building your future: succeeding

Building Your Future:Succeeding

A Student and Teacher Resource for Financial Literacy Education

Copyright © 2013The Actuarial Foundation

About This BookPersonal finance is part knowledge and part skill – and the Building Your Future book series gives students a foundation in both. It addresses knowledge by covering the essential principles of banking in Book One, financing in Book Two, investing in Book Three, and succeeding in Book Four. The series also addresses the mathematical skills that students need to live a financially healthy life. Students will be able to see the real-world consequences of mastering their finances, which helps them understand the relevance of good mathematical skills. We hope you enjoy this Building Your Future book series.

The catalyst for this book series was based on an original book authored and donated to The Actuarial Foundation by an actuary, James A. Tilley, FSA, who was interested in financial literacy education in schools. We thank Mr. Tilley for his original works that inspired this Building Your Future series.

About The Actuarial FoundationThe Actuarial Foundation, a 501(c)(3) nonprofit organization, develops, funds and executes education, scholarship, and research programs that serve the public and the profession by harnessing the talents and resources of actuaries. Through Advancing Student Achievement, a program that seeks to improve and enhance student math education in classrooms across the country, we are proud to add Building Your Future, a financial literacy education curriculum for teachers and students, to our library of math resources. Please visit the Foundation’s Web site at: www.actuarialfoundation.org for additional educational materials.

What is an Actuary? Actuaries are the leading professionals in finding ways to manage risk. It takes a combination of strong math and analytical skills, business knowledge and understanding of human behavior to design and manage programs that control risk. “Actuary” was included as one of the Best Jobs of 2012 as reported in the Wall Street Journal. To learn more about the profession, go to: www.BeAnActuary.org.

Table of Contents

Chapter 1: Path to Employment

Career Planning Basics ..................................................................................................................................2 Investing in Career Education ....................................................................................................................4 Understanding Earning Potential .............................................................................................................5

Chapter 2: Paying for Post-secondary Education

Saving for College ....................................................................................................................................... 10 Scholarships .................................................................................................................................................. 10 Financial Aid Basics ..................................................................................................................................... 12 Grants and Work-Study ............................................................................................................................. 13 Loans ................................................................................................................................................................ 14

Chapter 3: Making a Living

Compensation Basics ................................................................................................................................. 20 Understanding Your Paycheck ................................................................................................................ 23 Costs of Changing Careers ....................................................................................................................... 25

Chapter 4: Making a Life

Wants vs. Needs ........................................................................................................................................... 29 Budget Basics ................................................................................................................................................ 30 Keeping It Balanced .................................................................................................................................... 34 Maintaining Good Credit .......................................................................................................................... 35 Building Your Credit History .................................................................................................................... 36 Identity Theft ................................................................................................................................................. 37

Chapter 5: Retirement

Retirement Basics ........................................................................................................................................ 39 Compounding Interest .............................................................................................................................. 40 Challenges of Saving for Retirement .................................................................................................... 41 Government Programs .............................................................................................................................. 42 Investing for Retirement ........................................................................................................................... 44

Some of the activities in this book reference specific Web pages. While active at the time of publication, it is possible that some of these Online Resource links may be renamed or removed by their hosts at some point in the future. Note that these links were provided simply as a convenience; a quick search should reveal some of the many other online resources that can be used to complete these activities. Facts and opinions contained are the sole responsibility of the organizations expressing them and should not be attributed to The Actuarial Foundation and/or its sponsor(s).

Building Your Future

Building Your Future, Book 4: Path to Employment 1


Key Terms:

• Career path • Associate’s degree

• Earning potential • Bachelor’s degree

• Lifetime earnings • Master’s degree

• Career aptitude • Doctorate

• Skills • Diploma

• Employability • Tuition

• Career clusters • Wages

• Job shadowing • Hourly wage

• Return on investment • Salary

• On-the-job training • Tips

• Apprenticeship • Commission

• Internship • Bonus

• Vocational education • Benefits

What You’ll LearnKnowing your interests, strengths, skills and aptitudes can help you identify a number of different career options that you can consider as you move toward adulthood. In choosing a career, you should also be aware of the various types of education needed for different occupations and the cost of completing an educational program. Finally, when selecting the right profession and the path for achieving it, you should consider your return on investment – how much you will gain from a certain career path – if you invest in the required training.

Did You Know….

Unemployment and earnings are directly linked to educational attainment. In 2011 the average high school graduate earned $638 per week and had an unemployment rate of 9.4%, workers with Associate’s degrees earned $768 per week and were unemployed at a rate of 6.8% and people with a 4-year degree earned $1053 weekly with an unemployment rate of only 4.9% according to the Bureau of Labor Statistics.


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Career Link

There is a bright employment outlook for those who want to work as Educational, Guidance, School and Vocational Counselors. The main focus of these occupations is to assist others with selecting a career through analyzing skills, interests and abilities and then finding the educational resources needed to prepare for the selected career. This line of work typically requires a Master’s degree and has a median salary of over $54,000 annually.

2 Building Your Future, Book 4: Path to Employment

Career Planning BasicsChoosing a career path is one of the most important decisions people make. The occupation one chooses to pursue often determines earning potential and lifetime earnings, which affect everything from the type of housing and transportation a person can afford to the kinds of hobbies and interests they can pursue throughout their lives. Because one’s career choice influences so many lifestyle factors, the path to employment is one that requires careful consideration and planning. Ultimately, you want to select an occupation that you will enjoy and that will provide you with the income necessary to support you throughout adulthood.

One of the first things to consider is career aptitude and skills. Identifying subject areas you enjoy in school, and in which you do well, is a good place to begin your career exploration. For example, if you are good at math and problem solving, then perhaps a career focused on numbers, such as actuarial science or accounting, would be worth considering. In addition, you must consider employability. Suppose you enjoy activities such as sports or acting. Building your career aspirations around these fields can be risky because jobs in these areas can be difficult to obtain and are short-lived. Through studying career clusters, you can identify a number of potential occupations that utilize your career aptitudes and require varying levels of additional training and education.

First-hand experience is also a critical part of choosing your vocation. Arrange for job shadowing experiences that allow you to see firsthand what someone in a specific career field does on a daily basis. Use this activity as a means for interviewing people already working in the career field to tell you specifically about the pros and cons of the job and share their suggestions for the best path to follow if you are truly interested in working in that occupation.

career pathfrom a group of careers that share common features one

can select a path toward a specific job, knowing that with more education and

experience comes the ability to move up within the path

earning potentialthe amount of money a

person should be able to earn in his/her profession

lifetime earningsthe total amount of money

one can expect to be paid for work done in a specific career

field over the course of their working years

career aptitudean individual’s innate ability,

suitability, readiness, disposition, capacity or

potential for being competent in a specific type of work

skillsthe ability to do something

with competence

employabilitya set of achievements, skills,

knowledge and personal attributes that make a person

likely to gain employment and be successful in their

chosen occupations

career clustersgroupings of occupations in

the same field of work that require similar skills

job shadowingaccompanying an

experienced worker on the job to learn the specific skills and

responsibilities associated with the successful

performance of a specific career


Try It!

Examples and Practice• Visit O*Net Online at http://www.onetonline.org/find/career. There you

will find a list of 16 different Career Clusters. • Browse a cluster that sounds interesting to you. Select the cluster and

click on Go. • View the list of occupations. Pay special attention to those marked

with a Bright Outlook symbol as they represent jobs where there will be rapid growth, large numbers of openings or new and emerging fields.

• Select one of the occupations from the list. Scroll through the entire entry and note the vast amount of information available about the occupation in terms of knowledge, skills, abilities and aptitudes.

• In the “Wages and Employment Trends” section, select your state under “State and National” and click on Go. Observe the median salary, percentage of change and number of job openings in the nation compared with your state.

• Create a spreadsheet that contains the columns shown at the bottom of this page, then populate with data.

As you construct the spreadsheet, think about the following: • MedianWageDifference=MedianWageU.S.–MedianWagein MyState

• PercentageofJobGrowth(Decline)Difference=PercentageofJob Growth(Decline)U.S.–PercentageofJobGrowth(Decline)My State

• Howwouldyouexpresseachofthestatementsaboveasaformulaforthe spreadsheet?

Using the formulas, construct the spreadsheet and fill in the data for three different occupations that are of interest to you. They can be from any of the 16 career clusters.• Basedonwhatyoulearnedaboutwagesinyourstate,wouldyoustillbe

interested in any or all of these careers? Why?• Whydoyouthinkthereisadifferencebetweenthenationalmediansand

those of your state?• Basedonwhatyoulearnedaboutthepercentageofjobgrowth/decline

for these careers both in your state and nationally, would you still be interested in any of them? Why?

A B C D E F G H

1

OccupationEducation Required

MedianWage,US

MedianWage,

MyState

MedianWage

Difference

%JobGrowth/

Decline,US

%JobGrowth/Decline, MyState

%JobGrowth/Decline,

Difference


Investing in Career Education As you saw in the Did You Know fact, there is a direct connection between lifetime earnings and the amount of education you receive. However, since additional education after high school can be expensive, examining the return on investment for obtaining higher education or additional schooling is an important step to take in the career planning process. Seeing the possible earning potential you can gain from investing in education is an important step in navigating the path to employment.

Different jobs require different types of training. Sometimes this is on-the-job training or an apprenticeship or internship, where you work side-by-side with an industry expert to learn and practice what you need to know to master the required job skills and complete the work successfully. Some jobs that offer this type of training are found in fields like construction, auto service and manufacturing. The classroom and hands-on instruction that leads to these types of careers is often referred to as vocational education.

Other jobs require more specialized training, where one earns an associate’s, bachelor’s, master’s or doctorate degree through completing a specific program of study at a college or university. When thinking about this type of training, keep in mind that completing high school and earning a diploma will be a requirement prior to starting one of these programs of study. Associate’s degree programs usually take two years and can be earned in a wide range of fields; they are typically awarded by community, junior or technical colleges. The completion of a certain number of credit hours in course work, passing necessary licensing exams and obtaining required licenses and permits will allow you to work once you have earned your degree. Remember, this training is paid for by the student in the form of tuition; it is an investment on your part.

The educational process is similar for bachelor’s, master’s and doctorate degrees, although the number of credit hours and years of commitment vary. Bachelor’s degrees are designed to take four to five years—or an additional two to three years after attaining an associate’s degree—to complete. Master’s degrees usually take two to four years to complete and generally require a bachelor’s degree. A doctorate requires seven or more years of training beyond a bachelor’s degree, depending on the career that has been selected. The tuition for these types of programs is usually more because these degrees are awarded from colleges or universities, which are often expensive.

When considering career training options, it is important to view education as an investment in your future. Consider that every type of employment has certain expenses associated with it. Sometimes it is the cost of a uniform or required equipment. Other times it is licensing or exam fees. Many times it is the cost of acquiring specific skills through getting education beyond what you receive in high school.

return on investmentmeasures what is gained from

an investment after subtracting the cost(s), usually

in money and/or time, of the investment

on-the-job traininghands-on training by an

experienced employee or trainer in the workplace to

teach an employee the specific skills needed for the position

apprenticeshipa combination of on-the-job

training and related instruction where workers

learn the practical and theoretical aspects of a highly

skilled occupation

internshipworking, usually for free or a

small wage, in your expected career field with supervision

from more experienced professionals as a means of

gaining the experience needed for an entry-level position

vocational educationtraining for a specific industry

or trade

associate’s degreea two-year academic degree

awarded by community colleges, junior colleges,

technical colleges and four year colleges and universities

after the completion of a course of study that typically

includes at least 60 credit hours

bachelor’s degreea four-year academic degree

awarded by a college or university after the completion

of a course of study that typically includes at least 120

credit hours

master’s degreean advanced university degree

offeredinarangeofstudies,beyond a bachelor’s but not to

the doctorate level


Examples and Practice • Create a spreadsheet like the one above that will help you evaluate the

return on investment for five different career choices. Note that not all career choices will have data that applies in all categories.

As you construct the spreadsheet, think about the following:• TotalSalary=AnnualSalary+AnnualTips,Bonusesor

Commission• LifetimeEarnings=TotalSalaryx40years• TotalRawReturnonInvestment=LifetimeEarnings–Costof

Education• Howwouldyouexpresseachofthestatementsaboveasaformulaforthe

spreadsheet?

Using the formulas, construct the spreadsheet to calculate the data for the five career fields provided.

• Lookingatthecareers,whichdoyouthinkhasthegreatestpotential return on investment? Explain why.

• Thespreadsheetdoesnotaccountforthetimeinvestmentnecessaryto complete the training needed for some of the jobs. Taking into consideration the amount of education, potential lifetime earnings and the time investment needed for each job, which career would you select if you were making a decision today? Explain why.

Understanding Earning PotentialAs you look at occupational training options, there are several factors that come into play. First, you must consider your earnings. Many people focus only on the wages they receive. Depending on the type of job you have, you may earn an hourly wage or you may earn a salary. In addition, you could also have a job where some of your earnings come from tips, commissions or bonuses.

doctorate the highest level of a

universitydegreeofferedinarange of studies

diplomaa document issued by an

educational institution testifying that the recipient

has successfully completed a particular course of study

tuitionthe amount one must pay for

educational instruction

wagesmoney paid or received for

work or services completed, usually by the hour, day, or

week

hourly wagethe amount an employee is

paid by an employer for completing an hour of work

salarywages an employee receives

from the employer on a regular basis, usually weekly,

bi-weekly or monthly.

tipsa sum of money one receives

from a customer in recognition of quality service

A B C D E F G H

1 FieldGenerallyRequired

Education

Cost of EducationInvestment

Annual Salary

Tips/Bonus/Commission

TotalSalary

LifetimeEarnings

(over40years)

TotalReturn onInvestment

2 Cashier None $0 $18,820 $0

3 Construction/Carpenter

1 year as apprentice $0 $40,010 $0

4 Licensed Practical Nurse

Associate’s degree $6,000 $41,150 $0

5 Actuary Bachelor’s degree $60,000 $91,060 $3,300

6 Lawyer Doctorate degree $195,000 $112,760 $4,500

Try It!


In addition to actual money paid to employees, there are many other benefits that employers often offer. These benefits can be everything from insurance and medical coverage to retirement plans, profit sharing and gym memberships; some may see job stability as a benefit as well. For many employees, these benefits are sometimes just as important as the salary being offered. Since medical and dental care is so expensive, employers who offer these options are often quite desirable.

Examples and Practice• Create a spreadsheet that will help you evaluate the earning potential of various types of hourly wage careers. Include the columns shown at the bottom of this page. For the spreadsheet, assume that you have a 40 hour work week. Use the career data below to construct your spreadsheet.

• Career 1: Cashier earning $7.25 per hour. You do not earn tips, a bonus or a commission.• Career 2: Retail salesperson earning $10.10 per hour. You earn a commission of 5% of your hourly weekly wages if you meet your sales quota, which you do on a regular basis.• Career 3: Barista earning $8.90 per hour. You earn an average of an additional $2.00 per hour in tips each week. • Career4: Telemarketer earning $10.83 per hour. You earn a $25 bonus for each week that you sell 10 or more of your product. In an average week, you make 12 sales.

As you construct the spreadsheet, think about the following:• TotalEarnings=HourlyWagexHoursWorked+WeeklyTips, Bonus or Commission

• Howwouldyouexpressthestatementaboveasaformulaforthe spreadsheet?

Using the formulas, construct the spreadsheet to calculate the data for the five career fields provided.

• Lookingatthecareers,whichdoyouthinkhasthegreatestearning potential?• Howdoyouthinkvariablessuchastips,bonusesandcommissionsare affectedbyaweakeconomy?Astrongeconomy?

Try It!

commissionmoney, in addition to regular

wages, that is paid for work done or products sold

bonusa sum of money (not

guaranteed by the employer) given to an employee in

addition to the employee’s usual wages

benefitscompensation beyond a

salary or hourly wage such as insurance, paid vacation time,

retirement plan (such as 401(k)) or free parking

A B C D E F G

1 Career FieldHourly Wage

Hours Worked

Weekly Tips

Weekly Bonus

Weekly Commission

TotalEarnings


You are preparing to graduate from high school and need to determine your pathway to a successful career. Use what you have learned about career planning, earning potential, investing in continuing education and return on investment to explore three possible career paths. Use the IndependentPracticeWorksheet to complete your analysis of career path options.

Independent Practice

Building Your Future, Book 4: Paying for Post-secondary Education 9


Key Terms:

• Total cost of attendance •

• Education IRA • Work-study

• 529 account (ESA) • Default

• Tuition pre-payment • Student loan

• Scholarship • Interest rate

• ACT • Grace period

• SAT • Deferred payment

• Reserve Officers’ Training Corps • Perkins Loan

• Financial aid • Stafford Loan

• FAFSA • Parent Loan for Undergraduate Students

• Estimated Family Contribution • Subsidized loan

• Grant • Unsubsidized loan

• Pell Grant

What You’ll LearnMany careers require additional instruction or training after high school. Some training takes weeks or months, other preparation takes years. Regardless of the duration of the training, it must be paid for. Knowing how to determine approximate post-secondary expenses, how to save for these expenses, and how to combine savings with financial aid, student loans, scholarships and work to finance your ongoing education can make post-secondary education more attainable.

Did You Know….

In 2010–11 the cost of undergraduate tuition, room, and board was estimated to be $13,600 at public institutions, $36,300 at private not-for-profit institutions, and $23,500 at private for-profit institutions. Between 2000–01 and 2010–11, prices for undergraduate tuition, room, and board at public institutions rose 42 percent, and prices at private not-for-profit institutions rose 31 percent.


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Career Link

College financial aid officers play a role in the financial aid process, analyzing and approving student loan and aid applications.

Supplemental Educational Opportunity Grant

10 Building Your Future, Book 4: Paying for Post-secondary Education

Post-secondary education can be a major expense and, like any major expense, there are different options for covering the cost. Some families may begin saving years in advance, building up a sizable account to meet their anticipated expenses. Some may look for additional sources of funding, such as scholarships, grants and work-study programs to reduce their out-of pocket costs. Some may borrow the money, assuming they will be able to pay the loan back out of their increased earnings. Most will ultimately pursue a mix of these options.

This chapter will offer information on each option available to you so you can begin planning now to cover the post-secondary expenses you expect to incur after high school. Remember to also look at other ways of increasing income such as working while attending college or reducing your expenses by living at home or buying used textbooks instead of new ones. Anything you can do to reduce your total cost and increase the funds you have available to pay those costs will help make college a more affordable proposition.

Saving for CollegeAs you learned in Chapter 1, the cost of obtaining education after high school can be quite high. When considering the total cost of attendance and the continued rising price of tuition and fees, covering the entire cost in advance can seem impossible. There are, however, many ways that students and their families can finance future education. Preparing now to cover these future expenses is a smart move, and there are programs available that can help you leverage your education savings.

One option to consider is an educationIRA or a 529 account. These types of savings plans can be started when a child is born, with the funds available for withdrawal when the child is ready for college. These accounts build wealth over time, much like retirement savings accounts, and rely on compounded interest to grow the principle investment. There are also significant tax benefits associated with these plans. While contributions are not deductible, distributions used to pay for college can be withdrawn without any federal taxes on the earnings. There may be tax benefits at the state level as well, depending on where you live.

Another avenue to consider is tuition pre-payment programs. By purchasing tuition credits, parents can pay for college tuition while a child is still young. The advantage to this type of purchase is that one can avoid the annual increase in tuition costs between now and when one’s child goes to college.

ScholarshipsStudents should also consider applying for scholarships. There are a wide range of scholarships awarded each year from all types of public and private groups. Some are based on academic performance in school along with scores on tests such as the ACT or SAT. Other scholarships are awarded based on involvement in certain activities, majoring in specific types of studies, financial

total cost of attendance

the price to attend college for a year including tuition, room

and board, books and fees

educationIRAan education savings plan thatofferstaxadvantages

529account(ESA)a higher education savings

plan where the funds can be withdrawn tax-free when they

are used for educational purposes

tuition pre-paymentstate program in which

families can purchase tuition credits at their present price

and use the credits in the future, when tuition costs will

have most likely increased

scholarshipan award of financial aid for a

student to further their education, often based on

merit such as academic achievement or athletic skill

ACTa standardized achievement

examination for college admissions

SATa standardized test for college

admissions in the United States


need and a range of other criteria. Many require that recipients maintain a certain level of academic performance while in college.

There are a number of websites dedicated to helping students locate and secure scholarships as well as assisting with completing scholarship applications including http://www.finaid.org/scholarships/ and http://studentaid.ed.gov/types/grants-scholarships/finding-scholarships. Since scholarships are awards that generally do not have to be repaid, applying for this “free money” is usually time well spent.

Students who may be interested in the military and also in obtaining a college education may consider exploring the ReserveOfficers’TrainingCorps(ROTC) program. This program provides a career path into the military while paying a student’s college tuition. The training provided by this program does obligate students to serve as reservists for up to 8 years and can include deployment to active duty. To learn more about ROTC, visit http://www.todaysmilitary.com.

Another route to consider is enlistment in the armed forces. Completing successful military service offers the opportunity to obtain job training in many different areas while serving one’s country. In addition, individuals who have served in the armed forces and completed their enlistment can access additional educational programs and opportunities through the Department of Veterans Affairs. These programs assist veterans with paying for many types of post-secondary education in return for their active military service. To learn more about specific programs, visit http://www.gibill.va.gov/.

Reserve Officers’ TrainingCorps(ROTC)

a college-based program for training commissioned

officers of the U.S. armed forces by providing

competitive, merit-based scholarships for tuition in

return for an obligation of active military service after

graduation


Examples and Practice • Create a spreadsheet that contains the columns shown below so you

can calculate the total cost of attendance.

As you construct the spreadsheet, think about the following:• The school year is two semesters, or approximately 9 months long• Tuition is generally calculated as a rate per credit hour. As a full-time

student, you will be expected to take 15 hours of weekly classes per semester (which is usually 5 courses per semester)

• You need books for every class• Student fees are assessed each semester Base your calculations on the data below.• Monthly rent and utilities = $300• Monthly food and other living expenses = $150 • Tuition is $275 per credit hour• Books average $125 per course• Student fees are $375 per semester


• Howdoesyourtotalcostforattendancecomparetothenationalaverages in the Did You Know factoid?

• Dotheseexpensesseemreasonabletoyou?Whyorwhynot?• Howcouldyoulowerthecostofattendingcollegewithoutsacrificingthe

number of classes you take or the quality of the education?

Financial Aid BasicsEven with savings and scholarships, most students will still need additional resources to complete their post-secondary education. This is typically referred to as financial aid. Understanding how to navigate the world of college financial aid can give students additional resources for financing their education. Once you are on the road to saving and are exploring scholarship opportunities, the next step will be to complete the FAFSA. A FAFSA application is the only way to apply for federal student aid. This aid is awarded based on financial need, and financial information related to both the student and parents is considered when determining the level of need. This level of need is reported in a letter called a Student Aid Report. The report provides

Try It!

financial aidgrant or scholarship, loan or paidemploymentofferedtohelp a student meet his/her

college expenses

FAFSAFree Application for Federal

Student Aid, a form that must be completed in order to

qualify for any type of governmental financial aid

for higher education

A B C D E F

MonthlyRentandUtilities

MonthlyFoodandOtherLivingExpenses

Tuition Books FeesTotalCostofAttendance


your EstimatedFamilyContribution(EFC), and this data is used by schools to determine what aid the student qualifies to receive. Submitting the FAFSA application, following the required guidelines, is critical to receiving financial aid, and all required data and due dates must be followed in order to receive aid.

Examples and Practice• Visit the FAFSA website and review the student and parent information

required on the form (http://www.fafsa.ed.gov).• AsyoureviewedtheFAFSAapplication,whatquestionsdidyouhave

about the information you were asked to provide?

Grants and Work-StudyAfter completing all of the required financial aid applications, you will receive an award letter. In it, you will learn what kinds of financial support can be offered to you by each school. If you are considering more than one institution, it is important to compare the offers before deciding which school to attend. Aid is awarded in three main categories: grants, loans and work-study. Understanding the financial responsibilities of each of these is important when selecting which awards are most appropriate for your specific needs. Some students will receive a grant as part of the aid package. Since this money does not have to be repaid, it is an excellent way to pay for college expenses. A PellGrant can be awarded for up to $5,550 (2012-2013 limit), but awards vary depending on need, the cost of the school attended and whether or not a student attends full or part-time. A student can receive a Pell Grant for up to 12 semesters (6 years) worth of undergraduate study. This money is typically applied first to the cost of tuition and fees and then to room and board for students who live on campus. In the event that a student does not live on campus, any remaining funds can be issued to the student.

Completing the FAFSA and submitting it early can be especially beneficial for students with a high need for financial assistance. Each year, schools receive a set amount of funds to distribute as Supplemental Educational Opportunity Grants. These grants of $100 to $4,000 per year are awarded on a first-come, first-serve basis to the students with demonstrated need.

Work-study is another part of many students’ financial aid packages. Part-time jobs are provided for students at the school, at a public agency, or at a not-for-profit organization. Students are paid the federal minimum wage for the hours worked, and this money is paid directly to the student. These funds can be used to pay for college tuition or living expenses.

Estimated Family Contribution(EFC)

The amount of money that a student’s family is expected to contribute to college costs for

one year

grantmonetary award given by the

federal, state or local government to an eligible

student for educational expenses and without the expectation of repayment

PellGrantmoney for post-secondary

education that does not have to be repaid and is awarded

to eligible students based on financial need

Supplemental Educational

OpportunityGrant(SEOG)

need-based grants awarded to low-income undergraduate

students to finance the costs of post-secondary education

work-studyprogram that provides

students with part-time jobs while in school in order to

subsidize the cost of education

Try It!


Examples and Practice• On the opposite page, there is an example of a standardized award

letter that students may receive regarding the types of financial aid that is available. This can also be found online at http://collegecost. ed.gov/shopping_sheet.pdf.

Review the following sections of the letter to see the types of data that will be presented to you when the award offer arrives.• Section 1: The total cost of attendance at the particular institution• Section 2: Grants and scholarships that are being offered to you• Section 3: The cost you will have to pay out of pocket to attend the

institution• Section 4: Work options available to you (i.e. work-study)• Section 5: Loan options you can consider including the type of loan

and recommended amount based on the total cost of attendance• Section 6: Other Options include the Family Contribution as calculated

by the FAFSA along with various institutional payment plans, military and service benefits offered by the institution, private education loan options and Parent PLUS loan options

• The far right column contains a graphic that notes data related to the institution including graduation and loan default rates, median borrowing and loan repayment information

LoansEven with grants and work study, there is often additional funding needed to cover college expenses. This is where student loans become part of the equation. Within an award letter, there are a number of different loan options that can be provided. Most student loans offer low interest rates, a grace period and deferred payment options for repaying the amount borrowed. This allows students to borrow money for education without worrying about paying it back while they are still in school. The most popular loans for students are the PerkinsLoan and the StaffordLoan. Perkins Loans are awarded based on need with a limit of $5,500 (2012-2013) annually. The interest rate on these loans is 5%, and borrowers have 10 years to pay back the amount borrowed. Stafford Loans have a higher interest rate of 6.8% and require you to begin repayment 6 months after graduating or dropping below a half-time student. Borrowers generally have 10 years to repay this loan.

If financial need still remains after grants, work-study and loans have been awarded, a ParentLoanforUndergraduateStudents(PLUS)can be considered. At a rate of 7.9% interest, this is a more expensive college loan and it is taken by the student’s parents, making them liable for repayment of the funds. The maximum amount of this loan is equal to the total estimated cost of attendance minus all other financial aid that has been offered. Repayment of the loan is expected to begin when the funds are disbursed, but loan recipients can make deferred payments if requested and approved.

defaultfailure to meet a financial

obligation such as repaying a loan

student loanloanofferedtostudentswhich

is used to pay education-related expenses including

college tuition, room and board or textbooks

interest ratethe percentage you pay on the

money you have borrowed

grace periodtime in which a debt may be

paid without accruing further interest or penalty

deferred paymentloan arrangement in which

the borrower is allowed to start making payments at some specified time in the

future

PerkinsLoanA need-based, low-interest loan available to students with exceptional financial

need

StaffordLoanloan that is provided by a

lending institution but backed by the federal government to

assure repayment

ParentLoanforUndergraduateStudents(PLUS)

federal loans for parents of undergraduate students to

help pay for college or career school

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MM / DD / YYYYI

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E University of the United States (UUS)

U SN EI TT E D S TAStudent Name, Identifier

Costs in the 2013-14 year

Estimated Cost of Attendance $ X,XXX / yr

Tuition and fees ............................................................................................... $ X,XXX Housing and meals ......................................................................................... X,XXX Books and supplies ......................................................................................... X,XXX Transportation .................................................................................................. X,XXX Other educational costs ................................................................................. X,XXX

Grants and scholarships to pay for college

Total Grants and Scholarships (“Gift” Aid; no repayment needed) $ X,XXX / yr

Grants from your school ................................................................................. $ X,XXX Federal Pell Grant ........................................................................................... X,XXX Grants from your state ................................................................................... X,XXX Other scholarships you can use .................................................................... X,XXX

What will you pay for college

Net Costs $ X,XXX / yr(Cost of attendance minus total grants and scholarships)

Options to pay net costs

Work options

Work-Study (Federal, state, or institutional) .................................................... $ X,XXX

Loan options*

Federal Perkins Loans ........................................................................................ $ X,XXXFederal Direct Subsidized Loan ......................................................................... X,XXXFederal Direct Unsubsidized Loan ................................................................... X,XXX

*Recommended amounts shown here. You may be eligible for a different amount. Contact your financial aid office.

Other options

Family Contribution $ X,XXX / yr(As calculated by the institution using information reported on the FAFSA or to your institution.)

• Payment plan offered by the institution • Military and/or National Service benefits

• Parent PLUS Loan • Non-Federal private education loan

8%9.8%

This institution National

Percentage of borrowers entering repayment and defaulting on their loan

Loan Default Rate

Graduation RatePercentage of full-timestudents who graduatewithin 6 years

LOW MEDIUM HIGH

71%

Students at UUS typically borrow $X,XXX in Federal loans for their undergraduate study. The Federal loan payment over 10 years for this amount is approximately $X.XXX per month. Your borrowing may be different.

Median Borrowing

Repaying your loans

To learn about loan repayment choices and work out your Federal Loan monthly payment, go to: http://studentaid.ed.gov/repay-loans/understand/plans

For more information and next steps:

University of the United States (UUS)Financial Aid Office123 Main Street Anytown, ST 12345Telephone: (123) 456-7890E-mail: [email protected]

Customized information from UUS


subsidized loan a loan on which the

government pays the interest while the student is enrolled in

a qualified college/university, essentially erasing the interest

that would have been added to the loan during the time of

study

unsubsidized loan a college loan usually taken

by students who do not meet financial need standards and

still need to fund their post-secondary education. These loans accrue interest

while the student is in school and can result in significantly

higher debt because of the interest added to the loan

over time

Examples and Practice• Using the data below, evaluate various student loan scenarios.

• Loan A: $5500 at 5% interest for 10 years. What were your cumulative payments?Howmuchinterestdidyoupay?

• Loan B: $5500 at 6.8% interest for 10 years. What were your cumulative payments?Howmuchinterestdidyoupay?

• Loan C: $5500 at 7.9% interest for 10 years. What were your cumulative payments?Howmuchinterestdidyoupay?

• What happens to the principal and interest amounts from the beginning of the loan to the end of the loan? Why?

Try It!A B C D

1 Item Loan A Loan B Loan C

2 Loan balance $5,500.00 $5,500.00 $5,500.00

3 Adjusted loan balance $5,500.00 $5,500.00 $5,729.17

4 Loan interest rate 5.00% 6.80% 7.90%

5 Loan fees 0.00% 0.00% 4.00%

6 Loan term 10 years 10 years 10 years

7 Minimum payment $40.00 $50.00 $50.00

8 Total years in college 4 years 4 years 4 years

9 Average debt per year $1,375.00 $1,375.00 $1,375.00

10

11 Monthly loan payment $58.34 $63.29 $69.21

12 Number of payments 120 120 120

13

14 Cumulative payments

15 Total interest paid


Using some of the data from this lesson, you will analyze three different financial aid options for attending three different schools. Each school offers a comparable program of study. Based on your calculations and what you have learned about financial aid, you will need to select the option you believe would be best in terms of financing your education.

Non-variable data: • You plan to attend college for 4 years. • You have $10,000 saved for you in a 529 account• Your family’s total EFC is $2700, and your parents do not intend to take a PLUS.

AwardOfferData:(inadditiontothedataprovidedearlier)• School A: in your home town, a $500 scholarship • School B: 200 miles away, and offers no additional aid• School C: across the country, a $1000 academic scholarship, and a $2200 Perkins Loan

As you construct the spreadsheet (use the format shown at the bottom of the page), think about the following:• What can you do to reduce expenses?• What can you do to increase your income?• Would you consider taking a loan for the remaining expenses? If so, what kind? Why? If not, why not? How do you plan to cover those expenses?

After calculating the total debt for the year, answer each of these questions.1. Considering only the total debt and the type of debt you would incur, which school provided you with the best financial aid package? Explain why.2. When you consider the amount of time you will need to spend working and your own academic skills and study habits, which financial aid package would provide you with the proper amount of study time. Explain why.3. Doesanyschoolofferyouanoptionthatwouldrequirenoadditionaloutofpocket expenses if you consider price, location and work-study options? If so, explain.4. If your family was unable to provide the EFC, would that change the financial aid package you would select? Explain why.


A B C D E F G H I

1 School TotalCostofAttendance

PellGrant

Work Study Scholarships

PerkinsLoan

AmountEFC Moneyfrom

529 Account

Remaining ExpensestobePaid

2 A $15,000 $2,200 $4,800

3 B $12,500 $2,800 $3,200

4 C $17,750 $2,500 $5,000

Building Your Future, Book 4: Making a Living 19


Key Terms:

• Compensation package • Profit sharing

• Exempt • Income taxes

• Non-exempt • Gross pay

• Base pay • Withholding

• Bonus • Net pay

• Commission • FICA

• Variable pay • Dependent

• Insurance • W-4

• Paid time off (PTO) • W-2

• Sick leave • Career change

What You’ll LearnWhen searching for the right job, it is important to consider the entire compensation package offered by potential employers. By learning to understand various types of compensation and how to calculate the total value of that compensation, you can ensure you are getting the most from the job you choose.

Did You Know….

Employees do not take home every dollar they earn. A percentage of what you earn is taxed to pay for programs such as Social Security and Medicare. It amounts to approximately 7.65% of what you earn. In addition, withholding for income taxes are also automatically deducted from your wages as well, and can range from an additional 10-35% deduction.


?

Career Link

Pension actuaries use mathematical and critical thinking skills to analyze financial and mortality risks to help pension providers set rates and develop retirement policies that will ensurethattheemployercancontinuetoofferretiredemployeesbenefitsandpaychecksas long as they live. The average pension actuary earns $87,650 per year and generally has a Bachelor’s degree and must pass rigorous exams to be credentialed in this profession.

20 Building Your Future, Book 4: Making a Living

Compensation BasicsOnce you have completed your post-secondary education or job training program, you will begin seeking employment. As you look at which jobs to apply for and consider various employment offers from employers, understanding the entire compensation package being offered and analyzing its value is an important part of the decision making process.

One of the first things to determine is whether or not the position is exempt or non-exempt in terms of the way wages are paid. If you are hired as an exempt employee, you will be expected to perform full-time job-related work for a set amount of money, regardless of whether or not you work overtime hours. Full-time employment is typically considered 40 hours per week, but many salaried workers provide employers with more hours than this – sometimes many more. Non-exempt employees are paid on an hourly basis, and federal law requires that they be paid an overtime rate of 1½ times the hourly rate for all time they work in excess of 40 hours each week. In these types of positions, the hourly wage can vary greatly depending on the duties and responsibilities of the job and the policies of that particular company.

While hourly pay may seem to be the better option if one expects to work overtime, there are drawbacks as well. Exempt employees are often paid for days they are sick or on vacation, whereas non-exempt employees are usually only paid for the hours they actually work.

When looking at a job offer, it is important that you clearly understand exactly what your base pay rate will be. For salaried positions, this figure is typically provided as a monthly or annual salary amount. For hourly positions, this amount is provided as an hourly wage. The federal government sets standards for the minimum hourly wage that employers must pay employees, but many hourly positions do pay above this minimum.

compensation package

all of the wages (salary, bonus, commission) and

benefits provided by an employer

exemptclassification of an employee

who is paid a salary rather than hourly wages and is not

eligible for overtime pay

non-exemptclassification of an employee

who is paid on an hourly basis and is entitled to overtime

pay generally at a rate of 1 ½ times the hourly wage

base paythe basic rate of pay for a

particular job not including overtime, bonuses or

commissions


Examples and PracticeRead the two scenarios below and construct a spreadsheet that helps you answer the questions that follow.• Job1:exempt position, base pay = $2,500/month, average work week

= 47 hours• Job2:non-exempt position, base pay = $10.25/hour, average work

week = 47 hours

Create a spreadsheet that will calculate:• What is the weekly pay for Job 1? (Whatformulawillyouenterforthis

calculation?)• What is the hourly wage for Job 1 including overtime hours? (What

formulawillyouenterforthiscalculation?)• What is the weekly pay for Job 2? (Whatformulawillyouenterforthis

calculation?)

• Whichofthetwojobswouldyouratherhave?Why?

Besides base pay, another important part of the compensation package is whether or not additional earning opportunities are available. These are often presented to employees as a bonus or a commission. In both cases, this is money that is offered to the employee in addition to the base pay. Sometimes known as variable pay, the employee usually has to earn a bonus or commission based on achieving a pre-determined objective set by the employer. Typical objectives would be achieving a certain amount of sales, reducing expenses by a certain amount, boosting departmental productivity, and so on. Bonuses are typically paid as a flat sum whereas commissions are usually a percentage amount. Below are two examples of how a bonus or commission might be presented to an employee.

• Job1:Your boss offers you monthly bonus of $200 if you obtain five new customers each month• Job2:Your boss offers you a 3% commission for every dollar’s worth of product you sell.

Examples and PracticeCompare the two jobs by calculating:• Assumeyoumeetthegoalofobtainingfivenewcustomerspermonthfor

10ofthe12monthsoftheyear.Howmuchwouldyouearninbonus money for the year?

• Assumeyousellanaverageof$700worthofproducteachweek.How muchwouldyouearnincommissionforthemonth?Howmuchwould that equate to throughout the year?

• Basedonyourcalculations,andassumingidenticalbasepay,whichof these is a better paying job? Why?

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bonusa sum of money given to an

employee (usually one that is paid a salary) in addition to

the employee’s usual wages; usually based on business or employee performance, not

guaranteed

commissiona fee paid to an employee or

agent for providing a service, such as a sale

variable paycompensation that must be

earned (such as commission) each time in order to be paid

to the employee


Insurance is the primary means that most employers use to assist employees with the cost of medical, dental, and vision care. Employers often pay part or all of an employee’s insurance premium as a benefit of employment. The employer will sometimes even cover part of the cost of insurance for employees’ family members. This means that through the employer, the employee can gain medical, dental, life, vision and/or disability insurance at a reduced cost or even at no cost. When considering a job, the amount of money an employer will pay for insurance premiums and the types of insurance offered should be carefully considered.

Examples and PracticeRead the two scenarios below and answer the questions that follow.

Job1:The employer will pay half of the monthly insurance premiums for your medical, dental and vision insurance. The total cost for these each month is $470. You get disability insurance at no cost and an amount of life insurance equal to one year’s salary at no cost.

Job2:The employer will pay 75% of the $500 monthly insurance premiums for your medical and dental insurance. You can purchase vision insurance for $5 per month. Your disability insurance costs $35 per month and the employer provides an amount of life insurance equal to the value of 1½ times your salary at no cost.

Compare the two jobs by calculating:• ForJob1,howmuchwouldyouhavetopayforyourhalfofthemedical,

dental and vision insurance and all the other benefits listed?• ForJob2,howmuchwouldyouhavetopayforyourportionofthe

medical, dental and vision insurance and all the other benefits listed?• Allotherthingsbeingequal,whichjobwouldyouratherhave?Why?

Another important factor to consider when reviewing a job offer is paid time off(PTO). Paid time off can be used for many things: vacation, attending to personal business, etc. Employers may offer paid time off as set holidays such as Thanksgiving or as vacation where employees are paid their usual pay for work even though they are not performing any work for the employer. Sick leave is also offered by many employers, so that if an employee is ill or temporarily disabled, days may be taken off from work. Some employers offer full or partial payment for a certain number of sick days, while others allow employees to take sick days without pay.

Profitsharing is another popular benefit that some employers offer. By issuing stocks, bonds or cash, the employer shares some of the company’s profits with employees. Most of the time, this is not a guaranteed benefit. The company must reach a certain profit level before profits are shared with employees.

insurancepromised payment for

specific, potential and/or future losses in exchange for a

periodic payment

paidtimeoff(PTO)time not worked by an

employee for which the regular rate, a fixed or a

prorated amount of pay, is accrued and paid to the

employee

sick leavepaidorunpaidtimeofffrom

work for an employee temporarily unable to perform

duties due to illness or disability

profit sharinga program in which the

employer shares some of its profits with employees

through stocks, bonds or cash

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Examples and PracticeLet’s look at how benefits like paid time off and sick leave can add to the value of a compensation package. Read the two scenarios below and answer the questions that follow.

Job1:The employer offers you five paid holidays, 40 hours’ worth of paid time off and two days of paid sick leave each year. All other days missed from work are unpaid. Your hourly wage is $12.00

Job2:The employer offers you three paid holidays and 80 hours’ worth of paid time off to use as vacation or sick leave if needed. All other days missed from work are unpaid. Your hourly wage is $12.00

Compare the two jobs by calculating:• Whatisthetotalvalueofyourpaidtimeofffortheyearforeachjob?• Whichoftheseisthebetterfinancialoffer?Explainwhy.

Understanding Your PaycheckWhen an employer agrees to pay an employee a certain amount of money, that does not mean the employee will see that amount of money when the paycheck is issued. All U.S. workers pay incometaxes on their earnings. These are federal, state and sometimes local taxes that are deducted from the employee’s gross pay. The deduction of these taxes is usually referred to as withholding. After all deductions and taxes have been removed from the gross pay, the employee is left with net pay, which is the amount of money the employee actually receives.

incometaxespercentage of your income,

including wages, salaries, commissions and bonuses

paid to the government each year

gross payregular pay, overtime pay, and other taxable earnings paid to

an employee during a pay period before any obligations,

such as taxes, are deducted

withholdingpart of an employee’s wages or salary that is withheld by

the employer as partial payment of the employee’s

income taxes

net payremaining amount of pay

after taxes, retirement contributions and other

deductions are made

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When it comes to withholding taxes, the amount of money withheld for income taxes varies from person to person, depending on earnings. FICA, an abbreviation representing the Federal Insurance Contributions Act, is paid by every employee to fund programs such as Social Security and Medicare. This amounts to 7.65% of the amount of money earned each pay period. In addition, the employer also pays FICA taxes for each employee. Employers also pay FUTA (Federal Unemployment Tax Act) taxes, which is used to fund state workforce agencies.

The number of dependents that the employee chooses when completing the W-4 form can determine the amount of taxes deducted from each paycheck. The W-4 form helps the employer figure out the amount of taxes to withhold. For example, if you are a single person with no dependents, then you will generally claim one allowance (for yourself ) on the W-4 form. This means you will have a higher amount in taxes withheld from your paycheck than another person with the exact same job and salary who has a spouse and 3 children as dependents. That person can select 5 withholding allowances, thus reducing the amount of taxes withheld from each paycheck. View a sample of a W-4 form at http://www.irs.gov/ to see how the form is completed.

Examples and PracticeLook at the sample pay stub on the next page.

• On the left you can see this is an hourly employee. She is paid 1 ½ times her hourly rate for overtime. She also gets holiday pay and reimbursement for tuition as benefits.• On the right you can see the federal withholdings along with state and local taxes.• Look at the various benefits the employee gets. You can see these listed under the “Other” category on the right side.• Study the four numbers at the bottom of the pay stub: Totals, Taxable Gross, Deduction Totals and Net Pay. You can see how the various withholdings and deductions impact the amount of pay the employee takes home for the week.• Note that “Y-T-D” refers to the “Year-to-Date” summary of each item.

• Howmanyhoursdidsheworklastweek,includingovertime?• Whatbenefitsdoesthisemployergivetheemployee?• Doesshepaytaxesonthetuitionreimbursement?Howcanyoutell?• Whatotherdeductionsarenottaxableandmadebeforetaxesare calculated? • Whatpercentageofthemoneyearnedwasactuallypaidtotheemployee?• Howmuchdidtheemployeeputintothe401(k)?Howmuchdidshepay fordental,medical(HMO)andlifeinsurance?• Usingthedatafromthecurrentpayperiodcolumn,approximatelyhow much will be withheld for this employee’s annual federal taxes?

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FICAstands for Federal Insurance Contributions Act, a federal

payroll tax paid by employers and employees to fund

government programs that provide benefits to retirees

dependentsomeone (such as a child

under 18) who relies on an adult for support

W-4a form that the employee fills

out to let the employer know his or her tax situation,

allowing the employer to figure out the correct amount

of tax to withhold from the employee’s paycheck


At the end of the calendar year, when income taxes are due, employees get credit for all of the money they have had withheld from their paychecks. This is reported to the employee and the IRS on a form called a W-2. If too much tax has been withheld, then the employee will get a tax refund from the government. If not enough tax has been withheld, the employee will have to pay additional taxes to the government. By selecting the proper number of dependents and withholdings, employees increase their chances of paying the correct amount in taxes so that only a refund or minimal payment is due.

A sample W-2 form with an explanation of the information that will be included on the form can be found on page 26. Costs of Changing CareersDuring the course of a lifetime, many people make a career change. While this can be very fulfilling emotionally, it can be financially costly. When an employee moves from one profession to another, there are sometimes expenses incurred for additional education and training. Since the employee is new to the occupation, they may have to start at an entry level job as they begin climbing their new career ladder. This could be a cut in base pay, benefits, and paid time off.

What’sIncludedonaPaycheckStub

Wages Deductions

Current Y-T-D Current Y-T-DDescription Hours Rate Amount Amount Description Amount Amount

Regular 40.00 10.00 400.00 400.00 Federal Withholdings 37.29 37.29Overtime 1.00 15.00 15.00 15.00 Social Security Tax 24.83 24.83Holiday 0.00 Medicare 5.81 5.81Tuition 37.43 37.43 Tax 8.26 8.26 NY State 5.11 5.11 Income Tax 0.61 0.61 NYC Income Tax NY SUI/SDI Tax

Other 401(k) 27.15 27.15 Life Insurance 2.00 2.00 Loan 30.00 30.00 Dental 2.00 2.00 HMO 20.00 20.00 Dep Care FSA 30.00 30.00

Totals 452.43 452.43 DeductionTotals 193.06 193.06

TaxableGross 335.85 335.85

NETPAY 259.38 259.38

ABC Corp.450 Chamber StreetSomewhere, USA 00010

Employee Name: Mary SmithSocial Security #: 999-99-9999Period End Date: 01/07/13

W-2a form that the employer

sends to the employee and the IRS that reports the

employee’s annual wages and the amount of taxes withheld

during the year

career changemoving from one profession

to another


On the other hand, sometimes making a career change can have just the opposite effect. If the former occupation is one that required little post-secondary education and little room for advancement in terms of the income that could be earned, then the potential to increase earnings and benefits should certainly be considered. All of these factors need to be weighed and considered when making the decision whether to make a career change.

What’sIncludedonaW-2Form

A = Total pay for the year, less certain deferrals like 401(k) plansB = Federal income tax withheld from your wagesC = Amount of your wages that are taxed for Social SecurityD = Social Security tax withheld from your wagesE = Amount of your wages that are taxed for MedicareF = Medicare tax withheld from your wagesG = Total amount of tips you reportedH = Amount deducted from your wages for dependent care like day careI = Any distributions you received from a nonqualified deferred compensation planJ = Additional taxes or deductions not otherwise covered on the formK = Wages that are eligible for state income tax withholdingL = State income tax withheld from your wagesM = Wages that are eligible for local income tax withholdingN = Local income tax withheld from your wagesO = Name or code of your local jurisdiction

a Employee’s social security numberOMB No. 1545-0008

This information is being furnished to the Internal Revenue Service. If you are required to file a tax return, a negligence penalty or other sanction may be imposed on you if this income is taxable and you fail to report it.

b Employer identification number (EIN)

c Employer’s name, address, and ZIP code

d Control number

e Employee’s first name and initial Last name Suff.

f Employee’s address and ZIP code

1 Wages, tips, other compensation 2 Federal income tax withheld

3 Social security wages 4 Social security tax withheld

5 Medicare wages and tips 6 Medicare tax withheld

7 Social security tips 8 Allocated tips

9 10 Dependent care benefits

11 Nonqualified plans 12a See instructions for box 12Co d e

12bCo d e

12cCo d e

12dCo d e

13 Statutory employee

Retirement plan

Third-party sick pay

14 Other

15 State Employer’s state ID number 16 State wages, tips, etc. 17 State income tax 18 Local wages, tips, etc. 19 Local income tax 20 Locality name

Form W-2 Wage and Tax Statement 2012

Department of the Treasury—Internal Revenue Service

Safe, accurate FAST! Use

Copy C—For EMPLOYEE’S RECORDS (See Notice to Employee on the back of Copy B.)

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You currently have a job you enjoy, but have been hoping to find opportunities to increase your income. After interviewing and doing some additional online training classes, you think you’ve found the right position. Use what you have learned about making a living to construct a spreadsheet(s) that will help you calculate the value of your current job and the value of the new position. Then you will explain which job will best meet your needs over time.

CurrentJob• Non-exempt employee, $14.25 per hour• Average 44 hour work week• Paid up to 5% of weekly salary in commission for meeting sales goals• Currently paid $80 per week for health and dental insurance benefits• You have no vision, life or disability insurance offered through your employer• Your paid time off is equal to 100 hours annually at your hourly wage• Withholding taxes average $85 per week

JobOffer• Exempt employee, $30,000 annual salary• Average 48 hour work week• Opportunity for a bonus of up to $150 monthly for meeting sales goals• Would pay $300 per month for health, dental and vision insurance benefits• Disability insurance and life insurance of 1½ times your salary is provided by the

employer• You have 5 paid holidays and two weeks (10 days) of paid time off for vacation,

illness, etc.• Withholding taxes would average $320 per month Based on your calculations, address these questions.

• Whatistheannualnetpayforyourcurrentjob?• Whatwouldtheannualnetpaybeforthejobbeingoffered?• Whichjobwouldrequireyoutoworkmorehours?Howmanymore?• Atwhichjobcouldyouearnmorevariablepay?Howmuchmore?• Whichjoboffersabettercompensationpackage?Explainwhy.• Basedonyourcalculations,whichjobmakesbetterfinancialsense,yourcurrentjob

orthejoboffer?Explainwhy.


Building Your Future, Book 4: Making a Life 29


Key Terms:

• Needs • Credit report

• Expense • Credit rating

• Want • FICO score

• Budget • Installment loan

• Late fees • Identity theft

• Credit history

What You’ll LearnLiving within their means - spending no more than a family has available from their income – can be a struggle for people. Understanding the difference between a want and a need, knowing where money is spent, how to budget so that expenses do not exceed income and establishing and maintaining a good credit rating are all essential life skills. By identifying wants and needs and creating a spreadsheet to track income and expenses, you can see how to live your life on a balanced budget and avoid debt. Finally, we will explore identity theft, including what can be done to minimize the chance of being a victim as well as what strategies to use if your identity is stolen.

Wants vs. NeedsEveryone has certain needs that must be met in order to survive, including essentials such as food, water and shelter. When looking at needs realistically, living in society necessitates other expenses that qualify as needs even though they are not truly essential to existence. Some could include clothing,

Did You Know….

The average American family spends 34% of the household budget on housing. Cars are the second most costly item at 17.6% of the budget, while food holds the third place position at 12.4%.


?

Career Link

BankLoanOfficershelpcreditorsassessriskandaretypicallyemployedbycommercialbanks, credit unions and mortgage companies. They are primarily responsible for evaluating, authorizing and recommending whether or not loan applications should be approved for individuals and businesses.

needbasic survival necessities

expensean expenditure of money; cost

30 Building Your Future, Book 4: Making a Life

access to health care and hygiene products, transportation and basic household utilities such as electricity. Needs also include obligations, such as paying off a loan. While you will still survive if you don’t pay off your debts, the consequences would be very serious to your financial well being, so it’s best to consider these types of obligations as essential.

In addition to our needs, we all have things we want—things it would be nice to have but that we could live without. For example, while we need clothing, expensive designer clothing is not essential. Similarly, transportation can take many forms. We might be able to get by with a bicycle or used car rather than a brand new luxury car. We need food, but we want candy bars.

Here’s a simple test. Next time you are tempted to make a purchase, ask yourself: Do I need this to live, or is this purchase just something that would be nice to have? Many times, you will find that you purchase something because you want it, not because you need it.

Does this mean that we should never purchase wants? Absolutely not! What it means is that we should develop a plan for using our money wisely so we live within our means and have the ability to purchase wants without acquiring debt. How can I do this, you ask? It’s simple. Create a budget.

Budget BasicsA budget is an itemized list of income and expenses over a given period of time; it allows you to plan how you will spend your money and see how what you actually spent compares to your plan. When you are developing a plan for how you will earn, save and spend your money, it is important to keep in mind that you have a finite amount of cash to work with. Using a budget to carefully track income and expenses can help ensure that you live within your means, meaning you do not spend more money than you make. Most people create monthly budgets since many major expenses such as housing, transportation costs and utilities are paid on a monthly basis.

As you establish your budget, you must think about meeting your needs first. After all of the needs have been listed, then you can begin adding wants to your budget. Before you allocate all your remaining funds to the things you want, you should set aside some money as savings or investments so you will have a “safety net” to prepare for retirement, or if something happens to your income unexpectedly.

On pages 32 and 33 you will find a household budget. You will notice the following:• Expenses are divided up into categories and some of those expenses have

variable amounts.• There are three columns for expenses: the budgeted amount, the actual

amount and the difference between the two. When an item is over budget,

wantsomething a person desires

that is not essential

budgetan itemized list of income and

expenses over a given period of time


it appears in ( ) to show the overage. If an item is under budget, it simply shows up as a dollar amount. If an item is exactly on budget, an amount of $0.00 appears in the difference, or variance column.

• Since each category has a total budgeted amount, actual amount and amount of difference, it is easy to see if a category is on, over or under budget.

• The bottom two lines of the budget show the total amount of budgeted and actual expenses along with the amount under or over the budgeted amount.

• The “Cash short/extra” category is especially important. By planning a budget that allows for extra money each month, you can help to build the “safety net” mentioned previously.

Examples and PracticeStudy the budget on the following pages and create a spreadsheet with two lists, one labeled “needs” and the other labeled “wants”. Sort the line items from the budget into the appropriate category and note the amount of money budgeted for each item. Then calculate the overall percentage of income each item equates to each month based on the $3,500 monthly net income shown on the budget.

When creating your budget, think about the following.• PercentageofIncome=AmountBudgeted÷Incomex100• How would you express the statements above as a formula for the spreadsheet?

Looking at the data on the spreadsheet, address each question• Whatisthetotalpercentageofincomethatwillbespentonneeds?• Whatpercentageofincomeremainstobespentonwants?• Whatwouldcausethetotalpercentageofincomebetweenthetwo categories not to equal 100%?• Supposeyouareinacaraccidentandneedtopaya$750insurance deductible to repair your car and another $1000 in medical bills from injuries you sustained in the accident. In addition, you miss 2 weeks of work because of your injuries, resulting in the loss of pay (about $1750) duringthattimesinceyoudon’thaveanypaidtimeoffremainingforthe year. All totaled, this equals approximately $3500, which is a full month’s wages. Review the budget carefully and decide where you can realistically make the cuts necessary to pay for your car repairs and medical bills and make up for lost wages over the course of one year.

Try It!

A B C

1 NeedsBudgetItem Amount Budgeted %ofIncome

2

3 WantsBudgetItem Amount Budgeted %ofIncome


A B C D

1 HOUSEHOLDBUDGET Budgeted ActualDifference(Variance)

2 INCOME

3 Net Monthly Wages 3,500.00 3,500.00 0.00

4 Incometotals 3,500.00 3,500.00 0.00

5 EXPENSES

6 Home and Daily Living

7 Mortgage/rent 725.00 725.00 0.00

8 Utilities (electricity, water, natural gas) 250.00 246.00 4.00

9 Cellular telephone 80.00 79.00 1.00

10 Groceries 240.00 186.00 54.00

11 Dining out 200.00 227.00 (27.00)

12 Cable television 110.00 106.00 4.00

13 Trash service 20.00 20.00 0.00

14 Home repairs 75.00 42.00 33.00

15 Home totals 1,700.00 1,631.00 69.00

16 Transportation

17 Car payment 250.00 250.00 0.00

18 Gas/fuel 170.00 200.00 (30.00)

19 Insurance 75.00 75.00 0.00

20 Repairs and maintenance 50.00 140.00 (90.00)

21 Parking 75.00 55.00 20.00

22 Public transportation 20.00 28.00 (8.00)

23 Transportationtotals 640.00 748.00 (108.00)

24 Entertainment

25 Video/DVD rentals 10.00 6.00 4.00

26 Movies/plays 25.00 20.00 5.00

27 Sporting events 50.00 85.00 (35.00)

28 Concerts/clubs 50.00 60.00 (10.00)

29 Other activities 50.00 35.00 15.00

30 Entertainment totals 185.00 206.00 (21.00)


A B C D

1 HOUSEHOLDBUDGET Budgeted ActualDifference(Variance)

31 Health

32 Health club dues 25.00 25.00 0.00

33 Insurance 150.00 150.00 0.00

34 Prescriptions 10.00 10.00 0.00

35 Over-the-counter drugs 10.00 7.00 3.00

36 Co-payments/out-of-pocket 25.00 10.00 15.00

37 Life insurance 20.00 20.00 0.00

38 Health totals 240.00 222.00 18.00

39 Personal Care and Services

40 Clothing 75.00 85.00 (10.00)

41 Dry cleaning 20.00 12.00 8.00

42 Salon/barber 40.00 30.00 10.00

43 Personaltotals 135.00 127.00 8.00

44 Financial Obligations

45 Long-term savings 100.00 100.00 0.00

46 Retirement (401(k), Roth IRA) 100.00 100.00 0.00

47 Credit card payments 150.00 150.00 0.00

48 Other debt 0.00 0.00 0.00

49 Financial obligation totals 350.00 350.00 0.00

50 Misc. Payments

51 Charitable donations 75.00 75.00 0.00

52 Gifts 50.00 75.00 (25.00)

53 Other 75.00 48.00 27.00

54 Misc.paymentstotals 200.00 198.00 2.00

55

56 Totalexpenses 3,450.00 3,482.00 (32.00)

57

58 Cashshort/extra 50.00 18.00 32.00

59


late feesan extra charge imposed

when your payment is received after the due date or

grace period

credit historyinformation about the

number and types of credit accounts, how long the

accounts have been open, the amounts owed on each

account , the amount of available credit being used,

whether bills are paid on time, the number of recent credit

inquiries and information about bankruptcies, liens,

judgments and collections

credit reporta report detailing an

individual’s credit history, including timeliness of

payments related to bills, loans, credit accounts and

bankruptcies; used to determine creditworthiness

credit ratinga ranking typically expressed

as a number or letter, based on one’s credit history and

used by financial institutions for loan and credit approval

as well as determination of loan or credit terms

Keeping It BalancedThe key to successful budgeting lies in making sure you do not spend more than you make. Sometimes unexpected expenses occur. Your car might break down or you might have an unexpected medical expense. If your budget is tight and you have not put money aside to cover these sorts of events, then it can be very easy to get off budget and incur unexpected and unwanted costs.

If you face unexpected costs like those from the TryIt!exercise and don’t have the savings to cover them and cannot cut your budget enough to pay all of the unexpected costs, one of two things will likely happen. You will either have to extend your payments on some items by making payments past the established due dates, or you will have to borrow money to cover the costs. Both options create undesirable consequences. Borrowing, such as using a credit card, to cover unexpected costs will force you to incur additional costs, namely the interest expense associated with the use of the credit card. However, being late on payments may be worse. Not only will you likely have additional costs in the form of late fees, the late payments may also have a negative impact on your credit history, credit report and credit rating as well as drastically increase your interest rate for credit card payments.

Most service providers and lenders allow customers a set amount of time to pay their bills. When you receive your billing notice, or statement, a due date or pay by date is typically visible on the bill. In addition, the bill will include an explanation of what fees will be incurred if the payment for the bill is late. Sometimes these fees are a set amount ($25.00 or more in some cases) while other times they are a percentage of the amount due. In either case, the end result of a late bill payment is a higher cost to you.


Examples and PracticeCreate a spreadsheet that includes the data from the chart in the following columns.

Now enter the data into your spreadsheet• Bill 1 = $200 with a set late fee of $35.00 if not paid on time. • Bill 2 = $200 with a 3% late fee if not paid on time.

• TotalAmountPaid=BillingAmount+EITHERtheSetLateFeeOR thePercentageLateFee

• PercentageLateFee=BillingAmountxPercentageLateFee• Howwouldyouexpressthestatementsaboveasformulasforthe

spreadsheet?

Looking at the data on the spreadsheet, address each question• Inthisscenario,whichfeeresultsinagreatercosttoyou?• Ifyoupaidbothofthesebillslate,whatwouldbethetotalamountof

money you would pay in late fees for the month?

Maintaining Good CreditWe’ve seen how not budgeting and not paying bills on time can be costly in terms of dollars and cents, but another major factor to consider is the effect the late payments have on your creditworthiness. There are many times in life when your credit report will be reviewed and considered. For example, if you want to purchase a car or a home, potential lenders will want to view your credit report so they can see your credit history and your credit rating. This will help them determine several things including whether or not they will give you a loan, what interest rate they will charge, and other terms such as the amount of a down payment they want you to pay. All of these items factor in to the overall cost of the loan. The better your credit rating is, the easier it is to get a low interest rate for major purchases such as cars and homes.

In addition to loans, many service providers also consider your credit report before extending service. Some who commonly use your credit rating to determine customer service terms include cell phone providers, utility companies and cable television providers. If these companies see that you have a history of not paying your bills on time, your ability to get service could be affected.

The most common means used for evaluating creditworthiness is a FICOscore. The higher the score is (on a scale from 300 to 850), the better your credit is because it shows you have a history of paying your bills on time, that you do not have access to more credit than you can afford to pay and that you do not

Try It!A B C D

1 Billing Amt. Set Late Fee % Late Fee TotalAmt.Paid

FICOscorepayment history, current level

of indebtedness, types of credit used and length of

credit history, and new credit information are used to

determine creditworthiness and risk by assessing a score

between 300 and 850


pose a great risk of failing to repay the money you borrow. Typically the guidelines for various credit ratings are as follows:

FICOScore Rating Below 560 Bad 560-659 Still not good 660-724 OK 725-759 Better 760 or Above Great

Examples and PracticeFollow the link below to see an example of a typical credit report and the information contained on the report.

http://www.aie.org/managing-your-money/credit-scores-and-reports/read-a-credit-report.cfm

Roll your mouse over each section to see and read about the kind of reporting that is done by creditors. This will allow you to see examples of what a potential lender might see if you applied for a car or home loan. If you apply for a revolving line of credit such as a credit card, this same information is considered.

Building Your Credit HistoryWhile you want to save for as many unexpected expenses and major purchases as possible, it is important that you also take steps to develop a positive credit history. A strong credit history is important when applying for a mortgage, for example, and employers may check your credit history when evaluating you as a job candidate. This means that you must apply for and use credit carefully as a means of proving you are able to use it responsibly. Without a credit history, you may not be able to get a mortgage.

In order to establish a credit history, you have to maintain at least one credit account that reports to one of the credit reporting agencies for at least six months. In addition, this account needs to be in good standing, meaning there have been no missed or late payments. A revolving charge card is often a good way to begin establishing your credit. By using it for small purchases and paying off the balance on time each month, you show that you are a good credit risk and can develop a positive credit history. Another great way to build your credit history is through an installment loan, where you pay the same amount each month over a set period of time. Examples of installment loans include car loans and student loans.

Even though most people take on the responsibility of credit with the best of intentions, sometimes people make late payments or miss payments

Try It!

installment loana loan where the principal

and interest are repaid in equal payments at fixed

intervals, usually monthly


altogether. When this happens, it can start to have a negative impact on your credit report. If this happens, it is extremely important to communicate with the creditor as soon as possible to discuss the missed or late payments, and to make the payments as soon as possible so the account is current and no further delinquencies can be reported.

Identity TheftWith the growing use of credit, internet banking, online purchasing and other factors, the rate of identity theft has grown significantly in the recent past. With millions of incidents annually and billions of dollars lost through identity theft, knowing how to prevent it is very important.

One of the most important things you can do to prevent identity theft is check your credit report at least once each year. Credit reports from the three major reporting agencies are offered for free on an annual basis upon request at www.equifax.com, www.experian.com, and www.transunion.com. By visiting each of these websites, a free credit report can be obtained online, by phone or by mail.

Taking simple, common sense precautions when handling important personal information such as Social Security numbers, banking data and credit card information will help you protect your identity. Never give this information out over the phone or leave it where someone else can see it. Don’t carry this information with you so that it can be easily lost or stolen. Either secure or shred documents containing this kind of information. In short, guard this data carefully and share it only when necessary. For example, when applying for post-secondary financial aid, applying for a mortgage or loan, then it is appropriate to share personal information with the institution.

If you are the victim of identity theft, it is important that you contact your bank and all other financial institutions immediately and let them know what has happened. You should also review your banking and transaction records for fraudulent purchases. Finally, it is imperative that you contact one of the three major credit report providers to make them aware of the identify theft (if you contact one agency, they are required to inform the other two). Working with the credit reporting agencies and financial institutions, you can repair any damage that has been done through identity theft, but it is a long, time-consuming process that can often be avoided by carefully guarding your personal and financial information.

For additional information about identity theft, visit the National Council for Crime Prevention to see their booklet related to identity theft prevention at www.ncpc.org/cms-upload/prevent/files/IDtheftrev.pdf.

identity theftstealing someone’s personal, identifying information and

using it to make purchases or to get other benefits



You are working on a household budget that will cover your monthly expenses, place 5% of your earnings in savings, and leave some funds so that you can acquire some of your “wants” each month. Assume the following.• You have an annual salary of $31,000 net pay (after taxes)• You are working on establishing your credit history. To do this, you must be sure to pay your installment loans on time. • You have a student loan payment of $200 per month • You have a car payment of $250 per month

Create a spreadsheet like the sample one used in the Examples and Practice exercise on page 31. Now use the overall data from the previous spreadsheet and information in the scenario to complete the spreadsheet below and answer the questions.

Now enter the data into your spreadsheet.• Begin by entering your needs first, based on the percentage each need required

in the spreadsheet you created earlier in the lesson.• Enter your savings in dollars based on the percentage you indicated you wanted

to save.• Enter your installment loan amounts. Decide if these go in the wants or needs

column.• Enter your wants in dollars based on the percentage of income each need

represents in the spreadsheet you created earlier in the lesson.

• TotalMonthlyExpenses=MonthlyNeedsExpenses+MonthlySavings+MonthlyWantsExpenses

• Howwouldyouexpressthestatementsaboveasformulasforthespreadsheet?

Looking at the data on the spreadsheet, address each question.• Whatpercentageofyourincomewasusedbywants?• Whatpercentageofyourincomewasspentonneeds?• Didyouhavetocutanythingfromyourbudgetinordertolivewithinyourmeans(not

exceed your monthly income)? If so, what did you cut? Why?• Wereyouabletoincorporate5%savingsintoyourbudget?Whatwantsdidyouhave

to forego to do this?

A B C D E

1MonthlyIncome

MonthlyNeeds

Expenses

MonthlySavings

MonthlyWants

Expenses

TotalMonthlyExpenses

Building Your Future, Book 4: Retirement 39


Key Terms:

• Retirement • Medicare

• Compounding interest • IRA

• Risk • 401(k)

• Inflation • 403(b)

• Social Security • Pension

What You’ll LearnWhile it is still many years in the future, it is never too early to start thinking about and educating yourself on the costs of retirement and various ways to fund your retirement. By considering options early and planning your savings strategy, you will be able to enjoy a retirement lifestyle that allows you to do the things you want to do. Learning about ways to save and how you can use the power of compounding interest to build wealth can lead to a retirement free from financial stress.

Retirement BasicsWe spend years going to school and learning so we can obtain jobs to help us earn a good living. Many people take all of these steps in anticipation of retirement, when they no longer have to work and can spend each day doing the things they truly enjoy. Whether it is travel, being with family, volunteering or pursuing a hobby, retirement has traditionally been viewed as the time in life when people don’t worry about working and earning income.

Did You Know….

Only 58% of us are currently saving money for retirement – and 60% of those that are have less than $25,000. Thirty percent have less than $1,000. Most financial planners advise their clients to expect to save eight to 10 times their final annual salary for retirement.


?

Career Link

Social Security is the single largest employee benefit plan in the U.S. The government relies on actuaries to monitor and evaluate the cost impact of proposals related to Social Security in addition to reviewing the soundness of the balance between the benefits obligations being built up and the Social Security taxes being collected. Actuaries spend a great deal of time researching short-term and long-term demographic and economic trends, analyzing mortality and morbidity rates, and preparing reports and special studies on the financial aspects of the Social Security system that are of concern to the Congress and the general public.

retirementthe point in time when a

person chooses to leave the workforce permanently,

usually at age 65 or older

40 Building Your Future, Book 4: Retirement

There is one catch to this scenario. Retirement can be very difficult if people do not begin planning for it very early in life. Once people retire they are expected to live off the money they have saved over the years. Most financial planners tell people to plan to save up to ten times the amount of their annual final salary in order to retire without having to make major changes to their lifestyle.

Examples and PracticeLet’s assume you want to retire at age 65 after being in the workforce for approximately 45 years. During your last year of employment you earned a salary of $75,000. • Calculatetheamountyouwouldneedtohavesavedovertheyearsifyou

want to retire with ten times your last annual salary amount.• Howmuchwouldyouhavetosaveeachyear,onaverage,inordertohave

this amount of money?

Compounding InterestIf the thought of trying to save thousands of dollars per year seems difficult, you need to remember that when we save money we earn interest on it. Many of the investments people select for retirement savings rely on compounding interest. The beauty of compounding interest comes from the fact that, over time, these investments grow significantly because investors are paid interest not just on the principle amount invested, but also on the interest they have already been paid. With compounding interest, it is important to pay attention to how frequently the interest is compounded. If it happens daily, you will earn the greatest amount of money. If the interest is compounded monthly, you will earn a little less. If the interest is compounded annually, you will earn even less.

compounding interest

when money is earned on the total amount in the account including the initial deposit

and interest that has already been credited to the account

Try It!


risklikelihoodofsufferinglosses

or earning less than expected on financial investments

Examples and PracticeCreate a spreadsheet that contains the following columns and data.

As you construct the spreadsheet, remember that the interest rate is usually quoted as an annual rate. This means that if you compound it monthly, you must divide the annual rate by 12 (months in a year). If you compound it daily, you must divide the annual rate by 365 (days in a year).

As you construct the spreadsheet, think about the following:• InterestPayment=InterestRatexBeginningBalance• EndingBalance=BeginningBalance+InterestPayment• BeginningBalance=EndingBalancefrompreviousline


• Use the formulas to practice calculations for various interest compounding frequencies. Then answer the following questions. You will calculate the following scenarios.• Youinvest$1,000atanannualrateof7%.• Howmuchwillyouearnafter1year?3years?5years?• Youinvest$1,000atanannualrateof7%withinterest compounded monthly.• Howmuchwillyouearnafter1year?3years?5years?• Whyisitimportanttolooknotjustattheinterestrateonaninvestment, but also at how often interest is compounded?

Challenges of Saving for RetirementClearly, having a plan in place for how you will pay for retirement is important, even at a young age: The sooner you start to invest, the greater the potential returns on your investment. There are a couple of challenges you must consider beyond that of how you can actually set aside enough money each year. One of the most important factors to consider is the amount of risk you are willing to take with your retirement investments. Generally speaking,

A B C D E

1

InterestCompounding

Terms(Monthly/Annual)

InterestRate

Beginning Balance

InterestPayment

Ending Balance

2 $1,000.00

Try It!


inflationthe annual percentage

increase in the prices of goods and services

Social Securitya federal government

program funded through payroll taxes; designed to

provide retirement and disability income for those

meeting the specified criteria

Medicare a federal government

program funded through payroll taxes; pays for

health care expenses for citizens over age 65,

or those who meet other special criteria

investments that offer higher returns also reflect a greater level of risk of loss. For young investors just starting in the workforce, investment options with higher risks and potential earnings (such as stocks) can be considered because retirement is still years away, and if short-term losses occur, there is time to make them up. However, as one gets closer to retirement, the amount of risk on investments should be decreased. If great losses are suffered through events such as declines in the stock market, making up those losses gets increasingly more difficult as retirement age edges closer.

Besides risk, inflation also plays a role in the amount of money that needs to be saved for retirement. Ask retirees what a gallon of gas or a candy bar cost them when they were your age. In all likelihood, the amount of money you spend on these items today is much more than it was for the retirees. This is due to inflation. Costs typically increase over time. You have to take this into consideration when calculating your retirement needs. With these challenges in mind, let’s look at some of the most common types of investments you can make to ensure that your money will grow over time.

Government ProgramsThe U.S. government offers retirees two programs - Social Security and Medicare - that help to ensure that retirees have some retirement income and basic medical coverage after leaving the workforce. As we learned previously, both of these programs are funded through payroll taxes paid by both employees and the employers. On a typical pay stub, employees pay 6.2% of their income to FICA, which is Social Security. In return, retirees receive a set benefit based on their earnings. Medicare costs employees another 1.45% of each paycheck. Through this program retirees can receive health care coverage and prescription medications.

In order to qualify for government programs, a worker must pay into the program through payroll taxes and earn 40 Social Security credits, which typically takes about 10 years. Workers can earn up to 4 credits per year. Credits are issued for each dollar

3

Your Earnings Record

Years YouWorked

Your TaxedSocial Security

Earnings

Your TaxedMedicareEarnings

1989 1,489 1,489

1990 2,663 2,6631991 4,483 4,4831992 6,221 6,2211993 7,491 7,4911994 9,224 9,2241995 11,897 11,8971996 14,677 14,6771997 17,434 17,4341998 20,071 20,0711999 22,827 22,827

2000 25,588 25,5882001 27,576 27,5762002 29,004 29,0042003 30,772 30,7722004 33,097 33,0972005 35,102 35,1022006 37,501 37,5012007 39,927 39,9272008 41,487 41,4872009 41,446 41,446

2010 42,973 42,9732011 44,833 44,8332012 Not yet recorded

You and your family may be eligible for valuable benefits:

When you die, your family may be eligible to receive survivors benefits.

Social Security may help you if you become disabled—even at a young age.

A young person who has worked and paid Social Security taxes in as few as two years can be eligible for disability benefits.

Social Security credits you earn move with you from job to job throughout your career.

Total Social Security and Medicare taxes paid over your working career through the last year reported on the chart above:

Estimated taxes paid for Social Security:You paid: $32,239Your employers paid: $33,994

Estimated taxes paid for Medicare:You paid: $7,955Your employers paid: $7,955

Note: In 2012, you paid 4.2 percent in Social Security taxes on your salary (up to $110,100) and 1.45 percent in Medicare taxes on your entire salary. Your employer paid 6.2 percent in Social Security taxes and 1.45 percent in Medicare taxes for you. If you are self-employed, you paid the combined employee and employer amount of 10.4 percent in Social Security taxes on your net earnings (up to $110,100) and 2.9 percent in Medicare taxes on your entire net earnings.

Help Us Keep Your Earnings Record AccurateYou, your employer and Social Security share responsibility for the accuracy of your earnings record. Since you began working, we recorded your reported earnings under your name and Social Security number. We have updated your record each time your employer (or you, if you’re self-employed) reported your earnings.

Remember, it’s your earnings, not the amount of taxes you paid or the number of credits you’ve earned, that determine your benefit amount. When we figure that amount, we base it on your average earnings over your lifetime. If our records are wrong, you may not receive all the benefits to which you’re entitled.Review this chart carefully using your own records to make sure our information is correct and that we’ve recorded each year you worked. You’re the only person who can look at the earnings chart and know whether it is complete and correct.

Some or all of your earnings from last year may not be shown on your Statement. It could be that we still were

processing last year’s earnings reports when your Statementwas prepared. Your complete earnings for last year will be shown on next year’s Statement. Note: If you worked for more than one employer during any year, or if you had both earnings and self-employment income, we combined your earnings for the year.There’s a limit on the amount of earnings on which you pay Social Security taxes each year. The limit increases yearly. Earnings above the limit will not appear on your earnings chart as Social Security earnings. (For Medicare taxes, the maximum earnings amount began rising in 1991. Since 1994, all of your earnings are taxed for Medicare.)Call us right away at 1-800-772-1213 (7 a.m.–7 p.m. your local time) if any earnings for years before last year are shown incorrectly. Please have your W-2 or tax return for those years available. (If you live outside the U.S., follow the directions at the bottom of page 4.)


that is earned during the calendar year. For every $1,130 you earn, one credit is awarded. Once you have earned $4,520, then you will be awarded 4 credits for the calendar year.

Each year the government mails workers an annual Social Security statement. The statement shows an estimate of how much the person has earned each year. In addition, the amount of money paid into Social Security and Medicare by both the employee and employer is also listed on the statement. To see an example of what this information will look like on a statement, look at the chart on page 42, which comes from page 3 of the sample document provided at http://www.socialsecurity.gov/myaccount/SSA-7005-OL.pdf.

According to the U.S. government, workers can access Social Security benefits once they reach age 62 or greater, with full retirement benefits available once you reach age 67. Look at the chart at the top of this page, which comes from page 2 of the sample statement referenced above. Here you can see that the longer you work, the greater the retirement benefit. Looking at the sample statement, retiring early at age 62 would result in a benefit of $1,113 per month. If you wait to full retirement age, the benefit increase to $1,619 monthly, and by continuing to work until age 70, the greatest benefit of $2,023 monthly, nearly twice the early retirement benefit, is paid. It is easy to see that by extending the amount of time in the workforce, employees can gain a greater lifetime benefit from the Social Security program. To help retirees retain their buying power in the face of inflation, the program calculates annual Cost of Living Adjustments (COLA). If there has been no increase in the Consumer Price Index (the amount typically paid for basic goods), then no COLA is provided.

2 [C]

Your Estimated Benefits*Retirement You have earned enough credits to qualify for benefits. At your current earnings rate, if you

continue working until…your full retirement age (67 years), your payment would be about ........................................................$ 1,619 a monthage 70, your payment would be about ....................................................................................................$ 2,023 a monthage 62, your payment would be about ....................................................................................................$ 1,113 a month

*Disability You have earned enough credits to qualify for benefits. If you became disabled right now,your payment would be about .................................................................................................................$ 1,441 a month

*Family If you get retirement or disability benefits, your spouse and children also may qualify for benefits.*Survivors You have earned enough credits for your family to receive survivors benefits. If you die this

year, certain members of your family may qualify for the following benefits:Your child ................................................................................................................................................$ 1,131 a monthYour spouse who is caring for your child ...............................................................................................$ 1,131 a monthYour spouse, if benefits start at full retirement age................................................................................$ 1,508 a monthTotal family benefits cannot be more than .............................................................................................$ 2,778 a monthYour spouse or minor child may be eligible for a special one-time death benefit of $255.

Medicare You have enough credits to qualify for Medicare at age 65. Even if you do not retire at age 65, be sure to contact Social Security three months before your 65th birthday to enroll in Medicare.

* Your estimated benefits are based on current law. Congress has made changes to the law in thepast and can do so at any time. The law governing benefit amounts may change because, by 2033,the payroll taxes collected will be enough to pay only about 75 percent of scheduled benefits.

We based your benefit estimates on these facts:Your date of birth (please verify your name on page 1 and this date of birth) ...................................... April 5, 1973Your estimated taxable earnings per year after 2013 ............................................................................. $44,833Your Social Security number (only the last four digits are shown to help prevent identity theft) ......... XXX-XX-1234

How Your Benefits Are EstimatedTo qualify for benefits, you earn “credits” through your work — up to four each year. This year, for example, you earn one credit for each $1,160 of wages or self-employment income. When you’ve earned $4,640, you’ve earned your four credits for the year. Most people need 40 credits, earned over their working lifetime, to receive retirement benefits. For disability and survivors benefits, young people need fewer credits to be eligible.

We checked your records to see whether you have earned enough credits to qualify for benefits. If you haven’t earned enough yet to qualify for any type of benefit, we can’t give you a benefit estimate now. If you continue to work, we’ll give you an estimate when you do qualify.What we assumed — If you have enough work credits, we estimated your benefit amounts using your average earnings over your working lifetime. For 2013 and later (up to retirement age), we assumed you’ll continue to work and make about the same as you did in 2011 or 2012. We also included credits we assumed you earned last year and this year.

Generally, the older you are and the closer you are to retirement, the more accurate the retirement estimates will be because they are based on a longer work history with fewer uncertainties such as earnings fluctuations and future law changes. We encourage you to use our online Retirement Estimator at www.socialsecurity.gov/estimator to obtain immediate and personalized benefit estimates.

We can’t provide your actual benefit amount until you apply for benefits. And that amount may differ from the estimates stated above because:

(1) Your earnings may increase or decrease in the future.(2) After you start receiving benefits, they will be adjusted

for cost-of-living increases.

(3) Your estimated benefits are based on current law. The law governing benefit amounts may change.

(4) Your benefit amount may be affected by military service, railroad employment or pensions earned through work on which you did not pay Social Security tax. Visit www.socialsecurity.govto learn more.

Windfall Elimination Provision (WEP) — In the future, if you receive a pension from employment in which you do not pay Social Security taxes, such as some federal, state or local government work, some nonprofit organizations or foreign employment, and you also qualify for your own Social Security retirement or disability benefit, your Social Security benefit may be reduced, but not eliminated, by WEP. The amount of the reduction, if any, depends on your earnings and number of years in jobs in which you paid Social Security taxes, and the year you are age 62 or become disabled. For more information, please see Windfall Elimination Provision (Publication No. 05-10045) at www.socialsecurity.gov/WEP.Government Pension Offset (GPO) — If you receive a pension based on federal, state or local government work in which you did not pay Social Security taxes and you qualify, now or in the future, for Social Security benefits as a current or former spouse, widow or widower, you are likely to be affected by GPO. If GPO applies, your Social Security benefit will be reduced by an amount equal to two-thirds of your government pension, and could be reduced to zero. Even if your benefit is reduced to zero, you will be eligible for Medicare at age 65 on your spouse’s record. To learn more, please see Government Pension Offset (Publication No. 05-10007) at www.socialsecurity.gov/GPO.


IRA(IndividualRetirementAccount)

a retirement investment account that allows a person to save a specified amount of

income each year in a tax-deferred account

Another important piece of information on page two of the statement is whether or not a worker has qualified for Medicare benefits. Average retirees spend about 20% of their income on health care (http://www.dol.gov/ebsa/publications/nearretirement.html#.UKzbHYZXlv4). Looking at the sample again, you will see that this worker has qualified to receive the benefits, meaning that the government will provide basic health care services free or at a reduced cost once the person has enrolled in the program. These are typically basic benefits that help retirees to access doctors, hospitals and prescription medications at reduced cost.

Examples and PracticeThink about what you learned in earlier chapters about the cost of living and the budget that you created. Knowing those expenses, answer the following questions.• Inmostcases,willtheincomeprovidedbySocialSecuritybenefitsallow

you to meet all of your budget needs? What about your budget wants?• Whatotherthingscanyoudotoensureyoucanmeetallofyourexpenses

during retirement?

Investing for RetirementFor most people, Social Security benefits do not provide enough income to maintain the lifestyle and budget they were used to having while earning income. This is why saving for retirement is critical. The earlier you begin saving, the more money you will have when you retire, thanks to compounding interest. But what types of investments are good for retirement savings?

Many people select Individual Retirement Accounts (IRAs) to save for retirement. These types of accounts allow investors to take advantage of compounding interest and avoid paying taxes on the money they save. The interest rate earned on these types of accounts varies, depending on the type of investment selected, and is usually compounded yearly. The two main types of IRAs are traditional and Roth IRAs. With a traditional IRA, if you put money into the account each month, that money is deducted from your paycheck before the taxes on your earnings are calculated, meaning you are not paying current taxes on it. This type of IRA is a tax-deferred investment. When you begin withdrawing the money during retirement, the amount you withdraw each year is considered taxable income, and you will pay taxes on it at that time. The benefit of this arrangement is that you would be expected to pay far less in taxes since your tax rate is usually lower as a retiree than it was when you were working.

The second type of IRA is the Roth IRA. With this type of account, you make contributions, but do not receive a tax deduction for the amount contributed to the account. When you reach retirement and begin withdrawing the money, the withdrawals are usually tax-free, meaning you will not have to pay income taxes on it.

Try It!


401(k)a retirement investment plan

that allows an employee to invest a percentage of their

wages into a tax-deferred account chosen by the

employer

403(b)a retirement plan available to

employees of certain non-profit organizations that

allows them to invest a percentage of their wages in a

tax-deferred account

With both traditional and Roth IRAs, the government limits the amount of money that can be contributed to the account each year. Depending on the age of the investor, this can range from a total annual contribution of $4,000 to $5,000.

Since IRAs are designed to encourage long-term investing, people with these types of accounts are generally not allowed to withdraw their money until they reach the age of 59½. If funds are withdrawn before this time, significant penalties and taxes are imposed.

Examples and Practice• Create a spreadsheet that will help calculate the amount of money you

could earn on a traditional IRA investment. Include the following columns and data.

As you construct the spreadsheet, think about the following:• InterestPayment=InterestRatex(AnnualInvestment+

BeginningBalance)• EndingBalance=AnnualInvestment+InterestPayment+

Beginning Balance


• Overthecourseoffiveyearsyouinvested$20,000.Howmuchdidyouearn in interest?

• Whatwastheaverageinterestrateoverthat5yearperiod?• Explainhowcompoundinginterestaddsvaluetothisinvestment.

Many employers also offer either a 401(k)or403(b) account investment option to their employees. With both a 401(k) and a 403(b), the employee can invest money tax-deferred. Non-profit organizations such as schools, hospitals and religious groups typically offer the 403(b) option, while traditional, for-profit employers usually offer a 401(k). Both of these options usually offer specific investments the employee can choose. These investments include

A B C D E E

1Year

InterestRate

Beginning Balance

Annual Investment

InterestPayment

Ending Balance

2 1 3.20% $0 $4,000.00

3 2 2.80% $4,000.00

4 3 5.70% $4,000.00

5 4 5.20% $4,000.00

6 5 4.80% $4,000.00

Try It!


various mutual funds, stocks and bonds. As with other long-term investments, the amount of interest earned on the account varies. For those who want to minimize risk, fixed interest rate investments allow employees to know exactly how much interest they will earn, but the rate is typically lower than alternative variable interest rate investments.

In both cases, companies may “match” employee contributions. This may be a percentage or dollar match established by company policy. For example, if an employee invests in the plan, the employer may “match” the investment by including $1 for every dollar the employee invests in the plan up to $1,000. This means that the employer will put $1,000 in the employee account if the employee does the same. In another situation, an employer may offer a percentage match, meaning if the employee contributes $5,000 in the plan and the employer offers employees a 20% match, then the employer will put $1,000 in the plan on behalf of the employee. Taking advantage of these employer matching opportunities is an excellent way for employees to build extra money for their retirement.

Examples and Practice• Construct a spreadsheet to help you see how various contributions can

add up. Include the following columns and data.

As you construct the spreadsheet, think about the following:• InterestPayment=InterestRatex(AnnualInvestment+Employer

Match+EndingBalancePriorYear)• EndingBalance=AnnualInvestment+InterestPayment+Ending

BalancePriorYear• EmployerMatch(percentage)=AnnualInvestmentxMatch

Percentage


A B C D E

1Interest

RateAnnual

InvestmentEmployer Match

InterestPayment

Ending Balance

2 3.20% $4,000.00

3 2.80% $4,000.00

4 5.70% $4,000.00

5 5.20% $4,000.00

6 4.80% $4,000.00

Try It!


pensionmoney paid to an employee by

the employer from a specific, employer-funded (and in some

cases partially employee funded) retirement investment fund after

retirement or separation from service before retirement

Calculate the following investment scenarios and analyze the data:

Scenario 1: You are investing in a 401(k) and you have a $1,000 annual employer match• Overthecourseoffiveyearsyouinvested$20,000.Howmuchdidyouyour employer invest?• Howmuchdidthisemployermatchchangeyourinterestpayment?Your ending balance?• Explainhowtheemployermatchaddsvaluetothisinvestment.

Scenario 2: You are investing in a 401(k) and you have a 30% employer match.• Overthecourseof5yearsyouinvested$20,000.Howmuchdidyouyour employer invest?• Howmuchdidthisemployermatchchangeyourinterestpayment?Your ending balance?• Whichemployermatchisbetter,Scenario1or2?Why?

Scenario 3: You are investing in a 403(b) and earn a set interest rate of 4.25%. There is an annual employer match of $250.• Overthecourseof5yearsyouinvested$20,000.Howmuchdidyouyour employer invest?• Howmuchdidthisemployermatchchangeyourinterestpayment?Your ending balance?• Isthis403(b)abetterinvestmentthaneitheroftheotherscenarios?Why?• Ifyouweregoingtoselectoneoftheseinvestmentsfromanemployer, which would it be assuming you will be in the workforce for another 25 years? Why?

A few employers may offer employees a pension plan. This is a financial commitment the employer agrees to make to its employees as a retirement benefit. The amount paid to the employee from a pension can vary greatly and is usually a percentage of the employee’s annual salary. While pensions offer employees guaranteed income for life, the amount can be small and if the company has financial difficulty meetings its obligations to the pension plan, the pension can be reduced or eliminated. Most companies or nonprofit organizations offer other retirement options such as 401(k) and 403(b) plans, but there are still some employers that offer valuable pensions to their employees.


You have just accepted a job offer and are excited to begin work. One of the things you must decide as you start this new job is which retirement investment options you want to take advantage of with your new company. You have an annual salary of $31,000. Your employer offers a 401(k) account that averages 4% annual interest. Your employer will match 5% of your annual contribution to the account. You also found an IRA that you really like because the average annual interest it earned over the past 10 years was 4.25% but was not matched by your employer. Create a spreadsheet that will calculate how much your account will grow if you 1) contribute $1,200 per year to the 401(k) account or 2) contribute $1,200 to the IRA each year for the next 10 years.

Answer the following questions based on this spreadsheet.• Whatwillyourtotal401(k)valuebeattheendofthe10yearperiod?• WhatwillthetotalIRAvaluebeattheendofthe10yearperiod?• Whichinvestment,the401(k)ortheIRA,isabetter?Why?


Building Your Future, Book 4: Appendix 49

Appendix: Online Resources

Below you will find a list of additional resources related to the chapters in this book. These resources can be used to extend your understanding and study of the subjects in each section.

Chapter 1: Path to EmploymentO*Net OnlineA career research resource from the U.S. Department of Laborhttp://www.onetonline.org/

Chapter 2: Paying for Post-secondary EducationStudent AidInformation on federal financial aid from the U.S. Department of Educationhttp://studentaid.ed.gov/home

Big FutureInformation on attending and paying for college from The College Boardhttps://bigfuture.collegeboard.org/

Chapter 3: Making a LifeInternalRevenueServiceA wide range of information on federal taxeshttp://www.irs.gov

Chapter 4: Making a LivingIdentityTheftInformation on preventing identity theft from the Federal Trade Commissionhttp://www.consumer.ftc.gov/features/feature-0014-identity-theft

Chapter 5: RetirementConsumerInformationonRetirementPlansInformation on various retirement plan options from the Department of Laborhttp://www.dol.gov/ebsa/consumer_info_pension.html

HowShouldIPlanforRetirement?The Social Security Administration’s guide to planning for retirementhttp://www.ssa.gov/retirement/


Building Your Future:Succeeding

A Student and Teacher Resource for Financial Literacy Education

Copyright © 2013The Actuarial Foundation

About This BookPersonal finance is part knowledge and part skill – and the Building Your Future book series gives students a foundation in both. It addresses knowledge by covering the essential principles of banking in Book One, financing in Book Two, investing in Book Three, and succeeding in Book Four. The series also addresses the mathematical skills that students need to live a financially healthy life. Students will be able to see the real-world consequences of mastering their finances, which helps them understand the relevance of good mathematical skills. We hope you enjoy this Building Your Future book series.

The catalyst for this book series was based on an original book authored and donated to The Actuarial Foundation by an actuary, James A. Tilley, FSA, who was interested in financial literacy education in schools. We thank Mr. Tilley for his original works that inspired this Building Your Future series.

About The Actuarial FoundationThe Actuarial Foundation, a 501(c)(3) nonprofit organization, develops, funds and executes education, scholarship, and research programs that serve the public and the profession by harnessing the talents and resources of actuaries. Through Advancing Student Achievement, a program that seeks to improve and enhance student math education in classrooms across the country, we are proud to add Building Your Future, a financial literacy education curriculum for teachers and students, to our library of math resources. Please visit the Foundation’s Web site at: www.actuarialfoundation.org for additional educational materials.

What is an Actuary? Actuaries are the leading professionals in finding ways to manage risk. It takes a combination of strong math and analytical skills, business knowledge and understanding of human behavior to design and manage programs that control risk. “Actuary” was included as one of the Best Jobs of 2012 as reported in the Wall Street Journal. To learn more about the profession, go to: www.BeAnActuary.org.

Table of Contents

Teacher’s Guides

Chapter 1: Path to Employment ................................................................................................................1 Chapter 2: Paying for Post-secondary Education ................................................................................8 Chapter 3: Making a Living ...................................................................................................................... 14 Chapter 4: Making a Life ........................................................................................................................... 20 Chapter 5: Retirement ................................................................................................................................ 26

Appendices

Online Resources ......................................................................................................................................... 36 “Did You Know?” Sources ......................................................................................................................... 37

Some of the activities in this book reference specific Web pages. While active at the time of publication, it is possible that some of these Online Resource links may be renamed or removed by their hosts at some point in the future. Note that these links were provided simply as a convenience; a quick search should reveal some of the many other online resources that can be used to complete these activities. Facts and opinions contained are the sole responsibility of the organizations expressing them and should not be attributed to The Actuarial Foundation and/or its sponsor(s).




Looking AheadKnowing your interests, strengths, skills and aptitudes can help you identify a number of different career options that you can consider as you move toward adulthood. In choosing a career, you should also be aware of the various types of education needed for different occupations and the cost of completing an educational program. Finally, when selecting the right profession and the path for achieving it, you should consider your return on investment – how much you will gain from a certain career path – if you invest in the required training.

Getting Organized• Studentswillneedonetothreeclassperiodstocompletetheactivitiesforthislesson.• Whiletheuseofindividualcomputerswithspreadsheetsoftwarebestfacilitatesthelessonactivities, materials are provided for students to complete the activities as pencil/paper tasks.

Learning ObjectivesFocusing on the selection of employment options, students will:

• Reviewdefinitionsofkeytermsassociatedwithselectingacareerpathandadditionaltrainingoptions• Selectpotentialoccupationsandstudywageandemploymenttrends,mediansalaryandpercentageof change in various career paths• Constructaspreadsheetthatanalyzeswageandjobgrowthdata

Teacher’s Guide

Standards

JumpStart:

• Applyreliableinformationandsystematicdecisionmakingtopersonalfinancialdecisions Standard 2: Find and evaluate financial information from a variety of sources Standard 4: Make financial decisions by systematically considering alternatives and consequences• Useacareerplantodeveloppersonalincomepotential Standard 1: Explore career options Standard 2: Identify sources of personal income• Implementadiversifiedinvestmentstrategythatiscompatiblewithpersonalgoals Standard 2: Explain how investing builds wealth and helps meet financial goals

NCTM:

• Understandmeaningsofoperationsandhowtheyrelatetooneanother• Computefluentlyandmakereasonableestimate• Usemathematicalmodelstorepresentandunderstandquantitativerelationships• Formulatequestionsthatcanbeaddressedwithdataandcollect,organizeanddisplayrelevantdatato answer them• Developandevaluateinferencesandpredictionsthatarebasedondata• Applyandadaptavarietyofappropriatestrategiestosolveproblems• Communicatetheirmathematicalthinkingcoherentlyandclearlytopeers,teachersandothers• Createanduserepresentationstoorganize,recordandcommunicatemathematicalideas


• Studyvariouscareereducationinvestmentoptionsandreturnoninvestmentincareertraining• Constructspreadsheetsthatanalyzepotentialearnings,lifetimeearnings,totalrawreturnoninvestment and return on investment for career training• Analyzedataaboutcareereducationinvestmentsanddrawconclusions• Constructaspreadsheetthatanalyzestwopotentialcareerpathsandtheopportunityforemployability, earning potential and return on investment for each position

Key Terms• Career path: from a group of careers that share common features one can select a path toward a specific job, knowing that with more education and experience comes the ability to move up within the path• Earning potential: the amount of money a person should be able to earn in his/her profession• Lifetime earnings: the total amount of money one can expect to be paid for work done in a specific career field over the course of their working years• Career aptitude: an individual’s innate ability, suitability, readiness, disposition, capacity or potential for being competent in a specific type of work • Skills: the ability to do something with competence• Employability: a set of achievements, skills, knowledge and personal attributes that make a person likely to gain employment and be successful in their chosen occupations• Career clusters: groupings of occupations in the same field of work that require similar skills• Job shadowing: accompanying an experienced worker on the job to learn the specific skills and responsibilities associated with the successful performance of a specific career• Return on investment: measures what is gained from an investment after subtracting the cost(s), usually in money and/or time, of the investment • On-the-job training: hands-on training by an experienced employee or trainer in the workplace to teach an employee the specific skills needed for the position • Apprenticeship: a combination of on-the-job training and related instruction where workers learn the practical and theoretical aspects of a highly skilled occupation• Internship: working, usually for free or a small wage, in your expected career field with supervision from more experienced professionals as a means of gaining the experience needed for an entry-level position • Vocational education: training for a specific industry or trade• Associate’s degree: a two-year academic degree awarded by community colleges, junior colleges, technical colleges and four year colleges and universities after the completion of a course of study that typically includes at least 60 credit hours • Bachelor’s degree: a four-year academic degree awarded by a college or university after the completion of a course of study that typically includes at least 120 credit hours• Master’s degree: an advanced university degree offered in a range of studies, beyond a bachelor’s but not to the doctorate level• Doctorate: the highest level of a university degree offered in a range of studies• Diploma: a document issued by an educational institution testifying that the recipient has successfully completed a particular course of study • Tuition: the amount one must pay for educational instruction• Wages: money paid or received for work or services completed, usually by the hour, day, or week• Hourly wage: the amount an employee is paid by an employer for completing an hour of work• Salary: wages an employee receives from the employer on a regular basis, usually weekly, bi-weekly or monthly.


• Tips: a sum of money one receives from a customer in recognition of quality service• Commission: money, in addition to regular wages, that is paid for work done or products sold• Bonus: a sum of money (not guaranteed by the employer) given to an employee in addition to the employee’s usual wages• Benefits: compensation beyond a salary or hourly wage such as insurance, paid vacation time, retirement plan (such as 401(k)) or free parking

Teaching Strategies1. Focus student attention by discussing the “Did You Know” factoids and working as a class to calculate the

percentage difference in potential earnings based on the level of education attained. Percentages are as follows:

• Highschoolgraduatesonlyearn83.1%ofwhatthosewhohaveanassociate’sdegreeearn • Highschoolgraduatesonlyearn60.6%ofwhatthosewhohaveabachelor’sdegreeearn • Thosewithassociate’sdegreesonlyearn72.9%ofwhatthosewithabachelor’sdegreeearn

2. Discuss the importance of investigating various career paths and researching employability factors using questions such as:

• Howcanlearningaboutcareerclustersandevaluatingyouroccupationalinterestshelpyoutakefull advantage of the education offered at the high school level? • Whataresomeoftheoccupationsthatyoubelieveofferthegreatestpotentialintermsof employability? Why? • Alljobsrequiresomesortofinvestment.Whataresomewayspeopleinvestintheiroccupationsand prepare to work in specific career fields?

3. Practice activities throughout the chapter are cumulative and will assist students with the completion of the Independent Practice assignment. These can be done using a computer and projects, with students at individual computers, or longhand on the board or overhead. For each of these activities, be sure to discuss the follow-up questions analyzing the data created in each spreadsheet.

4.Usetechniquessuchasstudentpair/sharetodiscusschaptercontent,vocabularytermsandmajorconcepts found in the chapter.

5. After students have completed the second practice activity, analyzing the return on investment for the various careers, expand the discussion by further examining each career path and having students work in pairsofsmallgroupstodrawaflowchartshowingwhattheythinkthecareerprogressioncouldbeforaperson in each of the five jobs listed. Then discuss how progressing through each career path might affect lifetime earnings.

6. After students complete the third practice activity, related to earning potential, work as a class to brainstorm a list of jobs that might be less affected by economic changes and discuss specifically what it is about those types of jobs that makes them more resistant to economic changes.


7. The practice activities help students consider the financial aspects of pursuing a career, including the cost of post-secondary training as well as financial returns. You may ask students whether there are other considerations as well, such as personal interests and abilities. Should you pursue a career in sales if you’re shy? Should your interest in math be a factor in considering a career in accounting?

8. HelpstudentsapplywhattheyhavelearnedbydirectingthemtotheIndependent Practice Worksheet. All students should be able to answer the following question: Which occupation would you be most likely to pursue based on your findings? Explain.

• Ifindividualcomputersareavailable,directstudentstocompletetheworksheetandthendothe spreadsheet activity in step three using the computers. They should print their final copy of the spreadsheet for submission with the worksheet upon completing the activity.

9. Extendstudentlearningbyhavingthemresearchthecareertheyweremostlikelytopursueandcreateaflowchartofthecareerpathprogressionforthatoccupation.Encouragethemtotrackanyadditionaleducational investment that could be required along with how this investment could increase potential lifetime earnings and improve their employability outlook.

Assessment Recommendations1. Students could be assigned participation or completion grades for doing the in-class and large group

discussions and “Examples and Practice” activities.

2. Students should receive individual grades for the Independent Practice Worksheet activities. Since answers will vary greatly, a completion grade is suggested.

3. Assess participation or completion grades for the extended student learning activity in step 8 above, since it will have a wide range of possible answers.


Examples and Practice: Answer Key

Examples and Practice, p. 3

• MedianWageDifference=MedianWageU.S.–MedianWageinMyStateformula =C2-D2• PercentageofJobGrowth(Decline)Difference=PercentageofJobGrowth(Decline)U.S.– PercentageofJobGrowth(Decline)MyStateformula =F2-G2• Basedonwhatyoulearnedaboutwagesinyourstate,wouldyoustillbeinterestedinanyorallof these careers? Why? Answers will vary based on career and state selected by each student.• Whydoyouthinkthereisadifferencebetweenthenationalmediansandthoseofyourstate? Each state has specific economic needs based on population, common industries, climate, cost of living, and many other variables. • Basedonwhatyoulearnedaboutthepercentageofjobgrowth/declineforthesecareersbothin your state and nationally, would you still be interested in any of them? Why? Answers will vary based on career and state selected by each student.


• TotalSalary=AnnualSalary+AnnualTips,BonusesorCommissionformula =SUM(D2,E2)• LifetimeEarnings=TotalSalaryx40yearsformula =F2*40• TotalRawReturnonInvestment=LifetimeEarnings–CostofEducation formula =G2-C2

Usingtheformulas,constructthespreadsheettocalculatethedataforthefivecareerfieldsprovided.

• Lookingatthecareers,whichdoyouthinkhasthegreatestpotentialreturnoninvestment?Explain why. The lawyer and actuary provide the greatest total dollar return, but require a significant investment in education.• Thespreadsheetdoesnotaccountforthetimeinvestmentnecessarytocompletethetraining needed for some of the jobs. Taking into consideration the amount of education, potential lifetime earnings and the time investment needed for each job, which would career would you select if you were making a decision today? Explain why. Answers will vary based on student opinions.

A B C D E F G H

1 FieldRequired

Education(Investment)

Cost of Education

Investment

Annual Salary

Tips/Bonus/Commission

TotalSalary

LifetimeEarnings

(over 40 years)

TotalReturn on

Investment

2 Cashier None $0 $18,820 $0 $18,820 $752,800 $752,800

3 Construction/Carpenter

1 year as apprentice $0 $40,010 $0 $40,010 $1,600,400 $1,600,400

4 Licensed Practical Nurse

Associate’s degree $6,000 $41,150 $0 $41,150 $1,646,000 $1,640,000

5 Actuary Bachelor’s degree $60,000 $91,060 $3,300 $94,360 $3,774,400 $3,714,400

6 Lawyer Doctorate degree $195,000 $112,760 $4,500 $117,260 $4,690.400 $4,495.400



• Howwouldyouexpressthestatementaboveasaformulaforthespreadsheet? formula =B2*C2+D2+E2+F2• Lookingatthecareers,whichdoyouthinkhasthegreatestearningpotential?Answers will vary as

students will think about their individual abilities to earn tips, bonuses and commissions based on their individual skills sets.

• Howdoyouthinkvariablessuchastips,bonusesandcommissionsareaffectedbyaweakeconomy? A strong economy? Stress the importance of wants vs. needs and how the acquisition of wants is often directly related to the amount of disposable income individuals have. In a weak economy, people tend to hold on to money while they spend more when the economy is stronger. Further, lower levels of unemployment lead to greater overall spending and higher levels of pay from tips, commissions and bonus.

A B C D E F G

1 Career FieldHourly Wage

Hours Worked

Weekly Tips

Weekly Bonus

Weekly Commission

TotalEarnings

2 Cashier $7.25 40 $0.00 $0.00 $0.00 $290.00

3Retail

Salesperson$10.10 40 $0.00 $0.00 $20.20 $424.20

4 Barista $8.50 40 $80.00 $0.00 $0.00 $420.00

5 Telemarketer $10.83 40 $0.00 $25.00 $0.00 $458.20


Path to Employment: Independent Practice Worksheet

Name Date

Directions:Usewhatyouhavelearnedfromthischaptertocomputetheanswersforeachquestionbelow. Be prepared to discuss your answers.

1. TakeafewminutestostudythedatarelatedtotheFastestGrowingJobsathttp://www.bls.gov/ooh/fastest-growing.htm and the Most Projected New Jobs at http://www.bls.gov/ooh/most-new-jobs.htm.Recordtwocareersthatinterestyoufromtheselists.UsetheOccupationFinderathttp://www.bls.gov/ooh/occupation-finder.htm to select one additional career you would be interested in pursuing based on your skills and aptitudes.

2. Now calculate and record the approximate cost of the educational investment required by each job. For an accurate estimate, use the calculator provided at http://www.collegesavings.org/collegeCostCalculator.aspx. Make the following assumptions when calculating.

• Youare18yearsofage • Collegetuitionhasatypicalannualinflationrateof6-7% • Youwillneedtodecideifyouwillliveathomewithyourparents(youwillpaytuitionandfees only) or in campus/alternate housing (you will pay tuition, fees, room and board). • Youwillcompleteyoureducationwithinthetypicalamountoftimeallotted(i.e.Associate’s= two years, etc.)

3. Create a spreadsheet that presents your findings by showing each occupation, the required investment (in $), the annual salary, return on investment and lifetime earnings.

4. Useyourspreadsheettoanswerthefollowing: • Whichoccupationoffersthebestreturnoninvestment? • Whichoccupationoffersthegreatestlifetimeearningpotential? • Whichoccupationoffersthemostopportunityforemployability? • Whichoccupationwouldyoubemostlikelytopursuebasedonyourfindings?Explainwhy.

OccupationGrowth Rate/# of New Jobs

Annual Salary ($)Educational Investment

(Type of Degree/Training)

Occupation Educational Investment (in $)

Occupation Investment ($) Annual Salary ($)Return on

InvestmentLifetime Earning



Looking AheadMany careers require additional instruction or training after high school. Some training takes weeks or months, other preparation takes years. Regardless of the duration of the training, it must be paid for. Knowing how to determine approximate post-secondary expenses, how to save for these expenses, and how to combine savings with financial aid, student loans, scholarships and work to finance your ongoing education can make post-secondary education more attainable.

Getting Organized• Studentswillneedtwotofourclassperiodstocompletetheactivitiesforthislesson.• Whiletheuseofindividualcomputerswithspreadsheetsoftwarebestfacilitatesthelessonactivities,

materials are provided for students to complete the activities as pencil/paper tasks.

Learning ObjectivesFocusing on the selection of employment options, students will:

• Reviewdefinitionsofkeytermsassociatedwithpost-secondaryeducation• Learnaboutvariousoptionsforsavingforpost-secondaryeducation• Constructaspreadsheetthatcalculatesthetotalcostofattendanceforcollege

Teacher’s Guide

Standards

JumpStart:

• Applyreliableinformationandsystematicdecisionmakingtopersonalfinancialdecisions Standard 2: Find and evaluate financial information from a variety of sources Standard 4: Make financial decisions by systematically considering alternatives and consequences• Organizepersonalfinancesanduseabudgettomanagecashflow Standard 4: Apply consumer skills to purchase decisions Standard 6: Develop a personal financial plan• Implementadiversifiedinvestmentstrategythatiscompatiblewithpersonalgoals Standard 1: Discuss how saving contributes to financial well-being Standard 2: Explain how investing builds wealth and helps meet financial goals

NCTM:

• Understandmeaningsofoperationsandhowtheyrelatetooneanother• Computefluentlyandmakereasonableestimate• Usemathematicalmodelstorepresentandunderstandquantitativerelationships• Formulatequestionsthatcanbeaddressedwithdataandcollect,organizeanddisplayrelevantdatato

answer them• Developandevaluateinferencesandpredictionsthatarebasedondata• Applyandadaptavarietyofappropriatestrategiestosolveproblems• Communicatetheirmathematicalthinkingcoherentlyandclearlytopeers,teachersandothers• Createanduserepresentationstoorganize,recordandcommunicatemathematicalideas


• ReviewsampleFAFSAformsandawardletterstogainunderstandingofterminologyandhowawardsarecalculated

• Explorevariousloanoptionsandevaluateloanpaymentschedulestoseethetruecostofborrowingtopayfor post-secondary education

• Constructaspreadsheetthatanalyzesthreefinancialaidawardlettersforthreedifferentschoolstodetermine which makes the best financial sense in terms of paying for post-secondary education

Key Terms• Total cost of attendance: the price to attend college for a year including tuition, room and board, books

and fees• Education IRA: an education savings plan that offers tax advantages• 529 account (ESA): a higher education savings plan where the funds can be withdrawn tax-free when they

are used for educational purposes • Tuition pre-payment: state program in which families can purchase tuition credits at their present price

and use the credits in the future, when tuition costs will have most likely increased• Scholarship: an award of financial aid for a student to further their education, often based on merit such as

academic achievement or athletic skill• ACT: a standardized achievement examination for college admissions• SAT: astandardizedtestforcollegeadmissionsintheUnitedStates• Reserve Officers’ Training Corps (ROTC): a college-based program for training commissioned officers of

theU.S.armedforcesbyprovidingcompetitive,merit-basedscholarshipsfortuitioninreturnforanobligation of active military service after graduation

• Financial aid: grant or scholarship, loan or paid employment offered to help a student meet his/her college expenses

• FAFSA: Free Application for Federal Student Aid, a form that must be completed in order to qualify for any type of governmental financial aid for higher education

• Estimated Family Contribution (EFC): The amount of money that a student’s family is expected to contribute to college costs for one year

• Grant: monetary award given by the federal, state or local government to an eligible student for educational expenses and without the expectation of repayment

• Pell Grant: money for post-secondary education that does not have to be repaid and is awarded to eligible students based on financial need

• Supplemental Educational Opportunity Grant (SEOG): need-based grants awarded to low-income undergraduate students to finance the costs of post-secondary education

• Work-study: program that provides students with part-time jobs while in school in order to subsidize the cost of education

• Default: failure to meet a financial obligation such as repaying a loan• Student loan: loan offered to students which is used to pay education-related expenses including college

tuition, room and board or textbooks• Interest rate: the percentage you pay on the money you have borrowed• Grace period: time in which a debt may be paid without accruing further interest or penalty• Deferred payment: loan arrangement in which the borrower is allowed to start making payments at some

specified time in the future • Perkins Loan: A need-based, low-interest loan available to students with exceptional financial need


• Stafford Loan: loan that is provided by a lending institution but backed by the federal government to assure repayment

• Parent Loan for Undergraduate Students (PLUS): federal loans for parents of undergraduate students to help pay for college or career school

• Subsidized loan: a loan on which the government pays the interest while the student is enrolled in a qualified college/university, essentially erasing the interest that would have been added to the loan during the time of study. The Perkins Loan is an example of a subsidized loan

• Unsubsidized loan: a college loan usually taken by students who do not meet financial need standards and still need to fund their post-secondary education. These loans accrue interest while the student is in school and can result in significantly higher debt because of the interest added to the loan over time. The PLUSloanisanexampleofanunsubsidizedloan

Teaching Strategies1. Practice activities throughout the chapter are cumulative and will assist students with the completion of

the Independent Practice assignment. These can be done using a computer and projector, with students at individual computers, or longhand on the board or overhead. For each of these activities, be sure to discuss the follow-up questions that analyze the data that is created in each spreadsheet.

2. Usetechniquessuchasstudentpair/sharetodiscusschaptercontent,vocabularytermsandmajorconcepts found in the chapter.

3. Begin class by polling students about how many plan to get some additional education after completing high school; work as a class to determine the percentage of the class this represents.

4. Focus student attention by discussing the “Did You Know” factoids and facilitating a short discussion including questions such as:

• Haveyouconsideredhowmuchyourpost-secondaryeducationwillcost? • Doyouknowhowyoumightpayforpost-secondaryeducation? • Whatwillyoudoifyoucannotaffordtogettheeducationyoudesire?

5. Discuss options for creating savings, even if students will be moving toward post-secondary education within the year. Brainstorm ways that students can decrease expenses and increase income.

6. As a class, visit either http://www.finaid.org/scholarships/ or http://studentaid.ed.gov/types/grants-scholarships/finding-scholarships to learn about ways that students can apply for and access information related to scholarships. Discuss various criteria for earning scholarships and review tips for things students can do to begin searching for scholarships now or in the near future.

7. Complete the practice activity based on creating a budget that assesses the total cost of attendance and then discuss the questions related to this activity.

8. Visit http://www.fafsa.ed.gov and review the financial aid information. Pay special attention to the student section and the information that students need to be ready to supply to be considered for financial aid. Discuss the Estimated Family Contribution as well so students understand that the income earned by their parents is considered as part of the financial aid process.


9. Reviewthesamplefinancialaidawardletteranddiscusseachofthefollowingsectionssostudentsclearlyunderstand how to read the letter and interpret what is being offered in terms of “free” money vs. loan options they can consider:

• Section1:Thetotalcostofattendanceattheparticularinstitution • Section2:Grantsandscholarshipsthatarebeingofferedtoyou • Section3:Thecostyouwillhavetopayoutofpockettoattendtheinstitution • Section4:Workoptionsavailabletoyou(i.e.work-study) • Section5:Loanoptionsyoucanconsiderincludingthetypeofloanandrecommendedamountbased on the total cost of attendance • Section6:OtherOptionsincludestheEstimatedFamilyContributionascalculatedbytheFAFSAalong with various institutional payment plans, military and service benefits offered by the institution, private educationloanoptionsandPLUSloanoptions • Thefarrightcolumncontainsagraphicthatnotesdatarelatedtotheinstitutionincludinggraduation and loan default rates, median borrowing and loan repayment information

10.Helpstudentsseetherealcostoftheinteresttheywillpayonstudentloansbycompletingtheexamplesand practice activity related to loans and discussing the questions below.

• LoanA:$5500at5%interestfor10years.Howmuchinterestdidyoupay?$1,500.80 • LoanB:$5500at6.8%interestfor10years.Howmuchinterestdidyoupay?$2,094.30 • LoanC:$5500at7.9%interestfor10years.Howmuchinterestdidyoupay? $3,025.20 (including $220 loan fee) • Whathappenstotheprincipalandinterestamountsfromthebeginningoftheloantotheendofthe loan? At the beginning of the repayment process, the amount of interest paid back to the lender is at its highest, while the amount of principal paid is at its lowest. Why? The lender is taking a risk by lending money in hopes of making a profit. By having interest repaid first, the lender helps to ensure profits will be made in the form of interest and the principal amount that was lent will be repaid over time.

11.HelpstudentsapplywhattheyhavelearnedbydirectingthemtotheIndependent Practice activity. All students should be able to answer the question: Considering only the total debt you would incur, which schoolprovidedyouwiththebestfinancialaidpackage?Explainwhy.UsetheIndependent Practice Teacher Answer Key to discuss the assignment.

12. Extend student learning by inviting in a high school or college guidance counselor in to the class to talk with students about specific things they can do right now to start saving money, applying for scholarships, andlookingintovariousotherfundingoptions(forexample,theA+Program:http://dhe.mo.gov/ppc/grants/aplusscholarship.php) for their post-secondary education.

13. Provide additional information about military service and the post-secondary training that can be received during active duty and then funded through the Department of Veteran Affairs after being discharged from active duty by inviting a Military Recruiter into the classroom to discuss the role that military service can play in helping students achieve their career goals.



discussion and “Examples and Practice” activities.

2. Students should receive individual accuracy grades for the Independent Practice activity spreadsheet since they are working from specified data.

3. Assess participation grade for the extended student learning activity in step 12 above since it involves a guest speaker.


• HowdoesyourtotalcostforattendancecomparetothenationalaveragesintheDidYouKnowfactoid?It is slightly higher ($700)

• Dotheseexpensesseemreasonabletoyou?Why?Answers will vary.• Howcouldyoulowerthecostofattendingcollegewithoutsacrificingthenumberofclassesyoutakeor

the quality of the education? Answers will vary but could include living at home, working part-time, or purchasing used or e-books rather than new hard bound books

Examples and Practice, p. 16• LoanA:$5500at5%interestfor10years.Whatwereyourcumulativepayments? $7,000.80 Howmuch

interest did you pay? $1,500.80• LoanB:$5500at6.8%interestfor10years.Whatwereyourcumulativepayments? $7,594.80 Howmuch

interest did you pay? $2,094.80• LoanC:$5500at7.9%interestfor10years.Whatwereyourcumulativepayments? $8,305.20 Howmuch

interest did you pay? $3,025.20 (including fees)• Howdoestheinterestrateeffecttheminimummonthlypayment?Thetotalamountpaidfortheloan?The

lower interest rate requires a lower minimum monthly payment while still allowing the borrower to pay back the debt within 10 years. All monthly loan payments exceed the minimum payment so the minimum payment does not apply.

A B C D E F

Monthly Rent and Utilities

Monthly Food and Other Living Expenses

Tuition Books FeesTotal Cost of Attendance

1 $2,700.00 $1,350.00 $8,250.00 $1,250.00 $750.00 $14,300.00


Independent Practice, p. 17

Create a spreadsheet that will help you analyze each award offer.

As you construct the spreadsheet, think about the following:• Whatcanyoudotoreduceexpenses?Answers will vary but could include living at home or working

more.• Whatcanyoudotoincreaseyourincome? Answers will vary but could include working more.• Wouldyouconsidertakingaloanfortheremainingexpenses?Ifso,whatkind?Why?Ifnot,why

not? Answers will vary. Howdoyouplantocoverthoseexpenses?Answers will vary.

1. Considering only the total debt and the type of debt you would incur, which school provided you with the best financial aid package? Explain why. School B because you don’t have to take a loan, and it requires the least amount of investment from you after exhausting all other resources.

2. When you consider the amount of time you will need to spend working and your own academic skills and study habits, which financial aid package would provide you with the proper amount of study time. Explain why. Answers will vary, but most students would consider the amount of work study needed at schools A and C more difficult than what B requires.

3. Does any school offer you an option that would require no additional out of pocket expenses if you consider price, location and work-study options? If so, explain. If you live at home, School A might be affordable without incurring additional debt.

4. If your family was unable to provide the EFC, would that change the financial aid package you would select? Explain why. Answers will vary.

Examples and Practice: Answer Key

A B C D E F G H I

1 School Total Cost of Attendance

Pell Grant

Work Study Scholarships

Perkins Loan

AmountEFC Money from

529 Account

Remaining Expenses to be Paid

2 A $15,000 $2,200 $4,800 $500 $0 $2,700 $2,500 $2,300

3 B $12,500 $2,800 $3,200 $0 $0 $2,700 $2,500 $1,300

4 C $17,750 $2,500 $5,000 $1,000 $2,200 $2,700 $2,500 $1,850



Looking AheadWhen searching for the right job, it is important to consider the entire compensation package offered by potential employers. By understanding the various types of compensation and how to calculate the total value of that compensation, you can ensure you are getting the most from the job you choose.

Getting Organized• Studentswillneedoneortwoclassperiodstocompletetheactivitiesforthislesson.• Whiletheuseofindividualcomputerswithspreadsheetsoftwarebestfacilitatesthelessonactivities,

materials are provided for students to complete the activities as pencil/paper tasks.• AllstudentswillneedtohaveacopyofthesamplepaystubandthesampleW-2statementfrompages25

and 26.

Learning ObjectivesFocusing on understanding job offers and earnings, students will:

• Reviewdefinitionsofkeytermsassociatedwithemploymentoffers,paychecks,andannualtaxes• Analyzeexemptandnon-exemptemploymentopportunitiesandcalculateearningpotentialusing

spreadsheets and data about various employment offers• Constructaspreadsheettoanalyzepotentialincomebasedonbonusesandcommissions• Constructaspreadsheettoanalyzethevalueofvariouscompensationpackagesofferedbycompeting

employers• Studyasamplepaystubandanswerquestionsaboutearnings

Teacher’s Guide

Standards

JumpStart:

• Applyreliableinformationandsystematicdecisionmakingtopersonalfinancialdecisions Standard 2: Find and evaluate financial information from a variety of sources Standard 4: Make financial decisions by systematically considering alternatives and consequences• Useacareerplantodeveloppersonalincomepotential Standard 3: Describe factors affecting take-home pay

NCTM:




• Learntheprosandconsofmakingcareerchanges• Constructaspreadsheetthatanalyzesthecompensationpackagesfromtwojoboffersanddetermine

which job offers the best financial incentive for accepting the offer of employment.

Key Terms• Compensation package: all of the wages (salary, bonus, commission) and benefits provided by an

employer• Exempt: classification of an employee who is paid a salary rather than hourly wages and is not eligible for

overtime pay• Non-exempt: classification of an employee who is paid on an hourly basis and is entitled to overtime pay

generally at a rate of 1 ½ times the hourly wage• Base pay: the basic rate of pay for a particular job not including overtime, bonuses or commissions• Bonus: a sum of money given to an employee (usually one that is paid a salary) in addition to the

employee’s usual wages; usually based on business or employee performance, not guaranteed• Commission: a fee paid to an employee or agent for providing a service, such as a sale• Variable pay: compensation that must be earned (such as commission) each time in order to be paid to the

employee • Insurance: promised payment for specific, potential and/or future losses in exchange for a periodic

payment• Paid time off (PTO): time not worked by an employee for which the regular rate, a fixed or a prorated

amount of pay, is accrued and paid to the employee• Sick leave: paid or unpaid time off from work for an employee temporarily unable to perform duties due to

illness or disability• Profit sharing: a program in which the employer shares some of its profits with employees through stocks,

bonds or cash• Income taxes: percentage of your income, including wages, salaries, commissions and bonuses paid to the

government each year• Gross pay: regular pay, overtime pay, and other taxable earnings paid to an employee during a pay period

before any obligations, such as taxes, are deducted• Withholding: part of an employee’s wages or salary that is withheld by the employer as partial payment of

the employee’s income taxes• Net pay: remaining amount of pay after taxes, retirement contributions and other deductions are made• FICA: stands for Federal Insurance Contributions Act, a federal payroll tax paid by employers and employees

to fund government programs that provide benefits to retirees• Dependent: someone (such as a child under 18) who relies on an adult for support • W-4: a form that the employee fills out to let the employer know his or her tax situation, allowing the

employer to figure out the correct amount of tax to withhold from the employee’s paycheck• W-2: a form that the employer sends to the employee and the IRS that reports the employee’s annual wages

and the amount of taxes withheld during the year • Career change: moving from one profession to another


Teaching Strategies1. Practice activities throughout the chapter are cumulative and will assist students with the completion of

the Independent Practice assignment at the end. These can be done using a computer and projector, with students at individual computers, or longhand on the board or overhead. For each of these activities, be sure to discuss the follow-up questions that analyze the data in each spreadsheet.

2. Usetechniquessuchasstudentpair/sharetodiscusschaptercontent,vocabularytermsandmajorconcepts found in the chapter.

3. Focus student attention by discussing the “Did You Know” factoids and brainstorming answers to the question: Besides taxes, are there any other things that can affect take-home pay?

4. Discuss the difference between exempt and non-exempt employees and ask students whether they think one type of employee (exempt or non-exempt) is better than the other, and if so, why?

5. After completing the Compensation Basics Examples and Practice activities, focus attention on UnderstandingYourPaycheckbyshowingstudentsasampleW-4formathttp://www.irs.gov/. Review the form as a class and discuss how the form is completed when you are hired for a job.

6. Next, direct students to look at the sample pay stub. Discuss this as a class and point out the following information:

• Ontheleftyoucanseethisisanhourlyemployee.Sheispaid1½timesherhourlyrateforovertime. She also gets holiday pay and reimbursement for tuition as benefits. • Ontherightyoucanseethefederalwithholdingsalongwithstateandlocaltaxes. • Lookatthevariousbenefitstheemployeegets.Youcanseetheselistedunderthe“Other”categoryon the right side. • Studythefournumbersatthebottomofthepaystub:Totals,TaxableGross,DeductionTotalsandNet Pay. You can see how the various withholdings and deductions impact the amount of pay the employee takes home for the week.

7. Discuss the answers to the questions related to the sample pay stub. (See Understanding Your Paycheck exerciseonpage19,referencingtheExamplesandPracticefrompage24ofthestudentbook).

8. View the sample W-2 form and discuss the information that is placed in each box on the form. Refer back to the sample pay stub to tell students which information would go in each box so students can see how the data from the pay stub eventually transfers to the year-end W-2. You may wish to note that W-2 forms are required by federal law to be mailed to employees no later than January 31.

9. HelpstudentsapplywhattheyhavelearnedbydirectingthemtotheIndependent Practice activity. All students should be able to answer the question: Which job makes better financial sense, your current job or the job offer? Explain why. When students have completed the activity, discuss and correct it as a class using the Independent Practice Activity Teacher Key.


10. Extend student learning by working as a class to complete a W-2 form based on the data for the job they selected as the better opportunity in the Independent Practice activity. Discuss the accuracy of the form and use http://www.irs.gov to learn more about the percentage of federal taxes that would be due based on the taxable income for the year and the federal taxes that were already paid through payroll deductions.

Assessment Recommendations1. Students could be assigned participation or completion grades for doing the in-class and large

group discussion and Examples and Practice activities.

2. Students should receive individual grades for the Independent Practice activity. Students should receive an accuracy grade for their computations on the spreadsheet.

3. Assess the extension activity from step 10 above by using a participation grade since you will be working as a group to complete the activity.



• WhatistheweeklypayforJob1?(Whatformulawillyouenterforthiscalculation?)Base pay x12 /52 weeks• WhatisthehourlywageforJob1includingovertimehours?(Whatformulawillyouenterforthis

calculation?) There are two ways to do this. You may opt for a straight average (Weekly Pay/Average Work Week), or you may use a more sophisticated, and more accurate, formula to distinguish between regular pay and “time and a half” pay for overtime hours (40+(7*1.5) = 53.5 hours, an hourly rate of $10.78 per hour.

• WhatistheweeklypayforJob2?(Whatformulawillyouenterforthiscalculation?) (40 x Base Pay) + ((1.5 x Base Pay) x (Average Work Week – 40))

• Whichofthetwojobswouldyouratherhave?Why?Answers will vary, but Job 1 provides higher levels of income


• Assumeyoumeetthegoalofobtaining5newcustomerspermonthfor10orthe12monthsoftheyear.Howmuchwouldyouearninbonusmoneyfortheyear?$2000

• Assumeyousellanaverageof$700worthofproducteachweek.Howmuchwouldyouearnincommissionfor the month? $91=700*.03*52/12 Howmuchwouldthatequatetothroughouttheyear? $1092

• Basedonyourcalculations,andassumingidenticalbasepay,whichoftheseisabetterpayingjob?Why?Varies; Job 1 appears to be the better job, because the bonus is nearly double the commission; however, if an employee is not a good salesperson (shy, untrained, etc.), the bonus may not be attainable.


• ForJob1,howmuchwouldyouhavetopayforyourhalfofthemedical,dentalandvisioninsuranceandall the other benefits listed? $235• ForJob2howmuchwouldyouhavetopayforyourportionofthemedical,dentalandvisioninsurance and all the other benefits listed? $165 =$125+$35+5• Allotherthingsbeingequal,whichjobwouldyouratherhave?Why?Job 2 offers a better benefits package because you get presumably equal benefits (medical, dental, vision and disability) for less money and the life insurance policy offers 50% more coverage.

A B C D E F

1 Job Base PayAverage

Work WeekRegular Pay Overtime Pay Weekly Pay

2 2 $10.25 47 $410.00 $107.63 $517.63

A B C D E

1 Job Base PayAverage

Work WeekWeekly Pay Hourrly Wage

2 1 $2,500.00 47 $576.92 $12.27


Examples and Practice, p. 23• Whatisthetotalvalueofyourpaidtimeofffortheyearforeachjob?Job 1 = $1152, Job 2 = $1248• Whichoftheseisthebetterfinancialoffer?Explainwhy.Job 2 because it provides $96 more in paid

time off

Examples and Practice, p. 24• Howmanyhoursdidsheworklastweek,includingovertime?41• Whatbenefitsdoesthisemployergivetheemployee?401(k),life insurance, dental, medical (HMO),

Dependent Care Flexible Spending Account, tuition assistance, paid holidays and a loan• Doesshepaytaxesonthetuitionreimbursement?Howcanyoutell?No, excluded from federal taxes• Whatotherdeductionsarenottaxableandmadebeforetaxesarecalculated?All the other items that

are marked with *• Whatpercentageofthemoneyearnedwasactuallypaidtotheemployee?259.39/415.00=62.5%• Howmuchdidtheemployeeputintothe401(k)?$27.15Howmuchdidshepayfordental,medical

(HMO)andlifeinsurance?Total of $24.00. Also, the employee contributed $30 to a dependent care flexible spending account (FSA) which was not technically part of this question.

• Usingthedatafromthecurrentpayperiodcolumn,approximatelyhowmuchwillbewithheldforthis employee’s annual federal taxes? 52 weeks*(37.29)=$1,939.08

Independent Practice, p. 27• Whatistheannualnetpayforyourcurrentjob? (($14.25 x 40) + ($21.38 x 4) - $85) x 52 = $29,667.04,

before commissions• Whatwouldtheannualnetpaybeforthejobbeingoffered?$30,000 - ($320 x 12) = $26,160, before

bonus• Whichjobwouldrequireyoutoworkmorehours?Howmanymore? Job 2 averages 4 more hours per

week than Job 1, or 208 more hours per year (52 x 4)• Atwhichjobcouldyouearnmorevariablepay?Howmuchmore?Job 1 offers ($570.00 + $85.52) x

5% x 52 weeks = up to $1,704.35 per year; Job 2 offers $150 x 12 = up to $1,800 per year. • Whichjoboffersabettercompensationpackage?Explainwhy.Job 2 offers the better package; Job 1

pays more towards health and dental insurance, but Job 2 also offers vision, and the employer pays for disability and life insurance. Additionally, Job 2 pays for 120 hours of time off, versus 100 hours for Job 1.

• Basedonyourcalculations,whichjobmakesbetterfinancialsense,yourcurrentjoborthejoboffer?Explain why. Answers may vary based on importance of net pay, variable pay, and benefits



Looking AheadLiving within their means - spending no more than a family has available from their income – can be a struggle forpeople.Understandingthedifferencebetweenawantandaneed,knowingwheremoneyisspent,howtobudget so that expenses do not exceed income and establishing and maintaining a good credit rating are all essential life skills. By identifying wants and needs and creating a spreadsheet to track income and expenses, you can see how to live your life on a balanced budget and avoid debt. Finally, we will explore identity theft, including what can be done to minimize the chance of being a victim as well as identifying the best strategies to use if your identity is stolen.

Getting Organized• Studentswillneedonetotwoclassperiodstocompletetheactivitiesforthislesson.• Whiletheuseofindividualcomputerswithspreadsheetsoftwarebestfacilitatesthelessonactivities,

materials are provided for students to complete the activities as pencil/paper tasks.• Eachstudentwillneedacopyofthesamplebudgetthatappearsinthechapter.

Learning ObjectivesFocusing on creating a household budget and establishing good credit, students will:

• Reviewdefinitionsofkeytermsassociatedwithcreatingabudget,makingtimelypaymentsandestablishing good credit

Teacher’s Guide

Standards

JumpStart:

• Applyreliableinformationandsystematicdecisionmakingtopersonalfinancialdecisions Standard 2: Find and evaluate financial information from a variety of sources Standard 4: Make financial decisions by systematically considering alternatives and consequences Standard 6: Control personal information• Organizepersonalfinancesanduseabudgettomanagecashflow Standard 1: Develop a plan for spending and saving Standard 5: Consider charitable giving• Maintaincreditworthiness,borrowatfavorableterms,andmanagedebt. Standard 2: Explain the purpose of a credit record and identify borrowers’ credit report rights

NCTM:




• Learnthedifferencebetweenwantsandneedsandcategorizebudgetlineitemsaswantsorneeds• Analyzeasamplehouseholdbudgetspreadsheetandcalculatethelineitems’percentagesindicatingthe

amount of income spent on each item• Evaluatewantsandneedsonaspreadsheetanddeterminewhereexpensescouldbecuttopayunexpected

costs and establish a safety net of savings• Constructaspreadsheetthatcalculatesvariouslatepaymentfeesandanalyzetheadditionalcostsofnot

paying bills on time• Reviewasamplecreditreporttolearnthepositiveandnegativeinformationthatcreditorscanseefrom

reading the report• Learnaboutidentifytheftandwaystopreventitandcombatitifyouareavictim• Constructaspreadsheetthatrepresentsabalancedhouseholdbudgetthatprovidesforallneedsand

savings, and allows for some wants.

Key Terms• Needs: basic survival necessities • Expense: an expenditure of money; cost• Want: something a person desires that is not essential• Budget: an itemized list of income and expenses over a given period of time• Late fees: an extra charge imposed when your payment is received after the due date or grace period• Credit history: information about the number and types of credit accounts, how long the accounts have

been open, the amounts owed on each account, the amount of available credit being used, whether bills are paid on time, the number of recent credit inquiries and information about bankruptcies, liens, judgments and collections

• Credit report: a report detailing an individual’s credit history, including timeliness of payments related to bills, loans, credit accounts and bankruptcies; used to determine creditworthiness

• Credit rating: a ranking typically expressed as a number or letter, based on one’s credit history and used by financial institutions for loan and credit approval as well as determination of loan or credit terms

• FICO score: payment history, current level of indebtedness, types of credit used and length of credit history, and new credit information are used to determine creditworthiness and risk by assessing a score between 300 and 850

• Installment loan: a loan where the principal and interest are repaid in equal payments at fixed intervals, usually monthly

• Identity theft: stealing someone’s personal, identifying information and using it to make purchases or to get other benefits

Teaching Strategies1. Practice activities throughout the chapter are cumulative and will assist students with the completion of the

Independent Practice assignment. These can be done using a computer and projects, with students at individual computers, or longhand on the board or overhead. For each of these activities, be sure to discuss the follow-up questions that analyze the data that is created in each spreadsheet.

2. Usetechniquessuchasstudentpair/sharetodiscusschaptercontent,vocabularytermsandmajorconceptsfound in the chapter.

3. Focus student attention by discussing the “Did You Know” factoids.


4. Discuss the phrase “living within your means” using questions like: • Whatdoesitmeantolivewithinyourmeans? • WhataresomeofthethingsthatcausepeopleNOTtolivewithintheirmeans? • Whataresomeofthenegativeconsequencesofnotlivingwithinyourmeans?

5. Discuss the difference between wants and needs by asking students to do a pair-share and define the two concepts with a partner.

6. Complete the Budget Basics section by taking time to review the sample budget as a class and pointing out

the following information: • Expensesaredividedupintocategories;someofthoseexpenseshavevariableamounts. • Therearethreecolumnsforexpenses:thebudgetedamount,theactualamountandthedifference between the two. When an item is over budget, it appears in ( ) to show the overage. If an item is under budget, it simply shows up as a dollar amount. If an item is exactly on budget, an amount of $0.00 appears in the difference column. • Sinceeachcategoryhasatotalbudgetedamount,actualamountandamountofdifference,itiseasyto see if a category is on, over or under budget. • Thebottomtwolinesofthebudgetshowthetotalamountofbudgetedandactualexpensesalong with the amount under or over the budgeted amount. • The“Cashshort/extra”categoryisespeciallyimportant.Byplanningabudgetthatallowsforextra money each month, you can help to build the “safety net” mentioned previously.

7. After students have completed the Budget Basics Try It! practice activity, discuss the scenario as a class. • Supposeyouareinacaraccidentandneedtopaya$750insurancedeductibletorepairyourcarand another $1000 in medical bills from injuries you sustained in the accident. In addition, you miss 2 weeks of work because of your injuries, resulting in the loss of pay (about $1750) during that time since you don’t have any paid time off remaining for the year. All totaled, this equals approximately $3500, which is a full month’s wages. Review the budget carefully and decide where you can realistically make the cuts necessary to pay for your car repairs and medical bills and make up for lost wages over the course of one year.

8. DirectstudentsthroughtheKeepingItBalancedactivityandthediscussionofMaintainingGoodCredit.Asa class, visit the website http://www.aie.org/managing-your-money/credit-scores-and-reports/read-a-credit-report.cfm and review the sample credit report by pointing out examples of what a potential lender might see if this person applied for credit. Discuss the positive and negative items reported in the sample.

9. HelpstudentsapplywhattheyhavelearnedbydirectingthemtotheIndependent Practice activity. All students should be able to answer the questions below as you discuss the completed assignment as a class.

• Whatpercentageofyourincomewasspentonwants? • Whatpercentageofyourincomeswasspentonneeds? • Didyouhavetocutanythingfromyourbudgetinordertolivewithinyourmeans?Ifso,what? • Wereyouabletoincorporate5%savingsintoyourbudget?Whatwantsdidyouhavetoforegotodothis?


10. Extend student learning by inviting a guest speaker from a non-profit consumer credit counseling service to come and discuss more about budgeting and steps that students can take now to budget themoneytheycurrentlyhave.Haveeachstudentwriteaspecificbudget-relatedquestionthatthespeaker can address during the discussion.

Assessment Recommendations1. Students could be assigned participation or completion grades for doing the in-class and large

group discussion and “Examples and Practice” activities.

2. Students should receive individual grades for the Independent Practice activity. Since answers will vary greatly, a pass/no pass grade is suggested with students who create budgets that cover all their needs, allow for savings and are balanced receiving a passing grade.

3. Assess the extension activity from step 10 above by using a participation or pass/no pass grade based on completion of the discussion question and appropriate interaction with the guest speaker.



Answers will vary based on where students categorize items. There is room for discussion of some items that could be placed in either the wants or needs column, depending on personal preference

A B C

1Needs

Budget ItemAmount

Budgeted% of

Income

2 Mortgate/rent 725 20.71%

3 Utilities 250 7.14%

4 Groceries 240 6.86%

5 Trash service 20 0.57%

6 Homerepairs 75 2.14%

7 Car payment 250 7.14%

8 Gas/fuel 170 4.86%

9 Car insurance 75 2.14%

10 Car repairs/maint. 50 1.43%

11 Healthinsurance 150 4.29%

12 Prescriptions 10 0.29%

13 OTC Drugs 10 0.29%

14Co-payments/out of pocket

25 0.71%

15 Life insurance 20 0.57%

16 Clothing 75 2.14%

17Credit card payments

150 4.29%

18 Total Needs 2,295 65.57%

A B C

1Wants

Budget ItemAmount

Budgeted% of

Income

2 Cellular phone 80 2.29%

3 Dining out 200 5.71%

4 Cable television 110 3.14%

5 Parking 75 2.14%

6Public

transportation20 0.57%

7 Video/DVD rental 10 0.29%

8 Movies/plays 25 0.71%

9 Sporting events 50 1.43%

10 Concerts / clubs 50 1.43%

11 Other activities 50 1.43%

12 Healthclubdues 25 0.71%

13 Dry cleaning 20 0.57%

14 Salon / barber 40 1.14%

15Charitable donations

75 2.14%

16 Gifts 50 1.43%

17 Retirement 100 2.86%

18Long-term

savings100 2.86%

19Other misc.

payments75 2.14%

20 Total Wants 1,155 33.00%


• Howwouldyouexpressthestatementsaboveasaformulaforthespreadsheet?Formula =B2/3500• Whatisthetotalpercentageofincomethatwillbespentonneeds?65.57%• Whatpercentageofincomeremainstobespentonwants?28.00% (remember that 5% is allocated to

savings)• Whatwouldcausethetotalpercentageofincomebetweenthetwocategoriesnottoequal100%?

A certain percentage of the income in this scenario is not used and falls into the Cash short/extra category, which should account for the discrepancy of 1.43%

• Supposeyouareinacaraccidentandneedtopaya$750insurancedeductibletorepairyourcarand another $1000 in medical bills from injuries you sustained in the accident. In addition, you miss 2 weeks of work because of your injuries, resulting in the loss of pay (about $1750) during that time since you don’t have any paid time off remaining for the year. All totaled, this equals approximately $3500, which is a full month’s wages. Review the budget carefully and decide where you can realistically make the cuts necessary to pay for your car repairs and medical bills and make up for lost wages over the course of one year. Answers will vary.


• TotalAmountPaid=BillingAmount+EITHERtheSetLateFeeORthePercentageLateFeeformula =SUM(A2:B2) OR A3+(A3*C3)

• PercentageLateFee=BillingAmountxPercentageLateFeeformula =(A3*C3)• Inthisscenario,whichfeeresultsinagreatercosttoyou?The $35.00 late fee on bill 1• Ifyoupaidbothofthesebillslate,whatwouldbethetotalamountofmoneyyouwouldpayinlate

fees for the month? $41.00

Independent Practice, p. 38Answers will vary based on student selections. Savings of $129 must be placed in the needs column, as should the student loan payment of $200 per month and the car payment of $250 per month• Howwouldyouexpressthestatementsaboveasformulasforthespreadsheet?To calculate total

expenses per the formula given, you would use E2=SUM(B2:D2); however, if you prefer to calculate only required expenses, to determine how much is left over for wants, you would use E2=B2+C2.

• Whatpercentageofyourincomewasusedbywants?Answers will vary.• Whatpercentageofyourincomewasspentonneeds?Answers will vary.• Didyouhavetocutanythingfromyourbudgetinordertolivewithinyourmeans(notexceedyour

monthly income)? If so, what did you cut? Why? Answers will vary.• Wereyouabletoincorporate5%savingsintoyourbudget?Whatwantsdidyouhavetoforegoto

do this? Answers will vary.

A B C D

1 Billing Amount Set Late Fee % Late Fee Total Amount Paid

2 $200.00 $35.00 0.00% $235.00

3 $200.00 $0.00 3.00% $206.00



Looking AheadWhile it is still many years in the future, it is never too early to start thinking about and educating yourself on the costs of retirement and various ways to fund your retirement. By considering options early and planning your savings strategy, you will be able to enjoy a retirement lifestyle that allows you to do the things you want to do. Learning about ways to save and how you can use the power of compounding interest to build wealth can lead to a retirement free from financial stress.

Getting Organized• Studentswillneedonetotwoclassperiodstocompletetheactivitiesforthislesson.• Whiletheuseofindividualcomputerswithspreadsheetsoftwarebestfacilitatesthelessonactivities,

materials are provided for students to complete the activities as pencil/paper tasks.

Learning ObjectivesFocusing on the planning for retirement, students will:

• Utilizevocabulary,onlinecalculatorsandretirementscenariostolearnaboutthecostsofretirement• ReviewcompoundinginterestandlearnaboutcommonretirementinvestmentstrategiessuchasIRAs,

401(k) plans, annuities, pensions and government sponsored programs such as Social Security and Medicare

Teacher’s Guide

Standards

JumpStart:

• ApplyreliableinformationandsystematicdecisionmakingtopersonalfinancialdecisionsStandard 2: Find and evaluate financial information from a variety of sourcesStandard 4: Make financial decisions by systematically considering alternatives and consequences• Useappropriateandcost-effectiveriskmanagementstrategiesStandard 1: Identify common types of risks and basic risk management methods• ImplementadiversifiedinvestmentstrategythatiscompatiblewithpersonalgoalsStandard 1: Discuss how saving contributes to financial well-beingStandard 2: Explain how investing builds wealth and helps meet financial goalsStandard 3: Evaluate investment alternatives

NCTM:




• UnderstandbasicinformationabouttheroleofSocialSecurityandMedicareforretireesandhelpstudentsget an idea of the amount and types of benefits available.

• Usinganumberofresources,lookatretirementplanningconsiderationsincludingage,maritalstatus,salaryand lifestyle and use sample Excel spreadsheets to calculate various retirement scenarios.

• Learnaboutvariousmeansofinvestingandhowtoconsiderfactorssuchasinflationandcompoundinginterest to calculate retirement savings on sample Excel spreadsheets.

• Usingthecurrentsalaryforanentryleveljobinthecareerfieldtheyhaveselected,studentswillresearchand create a spreadsheet that will calculate accumulated retirement contributions with interest.

Key Terms• Retirement: the point in time when a person chooses to leave the workforce permanently, usually at age 65

or older• Compounding interest: when money is earned on the total amount in the account including the initial

deposit and interest that has already been credited to the account • Risk: likelihood of suffering losses or earning less than expected on financial investments • Inflation: the annual percentage increase in the prices of goods and services• Social Security: a federal government program funded through payroll taxes; designed to provide retirement and disability income for those meeting the specified criteria• Medicare: a federal government program funded through payroll taxes; pays for health care expenses for citizens over age 65, or who meet other special criteria • IRA (Individual Retirement Account): a retirement investment account that allows a person to save a

specified amount of income each year in a tax-deferred account • 401(k): a retirement investment plan that allows an employee to invest a percentage of their wages into a

tax-deferred account chosen by the employer• 403(b): a retirement plan available to employees of certain non-profit organizations that allows them to

invest a percentage of their wages in a tax-deferred account• Pension: money paid to an employee by the employer from a specific, employer-funded (and in some cases

partially employee funded) retirement investment fund after retirement or separation from service before retirement

Teaching Strategies1. Practice activities throughout the chapter are cumulative and will assist students with the completion of the

Independent Practice assignment. These can be done using a computer and projects, with students at individual computers, or longhand on the board or overhead. For each of these activities, be sure to discuss the follow-up questions that analyze the data that is created in each spreadsheet.

2. Usetechniquessuchasstudentpair/sharetodiscusschaptercontent,vocabularytermsandmajorconceptsfound in the chapter.

3. Focus student attention by discussing the “Did You Know” factoids and calculating the amount of money that should be saved by the average American, who earned approximately $43,000 in 2011 (http://www.ssa.gov/oact/cola/AWI.html).Usequestionssuchas:

• Accordingtothefactoid,whatistheminimumamountofmoneythatshouldbesavedforretirementAnswer: 8 times the annual salary

• Howwouldwecalculate8timestheannualsalary?Answer: $43,000 x 8


• Ifonlytheminimumwassaved,howmuchshouldthispersonhaveinsavingsatretirement? Answer: $344,000

4. Discuss retirement by reminding students that even though they have their whole work lives ahead of them, without planning for retirement, they may not ever be able to stop working. Address questions such as:

• Ifyouwerenotabletoretire,whatkindsofthingscouldyoupotentiallymissoutoninyourlateryears? • Ifyoudonotsaveenoughforretirement,howmightyourlifestylechangeifyoudostopworkingat retirement age?

5. After students have completed the Retirement Basics practice activity, introduce compounding interest and complete and discuss the practice activity to ensure understanding.

6. Toprovidestudentswithanideaofhowinflationaffectsthepricesofcommonitems,sharecomparisonssuch as:

• In1960,pricesforcommongoodswere:gallonofgas=25¢,packofgum=5¢,fastfoodhamburger= 20¢.Howmuchdothoseitemscosttoday?Answerswillvarybasedonmarket.

7. Take time to review the sample Social Security statement at http://www.socialsecurity.gov/mystatement/SSA-7005-OL.pdf. Pay special attention to:

• Page3earningsrecord • Page2benefiteligibilityforbothSocialSecurityandMedicare • DefiningCOLAandexplaininghowthesearedesignedtohelpretireescombatinflation • Discusstheexamplesandpracticequestionsincluding: • Inmostcases,willtheincomeprovidedbySocialSecuritybenefitsallowyoutomeetallofyour budget needs? Answers will vary, but most students will not be able to meet their budgeted needs. What about your budget wants? Answers will vary, but students most likely will have to eliminate many of their budget wants. • Whatotherthingscanyoudotoensureyoucanmeetallofyourexpensesduringretirement?Answers will vary but could include: Save for retirement through investing in different ways.

8. Introduce IRAs and 401(k) and 403(b) retirement plan options and complete the practice activities for each as directed in the text.

9. HelpstudentsapplywhattheyhavelearnedbydirectingthemtotheIndependentPracticeactivity.Allstudents should be able to answer the questions: What is the total amount you will have saved for retirement and which is the better investment, the 401(k) or the IRA? When students have completed the activity, discuss and correct it as a class using the Independent Practice Activity Teacher Key.

10. Extend student learning by having students calculate the cost of the items on the budget they created earlierusingthehistoricalinflationratesfromthepast45years.Havethemusetheseprojectedbudgetedcosts to recalculate their actual cost of living when they reach retirement age so they can see the importance of saving for retirement.



discussion and “Examples and Practice” activities.

2. Students should receive individual grades for the Independent Practice activity. Students should receive an accuracy grade for their computations on the spreadsheet.

3. Assess the extension activity from step 10 above by using a completion grade since student answers will vary based on their original budgeted amounts.

Examples and Practice, p. 40• Calculatetheamountyouwouldneedtohavesavedovertheyearsifyouwanttoretirewithtentimesyour

last annual salary amount. $750,000• Howmuchwouldyouhavetosaveeachyear,onaverage,inordertohavethisamountofmoney?$16,666

($750,000/45 years). Teachers may wish to introduce the next section, on compounding interest, by noting that this amount does not reflect any interest accumulations, which will be significant. Based on a 5% rate of return, for example, the amount that needs to be saved is approximately $4,700 per year. (This calculation is outside the scope of this curriculum.)

A B C D E

1

Interest Compounding Terms (Daily/

Monthly/Annual)

Interest Rate

Beginning Balance

Interest Payment

Ending Balance

2 Annual 7.000% $1,000.00 $70.00 $1,070.00

3 7.000% $1,070.00 $74.90 $1,144.90

4 7.000% $1,144.90 $80.14 $1,225.04

5 7.000% $1,225.04 $85.75 $1,310.80

6 7.000% $1,310.80 $91.76 $1,402.55


A B C D E

1


Monthly/Annual) Interest Rate

Beginning Balance

Interest Payment

Ending Balance

7 Monthly 0.583333% $1,000.00 $5.83 $1,005.83

8 0.583333% $1,005.83 $5.87 $1,011.70

9 0.583333% $1,011.70 $5.90 $1,017.60

10 0.583333% $1,017.60 $5.94 $1,023.54

11 0.583333% $1,023.54 $5.97 $1,029.51

12 0.583333% $1,029.51 $6.01 $1,035.51

13 0.583333% $1,035.51 $6.04 $1,041.55

14 0.583333% $1,041.55 $6.08 $1,047.63

15 0.583333% $1,047.63 $6.11 $1,053.74

16 0.583333% $1,053.74 $6.15 $1,059.89

17 0.583333% $1,059.89 $6.18 $1,066.07

18 end of yr. 1 0.583333% $1,066.07 $6.22 $1,072.29

19 0.583333% $1,072.29 $6.26 $1,078.55

20 0.583333% $1,078.55 $6.29 $1,084.84

21 0.583333% $1,084.84 $6.33 $1,091.16

22 0.583333% $1,091.16 $6.37 $1,097.53

23 0.583333% $1,097.53 $6.40 $1,103.93

24 0.583333% $1,103.93 $6.44 $1,110.37

25 0.583333% $1,110.37 $6.48 $1,116.85

26 0.583333% $1,116.85 $6.51 $1,123.36

27 0.583333% $1,123.36 $6.55 $1,129.92

28 0.583333% $1,129.92 $6.59 $1,136.51

29 0.583333% $1,136.51 $6.63 $1,143.14

30 0.583333% $1,143.14 $6.67 $1,149.81

31 0.583333% $1,149.81 $6.71 $1,156.51

32 0.583333% $1,156.51 $6.75 $1,163.26

33 0.583333% $1,163.26 $6.79 $1,170.05

34 0.583333% $1,170.05 $6.83 $1,176.87

35 0.583333% $1,176.87 $6.87 $1,183.74

36 0.583333% $1,183.74 $6.91 $1,190.64

37 0.583333% $1,190.64 $6.95 $1,197.59

38 0.583333% $1,197.59 $6.99 $1,204.57

39 0.583333% $1,204.57 $7.03 $1,211.60

40 0.583333% $1,211.60 $7.07 $1,218.67

41 0.583333% $1,218.67 $7.11 $1,225.78

42 end of yr. 3 0.583333% $1,225.78 $7.15 $1,232.93


Examples and Practice, p. 41• InterestPayment=InterestRatexBeginningBalance=B2*C2 is annual, 0.07/12 must be entered in

the Interest Rate column for the monthly calculation• EndingBalance=BeginningBalance+InterestPayment=SUM(C2:D2)• BeginningBalance=EndingBalancefrompreviousline=E2• Youinvest$1,000atanannualrateof7%.• Howmuchwillyouearnafter1year?$1,070.00 3 years? $1,225.04 5 years? $1,402.55• Youinvest$1,000atanannualrateof7%withinterestcompoundedmonthly.• Howmuchwillyouearnafter1year?$1,072.29 3 years? $1,232.93 5 years? $1,417.63• Whyisitimportanttolooknotjustattheinterestrateonaninvestment,butalsoathowoften

interest is compounded? When interest is compounded more frequently, then the amount of money earned in interest can be greater, even if the interest rate on the investment is lower. For example, an annual rate of 7% might look great, but a rate of 6.85%, compounded monthly, will produce a higher rate of return.

A B C D E

1


Monthly/Annual)

Interest Rate

Beginning Balance

Interest Payment

Ending Balance

43 0.583333% $1,232.93 $7.19 $1,240.12

44 0.583333% $1,240.12 $7.23 $1,247.35

45 0.583333% $1,247.35 $7.28 $1,254.63

46 0.583333% $1,254.63 $7.32 $1,261.95

47 0.583333% $1,261.95 $7.36 $1,269.31

48 0.583333% $1,269.31 $7.40 $1,276.71

49 0.583333% $1,276.71 $7.45 $1,284.16

50 0.583333% $1,284.16 $7.49 $1,291.65

51 0.583333% $1,291.65 $7.53 $1,299.19

52 0.583333% $1,299.19 $7.58 $1,306.76

53 0.583333% $1,306.76 $7.62 $1,314.39

54 0.583333% $1,314.39 $7.67 $1,322.05

55 0.583333% $1,322.05 $7.71 $1,329.77

56 0.583333% $1,329.77 $7.76 $1,337.52

57 0.583333% $1,337.52 $7.80 $1,345.33

58 0.583333% $1,345.33 $7.85 $1,353.17

59 0.583333% $1,353.17 $7.89 $1,361.07

60 0.583333% $1,361.07 $7.94 $1,369.01

61 0.583333% $1,369.01 $7.99 $1,376.99

62 0.583333% $1,376.99 $8.03 $1,385.02

63 0.583333% $1,385.02 $8.08 $1,393.10

64 0.583333% $1,393.10 $8.13 $1,401.23

65 0.583333% $1,401.23 $8.17 $1,409.40

66 end of yr. 5 0.583333% $1,409.40 $8.22 $1,417.63


Examples and Practice, p. 44• Inmostcases,willtheincomeprovidedbySocialSecuritybenefitsallowyoutomeetallofyourbudget

needs? Answers will vary, but most students will not be able to meet their budgeted needs. What about your budget wants? Answers will vary, but students most likely will have to eliminate many of their budget wants.

• Whatotherthingscanyoudotoensureyoucanmeetallofyourexpensesduringretirement?Answers will vary but could include: Save for retirement through investing in different ways.


• Howwouldyouexpresseachofthestatementsaboveasaformulaforthespreadsheet?Interest Payment = Interest Rate x (Beginning Balance + Annual Investment) =(C2 + D2)*B2; Ending Balance = Beginning Balance + Annual Investment + Interest Payment =SUM(C2:E2)• Overthecourseof5yearsyouinvested$20,000.Howmuchdidyouearnininterest?$3,000.42• Whatwastheaverageinterestrateoverthat5yearperiod?4.34% (Add interest rate column/5 and note this is not a dollar weighted calculation)• Explainhowcompoundinginterestaddsvaluetothisinvestment.When interest is added annually along with an additional investment, the amount of interest increases incrementally because of the increase in principal.

A B C D E F

1Year

Interest Rate

Beginning Balance

Annual Investment

Interest Payment

Ending Balance

2 1 3.20% $0 $4,000.00 $128.00 $4,128.00

3 2 2.80% $4,000.00 $227.58 $8,355.58

4 3 5.70% $4,000.00 $704.27 $13,059.85

5 4 5.20% $4,000.00 $887.11 $17,946.96

6 5 4.80% $4,000.00 $1,053.45 $23,000.42


Examples and Practice, p. 46-47

• InterestPayment=InterestRatex(BeginningBalance+AnnualInvestment+EmployerMatch)=C2*SUM(B2:E2)

• EndingBalance=BeginningBalance+AnnualInvestment+EmployerMatch+InterestPayment=SUM(B2:F2)• EmployerMatch(percentage)=MatchAmount/AnnualInvestment/MatchAmount=E2/D2

Scenario 1• Overthecourseof5yearsyouinvested$20,000.Howmuchdidyouyouremployerinvest?$5,000• Howmuchdidthisemployermatchchangeyourinterestpayment? Increased it by 25% Your ending

balance? Increased it by 25%• Explainhowtheemployermatchaddsvaluetothisinvestment.By getting an extra $1,000, you are investing,

in essence, 25% more, making this a significant portion of your retirement.

A B C D E F G

1Scenario

Beginning Balance

Interest Rate

Annual Investment

Employer Match

Interest Payment

Ending Balance

2 1 $0.00 3.20% $4,000.00 $1,000.00 $160.00 $5,160.00

3 $5,160.00 2.80% $4,000.00 $1,000.00 $284.48 $10,444.48

4 $10,444.48 5.70% $4,000.00 $1,000.00 $880.34 $16,324.82

5 $16,324.82 5.20% $4,000.00 $1,000.00 $1,108.89 $22,433.71

6 $22,433.71 4.80% $4,000.00 $1,000.00 $1,316.82 $28,750.52

7

8 2 $0.00 3.20% $4,000.00 $1,200.00 $166.40 $5,366.40

9 $5,366.40 2.80% $4,000.00 $1,200.00 $295.86 $10,862.26

10 $10,862.26 5.70% $4,000.00 $1,200.00 $915.55 $16,977.81

11 $16,977.81 5.20% $4,000.00 $1,200.00 $1,153.25 $23,331.05

12 $23,331.05 4.80% $4,000.00 $1,200.00 $1,369.49 $29,900.54

13

14 3 $0.00 4.25% $4,000.00 $250.00 $180.63 $4,430.63

15 $4,430.63 4.25% $4,000.00 $250.00 $368.93 $9,049.55

16 $9,049.55 4.25% $4,000.00 $250.00 $565.23 $13,864.78

17 $13,864.78 4.25% $4,000.00 $250.00 $769.88 $18,884.66

18 $18,884.66 4.25% $4,000.00 $250.00 $983.22 $24,117.88


Scenario 2• Overthecourseof5yearsyouinvested$20,000.Howmuchdidyouyouremployerinvest?$6,000• Howmuchdidthisemployermatchchangeyourinterestpayment?Since the employer match represents a

30% addition ($6,000/$20,000), the match increased it by 30% Your ending balance? Increased by 30%• Whichemployermatchisbetter,Scenario1or2?Why?Two is a better scenario assuming that you always put

away $4,000. If the amount that you contribute in order to obtain the match is optional, then Scenario 1 may be better if you contribute a lower amount (say $1,000) on your investment. Once your investment amount exceeds $3,334, the second scenario will provide more money because it is a percentage rather than a flat amount.

Scenario 3• Overthecourseof5yearsyouinvested$20,000.Howmuchdidyouyouremployerinvest? $1,250• Howmuchdidthisemployermatchchangeyourinterestpayment?Increased it by 6.25% ($250/$4,000) Your

ending balance? Increased by 6.25%• Isthis403(b)abetterinvestmentthaneitheroftheotherscenarios?Why?No. It offers a lower employer

match, and the set interest rate does not produce as good an overall return as the variable rate.• Ifyouweregoingtoselectoneoftheseinvestmentsfromanemployer,whichwoulditbeassumingyou

will be in the workforce for another 25 years? Why? Answers will vary based on student values, however, mathematically, assuming the student puts away the maximum amount allowed, Scenario 2 provides the best opportunity for earning.


Independent Practice Teacher Key, p. 48

• Whatwillyourtotal401(k)valuebeattheendofthe10yearperiod?$15,732.80• WhatwillthetotalIRAvaluebeattheendofthe10yearperiod?$15,194.92• Whichinvestment,the401(k)ortheIRA,isabetter?Why?The 401(k) is actually better, even though the

interest rate is lower. This is because of the employer matching contribution.

A B C D E F G

1Scenario

Beginning Balance

Interest Rate

Annual Investment

Employer Match

Interest Payment

Ending Balance

2 401(k) $0.00 4.00% $1,200.00 $60.00 $50.40 $1,310.40

3 $1,310.40 4.00% $1,200.00 $60.00 $102.82 $2,673.22

4 $2,673.22 4.00% $1,200.00 $60.00 $157.33 $4,090.54

5 $4,090.54 4.00% $1,200.00 $60.00 $214.02 $5,564.57

6 $5,564.57 4.00% $1,200.00 $60.00 $272.98 $7,097.55

7 $7,097.55 4.00% $1,200.00 $60.00 $334.30 $8,691.85

8 $8,691.85 4.00% $1,200.00 $60.00 $398.07 $10,349.93

9 $10,349.93 4.00% $1,200.00 $60.00 $464.40 $12,074.32

10 $12,074.32 4.00% $1,200.00 $60.00 $533.37 $13,867.69

11 $13,867.69 4.00% $1,200.00 $60.00 $605.11 $15,732.80

12

13 IRA $0.00 4.25% $1,200.00 $0.00 $51.00 $1,251.00

14 $1,251.00 4.25% $1,200.00 $0.00 $104.17 $2,555.17

15 $2,555.17 4.25% $1,200.00 $0.00 $159.59 $3,914.76

16 $3,914.76 4.25% $1,200.00 $0.00 $217.38 $5,332.14

17 $5,332.14 4.25% $1,200.00 $0.00 $277.62 $6,809.76

18 $6,809.76 4.25% $1,200.00 $0.00 $340.41 $8,350.17

19 $8,350.17 4.25% $1,200.00 $0.00 $405.88 $9,956.05

20 $9,956.05 4.25% $1,200.00 $0.00 $474.13 $11,630.18

21 $11,630.18 4.25% $1,200.00 $0.00 $545.28 $13,375.47

22 $13,375.47 4.25% $1,200.00 $0.00 $619.46 $15,194.92

36 Building Your Future, Book 4: Appendix

Appendix: Online Resources

Below you will find a list of additional resources related to the chapters in this book. These resources can be used to extend your understanding and study of the subjects in each section.

Chapter 1: Path to EmploymentO*Net OnlineAcareerresearchresourcefromtheU.S.DepartmentofLaborhttp://www.onetonline.org/

Chapter 2: Paying for Post-secondary EducationStudent AidInformationonfederalfinancialaidfromtheU.S.DepartmentofEducationhttp://studentaid.ed.gov/home

Big FutureInformation on attending and paying for college from The College Boardhttps://bigfuture.collegeboard.org/

Chapter 3: Making a LifeInternal Revenue ServiceA wide range of information on federal taxeshttp://www.irs.gov

Chapter 4: Making a LivingIdentity Theft Information on preventing identity theft from the Federal Trade Commissionhttp://www.consumer.ftc.gov/features/feature-0014-identity-theft

Chapter 5: RetirementConsumer Information on Retirement PlansInformation on various retirement plan options from the Department of Laborhttp://www.dol.gov/ebsa/consumer_info_pension.html

How Should I Plan for Retirement?The Social Security Administration’s guide to planning for retirementhttp://www.ssa.gov/retirement/


Building Your Future, Book 4: Appendix 37

?Appendix: “Did You Know” Sources

Below you will find a list of sources for the “Did You Know” statements at the beginning of each chapter in the student guides.

Chapter 1: Path to EmploymentUnemploymentandearningsaredirectlylinkedtoeducationalattainment.In2011theaveragehighschoolgraduateearned$638perweekandhadanunemploymentrateof9.4%,workerswithassociate’sdegreesearned$768perweekandwereunemployedatarateof6.8%andpeoplewitha4-yeardegreeearned$1053weeklywithanunemploymentrateofonly4.9%accordingtotheBureauofLaborStatistics.Source: Bureau of Labor Statistics http://www.bls.gov/emp/ep_chart_001.htm

Chapter 2: Paying for Post-secondary EducationIn 2010–11 the cost of undergraduate tuition, room, and board were estimated to be $13,600 at public institutions, $36,300 at private not-for-profit institutions, and $23,500 at private for-profit institutions? Between 2000–01 and 2010–11, prices for undergraduate tuition, room, and board at public institutions rose 42 percent, and prices at private not-for-profit institutions rose 31 percent.Source: U.S. Department of Education, National Center for Education Statistics. (2012). Digest of Education Statistics, 2011 http://nces.ed.gov/programs/digest/d11/ch_3.asp

Chapter 3: Making a LivingEmployees do not take home every dollar they earn. A percentage of what you earn is taxed to pay for programssuchasSocialSecurityandMedicare.Itamountstoapproximately7.65%ofwhatyouearn.Inaddition, income taxes are also automatically deducted from your wages as well, and can range from an additional10-35%deduction.Source: Internal Revenue Service http://www.irs.gov/Individuals/Employees/Tax-Withholding

Chapter 4: Making a LifeTheaverageAmericanfamilyspends34%ofthehouseholdbudgetonhousing.Carsarethesecondmostcostlyitemat17.6%ofthebudget,whilefoodholdsthethirdplacepositionat12.4%.Source: Bureau of Labor Statistics http://www.bls.gov/news.release/cesan.nr0.htm

Chapter 5: RetirementOnly58%ofusarecurrentlysavingmoneyforretirement–and60%ofthosethatarehavelessthan$25,000. Thirty percent have less than $1,000. Most financial planners advise their clients to expect to save eight to 10 times their final annual salary for retirement.Source: http://www.marketwatch.com/story/what-matters-most-in-retirement-planning-2012-12-04


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