AFN 221

Personal Finance

Lecture Topic:
Course Overview & Introduction

Andreas Milidonis
Department of Accounting & Finance
University of Cyprus
Email: Andreas.Milidonis@ucy.ac.cy

Introduction to Course

 Lectures: 221.1 on M/T @ 12:00-13:30

221.2 on M/T @ 13:30-15:00
 Assessment: Project 25%
Midterm Exam 30%
Final Exam 45%
 Textbooks: Personal Finance, 13th Edition
 Syllabus: Includes outline and readings
 Twitter hashtag: #χρηματοοικονομική_παιδεία LINK
(which means financial education)
 Other relevant Twitter hashtags:
#ucyafn (for accounting and finance students)
#ucymba (for MBA students) 2
 Instructor’s Profile (1/2)

• Instructor: Andreas Milidonis

• Originally from Cyprus
• B.Sc. In Actuarial Science and Mathematics
― Pennsylvania State University, USA – May 2001
• Towers Perrin (2 years work experience) - USA
― Actuarial/Pension Consulting Company
• Ph.D. Risk Management & Insurance
― Georgia State University, USA - December 2006
• Also spend time at Manchester Business School (UK) and
Nanyang Business School (Singapore).

Instructor’s Profile (2/2)

• Consulting experience in the US, UK, Europe.

• Consulting projects on:
― Bank risk assessment and supervision
― Insurance pricing and valuation
― Pension valuation
― Business analytics
• Consulting services to the following (among others):
― European Central Bank
― Central Bank of Cyprus
• Website: www.amilidonis.com

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 Lecture notes

Lecture notes are based on:

• The book “Personal Finance” (see syllabus)

• Material developed by the Global Financial Literacy

Excellence Center, and Professor Annamaria Lusardi
• Web page: http://www.gflec.org

• Material relevant to Cyprus and Europe.

Assessment

• Project (25%):
― In a group of up to 3 people
― Real life application (to be discussed later)

• Midterm Exam (30%) to be based on:

― Lecture notes
― Lecture discussions (e.g. financial news)

• Final Exam (45%) to be based on:

― Lecture notes
― Lecture discussions (e.g. financial news)
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 Learning Outcomes for Course (1/2)
Students expected to:

• To become familiar with the time value of money, compound

interest, inflation, risk, diversification.
• To understand the multiple dimensions of personal financing:
education, career planning, money management, credit, taxes,
insurance, retirement.
• To learn how to manage personal finances: savings plans and
payment accounts, consumer credit and loans.
• To learn how to make major purchasing decisions: purchasing
strategies, consumer protection, cost of credits, buying a car,
buying a house.

Learning Outcomes for Course (2/2)

Students expected to:

• To learn how to insure your resources: automobile and house,

health and disability, life.
• To understand the fundamentals of investing: stocks, bonds,
mutual funds, real estate, other alternatives.
• To think about the distant future: family, retirement.
• To learn about financial institutions: Banks, insurance
companies, pension firms, investment advisors, Financial
Ombudsman.

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 “Concept Map” for the Course

Introduction Interest Rates Inflation & Time

Money Management

Savings Consumer Borrowing

(Credit)

Review & Midterm Exam

Mortgage Insurance & Risk Investing

Management

Retirement Risk & Return Biases

Review & Final Exam

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Personal Financial Facts about Cyprus

Over the next few weeks we will learn about several

financial economic characteristics related to Cyprus:

• Average / median income

• Debt to income
• Non performing loans
• House ownership
• Car ownership
• etc

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 Financial Knowledge in Cyprus (1)

 Study by Andreou and Philip (2018).

 Survey interviews 881 university students in Cyprus from the five
largest universities, whose age ranges typically from 18-24.
 Study tests knowledge on typical concepts used in personal
finance such as: Interest rates/ Inflation / Risk / Diversification.
Percentage of student who answered correctly:
 6 out of 6 questions => 6%
 4 out of 6 questions => 37%

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Financial Knowledge in Cyprus (2)

New research by the
Central Bank of
Cyprus
• Study confirms
need for
improving
financial literacy
in Cyprus.

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Financial Knowledge in Cyprus (2)
New research by the Central Bank of Cyprus

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Financial Knowledge in Cyprus (2)

New research by the Central Bank of Cyprus

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Financial Knowledge in Cyprus (2)
New research by the Central Bank of Cyprus

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Financial Knowledge in Cyprus (2)

New research by the Central Bank of Cyprus

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 Financial Knowledge in Cyprus (2)
New research by the Central Bank of Cyprus

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Chapter 1
Personal Finance Basics and the Time
Value of Money
 Personal Financial Planning

What is Personal Financial Planning? ….

The process of managing your money to achieve personal

economic satisfaction

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Advantages of Personal Financial Planning

• Increased effectiveness in obtaining, using, and protecting

financial resources
• Increased control of one’s financial affairs by avoiding excessive
debt, bankruptcy, and dependence on others
• Improved personal relationships
• Enhanced freedom from financial worries obtained by looking to
the future, anticipating expenses, and achieving personal
economic goals

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 The Financial Planning Process

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Step 1 in the
Financial Planning Process
DETERMINE YOUR CURRENT FINANCIAL
SITUATION
• Evaluate income, savings, living expenses, and debts.
• Prepare a list of current asset and debt balances and amounts
spent for various items.
• Match financial goals to current income and potential earning
power.
– More to come on this in Chapter 3.

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 Step 2 in the
Financial Planning Process
DEVELOP FINANCIAL GOALS
• Identify feelings about money and the reasons for those feelings.
• Determine the source of your feelings about money (facts or
influence of others).
• Determine the basis of your financial priorities (social pressures,
household needs, or desires).
• Decide on specific financial goals to pursue for your situation.

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Step 3 in the
Financial Planning Process
IDENTIFY ALTERNATIVE COURSES OF ACTION
• Common courses of action include:
– Continue the same course of action.
– Expand the current situation.
– Change the current situation.
– Take a new course of action.
• Creativity in decision making is vital for effective choices.
• Electing to “do nothing” can be a dangerous alternative.

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 Step 4 in the
Financial Planning Process (1 of 2)
EVALUATE YOUR ALTERNATIVES
• CONSEQUENCES OF CHOICES
– Opportunity cost: What you give up by making a choice.
– The cost, or trade-off of a decision, cannot always be
measured in dollars.
• May refer to the value of money or time that you give up.
– Decision-making will be an ongoing part of one’s life.
• Consider the lost opportunities that will result from each
decision.

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Step 4 in the
Financial Planning Process (2 of 2)
EVALUATE YOUR ALTERNATIVES
• EVALUATING RISK
– Uncertainty is a part of every decision.
– Consider inflation risk, interest rate risk, income risk,
personal risk, and liquidity risk.

• FINANCIAL PLANNING INFORMATION SOURCES

– To minimize risk, gather relevant information from print
media sources, financial institutions, and financial specialists.

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 Exhibit 1-2: Types of Risk

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Step 5 in the
Financial Planning Process
CREATE AND IMPLEMENT YOUR FINANCIAL ACTION
PLAN
• Develop an action plan that identifies ways to achieve financial
goals.
• Possible action plans can be increasing savings, reducing spending,
increasing income by working extra hours, or making provisions
for taxes.
• To implement action plans you may need assistance from others.

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 Step 6 in the
Financial Planning Process
REVIEW AND REVISE YOUR PLAN
• Financial planning decisions need to be assessed regularly.
• A complete review should be done at least once a year.
• More frequent reviews may be required for changing personal,
social, and economic factors.
• Regular reviews of decision-making process can help in making
priority adjustments to achieve financial goals.

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Influences on Personal Financial Planning

The Financial System and Economic Factors
• The financial system and daily economic activities influence
personal financial decisions.

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Exhibit 1-5: Changing Economic Conditions and
Financial Decisions

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Inflation and deflation

• Consumer Prices
- Inflation is a rise in the general level of prices.
- Rule of 72
• Divide 72 by the annual inflation (or interest) rate
• Example: An annual inflation rate of 4% means
prices (or your savings) will double in 18 years
(72/4 = 18)
- Deflation, a decline in prices, can also have damaging
economic effects.

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 Select a Path to Financial Security
• Do something
– Save for emergencies and the future.
– Maintain a low level of debt.
– Have a risk management plan.
• Avoid excuses
• Rate your current situation
• Set your mission
– Develop a personal finance mission statement.

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Personal Financial Goal-Setting Guidelines

Goals should be S-M-A-R-T:

• Specific: know exactly what your goals are to create a plan
• Measurable: with a specific amount
• Action-oriented: identify the personal financial activities
you will undertake
• Realistic: utilizing your income and life situation
• Time-based: identify the time frame to achieve the goal

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 Opportunity Costs and the Time Value of Money

Calculate time value of money to analyze personal financial

decisions.

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Achieving Financial Goals

Identify strategies for achieving personal financial goals for different
life situations.

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 Chapter 2
Financial Aspects
Of
Career Planning

Career Choice Factors

Describe activities associated with career planning and
advancement.

• Job is an employment position obtained mainly to earn money.

– Most people change jobs several times during a lifetime.

• Career is a commitment to a profession that requires continued

training.
– Career selection and professional growth require planning.

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 Trade-offs of Career Decisions
• Career choice and professional development alternatives have risks
and opportunity costs.
• Career choices require periodic evaluation of trade-offs related to
personal, social, and economic factors.
• The skills gap—the difference between skills needed by employers
and the skills possessed by applicants—is an ongoing concern.
– Employability skills are also missing in many potential employees.

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Career Training and Skill Development

• Level of formal training affects financial success

• Training may be viewed in two main categories:
1. Technical Skills
– refers to specialized career training for a specific
profession
2. General Skills
– are traits adaptable to most work situations, called social
intelligence
– some can be acquired at school while others require
experience

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 Exhibit 2-1: Education and Income

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Earnings over a lifetime

Source: Tamborini, Christopher R., Chang Hwan Kim, and Arthur Sakamoto. 2015. “Education and Lifetime Earnings in the United States.”
Demography 52: 1383–1407.

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 Personal Factors

• A satisfying career may be identified using guidance tests that

measure abilities, interests, and personal qualities.
– Aptitudes
– Interest inventories
– Your personality
• Do you perform best in structured or high-pressure
situations, or do you prefer unstructured or creative work
environments?
– Personal S-W-O-T analysis

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Career Decision Making

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 Social Influences (1 of 2)

Demographic Trends
Single and working parents More food service and child care

Leisure time More interest in health, fitness,

technology, and recreation
Longer lifespans Demand for travel, health care,
and retirement facilities

Employment training Demand for teachers, corporate

trainers, and related careers

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Social Influences (2 of 2)
Geographic Trends
• Where jobs are (salaries, living costs)
• The Geographic Buying Power Formula is used to compare
living costs and salaries in different cities.
City 1 Index number × Salary = $ buying power
City 2 Index number
- For example, a person earning $30,000 in Nebraska
would need to earn $39,550 in Chicago to have
comparable buying power.
Chicago 123 × $30,000 = $39,550
Nebraska 93.3
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 Tax-Equivalent
Employee Benefits
• Employee benefits that are nontaxable have a higher financial
value.
• Calculate the tax-equivalent value of a nontaxable benefit:
Value of the benefit / (1 − Tax rate)
• For example, receiving a life insurance policy with a nontaxable
annual premium of $350 is comparable to receiving a taxable
employee benefit worth $486 if you are in the 28% tax bracket.
$350 / (1 − 0.28) = $350 / 0.72 = $486

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Applying for Employment

• Résumé is a summary of a person’s education, training,

experience, and other job qualifications
• Cover letter accompanies a resume and expresses interest in a
job and interest in obtaining an interview
• Interview

See Chapter 2 Appendix for detailed help in these

areas.

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 Changing Careers

• Changing jobs may be more difficult than selecting the

first job.
• Carefully assess the financial and personal costs and
benefits of changing careers.
• Determine whether a career change will serve your
needs and goals.

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Forced Career Changes

• To cope with difficult career situations:

– Acknowledge stress, anxiety, frustration, and fear.
– Maintain appropriate eating, sleep, exercise, and social
activities.
– Determine sources of emergency funds and cut
unnecessary spending.
– Expand networking activities through professional
organizations, community activities, and volunteering.
– Seek an assessment of your competencies and
experience from others.
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 How to stay competitive

• Diversify your resume!

• Do you want to pursue a degree in ABC?
• Good! Make sure you differentiate yourself from your
classmates on more dimensions than grades.
• The university offers plenty of opportunities to get
exposure to courses from other fields (Accounting,
Finance, Economics, Marketing etc.) or disciplines
(Languages, Engineering, Sciences.) Use them!

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How to stay competitive

• Many AFN graduates return back 5+ years after

graduation for advice on career change.
• Consider a minor in another field.
• Explore MSc alternatives through UG courses.
• Travel – Erasmus opportunities.
• Engage with foreign students.
• Improve career skills through personal study and
online courses.

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 Summary
• Course overview
• Steps of personal financial planning
• Types of risks we face
• Financial goal setting and achieving
• Career choices and design
• How to stay competitive

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