Case study

Q1: Why is financial literacy important for citizens? What have you learned about finance that you did not know before?

Q2. You have been given a case study of a family who needs to put their financial life in order and asked to give them advice on how to accomplish their goals. Each person in your class has a different case. What methodology to you plan to use to give them sound financial advice? Where will you get information that you need to assure that your advice is correct? How does their situation help you work out solutions to your own financial problems and decisions?

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Q3.Prepare the financial plan for your case study. Show the information that was given to you before your work. You may not have complete information about the individual or family's financial situation, but do the best that you can, indicating where more information is needed.

Sean and Clara Steffans, 28 and 26, are trying to get ahead financially. They also want to buy a house and pay for Sean to finish his college degree. Their primary financial objective, however, is to reduce debt and achieve positive cash flow. They have very little saved up and would like to be able to put some money aside.

The Steffans have a child in pre-school and Clara is a stay-at-home mom. Sean is the sole breadwinner and earns $37,000 annually. Clara wants to return to work but concerned about whether child care costs and taxes negate what she would earn.

The Steffans are starting to face some financial difficulty. Their monthly payments are taking a large percentage of their income, leaving them with little for other expenses. They don't even have money put away in savings for emergencies.

In addition to their issues with income, the Steffans have a negative net worth. Their assets total $99,540 and include $1,070 in a checking account, $2,470 in Dan's 401(k), a $80,000 condo, and one car and personal property worth $16,000.

Unfortunately, they have debt for several things. They have $86,000 on their mortgage, a personal loan for $11,000, $6,700 on a credit card, $7,580 on a time share, and $15,000 to Clara's parents. This brings their net worth into the negative for $26,740.

Sean says he would like to retire when he is 56. Sean does not contribute to his 401(k) and neither of them have IRAs. They do not have a will and don't plan on having one created because they are afraid of lawyer fees.

The couple has $350,000 of term life insurance on Sean and family health insurance with a $200,000 per person limit paid for by Sean's employer. They have $200,000 of liability insurance on their car and $70,000 of condo insurance. They do not have disability insurance to cover Sean's income in the event something happens that would prevent him from working.