Finding Financial Freedom
Lesson 1: The Power of Investing Versus the Peril of Debt
(Money Management for KMHS Seniors)
Resilience is the capacity to successfully manage high levels of change.
The world economy is rapidly changing without or youth getting institution in how to set goals and manage our finical life. This lesson is designed to spark the interest in a students financial life. If a student would like to pursue further instruction in finances, please instruct them to see Mr. Richardson or one of the Business teachers.
(Teachers' Guide). See also the student handout.
Facilitator: Let's be open with students about our own financial successes and blunders. Students turn us off when we come across arrogant, like we've got all the answers. We don't. So let's come across like we're all in the same boat, learning together. Today's students respond to that approach.
In this series, we will learn how to:
· manage our money with less headaches
· invest money
· save a fund for emergencies
· stay out of debt
· avoid money scams and pitfalls
· pay less for things we want
· distinguish between wants and needs
· save up for a comfortable retirement
Introduction: Don't Follow The Crowd!
What I’m telling you may seem both weird and wonderful – weird in that I’ll challenge you to think very differently about money and material things than most people think. But wonderful in that you’ll see clearly how an average person can accumulate a fortune.
I’ll challenge you to go a different direction than most of our adult culture. When it comes to financial management, there’s no safety in numbers, because the multitudes are way off course. If you want to make it financially, you’ll have to walk with your face in the wind, you'll have to swim upstream, and you'll have to be willing to appear ridiculous to those who are going with the crowd.
As we look at this subject, I want you to know that I'm in the middle of this struggle with you. I don't always live like this. But the curriculum I'm teaching isn't just one person's ideas. It's the same counsel that's been given hundreds of times in hundreds of books and articles by top financial counselors for hundreds, even thousands of years. The reason it sounds weird and new is that our culture doesn’t live by sound financial advice. When most if us handle our finances like idiots, we dare not follow the norm. I challenge you; I challenge all of us, during this series, to adopt the mottos of two very successful companies: IBM and Apple Computers. Do you know their mottos?
IBM Motto: “Think”
Apple Computer Motto: “Think Different”
Your Questions: I want to be practical in meeting your needs. Feel free to interrupt me at any point to clarify or challenge me. Feel free to write down any specific questions you have about handling money, to hand in at the end of class.. You don’t have to sign your name. The only stupid questions are the ones that go unasked. Write down your financial worries, things you’re confused about or curious about: the stuff you've always wanted to know about money, but were afraid to ask.
Let's begin with a tale of two very typical American families. See which one you relate to the most.
A Tale of Two Typical Families (Hint: Put these names on the board, so that you can refer back to each family during this lesson.)
Family #1: Jenny is 30 years old. She lives in a $150,000 house in a nice neighborhood in Kennesaw (facilitator: name your town) with her husband Jim. They drive nice, reliable cars. Jenny works as a school teacher and her husband Jim is a mechanic. They enjoy eating out together and going on vacations with their kids. Their main concerns are helping kids with homework, goofing off with friends, having dates with each other on weekends, and helping others who are less fortunate.
Family #2: Tom is also 30 years old. He also lives in a $150,000 house next door to Jenny and Jim. Tom’s a mechanic and his wife Theresa teaches school. Their salaries are identical to Jenny and Jim’s salaries. So far, you probably think these two families are almost identical. But the fly on their wall sees a totally different picture. Whereas Jenny and Jim are stable and happy, Tom and Theresa can’t seem to make ends meet. They buy for Christmas, but have to make payments on it for months. They worry and fight all the time about their money. There never seems to be enough money to pay off their credit cards, their car payments and their house payments. Since they have no savings, they fear that if one of them loses a job and can’t get a new one for a few months, they’ll lose their house, cars and everything.
I know these seem like two extremes. But how many of you would say that your home is more like Jenny and Jim – financially stable and free, with few financial worries? Now, how many are more like Tom and Theresa, with frequent bickering about the money that never seems to be quite enough?
Sadly, in America today, this great land of opportunity, more people are experiencing financial frustration than financial freedom. Some can’t help it. A family member got cancer and all their resources dwindled. But in tons of cases, their financial failures are due to their ignorance of how money works, or their failure to live by what they know.
What "The Crowd" is doing: Americans and Their Money
Hint: Make this into a guessing game. Throw wrapped candy to the one who guesses closest. The student sheets have blanks instead of percentages. As you read each point, express why you're passionate about this study. For example: "We can't afford to be average, because average isn't working out!" When you say 50%, make it more visual by saying, “this entire half of the class.” If 90%, say “All but these three on the front row.”)· Percentage of adults who live paycheck to paycheck. 70% (1)
· Percentage of retirees who say they regret how they spent their money before retiring, in light of how much they could have saved. 98% (2)
· Percentage of divorces due to arguments over money. 57% (3)
· The average amount of credit card debt carried by individuals in 2004. $2,627 (4)
· Percentage of families who spent more than they earned in 2004. 40% (5)
· Amount of people who filed for bankruptcy in 2004. 1.6 million (6)
· Percentage of American workers who have not even attempted to calculate how much they need to save for retirement. More than 1/2 (7)
· The personal saving rate went negative for the first time ever in 1998. (8)
· The debt carried by the average college graduate. Over $22,000 (9)
· Percentage of people in their 20's who pay off their credit cards in full each month. 33% - one out of three people (10)
· Average credit card debt for college students $2,327 (11)
· Average credit card debt for graduating (college) seniors (2001) $3,300 (12)
· Average credit card debt nationwide (2004) $8,500 (13)
· Average college loan debt for undergraduate education (2002) $18,900 (14)
· Personal debt is reaching record highs and personal savings is reaching all time lows. (15)
In these classes, I hope to help you set a course for financial freedom – to become more like Jenny and Jim than Tom and Theresa. But a word of warning. I'll be honest with you; this culture is going the opposite direction than I'm recommending. People will think you’re crazy AT FIRST. I'm going to challenge you to buck "the crowd," because "the crowd" isn't having very much fun with their money. Unless you decide to march to the beat of a different drummer, you're more likely to live like family #2, the ones who are broke.
In this lesson, we'll cover the first two Steps to Financial Freedom:
· Step #1: Learn the Awesome Power of Multiplication.
· Step #2: Invest Wisely! (Let Multiplication Work For You.) (INVEST WISELY!)
Step #1: Learn the Awesome Power of Multiplication
Most of us have learned the difference between addition and multiplication. But few people apply this knowledge to how learning to multiply their money can radically impact their financial future. Let's first of all get out our calculators and catch a vision for the awesome power of multiplication.
Multiplication Illustration #1: Need Some Grain?
(Hint: show the group a checker board and point to each block as you mention it. Or, draw one on the board, with 8 squares across and 8 squares down.)
Lets start off with addition. If you take a grain of wheat and put it in the first block and then add one for each new block, you will have two on the second block, three on the third block. This is addition. You add a grain to each block. How many grains will you have in the 64th block? (64 grains in the 64th block.)
Again, another example of addition. Let's do the same with 1,000 grains of wheat in each block. How many grains would you have in the 64th block? (64,000 grains)
Now, let's move to multiplication. If you start again with one grain of wheat on the first block and double it for the second block, you have two grains on the second block. Now you tell me: how many on the third block? (4), how many on the fourth block? (8) (have students keep multiplying (x 2) on his/her calculator, till the calculator can't hold the numbers any more.) Do see how fast multiplication begins taking off? So do you know how many grains you would have by the 64th square? Enough to cover the entire country of India 50 feet in grain! That’s the incredible power of multiplication! (From Allen Hadidian, Successful Discipling, Moody Press, 1979, p. 43.)
Multiplication Illustration #2: So You Like to Tear Paper? Take a sheet of paper and let’s imagine that it’s 1/1000 of an inch thick. Now tear it in half and stack it together. (Hint: Actually do this in front of them or have them tear individual sheets of paper.) Now it’s 2/1000 of an inch thick. Do it again and it’s 4/1000 of an inch. You see, we’re doubling the height every time. (Let them do it until they can’t tear it any more.) How thick do you think it would be once it was torn 50 times? Approximately 17,000,000 miles high, about the distance of 34 trips to the moon! That’s the power of multiplication! (Hadidian, opt. cite)
Discussion: How should understanding the difference between adding money and multiplying our money make a practical difference in how we manage our money? (We realize the astounding power of multiplying our money through investments and compounding interest.)
Step #2: Invest Wisely! ( Let Multiplication Work For You.)
Most people aren't investing enough for the future. In other words, if we want to save up enough for the future, we can't afford to be like everybody else. To review, here's how badly most people are blowing it with their savings:
· Percentage of retirees who say they regret how they spent their money before retiring. (98%)
· Percentage of American workers who have not even attempted to calculate how much they need to save for retirement. (Less than 50%)
· The personal saving rate went negative for the first time ever in 1998. (Americans are spending $100.20 for every $100.00 they bring home.)
Money Multiplication Made Easy: The Laws of 10's and 7's.
Compounding interest is kind of hard to visualize, so investors give us a helpful tool to help us figure how our investment money can multiply:
· Invest your money at 7% interest and you'll double it every 10 years.
· Invest your money at 10% interest and you'll double it every 7 years.
Are these rates of return really feasible? Yes! Examples:
· Stock Investments: Although the stock market goes up and down on any given month or period of years, it has averaged growing at over 12% for the past 100 years. Therefore, you can invest in a total stock market mutual fund (a blend of stocks in many companies, making it safer than just one), keep it in for the long-run, and forget about the short-term fluctuations
· Lending Money: If you lend money to people to purchase a car, the average rate for a slightly used car is currently over 8%.
· Investing in Real Estate: Real Estate prices in Atlanta have been increasing by about 12% per year. By purchasing a house and renting it, you'd receive not only the rent, but also the appreciation (gain in worth of the house) each year. Investors in foreclosure houses might net (what you make after you subtract all your expenses) a 10% profit on each house. Thus, if you could purchase, fix, and sell 7 houses every 2 years, you'd double your money every two years!
These are just examples to show that these rates are very feasible. Forget about the e-mails you receive saying someone's giving you a $100% return. Don't fall for the e-mail from the Nigerian saying you can split his fortune. You don't have to invest in some wacko offshore oil company scheme to get a decent rate of return!
So, what does this mean to you and your money? How can multiplying your money through investments pay off over time, not just for the doctors and lawyers, but for the good ole boys and good ole girls. How can Bubba become a millionaire?
For the Median Income Family
The median (average) family income in Cobb County is $58,000 per year. Lets say you live off 9/10 and invest 1/10. That's $5800 per year, invested at 10% = over $1,000,000 in 30 years. You say, "Whooo! That's a lot to invest!" But $5800 per year is only about $16.01 per day. Let's say that you're 25 years old, married, with both of you working. Instead of each of you eating out once a day at McDonalds, you save that $8.00 per meal. Instead of spending $16.00 per day, you invest it. Again, at 10% interest, you're millionaires in 30 years!