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USA National Standards for Concept "Risk Management"

Financial Literacy 4 - USING CREDIT: Credit allows people to purchase goods and services that they can use today and pay for those goods and services in the future with interest. People choose among different credit options that have different costs. Lenders approve or deny applications for loans based on an evaluation of the borrower’s past credit history and expected ability to pay in the future. Higher-risk borrowers are charged higher interest rates; lower-risk borrowers are charged lower interest rates.

At the 4th grade level, students should understand the concept of credit and the cost of using credit—namely, the obligation to repay what is borrowed plus interest on the amount borrowed. Students should recognize that a reputation for repaying loans contributes to a person’s ability to obtain loans in the future. At the 8th grade level, attention turns to why people use credit, the sources of credit, why interest rates vary across borrowers, and the reasons for using credit to invest in education and durable goods. Students should be able to make basic calculations related to borrowing, including principal and interest payments as well as compound interest. At the 12th grade level, the focus is on credit reports, credit scores, behaviors that contribute to strong credit reports and scores, and the impact of credit reports and scores on consumers. Consumer protection laws as they apply to credit and credit card use are also covered.

Financial Literacy 5 - FINANCIAL INVESTING: Financial investment is the purchase of financial assets to increase income or wealth in the future. Investors must choose among investments that have different risks and expected rates of return. Investments with higher expected rates of return tend to have greater risk. Diversification of investment among a number of choices can lower investment risk.

At the 4th grade level, students begin to understand that investment means using resources to expand an individual’s or business’s abilities to produce in the future. A financial investment is using one’s savings to purchase financial assets with the goal of increasing one’s income and/or wealth in the future. At the 8th grade level, students will understand the variety of possible financial investments and be able to calculate rates of return. At the 12th grade level, students are expected to be able to explain the relevance of and to calculate real and after-tax rates of return. They will be able to discuss how markets cause rates of return to change in response to variation in risk and maturity. Students will explain how diversification can reduce risk. Students will understand how financial markets react to changes in market conditions and information.