Challenge: “Family Financial Decision Dilemma”

Challenge: “Family Financial Decision Dilemma” [∞]

Overview: Students act as financial advisors to a family that must choose between three significant financial goals: buying a house, investing in a business, or saving for a child’s college education. They analyze the trade-offs, risks, and benefits of each option and make a well-reasoned recommendation.

Materials Needed:

   Family Profile:
       Income: $75,000 annually.
       Current Savings: $20,000.
       Debt: $10,000 in credit card debt at 12% interest.
       Monthly Expenses: $3,500 (housing, food, utilities, etc.).

   Options with Details:

       Buy a House:
           Cost: $250,000 with a $20,000 down payment.
           Monthly mortgage: $1,200 at a fixed 5% interest rate.
           Pros: Builds equity, stable housing, potential appreciation.
           Cons: Ties up savings, risk of unexpected maintenance costs.

       Invest in a Business:
           Initial Investment: $20,000.
           Expected annual return: 10%–20% but highly variable.
           Pros: Potential for significant income growth.
           Cons: High risk of failure, unpredictable cash flow.

       Save for College:
           Contribution: $20,000 into a 529 college savings plan.
           Expected annual return: 6% (market-dependent).
           Pros: Tax advantages, secure funding for education.
           Cons: Funds are restricted to education use, no immediate benefit.

   Decision-Making Worksheet:
       A table to compare costs, risks, benefits, and timelines for each option.

Steps:

   Introduction (5 minutes):
       Present the scenario:

           "The Smith family must decide how to use their $20,000 savings. They are considering three options: buying a house, investing in a business, or saving for their child’s college. Your job is to analyze each option and recommend the best choice based on their financial situation and goals."

   Analysis Phase (15–20 minutes):
       Divide students into groups. Each group reviews the family profile and the three options.
       They calculate potential financial outcomes (e.g., loan costs, business risks, college fund growth) and weigh the emotional and long-term impacts of each choice.

   Presentation Phase (10 minutes):
       Each group presents their recommendation, including:
           Their chosen option.
           Key reasons for their choice.
           How they accounted for risks and trade-offs.

   Reflection and Discussion (10 minutes):
       Discuss the different recommendations and their implications.
       Explore alternative strategies, like combining goals (e.g., partial down payment and debt reduction).

Socratic Questions:

   How do you balance short-term sacrifices with long-term benefits in financial decisions?
   Why might the emotional impact of financial stability or risk-taking influence the decision?
   What factors outside the numbers, such as family priorities or lifestyle goals, play a role in the final choice?

Why It Works:

   Real-Life Application: Introduces students to major financial decisions families face.
   Critical Thinking: Encourages analysis of complex trade-offs and prioritization of goals.
   Teamwork: Simulating an advisory role fosters collaboration and debate.

Optional Add-Ons:

   Add unexpected events (e.g., medical expenses or a job loss) to simulate real-world challenges.
   Include a fourth option, like paying off credit card debt, to expand the discussion on financial priorities.
   Allow groups to explore hybrid solutions, such as splitting the $20,000 among two options.