Challenge: “Family Financial Decision Dilemma”

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Activity: “Family Financial Decision Dilemma”

Objective: Students will analyze a family’s financial situation and recommend the best use of their savings based on trade-offs, risks, and benefits.

Materials Needed:

  • Family Profile (provided below)
  • Decision-Making Worksheet (table format)
  • Pen and paper for notes

Step-by-Step Breakdown:

Introduction (3 minutes)

  • Present the scenario: “The Smith family has $20,000 in savings. They are deciding between three significant financial goals: buying a house, investing in a business, or saving for their child’s college education. Your task is to analyze each option and make a recommendation based on their financial situation.”
  • Provide the Family Profile:
    • Income: $75,000 annually.
    • Current Savings: $20,000.
    • Debt: $10,000 in credit card debt at 12% interest.
    • Monthly Expenses: $3,500.
  • Introduce the options:
    • Buy a House:
      • Cost: $250,000 with a $20,000 down payment.
      • Monthly mortgage: $1,200 at 5% fixed interest.
      • Pros: Builds equity, stable housing, potential appreciation.
      • Cons: Ties up savings, risk of unexpected maintenance.
    • Invest in a Business:
      • Initial Investment: $20,000.
      • Expected return: 10%-20% annually, but highly variable.
      • Pros: Potential significant income growth.
      • Cons: High risk of failure, unpredictable cash flow.
    • Save for College:
      • Contribution: $20,000 into a 529 plan.
      • Expected return: 6% annually.
      • Pros: Tax benefits, secure funding for education.
      • Cons: Funds restricted to education use, no immediate benefit.

Analysis Phase (6 minutes)

  • Divide students into small groups (2-3 people per group). Provide each group with the Decision-Making Worksheet (table to compare costs, risks, benefits, and timelines for each option).
  • Task for Groups: Each group should:
    1. Review the family profile and each option.
    2. Identify the costs, risks, benefits, and timeline for each option (based on the details provided).
    3. Compare the options and determine which one seems most feasible for the Smith family, considering their financial situation, goals, and risks.

Presentation Phase (4 minutes)

  • Groups Present Their Recommendations: Each group will share:
    • Chosen Option (buy a house, invest in a business, or save for college).
    • Key reasons for their choice.
    • How they accounted for risks and trade-offs in their recommendation.

Reflection and Discussion (2 minutes)

  • Socratic Discussion:
    • What factors influenced your group’s decision the most (e.g., risk, timeline, benefits)?
    • How do you balance short-term sacrifices with long-term benefits?
    • Would your recommendation change if the family had different goals or priorities (e.g., reducing debt or saving for retirement)?

Optional Add-ons (time permitting):

  • Unexpected event: Add a scenario like a medical emergency or a job loss that affects the family’s income. Ask groups how it would alter their recommendation.
  • Hybrid Solution: Encourage groups to consider combining options, e.g., using some money to pay off debt and part to save for college.

Conclusion:

This activity engages students in analyzing real-world financial decisions while considering multiple factors. It encourages critical thinking about balancing short-term sacrifices for long-term benefits and the impact of personal priorities on financial choices.

Decision-Making Worksheet

Criteria Option A Option B Option C
Costs [Enter the costs] [Enter the costs] [Enter the costs]
Risks [List the risks] [List the risks] [List the risks]
Benefits [List the benefits] [List the benefits] [List the benefits]
Timeline [Enter timeline] [Enter timeline] [Enter timeline]

Instructions for Use:

  1. Costs: What are the financial or resource costs associated with each option? Include both immediate and long-term costs.
  2. Risks: Identify the potential risks or uncertainties involved with each option, considering factors like failure, market shifts, or unforeseen consequences.
  3. Benefits: What are the potential advantages of each option, both short-term and long-term? Consider both tangible and intangible benefits.
  4. Timeline: How long will each option take to implement or yield results? This helps you evaluate the urgency and time commitments of each option.

You can fill in this table with your specific options and compare them systematically to help you make a more informed decision.

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