Join Us

Table of Contents

Lessons

Session 1: How to Maximize Your Cash in High School

High school is a time of growth, exploration, and getting ready for what lies ahead. It’s not just about academic knowledge; it’s also about picking up life skills that can shape your future. One of these skills, which often doesn’t get much attention in the classroom, is personal finance. In this session, we’re going to dive into the world of managing money while you’re in high school. This is a phase of life where you might have your first job, part-time gig, or an allowance. The choices you make with your money today can have a big impact on your financial well-being in the future. Learning to make the most of your cash in high school is like taking your first step toward building a financially secure future. We get it; personal finance can sound overwhelming, especially when you’ve got classes, activities, and hanging out with friends on your plate. But here’s the thing – mastering the art of managing your money can make a huge difference in your life. It can give you the freedom to chase your dreams and goals without being held back by financial worries. By the end of this session, you’ll have picked up some valuable insights on how to make the most of your money in high school. It’s like building a solid foundation for your lifelong financial journey. These skills aren’t just for now; they’re building blocks for achieving financial freedom down the road.

Introduction to Personal Finance in High School

Personal finance is important in our lives. It’s all about how we manage our money and make our dreams come true. Even though you might not have a lot of money right now in high school, what you learn about money during this time will be the foundation for your financial future. Think of this as your guide to why learning about money matters and how to set smart money goals while you’re in high school. It’s not just a nice skill to have; it’s something you absolutely need in life. It helps you make good choices about how to handle your money, save, invest, and plan for the future. High school is a big moment because it’s when you might start making money, like from a part-time job or allowances. Knowing how to budget, save, and invest is super important right now. If you don’t understand money, you might end up making bad decisions, getting into debt, and missing out on great opportunities. Learning about personal finance in high school helps you handle the money challenges you’ll face and build a strong financial foundation for your future. Setting financial goals is a crucial step in becoming financially successful. During high school, you can start saving for college, plan for a trip, or even save for your first car. Creating clear and doable financial goals will help you make smart money choices. This guide will show you how to set and achieve these goals, so you’ll be on your way to a financially secure and prosperous future.

Budgeting for High School Students

In the realm of personal finance, a structured approach is essential for financial success. It all begins with setting clear financial goals, whether you’re saving for a new smartphone, a car, or perhaps the substantial endeavor of funding your college education. These goals serve as your guiding light, keeping you motivated and unwaveringly focused on your financial journey. Next, understanding your income sources is pivotal. This may encompass your allowance, part-time job earnings, or any other monetary inflows, each of which may fluctuate in consistency. Alongside this, meticulously tracking your expenses for a month unveils a comprehensive view of your financial landscape, from school supplies to dining out. With this data in hand, categorizing expenses into “necessities,” “savings,” and “discretionary spending” empowers you to pinpoint areas for potential cutbacks. Armed with this insight, the next step is the creation of a budget, allocating precise sums to each expenditure category, ensuring your expenses never surpass your income.

Savings should be a prime focus, with a goal to allocate at least 10% of your income, fostering the foundation of an emergency fund and the realization of your long-term aspirations. Vigilantly monitoring your spending is integral to ensure adherence to your budget, aided by a plethora of apps and tools available for this very purpose. Beware the allure of impulse purchases, for thoughtful contemplation can shield you from the allure of unnecessary spending. Whenever possible, opt for cash or debit cards over credit cards to stave off debt and overspending.

Also, include provision for special expenses like birthdays or holidays, saving incrementally throughout the year to prevent any unpleasant financial surprises. At the close of each month, undertake a comprehensive review of your budget, assessing goal attainment and making any necessary adjustments. Flexibility is the key to adapting to evolving circumstances. Constant learning is paramount. Cultivate your financial literacy through reading, watching videos, or enrolling in online courses.

Seek guidance from trusted adults or financial advisors if you have queries or require assistance in navigating complex financial matters. Finally, celebrate your financial milestones, be it achieving a savings goal or successfully adhering to your budget for an extended period. These celebrations serve not only as incentives but as testaments to your growing financial wisdom, motivating you to continue the path of responsible money management.

Activity: Logging Your Spendings & Creating Budget Spreadsheets 

Objective: The objective of this activity is to help you develop financial responsibility and organization skills by tracking your expenses and creating a budget spreadsheet.

Materials:

  • A computer or IPad with spreadsheet software (e.g., Microsoft Excel, Google Sheets)
  • Pen and paper
  • Receipts or access to bank card statements
  • Participants can make a copy of this template to get started 

Instructions:

  • Introduction 
    • Begin by discussing the importance of tracking expenses and creating a budget.
    • Explain how this activity will help you gain control over your finances and make informed financial decisions.
  • Gather Your Expenses
    • Collect your receipts and access your bank or credit card statements for the past month.
    • You will use these records to identify and categorize your expenses.

  • Expense Categorization
    • Create a list of expense categories (e.g., groceries, transportation, entertainment, bills, dining out, savings).
    • Using your receipts or statements, categorize each expense into the appropriate category.
    • Note down the date, amount, and category for each expense on a piece of paper.
  • Spreadsheet Setup
    • Open your preferred spreadsheet software (e.g., Microsoft Excel or Google Sheets).
    • Create a new spreadsheet and title it “Monthly Budget Tracker.”
  • Creating the Budget Tracker
    • Set up columns for “Date,” “Expense,” “Category,” and “Amount” in your spreadsheet.
    • Input the information you gathered during the expense categorization into the corresponding columns.
    • Use spreadsheet functions to calculate the total expenses for each category and the overall monthly expenses.
      • Select function parameter of the “Total Expense” box and then press “=.” 
      • Select the range of parameter of each day and add then together after the equal sign
        • Example: = F3+F4+F5+F6 
        • Label function parameter as “Total Expense”
  • Analyze and Reflect
    • Review your budget tracker to understand where your money is going.
    • Identify any areas where you may be overspending or could cut back.
    • Reflect on your financial goals and how tracking expenses can help you achieve them.
  • Setting a Budget 
    • Based on your analysis, set a budget for each expense category for the next month.
    • Make sure your total budgeted expenses do not exceed your income.
  • Tracking Your Budget
    • As the next month begins, continue to track your expenses and income using the same spreadsheet.
    • Compare your actual expenses to your budgeted amounts.
  • Reporting 
    • At the end of the month, create a summary or report using your budget tracker.
    • Reflect on your progress and any adjustments needed for the following month.
  • Discussion & Reflection 
    • Conclude the activity with a group discussion on the challenges and insights gained from tracking expenses and budgeting.
    • Share tips and strategies for effective budget management.

We encourage participants to continue tracking their expenses and budgeting for the next few months. Please experiment with apps that can assist in budgeting and expense tracking.

Creating Monetary Income & Basic Savings

As a foreign high school student in Singapore, mastering the art of financial management and cultivating the skill of generating income while concurrently preserving your monetary resources emerges as a fundamental life lesson. In the following paragraphs, we offer a systematic guide to navigate this endeavor successfully. To embark on this financial journey, you must first fathom the contours of your allowance if you receive financial support from your parents or guardians. This stipend’s precise amount and periodicity serve as the bedrock upon which your financial planning is constructed. The next crucial step is crafting a well-thought-out budget. This budget, which spans your monthly disbursements, encompasses various facets of your life as a student in Singapore. Transportation costs, sustenance, educational materials, and personal outlays are among the items that should find their place in your financial blueprint. A meticulously devised budget will act as your compass, directing you to judiciously allocate your funds. Depending on your age and visa status, the possibility of part-time employment in Singapore may beckon. This realm is subject to local regulations governing the eligibility of high school students. It is vital to peruse these rules and explore fitting opportunities. Commonly, high school students delve into roles in the retail, food service, or tutoring sectors, as they are well-suited to their schedules and skill sets. It would be an extra bonus  to sign up for an bank account in Singapore. Numerous financial institutions extend the privilege of student accounts, replete with nominal fees and special perks. A student account serves as a secure repository for your earnings and inaugurates your odyssey toward fiscal prudence. To imbue your financial regimen with steadfastness, automating your savings should be deemed indispensable. Initiate an automated transfer mechanism from your checking account to your dedicated savings account. This systematic ritual ensures that a fraction of your earnings is consigned to your savings, immediately upon entering your account, thereby upholding the tenets of consistent savings. 

Let’s delve into a few examples to illustrate how these principles can be applied:

Example 1: Understanding Your Allowance
Imagine your parents provide you with a monthly allowance of SGD 300. To manage this effectively, you’ll need to create a budget that outlines your expected expenses. Your budget may look like this:
Transportation (bus or MRT): SGD 60
Food (school canteen and occasional dining out): SGD 120
School supplies: SGD 30
Personal expenses (entertainment, hobbies): SGD 60
Savings: SGD 30

In this example, you’re allocating SGD 30 to savings each month, which is 10% of your allowance.

Example 2: Part-Time Employment
Suppose you are a 16-year-old foreign student in Singapore with a Student Pass that allows you to work part-time. You secure a part-time job in a retail store and earn SGD 8 per hour. If you work 15 hours a week, you can earn SGD 480 per month. Here’s how you can manage your income:
Budget as before: SGD 300
Part-time income: SGD 480
Savings: SGD 50 (10% of part-time income)

In this example, you allocate 10% of your part-time income to savings, which amounts to SGD 50 per month.

Example 3: Building an Emergency Fund
You’ve been saving SGD 50 per month for a year, and you’ve accumulated SGD 600. You recognize the importance of an emergency fund and decide to allocate a portion of your savings towards it. Over the next year, you contribute SGD 30 per month to your emergency fund, which totals SGD 360. Now you have a solid financial safety net.

Session 1 Quiz

  1. Why is learning personal finance important?
  2. What percent of income should be allocated for savings?
  3. What are the most financially responsible forms of financial transactions?
  4. What is the purpose and process of an emergency fund?

Useful Links

Session 2: Setting Financial Goals

Define Financial Goals

Short-term financial goals occupy a time frame of one year or less. They commonly involve immediate expenses and savings for upcoming events or purchases. Examples of short-term objectives include banishing credit card debt, stashing away funds for a dream vacation, or establishing an emergency fund.

Mid-term financial goals extend over a period of one to five years. These ambitions usually demand meticulous planning and saving for more substantial expenses. Mid-term goals could encompass endeavors such as accumulating a down payment for a home, purchasing a vehicle, or investing in further education.

Long-term financial goals, on the other hand, stretch beyond the five-year mark and often revolve around major life events and retirement planning. These goals might entail securing your child’s education, nurturing a robust retirement fund, or embarking on an entrepreneurial venture.

The SMART methodology is a structured approach to crafting goals that are Specific, Measurable, Achievable, Relevant, and Time-Bound. This framework ensures that your objectives are well-defined and actionable. It breaks down as follows:

Specific: Goals should be crystal clear, articulating precisely what you aim to achieve.
Measurable: Goals must be quantifiable, allowing you to monitor progress and know when you’ve accomplished them.
Achievable: Goals should be realistic and attainable, considering your present financial situation.
Relevant: Goals should align with your overarching financial plan and values.
Time-Bound: Establish a specific deadline for goal achievement.

To illustrate, consider the transformation of a general financial goal into a SMART goal:

General Goal: “I want to save money for a vacation.”
SMART Goal: “I will save $2,000 in my vacation fund by December 31st of this year by setting aside $200 from each paycheck.”

Employing the SMART criteria streamlines your goal-setting process, facilitating precise planning and progress tracking, ultimately elevating your chances of success. It’s crucial to emphasize that financial goals are not static; they should evolve in response to changing circumstances. Regularly reviewing and adjusting your objectives will help you adapt to new opportunities and challenges that may arise. The act of setting financial goals and applying the SMART framework can significantly enhance your financial well-being. By doing so, you equip yourself with the tools to make informed decisions, steering you confidently toward your envisioned financial future.

Prioritizing Goals

We’re going to learn how to decide what’s most important for your money when you’re in high school. This is a crucial time because the choices you make with your money now can have a big impact on your future. We’ll break it down into simple steps. First, you’ll start by thinking about what you want to do with your money. This could be buying something fun like a new phone, saving up for a car, or planning for things like college or a future job. It’s important to dream big but also be realistic about what you can achieve. Next, you’ll organize your goals into short-term (stuff you want soon), mid-term (things you’ll need in a while), and long-term (big plans for the future) categories. This helps you understand when you want to achieve each goal. Then, you’ll figure out which goals are the most urgent (things you need right away) and which are the most important for your future. Urgent things are like immediate needs, while important things are big goals that matter for a long time. You’ll have to think about both when deciding what to focus on. It’s also important to look at your money situation right now. Think about how much money you have, how much you spend, and if you owe money to anyone. This will help you see if it’s possible to reach your goals with your current situation.

Remember the SMART criteria we talked about in Lesson 2.1? This is where you make sure your goals are clear, can be measured, are doable, matter to you, and have a time frame. This helps make your goals more specific and achievable. To make things even clearer, you can create a list of your goals and rate them based on their urgency, importance, and how doable they are. The higher the score, the more priority a goal gets. This helps you make smart choices about where to put your efforts. It’s always a good idea to talk to grown-ups, teachers, or financial advisors about your goals. They can give you helpful advice and help you refine your plans. Keep in mind that what’s most important can change over time as your life and money situation change. So, regularly check in and adjust your goals and priorities. Once you figure out your priorities, it’s time to make a plan (called a budget) to use your money to reach your goals. And remember, staying focused and not spending on things you don’t really need will help you reach your goals faster. In Lesson 2.2, you’ll get a roadmap to navigate the world of managing your money in high school.

Session 2 Quiz

  1. What are the time periods and length between each type of financial goal?
  2. Should we treat financial goals as planned, fluid, or both?
  3. Who should we look towards for appropriate financial advice?
  4. What is an example of long-term financial goals?

Useful Links

Chapter 3: Investing for the Future

Asset Classes (stocks, bonds, real estate)

Imagine stocks as ownership certificates in a company. When you buy a stock, you are effectively becoming a shareholder, which means you hold a piece of that company. For instance, if you buy shares of a technology giant like Apple, you own a fraction of Apple Inc. Stocks are known for their potential for high returns over time, but they are also susceptible to volatility. Let’s illustrate with an example: If you invested $1,000 in Apple stock in 2000, it would have grown to approximately $13,000 by 2021, showcasing the potential for significant growth.

Think of bonds as loans you provide to either corporations or governments. In return, they promise to pay you periodic interest, usually semi-annually, and return the bond’s face value when it matures. Bonds are generally considered less risky than stocks, but they tend to offer lower returns. An example could be a U.S. Treasury bond, where you lend money to the government, and in return, they pay you interest until the bond matures. For instance, a 10-year Treasury bond with a face value of $1,000 might pay you $20 in interest every six months until it matures.

Real estate investments revolve around acquiring physical properties, such as houses, apartments, or commercial buildings. Real estate can provide income through rent payments and potentially appreciate in value over time. Consider an example where you buy a residential property for $200,000 and rent it out for $1,500 per month. After expenses, you may earn a rental income of $12,000 per year. Additionally, the property’s value may increase over time, further enhancing your investment.

Risk vs. Return

Higher Risk = Higher Potential Return: Investments that come with higher risk often hold the potential for substantial returns. Stocks, with their propensity for price fluctuations, exemplify this. Suppose you invested $1,000 in a tech startup’s stock. The risk is high because startups can be volatile. However, if the company succeeds, your $1,000 could turn into $10,000 or more over time.

Lower Risk = Lower Potential Return: On the other hand, investments deemed low-risk, such as government bonds, typically offer more stability but with lower return potential. For example, you could invest $1,000 in a 10-year government bond with a 2% annual interest rate. While it’s less risky, your potential earnings would be $20 per year, making it a more conservative investment.

Investment Time Horizon

Short-Term Goals (1-3 years): Suppose you’re saving for a specific short-term objective, like purchasing a car. In this case, it’s prudent to opt for lower-risk investments that offer liquidity and stability. Consider a high-yield savings account, where your money remains accessible and relatively secure. For instance, if you aim to save $5,000 for a car within two years, you could place your funds in such an account to ensure they are readily available when needed.

Medium-Term Goals (3-5 years): If you’re planning for a medium-term goal, like funding your college education, a balanced approach may be appropriate. A mix of stocks and bonds allows your investments to grow while providing some protection against market fluctuations potentially. For example, setting aside funds for college expenses, you might allocate 60% to stocks and 40% to bonds.

Long-Term Goals (5+ years): When thinking about long-term aspirations like retirement, you can afford to embrace more risk by investing predominantly in stocks. The extended investment horizon allows you to weather market ups and downs while benefiting from the power of compounding. For instance, building a retirement nest egg may involve investing a significant portion, say 80%, in stocks.

Session 3 Quiz

  1. Explain the concept of risk versus return in investing. Provide examples of both high-risk, high-return investments and low-risk, low-return investments. Discuss the relationship between risk and potential returns, and how investors might balance these factors in their investment strategies.
  2. Explain the significance of the investment time horizon in financial planning. Discuss how short-term, medium-term, and long-term goals influence investment strategies, and provide examples of suitable investments for each time horizon.
  3. Discuss the concept of diversification in investment portfolios. Explain why diversification is considered a key risk management strategy. Provide examples of how investors can achieve diversification and the potential benefits it offers.

Useful Links

Chapter 4: Into College and Adulthood

In this lesson, we’ll dive into the world of credit cards, credit scores, loans, and mortgages. These are fundamental aspects of personal finance, and understanding them is a crucial step towards financial independence. Let’s get started!

Credit Cards & Credit Scores

Credit Cards & Credit Scores: Credit cards are financial tools that allow you to make purchases on credit. They work like a short-term loan, and you need to repay the amount you’ve borrowed. Your credit score is a three-digit number that reflects your creditworthiness. Imagine you have a credit card with a $1,000 limit. You use it to buy a new laptop for $800. This means you now owe $800 to the credit card company. Your credit score will be affected by how well and timely you repay this amount.

Choosing Your Credit Cards: To make informed choices, research the different types of credit cards. For example, rewards cards offer cashback or points for purchases, secured cards require a security deposit, and student cards cater to students with limited credit history. If you’re a student, consider getting a student credit card that may offer perks like lower credit limits and special discounts for educational expenses.

Maximizing Your Credit Card Rewards: Some credit cards offer rewards like cashback, airline miles, or points. To maximize these benefits, use your credit card for regular expenses, pay your balance in full each month, and avoid accumulating debt. If your rewards card offers 2% cashback on all purchases, using it for your monthly expenses can earn you money back.

Annual Percentage Rates (APR): APR is the cost of borrowing on credit cards and loans. A lower APR means less cost. It’s crucial to understand how APR works to avoid paying excessive interest. If you carry a balance of $1,000 on a credit card with a 20% APR, you’ll be charged $200 in interest over a year.

Complex Investments

Now, let’s explore the exciting world of investments. Investing is a key element of building wealth, and it’s never too early to start. In this lesson, we’ll cover property investments and government bonds.

Property investments involve buying real estate, such as houses or apartments, and generating income through renting or capital appreciation. Understand the risks like property market fluctuations and rewards like passive income and property appreciation. Buying a rental property can provide a steady income stream if you rent it out to tenants.

Government Bonds are debt securities issued by governments to raise money. They are considered safe investments because governments typically repay their debts. Learn about different types, like Treasury bonds, and understand how they can be a reliable source of income. When you invest in a Treasury bond, the government pays you periodic interest, providing a stable income source.

Side Income

Now, let’s talk about generating side income. As a college student, you can explore various options to boost your financial well-being. Consider part-time jobs, freelancing, or starting small businesses. Explore your interests and skills to identify opportunities that align with your strengths. 

Consider part-time employment opportunities in your local community, such as working in a retail store, restaurant, or as a babysitter. If you excel in a particular subject or skill, consider offering tutoring services to other students or work as a teaching assistant. Part-time jobs can provide a steady source of side income. However, it is important to balance school work and your job so that it does not interfere with your academic success, make sure to set proper timings and prioritize school.

If you have a specific skill or talent, such as graphic design, writing, or coding, you can offer your services on a freelance platform. This allows you to take on projects and earn money while building your portfolio, it is a flexible way of earning money that allows you to set your own schedule. Freelancing is not a stable way to earn money but it has a potential for higher earnings.

If you have an entrepreneurial spirit, explore the possibility of starting a small business. This could involve selling homemade crafts or launching an online store. It is not easy and you will need to do a lot of research to make your business unique. Starting a small business may require more effort, but it can be rewarding both financially and personally.

Session 4 Quiz

  1. Explain the relationship between credit cards and credit scores. Provide an example of how using a credit card can impact your credit score positively or negatively
  2.  List and briefly explain three types of credit cards mentioned in the lesson. Provide an example of a situation where a student might benefit from using a student credit card.
  3. Describe three strategies to maximize credit card rewards, and explain why paying the balance in full each month is emphasized. Provide an example of how using a rewards card can financially benefit the cardholder.
  4. What is the purpose of the Annual Percentage Rate (APR) on credit cards and loans?
  • To calculate cashback rewards
  • To determine the credit limit
  • To measure the cost of borrowing
  • To assess creditworthiness

MCQ Answer: To measure the cost of borrowing

Useful Links

Chapter 5: Buying your First Property

Congratulations! You are now an adult with a full-time job earning a decent salary. Now, you’re considering the exciting prospect of purchasing your first property. Buying your first property can be a pivotal step in your financial journey. Real estate investments are frequently a foundation for wealth-building, and comprehending the nuances of this process is vital for your financial success. So, let’s embark on this adventure as we navigate the world of property acquisition and lay the groundwork for a unique wealth-building experience.

Prior to purchasing a property, it is crucial to conduct thorough research aligned with your needs, desires, and budget. Several vital factors to consider when buying a property include its (a) location, (b) accessibility to public transportation, (c) neighborhood safety, (d) proximity to established educational institutions, (e) property type, and (f) building age. Carrying out this research is straightforward; you can simply visit your local property agency’s website and tailor the criteria to align with your preferences. 

Activity

For this example, let’s step into the shoes of a local banker named Charlotte Schmitz. Charlotte Schmitz is an investment banker in Boston, employed at Bank of America, with an annual salary of $160,000. She is in a family of four, and her preference is to reside in central Boston city to reduce her commute to work. She also seeks convenient access to public transportation and top-rated schools for her children. Charlotte and her husband own two cars, and she has a savings balance of $1 million.

Now, let’s find five different property listings that align with Charlotte’s preferences, assuming she has a credit score of 700. Please list the property details in bullet points, following the format of the example mentioned below (document 5.1.2)

Session 5 Quiz

  1. Explain the significance of thorough research when buying a property. Discuss at least three vital factors that Charlotte Schmitz, the investment banker in Boston, should consider in her property search. Additionally, highlight why aligning the research with personal needs, desires, and budget is crucial for making an informed decision in real estate.
  2. Discuss the role of property investments in wealth-building. Elaborate on how buying a property can serve as a foundation for financial success. Provide examples of potential benefits and risks associated with property investments, and explain how individuals like Charlotte Schmitz can leverage real estate to build wealth.

Useful Links

Chapter 6: Maximizing Income Potential 

In the dynamic realm of finance and investment, the quest to maximize income potential is the primary objective for most. This chapter will introduce us in the intriguing world of stock investments, a pivotal component of effective income-generating strategies. Stocks, also referred to as equities, represent ownership in publicly traded companies and offer a stack of opportunities for income enhancement. Within this chapter, we will navigate the multifaceted landscape of stock investments, delving into the various pathways through which they can generate income while dissecting critical concepts, strategies, and considerations. Whether you’re an aspiring investor, a seasoned trader, or a financial professional, a comprehensive grasp of stock investments is pivotal for realizing the full potential of your financial assets.

Stock Investments

Selecting stocks can be a challenging task, given the multitude of factors to weigh. When buying stocks, it’s crucial to conduct thorough research on the company, getting to know their identity, values, and business model. Additionally, it’s essential to grasp the broader macroeconomic conditions, both globally and within your own country, as they can significantly impact stock performance. Figure 6.1.1 shows a basic overview of a stock (GOOGL). Figure 6.1.2 shows the income statement of Google. 

The highlighted section in yellow provides additional information about the company. It includes key data points such as:

Previous close, which indicates the stock’s closing price on the previous trading day.
Day range, showing the range of prices the stock has fluctuated between during the current trading day.
Market cap, signifying the total value of all outstanding shares of the company’s stock.
Avg volume represents the average trading volume of the stock over a specific period.
P/E ratio or Price-to-Earnings ratio calculated by dividing the stock’s current price by its 
Dividend yield, expressed as a percentage of the stock’s current price, provides information on potential income from your investment.

Figure 6.1.2 shows the income statement of Google. 

The yellow-highlighted section contains vital information about the company’s financial statement:
Revenue is the total amount of money generated by the company.
Operating expenses are the costs required to run the company’s operations.
Net income signifies the profit remaining after deducting all expenses and taxes.
Net profit margin measures the company’s profitability in relation to its revenue.
Earnings per share (EPS) is the portion of the company’s profit attributed to each outstanding share of stock.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It gives an insight into operational performance.
The effective tax rate is the percentage of income paid in taxes.

Please see our Basic / Advanced Investing Resources for more information.

Session 6 Quiz

  1. Explain the importance of conducting thorough research when selecting stocks for investment. Provide at least two factors that investors should consider during the stock selection process, as mentioned in Lesson 6.1.
  2. Define two key financial metrics mentioned in Figure 6.1.2, the income statement of Google. Explain the significance of each metric in assessing a company’s financial health.
  3. Discuss the role of dividend yield in stock investments. Explain how it is calculated and why it is considered a crucial factor for investors seeking income from their investments. Provide an example to illustrate the concept of dividend yield and its potential impact on a stock portfolio.
  4. What does the Price-to-Earnings (PE) ratio indicate about a stock?
  • The company’s total revenue
  • The stock’s current market price
  • The company’s profitability 
  • The stock’s dividend yield

MCQ Answer: The company’s profitability 

Useful Links

Chapter 7: Preparing for Retirement

A Roth Individual Retirement Account (IRA) assumes a pivotal and essential role in an individual’s life as they progress toward retirement. Serving as a strategic financial tool, the Roth IRA provides individuals with a well-defined path to fortify their financial well-being in preparation for their retirement years.

At the heart of the Roth IRA lies its distinctive tax advantages. Unlike traditional retirement accounts, contributions to a Roth IRA are made with after-tax dollars, meaning individuals contribute funds already subjected to taxation. The true allure emerges upon retirement, as qualified withdrawals from the Roth IRA—including earnings—are entirely tax-free. This tax-free status represents a formidable advantage, particularly for those anticipating higher tax rates in the future.

While the Roth IRA offers substantial benefits, prudent management is required. Annual contribution limits, stipulated by the Internal Revenue Service (IRS), dictate the maximum amount an individual may contribute each year. These limits are dynamic and subject to adjustment, necessitating ongoing awareness. Moreover, eligibility is contingent on income thresholds, with higher earners facing limitations on contributions or, in certain cases, exclusion from the Roth IRA scheme.

One of the Roth IRA’s defining features is its flexibility. Contributions, having been taxed upfront, can be withdrawn at any time without incurring penalties. This flexibility stands in stark contrast to traditional IRAs, which often impose penalties for early withdrawals. Furthermore, the Roth IRA empowers individuals with a diverse array of investment options, spanning stocks, bonds, mutual funds, and other instruments. This flexibility allows for a tailored approach, aligning investment choices with individual risk tolerance and financial goals.

Beyond retirement, the Roth IRA caters to life’s significant milestones. Qualified withdrawals can be utilized penalty-free for a first-time home purchase or eligible education expenses, providing a valuable safety net for individuals navigating key life transitions.

Session 7 Quiz

  1. Evaluate the role of a Roth Individual Retirement Account (IRA) as a strategic financial instrument in the context of comprehensive retirement planning. Discuss not only its tax advantages but also how its flexibility and diverse investment options contribute to a holistic financial strategy.
  1. Analyze the challenges and considerations associated with managing a Roth IRA, focusing on contribution limits and eligibility criteria set by the IRS. Assess the impact of income thresholds on an individual’s ability to contribute to a Roth IRA.
  1. How does the Roth IRA differ from traditional IRAs regarding the treatment of contributions and withdrawals?
  • Roth IRA contributions are tax-deductible, and withdrawals are taxed.
  • Roth IRA contributions are made with after-tax dollars, and qualified withdrawals are tax-free.
  • Traditional IRA contributions are tax-free, and withdrawals are tax-free.
  • Traditional IRA contributions are tax-deductible, and withdrawals are tax-free.

MCQ Answer: Roth IRA contributions are made with after-tax dollars, and qualified withdrawals are tax-free.

Useful Links

Chapter 8: Review & Materials 

Now, it’s up to you to apply this. Here’s a really cool investment simulation for you to try: https://buildyourstax.com/.

The best way to review is through a Vocabulary List. Read through the following list. If you can’t remember the meaning of any of the concepts, look back on the material.

BudgetThe allocation of funds to various expenses and savings categories.
DerivativeA financial instrument whose value is derived from the value of an underlying asset, index, or rate.
Hedging A strategy used to reduce the risk of adverse price movements in investments.
LiquidityThe ease with which an asset can be converted into cash without affecting its market price.
YieldThe income generated by an investment is typically expressed as a percentage of its market price.
ArbitrageThe simultaneous purchase and sale of an asset to profit from price discrepancies in different markets.
AmortizationThe gradual repayment of a loan through scheduled, periodic payments.
EquityThe ownership interest in a company is calculated as assets minus liabilities.
MarginBorrowed money is used to invest, typically when buying securities.
Capital GainsProfits earned from the sale of an asset, such as stocks or real estate.
DepreciationThe decrease in the value of an asset over time is often used in accounting for tax purposes.
Fiscal PolicyGovernment policy related to taxation and spending influences the economy.
Monetary PolicyPolicies related to the Federal Reserve reducing or increasing the quantity of money. 
StagflationA rare economic situation characterized by stagnant economic growth, high unemployment, and high inflation.
LeverageThe use of various financial instruments or borrowed capital to increase the potential return of an investment.
Blue Chip StocksShares of large, well-established companies with a history of stable performance often considered a reliable investment.
Examples: AAPL, MSFT, NVDA, JPM, WMT, TSLA
Cyclical Stocks Stocks of companies whose performance is closely tied to the economic cycle, experiencing higher growth during periods of economic expansion and lower growth during recessions.
Examples: LUV, RCL, LVMH, MAR, DAL, TPR
Growth StocksGrowth stocks belong to companies expected to grow at an above-average rate compared to other companies. These companies often reinvest earnings into expansion rather than paying dividends. Growth stocks may not be as established as blue-chip stocks but offer the potential for capital appreciation.
Examples: NVDA, TSM, SHOP, CRM, AMZN
Dividend StocksDividend stocks are shares of companies that consistently pay dividends to shareholders. These stocks are attractive to income-focused investors seeking a steady stream of passive income in the form of dividends.
Examples: UMC, T, XOM, VZ, JNJ, PEP
Defensive StocksDefensive stocks are shares of companies that tend to be more resilient during economic downturns. These companies provide essential goods and services, and demand for their products remains relatively stable
Examples: CLX, DUK
Roth IRARoth IRA is a type of retirement savings account in the United States that offers individuals tax advantages for retirement savings. Here are some key features and aspects of a Roth IRA:

Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited.