Provide a brief description of the individual or family’s current financial situation. Discuss the financial strengths and weaknesses of the individual or family’s situation.

Assignment Question

Throughout the course you will learn some of the basic and, on a day-to-day basis, the most useful tools to assess consumer finance. The purpose of this project is to provide a “hands-on” experience to use the personal finance concepts you will have learned throughout the course and apply these to a “real life” situation. The financial cases are listed at the end of this document.

Final Report: • Length: The whole report should be 2-3 pages. • Tables and figures: Students are encouraged to make and use tables and figures to convey information and support their arguments. However, the tables and figures should be carefully chosen and well explained. • Reference: Use MLA System of Referencing. To avoid plagiarism, you must fully reference each source of information that you use in your report. • Font and font size: Times New Roman, 12 • Double line spacing

Presentation Project: You choose one case study below on an individual or family’s financial situation.

Suppose you are the financial advisor for the individual or family in your case and: • Provide a brief descriiption of the individual or family’s current financial situation. • Discuss the financial strengths and weaknesses of the individual or family’s situation. • Explain any misunderstanding the individual or family has about financial issues. • You should comment about their cash flow situation. • Use appropriate ratios to discuss the financial situation of the individual or family. • You should also calculate the savings required to reach financial goals. You are also asked to provide 2 recommendations that the individual or family should implement to improve their financial situation. Feel free to add any other information you think would improve the financial position of the individual or family.

Case Studies:

Case 1: Dave and Sue Johnson Meet Dave and Sue Johnson. Dave is a 34 year-old policeman and the sole breadwinner, earning $77,000. He is eligible for a pension when he is 48, after 25 years with the force. They have a 6 year- old daughter Lily, who is in kindergarten, and a two year-old son Sam, who attends day-care. As a young family, the Johnsons will be facing many financial challenges that will require them to practice thorough financial decision making and planning. Their short-term goals involve replacing their cars and enrolling in an automatic mutual fund investment program. In the long-term, Dave and Sue are worried about the cost of college and their retirement. Their approximate monthly expenses are $2,900 but they aren’t completely sure of this. This includes a $1,400 mortgage payment on their home which values at $250,000. Dave saves $300 a month in a deferred compensation plan. They have $1,000 of investments in stocks and $2,000 in mutual funds. They also have $75,000 net worth including $4,000 CD, $3,000 in checking, $5,500 of life insurance cash value, their home, and two aging cars worth roughly $2,000.With regards to the family’s debt, $170,000 mortgage balance and a credit card bill of $2,000. The Johnsons have life insurance policies that total $450,000 on Dave, which $300,000 is through work, and $75,000 on Sue but they do not have disability coverage which is a concern given Dave’s dangerous occupation. Dave’s job provides health insurance for the entire family. The liability limits for their automobile and homeowner’s policies are $350,000. The couple does not have IRAs. Dave will receive a traditional benefit pension based on his income and the years of his service. Due to the fact that he will be relatively young when he is eligible to receive these benefits, he plans on working in a similar field well into his 60s. One fault in the Johnsons financial planning is their lack of a will as they are not sure who to list as the guardian of Lily and Sam.

Case 2: Harry and Joanna Smith Joanna and Harry Smith both aged 30 and non-smokers, are married and live in Staten Island. They are trying to prepare financially and want to buy a house, a car, and pay for Harry to complete his college degree. However, their chief financial goal is to reduce debt and produce positive cash flows. The Smiths have very little savings. In February 2015, Joanna gave birth to their first child, James who is now in pre-school. Joanna is a stay-at home mom while Harry is the sole breadwinner and earns $55,000 annually. Joanna hopes to return to the labor force but is worried about child care costs. The couple are starting to experience some financial difficulties, mainly with the monthly payments on their debts which is consuming a larger percentage of their income and also their mortgage. Both of these expenses don’t leave much room for anything else. The family has zero money in savings. In addition, the Smiths have a negative net worth. Their total assets total $103,000 which includes $2,000 in their checking account, $4,000 in Harry’s 401(k), a $85,000 townhouse, and one car and personal property totaling $12,000. With regards to their debt, they owe $85,000 on their mortgage, a personal loan of $8,000, $10,000 on a visa card, and they owe Joanna’s parents $15,000. Harry hopes to retire when he is 57. The couple does not have IRAs, however Harry contributes to his 401(k). They have a life insurance policy on Harry of $250,000 and family health insurance with a maximum limit of $200,000 per person through Harry’s employer. There is no disability insurance to cover Harry’s income should anything happen. They have $200,000 liability insurance on their car and $50,000 on their townhouse. They do not have a will because they feel it is too expensive to pay for a lawyer and they aren’t sure how to do it without a lawyer.

Case 3: Rick Harvey Rick Harvey, aged 48 and a teacher. Rick is a widower and has two children aged 19 and 20, both in college. He has been working as a teacher for 25 years and currently earns a salary of $70,000 annually, plus $15,000 from a part-time business that he hopes to expand after he retires. He hoped to retire at age 57 but doesn’t believe that is still going to happen. He participates in a defined benefit pension plan and his future benefits will be determined by his years of service divided by 60 multiplied by the average of his highest three-year’s salary. In retirement, he will also be able to get employer-paid health insurance. Rick’s net worth is $300,500, $150,000 of which was received from the life insurance benefits following the death of this wife. $100,000 of this life insurance money was used to pay off consumer debts and new investments in a mutual fund. He has been living beyond his means for a long time now and has uninsured medical bills totaling $320,000 from his wife’s illness. He plans on closing some of his credit card accounts as the interest payments are extremely high. Because of his overspending and late payments, Rick has a relatively low credit score of 560. With regards to his assets, Rick has $1,500 in checking; $4,500 in savings; $5,000 in CDs currently paying 4.8%; $85,000 in his 403(b) plan; $25,000 in an IRA; $15,000 in two growth mutual funds; a car worth $15,000, a $150,000 house; and personal property worth $55,000. With regards to debt, Rick only has $50,000 remaining on his mortgage. His monthly expenses average roughly $4,000 but he isn’t really sure about this. The main expenses are a $1,250 mortgage payment, a $600 car payment, and $400 child support from a previous marriage. He puts $700 a month in his 403(b), which is invested in two stock funds and two bond funds offered by the provider. He is still learning about investing but has been experiencing portfolio losses. He used to have 100% of his 403(b) plan deposits going into stock funds but has since lessened the percentage back to 60%. Rick has no will and a $300,000 term life policy that still includes his deceased wife as sole beneficiary. He does not have disability coverage except for short-term state benefits.

Case 4: Peter and Pamela Gibson Peter (aged 62) and Pamela (aged 58) Gibson are hoping to retire within two years. Their short-term financial goals are to pay off nearly $10,000 of credit card debt and spend $7,000 on their daughter’s wedding. They want to pay off their $70,000 mortgage, which has 8 years left. They also hope to buy a new car, travel, and do some work on their aging home. The Gibson’s long-term goals are to just enjoy life and have sufficient funds to do so. Peter and Pamela both have jobs that total $80,000 together, which equates to roughly $5,000 a month in gross earnings. Their expenses are estimated to be $3,000 for household expenses, which includes the $900 mortgage principal and interest, $400 in property taxes, $300 utilities, $300 for insurance, and $300 for a brand new car loan with 52 payments remaining. They help their younger child with living expenses totaling $800 a month. With regards to their assets, they have no cash assets, but have their $250,000 house, $230,000 in Peter’s company profit-sharing plan, two cars worth $20,000 together, and $75,000 of personal property. For debt, they owe $70,000 on their mortgage, $12,000 for their car loan, $10,000 on visa credit cards, and $4,000 on a personal loan. Peter and Pamela have health insurance through Peter’s employer for a premium payment of $100 a month. However, in 3 years Peter will be able to receive Medicare. Pamela will still receive health insurance through Peter’s company but at a higher premium of $350, once Bruce retires. The couple does not have disability insurance. Their home and auto coverage have $300,000 liability limits. They may inherit $150,000 from Pamela’s father. Neither Peter nor Pamela have IRAs, although Pamela’s company offers a 401(k). They each have wills that were revised six years ago but have been told by their attorney to get a living will.

Case 5: Monica Sanders Monica Sanders is 48 and recently lost her job and her company has filed Chapter 11 bankruptcy so she doesn’t have any health insurance. Prior to being laid off, Sanders earned $25,000 annually and $12,000 annually from two part-time jobs. Her annual income has now dropped from a total of $37,000 to $12,000. She hopes to increase her hours at the two part time jobs immediately. Monica is divorced with two grown children. One lives with her rent-free. She rents a condo for them for $700 a month including utilities. She also has a car payment of $200 a month and pays $150 monthly on $6,000 of credit card debt. She has no idea how she is going to afford her expenses after losing her job. She estimates that she is spending roughly $500 a month more than she currently earns. She has $7,000 in savings from an inheritance she received when her father passed a few years ago. Monica says she has lived “paycheck-to-paycheck” for as long as she can remember. She has 100/300/50 of auto liability coverage. She has no life, disability, or renter’s insurance. Her assets total $23,500, which include $7,500 in a 1.3% bank savings account; $1,500 in her checking account; $7,500 in an IRA invested in three CDs; a $4,000 car; and $3,000 of personal property. Her debts include $1,250 on her car loan and $6,000 on three credit cards. She doesn’t see herself retiring anytime soon as her future pension benefits are uncertain, since the company is filing for bankruptcy. Monica does not have a will as she can’t afford a lawyer. Her ex-husband is still listed as the beneficiary of her IRA.

Case 6: Neil and Rachel Greenwood Neil (aged 50) and Rachel (aged 49) Greenwood live in Massapequa and are having a tough year. Neil was diagnosed with cancer. While receiving treatment, he received paid sick leave from one of his jobs. However, he was unable to operate his sideline landscaping business, so the Greenwoods income decreased by almost $10,000. They also were hit with $15,000 of uninsured medical bills. This was a surprise to Neil and Rachel who thought they had good health insurance, paying $2,500 for health insurance through his employer. This health insurance plan covers the couple and their 10 year old son Josh. They found out that they were responsible for 20% of the cost of chemotherapy and other certain tests. If they had been in the HMO or PPO plans through Neil’s employer they would’ve been covered and this would’ve cost less than their current plan. The couple are contemplating switching to a different health care plan for future treatments for Neil. To pay for the unexpected medical bills they had to withdraw $15,000 from savings. They charged their medical bills to a point-based credit card in order to get points toward a new car. They were able to pay the credit card bill off with money from the CD that was meant for Josh’s college expenses. They try to always pay off their credit cards. They also had an increase in “secondary” expenses of Neil’s illness, including countless trips to the hospital and telephone bills to doctors and family members. Neil recently purchased a new cell phone plan with more minutes to help this extra expense. Neil and Rachel earned $84,000 last year, Neil earned $36,000 and Rachel $46,000, which roughly equaled $6,000 a month in gross income. Their expenses include $3,000 of household expenses. They also contribute 10% of each of their salaries to a tax- deferred employer retirement savings plans. They also contribute $2,000 each to IRAs. Neil hopes that he will be able to continue his landscaping business in the next year. The Greenwoods assets include $1,500 in checking and savings, $22,000 in CDs (for Josh’s college costs), $125,000 in 401(k) s, two cars worth $17,000, a $200,000 house, and $4,000 in personal property. Their debts include $20,000 home equity loan, $4,000 on car loans, and $90,000 mortgage. Since the recent illness with Neil, the Greenwood’s are concerned about their life and disability insurance. Together they have $160,000 term life insurance policies. Neil’s job also provides coverage equal to three times his salary. They do not have disability coverage however Neil has accumulated 170 sick days. Neil and Rachel have been talking about retirement as they had originally planned to work until age 65, but since Neil’s health issues, they think 55 would be better. Neil would then solely manage the landscaping business. They do not have wills.

Case 7: Andrew and Caroline Watson Andrew, aged 40, and Caroline, aged 38, have been experiencing some financial difficulties lately. Caroline has been disabled and unable to work for the past 6 months. She is still waiting to hear about her application for Social Security disability. Caroline used to make $25,000 annually and Andrew makes $35,000. Whilst their income has decreased their expenses have increased. Their credit card balances equate to $9,000 and Caroline has to pay $400 out-of-pocket for medication. The Watson’s know they have a cash flow crisis and are spending more than they are making but they aren’t sure by how much. They have spent the majority of their emergency savings fund which is now down to $1,000, less than just one month’s expenses. The Watson’s largest household expense is their $1,200 mortgage payment. The interest rate is charged at 7%. They are also paying the minimum payment for their credit cards of $200 a month and have a $300 car lease payment. Their assets include $1,300 in a passbook bank account, $1,900 in checking, and $2,500 of life insurance cash value, $100,000 townhouse, and $18,000 of personal property. Caroline had a 401(k) with her previous employer but spent the balance of $3,000. Debts include a $90,000 mortgage balance, $9,000 on four credit cards, and $1,500 on Andrew’s car lease. They just received a penalty for not paying their credit cards by the due date with a $30 late fee. The APR on that same credit card has increased from only 13% to 25%. The couple each have $50,000 life insurance policies and their health insurance is paid by Andrew’s employer. They don’t have disability insurance, except for the short-term state benefits. Their townhouse and car insurance have $300,000 liability limits. They do not have a will. They have never calculated what they need to save for retirement. They hope that Andrew can retire at 67, as he will then receive unreduced Social Security benefits.

Case 8: Judy Taylor Judy Taylor is a widow at age 49. She has to make many important financial decisions after her lifestyle has changed drastically. Judy and her deceased husband earned $150,000, of which Judy earned $50,000. Since she has lost a significant portion of her income she is concerned with maintaining her household. She is also worried about managing the $300,000 life insurance policy and $80,000 IRA account from her late husband. Judy’s assets include $900 in checking and $310,000, most of which is the insurance settlement, in a bank account paying 1.7% interest. She also has the $80,000 IRA balance, $15,000 in stocks that she is not sure how to manage, a $10,000 car, a $250,000 home, and $15,000 in personal property. Judy also has a significant amount of debts, including $5,000 remaining on her late husband’s car lease, a $70,000 first mortgage, an $80,000 second mortgage, and $20,000 on credit card debt ($10,000 of which includes funeral expenses). Judy’s monthly expenses are roughly $5,000 but she isn’t really sure. The biggest expense is $2,500 per month on the home mortgages. This is more than half of Judy’s gross income. She is considering paying off both mortgages with the insurance money. Judy hopes to live in her house for another 10 years. Her two children are in their late teens and still live at home. Judy hopes to retire at age 62 and will be eligible for a pension and Social Security, but she has no retirement assets of her own. She describes herself as the spender and her late husband as the saver in the family. She hopes to rollover his IRA into her name and leave this for when she retires. Judy has health insurance through her employer which covers her and her children. It has a $1 million of major medical coverage limit. She has $100,000 of life insurance but no disability insurance. The liability coverage limits on her car and homeowner’s policies are $250,000.

Case 9: Albert Price Albert Price is 52 and plans to retire early this year. He is a policeman with the New York State Police and will have 26 years of service. Regulations state retirement from the State Police is mandatory at age 55. His many years of service make him eligible for retiree health benefits. He will also enrol in the State Health Benefits Program to receive pay for continued health coverage for himself and eligible dependents for a lifetime. Albert never married and earns $80,000 annually from his job and earnings on investments. His many years of frugal living have paid off. He buys “new old cars”, makes regular deposits to investment accounts and lives below his means. His assets consist of $12,000 in checking and savings; $20,000 in four $5,000 CDs; a $350,000 house; $320,000 in a tax- deferred savings plans; $240,00 in three index funds; $60,000 in IRAs; and $90,000 in personal property. Albert pays his credit card bill in full each month and therefore pays no interest. He tries to charge large items on his GM credit card towards dollars for an automobile. His only debts are $40,000 remaining on a refinanced mortgage and $10,000 in car loan payments. Albert follows the adage “pay yourself first” by contributing the maximum allowed to his tax-deferred savings plan. He also contributes the maximum to his IRA and deposits $150 monthly to each of the index funds. Albert’s monthly household expenses total $3,000 including mortgage payments, taxes, utilities, insurance, and food. Albert’s homeowners and auto insurance has a $300,000 limit and he has a $30,000 whole life policy. He has health, life, and disability coverage form his employer. After, Albert retires he hopes to teach at a police academy.

Case 10: Hannah and Paul Trimble Hannah and Paul Trimble, 58 and 63, are looking ahead to retirement early next year. They are thinking about moving to Florida. Paul is the sole breadwinner and earns $65,000, plus an additional $9,000 from investments. The Trimble’s can be considered “millionaires next door”. They have no debt and the following assets: $30,000 in a 2% bank passbook account; $350,000 in stocks; $200,000 in Paul’s 401(k); $25,000 in an annuity; $215,000 in mutual funds; $20,000 in whole life insurance; their $200,000 home; and $10,000 of personal property. Paul contributes 15% of his salary to the 401(k) and has done so for many years. However, neither Hannah nor Paul has an individual retirement account (IRA). The couple’s monthly expenses total $1,600. The Trimble’s are worried about the future cost of health care and realize that one of their bigger expenses in retirement will be health insurance. Currently, Paul gets health insurance through his employer, which covers both him and Hannah. His employer also matches his 401(k) contribution up to the first 8% of pay. Their auto and homeowners have $500,000 of liability coverage in total. The Trimble’s are thinking of tapping their $25,000 of life insurance cash value. Taxes were mentioned several times as a major concern. The Trimble’s taxable income is $60,000. If their adjusted gross income in retirement exceeds $44,000, 85% of their Social Security benefits will be taxed. The Trimble’s never had children and do not have wills