AOF Financial Planning Lesson 3 the Importance of Financial Planning
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AOF Financial Planning Lesson 3 The Importance of Financial Planning Student Resources Resource Description Student Resource 3.1 Case Study: The Perils of Failing to Plan Student Resource 3.2 Guide: Creating a Personal Financial Timeline Copyright © 2008–2011 National Academy Foundation. All rights reserved. AOF Financial Planning Lesson 3 The Importance of Financial Planning Student Resource 3.1 Case Study: The Perils of Failing to Plan Student Name:_______________________________________________ Date:___________ Directions: Make notes about what the three rules of financial planning entail. Then read the case study, and discuss why MC Hammer could have avoided bankruptcy by following the three rules of financial planning. Three rules of financial planning Spend within your means: Put some money away for later: Keep an eye on your money: Case Study: MC Hammer, a singer and songwriter in the early 1990s, reigned as America’s most popular rap artist. He had great success with a megahit album, “Hammer Don’t Hurt ’Em,” and a hit single, “U Can’t Touch This.” His flashy dance moves, baggy “Hammer” pants, and saying “It’s Hammer time!” were well-known trademarks that helped MC Hammer become a multi-millionaire. Because of his recording successes and popularity, MC Hammer was able to earn income from other forms of entertainment and product endorsements. ABC television aired a cartoon called “Hammerman,” with the hero helping kids at his local community center. The toymaker Mattel created the Hammer Doll. Pepsi and the British Knights shoe company approached MC Hammer with advertising deals, eager to have his name on their products. Money was flowing into the singer’s bank account and it seemed like nothing could go wrong. He made over $30 million dollars during this time period. Unfortunately, Hammer seemed to ignore some of the principles of financial planning, and ultimately lost everything. Although he was making millions, Hammer spent his money almost as quickly as he earned it. He paid $500,000 each month to his employees. He spent $12 million to build his dream home, complete with gold-plated “Hammertime” entrance gates, a huge garage for his 17 luxury cars (his 2 helicopters and a leased jumbo jet were at the airport), a recording studio, a 33-seat movie theater, a tennis court, a baseball diamond, a basketball court, and even a bowling alley. Hammer continued to make records, but as his popularity declined, so did his income. However, he continued his lavish spending and began to face lawsuits that chipped away at his fortune. By 1997, MC Hammer was at least $10 million in debt and had to declare bankruptcy. While overspending his money was the main cause of his bankruptcy, he also claims that he had dishonest money managers and was an easy target for lawsuits. MC Hammer is not the only popular entertainer who earned and then lost millions. TLC, Britney Spears, and the late Michael Jackson have all been in the tabloids in recent years for facing financial trouble despite their enormous success in selling records. Although MC Hammer has long since recovered, he is still notorious for his bankruptcy. His story is sometimes called one of “rags to riches to back again.” Copyright © 2008–2011 National Academy Foundation. All rights reserved. AOF Financial Planning Lesson 3 The Importance of Financial Planning Student Resource 3.2 Guide: Creating a Personal Financial Timeline Student Name:_______________________________________________ Date:___________ Directions: Fill out the chart. Transfer this information onto your personal financial timeline. Save for/ Plan: Estimated pursue short/mid Milestone cost/years to Cost per year other or long save funding? term? Copyright © 2008–2011 National Academy Foundation. All rights reserved. AOF Financial Planning Lesson 3 The Importance of Financial Planning Before handing in your assignment, check to make sure it meets or exceeds the following assessment criteria: The timeline is correctly organized: it is presented horizontally, broken into age categories, and every five years are labeled. The 10 milestones are clearly identifiable and presented in chronological order. One milestone students plan to save for will be explained on the timeline: the estimated cost, the length of time to save, and why this is an important milestone they wish to reach. At least three images reinforce the information on the timeline. The timeline is neat and uses proper spelling and grammar. Copyright © 2008–2011 National Academy Foundation. All rights reserved. .