Learning Basic Skills, Knowledge, and Context

IN THIS SECTION:

Chapter 1 “Personal Financial Planning” introduces four major themes of the textbook:

1. Financial decisions are individual-specific (Section 1.1 “Individual or ‘Micro’ Factors That Affect Financial Thinking”)
2. Financial decisions are economic decisions (Section 1.2 “Systemic or ‘Macro’ Factors That Affect Financial Thinking”)
3. Financial decision-making is a continuous process (Section 1.3 “The Planning Process”)
4. Professional advisers work for financial decision-makers (Section 1.4 “Financial Planning Professionals”)

These themes emphasize the idiosyncratic, systemic, and continuous nature of personal finance, putting decisions within the larger contexts of an entire lifetime and an economy.

Chapter 2 “Basic Ideas of Finance” introduces the basic financial and accounting categories of revenues, expenses, assets, liabilities, and net worth as tools to understand the relationships between them as a way, in turn, of organizing financial thinking. It also introduces the concepts of opportunity costs and sunk costs as implicit but critical considerations in financial thinking.

Chapter 3 “Financial Statements” continues with the discussion of organizing financial data to help in decision-making and introduces basic analytical tools that can be used to clarify the situation portrayed in financial statements.

Chapter 4 “Evaluating Choices: Time, Risk, and Value” introduces the critical relationship of time and risk to value. It demonstrates the math but focuses on the role that those relationships play in financial thinking, especially in comparing and evaluating choices in making financial decisions.

Chapter 5 “Financial Plans: Budgets” demonstrates how organized financial data can be used to create a plan, monitor progress, and adjust goals.

Chapter 6 “Taxes and Tax Planning” discusses the role of taxation in personal finance and its effects on earnings and on accumulating wealth. The chapter emphasizes the types, purposes, and impacts of taxes; the organization of resources for information; and the areas of controversy that lead to changes in the tax rules.