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6 Standards Categories

Overview of Categories

Elementary Standards (4th grade)

Middle School Standards (8th grade)

High School Standards (12th grade)

Standards for Personal Financial Education are broken into 6 categories:

  1. Earning Income

  2. Spending

  3. Saving

  4. Investing

  5. Managing Credit

  6. Managing Risk

Overview of Categories

1. Earning Income

Most people earn wage and salary income in return for working, and they can also earn income from interest, dividends, rents, entrepreneurship, business profits, or increases in the value of investments. Employee compensation may also include access to employee benefits such as retirement plans and health insurance. Employers generally pay higher wages and salaries to more educated, skilled, and productive workers. The decision to invest in additional education or training can be made by weighing the benefit of increased income-earning and career potential against the opportunity costs in the form of time, effort, and money. Spendable income is lower than gross income due to taxes assessed on income by federal, state, and local governments.

2. Spending

A budget is a plan for allocating a person’s spendable income to necessary and desired goods and services. When there is sufficient money in their budget, people may decide to give money to others, save, or invest to achieve future goals. People can often improve their financial wellbeing by making well-informed spending decisions, which includes critical evaluation of price, quality, product information, and method of payment. Individual spending decisions may be influenced by financial constraints, personal preferences, unique needs, peers, and advertising.

3. Saving

People who have sufficient income can choose to save some of it for future uses such as emergencies or later purchases. Savings decisions depend on individual preferences and circumstances. Funds needed for transactions, bill-paying, or purchases, are commonly held in federally insured checking or savings accounts at financial institutions because these accounts offer easy access to their money and low risk. Interest rates, fees, and other account features vary by type of account and among financial institutions, with higher rates resulting in greater compound interest earned by savers.

4. Investing

People can choose to invest some of their money in financial assets to achieve long-term financial goals, such as buying a house, funding future education, or securing retirement income. Investors receive a return on their investment in the form of income and/or growth in value of their investment over time. People can more easily achieve their financial goals by investing steadily over many years, reinvesting dividends, and capital gains to compound their returns. Investors have many choices of investments that differ in expected rates of return and risk. Riskier investments tend to earn higher long-run rates of return than lower-risk investments. Investors select investments that are consistent with their risk tolerance, and they diversify across a number of different investment choices to reduce investment risk.

5. Managing Credit

Credit allows people to purchase and enjoy goods and services today, while agreeing to pay for them in the future, usually with interest. There are many choices for borrowing money, and lenders charge higher interest and fees for riskier loans or riskier borrowers. Lenders evaluate creditworthiness of a borrower based on the type of credit, past credit history, and expected ability to repay the loan in the future. Credit reports compile information on a person’s credit history, and lenders use credit scores to assess a potential borrower’s creditworthiness. A low credit score can result in a lender denying credit to someone they perceive as having a low level of creditworthiness. Common types of credit include credit cards, auto loans, home mortgage loans, and student loans. The cost of post-secondary education can be financed through a combination of grants, scholarships, work-study, savings, and federal or private student loans.

6. Managing Risk

People are exposed to personal risks that can result in lost income, assets, health, life, or identity. They can choose to manage those risks by accepting, reducing, or transferring them to others. When people transfer risk by buying insurance, they pay money now in return for the insurer covering some or all financial losses that may occur in the future. Common types of insurance include health insurance, life insurance, and homeowner’s or renter’s insurance. The cost of insurance is related to the size of the potential loss, the likelihood that the loss event will happen, and the risk characteristics of the asset or person being insured. Identity theft is a growing concern for consumers and businesses. Stolen personal information can result in financial losses and fraudulent credit charges. The risk of identity theft can be minimized by carefully guarding personal financial information.

Elementary Standards (4th grade)

1. Earning Income

Different ways that people earn income, methods of payment, and how income is taxed by government to pay for community services.

2. Spending

Introduce the concepts of scarcity, preferences, and trade-offs that people make in their spending decisions. Behavioral factors that influence spending, such as peer pressure and advertising, are also identified.

3. Saving

Students learn that saving is a choice between current and future spending, people differ in their attitudes about saving, and that savers can earn interest on savings.

4. Investing

Because investing is a more advanced concept, the standards at the 4th grade level only cover the basic distinction between investing in riskier assets to achieve long-term future goals versus safer savings account choices for shortterm goals and emergency funds.

5. Managing Credit

Students learn that credit allows people to buy goods and services sooner, but that they incur an obligation to repay the debt plus interest. They are also introduced to the concept of being evaluated based on their previous history of debt repayment.

6. Managing Risk

Students identify various types of risks, the potential negative consequences of these risks, and the primary methods for managing risk.

Middle School Standards (8th grade)

1. Earning Income

Consider the benefits and opportunity costs of investments in education and skills, and the types of taxes on earnings. Students also are introduced to the benefits and costs of entrepreneurship.

2. Spending

Students learn about the basics of budgeting and planning, and consider the factors that go into making informed consumer decisions.

3. Saving

Consider saving decisions in the context of personal circumstances and goals. The mathematics of compound interest, the role of financial institutions as intermediaries between savers and borrowers, and the advantages of federal deposit insurance are also addressed.

4. Investing

Students are introduced to the variety of possible financial investments, types of income earned from them, their relative riskiness, and the benefits and mathematics of earning compound interest over longer periods of time.

5. Managing Credit

Students evaluate how interest rates differ based on type of credit, market conditions, and borrower risk measured by credit reports, as well as the effect of higher rates and longer terms on loan payments and total interest paid. They also consider the difference between borrowing for consumer purchases versus borrowing to invest in education or homes.

6. Managing Risk

Students gain more depth on the different risk management methods and consider how their own behavior can reduce the likelihood and/or size of a loss. At this level, students also learn the basics of insurance, including common insurance terminology, and how their own behavior can affect the premiums they pay. Vulnerability to identity theft is introduced.

High School Standards (12th grade)

1. Earning Income

Consider the benefits and opportunity costs of investments in education and skills, and the types of taxes on earnings. Students also are introduced to the benefits and costs of entrepreneurship.

2. Spending

Students are prepared to make spending decisions consistent with their budget, and with critical consideration of product pricing, quality, and features. Standards related to charitable giving and consumer protection are also included at the 12th grade level.

3, Saving

Consider saving decisions in the context of personal circumstances and goals. The mathematics of compound interest, the role of financial institutions as intermediaries between savers and borrowers, and the advantages of federal deposit insurance are also addressed.

4, Investing

Students learn more advanced investment concepts, including the effect of individual risk tolerance and behavioral biases on investment choices, factors influencing market prices of financial assets, the benefits of portfolio diversification, how financial markets are regulated, and the benefits of financial technology.

5. Managing Credit

Focus on developing credit management skills through understanding of the characteristics and costs of different types of credit, the factors and behaviors that contribute to strong credit reports and scores, consumer credit protections under the law, and resources available to people who need assistance with managing their debts.

6. Managing Risk

At the 12th grade level, the focus is on personal decision making, as students explore methods for lowering personal risk, and factors to consider before buying insurance products and extended warranties. The standards address the costs and benefits of common types of insurance, including health, auto, homeowners/ renters, disability, and life insurance products. Vulnerability to identity theft is introduced at the 8th grade level, with risk management options explored in more detail at the 12th grade level.

Source: National Standards for Personal Financial Education by Council for Economic Education and Jumpstart, publication made possible through funding provided by the Jackson Charitable Foundation. All text and images come directly from this source, so check it out to learn more!

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