Teacher's Guide

THE WALL STREET IS WAITING FINANCIAL LITERACY PROGRAM TEACHER’S GUIDE GRADE 8 THEME 3 SAVING The Wall Street is Waiting Financial Literacy Program. TEACHER’S GUIDE Grade 8. Theme 3.

First Edition.

This book or any portion thereof may not be reproduced or used in any manner whatso- ever without the express written permission of the publisher except for the use of brief quotations in a book review.

Book and cover design: Matías Baldanza.

You may also be interested in visiting my website, where I post free resources on investing: www.wallstreetiswaiting.com

Or checking out my award-winning book on Amazon: https://www.amazon.com/Market-Mojo-Beginners-Guide-Stock/dp/1973488310 It is absolutely critical that young people take courses in financial literacy—perhaps now more than ever. Recent studies show that most parents are not taking the time to discuss money management with their children. Even when they do, it is usually just bare-bones bud- geting advice rather than the long-term (and life altering!) skills they need to hone: planning for retirement, using debt judiciously, and learning how to invest, for example.* Furthermore, schools are still behind in incorporating finance courses into their curricula. The current focus on preparation for standard- ized tests on the state level, along with the push to prepare for col- lege entrance exams like the ACT and SAT, means that there is little time left over for topics that are considered “optional” or “elective.” Additionally, few teachers feel qualified to take on a financial literacy class. According to one study, only 1 in 5 are confident enough to do so.**

* https://www.slideshare.net/TRowePrice/t-rowe-prices-10th-annual-parents-kids- money-survey ** https://www.fdic.gov/about/comein/mar3.pdf

Theme 3: SAVING | Teacher’s Guide | 1 So where are students supposed to learn how to effectively manage their money? It is too important of a skill to leave to chance. We simply can’t let a generation of students leave school and enter the workforce without knowing the basics of money management. Their ability (or inability) to manage their finances will greatly influence their success later in life. “Financial success” is a multi-faceted concept. It doesn’t merely refer to material possessions such as a car, a house, a high-end smart- phone, or other outward symbols of wealth. Financial success is also defined as the ability to: • create a realistic budget based on household income and expenses • delay gratification and control impulse spending • comparison shop to obtain the best quality at the best prices • evaluate investment opportunities • borrow money, manage debt appropriately, and monitor credit scores • project future income needs to plan for retirement

The majority of children aren’t being taught these finance fundamen- tals, yet very early in life, they have easy access to financial products that could cause them irreparable harm for years to come like high-interest credit cards, predatory loans, and interest-only mortgages. It’s preposterous! Why do we require students to study, get hands-on training, take exams, and apply for licensure to drive a car, but we don’t apply those same rigorous standards to obtaining a credit card? We would have far, far fewer people in debt if we did.

2 The Wall Street is Waiting Financial Literacy Program A generation of new workers drowning in debt has disastrous effects on the economy. Their limited means reduce their purchasing power, which depresses markets and lowers demand. That, in turn, decreas- es the manufacturing of consumer goods, which results in unemploy- ment. That creates more people with limited financial resources who start relying on credit to make ends meet… and the cycle continues. But we can break this cycle and change financial outcomes for students with dedicated and focused financial education. To that end, the Council for Economic Education has developed standards for financial literacy for students in grades 1 through 12, with benchmarks for grades 4, 8 and 12. The standards have six overarching themes for all grade levels: I. Earning income II. Buying goods and services III. Saving IV. Using Credit V. Financial Investing VI. Protecting and insuring Within each theme are benchmarks that need to be met for different grade levels. The standards aren’t intended to be used specifically for grades 4, 8, and 12. Instead, they show what students need to know by the time they reach grades 4, 8, and 12. The complexity of the expectations increases gradually, with students building on previously mastered skills. A grade 5 student, for example, should have already mastered

Theme 3: SAVING | Teacher’s Guide | 3 benchmarks up to grade 4. Likewise, a grade 10 student is expected to have mastered skills in the benchmarks for grade 4 and 8. But let’s pause for a reality check. Most students will have gaps (quite possibly glaring ones) in their financial literacy knowledge, es- pecially if there isn’t a dedicated curriculum for it in your school. In that case, you will most likely need to mix and match lessons to meet the unique needs of your students, which could include using Grade 8 benchmarks for older students, for example. That’s perfectly nor- mal, and it is something that good teachers do anyway as a matter of course. Meeting the students where they are and moving them for- ward is far more important than meeting benchmarks by a particular date or school year. I have developed the lessons in this packet to address the benchmarks for Grade 8. Feel free to treat them like a salad bar, picking and choosing the ones that are most appropriate for your learners. While they were written with 8th graders in mind, they may very well be appropriate for high school students—particularly the ones who have had no prior financial instruction. This is NOT a problem! While classes like reading and math normally require students to work on a level that corresponds to their grade, financial literacy does not. Financial literacy is more about learning new information, applying formulas to real-life scenarios (like paying interest on a loan or investing), and conducting cost-benefit analyses when making choices. These are critical thinking skills that students at every grade level can and should learn. In the case that you do use the lessons for high schoolers, you will find that the material isn’t “watered down” or too simple for older

4 The Wall Street is Waiting Financial Literacy Program students. (In fact, the students will have no idea what level of benchmarks they are working on unless you tell them.) We all have one end goal in mind— providing our students with the financial knowledge they need to make smart decisions with their money. For that reason, we just need to teach the skills, no matter how they are classified. This curriculum pack includes a Teacher’s Guide and a Student Work- book with 30 lessons that address the Grade 8 benchmarks for Theme 3: Saving. The benchmarks require students to demonstrate an un- derstanding of the following saving concepts: 1. Banks and other financial institutions loan funds received from depositors to borrowers. Part of the interest received from these loans is used to pay interest to depositors for the use of their money. 2. For the saver, an interest rate is the price a financial institution pays for using a saver’s money and is normally expressed as an annual percentage of the amount saved. 3. Interest rates paid on savings and charged on loans, like all prices, are determined in a market. 4. When interest rates increase, people earn more on their savings and their savings grow more quickly. 5. Principal is the initial amount of money upon which interest is paid. 6. Compound interest is the interest that is earned not only on the principal but also on the interest already earned. 7. The value of a person’s savings in the future is determined by the date of initial deposits and the interest rate. The earlier people be-

Theme 3: SAVING | Teacher’s Guide | 5 gin to save, the more savings they will be able to accumulate as a result of the power of compound interest. 8. Different people save money for different reasons, including large purchases (such as higher education, autos, and homes), retirement, and unexpected events. People’s choices about how much to save and what to save for are based on their tastes and prefer- ences. 9. To assure savers that their deposits are safe from bank failures, federal agencies guarantee depositors’ savings in most commercial banks, savings banks, and savings associations up to a set limit.

The Teacher’s Guide contains all of the information you need to con- duct the lessons. Words in boldface type can be used as a script, exactly as written. (I’d be surprised if you did that though. I’m sure you’ll read the script and then adapt it to your own voice and your own unique delivery.) Early lessons contain a number of discussion questions to set the foundation for learning. You can decide how to foster those conversations (whole class, small group, partners, etc.) Suggested answers are included. You may want to record students’ answers on a whiteboard (or have them do it) to keep track of the discussion and use the notes as a reference. The Student Workbook provides additional reading material for the students, practice space for calculations, writing assignments, and other hands-on activities that will foster a high level of engagement. You will want to keep your own copy of the student workbook to use as preparatory reading before giving a lesson. You’ll probably want to add your own notes in it as well.

6 The Wall Street is Waiting Financial Literacy Program I hope you enjoy these lessons and find them useful! I would love to get your feedback at [email protected]. You may also be interested in visiting my website: www.wallstreetiswaiting.com Or buying my book: https://www.amazon.com/Market-Mojo-Beginners-Guide-Stock/ dp/1973488310

Theme 3: SAVING | Teacher’s Guide | 7

LESSON 15 LEARN Objective: Students will learn how to recognize the signs of predatory lending practices.

Financial Literacy Standard: Theme 3 Benchmark 3

Students will read the description of payday loans in Lesson 15 of their workbook. (Do a read-ahead for prep!) The text points out the tell-tale signs of a scammy loan operation. In pairs or small groups, students will examine payday loan sites online and see if they can identify some of those signs. Additionally, they should be on the lookout for any other signs they believe are deliberately misleading. All findings should be shared with the class.

Theme 3: SAVING | Teacher’s Guide | Lesson 15 53

LESSON 19 LEARN Objective: Students continue learning how to use the simple interest formula to solve for the values of P, t and r.

Financial Literacy Standard: Theme 3 Benchmarks 4, 5

This lesson uses basic algebra to show students how to alter the simple interest formula to solve for different elements of the equation. The following altered formulas are in the student workbook:

Solving for interest P × r × t = i

Solving for principal i ÷ r ÷ t = P

Solving for time i ÷ (P × r) = t

Theme 3: SAVING | Teacher’s Guide | Lesson 19 69 Solving for rate i ÷ (P × t) = r

Students don’t necessarily need to memorize the formulas, but they do need to have some familiarity with them and use them to solve problems. This provides reinforcement of basic math skills and an opportunity to see how the elements of a formula can be manip- ulated. Students will read the problems in their workbooks, decide which formula they need to use to solve, and then calculate to get the answer. Allow students time to use trial and error to arrive at the correct answer—it is an important part of the learning process

Answers to problems:

1. John has taken out a loan for an eight-year period. His annual rate of interest is 4% (paid once a year) and his total interest payment at the end of the term is $3,840. What is the principal amount that John borrowed? P = i ÷r÷t P = $3,840 ÷.04÷8 P = $12,000

2. Sally has taken out a loan for $15,000. Her annual rate of interest if 4.5% paid once a year. At the end of the loan term, she will have paid $8,100 in total interest. How long is the loan term? t = i ÷ (P x r)

70 The Wall Street is Waiting Financial Literacy Program t = 8,100 ÷(15,000 x .045) t = 8,1000 ÷675 t = 12 years

3. Bernice has a loan of $20,000 over a 15-year period. Her total interest payments come to $9,000. What rate of interest is she paying on the loan? r = i ÷ (P x t) r = 9,000 ÷ (20,000 x 15) r = 9,000 ÷ 300,000 r = 3%

Answers to bonus questions:

1. Fannie is opening a 1980s-style Jazzercise studio. She needs to remodel the space as well as buy a large number of coordinated leotard/headband/leg warmer outfits in assorted neon colors. She has an eight-year loan that charges 3.25% annual interest. The total amount of interest she’ll pay at the end of the term is $2,730. What was the principal amount of the loan? $10,500 Use the formula P = i ÷r ÷t

Theme 3: SAVING | Teacher’s Guide | Lesson 19 71 Start with the total interest of 2,730. Dividing it by the rate get 2,730 ÷ .0325 = 84,000. Further divide 84,000 by the time of eight years to get 84,000 ÷ 8 = 10,500

2. Marge acquired a loan to reconfigure her 1982 Chevy Chevette into a hardtop convertible. She borrowed $6,500 for a period of five years, and her yearly interest payment is $260. Calculate the annual rate of interest that Marge is paying for this awe- some project. 4% Use the formula r = i ÷ (P × t) We need the total amount interest paid over the life of the loan, but the question only gives us the yearly interest paid on the loan. Therefore, we must take the yearly interest of $260 and multiply it by the number of years the loan is active—five. 260 × 5 = 1300. That is the figure that we will use for the “i” in the equation. Solv- ing inside of the parenthesis, P × t is 6,500 x 5, or 32,500. We are left with 1,300 ÷ 32,500, which comes to .04, or a 4% annual rate of interest.

72 The Wall Street is Waiting Financial Literacy Program LESSON 15 Key terms and concepts: $$ Payday loan $$ Predatory lending

People who don’t have access to bank loans have to resort to other methods to borrow money. Check cashing centers, rent-to-own stores, and payday loans all take advantage of these people by charging them extremely high interest rates. You need to make sure that you recognize these scams! We’ll start with one of the most common financial traps, the payday loan. (These are also referred to as “cash advances.”) For example, I need $100 to pay my electric bill, but I don’t get my paycheck for four more days. I am in crisis mode, since my power will be cut off if I don’t make this payment by 5 p.m. I quickly apply for a payday loan and receive my cash. After paying my bill, I finally take the time to read the fine print of the loan agreement, discovering that I have to pay an ridiculous amount of interest. Unfortunately, it’s too late to do anything about it. Some borrowers want to read the fine print up front, but lenders don’t always make it easy. They will bury the information on interest rates in “legalese” that may be difficult to understand. They may also

Theme 3: SAVING | Student Workbook | Lesson 15 49 purposely mislead borrowers by advertising the application fee for the loan in bold print, then obscuring the actual interest fees in the fine print.

HOW DO PAYDAY LOANS DIFFER FROM REGULAR LOANS? In general, payday loans have three qualities that set them apart from regular loans that are paid on an installment basis (like a loan from the bank for a car, a house, or a business.) 1. Short terms: These are loans that are meant to get you out of a quick financial jam (such as a utility bill that needs to be paid before service is cut off). Payday loan companies don’t look for people who are making planned purchases and/or thoughtful spending decisions. They are looking for desperate people who are going to make a snap decision. These are the people who will take out the loan first and ask questions later. The terms for most payday loans don’t exceed two weeks. 2. Astronomical interest rates: Installment loans from the bank or some other reputable financial institution have a cap on what kind of interest rates they can charge. Payday loans may have a cap, but the difference is astounding. While a bank might have a cap of 30% interest, a payday loan can cap at 500% interest. 3. Limits on principal: Payday loans are usually limited to $2,000 or less. There is a reason for this. Psychologically, if you are only borrowing a small amount, you are more likely to forego a lot of deliberations and just apply for the loan. With large amounts, a

50 The Wall Street is Waiting Financial Literacy Program borrower will be more likely to do some investigating and put more thought into their application. Remember, payday loan companies don’t want their customers thinking too much!

States can decide whether or not to allow payday lending. Many states forbid it because they believe that it qualifies as “predatory lending.” That is, it is a lending practice that takes advantage of people by targeting a desperate and marginalized customer with few financial options and then charges that person interest rates of 500%. In other words, it’s just not fair. If you look at some online sites for payday loans, you will start to see that they have a lot of things in common. • Ease of application. Most payday loan sites have an “APPLY HERE” button on the first page. They know that this makes the process look easy. They also know that if you start the application right away, then you probably won’t take the time to read the terms and conditions. • Happy, successful people! You’ll see lots of pictures of payday loan “customers” on the website. They won’t look like they are down on their luck or struggling to get by. They’ll be young, healthy, and downright cheery. Their ultra-white smiles seem to say, “I’m a WINNER! WINNERS get payday loans all the time, so no worries, pal! It’s no big deal!” Or, they will have very thoughtful, businesslike actors doing their best impression of a customer deep in thought. “There’s a smart guy,” you’ll say to yourself. “If he’s considering a payday loan, maybe I should too.”

Theme 3: SAVING | Student Workbook | Lesson 15 51 • Obscured rates. The websites positively gush about how easy it is to get a loan. They don’t, however, make their rates readily avail- able. Some sites even require you to enter personal information before you can see the interest rates. (This ensures that even if you don’t take out a loan, they have a way to contact you so they can try to sell you other loan products.) • Questionable names. For reasons that remain unclear, many of these companies think it is a clever idea to incorporate nonsense words into their names, as well as an excessive use of the letter “z.” EZ-LOANZ, for example, or its evil twin, “EZ-LOAN$.” (There really is an EZ-LOAN$! Look it up!) Be leary of these.

QUESTIONS:

1. Look at some websites for payday loans. See if you can identify the signs of a scam and record them.

2. Are there OTHER sure signs of a scam that you discovered on the websites that weren’t mentioned here? What were they?

______

52 The Wall Street is Waiting Financial Literacy Program LESSON 19 Key terms and concepts: $$ Simple interest $$ Adjusting formulas

When you first learned the simple interest formula, you only solved to find the amount of interest paid. Today, you’ll see how the formula can be adjusted to solve for other information as well.

Solving for interest P × r × t = i

Solving for principal i ÷ r ÷ t = P

Solving for time i ÷ (P × r) = t

Theme 3: SAVING | Student Workbook | Lesson 19 61 Solving for rate i ÷ (P × t) = r

QUESTIONS:

For the following three questions, decide which formula you need to use and then calculate to find the answer.

______

2. Sally has taken out a loan for $15,000. Her annual rate of interest if 4.5% paid once a year. At the end of the loan term, she will have paid $8,100 in total interest. How long is the loan term?

______

3. Bernice has a loan of $20,000 over a 15-year period. Her total interest payments come to $9,000. What rate of interest is she paying on the loan?

______

62 The Wall Street is Waiting Financial Literacy Program BONUS QUESTIONS:

1. Fannie is opening a 1980s-style Jazzercise studio. She needs to remodel the space as well as buy a large number of coordinated leotard/headband/leg warmer outfits in assorted neon colors. She has an eight-year loan that charges 3.25% annual interest. The total amount of interest she’ll pay at the end of the term is $2,730. What was the principal amount of the loan?

______

Theme 3: SAVING | Student Workbook | Lesson 19 63