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For the Personal Management Merit Badge, your scout will need to show an understanding and application of a number of financial principles dealing with budgeting, savings, interest, loans, stocks and bonds.
The following teaching aids listed before the merit badge tasks will help you give your scout a solid understanding of the topics that focus on money matters :
Merit Badge Topics #1 and #2
Each scout should have their own personal savings account set up at a credit union or bank.
Within a savings account, the scout can set up categories, including one that might include the merit badge project –
Savings
Mission
Tithing
College
Family Project
Review with the Scout the process of depositing their money, and how savings and budgeting are needed for major purchases.
Topic Reference
Savings
Budgeting
Task #1
Do the following:
- Choose an item that your family might want to purchase that is considered a major expense.
- Write a plan that tells how your family would save money for the purchase identified in the above requirement a.
- Discuss the plan with your merit badge counselor
- Discuss the plan with your family
- Discuss how other family needs must be considered in this plan.
- Develop a written shopping strategy for the purchase identified in requirement 1a.
- Determine the quality of the item or service (using consumer publications or rating systems).
- Comparison shop for the item. Find out where you can buy the item for the best price. (Provide prices from at least two different price sources.) Call around. Study ads. Look for a sale or discount coupon. Consider alternatives. Can you buy the item used? Should you wait for a sale?
Task #2
- Prepare a budget reflecting your expected income (allowance, gifts, wages), expenses, and savings. Track your actual income, expenses, and savings for 13 consecutive weeks. When complete, present the results to your merit badge counselor.
- Compare expected income with expected expenses.
- If expenses exceed income, determine steps to balance your budget.
- If income exceeds expenses, state how you would use the excess money (new goal, savings).
Merit Badge Topic #3
What is Money? Anything used to make payments or to keep track of debts and credits is considered "money." Rocks, iron, gold, shells, or even a horse have been used for these purposes (in early LDS Church history, it was common for Church members to pay their tithing with eggs or vegetables).
What gives money value is what you get in exchange—a dollar can be exchanged for four quarters or a candy bar. Money replaces the original human system of trade or barter. Today we use coins and paper that are stamped by the government as a medium of exchange in financial transactions between citizens and the government.
Topic Reference
Savings
Budgeting
Task #1
Discuss with your merit badge counselor FIVE of the following concepts:
- The emotions you feel when you receive money.
- Your understanding of how the amount of money you have with you affects your spending habits.
- Your thoughts when you buy something new and your thoughts about the same item three months later. Explain the concept of buyer's remorse.
- How hunger affects you when shopping for food items (snacks, groceries).
- Your experience of an item you have purchased after seeing or hearing advertisements for it. Did the item work as well as advertised?
- Your understanding of what happens when you put money into a savings account.
- Charitable giving. Explain its purpose and your thoughts about it.
- What you can do to better manage your money.
Merit Badge Topic #4
There is little distinction between savings and investing. One saves by not spending, while he invests in the goal of having more money in the future to spend.
As an example, a fisherman can either keep a small fish today, or put it back in the water in hopes that in the future the fish will be much bigger and offer a better meal.
Savings is storing money safely, such as in a credit union or bank account. You earn a lower, fixed rate of return and can withdraw your money easily. Investing is taking your money and putting it into stocks or bonds with the hope that your money will increase faster. Unlike credit union and bank savings accounts, stocks and bonds are more risky but typically have a higher rate of return.
Topic Reference
Savings
Budgeting
Task #1
Explain the following to your merit badge counselor:
- The differences between saving and investing, including reasons for using one over the other.
- The concepts of return on investment and risk.
- The concepts of simple interest and compound interest and how these affected the results of your investment exercise.
Merit Badge Topic #5
What happend to Merit Badge Topic #5?
Merit Badge Topic #6
Common Stock: The basic form of ownership in a company, with claims to the assets and earnings.
Mutual Fund: An account that pools money together to invest in a variety of stocks, bonds, or other securities.
Certificate of Deposit: Known as time deposits because the account holder has agreed to keep the money in the account for a specified amount of time, anywhere from three months to six years.
Topic Reference
Savings
Task #1
Pretend you have $1,000 to save, invest, and help prepare yourself for the future. Explain to your merit badge counselor the advantages or disadvantages of saving or investing in each of the following:
- Common stocks
- Mutual funds
- Life insurance
- A certificate of deposit (CD)
- A savings account
Merit Badge Topic #7
Loan - At a very early age we learned about sharing and “lending” things to others for personal enjoyment. We might lend our bike to a friend whose bike is broken. That same principle is applied to money. When talking about lending or borrowing money it is known as a “loan.”
Secured - A loan where the borrower offers collateral (something of value like cash, a car, a home) similar in value to the amount of the loan. In the event it is not repaid, the lender can assume ownership of your pledged asset and sell it to pay back the loan. A mortgage is an example of a secured loan. With a mortgage, the house you buy is used as collateral for the loan—if you do not pay the mortgage loan, the lender has the right to assume ownership of the house and sell it in order to get the money to pay back the loan.
Unsecured – A loan without collateral, other than your promise that the borrowed money will be repaid. An example of this type of loan is a credit card. Every time you use a credit card to make a purchase, you are borrowing money from a lender, but the lender cannot take ownership of what you purchase, so they charge more interest to compensate for this increased risk.
You can see how much the interest of a loan adds to the actual loan balance by using a loan calculator.
Loan Calculator Example
Click "Compute" to see the results for a typical auto loan. You have 60 payments (one per month for five years) at 8% interest (.08). If the car costs $12,000, you can see what the real cost is after interest.
Try entering your own examples to see how much interest adds to the original borrowed amount.
Interest – When you borrow money or give your money to a credit union or bank, a premium is paid for the use of that money.
APR - Annual percentage rate is the percent of principle you will pay as interest each year. For example, a loan of $100 at 5% APR means you'll pay $5 in interest (100 x 5%).
Credit reports - A records of a person’s history of paying bills and borrowing money. Every time you borrow money or make a loan payment, a record is sent to a credit bureau. If you pay your bills, the report says it’s okay to lend you money. If you don’t, it will be difficult to get a loan in the future.
How to get out of Debt
Only use a credit card for convenience when you have the money to pay it off or for real emergencies.
Always try to make more than just the minimum payments on your loans. Find ways to spend less money so you can apply your savings to your debt.
Pay off your loans with the highest interest rate first. Then apply the money from that loan payment to the loan with the next highest rate until it is also paid off. As you pay each loan off, apply what you were paying to another loan until all debts are paid.
Once your loans are paid off, put the money you were paying on your loans into a savings account. You’ll be surprised just how quickly it adds up!
Merit Badge Task #1
Explain to your merit badge counselor the following:
What a loan is, what interest is, and how the annual percentage rate (APR) measures the true cost of a loan.
The different ways to borrow money.
The differences between a charge card, debit card, and credit card. What are the costs and pitfalls of using these financial tools? Explain why it is unwise to make only the minimum payment on your credit card.
Credit reports and how personal responsibility can affect your credit report.
Ways to eliminate debt.
About the Author:
Scott Knecht (pronounced "connect") is our Jordan River Branch Manager,
and is also a Personal Management merit badge counselor for the scouts in his neighborhood.
He loves to ride motorcycles and drive old muscle cars. He also enjoys the outdoors and playing sports.
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