Financial Literacy Skills

Financial Literacy Skills

Unit 5: Understanding Investing and Home Ownership

Objective 1: Define terms related to investing.• asset• bond • compound interest • diversify• dividend• inflation• Interest• liquid

• mutual fund • opportunity cost• return• risk • principal • stock • tax rate

Objective 2: Discuss the risks and benefits of various investment options.• Every type of investment carries some risk. • In general, the higher the risk, the higher the potential

rate of return. The lower the risk, the lower the potential rate of return.

• The asset class with the least risk is cash equivalents. • Bonds are riskier than cash equivalents, and have a

higher potential rate of return.• Stocks are the riskiest asset class and have the highest

potential rate of return.

Objective 2: Discuss the risks and benefits of various investment options.• Another way to invest is to buy assets such as

real estate, gold, art, or other items that are expected to increase in value.

• With any type of investment, but especially with lower-risk investments, you have a risk of your investment earning less than the inflation rate, which means your money is worth less than it was when you put it into the investment.

Objective 2: Discuss the risks and benefits of various investment options.• Experts recommend that you diversify your

investments by investing in several different areas.

• Some investments are tax-deferred.

Objective 3: Discuss sources of retirement income.• Social Security• Employer pension• Employer-sponsored retirement plan• Personal investments

Objective 4: Compare the advantages and disadvantages of renting and owning a home.• Home repairs and

maintenance• Taxes• Start-up costs• Insurance

• Investment value• Risk• Restrictions• Cost stability

Objective 5: List common responsibilities of a renter and homeowner.Renter:• Monthly rent payment• Utility installation fees, deposits, and monthly bills

(telephone, cable, electricity, etc.)• Renter’s insurance• Security deposit• Upkeep of the interior of the apartment or house• Repairs beyond normal “wear and tear”

Objective 5: List common responsibilities of a renter and homeowner.Homeowner:• Homeowner's insurance• Maintenance and upkeep of interior and exterior• Mortgage payment• Property taxes• Repairs • Utility installation fees, deposits, and monthly bills• Homeowner’s association fees, if any

Objective 6: Discuss tenant’s rights.

• Security deposits must be returned with 30 days after the landlord receives a written request.

• All electrical, plumbing, heating, air conditioning, and other facilities and appliances must be kept in good working order unless you agree otherwise in writing.


• If your landlord does not make needed repairs, you can provide written notice that you will do one of the following if the repair is not made within 14 days:– Move out 30 days after the date of your written

notice, ending your lease.– Make the repair yourself, if it costs less than $100,

and subtract it from your next rent payment.


• If an essential service fails due to something the landlord did, renters have the following options:– End your lease and move immediately.– Temporarily suspend your lease and move out

(paying no rent) until the matter is taken care of.– Sue the landlord for the difference between the value

of the home with the service and the value of the home without the service.

– Make your own arrangements for the service and deduct the cost from your rent.


• Landlords must keep common areas (such as the lobby of an apartment building) safe and clean.

• Tenants can recover actual damages when a landlord fails to honor an agreement.

• A landlord cannot raise the rent, decrease services, or evict a tenant for filing a lawsuit or grievance with a government agency or for participating in a tenant's group.


• A landlord cannot enter the home without notice unless there is an emergency.

• Tenants have a basic right to be free of discriminatory acts based on race, religion, age, gender, etc.

Objective 7: List tenants’ responsibilities.• Pay the rent on time. • Stick to the lease agreement. • Report problems. • Take care of the property. • Accept responsibility for the entre lease.

Objective 8: State the information frequently included in a lease.• Address• Amount of security deposit required, the conditions

which must be met before the deposit is returned, and when it will be returned

• Amount of rent to be paid; where and when it should be paid, and applicable grace period and late fees

• Clause stating that final inspection of the premises will be made in the tenant's presence

• Date of occupation and period of time for which lease is effective

Objective 8: State the information frequently included in a lease.• Description of premises• Details concerning subletting• House rules for tenants• Provision for changing the lease• Responsibility for utility costs• Responsibility for maintenance and decorating• Right of the landlord to inspect premises• Rules for keeping pets• Signatures of tenant and landlord

Objective 9: Arrange in order the steps in leasing a house or apartment.• Determine where you want to live, what type of dwelling

you want, and how much you can afford to pay.• Check various sources to determine what is available.• Inspect the house or apartment you are considering. • Check available services and facilities. • Read the lease or written agreement carefully. • Find out which bills are paid with the rent and which bills are

the tenant’s responsibilities.• Sign the lease.• Keep a copy of the lease for your personal records.

Objective 10: Investigate utility fees and deposits.

Objective 11: Interpret a lease.

Objective 12: Define terms related to mortgages.• amortize• down payment• equity• principal• private mortgage insurance (PMI)• term

Objective 13: Distinguish among types of mortgages.• “80/20” mortgage• Adjustable rate

mortgage (ARM)• Conventional• Interest-only• Rural Housing Service

• Federal Housing Administration (FHA) insured

• Graduated payment• Veterans

Administration (VA) guaranteed

Objective 14: Arrange in order the steps in buying a home.• Determine your budget and begin to arrange for financing. • Contact a trusted real estate agent and begin looking at

potential houses in your price range.• Inspect potential houses for defects, neighborhood issues,

etc. • Have the house inspected by a professional home

inspector. • Make an offer on the house and enter into a sales

agreement with the seller. • Close the purchase.

Objective 15: State guidelines for estimating a budget for housing.• For most people, your total housing expense

(including mortgage and/or rent, taxes, insurance, and utilities) should be no more than one third of your take-home income

• Another guideline is that your total monthly payments for debt should be no more than 36% of your pre-tax income.

• One more guideline is that your mortgage should be no more than 2.5 times your annual pre-tax income.

Objective 16: Calculate monthly and yearly mortgage budgets according to housing budget guidelines.

End of Unit 5

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Financial Literacy Skills