Personal Finance Integrated Planning Approach & Interactive Study Guide (6th Edition)

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9780131795303: Personal Finance Integrated Planning Approach & Interactive Study Guide (6th Edition)

This comprehensive, reader-friendly book is a must-have “how-to” guide on planning for a successful financial future—walking users through the complexities of today's financial world, and giving them an accurate and current reflection of the trends affecting their financial present and future. A five-part organization covers the basic framework, liquidity management, buying now and paying later, investing for the future, and protecting your income and wealth. For certified financial planners and chartered financial consultants.

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Changes in the financial environment in recent years have made financial planning increasingly difficult and in some respects more unpleasant. The crash of the stock market has left many households devastated and with serious concerns as to whether their long-run plans for retirement or their children's education will ever be realized. The economy has been extremely unstable—going from boom to bust and, hopefully, back to recovery. Congress has enacted a tax bill with sweeping changes in both income and estate taxes. And, to further increase anxiety, Americans witnessed the awful destruction of the World Trade Center and wondered how long the war on terrorism would continue and what it might cost in dollars and in human tragedy. In these times of uncertainty financial planning can take on added importance. With proper financial planning we can reduce, if not eliminate, many of the financial uncertainties we may encounter.

Ironically, even though financial planning is now more difficult and perhaps less enjoyable, nevertheless, it is now all the more important. Achieving goals is a relatively easy task when our incomes are growing and our stock portfolios are booming. Unfortunately, it is not as easy in a weak economy and a deflated stock market. In preparing the sixth edition, we felt it was important to address the new reality of financial planning under less than ideal conditions. As a result, this edition encompasses the most significant revisions, which are described next.

SIGNIFICANT CHANGES IN THE SIXTH EDITION

A Compacted Presentation. The number of chapters has been reduced from 18 to 16, although the total number of pages is about the same. Reviewers indicated that they usually cover about that number of chapters in a term; any more are usually ignored. To achieve the new presentation, we made a number of topic additions, deletions, and consolidations.

New Topics

  1. The time value of money has been expanded into a whole new chapter (Chapter 2) with considerable emphasis on goal planning.
  2. A focus on the building blocks of success is added in Chapter 1.
  3. Career planning has been added as an appendix to Chapter 1.
  4. How the Tax Relief Act of 2001 affects financial planning is covered in Chapter 4 on taxes and in all other relevant chapters.
  5. Credit cards for college students are examined in Chapter 6 on short-term credit management.
  6. Consumer protection in the electronic marketplace is discussed in Chapter 7 on consumer durables.
  7. Required disclosures under the Federal Consumer Leasing Act are reviewed in Chapter 7.
  8. A relatively new type of mutual fund, called the exchange-traded fund, has grown substantially in importance, and it is discussed in detail in Chapter 12 on mutual funds.

Topic Deletions and Consolidations

  1. The entire treatment of tangible investments (Chapter 14 in the fifth edition) has been eliminated. Reviewers clearly indicated their belief that this topic was either no longer relevant or could not be covered adequately in an introductory course. We agree.
  2. Chapter 4 on taxes now contains an expanded discussion of death taxes that was previously contained in a separate chapter on estate planning.
  3. The in-depth review of the rule of 78 has been moved to the appendix to Chapter 6.
  4. In the chapter on consumer durables (Chapter 7) the discussion of home appliances has been eliminated. It has been replaced by an examination of the electronic marketplace.
  5. The topic of stock and bond investment has been consolidated into one chapter. We eliminated the subtopic of technical stock analysis.
  6. Chapter 15 contains a combined discussion of life insurance and death estate transfers.
  7. Estate planning is no longer discussed in a separate chapter. Estate planning is now more fully integrated with other topics in the text, such as taxes and life insurance.

A New Presentation. We have made some changes in the way topics are presented. First, cash management is now combined with short-term debt management in a section called "Liquidity Management." This treatment is more in line with the actual manner in which households manage their short-term assets and liabilities. Second, the section on investments now appears before the insurance section. Again, this alteration reflects the reality that households first accumulate wealth, and then they protect it. Actually, text adopters can treat the two main topics in either sequence. Third, the topics of insurance protection, retirement planning, and estate transfers have been moved to a separate section at the end of the text. The unifying theme in this section is financial protection. Since decisions regarding insurance are likely to be intertwined with our retirement and estate planning objectives, it seems logical to combine these chapters in a single section.

Expanded Treatment of the Steele Family. The Steeles play a more prominent role in this edition, making it easier for adopters to use this pedagogical item in their discussions and lectures. Each chapter begins with a vignette describing a particular financial planning problem confronting the Steeles. At chapter end, there is a "Follow-Up" on the vignette, which asks students certain questions concerning the problem and how the Steeles might deal with it. The questions are rather broad and open-ended, which should produce lively discussions and differences of opinion.

Internet Exercises. The supplement that accompanied the previous two editions, A Guide to the Internet, has been incorporated directly into the text and is now called "Working Out on the Web: Exercises to Strengthen Your Use of the Internet." The site list has been expanded and updated, and we continue to believe that Internet usage brings a powerful tool to the study of personal finance. (It's difficult to imagine studying investments without using the truly great sites dedicated to this topic!) The exercises show students what is available on the Web and how the sites can help them, long after they have finished their personal finance course.

Thorough Updating of Materials. We have updated each chapter to reflect changes in the financial environment and in financial institutions. Important provisions of the new tax law are reflected in the chapter on taxes and throughout the text where they are applicable. Financial data and statistics with respect to asset returns have been updated in appropriate sections.

DISTINGUISHING FEATURES OF THE TEXT

Decision-Making Approach. We continue using a four-part approach to decision making that involves setting goals, listing alternatives, measuring performance, and evaluating achievement. Important in this process are the concepts of opportunity costs and marginal analysis. These topics are introduced and explained in Chapter 1 and are used extensively throughout the text.

An Emphasis on Risk and Return. At the core of financial decision making is the balancing of risk and return. This concept applies in particular to investments, but it is also useful in other decisions that involve uncertainty; thus, there is an expanded discussion of risk management in the insurance section. In the investment section, we treat risk in such a way that students can use the concept when making investment decisions. Readers, thus, gain a practical tool as well as an understanding of the basic principles.

Integration with the Internet. The Internet is thoroughly integrated throughout the sixth TOPIC LINKS edition. Noted previously are the Internet exercises. In addition, we continue to feature Topic Links, which you will find identified in the margins throughout each chapter. Whenever you see the Topic Links icon, go to the Winger/Frasca Web site (www.prenhall.com/winger) for a direct hyperlink to a topic source.

Focus on the Time Value of Money The growing importance of achieving long-term goals through investing has increased the need for students to grasp the time value of money. Our explanation and use of these techniques are simple and well within the grasp of most students.

An Illustrative Family. As part of the decision-making approach, we continue to highlight a typical American family, the Steeles. Their financial situation is far from perfect, and, like most of us, they make mistakes. The Steeles' financial situation has been updated and revised. They still manage to live a reasonably comfortable and financially secure life, but they are encountering growing financial pressures as they consider their future needs to educate their children and to provide an income for themselves in retirement. The Steele family appears in every chapter, where they encounter problems common to most families. As they deal with them and make decisions, so does the reader.

Boxed Features. Each chapter contains featured items that have been selected specifically for this edition to add interest and to provide background. All boxes have been selected to fit into three themes: Saving Money, Simplifying Financial Planning, and Personal Finance News. These themes focus student attention and often include practical and useful information.

The Use of Color, Graphics, and Other Visual Aids. The sophisticated graphic treatment in this text is meant to heighten interest in the topic at hand and to illustrate the concept in a concrete and effective way. The illustrations are both analytical and inviting.

An Informal Writing Style. To help the reader comprehend the many complex aspects of personal finance, we employ an informal writing style that brings the student into the discussion without simplifying the concepts involved. We have been careful to explain new or unfamiliar terms, to use examples where appropriate, and to speak engagingly to the student.

A Complete Complement of End-of-Chapter Lea...

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