Money, Money, Money
What are the 3 forms of money?
Commodity: value from what it is
Fiat: value from government trust & stability
Fiduciary: value from trust of issuer (bank)
This process involves tracking your income and expenses to ensure that you do not spend more than you earn, often requiring adjustments when unexpected costs arise.
Budgeting
Even billionaires face this economic problem because no one can have unlimited time, resources, or choices.
Scarcity
This term from psychology and economics refers to the "mental shortcuts" that we all use to make efficient decisions. Even though it may also lead us to make irrational or erroneous decisions as well.
Cognitive bias
This refers to any object that is generally accepted as payment for goods and services and the repayment of debt.
Money
What are the 3 functions of money?
Medium of exchange
Unit of account
Store of value
A "spender" and a "saver" illustrate this concept, which highlights how people's habits and attitudes toward money shape their financial decisions.
Money personalities
Skipping a shift at a part-time job to study for a test means losing wages but potentially earning a better grade. This is an example of making this type of economic decision.
Trade-off
This phenomenon, often triggered by social media, can lead people to overspend on trends, events, or experiences when they compare their situation to what others are enjoying.
FOMO (Fear of Missing Out)
Provide 3 methods that someone could use to track their spending and establish a monthly budget.
Write it down, check bank statements, use an app, use a spreadsheet, etc.
List 2 historical figures that are on U.S. currency (bills or coins) that have never been President.
Benjamin Franklin, Alexander Hamilton, Susan B. Anthony, Sacagawea.
List 3 life events that might cause someone to readjust their monthly budget.
New job, child, a move, getting married, life-style change, etc.
Marcus has 4 options for eating out that are within his budget: McDonald's, Chipotle, Raisin' Cain's, and Taco Bell. In making his decision he ranked his options like this: Taco Bell, Chipotle, Raisin' Cain's, McDonald's.
What is his opportunity cost in this scenario?
Chipotle
Why would an entrepreneur or company use a child or a puppy in their advertisements? What type of cognitive bias are they targeting with these tactics?
Emotional appeal or identity bias.
Why is it helpful to understand your core beliefs about money (your money personality)?
It can help guide you on what not to do based on your weaknesses or struggles with finances and highlight what you are good at and how that can support financial health. Basically, the more you know the better informed decisions you can make.
Durable, divisible, portable, uniform, limited supply, acceptability.
List 3 sources someone might seek for financial advice or information, and list one "pro" and one "con" for each.
Parents and family, friends, financial institutions/advisors, online sources, apps.
This economic phenomenon reduces the purchasing power of money, meaning your $10 bill buys fewer goods over time—but it can also benefit those with fixed-rate loans.
Inflation
List 6 of the 8 cognitive biases that we explored in our activity on Tuesday (12/16) and used to analyze Shark Tank yesterday (12/17).
FOMO, Hedonic Adaptation, Sunk Cost Fallacy, Confirmation Bias, Overconfidence, Endowment Effect, Loss Aversion, Herd Mentality
Use the "Rule of 2000" to figure out the following:
How much would the equivalent salary of someone making $22.00 per hour be for the year?
How much would the equivalent hourly pay be for someone earning $60,000 per year in salary?
$22.00/hr. is approximately $44,000 per year.
$60,000/year is roughly $30.00/hour.
According to German philosopher Georg Simmel, what is the "dark side" of money?
Simmel argues that money, while enabling modern society's complexity and freedom, also brings alienation, superficial relationships, and a reduction of life’s deeper meanings. It transforms qualitative values (like trust or love) into quantitative terms, contributing to social and existential fragmentation. Basically, money allows everything to be priced, bought, and sold. It "cheapens" things such as relationships, love, family, and other social bonds to the level of transaction.
Name the four main patterns of money behaviors that influence our money personalities.
Hint: they were highlighted when we watched the video with the different birds as representatives of money personalities. However, they are not the bird names (strutting peacock,etc.), but the 4 money patterns or behaviors.
The four money personality patterns are: status, avoidance, worship, and vigilance.
A farmer decides whether to plant one more acre of crops based on the additional costs and benefits. This is an example of using this decision-making principle.
Thinking at the margin.
How do behavioral economists view people differently than traditional economists?
Traditional economists believe that humans are rational actors that seek their own best interest and make logical decisions. Behavioral economists recognize that people make irrational decisions and are influenced by biases and fallacies in their thinking, behavior, and actions.
How was financial literacy taught up until the late 1950's - early 1960's in the United States?
It was taught as part of "Home Economics" along with household chores, cooking, and other domestic activities. It was targeted toward women in particular, but was not heavy on actual financial knowledge.