Demonstrated Mastery of SLO #6
Student Learning Objective #6
MUST PASS THIS ASSIGNMENT (70% or more) TO PASS THE CLASS
The goal of this assignment is for you to demonstrate that you understand the implications of past debt management behaviors on an individual’s financial future. Specifically impact on future cash management (which refers to information from chapters 3, 4, and 5), future debt management (which refers to information from chapters 6, 7, 8, and 9), future risk management (which refers to information from chapters 10, 11, and 12), and future investment management (which refers to information from chapters 13, 14, 15, and 17).
REGARDLESS OF YOUR OVERALL GRADE, YOU CANNOT PASS THE COURSE WITHOUT SUCCESSFULLY DEMONSTRATING YOUR MASTERY OF SLO #6 which states that you have gained the mastery to “Use knowledge, theories, methods, and historical perspectives appropriate to the social sciences to understand and evaluate human behavior.”
INSTRUCTIONS
Read the description of Owen Monet and answer the subsequent questions. You must earn 70% of the available points (70 points) to earn a passing grade in the class. Further, your successful completion of this assignment is required to be granted access to the final exam.
The deadline for this assignment is 11:59 pm on Friday December 2nd. You may enter and exit this assignment as many times as necessary prior to submission. Be sure to save your work.
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Meet Owen Monet. Owen graduated from college 5 years ago with a bachelor’s degree in history with a minor in philosophy. Owen was fortunate to graduate from college with no student loan debt and without any consumer debt as well. As he started life after college, he was acutely aware of how many of his friends appeared to live the life of indentured servitude–working in jobs they would rather not in order to be able to make their student loan payments.
Thanks to the support Owen received from his family throughout college, he left the university feeling weightless and free. He had no more classes to take. He had no outstanding debt to pay. He was happily single with a great group of friends and not a lot of responsibility. Consequently, Owen didn’t feel great pressure to land a job with a good salary and start a career trajectory. He knew his undergraduate focus in history and philosophy would ultimately lead him back to graduate school and he planned to pursue a graduate degree in Library Sciences. In the meantime, he simply needed a job to pay his living expenses. He was hired to work retail in a large book store and was happy to simply go to work, leave when he was done, and collect a paycheck.
Owen started out living pretty simply. He shared an apartment with a roommate. He drove an old car that he owned outright (no car payment) that has so little monetary value that he only kept liability coverage on the vehicle. He took his chances on health insurance until he was legally obligated to purchase coverage for himself. Owen didn’t earn much but he also didn’t spend much. Anything that he didn’t spend, he put into a savings account. He figured that he might need the funds for graduate school or to invest someday down the line. He was building credit by paying his rent and utility bills on time. He wasn’t much of a cook, but could always find a friend who wanted to go out for a bite to eat. He enjoyed the simplicity of his lifestyle.
Having establishing a good credit reputation, Owen began to enjoy the opportunities afforded with access to credit. After one too many trips to the mechanic, Owen traded in his old car and drove away with a brand new car. In the excitement of the new car, Owen was not overly worried about also taking on a car payment as well as more expensive car insurance coverage.
Owen’s roommate took a job in another state and, when he moved out, he took most of the living room furniture, including the flat screen and the gaming console. Though Owen had a small accumulation of savings, he also had access to credit. He opened a store credit card account and decked out his bachelor pad with nice furnishings and the latest in entertainment technology. Owen found that, the more he used credit, the more he seemed to be offered credit. He felt he needed to take advantage of purchase discounts made available when opening a credit card account in-store. He decided that he was missing out on great opportunities to earn bonus points and travel miles by not having a bank credit card so he opened an account a promptly started using it for his daily spending and even for his living expenses.
All was going well until Owen realized that his credit accounts had grown to the point that he was only making the minimum payments on each account to keep it in good standing. He wasn’t worried. He knew he needed to curb his spending to ensure that his income would cover the credit card debt. At this point he had 42 months left on his car loan, 3 in-store credit cards with sizable balances, and a bank-card carrying a large balance as well. If he cut back on all his extras, he could cover his expenses and make modest payments toward reducing his debt load. He either needed to spend less or earn more. He chose to spend less.
Unfortunately, Owen’s employer was forced to cut his hours. Keeping the brick and mortar book store business up was increasingly difficult when competing with on-line retailers. Other employees were let go all together. Owen was lucky to keep his job, but was in a position where he could not afford to lose the hours. The money was already spent. It didn’t take long for Owen to drain his savings trying to keep up with his expenses. Once that reserve was gone, he relied on credit to bridge the gap while looking for additional work. He hit his credit limit on the bank card and then started missing payments on his accounts.
Owen wants to go back to graduate school to get his Library Sciences degree and begin working toward a career merging technology with historical artifacts. He is confident that he will find lucrative opportunities once he completes the 2-3 year program. However, he had not planned on debt obligations and is now realizing that his debt is standing in the way of his ability to dedicate time to graduate training. My question for you is how has Owen’s accumulation of debt impacted his future financial opportunities? Answer the following questions to demonstrate your mastery.
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SLO #6 Questions can be found under the “Assignments” Tab.
- What is the impact of Owen’s behavior on his financial flexibility? Does he have more or less financial flexibility compared to before he accumulated the debt? Explain why.
- Is Owen more or less financially vulnerable? Discuss the relationship between financial flexibility and financial vulnerability in your answer.
- Will his future income be affected? If so, how? (Consider his sources of income and then explain to me if you can determine whether his future income will increase, decrease, or stay the same and why.)
- Will his future expenses be affected? If so, how? (Explicitly tell me if they will increase, decrease, or stay the sameand explain why.)
- How will the combined impact on his future income &/or expenses impact his future net income? Will it increase, decrease, or stay the same? Why?
- Will his future assets be affected? If so, how?
- Will his future liabilities be affected? If so, how?
- How will the combined impact on his future assets &/or liabilities impact his future net worth? Will it increase, decrease, or stay the same? Why?
- How will Owen’s current debt impact the allocation of his future disposable income among his future budgeted expenses? (Make sure you do not confuse disposable with discretionary income)
- How will Owen’s current debt impact his future discretionary income? What does this mean for his ability to saveand invest?
- How does Owen’s current debt situation impact his creditworthiness (how will lenders judge him as a risk of failure to repay)? In your answer demonstrate that you understand what tool/measure lenders use to rate an applicant’scredit reputation and how Owen has likely been affected?
- How does Owen’s current debt situation impact his access to credit? Are lenders likely to extend him credit? Why or why not?
- How does Owen’s current debt situation impact the affordability of any new credit he might be able to get? What are the terms of credit he will have to accept if he is going to use credit in the near future?
- What is the relationship between the cost of the insurance premium and the size of the insurance deductible?
- How will Owen’s current debt impact his ability to secure adequate insurance coverage that he can afford? If Owen should need to file a claim, what are the financial implications of choosing a lower versus a higher premium in terms of his ability to afford to cover the deductible?
- Previous editions of your textbook included 4 signs that an individual is ready to invest. These are: you live within your means, you are able to save regularly, you use credit wisely, and you carry adequate insurance.
How does Owen’s current debt situation impact his future readiness to invest?
- How does Owen’s current debt situation impact his ability to take advantage of employer-sponsored investment incentives opportunities such as matching contributions?
- How does Owen’s current debt situation impact his time in the market and what that means for investment growth? What happens when you delay investing?
- What would you say is the greatest opportunity cost of Owen’s past debt management behavior? Why?
- You have just analyzed the ways in which Owen’s abuse of credit early in life has the potential to impact him for years into the future. What do you think? What advice do you take away from this assignment for yourself or others?
