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Personal Financial Literacy

7

EssEntial QuEstions

How does being financially literate help you manage your money?

How can you plan ahead for future financial goals?

Unit OverviewBeing financially literate means taking responsibility for learning how to calculate income taxes on wages and how to create a budget to plan your spending and savings. Using a budget estimator will help you look at monthly earnings and expenses. You will also learn how to look ahead to long-term savings for future needs. Creating a net worth statement will help you see how families evaluate how well they’re doing on their financial goals. As you continue through the unit, you will apply what you have learned to solve real-world financial problems.

Key TermsAs you study this unit, add these and other terms to your math notebook. Include in your notes your prior knowledge of each word, as well as your experiences in using the word in different mathematical examples. If needed, ask for help in pronouncing new words and add information on pronunciation to your math notebook. It is important that you learn new terms and use them correctly in your class discussions and in your problem solutions.

Academic Vocabulary• income tax • sales tax• property tax • take-home pay• budget • fixed expense• variable expense • net worth• assets • liabilities• compound interest • monetary incentive• coupon • rebates

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Getting Ready

Write your answers on notebook paper.  Show your work.

1. Write the letter of each pair of fractions that are equal.

a. 23 and 45

b. 58

and 1016

c. 37

and 715

d. 25

and 510

e. 35

and 915

2. Write an equivalent fraction with a denominator of 100 for each fraction.

a. 620

b. 25

c. 14

d. 3625

e. 2 35

3. Write each percent as a decimal.a. 4.7%b. 3.2%c. 5.8%d. 19.6%

4. Multiply. Describe any pattern you notice.a. 6.2735 × 10b. 6.2735 × 100c. 6.2735 × 1000

5. Divide. Describe any pattern you notice.a. 87.345 ÷ 10b. 87.345 ÷ 100c. 87.345 ÷ 1000

6. Divide.a. $40.20 ÷ 12b. $500.50 ÷ 0.50c. $105.3 ÷ 2.7

7. Explain how fractions and decimals are related.

394  Unit�7�• Personal Financial Literacy

Unit�7

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Learning Targets:

• Examinetaxesonwagesearnedandonpurchases.• Analyzeafamilybudgetandcalculatepercentagesforeachpartof

abudget.

SUGGESTED LEARNING STRATEGIES:CloseReading,MarkingtheText,Summarizing,CreateRepresentations

Learningtomanageyourmoneyisaskillthatyouwillusethroughoutlife.Asyougetolder,youwillstartearningmoneyandpayingtaxes.Amongthethreemajortaxesthatmanypeoplepayareincome taxes,sales taxes,andproperty taxes.

1. Thefollowingtableshowsthemedianweeklyearningsforpeoplewithdifferentlevelsofschooling.Completethetablebycalculatingtheincreaseinweeklyincomewitheachadditionallevelofeducation.

EducationLevel MedianWeeklyIncome(2011)

Increase(indollars)

Less than high school diploma $451 —

High school graduate $638

Some college, no diploma $719

Associate degree $768

Bachelor’s degree $1053

Master’s degree $1263

Doctoral or professional degree $1551–1665

2. Whatisthemedianincreaseinweeklyincomebetweenahighschooldegreeandacollege(bachelor’s)degree?

3. Apply mathematics to everyday life.Supposeafamilyearnstotalwagesof$800aweekandpaysstateincometaxesof5%onannualearnings.a. Howmuchmoneywillthefamilypayasstateincometax?

b. Supposethelocalgovernmenttaxesincomeat1%.Howmuchadditionalmoneywillthefamilypayintaxestothelocalgovernment?

c. Whatamountofmoneyisleftaftertaxesarepaid?

Budgeting and Money ManagementHow Much Is Too Much?Lesson 27-1 Understanding Earnings and Budgets

An income tax is a percent of earnings paid to federal, state, or local governments. A sales tax is a percentage of the cost of a purchase. A property tax is a percentage of the value of the property owned.

ACADEMIC VOCABULARY

Remember that a median is the middle number in a range of values.

MATH TIp

Activity 27 • Budgeting and Money Management 395

Activity 27

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Lesson 27-1Understanding Earnings and Budgets

Mostpeoplearealsorequiredtopayfederalincometaxes.Threetypesoftaxesarepaidtothefederalgovernmentbasedonearnings:

• Incometax,whichisapercentageoftotalearnings• SocialSecuritytax,whichiscurrently6.2%ofearningsupto$113,700• Medicaretax,whichis1.45%onallincome.Taxratescanchangeaslawmakerspassnewlaws.Thefollowingtableshowscurrentincometaxrates.Employerswithholdincometaxes,plusSocialSecurityandMedicaretaxes,fromemployees’paychecks.

TaxBracket MarriedFilingJointly Single

10% Bracket $0–$17,000 $0–$8,500

15% Bracket $17,001–$69,000 $8,501–$34,500

25% Bracket $69,001–$139,350 $34,501–$83,600

28% Bracket $139,351–$212,300 $83,601–$174,400

33% Bracket $212,301–$379,150 $174,401–$379,150

35% Bracket Over $379,150 Over $379,150

Peoplewhoworkarepaidhourlywagesorasalary.Thecurrentfederalminimumhourlywageis$7.25perhour.Somestateshaveincreasedthisminimum.Peoplewhoarepaidasalaryreceiveafixedamountperyearratherthananhourlywage.

4. Ifyouearned$54,000ayear,whattaxbracketwouldyoubein?

5. Ifyouearned$9.80anhour,howmuchwouldyoumakefora40-hourweek?Ayear?Whatfederalincometaxeswouldbewithheld?

6. Themoneythatisleftaftertaxesarewithheldiscalledtake-home pay.Calculatetheincometaxes,SocialSecuritytaxes,andMedicaretaxesyouwouldpayonearningsof$54,000.Whatisthetake-homepay?

Manypeoplecreateabudgettomanagecurrentincomeandexpenses,whilealsoplanningaheadforlong-termfinancialgoals.Bywritingdownincomeandexpenses,peoplecanavoidspendingmoremoneythantheyearneachmonth.Lookatthesamplebudgetonthenextpage.Itismadeupofincome,expenses,andplannedsavings.Thismonthlybudgetisbasedontake-homeearningsfortwowageearners.

Some states do not require its residents to pay state income taxes. Currently those states are Texas, Florida, Washington, Tennessee, New Hampshire, Nevada, South Dakota, Wyoming, and Alaska.

LAWCONNECT TO

Take-home pay is the amount of money an employee receives in a paycheck. In addition to taxes, other amounts may be withheld for health insurance and contributions to retirement savings.

A budget is an estimate of expected income and expenses.

ACADEMIC VOCABULARY

396 Unit 7 • Personal Financial Literacy

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Lesson 27-1Understanding Earnings and Budgets

MonthlyBudget

Income(annualtakehomeof$64,646):Salary/wages(take-homepay)Other(bankaccountinterest)Totalmonthlyincome

5,388 605,448

Expenses:Housing(mortgage/rent) 1080 24%Propertytax(ifnotincludedinmortgage) 385Insurance(home,car,life—medicalnot 200

withheldbyemployer)Food(groceries) 970Utilities(electricity,water,gas,trashcollection) 230CellPhones 128Cable/internet/landlinephonebundle 145Gasolineforcar(s) 210Childcareexpenses(daycare,tuition,etc.) 400Petexpenses(food,grooming,andveterinariancare) 0Creditcardcharges/payments(averagemonthly) 410Entertainmentcosts(movies,meals,hobbies,etc.) 300Gifts/Charitabledonations 100Other:Totalexpenses

04558

Savings:Emergencyfund 100Retirementsavings 340Collegesavings 450Totalsavings 890

7. Whatistheamountoftotalmonthlyincome?

8. Whatistheamountoftotalexpenses?

9. Foreachexpense,calculateitspercentageoftotalexpenses.Forexample,thehousingcostof$1080is24%oftotalexpenses(roundedtothenearestwholepercent).

10. Whichexpensestakeupthelargestshareofthebudget?

11. Whatproportionoftotaltake-homepayissavedbythisfamily?

Activity 27 • Budgeting and Money Management 397

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Lesson 27-1Understanding Earnings and Budgets

Lookingatthebudgetontheprecedingpage,youseeseveraldifferenttypesofexpenses.Someexpenses,suchasamortgageorrent,arefixed.Others,calledvariable expenses,canchangeeachmonth.Forexample,moneyspentonentertainmentisanexampleofavariableexpense.

Inthepreviousbudget,thefollowingexpenseswouldbefixedforaperiodoftime:

• Mortgage/rent• Propertytax• Insurance• Cable/internet/phone• Cellphonecosts• Childcare

Theseexpenseswouldbeconsideredvariablebecauseaconsumercandecidetospendmoreorlessonthemeachmonth.Forexample,byconservingelectricity,utilitycostscouldbelowered.

• Food• Utilities• Gasoline• Petexpenses• Creditcardcharges• Entertainmentexpenses• Gifts/charitabledonations

12. Calculatethepercentageoffixedexpensesandvariableexpensesinthebudgetontheprecedingpage.

13. Communicate reasoning.Ifafamilywantstoreduceitsoverallexpenses,whichcostsshoulditlookat?Explainwhy.

Housing,food,andothercostsvaryindifferentpartsofthecountry,andwithindifferentareasofastate.Anonlinebudgetestimatorishelpfulincalculatingthecostswhereyoulive.Anexampleisathttp://www.pine-grove.com/online-calculators/budget-calculator.htm.Manyothersareavailable.

14. Researchthehouseholdcostsforyourarea.Useanonlinebudgetestimatortofindtheminimumhouseholdbudget(totaltake-homeincome)neededforafamilyinyourcity.Identifythehourlywageneededtomeetthisbudget.Remembertoconsiderthetaxestobepaidonincomeearned.

A fixed expense is one that does not change over a period of time. A variable expense, varies—or changes—over time.

ACADEMIC VOCABULARY

398 Unit 7 • Personal Financial Literacy

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Lesson 27-1Understanding Earnings and Budgets

15. Whattaxesaredeductedfromearningsbymostemployers?

16. Ifyouearn$700perweek,andyouhavetotaltaxesof22.65%takenoutbyyouremployer,whatisyourtake-homepay?

17. Howdoescreatingabudgethelppeoplemanagemoney?

Check Your Understanding

LESSON 27-1 PRACTICE18. Giveexamplesofthetypesoftaxesthatwageearnerspaytofederal,

state,orlocalgovernments.

19. Ifyouearn$68,000peryearandyoupaytotaltaxesof32.45%,whatisyourmonthlytake-homepay?

20. Calculatetotalexpensesinthisbudget.Thenfindthepercentageoftotalexpensesforeachindividualexpense.Roundpercentstothenextwholenumber.

Expenses:Housing(mortgage/rent) 1280Propertytax(ifnotincludedinmortgage) 485Insurance(home,car,life—medicalnotwithheld 340

byemployer)Food(groceries) 1120Utilities(electricity,water,gas,trashcollection) 260CellPhones 130Cable/internet/landlinephonebundle 165Gasolineforcar(s) 230Childcareexpenses(daycare,tuition,etc.) 500Petexpenses(food,grooming,andveterinariancare) 120Creditcardcharges/payments(averagemonthly) 530Entertainmentcosts(movies,meals,hobbies,etc.) 350Gifts/Charitabledonations 100Totalexpenses

21. UsingthetotalexpensesinItem18,calculatetheexpensesasapercentoftake-homepayof$6780.

22. Communicate mathematical ideas.Withtotalexpensesof$6,390andtake-homepayof$7,450,howmuchmoneyisleftforsavings?Whatpercentageoftotalincomeissavings?

23. IdentifythefixedandvariableexpensesinItem20.Calculatethepercentageofthetotalforeach.

24. Useabudgetestimatortocalculatethehourlywageneededtohavefamilytake-homeincomeof$3600permonth.Assumetotalfederaltaxesof22.45%andnostateincometax.

Activity 27 • Budgeting and Money Management 399

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Learning Targets:

• Constructastatementoffinancialnetworth.• Calculateandcomparesimpleandcompoundinterestearnings.• Analyzeandcomparesalestaxesandvariouswaystosavemoneyon

purchases.

Suggested Learning Strategies:CloseReading,MarkingtheText,CreateRepresentations

Manyfamiliesmeasuretheirfinancialprogresstowardmeetinggoalsbycalculatingtheirnet worth.Todothis,theycollectinformationoneverythingownedanditscurrentvalue.Thismightincludeahouse,acar,savings,andinvestmentsinstockorbonds.Theseitemsareassets.Mostpeoplealsoowemoneytocreditors,suchasforamortgageoracarpayment.Theseamountsareliabilities.Tocreateanetworthstatement,youfirstlistthevalueofalltheassets,oritemsowned,andcalculateatotal.Next,listalltheamountsowed,theliabilities,andcalculateatotal.Subtractthetotalliabilitiesfromthetotalassetstofindthenetworth.

Lesson 27-2Financial planning

Example AAssets:

House $238,000 Generalsavings 48,000 Collegefund 28,000 Retirementfund 72,000 TotalAssets 386,000

Liabilities:

Mortgageowed 110,000 Creditcarddebt 1,800 Balanceonstudentloans 23,000 Equityloanforhomeimprovement 25,000 TotalLiabilities 159,800

NetWorth: 226,200

Assets-Liabilities=NetWorth $386,000-$159,800=$226,200

Try These Aa. Calculatethenetworthofsomeonewithassetsof$198,000and

liabilitiesof$154,000.b. Whatisthevalueofassetsifsomeonehasanetworthof$142,500

andliabilitiesof87,400?c. Whatisthevalueofliabilitiesiftotalassetsare$204,800andnet

worthis$128,900?

Net worth is the difference between what is owned and what is owed. Assets are items owned, while liabilities are amounts owed.

ACADEMIC VOCABULARY

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Lesson 27-2Financial planning

1. Organizethefollowinginformation,anduseittocreateastatementofnetworth.UsetheMyNotesspace.

House,$231,160 Creditcarddebt,$2,680 Savingsaccount,$22,500 Carloan,$14,790 Retirementsavings,$87,600 Balanceincheckingaccount,$12,368 Mortgageloan,$142,760 Valueofsecondcar(noloan),$4,700 Studentloans,$32,650

Astatementofnetworthisusefultoseehowwellyouaremeetinglong-termfinancialgoals.Forexample,youmaywanttosaveacertainamountofmoneyforeventualretirement.Checkingnetworthregularlyshowshowmuchofthegoalhasbeenmet.Whenplanningforlong-termsavings,it’sagoodideatocheckthatyouareearningcompoundinterestonyoursavingsinsteadofjustsimpleinterest.

Ifyouhavesavingsthatearnssimpleinterest,theinterestearningsarecalculatedonceayear.

2. Calculatethesimpleinterestonsavingsof$18,470.Useanannualinterestrateof2.7%.

3. Calculatethesimpleinterestonsavingsof$9,028investedforsixmonthsatarateof3.4%.

Savingsthatearncompound interestwillearnmoremoneyoveraperiodoftimethanwithsimpleinterest.

Example BYouhave$10,000toinvestfor2years,andyouwanttocalculateandcomparesimpleandcompoundinterestof4%.Interestiscompoundedannually.Step 1: Calculatesimpleinterest. 10,000×0.04=400Step 2: Multiplytheinteresttimes2. 400×2=800Step 3: Calculatecompoundinterest. 10,000×0.04=400Step 4: Addtheprincipalandinterest. 10,000+400=10,400Step 5: Foryear2,multiplyby4%. 10,400×0.04=416Step 6: Addtheinterestearnedfor2years. 400+416=816

Withcompounding,youwouldearn$16morethanwithsimpleinterest.Iftheinterestiscompoundedmoreoften,suchassemiannually,quarterly,ormonthly,theearningswouldbehigher.

A compound interest on savings is paid more than once a year, thus earning interest on the interest paid each compounding period.

ACADEMIC VOCABULARY

Remember that the formula for simple interest is I = R × T (Interest = Rate times Time).

MATH TIp

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Lesson 27-2Financial planning

Try These Ba. Usesimpleinterestandcompoundinterestof3%tocomparethe

earningsonsavingsof$20,000investedfortwoyears.b. Explainhowcompoundinterestresultsinhigherearningson

savingsoveraperiodofyears.

Onewaytoincreasesavingsistofindwaystoreducemonthlycosts.Thereareseveralwaystoreducecosts.Turningoutlightsorusinglesswatereachmonthcanreduceutilitycosts.Waitingtobuyitemswhenthey’reonsalecanreducecostsformanyhouseholdneeds,suchasfurniture,clothing,andfood.

4. Yourlocalstorehasasalewith20%offyourfavoritejeans.Ifthejeansareregularlypricedat$39.98,whatisyoursaleprice?Howmuchwouldyousave?

Anothermethodthatstoresusetogetcustomerstobuyitemsistoofferamonetary incentive.

5. Supposeyourfamily’sfavoriterestaurantisofferinganincentiveofonemealattheregularpriceandthesecondoneathalfprice.Ifbothmealsregularlycost$8.50,howmuchwouldyoupay?Whatisthesavings?

Storesmayusecouponstogetcustomersintotheirstores.Grocerystoresoftenusecouponsthatgiveadiscountofaspecificamountofmoney,suchas50cents,onthepriceofanitem.

6. Yourfamilyshopsatalocalgrocerythatofferscouponsonmanydifferentitems.Ononeshoppingtrip,yourfamilyredeemscouponson5itemsforthefollowingamounts:$0.35,$0.50,$0.75,$1.00,and$0.60.Whatisthetotalsavings?

7. Somecouponsoffer“twoforone”dealswhereyougettwoitemsforthepriceofone.Ifyoubuyonesweaterfor$24.99,whatisyourtotalcostforasecondsweater?

Somemanufacturersuserebatestogetcustomerstobuytheirproducts.Forexample,alocalstoreoffersatelevisionsetfor$699afterarebateof$100.Themanufacturerofthetelevisionwillsendthebuyer$100forpurchasingthattelevision.Asthebuyer,youwouldpaythefullpriceofthetelevision($799inthisexample)andthensendtherebaterequesttothemanufacturertoreceivethe$100.

A monetary incentive is a special offer that reduces the total cost of one or more items, such as “buy one, get one free.” A coupon is a document offering a reduction in price on a specific item, such as a box of cereal.

ACADEMIC VOCABULARY

A rebate is a sales promotion used as an incentive to get buyers to purchase a specific product.

ACADEMIC VOCABULARY

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Lesson 27-2Financial planning

Mostrebatesaremail-inrebates.Youwillneedtomailintherebatecouponandareceiptforthepurchasetoobtaintheamountoftherebate.Itcantakeafewmonthstoreceivethemoneyonarebate.Rebatesoftenhavetimelimitsonthem,soitisimportanttomailincouponsandreceiptssoonafterapurchase.

Somestoresoffer“instantrebates,”inwhichcasetheamountoftherebateistakenoffthepriceoftheitematthetimeofpurchase.

8. Supposeyoubuyabicyclethathasamanufacturer’srebateof$50.Thebicyclecosts$179.97beforetherebate.Howmuchwillyoupayforthebicycleatthestore?Aftertherebate?

9. Thelocalhardwarestoreisofferinganinstantrebateof$25onallpurchasesover$150.Ifyouboughtitemsfor$45,$78,and$12,whatwouldbetheamountofyourrebate?

10. Explainwhatastatementofnetworthisandtheinformationonit.

11. Explainsimpleandcompoundinterestandcomparethebenefitsofoneovertheother.

12. Describeandcompareincentivesofferedtocustomerstogetthemtobuyproducts.

Check Your Understanding

LESSON 27-2 PRACTICE13. Usethefollowinginformationtocreateastatementofnetworth. House(netvalue),$122,600 Creditcarddebt,$1,675 Savingsaccount,$34,500 Carloan,$12,680 Retirementsavings,$78,700 Balanceincheckingaccount,$13,686 Mortgageloan,$153,440 Valueofsecondcar(noloan),$5,400 Studentloans,$28,520

14. Communicatereasoning.Whymightastatementofnetworthbeuseful?

15. Calculatesimpleintereston$7,000at3.2%forayear.

16. Calculatecompoundintereston$4,500for2yearsat4%,compoundedsemiannually.

17. Calculateandcomparesimpleinterestandcompoundinterestof5%ontheamountof$12,000for5years.

18. Calculatesavingsonapurchaseof$59.98with15%off.

19. Usingcouponsworth$0.40,$0.60,$1.25,$0.75,and$0.50,howmuchwouldyousaveifyouboughttherelatedproducts?

20. Describethedifferencebetweenarebateandanincentiveto“buyone,getonefree.”

It’s important to remember that buying items you do not need—even on sale or with a coupon or rebate—does not save money.

MATH TIp

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Budgeting and Money ManagementHow Much Is Too Much?

ACTIvITy 27 PRACTICE 1. Listthefederaltaxesthatareusuallywithheld

frompaychecks.

2. Ifyouearn$49,400ayear,whatamountsoffederaltaxeswouldbewithheld?

3. Yourlocalcitytaxesincomeat1.5%.Ifyouearn$42,680,howmuchwouldyoupayintaxestoyourcity?

4. Researchthetypicalhouseholdexpensesforyourarea.Thencreateabudgettomeetthoseexpenses?Howmuchmoneywouldyouneedtoearn,eitherasasalaryoranhourlywage,topaytheseexpenses?Remembertoincludetaxesontheearnedincome.

5. Createabudgetusingthefollowinginformation:

Housing(mortgage/rent) 1170 Interestearnedonsavings(monthly) 78 Salary(take-homepay) 5,120 Insurance(home,car,life—medical

notwithheldbyemployer) 280 Food(groceries) 910 Utilities(electricity,water,gas,

trashcollection) 245 CellPhones 110 Cable/internet/landlinephonebundle 155 Gasolineforcar(s) 190 Childcareexpenses(daycare,

tuition,etc.) 550 Savingsforretirement 350 Creditcardcharges/payments

(averagemonthly) 430 Entertainmentcosts(movies,meals,

hobbies,etc.) 250 Gifts/Charitabledonations 150 Savingsforcollege 400

6. Explainthedifferencebetweenfixedandvariableexpenses.Howcantheybeusedtochangemonthlycosts?

7. Usethefollowinginformationtocreateastatementofnetworth:

House $293,000 Generalsavings 68,000 Collegefund 39,000 Retirementfund 92,000 Car 12,500 Mortgageowed 134,600 Creditcarddebt 1,940 Balanceonstudentloans 18,670 Equityloanforhomeimprovement 30,000

8. Calculateandcomparesimpleandcompoundinterestof4.2%onsavingsof$15,000for10years.

9. Calculate25%savingsonapurchaseof$68.98.

MATHEMATICAL pRACTICEs Communicate Mathematical Ideas

10. Explainhowusingamonthlybudgetandcalculatingnetworthareusedtohelpplanforandmeetlong-termfinancialgoals.

404 Unit 7 • Personal Financial Literacy

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