Category Chapter_13

Jan 7 2023

BUILDING WEALTH

A research study that surveyed over 10,000 millionaires resulted in the following findings to help guide others to achieve a comfortable financial security:

  • 79 percent of the respondents did not receive any inheritance; 80 percent were from families at or below a middle-class income level.
    Conclusion:Building wealth is within your control and doesn’t depend on being born into a rich family.
  • 33 percent never made more than $100,000 a year; 31 percent made around $100,000.
    Conclusion: Wise spending, saving, and investing are more important than your salary level.
  • 94 percent live on less than they make; 75 percent reported never having a credit card balance.  
    Conclusion: Stay out of debt and keep expenses below your income to build a financial foundation.
  • 75 percent of those in the study indicated consistent investing over a long period of time as the reason for their financial success; 80 percent invested in their company’s 401(k) plan; none said one individual stock investment was a big factor in their financial success. 
    Conclusion: You don’t need to find that one stock that will make you rich. Invest consistently in broad-market index funds over a long period of time.

88 percent of those who responded graduated from college, compared to 38 percent of the general population. And over half (52%) of the millionaires in the study earned a master’s or doctoral degree, compared to 13% of the general population. Almost two-thirds (62%) graduated from public state schools, while only 8 percent went to a prestigious private school.

Most of the 10,000 millionaires studied achieved their wealth through consistent investing, avoiding credit card debt, and smart spending, along with…no lottery tickets… no inheritances…no six-figure incomes…no lucky stock picks. 

Even when millionaires don’t have to worry about money anymore, they’re still careful about their spending. Over 80 percent reported using a grocery list in some format.

For additional information on building wealth, click here.

Teaching Suggestions

  • Have students talk to others to obtain information about actions they take to achieve long-term financial security.
  • Have students create an oral presentation or podcast that reports the findings of the study summarized in this article.

Discussion Questions 

  1. What actions do you believe to be most important for building wealth?
  2. Describe how you might communicate to others suggested actions for improved long-term financial security.
Dec 17 2022

Personal Finance Simulations for Budgeting and Investing

Question:  What is a Personal Finance simulation? 

Answer:  A Personal Finance simulation allows students to fine-tune their decisions when they encounter real-life scenarios while taking a Personal Finance course. 

The authors of Personal Finance, 14e and Focus on Personal Finance, 7e have partnered with StockTrak.com to provide students with an interactive learning experience before they leave the classroom.   

The simulation that accompanies the Kapoor Personal Finance texts includes two components–a personal budgeting simulation and an investing simulation.

The Budgeting Simulation

  • Students assume the role of a full-time employee or part-time employee living on their own.
  • Over a virtual 12-month period, students review their estimated income and expenses, create monthly budgets and savings goals, and try to build an emergency fund. Each month takes about 20 minutes to complete.
  • Each month students manage their checking, savings, and credit card accounts as they deal with life’s expected and unexpected events that affect their budget.  
  • Within the simulation, additional personal finance tutorials are available to make sure students are learning about budgeting, banking, credit, employment, taxes, insurance, and more.
  • A class ranking based on net worth, credit score, and quality of life keep the students fully engaged and professors informed of each student’s progress.

The Investing Simulation

  • Students receive a virtual $25,000 in a brokerage account.
  • They can research U.S. stocks, ETFs, bonds and mutual funds and create their own investment portfolio.
  • All investment trades are based on real-time market prices.
  • Within the simulation, interactive tutorials help students get started and provide additional information during the simulation.
  • Students can monitor their performance versus their classmates.  At the same time, professors can track each student’s progress.

And BEST of ALL, with the new partnership between Stock-Trak and McGraw Hill, classes using the Kapoor Personal Finance textbook get a 50% savings when students register for the simulation – only $9.99 per student instead of retail price of $19.99.

Teaching Suggestions

  • Visit StockTrak.com/kapoor to learn more about the Personal Finance Budgeting and Investing Simulation.  You can learn even more by watching a short video or accessing the Kapoor demo materials located toward the bottom of the above site. 
  • It’s easy to get started.  All you need to do is access the above site, register your classes for Spring 2023, and indicate the dates you want your student to have access to the Personal Finance Simulation.  The site will generate a unique link for you to give to your students.
Mar 26 2022

THE 33-33-33 PORTFOLIO

For decades, a 60/40 (60 percent stock, 40 percent bond) investment portfolio has been encouraged by financial advisors. However, we live in a new world, so in recent years a 33/33/33 allocation has been suggested, with investments divided equally among stocks, bonds, and alternatives. This shift in portfolio strategy is the result of unsustainable stock prices, looming inflation, and expected higher interest rates.  

The alternative investments include assets such as venture capital, real estate, private equity, private debt, commodities, and cryptocurrencies. These asset categories offer investors enhanced diversification, and have a low correlation with stocks to provide an inflation hedge. 

Real estate offers an opportunity for an improved yield for investors with a lower risk tolerance. Venture capital and private equity are suggested for investors comfortable with more risk.

Recent J.P. Morgan research revealed that an allocation of 30 percent of these alternatives can substantially increase annual returns, while strengthening portfolio stability and decreasing risk. However, these illiquid assets can’t be quickly sold, or liquidated, so careful cash-flow planning is also necessary.

Remember, every portfolio must be personalized to the needs of the individual based on liquidity need, risk tolerance, and the time horizon of financial goals.

For additional information on the 33/33/33 portfolio, go to the following articles.

Article #1

Article #2

Teaching Suggestions

  • Have students research alternative investments (venture capital, real estate, private equity, private debt, commodities, cryptocurrencies) to determine recent returns, risk, and suitability for their personal portfolio.
  • Have students create a visual proposal or video with a suggested investment portfolio for their current or future situation.

Discussion Questions 

  1. What factors should a person consider when planning an investment portfolio?
  2. Describe actions a person might take to determine if alternative investments are appropriate for their financial situation. 
Jan 15 2022

Environmental, Social and Governance (ESG) Investing

An increasing number of investors are seeking a more ethical portfolio with an emphasis on socially responsible and sustainable investing. An emerging trend is environmental, social and governance (ESG) investing, with these factors used to evaluate the financial return and overall impact. 

The ESG score measures how investments and companies perform in these categories:

  • Environmental – carbon emissions, air and water pollution, deforestation, green energy initiatives, waste management, water usage
  • Social – employee gender and diversity, data security, customer satisfaction, company sexual harassment policies, human rights at home and around the world, fair labor practices
  • Governance – diversity of board members, political contributions, executive pay, large-scale lawsuits, internal corruption, lobbying

Many view “sustainable” investing as very vague. The ESG criteria hopes to provide a grading of investments that clarifies what sustainable involves. ESG scores are calculated using different methods. Some ratings are created by using data collected from company disclosures and government, academic and NGO databases. Other scores are developed with self-reported data from participating companies.

Recent benefits of ESG investing include higher returns and a lower downside risk than traditional funds and conventional investments.  To start investing, you can search on your own to identify an ESG fund or an individual stock with a high ESG score that fits your investment beliefs and goals.  Investors can also use a robo-advisor to guide their ESG investment choices.

For additional information on ESG investing, click on the following links:

Article #1

Article #2

Article #3

Teaching Suggestions

  • Have students search online to identify ESG funds or companies they might consider for their investment portfolio.
  • Have students talk with others to obtain the level of interest for ESG investing among potential investors of various ages.

Discussion Questions 

  1. What aspects of ESG investing do you find attractive?  What are your concerns?
  2. What concerns might be associated with methods used to create ESG scores?
Oct 9 2021

Money Habits of Women and Men

Based on recent research, findings comparing the financial habits of women and men include:

  • Overall, single men outspend women, which may be due to higher average earnings. Men spend more on food and transportation, while women have higher spending for clothing. Both groups have similar spending for entertainment.
  • Women are wiser shoppers, buying items on sale and using coupons more often than men.
  • For debt, including credit cards, student loans, auto loans, personal loans, home equity lines of credit, and mortgages, men have more debt than women.
  • For both groups, the main financial goals were saving for a vacation, paying off credit card debt, and improving their credit score.
  • As they near retirement, men had higher amounts in their retirement funds. However, women are more likely to participate in an employer retirement plan than men, and save a greater percentage from their paychecks.

For additional information on the money habits of women and men, go to:

Source #1

Source #2

Teaching Suggestions

  • Have students create a short survey to compare the spending, saving, and investing activities of women and men.
  • Have students create a visual proposal (poster or slide presentation) to suggest improved money management activities.

Discussion Questions 

  1. What factors might affect differences between the money management activities of women and men?
  2. Describe actions a person might take to improve money management activities. 
Mar 6 2021

Income Illusion

With record unemployment and the ongoing financial impact of the pandemic, many Americans are struggling to make ends meet — and scammers are pitching income scams with false promises of success and financial security.

In a typical pitch, scammers state that you can make a lot of money, for example, working from home with little time and effort, or starting your own online business. But those promises of big money are all an income illusion. In fact, in the first nine months of 2020 alone, Americans reported to the FTC that they lost at least $150 million. The total amount of alleged losses is over $1 billion.

Sometimes these scammers focus their pitches on particular communities.  In one case, a work-from-home scam targeted Latinas through Spanish language TV ads. In another case, an alleged investment scam affected older adults, retirees, and immigrants. And even veterans, students, and college-age adults are targeted with a business coaching scam.

The Federal Trade Commission (FTC) found in income scams the average loss was less than $500. Americans who lost money were 44% more likely to live in majority Black communities.

How to Spot an Income Scam

Everyone can be targeted by income scams.  A scammer’s offer may tell you that:

  • Make money selling in your community. Be your own boss.
  • Learn from the experts how to generate guarantee income.
  • You got the job! Deposit this check and send money or buy gift cards.
  • Work from home and make money with little time and effort!
  • Just recruit more people to make big money!

Before you accept a business offer:

  • Take your time

Avoid high pressure sales pitches that require you get involved now or risk losing out.

  • Be skeptical about success stories and testimonials.

Glowing stories could be fake and online reviews may have come from made-up profiles.

  • Don’t bank on a “cleared” check.

If you’re told to send some money or buy gift cards, you can bet it’s a fake even if you see the   money in your account.

  • Do your research.

Search online for the company’s name plus words like “review,” “scam,” or “complaints.

For more information, click here.

Teaching Suggestions

  • Ask students if they, their friends, or families have received such offers from scammers. If so, how did they respond?
  • Ask students what they would personally do to fight income scams and help people recognize and avoid them.

Discussion Questions

  1. Why do scammers focus their pitches on particular communities?
  2. Why is it important to search online for company’s name plus words like “review”, “scams”, and “complaints” before making a decision”?
Aug 31 2019

Investing Success for Young People

Young people should take advantage of time, and start investing now for the long-term.  When doing so, they should consider these actions:

  • Make use of low-cost mutual funds, exchange-traded funds and index funds to minimize administrative costs, transaction fees and commissions.
  • Take advantage of tax-deferred retirement programs, which will allow them to invest pre-tax dollars to lower their current tax bill. Employers may match retirement fund contributions.
  • Don’t avoid risk by emphasizing conservative investments. Taking on more aggressive investments creates greater potential for higher, long-term returns.
  • Effectively manage risk with fixed index annuities, fixed annuities, and market linked CDs. Dollar-cost averaging allows for obtaining more shares at a lower cost during market downturns.

For additional information on investing by young people, click here.

Teaching Suggestions

  • Have students talk to others for suggested investment actions to take.
  • Have students conduct online research regarding the best investments for their life situation.

Discussion Questions 

  1. What factors might a person consider when selecting investments for their life situation?
  2. Describe actions people might take to increase the funds they have available for long-term savings goals.
Oct 15 2016

How the Presidential Election Will Affect Your Investment Strategy

“The sky is falling!  If my chosen candidate doesn’t win, the markets are doomed and so are my investments.”

In this article, Bijan Golkar points out that a presidential election can cause excitement or despair depending on if you are a Republican or a Democrat and who the major parties nominate for the highest and most powerful office in the world.

The article discusses market returns both before and after a presidential election year and some of the underlying reasons for market volatility.  Then the article stresses the importance of a person’s long-term goals and a plan for long-term growth as opposed to “emotional investing.”  Finally, the article discusses the pros and cons of our economy that could affect investment values.

For more information, click here. 

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Discuss the importance of a long-term investment plan that will take advantage of the time value of money.
  • Describe some of the pitfalls of “emotional investing.”

Discussion Questions

  1. What are the typical characteristics of an emotional investor? Of a long-term investor?
  2. What are the advantages of a long-term investment program when compared to “emotional investing?”
Mar 12 2016

Investors Eye Trump Card’s Election Impact

“The presidential election is eight months away but ‘political risk’ is already being felt on Wall Street, as money and politics collide in a flurry. . .”

In this article, Adam Shell describes how the circus-like 2016 presidential race is creating uncertainty on Wall Street.  This uncertainty centers on the candidates and how they promise to deal with select industries, trade, tax policy, and globalization.

For example, many of Donald Trump’s campaign speeches are protectionist in nature and some on Wall Street worry that Trump will build a wall around the United States choking off globalization and world trade.

For Wall Street, Hilary Clinton is also problematic.  She has been a vocal critic of the pricing practices of the pharmaceutical industry.  She is also a proponent for more regulation on the financial industry and has suggested that banks involved in speculative investments should pay a “risk fee.”

As the campaigns develops between establishment and anti-establishment  candidates, it should be an interesting run up to the November elections that could impact Wall Street and investors.

For more information, click here.  

Teaching Suggestions                           

  • You may want to use the information in this blog post and the original article to stress how politics, the financial industry, and investing are intertwined.

Discussion Questions

  1. How do you think the uncertainty associated with this presidential election affects the financial markets and investing?
  2. Why could protectionism hurt the U.S. economy and Wall Street investors?
  3. Is globalization good for the U.S. economy? Is it good for investors?
Feb 13 2016

Robo Investment Advice

Automated investment services are expanding.  Many financial service companies are offering “robo advice,” in which investors complete an online questionnaire and a computer program generates and monitors a portfolio of funds.  Robo-advisers are also designed to automatically rebalance a portfolio based on changes in the market as well as any changes in the amounts allocated to certain investments.

With many investors already making their own trades online, investment companies believe that robo advisors have these additional benefits:

  • lower costs for obtaining advice and conducting transactions.
  • an ability to adjust the portfolio for tax purposes by selling shares that have declined to offset gains.
  • an easier investment approach for younger clients with less-complicated financial lives.

 

Some will be concerned about automated portfolio management.  Human advisors will still be available to address issues about mortgages, insurance, estate planning, retirement income, and other topics that robo-advisers are not yet equipped to answer.

For additional information on robo advice, click on the following articles:

Article #1
Article #2
Article #3

Teaching Suggestions

  • Have students ask people to describe the process they use to select investments.
  • Have students create a framework to analyze when using robo advice might be appropriate for an investor.

Discussion Questions 

  1. What are benefits and drawbacks of robo advice?
  2. What factors might be considered when using robo advice for investment decisions?