financial planning actions that might be appropriate when considering a career change.
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Anchoring Your Personal Finance Decisions

To spend less and save more, consider an “anchoring” system.  One example of an anchor is the price of an item to determine if that is an appropriate amount of money to spend for the item.

Anchors prevent shoppers from being overwhelmed by the many choices, prices, and features.  You can create your own anchors by:

  • setting the maximum price you are willing to spend for an item.
  • considering the value of an item in relation to the number of hours you have to work to pay for it.
  • comparing the cost in relation to another item. If you buy coffee costing $2.50 a cup and want a sweater costing $50, view the sweater as costing 20 cups of coffee. Your “coffee” anchor will help you determine how valuable the sweater is to you.

When buying a home, you may be encouraged to look at properties outside your price range.  Anchoring yourself at a price limit will avoid overspending, make you feel more in control, and encourage wiser financial decisions.

For additional information on financial anchoring, click here.

Teaching Suggestions

  • Have students talk to several people to obtain information about how they determine the price they are willing to pay for an item.
  • Have students create a video presentation that demonstrates various anchoring methods.

Discussion Questions 

  1. How might anchoring help improve personal financial literacy and money management activities?
  2. Describe anchors people might used to determine the price they would be willing to pay for an item.
Categories: Chapter 1, Chapter 2, Chapter 6, Chapter 7, Financial Planning, Wise Shopping | Tags: , | Leave a comment

Financial Regrets

Most people would like to be able to go back and do some things differently related to their personal finances. A study by bankrate.com revealed that 76 percent of those surveyed have at least one financial regret. The largest concern, over half (56 percent), involved not starting to save sooner for retirement, an emergency fund, or their children’s education.  Other financial regrets reported in the study include: living above one’s means; taking on too much credit card debt; and the burden of student loans.

A recommended action to address these financial regrets include breaking down large goals into smaller, easier ones can help put individuals on a path to success. A “save-first” mindset instead of “spend-first” is also suggested. In addition, consider opening an online savings account with higher returns, and set up direct deposits for regular saving.

For additional information on financial regrets, click here.

Teaching Suggestions

  • Have students conduct online research to determine various financial regrets of people in different age categories and life situations.
  • Have students conduct an interview with a person about actions that might be taken to avoid financial regrets.

Discussion Questions 

  1. What factors might create situations that result in a financial regret?
  2. Describe possible financial regrets and corrective actions a person might take.
Categories: Chapter 1, Chapter 2, Financial Planning, Savings | Tags: , , | Leave a comment

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