HOMESCHOOL WEDNESDAYS: FINANCE FIELD TRIP

As previously posted, we have been working on real life application lessons in Finance Class. One of the projects our 5th grader has been working on is researching and purchasing a theoretical car.

During this process she has been scouring advertisers and internet used car sites. We had called a few local dealerships to ask if we could come in and do a mock purchase…that was apparently a less than popular idea…until yesterday. We had business at the local Ford dealership anyway, so our 5th grader met with a very nice sales person named Kellie.

We gave Kellie all of our requirements for a car according to priority:

  1. High safety rating
  2. Eco-friendly = fuel-efficient
  3. Low maintenance (in theory high school/college aged students have little to no interest in the longevity of their automobile).
  4. Low mileage
  5. Easy to insure (Insurance for <21 drivers is costly)
  6. Under $12,000.00 (tax, tile and license)

Kellie checked her inventory and did not have many options on the lot, but this turned into a wonderful learning opportunity. Kellie explained that the Fort Dodge Ford dealership was part of a group of over 60 dealerships, so if they don’t have what you want, they can find it.

Kellie introduced us to a very helpful site, www.fueleconomy.gov – this site allows you to compare multiple vehicles and has several pre-matched according to size and fuel efficiency. The site also allows you to access safety and other specs.

We did a side-by-side compared of the Chevy Volt, Toyota Pruis C, Ford Fiesta and the Fiat 500. After comparing the annual petroleum consumption, greenhouse gas emissions, Iowa EPA Smog Score, fuel economy and safety ratings (you have to visit www.safercar.gov to compare ratings) our 5th grader made her selection…drum roll please….she choose the 2012 Pruis C

Here is her explanation:

The Prius is a very nice , safe , wonderful car it has very good safety rating and I love how it looks.

Now I did  not I repeat  NOT pick it for its looks though , I am not like all the other 5th graders wanting a sports car…. sports cars look cool but are not safe . When I am older I want a car that is safe and has room in the car so if I want to put my college books and sports stuff in it , it can fit. I also want a car that has a little more than 2 seats ……maybe at least 3 extra seats so if my college buddys need a ride I can give them a lift. The prius that I had seen personally with my own eyes had extra seats,and has room for other stuff in the trunk. I was surprised how big the trunk was because the prius is a small car. I also like how it only costs $41 to fill up the tank , $2.08 cents per  25 miles. Well as you can see I absolutely love the Prius as I have a thousand reasons why I like it. It is an awesome car and if you are thinking of what car to get, either in the future or in a few minutes, hours,days , weeks ,months ,or years I would suggest the prius . It is the most wonderful car ever and I can’t wait till I have the money to pay for one and a licence so i can get behind the wheel of  my dream car !

                                                                                         Love,

                                                                                                     “Star”

Now, it is worth mentioning that we compared 2012 models. One of the stipulations for this assignment was that the car had to be 5 years old or newer (but not brand new) when purchased and because she will not be purchasing a car until 2017, the 2012 was the newest model that we have access to. With that in mind, we could equate that in 2017 the 2012 would have a similar price tag to that of a 2005-2007 Pruis, which Kellie said fell into our >$12,000 price point.

A few other selling points of the Pruis was, according to Kellie, that Toyota’s are build to last well into 200,000 – 300,000 miles. Which far exceeds the 100,000 limit that often surrounded cars during my youth. In addition, our Ford dealership has on staff certified Toyota mechanics. They are also an authorized dealer (Fort Dodge Ford bought the Toyota dealership in 2003). In addition, Ford dealerships have lowest price guarantee. Which means that not only do they stock every tire for every make and model, but they carry a 30 day price guarantee.

I’m not sure if the Ford/Toyota dealership in Flagstaff, Arizona offer such services…but that will give this Mama just one more reason for her future Anthropologist to come home from Northern Arizona University more often.

ORIGINAL POST: HOMESCHOOL WEDNESDAYS: TEACHING FINANCIAL DUE DILIGENCE

POSTED APRIL 25,2012

One of subjects we have elected to teach our children from a very early age is financial due diligence. We have been using the approach of you’re never too young to guide our way. When we transitioned to homeschooling, we decided that a finance class would be part of our rotating curriculum. Some have inquired as to what we have been teaching our children (ranging ages 11 to 2). We strive to keep our finance class focused on applicable life skills. The children tend to be more receptive if they can grasp the how will this apply in real life strategies rather than dreading endless bookwork filled with financial jargon.

Each week the children help with the menu planning, couponing, food budgeting and actual shopping. The level of involvement and complexity in such tasks naturally revolve around their individual understanding and ability with the matter at hand. For instance, our oldest, currently in the 5th grade, is much more involved in the entire process than say her five-year-old brother. While at the store she is to keep track of our purchases using mental math and estimation. She will then have to report to me her estimated total, tax included when we approach the register. We have been working on taking into account: sale prices, coupons used and/or other discounts that are to be applied to the final bill.

During the shopping process the children are using a variety of skills from counting the apples to estimating the weight of the grapes or comparing prices. Last week for example we had a rather interactive discussion on which spaghetti was the best buy: 1-pound, 2-pound or the 3-pound package. There we stood in the isle, calculator in hand, computing the per ounce cost of each package. The children were a bit perplexed when they figured out that the 2-pound package was in fact the best price. A valuable lesson that bigger doesn’t always translate into better. A lengthy discussion about marketing and advertising strategies followed. The children concluded that it wasn’t very nice of the stores to try to trick people like that, their words, not mine. A valuable lesson indeed.

Yes, it is true. Shopping this way does take a long time and is not always a picnic…but our children are learning important life-lessons. That is priceless.

Another lesson in financial due diligence is money management. We have adapted Dave Ramsey’s Financial Peace Jr. to fit our families needs. Our children love Junior and all his adventures. Our fifth-grader is in charge of our families savings spreadsheet (Microsoft Excel). We set up the spreadsheet with formulas that automatically adjust the numbers (add, subtract, percentages). The older children were shown how to program the spreadsheet in this manner and educated on when and how this would be a useful tool. The children are paid their commissions each Saturday and it is the responsibility of our fifth-grader to enter those numbers into the spreadsheet. The spreadsheet is set up with five columns: date, payment, savings (25%), give (25%) and spend (50%). With the formulas calculating the percentages the spreadsheet is very simple. She simply plugs in the date and payment to which the computer calculates the appropriate percentages and places them in each column. Each column is automatically totalled at the bottom. The children’s commission payment is based upon their performance (chores completed) that week, the family account has a $5 payment each week and the youngest (2-years-old) has a payment of $1 per week for helping around the house. Yes, even he has chores.

This week we took the lesson a step further. We have been discussing compound interest savings accounts (each child has one) and the benefits of saving from birth into adulthood. She was asked to work out the following problem:

Consider that your parents deposit $25.00/month into each child’s compound interest savings account. Calculate how much money they must set aside each month to deposit $25.00 into five accounts. Then calculate how much money they should set aside per day (using a 30 day month) in order to pay these monies. Explain your answer.

Her Answer:  $125.00 per month; $4.17 per day; rounding up from 4.16666667 because $4.16 would be $.20 short

Next we went to an online Savings Account Interest Calculator to find out the answer to the following problem:

You are saving to buy a car on your 18th birthday. Consider that your parents opened a Compound Interest Savings Account for you the day you were born. Consider that you personally set aside $1 per day to deposit into your savings account. Taking into account the $25.00/month deposit from your parents; calculate the total savings (including compound interest) for 18 years. Would you have enough to purchase a newer model (within five years old) eco-friendly car on your 18th birthday? Show your work.

Her Answer: $1.00 x 365 days/year = $365.00 per year; $25.00 x 12 months = $300.00 per year; $365.00 + $300.00 = $665.00/year; total amount saved $12,073.24 —> enough to buy a car!

Here is a screenshot from her calculations:

If you start with $665.00 in a savings account earning a 0.100% interest rate, compounded Annually, and make $665.00 deposits  on an Annual basis, after 17 Years your savings account will have grown to $12,073.24 — of which $11,970.00 is the total of your beginning balance plus deposits, and $103.24 is the total interest earnings.

Year Deposits Interest Balance
Begin $665.00 $665.00
1 $665.00 $0.72 $1,330.72
2 $665.00 $1.39 $1,997.11
3 $665.00 $2.05 $2,664.16
4 $665.00 $2.72 $3,331.88
5 $665.00 $3.39 $4,000.27
6 $665.00 $4.06 $4,669.32
7 $665.00 $4.72 $5,339.05
8 $665.00 $5.39 $6,009.44
9 $665.00 $6.06 $6,680.51
10 $665.00 $6.74 $7,352.24
11 $665.00 $7.41 $8,024.65
12 $665.00 $8.08 $8,697.73
13 $665.00 $8.75 $9,371.48
14 $665.00 $9.43 $10,045.91
15 $665.00 $10.10 $10,721.01
16 $665.00 $10.78 $11,396.79
17 $665.00 $11.45 $12,073.24
Totals $11,970.00 $103.24 $12,073.24

Next week we will sit down with the used car ads and call a few dealerships to see kind of car she would theoretically be able to purchase with such funds. I can tell you one thing, this lesson has certainly encouraged her to start saving for that car!

How do you instill financial due diligence in your children?

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