Define the term
Give a simple definition of buying power
What your money can actually purchase
What celebrity did we use as an example today?
Cristiano Ronaldo (GOAT)
Would you rather have $50 today or $50 in 5 years? Why?
Today - inflation means it buys less in 5 years
True or False: $100 today is worth exactly the same as $100 next year
False
You want new Jordans. Your mum says she'll buy them "sometime next year." Name one reason why waiting might be a problem
Prices may rise due to inflation / the shoes might sell out
What is the term for the general rise in prices over time?
Inflation
Ronaldo earned £11.1M in 2009. Would that buy the same things today? Yes or No? Why?
No - because of inflation, prices have risen
Your friend owes you $20. They can pay now or "definitely" next week. What's the risk of waiting?
They might not pay / something could change
True or False: Inflation means your salary automatically goes up
False; prices rise but your pay doesn't always follow
Your friend borrows $30 and says they'll pay you back $30 in 6 months. What concept means you're actually losing out even if they pay back the full amount?
Inflation / Time Value of Money
What do we call what you give up when you choose one option over another?
Opportunity Cost
Ronaldo's 2009 salary would need to be worth MORE OR LESS to have the same buying power?
More
You win $1000. You can invest it now or keep it in cash for 3 years. What's the opportunity cost of keeping it in cash?
Missing out on potential returns/growth from investing
True or False: Opportunity cost only applies to money, not time or experiences
False; it applies to time, experiences and other benefits too
You get $500 for your birthday. You spend it all immediately on clothes. What is the opportunity cost?
Whatever else you could have done - saving, investing, experiences etc.
What is Risk in a financial context?
The chance that a future payment may not arrive as promised / you may lose money
Coach Jerrod offers Ronaldo $100 today or $101 in a year. The more preferred option would be..... why?
$100 today would be preferred by most people due to the opportunity cost of waiting a whole year for just an extra $1
Inflation is running at 5% per year. You have $200 sitting in a tin. What is happening to its buying power each year?
It is decreasing - it buys less each year
True or False: If someone promises you money in the future, it is guaranteed
False; that is exactly what risk means
A job offers you $18/hr now or $20/hr starting in 18 months. What would you need to think about before deciding?
Inflation, opportunity cost of lower pay now vs waiting, risk the offer changes
What is the main idea of the
"Time Value of Money"?
Money today is not worth the amount in the future
Coach Jerrod promises Ronaldo $200 in a year but goes bankrupt. What concept does this illustrate and why?
Risk; future money is never guaranteed
Your boss offers you a $5000 bonus now or $5500 in 2 years. What three things should you consider before deciding?
Inflation (will $5500 buy less?), Opportunity cost (what could you do with $5000 now?), Risk (will the company still pay in 2 years?)
True or False: If inflation is very low, the time value of money concept no longer applies
False - opportunity cost and risk still make money today more valuable
You're saving for a $1200 laptop. Inflation is rising. You save $100/month in cash under your bed. What's the problem with this plan and what might you do instead?
Buying power is eroding - the laptop gets more expensive while your cash stays the same. Better to save in a high interest account or invest