10

In Budget Challenge, students are given an information packet and:

• a 'job' with a defined salary and pay schedule
• a choice of different service providers (rent, cell phone, car loan, etc)
• a choice of different types of checking accounts and bank account options
• a choice of employer 401k savings accounts and a 401k payroll deduction percent

Students are encouraged to make a budget prior to the start of the simulation.

During the Simulation

• Bill notifications will arrive (via email) as described in the information packet and students will be required to respond to them (write on-line checks) in the most efficient way (or the way that results in the least amount of total fees).  At the same time, students are also given points for savings in their 401k account, which a student can control by changing the 401k deduction percentage in their pay check.
• Students will be given a score that will be used to determine class rank.  The score is primarily based on the ability to pay bills, maximize savings and avoiding fees. Other points can be earned through surveys/quizzes.
• Students' scores will be listed on a 'Leaderboard' and class rank will be updated daily.

At the End the Simulation

• A winner is determined by the score on the Leaderboard.
• Teachers may translate a student's performance in the simulation to a grade or partial grade for a class (this is at the discretion of the school).

∙ Key to Responsibility – Online ‘edu-game’ focusing on automobile insurance. 5 modules for teachers and/or students include How can I get my driver’s license?; How can I lose my license?; Why do I need insurance?; What will insurance cost?; What should I do if I have an accident?

Visit www.ohioinsurance.org/key02/auto_edu_game.asp

 ∙ Renters Insurance - Online ‘edu-game’ focusing on renters insurance:  What's covered?; What's not covered?; Shopping tips; A Day in the Life comparison; Classroom activities.

Visit www.ohioinsurance.org/teachers/renters_edu_game.asp

∙ Strive to Drive – Hands-on game. Takes students through the process of preparing, financing, insuring, purchasing and maintaining a car. 6 game boards & card sets per kit.

Teachers can order a free kit online at www.ohioinsurance.org/teachers/strive_to_drive.asp

1.       Ask:  Should a bank, brokerage or other financial
company be able to share your personal information with other companies and
organizations for marketing purposes?

Explain that under the current laws, companies you
do business with have the right to share your information with their business
partners or other financial firms.

Explain that consumers (credit users) have legal
rights to protect their personal
(private) information.  This lesson will
look at those privacy rights.

2.       Go to
the Board of Governors of the Federal Reserve web page: http://www.federalreserve.gov/pubs/privacy/default.htm

Review the information about financial information
privacy on the web page

3.       Ask: What
kinds of personal information should be protected by law?

Student discussion should focus on identifying
personal information they think should be private and the reasons why that
information should be protected?

4.       Ask:
Should businesses be allowed to sell information about you to other companies?   Should you have to “opt out” of information
sharing or should you have to specifically give your permission to share
information?

Go to the FDIC web site: http://www.fdic.gov/consumers/privacy/yourrights/index.html

Discussion can focus on the topics on the
FDIC’s  “Your Rights to Financial Privacy”
web page

5.         Conclusion

The FDIC web page ends with this summary:

“Your right to financial privacy is important. And
thanks to the privacy law, you now have more of a say in how much of your
information financial institutions may share with other companies. It's up to
you to take advantage of these protections. Watch for the privacy notices from
your financial institutions, read them carefully and follow the instructions if
you decide to exercise your right to opt out. If you have questions, contact
your financial institution or one of the federal regulatory agencies on our
"For
More Help..." and "For More
Information"    pages. We hope
that the information we've provided here will help you understand your
rights... and help you make decisions that are right for you.”

Use the Federal Trade Commission's "Scam Watch" website to introduce consumer scams and fraud.

Go to:  http://www.ftc.gov/bcp/edu/microsites/moneymatters/scam-watch.shtml

Select topics appropriate for your class:

• Secured Credit Card Marketing Scams
• Money Wiring Scams
• Seeing Through Stimulus Scams
• Bank Failures, Mergers and Takeovers: A “Phish-erman’s Special”
• Scammers Exploit the FTC's Good Name, Promise Phony Sweepstakes Prizes
• Credit Repair: How to Help Yourself
• Advance-Fee Loan Scams: ‘Easy’ Cash Offers Teach Hard Lessons
• Recovery Act Energy Home Improvement Loan Scam Alert
• Foreclosure Rescue Scams: Another Potential Stress for Homeowners in Distress
• Rental Listings May Be Red Herrings
• Work-at-Home Schemes
• Could 'Biz Opp' Offers Be Out For Your Coffers?

Show the "Fraud: An Inside Look" video: http://www.ftc.gov/multimedia/video/scam-watch/fraud-inside-look.shtm

NOTE: The FTC's "Money Matters" resources are also available in Spanish: http://www.ftc.gov/bcp/edu/microsites/moneymatters/espanol/index.html

Use this information to introduce consumer scams and fraud.

Students can identify the types of scams they have heard of or seen.

Close with the old saying, "If it seems too good to be true, it probably is."

1.       Introduce the topic of debt collection
protection by showing the brief FTC video “Dealing with Debt Collectors.”

Video: Dealing with Debt Collectors

http://www.ftc.gov/multimedia/video/credit/debt/debt-collection.shtm

2.       Review the primary intent of the Fair
Debt Collection Practices Act.

a) A
debt collector may contact you in person, by mail, telephone, telegram, or fax,
but may not contact you at inconvenient times or places.  For example, before 8:00 am or after 9:00 pm,
unless you agree.

b) A
debt collector may not contact you at work if the collector is aware that your
employer prohibits it.

c) If
an attorney is representing you about the debt, the debt collector must contact
the attorney, rather than you. If you don’t have an attorney, a collector may
contact other people only to find out your address, your phone number, and
where you work.

d) A
debt collector may not harass, oppress, or abuse you or any third parties they
contact about you.

e) A
debt collector may not lie or mislead anyone when collecting a debt.

3.       Discuss the rationale for these consumer
protections.  What are the possible
consequences if debt collectors were allowed to use whatever methods they want?

The
following is copied from Section 802 of the Fair Debt Collection Practices   Act.  It
is the rationale developed by Congress for the law.

http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre27.pdf

15 USC 1692 § 802. Congressional findings and declaration of
purpose

Enacted:
September 20, 1977

a)
There is abundant evidence of the use of abusive, decep­tive, and unfair debt
collection practices by many debt collectors. Abusive debt collection practices
contribute to the number of personal bankruptcies, to marital instability, to
the loss of jobs, and to invasions of individual privacy.

b)
Existing laws and procedures for redressing these injuries are inadequate to
protect consumers.

c)
Means other than misrepresentation or other abusive debt collection practices
are available for the effective collec­tion of debts.

d)
Abusive debt collection practices are carried on to a sub­stantial extent in
interstate commerce and through means and instrumentalities of such commerce.
Even where abusive debt collection practices are purely intrastate in
character, they nevertheless directly affect interstate com­merce.

e)
It is the purpose of this title to eliminate abusive debt col­lection practices
by debt collectors, to insure that those debt collectors who refrain from using
abusive debt col­lection practices are not competitively disadvantaged, and to
promote consistent State action to protect consumers against debt collection
abuses.

4.       Ask students to suggest what penalty or
punishment should be used when debt collectors violate the fair debt
collections law.

15 USC 1692 § 813 Civil Liability (pages 13-14)

Except as otherwise provided by
this section, any debt col­lector who fails to comply with any provision of
this title with respect to any person is liable to such person in an amount
equal to the sum of—

(1)      any actual damage sustained by such person
as a result of such failure;

(2)      (A) in the case of any action by an
individual, such additional damages as the   court
may allow, but not exceeding $1,000; or

(B) in the case of a class action,

(i) such amount for each
named plaintiff as could be recovered under subparagraph
(A), and

(ii) such amount as the court
may allow for all other class members, without regard to a minimum individual
recovery, not to exceed the lesser of
$500,000 or 1 per centum of the net worth of the debt collector; and   

NOTE: 
In addition, the law allows for administrative (legal) enforcement and
penalties as provided by several Federal Trade Commission enforcement laws.

5.       Conclude:  Review the key provisions of the Fair Debt
Collection Practices Act.

1.         Explain:  The word “mortgage” is a French term meaning
"dead pledge," meaning that the pledge ends (dies) either when the
obligation is fulfilled, the property (mortgage) is relieved, or the property
is taken through foreclosure.

A
mortgage is a legal agreement to repay a loan that is secured by a home or real
property.  If the loan is not repaid in
the specified time, the mortgagor (lender) can legally claim the property
through foreclosure.

2.         Go to the Ginnie Mae “Loan Estimator”
web page.   

3.         Experts suggest that a homebuyer should
spend mo more than 2 to 2-1/2 times their annual gross salary.  A family with a gross income of $50,000 should
look for a home in a price range of no more than $100,000 to $125,000.

Experts
also suggest the “28/36 Ratio” for mortgage payments.  Most lenders will finance buyers whose
monthly mortgage payment (including loan payment, property  taxes, and insurance) will not exceed 28
percent of their gross monthly income.

Lenders
also look at the borrowers overall debt ratio - your total monthly expenses
including housing, credit card minimum payments, loans, and all other debts.  The “rule of thumb” is that a borrower’s
total debt payments should not be more than 36 per cent of gross monthly
income.

4.         Explain that there are three factors
that determine how much a mortgage payment will be and how much a borrower will
pay on total at the end of the  mortgage..

     a.  Principle – the amount borrowed or owed.

     b.  Interest rate – the cost of the loan
expressed as an annual percentage rate.

     c.
 Time period – how long you will take to
repay the loan.

5.         Use the “Loan Estimator” to demonstrate
how to determine a payment.

Enter
a home sale price, location, time length, interest rate, and down payment.  Click on “Get Estimate.”

Example:           $200,000 sale price

                        Hamilton, Ohio

                        30 year loan

                        6 percent interest

                        $40,000 down payment

The
payment for this mortgage example will be between $1,335 and $1,399, depending
on the type of loan (FHA Regular, VA Regular, or conventional.

6.         If student computers are available,
have the students calculate different mortgage payments by changing the amount,
interest rate or length.

For
example, if the above mortgage was based on a 7% interest rate, the payment
would increase to between $1,451 and $1,508.

1.         Ask:  When you purchase something and something goes wrong or you are not treated fairly, what do you expect?   Do you have rights?  What are they?

Elicit some discussion of the ways consumers are protected by federal, state and    local laws.  Right to return goods, safety, advertised prices, no hidden costs, etc.

2.         Explain: When you use a credit card or sign a credit agreement, you are also protected by a variety of laws.

Ask: Why do we need laws to protect the rights of people who use credit?

Discuss possible things that sales people or creditors might do that are not fair or abusive to consumers?  Suggest: misleading credit costs, hidden costs, unfair rules, abusive collections practices, etc.   For some ideas for this discussion, see the article at this “Consumer Union” web site: http://www.consumersunion.org/pub/core_financial_services/004040.html

3.         Explain:  The federal government is the primary level of government involved in protecting consumer credit.  Most of this activity crosses state lines and, thus, is under federal jurisdiction.  Also, federal government agencies are the primary regulators of the financial institutions involved in credit.

Use Handout 1 or go to:  http://www.federalreserve.gov/creditcard/regs.html 

Quickly review the major consumer credit protection laws.  Be sure to specifically review the newest laws that were passed in response to the 2008-2009 credit crisis.

"What You Need to Know: New Credit Card Rules Effective Feb. 22" (2010)

"What You Need to Know: New Credit Card Rules Effective Aug. 22" (2010)

4.         Assign one law to each small group of students.  Students can review the information about the law and summarize it for the other students.  Use Handout 2 for the summaries.

Students will report on:

Name of the law____________

Year enacted______________

What problem(s) does the law intend to prevent?

How does the law protect credit users?

What are the consumers’ responsibilities?

5.         Conclude: Review some of the reasons why credit providers and collectors should be regulated.

Discuss some strategies consumer can take to protect themselves from credit problems.  For discussion ideas, go to this site: “Getting the Most from Your Credit Card,” http://www.federalreserve.gov/consumerinfo/fivetips_creditcard.htm.

Other credit card and consumer credit protection links (Federal Reserve System):

Credit Glossary: http://www.federalreserve.gov/creditcard/glossary.html

Interest Rates: http://www.federalreserve.gov/creditcard/rates.html

Credit Card Option: http://www.federalreserve.gov/creditcard/rates.html

Credit Card Fees: http://www.federalreserve.gov/creditcard/fees.html

Lost or Stolen Cards: http://www.federalreserve.gov/creditcard/lost.html

Billing Errors: http://www.federalreserve.gov/creditcard/errors.html

Credit Card Complaints: http://www.federalreserve.gov/creditcard/complaints.html

Managing Your Credit: http://www.federalreserve.gov/creditcard/manage.html

1.       Begin
by asking:  What usually determines how
much income a person makes?

Student responses will vary greatly, but most will
suggest that income is related to skills or knowledge (education, training,
experience, physical abilities, etc.)

2.       Summarize
the discussion by reviewing factors that affect a person’s ability to earn
income.   Explain that these qualities,
skills and knowledge are called “human capital.”

www.InvestorWords.Com defines “human capital as “The set of skills which an employee acquires
on the job, through training and experience, and which increase that employee's
value in the marketplace.”

3.       Project or distribute copies of Handout
1, “Education Pays.”
From the BLS “Education Pays” web site: http://www.bls.gov/emp/ep_chart_001.htm

Chart:  Education
pays in higher earnings and lower unemployment rates

Note: Data are
2009 annual averages for persons age 25 and over. Earnings are for full-time
wage and salary workers.

Source: Bureau
of Labor Statistics, Current Population Survey.

BLS has some
data on the employment
status of the civilian non-institutional population 25 years and over by
educational attainment, sex, race, and Hispanic origin online.

The Bureau of
the Census also has data on the educational
attainment online.

4.       Review
the data from the graphic.  Point out the
relationships between education level, median weekly income, and unemployment
rates.

If necessary, review these definitions of terms
used in the graphic.

Definitions (from the BLS Glossary):

Educational attainment:  The highest diploma or degree, or level of work towards a diploma or
degree, an individual has completed.

Unemployed persons: Persons aged 16 years and
older who had no employment during the reference week, were available for work,
except for temporary illness, and had made specific efforts to find employment
sometime during the 4-week period ending with the reference week. Persons who
were        waiting to be recalled to a
job from which they had been laid off need not have been looking for work to be
classified as unemployed.

Unemployment rate:  The unemployment rate represents the number unemployed
as a percent of the labor force.

Median wage (income): An occupational
median wage estimate is the boundary between the highest paid 50 percent and
the lowest paid 50 percent of workers in that occupation. Half of the workers
in a given occupation earn more than the median wage, and half the workers earn
less than the median wage.

5.       Ask:  How much more does a high school graduate
make in a year than a high school dropout (median income)?

HS Dropout              $454
per week x 52 weeks = $23,608

HS Diploma              $624
per week x 52 weeks = $32,448

Annual Difference…………...……………………….. $8,840

Calculate how much the difference will add to over
a forty year work life.  For simplicity,
assume that the difference remains constant.

$8,840 x 40 years = $353,600

6.       Ask:
What is a four-year Bachelors Degree worth – compared to a high school diploma?

Bachelor’s Degree     $1,025
per week x 52 weeks = $53,300

HS Diploma                 $624 per week x 52 weeks = $32,448

Annual Difference …….…………………………….... $20,852

Difference over forty years…………………………..$834.080

7.       Ask:
What is the potential value of more education?

Students should be able to generalize the positive
correlation between   educational
attainment and income.

8.       Direct
students to the left side of the graphic, “Unemployment rate in 2009.”

Generally define the unemployment rate.  See the definitions after direction #4.

Ask:  What is
the relationship between educational attainment and unemployment rates?

Point out that as educational attainment level
increases, the groups’ unemployment rate decreases.   A high school drop-out has more than twice
the chance of being unemployed than a person with an Associate Degree
(according to the average unemployment rate for each group).  Even in 2009, in the heart of a serious
recession, people with at least four-year college degrees had relatively low
unemployment rates (2.5 – 5.2 percent).

9.       Ask
students to generalize about the correlation between educational attainment and
unemployment rates.

Students should explain the indirect correlation:
as education increases, potential for unemployment decreases.

10.     Conclude:
Ask students to generalize about the importance of education as illustrated in
the “Education Pays” graphic.

1.             Review
the following information from the Federal Trade Commission.

Source:  http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre34.shtm

2.            
The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting
companies — Equifax, Experian, and TransUnion — to provide you with a free copy
of your credit report, at your request, once every 12 months. The FCRA promotes
the accuracy and privacy of information in the files of the nation’s consumer
reporting companies. The Federal Trade Commission (FTC), the nation’s consumer
protection agency, enforces the FCRA with respect to consumer reporting
companies.

3.             A
credit report includes information on where you live, how you pay your bills, and
whether you’ve been sued or arrested, or have filed for bankruptcy. Nationwide
consumer reporting companies sell the information in your report to creditors,
insurers, employers, and other businesses that use it to evaluate your applications
for credit, insurance, employment, or renting a home.

4.             Here
are the details about your rights under the FCRA and the Fair and Accurate Credit
Transactions (FACT) Act, which established the free annual credit report program.

5.             Question:
How do I order my free report?

The three nationwide consumer reporting companies
have set up a central website, a toll-free telephone number, and a mailing
address through which you can order your free annual report.

To order, visit annualcreditreport.com, call
1-877-322-8228, or complete the Annual Credit Report Request Form and mail it
to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA
30348-5281. The form is on the back of this brochure; or you can print it from
ftc.gov/credit. Do not contact the three nationwide consumer reporting
companies individually. They are providing free annual credit reports only
through annualcreditreport.com,
1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281,
Atlanta, GA 30348-5281.

You may order your reports from each of the three
nationwide consumer reporting companies at the same time, or you can order your
report from each of the companies one at a time. The law allows you to order
one free copy of your report from each of the nationwide consumer reporting
companies every 12 months.

6.             A
Warning About “Imposter” Websites

Only one website is authorized to fill orders for
the free annual credit report you are entitled to under law —
annualcreditreport.com. Other websites that claim to offer “free credit
reports,” “free credit scores” or “free credit monitoring” are not part of the
legally mandated free annual credit report program. In some cases, the “free”
product comes with strings attached. For example, some sites sign you up for a
supposedly “free” service that converts to one you have to pay for after a trial
period. If you don’t cancel during the trial period, you may be unwittingly agreeing
to let the company start charging fees to your credit card.

Some “imposter” sites use terms like “free report”
in their names; others have URLs that purposely misspell annualcreditreport.com
in the hope that you will mistype the name of the official site. Some of these
“imposter” sites direct you to other sites that try to sell you something or
collect your personal information.

Annualcreditreport.com and the nationwide consumer
reporting companies will not send you an email asking for your personal
information. If you get an email, see a pop-up ad, or get a phone call from
someone claiming to be from annualcreditreport.com or any of the three
nationwide consumer reporting companies, do not reply or click on any link in
the message. It’s probably a scam. Forward any such email to the FTC at
spam@uce.gov.

7.             Question:
What information do I need to provide to get my free report?

You need to provide your name, address, Social
Security number, and date of birth. If you have moved in the last two years,
you may have to provide your previous address. To maintain the security of your
file, each nationwide consumer reporting company may ask you for some
information that only you would know, like the amount of your monthly mortgage
payment. Each company may ask you for different information because the
information each has in your file may come from different sources.

8.             If
students have access to computers and they are at least 13 years of age, they can
order their credit reports.  If students
cannot access individual reports, click on the link to the sample credit report
from Experion. (http://www.experian.com/credit_report_basics/pdf/samplecreditreport.pdf)

Review the sample report, identifying the
information it includes.

NOTE:   The
free credit reports from AnnualCreditReport.Com do not include FICO or other
credit scores.  For more about credit
scores, go to the “My FICO”
site: http://www.myfico.com/crediteducation/creditscores.aspx

1.  Ask:  What do people do for income after they can no longer work or reach an age when they retire?

Students may suggest company retirement programs, 401K, IRA or other savings plans for retirement income.

Ask: What happens when individuals do not plan for retirement or they are not able to provide for themselves?

Explain: By federal law, most workers must contribute to the federal Social Security program – to provide income in the event of retirement or disability. 

2.   Introduce the Social Security Program

Social Security is a social insurance program funded through payroll taxes called the Federal Insurance Contributions Act (FICA). These taxes deposits support four benefit programs, the Federal Old-Age and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, the Federal Hospital Insurance Trust Fund, and the Federal Supplementary Medical Insurance Trust Fund.

Thw primary part of Social Security is the Old Age, Survivors, and Disability Insurance (OASDI) or Retirement, Survivors, and Disability Insurance (RSDI) program. The term “Social Security” is typically used to refer only to the benefits for retirement, disability, survivorship, and death, which are similar to the benefits provided by traditional private-sector pension plans.  Other benefits, such as Medicare are related to, but not part of Social Security.

The Federal Insurance Contributions Act (FICA) imposes a Social Security withholding tax equal to 6.20% of gross wages amount, up to $106,800 for 2009). Another 6.20% tax is imposed on employers.

For Medicare, a payroll tax of 1.45% of an employee's income is paid directly by the employer, and an additional 1.45% deducted from the employee's paycheck, yielding a total tax rate of 2.90%. There is no maximum limit on this portion of the tax. This portion of the tax is used to fund the Medicare program, which is primarily responsible for providing health benefits to retirees. 

The combined tax rate of the two programs is 15.30% (7.65% paid by the employee and 7.65% paid by the employer).

3.  Students can calculate the amount that will be withheld from a paycheck for Social Security and Medicare.  Multiply the amount of gross income by the percentages indicated above.

Example:          

Gross weekly income: $300.00

FICA withholding:  $18.60

Medicare withholding: $4.35

4.  Review information about Social Security numbers and cards.  http://www.ssa.gov/ssnumber/

5.  Introduce how Social Security benefits are determined using the benefit calculator. 

6.  Go to the Social Security Benefit Calculator, http://www.ssa.gov/planners/calculators.htm

Review the information on the web page.

Use the "Quick Calculator,” http://www.ssa.gov/OACT/quickcalc/index.html, to give an example of how benefits are determined.  Add a retirement date and change the default information if you want.

7.  The Social Security web page included information about planning for retirement for those who will depend on Social Security benefits for income.Go to: http://www.ssa.gov/retire2/

Additional information about retirement planning can be found on the MyMoney.Gov web site, http://205.168.45.52/category/topic1/planning-   retirement/-retiring.html

The American Association of Retired Persons (AARP) provides additional information about Social security and retirement planning on its web site. http://www.aarp.org/work/social-security/

8.  Conclude by briefly mentioning the ongoing controversy over the historical expansion of Social Security benefits (number of people and costs) and the many proposals to “reform” the system – including increasing the tax rate and privatizing the system.

A good discussion starter is: Should people be forced to participate in the Social Security system or should they be able to “opt out” if they are participating in a private plan?

What are the arguments for and against mandatory Social Security participation (the current law) and increasing contributions, especially those of higher income individuals (a proposal to better fund the system)?