MEDSTUDY.COM
INSTRUCTOR’S MANUAL FOR
Focus on Personal Finance 12th Edition by Jack Kapoor, Les Dlabay, Robert J. Hughes
& Melissa Hart ISBN-13 978-1259720680
Chapter 1
PERSONAL FINANCE BASICS AND
THE TIME VALUE OF MONEY
CHAPTER OVERVIEW
This chapter provides the foundation for Personal Finance and the study of financial planning. The
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chapter starts with a discussion of an overview of the financial planning process. This is followed by
coverage of the personal, social, and economic factors that make up the financial planning environment.
Next, goal setting and the opportunity costs, or trade-offs, of decisions are considered in relation to
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personal and financial resources. Then, the main components of financial planning (obtaining, planning,
saving, borrowing, spending, managing risk, investing, and retirement and estate planning) are discussed.
Finally, strategies for creating and using a financial plan are introduced.
LEARNING OBJECTIVES CHAPTER SUMMARY
ST
After studying this chapter, students will be able to:
LO 1-1 Analyze the process When making major financial decisions, use a variety of
for making personal information sources to implement the personal financial planning
financial decisions. process: (1) determine your current financial situation, (2) develop
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financial goals, (3) identify alternative courses of action, (4)
evaluate alternatives, (5) create and implement a financial action
plan, and (6) review and revise the financial plan.
D
LO 1-2 Assess personal and Financial decisions are affected by personal factors (income,
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economic factors that household size, health, values, and goals), social factors
influence personal (demographic trends and government actions), and economic
financial planning. factors (prices, interest rates, and employment opportunities).
LO 1-3 Develop personal The financial goals you develop should take a S-M-A-R-T
financial goals. approach with goals that are: Specific, Measurable, Action
oriented, Realistic, and Time-based.
LO 1-4 Calculate time value Every decision involves a trade-off; the selection of one alternative
of money situations to prevents the selection of another. Personal opportunity costs may
analyze personal include time, effort, and health. Financial opportunity costs are
financial decisions. based on the time value of money. Future value and present value
calculations enable you to measure the increased value (or lost
interest) that results from a saving, investing, borrowing, or
purchasing decision.
,MEDSTUDY.COM
LO 1-5 Identify strategies for Successful financial planning requires specific goals combined with
achieving personal spending, savings, investing, and borrowing strategies based on
financial goals for your personal situation and various social and economic factors.
different life
situations.
INTRODUCTORY ACTIVITIES
Use the "Financial Literacy in Your Life" (p. 2) to point out the importance of an emergency fund for
personal financial planning.
Ask students to comment on their responses to the ―My Life‖ chapter opening exercise (p. 2).
Point out the learning objectives (p. 1) in an effort to highlight the key elements of the chapter.
Ask students to explain how social and economic factors and technology have increased the
importance of personal financial planning.
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Have students answer these three questions as individuals or in small discussion groups:
1. What do you currently know about personal financial planning?
2. What questions do you need answers for about personal finance?
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3. How and where might you obtain answers to the questions you have about personal finance?
WHAT'S NEW TO THIS EDITION
Topics, Features Benefits for the Teaching-Learning Environment
ST
Revised exhibit: Changing Provides updated coverage of economic indicators, showing how
economic conditions and financial they might influence financial planning decisions.
decisions
New Financial Planning for My Provides students with a way to assess their financial health as they
Life feature get started in building their financial plan.
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Revised Dashboard feature Provides an overview of emergency savings funds.
New Continuing Case: Personal Allows students an opportunity to assess various financial
Finance Basics and the Time situations and recommend courses of action, based on the
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Value of Money knowledge gained in mastering the chapter material.
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CHAPTER 1 OUTLINE
I. The Financial Planning Process
A. Step 1: Determine Your Current Financial Situation
B. Step 2: Develop Your Financial Goals
C. Step 3: Identify Alternative Courses of Action
D. Step 4: Evaluate Your Alternatives
1. Consequences of Choices
2. Evaluating of Risk
3. Financial Planning Information Sources
E. Step 5: Create and Implement a Financial Action Plan
F. Step 6: Review and Revise Your Plan
II. Influences on Personal Financial Planning
,MEDSTUDY.COM
A. Life Situation and Personal Values
B. The Financial System and Economic Factors
1. Global Influences
2. Economic Conditions
III. Developing Personal Financial Goals
A. Types of Financial Goals
1. Timing of Goals
2. Goals for Different Financial Needs
B. Goal-Setting Guidelines
IV. Opportunity Costs and the Time Value of Money
A. Personal Opportunity Costs
B. Financial Opportunity Costs
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1. Interest Calculations
2. Future Value of a Single Amount
3. Future Value of a Series of Deposits
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4. Present Value of a Single Amount
5. Present Value of a Series of Deposits
V. Achieving Financial Goals
A. Components of Personal Financial Planning
1. Obtaining
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2. Planning
3. Saving
4. Borrowing
5. Spending
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6. Managing Risk
7. Investing
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8. Retirement and Estate Planning
B. Developing a Flexible Financial Plan
C. Implementing Your Financial Plan
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D. Studying Personal Finance
CHAPTER 1 APPENDIX: The Time Value of Money: Future and Present Value Computations
I. Interest Rate Basics
II. Future Value of a Single Amount
III. Future Value of a Series of Equal Amounts (an Annuity)
IV. Present Value of a Single Amount
V. Present Value of a Series of Equal Amounts (an Annuity)
VI. Using Present Value to Determine Loan Payments
, MEDSTUDY.COM
CHAPTER 1 LECTURE OUTLINE Instructional Suggestions
I. THE FINANCIAL PLANNING PROCESS (p. 2) Use PPT slides 1-3 to 1-7.
Personal financial planning is the process of Text Highlight: Use the visual
display on p. 3 to provide an
managing your money to achieve personal economic overview of the spending,
satisfaction. saving, and sharing elements of
personal financial planning.
Step 1. Determine Your Current Financial Situation
(p. 3) Discussion Question: Why do
some decisions require more
Determine your current financial situation with regard time and effort than others?
to income, savings, living expenses, and debts. Text Highlight: Discuss the in-
text, boxed examples for each
Step 2. Develop Your Financial Goals (p. 4) step of the Financial Planning
Analyze your financial values and goals to set a Process (text pp. 3-8).
Discussion questions and
course for action. personal applications are
included in each example.
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Step 3. Identify Alternative Courses of Action (p. 5) Class Exercise: Select a
situation (such as obtaining
Various alternatives associated with financial decision funds to start a business or
getting work-related experience
ED
making are usually based on deciding to:
without a job) and have students
Continue the same course of action; for example, create a list of alternatives for
you may determine that the amount saved each this problem.
month is still appropriate.
Use PPT slide 1-8.
Expand the current situation; you may choose to
save a larger amount each month.
Change the current situation; you may decide to
ST
use a money market account instead of a regular
savings account.
Take a new course of action; you use your
monthly savings budget to pay off credit card
debts.
U
Creativity in decision making is vital to making
effective choices. The more alternatives that are
considered, the more likely a person or household will
D
make wise financial choices.
Step 4. Evaluate Your Alternatives (p. 5) Text Highlight: Exhibit 1-2 (p.
6) provides information on five
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Every decision closes off alternatives. The types of risks faced in many
opportunity cost is what a person gives up by making financial decisions.
a choice. This cost, commonly referred to as the Use PPT slides 1-9 and 1-10.
trade-off of a decision, sometimes cannot be measured
in dollars.
Decision making will be an ongoing part of your
personal and financial existence. Thus, you will need
to consider the lost opportunities that result from your
decisions.
Uncertainty is a part of every decision. In many
financial decisions, identifying and evaluating risk is
a difficult task. The best way to consider risk in such
decisions is to gather information based on your
INSTRUCTOR’S MANUAL FOR
Focus on Personal Finance 12th Edition by Jack Kapoor, Les Dlabay, Robert J. Hughes
& Melissa Hart ISBN-13 978-1259720680
Chapter 1
PERSONAL FINANCE BASICS AND
THE TIME VALUE OF MONEY
CHAPTER OVERVIEW
This chapter provides the foundation for Personal Finance and the study of financial planning. The
M
chapter starts with a discussion of an overview of the financial planning process. This is followed by
coverage of the personal, social, and economic factors that make up the financial planning environment.
Next, goal setting and the opportunity costs, or trade-offs, of decisions are considered in relation to
ED
personal and financial resources. Then, the main components of financial planning (obtaining, planning,
saving, borrowing, spending, managing risk, investing, and retirement and estate planning) are discussed.
Finally, strategies for creating and using a financial plan are introduced.
LEARNING OBJECTIVES CHAPTER SUMMARY
ST
After studying this chapter, students will be able to:
LO 1-1 Analyze the process When making major financial decisions, use a variety of
for making personal information sources to implement the personal financial planning
financial decisions. process: (1) determine your current financial situation, (2) develop
U
financial goals, (3) identify alternative courses of action, (4)
evaluate alternatives, (5) create and implement a financial action
plan, and (6) review and revise the financial plan.
D
LO 1-2 Assess personal and Financial decisions are affected by personal factors (income,
Y
economic factors that household size, health, values, and goals), social factors
influence personal (demographic trends and government actions), and economic
financial planning. factors (prices, interest rates, and employment opportunities).
LO 1-3 Develop personal The financial goals you develop should take a S-M-A-R-T
financial goals. approach with goals that are: Specific, Measurable, Action
oriented, Realistic, and Time-based.
LO 1-4 Calculate time value Every decision involves a trade-off; the selection of one alternative
of money situations to prevents the selection of another. Personal opportunity costs may
analyze personal include time, effort, and health. Financial opportunity costs are
financial decisions. based on the time value of money. Future value and present value
calculations enable you to measure the increased value (or lost
interest) that results from a saving, investing, borrowing, or
purchasing decision.
,MEDSTUDY.COM
LO 1-5 Identify strategies for Successful financial planning requires specific goals combined with
achieving personal spending, savings, investing, and borrowing strategies based on
financial goals for your personal situation and various social and economic factors.
different life
situations.
INTRODUCTORY ACTIVITIES
Use the "Financial Literacy in Your Life" (p. 2) to point out the importance of an emergency fund for
personal financial planning.
Ask students to comment on their responses to the ―My Life‖ chapter opening exercise (p. 2).
Point out the learning objectives (p. 1) in an effort to highlight the key elements of the chapter.
Ask students to explain how social and economic factors and technology have increased the
importance of personal financial planning.
M
Have students answer these three questions as individuals or in small discussion groups:
1. What do you currently know about personal financial planning?
2. What questions do you need answers for about personal finance?
ED
3. How and where might you obtain answers to the questions you have about personal finance?
WHAT'S NEW TO THIS EDITION
Topics, Features Benefits for the Teaching-Learning Environment
ST
Revised exhibit: Changing Provides updated coverage of economic indicators, showing how
economic conditions and financial they might influence financial planning decisions.
decisions
New Financial Planning for My Provides students with a way to assess their financial health as they
Life feature get started in building their financial plan.
U
Revised Dashboard feature Provides an overview of emergency savings funds.
New Continuing Case: Personal Allows students an opportunity to assess various financial
Finance Basics and the Time situations and recommend courses of action, based on the
D
Value of Money knowledge gained in mastering the chapter material.
Y
CHAPTER 1 OUTLINE
I. The Financial Planning Process
A. Step 1: Determine Your Current Financial Situation
B. Step 2: Develop Your Financial Goals
C. Step 3: Identify Alternative Courses of Action
D. Step 4: Evaluate Your Alternatives
1. Consequences of Choices
2. Evaluating of Risk
3. Financial Planning Information Sources
E. Step 5: Create and Implement a Financial Action Plan
F. Step 6: Review and Revise Your Plan
II. Influences on Personal Financial Planning
,MEDSTUDY.COM
A. Life Situation and Personal Values
B. The Financial System and Economic Factors
1. Global Influences
2. Economic Conditions
III. Developing Personal Financial Goals
A. Types of Financial Goals
1. Timing of Goals
2. Goals for Different Financial Needs
B. Goal-Setting Guidelines
IV. Opportunity Costs and the Time Value of Money
A. Personal Opportunity Costs
B. Financial Opportunity Costs
M
1. Interest Calculations
2. Future Value of a Single Amount
3. Future Value of a Series of Deposits
ED
4. Present Value of a Single Amount
5. Present Value of a Series of Deposits
V. Achieving Financial Goals
A. Components of Personal Financial Planning
1. Obtaining
ST
2. Planning
3. Saving
4. Borrowing
5. Spending
U
6. Managing Risk
7. Investing
D
8. Retirement and Estate Planning
B. Developing a Flexible Financial Plan
C. Implementing Your Financial Plan
Y
D. Studying Personal Finance
CHAPTER 1 APPENDIX: The Time Value of Money: Future and Present Value Computations
I. Interest Rate Basics
II. Future Value of a Single Amount
III. Future Value of a Series of Equal Amounts (an Annuity)
IV. Present Value of a Single Amount
V. Present Value of a Series of Equal Amounts (an Annuity)
VI. Using Present Value to Determine Loan Payments
, MEDSTUDY.COM
CHAPTER 1 LECTURE OUTLINE Instructional Suggestions
I. THE FINANCIAL PLANNING PROCESS (p. 2) Use PPT slides 1-3 to 1-7.
Personal financial planning is the process of Text Highlight: Use the visual
display on p. 3 to provide an
managing your money to achieve personal economic overview of the spending,
satisfaction. saving, and sharing elements of
personal financial planning.
Step 1. Determine Your Current Financial Situation
(p. 3) Discussion Question: Why do
some decisions require more
Determine your current financial situation with regard time and effort than others?
to income, savings, living expenses, and debts. Text Highlight: Discuss the in-
text, boxed examples for each
Step 2. Develop Your Financial Goals (p. 4) step of the Financial Planning
Analyze your financial values and goals to set a Process (text pp. 3-8).
Discussion questions and
course for action. personal applications are
included in each example.
M
Step 3. Identify Alternative Courses of Action (p. 5) Class Exercise: Select a
situation (such as obtaining
Various alternatives associated with financial decision funds to start a business or
getting work-related experience
ED
making are usually based on deciding to:
without a job) and have students
Continue the same course of action; for example, create a list of alternatives for
you may determine that the amount saved each this problem.
month is still appropriate.
Use PPT slide 1-8.
Expand the current situation; you may choose to
save a larger amount each month.
Change the current situation; you may decide to
ST
use a money market account instead of a regular
savings account.
Take a new course of action; you use your
monthly savings budget to pay off credit card
debts.
U
Creativity in decision making is vital to making
effective choices. The more alternatives that are
considered, the more likely a person or household will
D
make wise financial choices.
Step 4. Evaluate Your Alternatives (p. 5) Text Highlight: Exhibit 1-2 (p.
6) provides information on five
Y
Every decision closes off alternatives. The types of risks faced in many
opportunity cost is what a person gives up by making financial decisions.
a choice. This cost, commonly referred to as the Use PPT slides 1-9 and 1-10.
trade-off of a decision, sometimes cannot be measured
in dollars.
Decision making will be an ongoing part of your
personal and financial existence. Thus, you will need
to consider the lost opportunities that result from your
decisions.
Uncertainty is a part of every decision. In many
financial decisions, identifying and evaluating risk is
a difficult task. The best way to consider risk in such
decisions is to gather information based on your
