Financial_Empowerment.pdf - Financial Empowerment Financial Empowerment Personal Finance for Indigenous and Non-Indigenous People BETTINA SCHNEIDER

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Unformatted text preview: Financial Empowerment Financial Empowerment Personal Finance for Indigenous and Non-Indigenous People BETTINA SCHNEIDER SAYLOR ACADEMY UNIVERSITY OF REGINA PRESS REGINA Financial Empowerment by Bettina Schneider and Saylor Academy is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted. Financial Empowerment: Personal Finance for Indigenous and Non-Indigenous People is a derivative work of the Personal Finance, v. 1.0 openly licensed textbook adapted by Saylor Academy (2012) under a Creative Commons Attribution-NonCommerical-ShareAlike 3.0 License without attribution as requested by the work’s original creator and licensee. The textbook can be accessed at: text_personal-finance/index.html. The modifications to the original textbook Personal Finance, v. 1.0 are released under the same license and are described in the section “Modifications made to Personal Finance.” Under the terms of the CC BY-NC-SA 4.0 International License, you are free to copy, redistribute for non-commercial purposes, modify or adapt this book as long as you provide attribution to Bettina Schneider and Saylor Academy, and distribute any modified work on the same licensing terms. Additionally, if you redistribute this textbook, in whole or in part, in either print or digital format, then you must retain on every physical and/or electronic page the following attribution: Download Financial Empowerment: Personal Finance for Indigenous and Non-Indigenous People adapted by Bettina Schneider from Personal Finance, v. 1.0 by Saylor Academy for free at open-access/open-textbooks. Cover design: John van der Woude, JVDW Designs, is licensed under a CC BY 4.0 International License. Cover photo: Terry Massey, Strictly Social, is licensed under a CC BY 4.0 International License. Video production for the Elder interviews was provided by Terry Massey, Strictly Social. The Elder videos are the copyright of each interviewee and licensed under a CC BY-NC-SA 4.0 International License. For questions regarding this license and publication, please contact: [email protected] To learn more about University of Regina Press’s Open Textbook Publishing Program, visit . Contents About the Book vii Preface to the 2018 Edition x Introduction 1 Part I. Learning Basic Skills, Knowledge, and Context 1. Personal Financial Planning 13 2. Basic Ideas of Finance 39 3. Financial Statements 57 4. Evaluating Choices: Time, Risk, and Value 92 5. Financial Plans: Budgets 116 6. Taxes and Tax Planning 155 Part II. Achieving Your Financial Goals 7. Financial Management 185 8. Consumer Strategies 218 9. Buying a Home 242 Part III. Protecting What Is Important to You 10. Personal Risk Management: Insurance 272 11. Personal Risk Management: Retirement and Estate Planning 293 Part IV. Planning for the Future 12. Investing 316 13. Owning Stocks 342 14. Owning Bonds and Investing in Mutual Funds 362 15. Career Planning 392 Video Interviews with Elders 418 Modifications made to Personal Finance 430 Acknowledgements 434 About the Author 436 Open Access Publishing 437 Library and Archives Canada Cataloguing in Publication 438 About the Book Financial Empowerment is an adaptation of the openly licensed textbook Personal Finance, v. 1.0 which was adapted by Saylor Academy under a Creative Commons Attribution-NonCommercialShareAlike 3.0 License without attribution as requested by the work’s original creator or licensee and is available here: . The purpose of this textbook adaptation is to take an accessible, student-focused personal finance textbook from the United States and make it affordable and relevant for Indigenous and non-Indigenous people in Canada. While many mainstream Canadian personal finance texts provide excellent content in terms of the mechanics of personal finance, they are expensive and not always relevant to the values and experiences of students in the classroom. Many mainstream personal finance texts fall short for Indigenous Canadians and non-Indigenous Canadians alike because they do not speak to readers’ varied backgrounds, knowledge systems, and experiences. This textbook aims to motivate a broad range of students to learn about personal finance. While it is beyond the scope of this book to address all of the diverse groups that comprise the Canadian population, the text does attempt to provide practical, student-focused information that all students can relate to. Everyone needs to be able to see themselves in what they are learning, and this text represents one small effort to make personal finance more relevant to Indigenous students in Canada, and to also teach non-Indigenous students about Indigenous histories, perspectives, and realities. It is this understanding and knowledge that will contribute to reconciliation in Canada. Another intention of this text is to contribute to real social, political, and economic change, which the Truth and Reconciliation Commission of Canada calls for in order for reconciliation to be achieved. Increased financial literacy and personal finance knowledge can contribute to that social, political, and economic change. Financial Empowerment is designed for a single-semester introduction to financial planning and decision-making. It seeks to provide students with the necessary financial literacy and skills needed to make sound financial decisions, assess financial risk, and achieve financial success. Given the broad scope and application of financial literacy, this textbook is developed for students taking first- and second-year business and administration courses in a post-secondary institution. The specific goals of this textbook are: About the Book | vii • to help students build a solid understanding of personal finance in order to achieve financial literacy and financial success by providing them with the skills and knowledge necessary to navigate short- and long-term financial change; • to tailor the content for a Canadian audience by providing Indigenous and non-Indigenous perspectives on personal finance and financial planning using examples and information from the Canadian financial system and economy; • to increase accessibility to financial education resources for students and the general public alike, regardless of where they live or study; • to customize the content for Indigenous students in Canada and address student needs for practical and theoretical knowledge on financial decision-making and financial risk assessment; and • to connect financial literacy with Indigenous Knowledge and history by threading Indigenous perspectives and interviews with Elders and other community leaders throughout the textbook. APPROACH AND PEDAGOGY Financial Empowerment will introduce you to the theory of personal finance through real-life examples of financial decision-making, including videos with Elders. This textbook has been adapted in order to provide you with the most up-to-date and relevant information. Since this is an open textbook, there will be annual reviews and updates of the content to ensure that the predetermined critical learning elements and outcomes are met. Instructors may assign additional readings to each class in order to enrich your learning. Each chapter will begin with a brief overview of the chapter content. Key terms are highlighted in bold. Coloured boxes are used in each chapter to differentiate and highlight important learning features (see the following diagram). viii | About the Book Key Learning Features Learning Objectives Key Takeaways Exercises Learning objectives in the green coloured boxes provide clear directions for each section and provide structure to your learning. Orange boxes containing key takeaways contain a general overview of chapter content at the end of each chapter section. Exercises in the blue boxes at the end of each chapter section provide additional information, as well as an opportunity for students to review and apply what they have learned. Where relevant, a complete list of references is included at the end of chapter sections to clearly document and attribute the source material and to assist students in locating resources. Video interviews with Elders provide critical historical information, First Nations perspectives on personal finance, and wisdom meant to help guide students. Figures, diagrams, and tables provide a plethora of attractive and concise visual learning aids. HYPOTHESIS Hypothesis (or Hypothes.is) is an open source web annotation tool that students and instructors can use to highlight and annotate online text, which they can share publicly or privately (for group discussion) or use for individual study. Hypothesis encourages deeper engagement with academic text and other Internet resources. Hypothesis has been enabled for the online format of this textbook. To use this tool, you will first need to create a free account with Hypothesis and then follow the step-by-step instructions. For more information, Hypothesis offers the following Quick Start Guides: 1. Quick Start Guide for Students 2. Quick Start Guide for Teachers About the Book | ix Preface to the 2018 Edition (Adapted from the original) This text has a goal: in addition to providing sources of practical information, it should introduce you to a way of thinking about your personal financial decisions. This should lead you to thinking harder and farther about the long-term consequences of your decisions. Many of the more practical aspects of personal finance will change over time, as practices, technologies, intermediaries, customs, and laws change, but a fundamental awareness of how to think well about solving financial questions can always be useful. Some of the more practical ideas may be obviously and immediately relevant—and some not—but decision-making and research skills are lasting. You may be enrolled in a traditional two- or four-year degree program, or you may just be taking the course for personal growth. You may be a business major or a family or consumer studies major with some prerequisite knowledge of economics or some level of accounting or math skills, or you may be filling in an elective and have no such skills. In fact, although such skills can enhance one’s ability to make personal financial decisions, they are not necessary. Software, downloadable applications, and calculators perform ever more sophisticated functions with ever more approachable interfaces. The emphasis in this text is on understanding the fundamental relationships behind the math and being able to use that understanding to make better decisions about your personal finances. The idea here is to introduce you to the practical and conceptual framework for making personal financial decisions as part of a greater economy of financial participants. STRUCTURE The text is divided into four parts: Learning Basic Skills, Knowledge, and Context (Chapter 1 “Personal Financial Planning”–Chapter 6 “Taxes and Tax Planning”) Achieving Your Financial Goals (Chapter 7 “Financial Management”–Chapter 9 “Buying a Home”) Protecting What Is Important to You (Chapter 10 “Personal Risk Management: Insurance”–Chapter 11 “Personal Risk Management: Retirement and Estate Planning”) Planning for the Future (Chapter 12 “Investing”–Chapter 15 “Career Planning”) x | Preface to the 2018 Edition This structure is based on the typical life cycle of personal financial decisions, which in turn is based on the premise that, in a market economy, an individual participates by trading something of value: labour or capital. Most of us start with nothing to trade but labour. We hope to sustain our desired lifestyle on the earnings from our labour and to gradually (or quickly) amass capital that will then provide additional earnings. PART 1: Learning Basic Skills, Knowledge, and Context (Chapter 1 “Personal Financial Planning”–Chapter 6 “Taxes and Tax Planning”) 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. Preface to the 2018 Edition | xi 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. PART 2: Achieving Your Financial Goals (Chapter 7 “Financial Management”–Chapter 9 “Buying a Home”) Chapter 7 “Financial Management” focuses on financing consumption using current earnings and/or credit, and financing longer-term assets with debt. Chapter 8 “Consumer Strategies” discusses purchasing decisions, starting with recurring consumption, and then goes into detail on the purchase of a car, a more significant and longer-term purchase both in terms of its use and financing. Chapter 9 “Buying a Home” applies the ideas developed in the previous chapter to what, for most people, will be the major purchase: a home. The chapter discusses its role both as a living expense and an investment, as well as the financing and financial consequences of the purchase. PART 3: Protecting What Is Important to You (Chapter 10 “Personal Risk Management: Insurance”–Chapter 11 “Personal Risk Management: Retirement and Estate Planning”) Chapter 10 “Personal Risk Management: Insurance” introduces the idea of incorporating risk management into financial planning. This chapter focuses on planning for the unexpected. It progresses from the more obvious risks to property to less obvious risks, such as the possible inability to earn due to temporary ill health, permanent disability, or death. Chapter 11 “Personal Risk Management: Retirement and Estate Planning” focuses on planning for the expected: retirement, loss of income from wages, and the subsequent distribution of assets after death. Retirement planning discusses ways to develop alternative sources of income from capital that can eventually substitute for wages. Estate planning also touches on the considerations and mechanics of distributing accumulated wealth. PART 4: Planning for the Future (Chapter 12 “Investing”–Chapter 15 “Career Planning”) Chapter 12 “Investing” presents basic information about investment instruments and markets and explains the classic relationships of risk and return developed in modern portfolio theory. xii | Preface to the 2018 Edition Chapter 13 “Owning Stocks” and Chapter 14 “Owning Bonds and Investing in Mutual Funds” look at investments commonly made by individual investors and their use in (and the risks of) building wealth as part of a diverse investment strategy. Chapter 15 “Career Planning” brings the planning process full circle with a discussion on how to think about getting started—that is, deciding how to approach the process of selling your labour. The chapter introduces the idea of selling labour to employers in the labour market and explores how to search and apply for a job in light of its strategic as well as immediate potential. Preface to the 2018 Edition | xiii Introduction My name is Bettina Schneider and I am currently an associate professor and associate vice-president academic at First Nations University of Canada (FNUniv) in Regina, Saskatchewan. I have worked in the School of Business and Public Administration at FNUniv since 2007. I am nonIndigenous and originally from the United States. I have a PhD in Native American Studies and a master’s in Community Development from the University of California, Davis. My dissertation focused on Indigenous financial institutions in Canada and the United States. Through this research, and my work as a consultant with the First Nations Development Institute and First Nations Oweesta Corporation in the United States, I was exposed to a number of Indigenous financial institutions and the culturally relevant financial literacy curricula they were utilizing and sharing with their communities. In 2013, I began working with the Newo Yotina Friendship Centre (NYFC) in Regina on the development of culturally relevant financial literacy workshops, as the NYFC had identified a need for such services among its clientele. Thanks to a grant from the Urban Aboriginal Knowledge Network, we were able to research and develop such a curriculum for the NYFC. My work with the NYFC was the catalyst for the financial empowerment course I later developed at FNUniv and the adaptation of this textbook. PURPOSE OF THIS TEXTBOOK The purpose of this textbook adaptation is to take an accessible, student-focused personal finance textbook written for an American audience and make it relevant for Indigenous and nonIndigenous people in Canada. In so doing, it aims to not only help students build their own personal financial capacity, but to prepare them to help others do the same. My greatest goal with this text is to ensure that students do not make the same mistakes that I and many people before me have made because we did not pursue or have access to financial literacy courses or resources when we were young. Financial literacy education should be a requirement for every student in Canada and throughout the world. It is my sincere hope that this Open Access textbook makes the delivery of financial literacy education more accessible and affordable for all. Financial literacy resources do not always speak to the varied values and experiences of their audience. For example, mainstream resources may provide a review of the Canadian tax system, but make no mention of taxation as it relates to First Nations peoples. Furthermore, I believe it is important to understand our own values, histories, and life experiences in order to better 1 | Introduction understand our financial decision-making processes. This text attempts to include the perspectives, values, and realities of Indigenous and non-Indigenous people in Canada in order to better understand our relationship to personal finance. Colonization has denied many Indigenous people equal access to money, economic opportunities, financial literacy education, financial institutions, and much more. It was, in fact, the pursuit of money that fueled much of the conquest that colonized Indigenous people in Canada and throughout the world. During pre-contact times, Indigenous people had a rich economic h...
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