1. Liquid Assets
    Assets held in the form of cash or "near cash"
  2. Investments
    Assets that earn a return rather than provide a service
  3. Real Property
    Immovable property; long lives and high costs; mostly appreciate in value
  4. Personal Property
    Moveable; mostly depreciate in value
  5. Fair Market Value
    Price at which we can reasonably expected to sell asset
  6. Types of Liquid Assets
    • Checking Account
    • Savings Account
    • NOW Account
    • MMDA
    • MMMF
    • CD if <1 year
  7. Types of Investments
    • Stocks and Bonds
    • Closed-end Funds
    • Mutual Funds
    • Retirement Funds
    • IRA
    • 401K
    • CD if >1 year
    • Real Estate
  8. Types of Real Property
    • Single family houses, condominiums, cooperatives
    • Vacation homes
    • Land and buildings on property
  9. Types of Personal Property
    • automobiles
    • recreation equipment
    • household items
    • jewelryartwork
  10. Number of Live Births
    Number of births that occur in a population
  11. Crude Birth Rate
    Number of births per 1000 population
  12. General Fertility Rate
    • Number of births per 1000 women aged 18-44
    • Best statistic to use
  13. Replacement Level
    • Level of fertility at which women in the same cohort have exactly enough daughters (on average) to “replace” themselves in the population
    • § A total fertility rate of 2.1 is considered replacement level
  14. Cause of Long-Term Trend
    • Decrease in the economic benefits of having children
    • Increase in the costs of having and raising children
    • Decrease in the costs of avoiding having children
  15. Increases in costs of having children
    • Direct costs have risen
    • o Inflation
    • o Rising standard of child quality
    • Opportunity costs of parents (especially mothers) have risen
  16. Decrease in the Economic Benefits of having children
    • Decrease in children’s productive efforts
    • Substitution of government for children’s role as providers of old age assistance
  17. Decrease in the cost of avoiding children
    • Widespread availability of cheap, effective, birth control
    • Legalization of abortion
    • Secularization of society and weakening impact of religious views
    • Social acceptance of couples being “childless”---“voluntarily childfree”
  18. Recent Fertility Rate
    • Preliminary data for 2008
    • o General Fertility Rate= 68.7
  19. Objective Benefits of having children
    • Productive work of children (farm work and household production)
    • Children as social insurance during parent’s old age
    • Now augmented by social security, Medicare, pensions, insurances, etc.
    • Tax exemption
    • Tax credit
    • Tax benefits of children (for families who pay income taxes)
    • Transfer income from government (for eligible low-income families)
  20. Tax Exemption
    Reduces taxes by taxpayer’s tax bracket
  21. Tax Credit
    Reduces taxes dollar for dollar
  22. Cash Subsidies
    TANF= Welfare
  23. In-Kind Subsidies
    • Food stamps, housing subsidies, Medicaid, head start, etc.
    • Added benefit with children
  24. Objective Costs of having children
    • Direct cost of raising children until 18
    • o Food at home, clothing, medical care, insurance, transportation
    • Costs of children’s college education (past 18)
    • Opportunity costs of children
  25. Opportunity Costs of Having Children
    • o Foregone earnings of mother and/or father
    • o Foregone rate of return on savings/investment
  26. Subjective Benefits of having children
    • Adult status and social identity
    • “Immortality”
    • Morality, subordination of self-interest
    • Emotional security, affiliation
    • Feelings of accomplishment and competence
    • Stimulation and novelty
    • Feelings of power and influence
    • Social comparison and competition (“keeping up with the Joneses”)
  27. Subjective Costs of having children
    • Worry, worry, worry
    • Physiological/psychological demands of child care
    • Foregone consumption and leisure of parents
    • o Life-style changes
  28. Factors that could increase cost to parents
    • Out-of-state tuition for public university
    • Private college or university
    • The 5-year plan
    • Graduate school or advanced training
  29. Factors that could decrease cost to parents
    • Assume child will pay part
    • Assume child will live at home
    • Assume child will go to two-year college or technical institute
    • Assume scholarship will be attainable
    • o Pell grants; employer programs, religions, civic, community programs, military
    • Assume educational/student loans
  30. Assets
    What you own
  31. Liabilities
    What you owe
  32. Current (Short-Term) Liabilities
    • Owned and due within 1 year
    • § Bills outstanding (power bill, water bill…)
    • Revolving credit (credit cards)
  33. Long-Term Liabilities
    • Debt due 1 year or more from the date of the balance sheet
    • § Installment debt
    • § Mortgage (only principal portion)
    • § Other debt
  34. Net Worth
    • Measure of your financial worth
    • Equity in owned assets
    • What remains after selling all your owned assets and paying off all your liabilities
    • Assets-Liabilities
  35. Balance Sheet Formation and Preperation
    • List your assets at their fair market value as of the date you are preparing the balance sheet
    • List all current and long-term liabilities
    • Calculate net worth
    • Calculate solvency ratio and liquidity ratio
  36. Income
    • Cash In
    • Earned income
    • Non-earned income
    • § Money from investments and savings
    • § Sell a car
  37. Expenditures
    • Cash Out
    • Fixed vs. flexible
    • Certain vs. uncertain
  38. Fixed, Certain
    • A necessity, amount known
    • House
    • Car
  39. Fixed, Uncertain
    • A necessity, amount unknown
    • Power Bill
  40. Flexible, Certain
    • Not a necessity, amount known
    • Cable bill
    • Haircut
  41. Flexible, Uncertain
    • Not a necessity, amount unknown
    • Going to movies
    • Out to eat
  42. Preparing the Income and Expenditure Sheet
    • Record your income from all sources for the chosen period
    • Establish meaningful expense categories
    • Subtract total expenses from total income to get cash surplus (a positive number) or deficit (a negative number)
    • Calculate the Savings Ratio and Debt Service Ratio
  43. Solvency Ratio
    • Shows how much of a decline in the market value of their assets a family can have before becoming insolvent
    • Insolvent= when ratio is less than zero
    • Net worth/total assets
    • The higher, the better
    • Desirable solvency ratio= >.50
  44. Liquidity Ratio
    • Shows how much of their one-year liabilities they could pay with their liquid assets
    • Debt= unpaid bills, all of your revolving credit card bills
    • Car loans= how much you paid in one year
    • Liquid assets/total current debt
    • The higher, the better
    • Desirable liquidity ratio= >.50
  45. Saving Ratio
    • Shows the family’s level of preparation for the future
    • Savings ratio= cash surplus or deficit (plus amount saved)/annual net income
    • Total net income= income after taxes
    • Social Security
    • The higher, the better
    • Desirable savings ratio= >.05
    • Negative ratio is possible
  46. Debt Service Ratio
    • Shows the burden that the family’s debt is relative to their income (their ability to repay that debt)
    • Debt service ratio= monthly loan payments/monthly gross income or loan payments/gross income
    • Car loans, credit card obligations paid in the past year
    • The lower, the better
    • Desirable debt service ratio= <.35
  47. Budget
    • Estimate income
    • Estimate expenditures
    • See if budget balances
    • o If not, make adjustments
    • Finalize budget
    • Implement budget and keep records
  48. Chapter 7 Bankruptcy
    • Straight Bankruptcy
    • A person’s assets are given to a trustee to be sold- distributed to creditors
  49. Chapter 13 Bankruptcy
    • Wage Earner Plan
    • Develop plan to pay off (over 3-5 years)
  50. Bankruptcy
    • Chapter 7
    • Chapter 13
    • 10 years you’ll have bankruptcy on your report
  51. Types of Credit
    • Consumer Debt
    • Mortgage Debt
  52. Consumer Debt
    • Charge Accounts
    • Installment loans (fixed terms)
    • Singly payment loans (30-day, 90-day note)
  53. Mortgage Debt
    • First mortgage
    • § What you use for house
    • Second mortgage
    • § The loan on the residence
    • § Equity installment loan
    • Equity credit line
    • § Based on amount of equity in house
    • § Use as you need
  54. Objective Benefits of Credit
    • During high inflation periods, it may be cheaper to buy now
    • (Sometimes) tax advantages of buying on credit
    • Example: equity loan or mortgage
    • (Sometimes) price discounts when using credit
    • o Example: credit cards
    • When travelling abroad, better exchange rate
  55. Subjective Benefits of Credit
    • Obtaining expensive goods now while spreading out payments for them over time (immediate gratification)
    • Convenience of purchasing and record-keeping, particularly with credit card
    • Safety and security of not carrying large amounts of cash
  56. Types of Financial Goals
    • Long-Term
    • Intermediate
    • Short-Term
  57. Long-Term Goals
    • 6+ years
    • Future Value Estimates
    • Time Horizon
    • Send kids to college
  58. Intermediate Goals
    • 2-5 years
    • Time Horizon
    • Prioritize
    • Pay off apartment
  59. Short-Term Goals
    • 1 year
    • Time Horizon
    • Prioritize
    • Pay off a small debt within 8 months
    • Increase your retirement contribution by $100
  60. Ideas when setting goals
    • Prioritize
    • Attach time horizon or target date
    • Attach dollar value (future value)
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