1Money has never made man happy, nor will it, there is nothing in its nature to produce happiness. The more of it one has the more one wants.
Critical Thinking an
C H AP
Questions you will answer. . . .
1. What is fi nancial literacy?
2. Can you tell the difference between needs and wants?
3. Are you aware of your spending habits?
4. Do you have a plan for the future?
5. How do you if-then think?
6. How can you see the big picture?
2. Can you tell the difference between needs and wants?
fi nancial skills w
the Dollars & S
2 C h a p t e r 1
Clint is a sophomore in high school and hes had a job ever since he was old enough to work. Currently, hes working at Little Caesars Pizza. His parents pay for most of his day-to-day expenses, such as shelter, food, clothes, and car insurance. However, they expect Clint to pay for incidentals, such as meals at fast food restaurants, music downloads, video games, gas, and car maintenance. Plus, they expect him to put away money for college.
When Clint first started making money, he spent it as soon as he got it. A week before payday, he was usually counting change on the floorboards of his car to get enough gas money to drive to work. One day, he asked his dad for some cash for gas. His dad responded with
a question of his own. Where are you spending your money?
Clint had never really thought much about it, so he decided to write down all his expendi-tures for the past week. He came up with quite a list: dinner and a movie with his girlfriend, lunch with his friends, a three-month subscription to World of Warcraft, gas for work, and daily mo-cha lattes from Starbucks before school. His dad asked him which of those things he really need-ed. Clint was stumpedhe bought them, so didnt that mean he needed them?
Thats when Clints dad decided to sit down with Clint and talk about financial literacy . . . of course he didnt call it that, he called it spend-ing money wisely. Together, Clint and his dad discussed how much Clint made, how much he spent, and what he spent it on. Clint realized that he spent more than he made and didnt put any money away for college.
Next, Clints parents asked Clint to help them with a family budget. That meant listing all the familys bills and prioritizing them between needs and wants. Needs were bills the family had to pay, for services they could not do without: the house mortgage, groceries, car insurance, and utilities. Wants were items the family would like to buy, but could do without if they had to: a new television and a family vacation.
C r I t I C a L t h I N K I N G a N D F I N a N C I a L S K I L L S 3
When Clint saw that his parents had to make hard decisions be-tween paying for needs and wants, he decided to make his own budget and do the same. His parents helped him get started and at fi rst the budget felt restrictive. But after a while, Clint started to feel in control of his fi nanceshe was making informed decisions about what to buy and when. By the time he was a senior, Clint was paying for the things he needed, some of the things he wanted, and was able to put money away for college. He was fi nancially literate!
Like Clint, all of us struggle with telling the difference
between what we want and what we actually need. It
doesnt help that were inundated daily with ads urging
us to buy, buy, buy, or bombarded with images of what
were supposed to look like, wear, or own so we fi t in with
the cool people. We have become a consumer nation without
any thought to how well pay for it all. Is it any wonder that so many
people are in debt?
However, you dont have to wind up overspending and in debt. In-
stead, you can follow Clints lead by becoming aware of your spending,
acknowledging what funds you have, making wise decisions about what
you must have and what you can do without, and taking responsibility for
In this chapter, were going to introduce you to some of the concepts
that youll study in detail in later chapters. We want you to get a taste
of things to come. Youll have a chance to get acquainted with fi nancial
literacy, tell the difference between needs and wants, become aware of
your spending habits, think about the future, and see the big picture when
it comes to making decisions about money.
WHAT IS FINANCIAL LITERACY?
A s we mentioned earlier, fi nancial literacy is being able to man-age money wisely for lifetime security. There are a lot of people in the world today who dont feel
very secure about their fi nances, and we want to make sure you are not one of them.
When youre fi nancially literate, you are aware of your personal fi nancesyou
Financial Literacy, noun
Ability to use knowledge and skills to manage your financial resources effectively for lifetime fi nancial security.
Want to learn more? Visit the Dollars & Sense page at www.lifebound.com
4know what you own, what money you have, and where its going. It means making conscious decisions about what to buy now and what to buy later. It means not always worrying about how you are going
to pay for things.When you are fi nancially literate, you
become aware of your personal financesand the fi nancial issues that can affect you.
Assets and Liabilities
As you probably noticed in the definition of personal finance, the word income was mentioned. Most of you already know this means money that you earn. But what about the other word: assets? Thats a word you may not use very often. An asset is financial-
speak for what you own, specifically, anything that can be sold and converted into money. The opposite of an asset is a liability or what you owe (bills and expenses).
Being literate involves more than being able to read; it involves being able to manage your fi nances wisely.
Personal Finance, noun
Methods you can use to acquire and manage income and assets.
Monetary payment received for goods or services, or from other sources, such as rents or investments.
C r I t I C a L t h I N K I N G a N D F I N a N C I a L S K I L L S 5
As a teenager, your income might include money you earn from a part-time job, interest from a savings account, or money gifts from relatives. Your assets might include a car (like Clint), a computer or a musical in-strument. And your liabilities might include the money you spend on clothing or gas, as well as music and coffee (like Clint).
As you get older, your income, assets, and liabilities will change. Hopefully your income will grow. Your assets may even-tually include a home, furniture, jewelry, or maybe even a boat or some rare books. And your liabilities will prob-ably include groceries, utilities, a mortgage, a car loan (or boat loan), and educational expenses for your own children.
Whether youre a teenager, a college student, or an adult with a career, liabilities are usually what you worry about. Unfortunately, with credit card companies making it so easy to get credit cards and buy things that you cant afford, you can easily end up with a liability that grows and grows: credit card debt.
Every teenager has some fi nancial assets, either earned or unearned. Unfortunately, liabilities are more easily collected.
Money earned, along with items that can be converted to cash, including cash, securities, real estate, machinery, and other possessions.
Money owed, expenses.
6 C h a p t e r 1
Its enough to make you want to pull your hair out! But theres no need to go bald yet. As a teenager, you probably have less knowledge
of personal fi nance than someone older. So its OK not to know everything you need to know about fi nances. Your knowledge will grow as you gain more responsibility and experience. This book provides a founda-tion you can build upon, the older you get.
National Standards for Financial Literacy
Everything you learn in this book maps directly to the National Stan-dards for Financial Literacy. In case you skipped the Preface, these standards were established by the Jump-$tart coalition to improve the fi nancial literacy of children from pre-kindergarten through college-age. The basic categories for the standards are:
Financial responsibility and decision-making. Learn to make conscious decisions about purchases and take personal responsibility for those decisions.
Income and careers. Research different careers to learn what education is required, what job tasks are performed, and what income can be expected.
Planning and money management. Manage your day-to-day ex-penses with a budget, and plan for the future.
Credit and debt. Handle credit cards with care to prevent or reduce debt.
Risk management and insurance. Identify the different types of insurance that help minimize risks.
Saving and investing. Save money for emergencies and the future, and gain knowledge about different types of investments, such as stocks, bonds, and mutual funds.
Just thinkunlike many adults today who had to fi gure out all this fi nancial stuff on their own (making lots of mistakes along the way), you have a chance to learn some of the basic concepts by read-ing this book. And who knows? Maybe youll make fewer fi nancial mistakes in your life . . . at least thats our hope.