Personal Finance 12th Edition Ebook PDF

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ABOUT THE AUTHORS vii
hers. Each year she shares her common sense approach

Melissa M. Hart, CPA of “No plan is a plan” with various student groups, clubs,
North Carolina State University high schools, and outside organizations. She is a mem-
ber of the North Carolina Association of Certified Public
Melissa Hart is a permanent lecturer in the Poole Col- Accountants (NCACPA) where she serves on multiple
lege of Management at North Carolina State Univer- committees. She received her BBA from the University
sity. She was inducted into the Academy of Outstanding of Maryland and an MBA from North Carolina State
Teachers and nominated for the Gertrude Cox Award for University. Prior to obtaining an MBA, she worked eight
Innovative Excellence in Teaching and Learning with years in public accounting in auditing, tax compliance,
Technology. She teaches courses in personal finance and and consulting. Her hobbies include keeping up with
corporate finance and has developed multiple ways to her family’s many extracurricular activities and travel-
use technology to introduce real-life situations into the ing. She travels extensively with her family to enjoy the
classroom and online environment. Spreading the word many cultures and beauty of the state, the country, and
about financial literacy has always been a passion of the world.
Preface
Dear Personal Finance Professors and Personal Finance
Students,
Just for a moment consider how the following questions
affect you and your students.
Will consumer prices begin to escalate?
Does Brexit deteriorate the world economic outlook?
How might an economic slowdown in other countries
affect you?
Is this a good time to purchase a home?
Will the Dow Jones Industrial Average rise to record
levels or crash again?
Are you saving enough for your retirement?
Will Social Security be around when you retire?
For most people, the answers to the above questions affect
not only their financial security, but also their quality of
life. In fact, for many individuals the financial crisis of
2007–2009 was a wake-up call that forced them to exam-
ine how they managed their personal finances. These same
economic problems had far reaching consequences, in terms
of employment, housing, investing, and retirement plan-
ning. The possibility of another economic crisis in the future
underscores the importance of managing your personal
finances and your investment program.
As authors and teachers, we believe it is important to
help people develop a plan to achieve financial security.
While the 12th edition of Personal Finance does not guarantee that each student will be able to get the ideal job or
become a millionaire, it does provide the information needed to take advantage of opportunities and to help manage
personal finances. As in previous editions, we address the changing financial needs and challenges that students face
on a daily basis. The 12th edition of Personal Finance provides extensive coverage of career planning; money manage-
ment; taxes; consumer credit, including college loans; housing; legal protection; insurance; investments; retirement
planning; and estate planning. By teaching students how to make informed choices, we believe you can encourage them
to build a foundation of financial security.
For 12 editions, we have listened carefully to both students and professors. With each revision, we have asked profes-
sors for suggestions that will help them teach better and help students learn more efficiently. And with each edition,
we have incorporated these suggestions and ideas to create what has become a best-selling personal finance textbook.
We are also proud to say that we have included extensive student feedback in our text and instructional package. We do
sincerely thank you for your suggestions, ideas, and support.
A text and instructional package should always be evaluated by the people who use it. We encourage you to e-mail
us if you have comments, suggestions, or would like more information about the new edition. Finally, we invite you to
examine the visual guide that follows to see how the new edition of Personal Finance and instructional package can
help your students obtain financial security and success.
Welcome to the new 12th edition of Personal Finance.
Sincerely,
Jack Kapoor Les Dlabay Bob Hughes Melissa Hart

kapoorj@cod.edu dlabay@lakeforest.edu bhughes@dcccd.edu mmhart@ncsu.edu
viii
PREFACE ix
Acknowledgments
The extensive feedback and thoughtful comments pro- Karen Sneary, Northwestern Oklahoma State
vided by the following instructors greatly contributed to University
the quality of the 12th edition of Personal Finance. Joe Welker, College of Western Idaho
NaRita Anderson, University of Central Oklahoma Jerry Whitley, Guilford Technical Community College
Shon P. Anderson, Wright State University Many talented professionals at McGraw-Hill Higher
Allen Arnold, University of Central Oklahoma Education have contributed to the development of
Jorene Batali, College of Western Idaho Personal Finance, 12th edition. We are especially
Stefanie Billette, St. Johns River State College grateful to Michele Janicek, Chuck Synovec, Jennifer
Kevin Cabe, Indiana Wesleyan University Upton, Melissa Caughlin, Harvey Yep, Kristin Bradley,
Mary Carlson, College of DuPage Tara McDermott, Beth Thole, Missy Homer, Karen
Fernando Conde, Columbia College of Missouri Jozefowicz, and Elise Lansdon.
Caroline Fulmer, University of Alabama In addition, Jack Kapoor expresses special apprecia-
Joe Howell, Salt Lake Community College tion to Theresa and Dave Kapoor, Kathryn Thumme,
Samira Hussein, Johnson County Community College and Karen and Joshua Tucker for their typing, proof-
Dianna Parker, Ozarks Technical Community College reading, and research assistance. Les Dlabay would also
Thomas Passero, Owens Community College like to thank Jason Ross, Gene Monterastelli, Bryna
David Pecha, Ph.D., Northwestern Oklahoma State Mollinger, and Kevin Smith for their help reviewing the
University manuscript. Finally, we thank our wives and families for
Thomas Prusa, Rutgers University their patience, understanding, encouragement, and love
Courtney Smith,College of Western Idaho throughout the years.
Personal Finance Offers You Everything You Have

Always Expected . . . and More!
The primary purpose of this book is to help you apply the personal finance practices you learn from the book and from
your instructor to your own life. The following new features of the 12th edition expand on this principle. You can use
them to assess your current personal financial literacy, identify your personal finance goals, and develop and apply a
personal finance strategy to help you achieve those goals. (For a complete list of all of the features in Personal Finance,
12th edition, refer to the Guided Tour on pages xviii–xxiii.)
F INANCIAL LITERACY IN MY LIFE

This edition has moved with a laser-like focus toward the concept of financial literacy. In our many years of teaching
and evaluating what knowledge and skills are most important to the lifelong success of our students, financial literacy—
the ability to understand and interpret knowledge relating to the financial decisions we make—looms largest. We hope
that students will remember all of the details we have put so much time and care into writing, and that you put into
teaching. If nothing else, though, we feel we have been successful if students come out of this course with the skills
required to interpret financial information and to make wise decisions about their own money, and the confidence that
comes with knowing they are able to solve the problems they encounter.
Throughout the text, we spend more time talking about financial literacy. The new chapter opening vignettes ask
questions about “Financial Literacy in My Life.” The Financial Planning features have been tweaked to emphasize “my
life”—the life and decisions that you, the student, will make.
x PREFACE
Chapter Selected Topics Benefits for the Teaching–Learning Environment

Chapter 1 Revised exhibit: Changing economic condi- Provides updated coverage of economic indicators, showing
tions and financial decisions how they might influence financial planning decisions.
New Financial Planning for My Life feature Provides students with a way to assess their financial health
as they get started in building their financial plan.
Revised Dashboard feature Provides an overview of emergency savings funds.
New Continuing Case: Personal Finance Allows students an opportunity to assess various financial
Basics and the Time Value of Money situations and recommend courses of action, based on the
knowledge gained in mastering the chapter material.
Chapter 2 New How to . . . Feature Emphasizes the career planning actions that students can
take to target employment in a particular field.
New Continuing Case: Financial Aspects of Allows students an opportunity to assess various financial
Career Planning situations and recommend courses of action, based on the
New Smart Money Minute feature Discusses the proliferation of new resume templates.
New content: Cover letter tips Covers ways to stand out in a cover letter.
New example: The Q Letter Provides a sample of a Q letter, an alternative to the tradi-
tional cover letter.
Chapter 3 New content: Differing outlooks and atti- Provides information about the different ways that a stu-
tudes toward money dent’s relationship to money may shape a budget.
New content: The phases of the budgeting Organizes the steps that students should take to create and
process implement a budget.
New Smart Money Minute feature Covers statistics on savings behavior.
New Continuing Case: Money Management Allows students an opportunity to assess various financial
Strategy situations and recommend courses of action, based on the
Chapter 4 Updated Smart Money Minute feature Updates statistics on most and least "tax-friendly" states in
the U.S.
Revised content: Tax rates Demonstrates how to calculate total tax due using a tax
bracket schedule, with most current information.
Expanded content: Health care and taxes Updates students on key changes related to the Affordable
Care Act.
Expanded content: Tax credits Covers new tax credits for 2016.
New Smart Money Minute feature Provides information about the benefits of early filing.
Revised content: Contacting the IRS Provides an updated listing of ways to contact the IRS,
including through apps.
New Smart Money Minute feature Discusses the IRS’s increased oversight of tax preparers.
Revised content: Tax scams Describes the latest and most popular tax scams.
Updated Exhibit: How to avoid common Provides an updated, detailed list of steps one might take to
filing errors reduce the likelihood of a filing error.
New Continuing Case: Planning Your Tax Allows students an opportunity to assess various financial
Strategy situations and recommend courses of action, based on the
PREFACE xi

Chapter 5 New Smart Money Minute feature Covers access to ATMs without a traditional debit card.
Updated content: Credit unions Details the changes happening in credit union membership
and services.
Expanded content: The “Unbanked” and Updates coverage of pawnshops, check-cashing outlets,
High-Cost Financial Services payday loans, rent-to-own centers, and car title loans.
New exhibit: Financial services comparison Offers a concise summary of the differences among differ-
ent types of financial institutions.
Updated content: Financial services in other Presents updated information on financial alternatives
cultures around the world.
New Smart Money Minute feature Warns of potential dangers of "phishing."
New Continuing Case: Financial Services Allows students an opportunity to assess various financial
situations and recommend courses of action, based on the
Chapter 6 Updated content: Changes in perception Provides information why many people use credit to live
about credit. beyond their means, and why past generations used it
sparingly.
Updated content: Advantages of credit Describes how most major cards provide benefits, such as
accidental death insurance, collision damage waiver, road-
side services, gift cards, etc., at no extra cost.
New content: Smart cards Includes information that some credit cards include
increased security measures, and discussion of how those
features work.
New content: Use of home equity loans as Expands discussion on the pros, cons, and appropriate uses
credit of home equity loans.
New Smart Money Minute feature Covers how to establish a strong record of credit.
New Smart Money Minute feature Provides information on how to protect your security with
mobile payments.
Updated Exhibit 6-9: Federal government Shows official consumer complaint form.
agencies that enforce consumer credit laws
Updated Exhibit 6-11: Consumer credit laws Provides updated information about federal government
agencies that enforce consumer credit laws.
New Continuing Case: Introduction to Con- Allows students an opportunity to assess various financial
sumer Credit situations and recommend courses of action, based on the
Chapter 7 Updated content: Chapter 13 bankruptcy Updates statistics and fee information on Chapter 13 bank-
ruptcy in the U.S. in recent years.
New Continuing Case: Choosing a Source Allows students an opportunity to assess various financial
of Credit situations and recommend courses of action, based on the
Chapter 8 New content: Factors that influence buying Acknowledgement and discussion that psychological factors
affect buying strategies.
New Smart Money Minute feature Offers tips for living in a frugal and environmentally
friendly way.
xii PREFACE

Chapter 8 New Smart Money Minute feature Discusses new safety features appearing in vehicles.
(Cont.)
New Smart Money Minute feature Offers an explanation of bartering as an alternative way to
exchange goods and services.
New Smart Money Minute feature Provides a breakdown of Consumer Reports’ automobile
testing process.
Updated content: Common frauds Presents an up-to-date discussion of popular cons, includ-
ing new information on crowdfunding and online dating
scams.
Updated content: Prepaid legal services Discusses the questions that need to be asked before hiring
legal assistance.
New Continuing Case: Consumer Purchas- Allows students an opportunity to assess various financial
ing Strategies and Legal Protection situations and recommend courses of action, based on the
Chapter 9 Updated Smart Money Minute feature Offers updated information on the most valuable home
upgrades.
New Smart Money Minute feature Describes the ins and outs of online mortgage companies.
Expanded content: Mortgage applications Offers information on loan estimates.
Updated Smart Money Minute feature Suggests common apps and websites to use in researching
the homebuying process.
New Continuing Case: The Housing Decision Allows students an opportunity to assess various financial
Chapter 10 New content: Strange but true tales of Discusses the strange new world of insurance for any and
insurance everything.
New feature: Flood coverage Lists crucial facts on flooding and flood insurance in
the U.S.
New content: When home insurance cover- Presents the very real dangers of not understanding
ages collide anti-concurrent causation clauses in your home insurance
covereage.
New example: Increase a deductible to Provides a mathematical example to show how paying a
reduce the premium higher deductible affects your premium.
New feature: Pay as you go insurance Outlines how new "pay as you go" insurance plans work.
New Continuing Case: Property and Motor Allows students an opportunity to assess various financial
Vehicle Insurance situations and recommend courses of action, based on the
Chapter 11 Revised coverage: High medical costs Provides revised and updated information on runaway health
care costs.
Revised coverage: High administrative costs Discusses the ethics of high administrative costs in health
care.
New Smart Money Minute feature: Medical Covers the costs of private insurance.
insurance costs
New Exhibit 11-4 Demonstrates costs of long-term care nationwide.

PREFACE xiii

Chapter 11 New Exhibit 11-5 Provides resources that can be used to get information
(Cont.) about long-term care.
New example: Reimbursement versus Explains the trade-off between reimbursement and indem-
indemnity nity using a real-life scenario.
Updated coverage: Employer self-funded Provides new information about self-funded health plans.
health plans
New Exhibit 11-7 Compares HSAs, FSAs, and HRAs.
New coverage: Private insurance companies Describes that as of September 23, 2012, all health insurance
companies and group health plans are required to provide a
summary of health plan’s benefits and coverage.
New feature: Health care law and taxes Explains the relationship between the Affordable Care Act
and personal taxes.
New coverage: The Affordable Care Act Describes the Affordable Care Act and its provisions and
and the Individual Shared Responsibility exemptions in detail.
Provision
Updated content: Sources of health care Provides an updated roster of reliable sources of health care
information information.
New Continuing Case: Health, Disability, and Allows students an opportunity to assess various financial
Long-Term Care Instructions situations and recommend courses of action, based on the
Chapter 12 Updated content: Life insurance Provides updated information on life insurance policies and
their face value as of 2016.
Revised Exhibit 12-1 Illustrates expectations of life and expected deaths based
on sex and age in 2016.
New content: Multiple of income method Presents an additional method for determining the amount
of insurance.
Updated Smart Money Minute feature Provides information on the amount of hours and equivalent
wage of a stay-at-home mom.
Revised Exhibit 12-3: Family need method Provides an updated rubric to use when determining the
worksheet amount of life insurance you need.
New Smart Money Minute feature: Financial Describes the importance of life insurance in establishing
jeopardy financial stability.
Revised coverage: Limited payment policy Updates the statistics on premiums paid by those in excel-
lent health.
Revised feature: Preferred rates Provides updated guidelines for achieving the
lowest rates.
Updated Smart Money Minute feature: Face Provides updated statistics about the average face amount
amount of life insurance policies of life insurance policies.
Updated Exhibit 12-7 Shows updated data for the growth of different classes of
life insurance.
New Continuing Case: Life Insurance Allows students an opportunity to assess various financial
xiv PREFACE

Chapter 13 New Smart Money Minute feature: Choosing Provides information on choosing a credit card.
a credit card
Updated coverage: Managing a financial Includes new information on the government’s efforts to
crisis maintain a sound economy and the effects of the business
cycle on the economy.
Updated coverage: Risk-return tradeoff Uses Netflix stock as an updated example.
Updated Smart Money Minute feature: U.S. Gives updated information for different income levels in the
income levels United States.
Updated Exhibit 13-6 Provides an up-to-date roster of internet resources to be
used in personal financial planning.
New examples: Real-world examples Uses real-world companies including Netflix, J.M. Smucker,
Chesapeake Energy, Coca-Cola, Kraft Foods Group, Shut-
terfly, Biogen, AT&T, and General Mills to illustrate key topics
in the chapter.
New Continuing Case: Investing Allows students an opportunity to assess various financial
Fundamentals situations and recommend courses of action, based on the
Chapter 14 Updated content: The psychology of stock Explains the psychological reasons why people choose
investing stocks for a long-term investment program.
Updated Smart Money Minute feature: Shows updated statistics about what groups own stock.
Stock ownership
Updated information: Income from Explains the importance of the record date for a quarterly
dividends dividend distribution for Chevron.
Updated Exhibit 14-2 Sample stock Illustrates how investors can make money with a stock
transaction investment in General Electric.
Updated Exhibit 14-5: Stock information from Describes the type of information provided by the Yahoo!
the Internet Finance website for the Gap Corporation.
Updated Smart Money Minute feature: DJIA Provides new information about historical values for the
Dow Jones Industrial Average for the period December
2009 through December 2015.
New Exhibit 14-7: Value Line research Illustrates the type of detailed research information for
information Dollar Tree, Inc. available from the Value Line professional
advisory service
Updated coverage: Numerical measures Provides updated examples for all examples in the section
Dividend and Total Return Calculations.
Updated coverage: Buying and selling stocks Includes new information on the secondary market.
Updated Exhibit 14-8: Typical commission Shows current commission charges for some popular online
charges brokerage firms.
Revised Exhibit 14-9: Dollar-cost averaging Includes seven years of investments instead of four years for
the dollar-cost averaging example.
Updated example: Margin transactions Provides an example of how investors can increase their
profits by using margin.
Updated example: Selling short Provides an updated example on the selling short process.
New Continuing Case: Investing in Stocks Allows students an opportunity to assess various financial
PREFACE xv

Chapter 15 New Exhibit 15-1: Differences between bonds Includes information about the most important differences
and stocks between bonds and stocks.
Updated Smart Money Minute feature: Bond Provides updated information for the yields on high-quality
yields corporate bonds.
Updated coverage: Convertible bonds Updates coverage on convertible bonds with an updated
example from Wesco International.
Revised example: Interest calculation Shows students how to calculate the interest for a $1,000
Coca-Cola bond that pays 3.20 percent annual interest.
New coverage: Dollar appreciation of bond Provides additional discussion around the effects of broader
value economic policies on bond value.
Updated example: Approximate market Shows how a bond’s value can change because of changes in
value overall interest rates in the economy.
Updated coverage: A typical bond Describes how you might buy or sell a Bank of America
transaction bond.
Revised content: Government securities Addresses the quality of securities issued by the U.S.
government.
Updated Smart Money Minute feature: Provides information about yields for 10-year treasury notes
Treasury yields from 1990 to March 2015.
Revised Exhibit 15-6: Bond information Gives information from the Yahoo! Finance website about a
Dell Corporation bond.
Revised examples: Yields Includes current dollar values for all the examples in the
section.
Revised feature: Financial Planning Gives current financial information for Home Depot that can
Calculations be used to calculate the times interest earned ratio.
Updated coverage: Other sources of Provides up-to-date sources to turn to for information on
information bonds.
New Continuing Case: Investing in Bonds Allows students an opportunity to assess various financial
Chapter 16 Updated Smart Money Minute feature: Includes current information about the age of investors who
Mutual fund ownership own mutual funds.
Updated Exhibit 16-1: Fund diversification Shows the type of stocks and securities included in the
Invesco Growth and Income fund.
Updated Exhibit 16-2: Fund fee table Illustrates the fee table for the Davis New York Venture
fund.
Updated Smart Money Minute feature: Illustrates the reasons why people invest in funds.
Investing in mutual funds
Updated Exhibit 16-4: Large funds Updates information about three large funds: The Vanguard
Group, Fidelity Investments, and American Funds.
New Exhibit 16-6: Information from Money Shows a portion of the “Money 50: The World’s Best Mutual
magazine Funds and ETFs” article from Money magazine.
New Continuing Case: Investing in Mutual Allows students an opportunity to assess various financial
Funds situations and recommend courses of action, based on the
xvi PREFACE

Chapter 17 Updated Smart Money Minute feature: Shows the trends in home ownership in the U.S. over the last
Home ownership rates 50 years, by region.
Expanded content: Your home as an Presents the questions you might want to ask to see if you’re
investment ready to buy a home.
New Smart Money Minute feature: Housing Illustrates that home ownership, as a percentage of net
share of net worth worth, is on the rise.
Updated Exhibit 17-2: U.S. home sales Shows that recent economic indicators suggest that the
worst of the housing crisis is over.
Revised and updated coverage: Gold bullion Provides the latest information on bullion production by the
U.S. government.
Updated Exhibit 17-4: Gold prices Illustrates how the price of gold has fluctuated from 1976
to 2016.
Revised Smart Money Minute feature: Shows the biggest producers of gold in the world as of 2014.
Biggest gold producers
New Continuing Case: Investing in Real Allows students an opportunity to assess various
Estate financial situations and recommend courses of action,
based on the knowledge gained in mastering the chapter
material.
Chapter 18 Revised coverage: Why retirement planning? Provides updated statistics about Americans’ attitudes
toward retirement and recommend means to boost
contributions.
Expanded coverage: Starting early Presents advice on saving for retirement.
Expanded coverage: Housing Details considerations that should be taken before obtaining
a reverse mortgage.
Updated Exhibit 18-4: Older household Illustrates how an “average” older household spends its
expenditures money (2013).
Updated Smart Money Minute feature: Who Shows what groups are collecting Social Security, as of 2015.
gets Social Security?
Updated Smart Money Minute feature: Presents average monthly Social Security benefits for differ-
Monthly benefits ent groups.
Updated Exhibit 18-8: The future of Social Shows that the number of workers per beneficiary has plum-
Security meted since 1945.
Updated coverage: Internet access Describes how to create a mySocial Security account.
Updated Exhibit 18-8: Workers per Cautions that the number of workers per Social Security
beneficiary beneficiary is dropping in the U.S.
New feature: Conflicts of interest Provides an expanded discussion of what conflicts of inter-
est in retirement advice cost.
New Continuing Case: Starting Early Allows students an opportunity to assess various
financial situations and recommend courses of action,
based on the knowledge gained in mastering the chapter
material.
PREFACE xvii

Chapter 19 Revised content: Wills Covers the hazards of not having a will.
Updated content: Credit-shelter trust Points out that a married couple will not pay any estate tax if
their estate is less than $10.9 million in 2016.
Revised content: Federal and state estate Provides the latest available information about gift taxes
taxes (2016).
New Continuing Case: Estate Planning Allows students an opportunity to assess various financial
A SSURANCE OF LEARNING
Many educational institutions today are focused on the notion of assurance of learning, an important element of some
accreditation standards. Personal Finance, 12th edition, is designed specifically to support your assurance of learning
initiatives with a simple, yet powerful, solution.
Each test bank question for Personal Finance, 12th edition, maps to a specific chapter learning outcome/objective
listed in the text. You can use the test bank software to easily query for learning outcomes/objectives that directly relate
to the learning objectives for your course. You can then use the reporting features of the software to aggregate student
results in similar fashion, making the collection and presentation of assurance of learning data simple and easy.
Guided Tour
Confirming Pages
Chapter Opener: The chapter opener contains new features that serve
as the chapter road map at a glance!
Confirming Pages
Financial Literacy in Financial Literacy

IN YOUR LIFE
You might . . . reduce current spending or seek to earn
additional income to start or grow your emergency fund. Most
important is to set aside some money, even a small amount, for
financial uncertainty. This action is a first step toward financial
Your Life
What if you . . . needed funds for
major auto repairs? Or encountered security. Next, you should learn to avoid common money
unexpected medical bills? An mistakes. Your knowledge and actions will allow you to use
emergency fund is one of the wise financial strategies for achieving your personal goals.
foundations for effective personal Now, what would you do? What actions are you currently
Covers why and how the issues presented in

financial planning. What actions would taking to create or expand your emergency fund? You will
you take? be able to monitor your progress using the “Your Personal
Finance Dashboard” feature at the end of the chapter.
the chapter are important, and presents some my life

alternatives that one might consider when
© Mark Bowden/Getty Images
HOW DO I START?
1
One day, you may receive news that your aunt has given you a gift of $10,000. Or you might find yourself
facing related decisions. There is a strong

with an extensive amount of credit card debt. Or maybe you desire to contribute money to a homeless shel-
ter or a hunger-relief organization.
Personal Finance Basics

Each of these situations involves financial decision-making that requires, first, planning and then taking
emphasis here on action.

action. The process you use should be carefully considered so no (or only a few) surprises occur.
and the Time Value

The main focus when making decisions is to avoid financial difficulties and legal tangles. How will you best
plan for using your finances? For each of the following statements, select “yes,” “no,” or “uncertain” to indi-
of Money
cate your personal response regarding these financial planning activities.
1. When making major financial decisions, I research them using
Learning Objectives
a variety of information sources. Yes No Uncertain
2. My family and household situation is likely to stay fairly stable
LEARNING
over the next year or two.
LO1-1 Analyze the process for making personal financial decisions.
Yes No Uncertain
OBJECTIVES LO1-2
3. My specific financial goals for the next Assess personal
year are in writing. and economic Yes factors
No that influence personal
Uncertain
4. Time value of money calculations oftenfinancial
guide my planning.
saving and
A summary of learning objectives is presented

spending decisions. Yes No Uncertain
LO1-3 Develop personal
5. I am able to name specific types of risks that can affect my financial goals.
personal financial decisions.LO1-4 Calculate time value of money Yes to analyze
No Uncertain
personal financial
at the start of each chapter. These objectives

decisions.
As you study this chapter, you will encounter “My Life” boxes with additional information and resources
related to these items.
LO1-5 Identify strategies for achieving personal financial goals for
different life situations.
are highlighted at the start of each major The Financial Planning Process
section in the chapter and appear again in LO1-1
Analyze the process for
making personal financial
Being “rich” means different things to different people. Some define wealth as owning
many expensive possessions and having a high income. People may associate being rich
with not having to worry about finances or being able to pay bills. For others, being rich
the end-of-chapter summary. The learning

means they are able to donate to organizations that matter to them.
decisions.
How people obtain financial wealth varies. Starting a successful business or pursu-
ing a high-paying career are common paths to wealth. However, frugal living and wise
investing can also result in long-term financial security. In recent years, many have dis-
objectives are also used to organize the end-

Confirming Pages
covered that the quality of their lives should be measured in terms of something other
kap20683_ch01_001-030.indd 1
than money and material items. A renewed emphasis on family, friends, and serving 11/10/16 01:57 PM
others has surfaced.
of-chapter problems and activities, as well

2
as materials
Financialin the Instructor’s Manual and
Literacy You might . . . reduce current spending or seek to earn
IN YOUR LIFE
Test Bank. Problems in Connect can also be
additional income to start or grow your emergency fund. Most kap20683_ch01_001-030.indd 2 11/10/16 01:57 PM
important is to set aside some money, even a small amount, for

What if you . . . needed funds for financial uncertainty. This action is a first step toward financial
security. Next, you should learn to avoid common money
organized using the objectives.

major auto repairs? Or encountered
unexpected medical bills? An mistakes. Your knowledge and actions will allow you to use
emergency fund is one of the wise financial strategies for achieving your personal goals.
foundations for effective personal Now, what would you do? What actions are you currently
financial planning. What actions would taking to create or expand your emergency fund? You will
you take? be able to monitor your progress using the “Your Personal
Finance Dashboard” feature at the end of the chapter.
my life
My Life
HOW DO I START?
One day, you may receive news that your aunt has given you a gift of $10,000. Or you might find yourself
with an extensive amount of credit card debt. Or maybe you desire to contribute money to a homeless shel-
ter or a hunger-relief organization.
The My Life concept begins with the chapter

Each of these situations involves financial decision-making that requires, first, planning and then taking
action. The process you use should be carefully considered so no (or only a few) surprises occur.
The main focus when making decisions is to avoid financial difficulties and legal tangles. How will you best
opener. It presents students with an engaging

plan for using your finances? For each of the following statements, select “yes,” “no,” or “uncertain” to indi-
cate your personal response regarding these financial planning activities.
1. When making major financial decisions, I research them using
scenario that relates what they’re about to learn

a variety of information sources. Yes No Uncertain
2. My family and household situation is likely to stay fairly stable
over the next year or two. Yes No Uncertain
to their own lives. The follow-up questions are

3. My specific financial goals for the next year are in writing. Yes No Uncertain
4. Time value of money calculations often guide my saving and
spending decisions. Yes No Uncertain
designed to get students thinking about how

5. I am able to name specific types of risks that can affect my
personal financial decisions. Yes No Uncertain
As you study this chapter, you will encounter “My Life” boxes with additional information and resources
involved they currently are in their personal

related to these items.
The Financial Planning Process

LO1-1 Being “rich” means different things to different people. Some define wealth as owning
finances and to motivate them to try new
Analyze the process for
making personal financial
many expensive possessions and having a high income. People may associate being rich
with not having to worry about finances or being able to pay bills. For others, being rich
means they are able to donate to organizations that matter to them.
beneficial practices in their own personal
finance life. The My Life boxes throughout the
decisions.
How people obtain financial wealth varies. Starting a successful business or pursu-
ing a high-paying career are common paths to wealth. However, frugal living and wise
investing can also result in long-term financial security. In recent years, many have dis-
chapters and the Learning Objectives in the

covered that the quality of their lives should be measured in terms of something other
than money and material items. A renewed emphasis on family, friends, and serving
others has surfaced.
2
chapter summary expand on this concept.

kap20683_ch01_001-030.indd 2 11/10/16 01:57 PM
xviii
Boxed features are used in each chapter to build student interest and highlight
important topics. Three different types of boxed features are used.
Confirming Pages
HOW TO . . .
Select a Path to Financial Security
Do you feel stress when you think about money? Are your financial decisions influenced by emotions rather
than valid information? Do you often have disagreements about money?
How To . . . To address these and other financial concerns, two paths exist for your daily money decisions. The easy path
involves little thinking, no planning, and minimal effort, usually resulting in wasted money and financial difficulties. In
contrast, the appropriate path takes some time and effort, but results in lower stress and personal financial security.
The How To . . . boxes fit in with the It is EASY to…
…spend without planning.

…but APPROPRIATE to…
…save for emergencies and the future.
application-driven themes of Personal …overuse credit cards. …maintain a low level of debt.
Finance. Each box highlights a personal

…avoid insurance coverage. …have a risk management plan.
…select investments carelessly. …research to avoid investment scams.
finance issue and walks students through

…make decisions on your own. …communicate with others.
how to navigate the situation.

You can easily start to move yourself from easy mistakes to appropriate actions with these steps:
1. Do something. Start small, such as saving a small amount each month. Or decide to reduce your
credit card use.
2. Avoid excuses. Do not tell yourself that “I don’t have time” or “It’s what everyone else is doing.”
3. Rate your current situation. Indicate on this scale where you are currently in relation to the two
available paths:
Spender Saver
Financial difficulties Financial security

4. Set your mission. Create a personal finance mission statement to communicate your personal values, financial
goals, and future vision. This paragraph (or list or drawing or other format) will remind you and family members
of your desired path for financial security. The wording describes where you want to be and how you will
get there. Develop your financial mission statement by talking with those who can help guide your actions.
Your personal finance mission statement may include phrases such as “My financial mission is to change my
spending habits for . . . ,” “. . . to better understand my insurance needs,” or “. . . to donate (or volunteer) to local
community service organizations.”
Choosing to take the appropriate actions can result in reduced emotional stress, improved personal relationships,
and increased financial security.
2. Consumer Spending Total demand for goods and services in the economy influ-
ences employment opportunities and the potential for income. As consumer purchasing
increases, the financial resources of current and prospective employees expand. This
situation improves the financial condition of many households.
In contrast, reduced spending causes unemployment, since staff reduction com-
monly results from a company’s reduced financial resources. The financial hardships
of unemployment are a major concern of business, labor, and government. Retraining
Financial Planning for

programs, income assistance, and job services can help people adjust.
Confirming Pages
12
Financial Planning for My Life

My Life
This box offers information that can
kap20683_ch01_001-030.indd 12 11/10/16 01:57 PM
ASSESSING YOUR FINANCIAL HEALTH

Several instruments are available to assess your financial
wellness and capability. To evaluate your current financial
activities, respond with a YES or NO answer to the following
8. Does your recordkeeping system allow you to
quickly locate important documents?
9. Do you know the balance of your credit card
assist students when faced with special
situations and unique financial planning
items: accounts and other loans?
1. Do you have a budget or spending plan that guides 10. Over the past year, have you avoided late fees for
your financial activities?
decisions. Many emphasize the use of

credit cards, loans, or bills?
2. Each month, do you pay your bills and credit card
A positive answer to eight or more of these questions indi-
accounts on time?
cates a strong personal financial situation.
Internet sources.
3. Do you maintain a record of the amount spent on For additional information on assessing your personal
various items each month? financial health, consider these sources.
4. Is your monthly spending less than your income?
• Financial Capability Scale, Center for Financial
5. If you had an unexpected major expense, would you Security, University of Wisconsin-Extension
have access to funds to cover this cost?
• Financial Fitness Quiz, Schwab MoneyWise
6. Do you know the amount in the bank account you
use for daily spending? • Financial Wellness Check-Up Quiz, Vision Financial
Group
7. Do you have money automatically set aside
each month in a saving or investment • Personal Financial Wellness Score, Personal Finance
program? Employee Education Fund
financial activities. The library resource site for this book in Connect provides addi-
tional resources and activities. As you move into the following chapters, we recommend
that you:
∙ Read and study the book carefully. Use the Practice Quizzes and end-of-chapter
Confirming Pages
activities.
∙ Use online sources and apps for the latest personal finance information.
∙ Talk to family members, friends, experts, and others, who have knowledge of
various money topics.
∙ Search online for answers to questions that result from your desire to
Financial Planning
Financial Planning Calculations
Calculations
know more.
Achieving your financial objectives requires two things: (1) a willingness to learn
and (2) appropriate information
TAX-EQUIVALENT sources. You
EMPLOYEE must provide the first element; the mate-
BENEFITS
rial that follows will provide the second. For successful financial planning, know where
This feature presents more than 90

you are now, know where you want to be, and be persistent in
Employee benefits that are nontaxable have a higher finan-
your efforts to get there.
A variation of this formula, which would give the after-tax
cial See
valuethe nearby
than Financial
you may realize.Planning for My Life
A $100 employee boxonto help
benefit you
value assess
of an your financial
employee benefit, is
whichhealth
you as
areyou get isstarted.
taxed not worth as much as a nontaxable
mathematical applications relevant to

Taxable value of the benefit (1 − Tax rate)
$100 benefit. This formula is used to calculate the tax-equiv-
alent value of a nontaxable benefit: For the above example, the calculation would be
PRACTICE Value ofQUIZ 1-5
the benefit $486 (1 − 0.28) = $486(0.72) = $350
personal financial situations.

_______________
1 − Tax rate
In other words, a taxable benefit with a value of $486 would
For 1.example,
What are the main
receiving components
a life of personal
insurance policy with a financial
non- haveplanning?
an after-tax value of $350 since you would have to pay
taxable2.annual
Whatpremium
is the purpose
of $350 ofisa comparable
financial plan?
to receiving $136 ($486 × 0.28) in tax on the benefit.
3. employee
a taxable Identify some common
benefit worth actions
$486 if taken to inachieve
you are the 28financial goals.
These calculations can help you compare different
percent tax bracket. This tax-equivalent amount is calcu- employee benefits within a company or when consider-
lated as follows: ing different jobs. Remember to also consider the value
$350
_______ $350 of employee benefits in terms of your personal and family
= _____ = $486
1 − 0.28 0.72 needs and goals.
25
YOUR EMPLOYMENT RIGHTS

Employees have legal rights both during the hiring process and on the job. For example,
an employer cannot refuse to hire a woman or terminate her employment because of
pregnancy, nor can it force her to go on leave at an arbitrary point during her pregnancy.
kap20683_ch01_001-030.indd 25 11/12/16 02:14 PM
In addition, a woman who stops working due to pregnancy must get full credit for previ-
ous service, accrued retirement benefits, and accumulated seniority. Other employment
xix
rights include the following:
∙ A person may not be discriminated against in the employment selection process
on the basis of age, race, color, religion, sex, marital status, national origin, men-
tal or physical disabilities, or sexual orientation.
∙ Minimum-wage and overtime pay legislation apply to individuals in certain work
settings.
∙ Worker’s compensation (for work-related injury or illness), Social Security, and
Key Terms
Key terms appear in bold type and in the
Confirming Pages
margin definition boxes. The terms and their 18 PART 1 PLANNING YOUR PERSONAL FINANCES
page references are also listed at the end of For example, $500 on deposit at 6 percent for six months would earn $15
($500 × 0.06 × 6/12, or 1/2 year).
each chapter.
The increased value of money from interest earned involves two types of time value
of money calculations, future value and present value. The amount that will be avail-
able at a later date is called the future value. In contrast, the current value of an amount
desired in the future is the present value. Five methods are available for calculating time
value of money:
1. Formula Calculation. With this conventional method, math notations are used for
computing future value and present value.
2. Time Value of Money Tables. Traditionally, before calculators and computers,
future value and present value tables were used to provide for easier
computations.
3. Financial Calculator. A variety of calculators are programmed with financial func-
tions. Both future value and present value calculations are performed using appro-
priate keystrokes.
future value The amount 4. Spreadsheet Software. Excel and other spreadsheet programs have built-in formulas
My Life Boxes
to which current savings will for financial computations, including future value and present value.
increase based on a certain 5. Websites and Apps. Many time-value-of-money calculators are available online and
interest rate and a certain through mobile devices. These programs may be used to calculate the future value
time period; also referred to
of savings as well as loan payment amounts.
as compounding.
My Life boxes appear next to material that my life 4

FUTURE VALUE OF A SINGLE AMOUNT Deposited
money earns interest that will increase over time. Future value is
the amount to which current savings will grow based on a certain
relates back to the opening My Life scenario

Time value of money calculations often guide my interest rate and a certain time period. For example, $100 depos-
saving and spending decisions. ited in a 6 percent account for one year will grow to $106. This
To assist you with using future value and amount is computed as follows:
and the Learning Objectives. These boxes

present value computations for achieving
personal financial goals, several websites are Future value = $100 + ($100 × 0.06 × 1 year) + $106
available: for example, www.dinkytown.net,
www.moneychimp.com/calculator, and cgi The same process could be continued for a second, third, and fourth
offer useful tips and possible solutions to help

.money.cnn.com/tools. year, but the computations would be time-consuming. The previ-
ously mentioned calculation methods make the process easier.
An example of the future value of a single amount might involve
an investment of $650 earning 8 percent for 10 years. This situa-
students better manage their finances. tion would be calculated as follows:
Time Value of
Formula Money Table Financial Calculator Spreadsheet Software
FV = PV(1 + i)n Using Exhibit 1-A, PV , I/Y , N , PMT , CPT FV = FV(rate, periods,
Confirming Pages FV = 650(1 + .08)10
Chapter Appendix,
650 PV , 8 I/Y , 10 N ,
amount per period,
multiply the amount
0 PMT , CPT FV $1,403.30
Confirming
single amount) Pages
FV = $1,403.30 deposited by the factor = FV(0.08,10,0,−650)
for the interest rate and (Different financial calculators = $1,403.30
i – interest rate time period. will require different
n – number of 650 × 2.159 = $1,403.35 keystrokes.)
time periods
(Note: Expanded explanations of these time value of money calculation methods are presented in the Chapter Appendix.)
8 PART 1 PLANNING YOUR PERSONAL FINANCES
Future value computations are often referred to as compounding, since interest is
earned on previously earned interest. Compounding allows the future value of a deposit
STEP 6: REVIEW AND REVISE YOUR PLAN
smart money minute
Smart Money Minute
STEP 6: REVIEW AND REVISE YOUR PLAN
smart money minute
Financial planning is a dynamic process that does not end
when you take action. You need to regularly assess your Financial planning is a dynamic process that does not end
Most financial planning professionals have a code when you take action. You need to regularly assess your
of ethics, but not all abide by these principles. To
financial decisions. You should do a complete Mostreview
financialofplanning
your professionals have a code
financial decisions. You should do a complete review of your
Each chapter contains several Smart
avoid financial difficulties and potential fraud, make
sure your financial planner strictly applies industry
finances at least once a year. Changing personal,
economic factors may require more frequent
of ethics,social,
When life events affect your financial needs,

but notand
assessments.
avoid
all abide by these principles. To
financial difficulties
thisfinancial
sure your financial
and potential fraud, make
kap20683_ch01_001-030.indd 18
planner strictly applies industry
finances at least once a year. Changing personal, social, and
11/10/16 01:57 PM
economic factors may require more frequent assessments.
Money Minute features with fun
policies regarding confidentiality, integrity, and
objectivity to prevent a conflict of interest, and has a planning process will provide a vehicle forpolicies
adaptingregarding confidentiality, integrity, and
to those When life events affect your financial needs, this financial
commitment to continuing education. objectivity
changes. Regularly reviewing this decision-making to prevent
process will a conflict of interest, and has a planning process will provide a vehicle for adapting to those
facts, information, and financial help you make priority adjustments that will commitment
bring yourtofinan-
continuing education. changes. Regularly reviewing this decision-making process will
cial goals and activities in line with your current life situation. help you make priority adjustments that will bring your finan-
cial goals and activities in line with your current life situation.
planning assistance.
EXAMPLE: Step 6 - Review and Revise the Plan
EXAMPLE: Step 6 - Review and Revise the Plan
Over the next 6 to 12 months, Kent Mullins should reassess his financial, career, and per-
sonal situations. What employment opportunities or family circumstances might affect his Over the next 6 to 12 months, Kent Mullins should reassess his financial, career, and per-
need or desire to take a different course of action? sonal situations. What employment opportunities or family circumstances might affect his
How about you? Depending on your current (or future) life situation, what factors in need or desire to take a different course of action?
your life might affect your personal financial situation and decisions in the future? How about you? Depending on your current (or future) life situation, what factors in
your life might affect your personal financial situation and decisions in the future?
PFP Sheet 1
Personal data
PRACTICE QUIZ 1-1
PFP Sheet 1
Practice Quiz
PRACTICE QUIZ 1-1
Personal data
PFP Sheet 2
Financial
1.
2.
What are the main elements of every decision we make?
What are some risks associated with financial decisions? The Practice Quiz at the end
PFP Sheet 2 1.
2.
What are the main elements of every decision we make?
What are some risks associated with financial decisions?
3. What are some common sources of financial planning information? Financial
of each major section provides
institutions and
advisers 4. Why should you reevaluate your actions after making a personal financialinstitutions and 3. What are some common sources of financial planning information?
decision? advisers 4. Why should you reevaluate your actions after making a personal financial
questions to help students assess decision?
Influences on Personal Financial Planning their knowledge of the main ideas

Influences on Personal Financial Planning
LO1-2 Many factors influence daily financial decisions, ranging from age and household size
LO1-2
covered in that section. As shown
Many factors influence daily financial decisions, ranging from age and household size
to interest rates and inflation. Three main elements affect financial planning activities:
Assess personal and economic
life situation, personal values, and economic factors.
factors that influence personal here, many
Assess personal and economic
life situation, personal of these
values, and economic
factors that influence personal
factors. quizzes include
to interest rates and inflation. Three main elements affect financial planning activities:
references to related
financial planning.
LIFE SITUATION AND PERSONAL VALUES
adult life cycle The stages
financial planning.
LIFE SITUATION AND PERSONAL VALUES
Personal
Financial Planning sheets, offered
People in their 20s spend money differently than those in their 50s. Personal factors
in the family situation and adult life cycle The stages
People in their 20s spend money differently than those in their 50s. Personal factors
such as age, income, household size, and personal beliefs influence spending and sav- in the family situation and
financial needs of an adult. such as age, income, household size, and personal beliefs influence spending and sav-
ing patterns. Life situation or lifestyle is created by a combination
both in Excel and in hard copy at
financial needs of an adult.
of factors. ing patterns. Life situation or lifestyle is created by a combination
of factors.
my life 2 As our society changes, different types of financial needs
evolve. Today people tend to get married at amy lifeand 2 the back of the book.
later age, more As our society changes, different types of financial needs
households have two incomes. Many households are headed by
My family and household situation is likely to evolve. Today people tend to get married at a later age, and more
stay fairly stable over the next year or two. My family
single parents. More than 2 million women provide careand
forhousehold
both households have two incomes. Many households are headed by
situation is likely to
Many personal, social, and economic factors can dependent children and parents. People are stay
alsofairly
livingstable over the next year or two.
longer; single parents. More than 2 million women provide care for both
affect your life situation. Refer to Exhibit 1-6 for Many personal, social,
over 80 percent of all Americans now living are expected to live and economic factors can dependent children and parents. People are also living longer;
xx further information on financial goals and per-
sonal finance activities for various life situations.
past age 65. affect your life situation. Refer to Exhibit 1-6 for
further information on financial goals and per-
over 80 percent of all Americans now living are expected to live
past age 65.
The adult life cycle—the stages in the family and financial
sonal finance activities for various life situations. The adult life cycle—the stages in the family and financial
needs of an adult—is an important influence on your financial
needs of an adult—is an important influence on your financial
A variety of end-of-chapter features are offered to support the concepts presented
throughout each chapter. Confirming Pages
my life stages for financial planning

Personal Finance YOUR PERSONAL FINANCE DASHBOARD
Confirming Pages
Dashboard and My Life

The creation of an emergency fund is often overlooked.
Financial advisers suggest saving three to six months of
FINA
living expenses for unexpected situations. A larger amount
TE NC
UA IAL may be needed if you are self-employed or a full-time
EQ LY
AD
Stages
S student.
6
EC
LO1-3 5 7 based on
Yourtime value of money
emergency fundcalculations. Future value
can be measured with a dashboard,
UR
4 8
and present value calculations enable you to measure the
E
US
Develop personal financial
3 goals. The financial
9 goals a tool used by organizations to monitor key performance
ERO
you develop should take increased value (or lost interest) that results from a saving,
2 a S-M-A-R-T approach with10 goals indicators such as delivery time, product defects, or cus-
DANG
that are: Specific, Measurable, Action-oriented, Realistic, investing, borrowing, or purchasing decision.
1 11 tomer complaints. As an individual, you can use a personal
There are increasing numbers of nontraditional

and Time-based.
0 12 LO1-5 finance dashboard to assess your financial situation. As
with
Identify driving, afor
strategies personal finance
achieving dashboard
personal financialallows you to
LO1-4 MONTHS
goals keep
for different
track oflife progress Successful
situations.
your financial
to a destination.
students taking personal finance. The

Calculate time valueEMERGENCY
of money to SAVINGS
analyzeFUND
personal planning requires specific goals combined with spending,
financial decisions. Every decision involves a trade-off saving, investing, and borrowing strategies based on your
with things given up. Personal opportunity costs include personal situation and various social and economic factors,
Dashboard feature provides students of all

time, effort, and health. Financial opportunity costs are especially inflation and interest rates.
YOUR SITUATION Have you started your emergency fund? Do you make progress each month? Where is the needle
ages with a high-level snapshot outlining how

on your Personal Finance Dashboard for an emergency fund? Other personal financial planning actions you might consider
KEY TERMS
during various stages of your life include:
adult life cycle 8 future value 18 personal financial planning 3
to evaluate progress in achieving mastery of In College

bankruptcy
economics
22
10
In inflation
My 20s10
liquidity 22
In My 30spresent value 20 In My 50s
and 40s and Beyond
time value of money 17
the chapter concepts in real life. The My Life

financial plan 23 opportunity cost 5 values 9
Confirming Pages
• Develop wise • Pay off any • Assess progress • Assess need for
budgeting habits college loans toward long-term long-term health
Stages box at the end of each chapter provides SELF-TEST

• Create a PROBLEMS
regular •
savings program
Increase amounts
saved and
financial goals
• Evaluate needed
1. The Rule of 72 provides a guideline for determining how long it takes your money to double. This rule can also be used to
care coverage
• Review your will
personal finance action items for students

determine your earning rate. invested insurance as a and estate plan
LO1-4 •6.Establish
Computinga the
planTimeIfValue
your of
money is expected
Money. to doublecalculator
Using a financial in 12 years,
or what is yourofrate
time value of return?
money tables in the Chapter Appendix,
result of changes
calculate
2. If you for wise
desire the$10,000
use
to have following.
of in savings• eight
Continue proper
years from now, what amount would you need to deposit in an •account
Consider
that various
in household or
earns 5banking
percent? services
a. The future spending
value of $450 six years andat 7 percent.
from now activities, locations
of all ages.
financial situation
andb. credit credit
The future value of $900 saved habits
each year for 10 years at 8 percent. for retirement
Self-Test c.
Solutions
The amount a person would have to deposit today (present value) at a 6 percent interest rate to have $1,000 five years
1. Using the Rule ofnow.
from 72, if your money is expected to double in 12 years, you are earning approximately 6 percent (72 ÷ 12 years
= 6 percent).
d. The amount a person would have to deposit today to be able to take out $600 a year for 10 years from an account earning
2. To calculate8the present value of $10,000 for eight years at 5 percent, use a financial calculator or Exhibit 1-C (Chapter
percent.
Financial Planning
Appendix):
LO1-4
$10,000 ×the
7. Calculating 0.677 = $6,770.
Future Value of a Series of Amounts. Elaine Romberg prepares her own income tax return each year. A tax
preparer would charge her $80 for this service. Over a period of 10 years, how much does Elaine gain from preparing her
own tax return? Assume she can earn 3 percent on her savings.
FINANCIAL PLANNING
8. Calculating PROBLEMS
the Time Value of Money for Savings Goals. If you desire to have $20,000 for a down payment for a house in
Problems
LO1-4
SUMMARY
five years, OF LEARNING
what amount OBJECTIVES
would you need to deposit today? Assume that your money will earn 5 percent.
(Note: Some
LO1-4 of these problems
9. Calculating require
the Present the use
Value of aof the time
Series. Petevalue of money
Morton tablesto
is planning ingo
thetoChapter Appendix.)
graduate school in a program of study that will
LO1-1 takethe
1. Calculating three years.
Future Peteofwants
Value to have
Property. Ben$15,000
Collinsavailable
plans to buy
LO1-2
eacha year
houseforforvarious school
$220,000. andreal
If that living expenses.
estate If he to
is expected earns 4 per-
LO1-2
Analyze
increasethe
in process
cent on his
value for making
by 3money,
percent how
eachmuchpersonal
must
year, financial
whatbewill
deposited at the start
its approximate of Assess
value his personal
studies
be seven to befrom
years and
ablenow? economic
to withdraw $15,000factors
a yearthat influence
for three
decisions. years?
When making major financial decisions, use personal financial planning. Financial goals and
With more added to this edition, these

2. Using the Rule of 72. Using the rule of 72, approximate the following amounts. LO1-2
aLO1-4
variety
10.ofUsing
information
the Timesources
Value oftoMoney
implement
for Retirement Planning. Carla financial
the personal planning
Lopez deposits $3,200decisions areher
a year into affected by account.
retirement a person’sIf life
a. If the value of land in an area is increasing 6 percent a year, how long will it take for property values to double?
financial planning process: (1) determine your current
these funds have an average earning of 9 percent over the 40 situation (income, age, household size, health) and personal
years until her retirement, what will be the value of her retire-
b. If you
financial earn account?
ment 10 (2)
situation, percent on your
develop investments,
financial goals,how(3)long will it take for your
identify money
values, andtobydouble?
economic factors (prices, interest rates, and
problems allow students to apply their c. At11.ancourses

alternative
LO1-4
create
annual interest
Calculating
the future
and implement
3. Determining
automobiles
the rate
of action,
value
of
Value
ofRate.
a financial
the Inflation
is now $28,000.
5 evaluate
(4)of
that In
What
percent,
Reducedhow
amount
2006,over
action
was of
plan,
long will
alternatives,
Spending.
10and
selected
theFuture
years
If ait(5)
(6)ifreview
rate ofCash
increase
take forspends
person
the funds
automobiles
your savings
had were
for A
these
deposited
an average
automobiles
to double?
employment
$15 a week
costin
onopportunities).
ofan
coffee (assume $750 a year), what would be
accountThe
$16,000.
between
earning
the two
3 percent?
average cost of those same LO1-2
time periods?
quantitative analysis of personal financial

and revise
LO1-4 12. the financial
Calculating plan.
the Present Value Flows. financial company advertises on television that they will pay you
4. Computing$60,000
Futurenow in exchange
Living Expenses.forAannual
family payments of $10,000
spends $48,000 a yearthat
foryou areexpenses.
living expected If
to prices
receiveincrease
for a legal
by 2settlement
percent a over
year theLO1-2
nextthree
for the next 10 years.
years,Ifwhat
you amount
estimatewill
the the
timefamily
valueneed
of money at 10
for their percent,
living wouldafter
expenses youthree
accept this offer?
years?
decisions.
LO1-4 13. Calculating
5. Calculating Earningsthe Savings. What
on Potential Futurewould
Valuebe
of the yearlyTran
Savings. Lee plans
earnings to set aside
for a person with $2,400
$8,000 ainyear for the
savings next
at an six years,
annual earning
interest 4
LO1-4
percent.
rate of 2.5 What would be the future value of this savings amount?
percent?
LO1-4 14. Determining a Loan Payment Amount. If you borrow $8,000 with a 5 percent interest rate, to be repaid in five equal yearly
payments, what would be the amount of each payment? (Note: Use a financial calculator or the present value of an annuity
table in the Chapter Appendix.)
Financial Planning FINANCIAL PLANNING ACTIVITIES

kap20683_ch01_001-030.indd 26
LO1-1 1. Determining Personal Risks. Talk to friends, relatives, and others about their personal financial activities. Ask about potential
27
11/10/16 01:57 PM
Activities
risks involved with making financial decisions. What actions might be taken to investigate and reduce these risks?
LO1-1, 2. Using Financial Planning Experts. Prepare a list and contact information for financial planning specialists in your
1-2 community, such as investment advisers, credit counselors, insurance agents, real estate brokers, and tax preparers, who could
assist people
kap20683_ch01_001-030.indd 27 with personal financial planning. 11/10/16 01:57 PM
LO1-2 3. Analyzing Changing Life Situations. Ask friends, relatives, and others how their spending, saving, and borrowing activities
The Financial Planning Activities provide changed when they decided to continue their education, change careers, or have children.
LO1-2 4. Researching Economic Conditions. Locate online sources or apps to determine recent trends in interest rates, inflation,
and other economic indicators. Information about the consumer price index (measuring changes in the cost of living)
methods of researching and applying financial may be obtained at www.bls.gov. Report how this economic information might affect your financial planning
decisions.
LO1-3 5. Setting Financial Goals. Ask friends, relatives, and others about their short-term and long-term financial goals. What are
planning topics. some of the common goals for various personal situations? Using Sheet 3 in the Personal Financial Planner, create one short-
term and one long-term goal for people in these life situations: (a) a young single person, (b) a single parent with a child age
8, (c) a married person with no children, and (d) a retired person.
LO1-4, 6. Comparing Alternative Financial Actions. What actions would be necessary to compare a financial planner who advertises
1-5 “One Low Fee Is Charged to Develop Your Personal Financial Plan” and one that advertises “You Are Not Charged a Fee,
My Services Are Covered by the Investment Company for Which I Work”?
Confirming Pages
FINANCIAL PLANNING CASE

You Be the Financial Planner his short-term finances since he has three months of living
Financial Planning Case
28
Students are given a hypothetical personal

At some point in your life you may use the services of a finan- expenses in a saving account. However, “three months can go
cial planner. However, your personal knowledge should be the by very quickly,” as Patrick noted.
foundation for most financial decisions. For each of these situ- Situation 3: Nina Resendiz, age 23, recently received a
kap20683_ch01_001-030.indd 28 11/10/16 01:57 PM
finance dilemma and data to work through to

ations, determine actions you might recommend: $12,000 gift from her aunt. Nina is considering various uses
Situation 1: Fran and Ed Blake, ages 43 and 47, have a for these unexpected funds including paying off credit card
daughter who is completing her first year of college and a son bills from her last vacation or setting aside money for a down
payment on a house. Or she might invest the money in a tax-
practice concepts they have learned from the

three years younger. Currently they have $42,000 in savings
and investment funds set aside for their children’s education. deferred retirement account. Another possibility is using the
With increasing education costs, they are concerned whether money for technology certification courses to enhance her
earning power. Nina also wants to contribute some of the
chapter. A series of questions helps students to

this amount is adequate. In recent months, Fran’s mother has
required extensive medical attention and personal care assis- funds to a homeless shelter and a world hunger organization.
tance. Unable to live alone, she is now a resident of a long- She is overwhelmed by the choices and comments to her-
self, “I want to avoid the temptation of wasting the money on
use analytic and critical thinking skills while

term care facility. The cost of this service is $4,750 a month,
with annual increases of about 5 percent. While a major por- impulse items. I want to make sure I use the money on things
tion of the cost is covered by Social Security and her pension, with lasting value.”
Fran’s mother is unable to cover the entire cost. In addition,
Fran and Ed are concerned about saving for their own retire-
ment. While they have consistently made annual deposits to a
retirement fund, current financial demands may force them to
Questions
1. For each situation, identify the main financial planning
issues that need to be addressed.
reinforcing chapter topics.
access some of that money. 2. What additional information would you like to have
Situation 2: “While I knew it might happen someday, I before recommending actions in each situation?
didn’t expect it right now.” This was the reaction of Patrick
3. Based on the information provided and your assessment
Hamilton when his company merged with another orga-
of the situation, what actions would you recommend for
nization and moved its offices to another state, resulting
the Blakes, Patrick, and Nina?
in him losing his job. Patrick does have some flexibility in
PERSONAL FINANCIAL PLANNER IN ACTION

Starting Your Financial Plan
Planning is the foundation for success in every aspect of life. Assessing your current financial situation, along with setting goals is the xxi
key to successful financial planning.
Your Short-Term Financial Planning Activities Resources

1. Prepare a list of personal and financial information for yourself and family members. Also PFP Sheets 1, 2
create a list of financial service organizations that you use. http://time.com/money/
www.kiplinger.com
2. Set financial goals related to various current and future needs. PFP Sheet 4
http://financialplan.about.com
FINANCIAL PLANNING CASE
You Be the Financial Planner his short-term finances since he has three months of living
At some point in your life you may use the services of a finan- expenses in a saving account. However, “three months can go
cial planner. However, your personal knowledge should be the by very quickly,” as Patrick noted.
foundation for most financial decisions. For each of these situ- Situation 3: Nina Resendiz, age 23, recently received a
ations, determine actions you might recommend: $12,000 gift from her aunt. Nina is considering various uses
Situation 1: Fran and Ed Blake, ages 43 and 47, have a for these unexpected funds including paying off credit card
daughter who is completing her first year of college and a son bills from her last vacation or setting aside money for a down
three years younger. Currently they have $42,000 in savings payment on a house. Or she might invest the money in a tax-
and investment funds set aside for their children’s education. deferred retirement account. Another possibility is using the
With increasing education costs, they are concerned whether money for technology certification courses to enhance her
this amount is adequate. In recent months, Fran’s mother has earning power. Nina also wants to contribute some of the
required extensive medical attention and personal care assis- funds to a homeless shelter and a world hunger organization.
tance. Unable to live alone, she is now a resident of a long- She is overwhelmed by the choices and comments to her-
term care facility. The cost of this service is $4,750 a month, self, “I want to avoid the temptation of wasting the money on
with annual increases of about 5 percent. While a major por- impulse items. I want to make sure I use the money on things
tion of the cost is covered by Social Security and her pension, with lasting value.”
Fran’s mother is unable to cover the entire cost. In addition,
Fran and Ed are concerned about saving for their own retire- Questions
ment. While they have consistently made annual deposits to a 1. For each situation, identify the main financial planning
retirement fund, current financial demands may force them to issues that need to be addressed.
access some of that money. 2. What additional information would you like to have
Situation 2: “While I knew it might happen someday, I before recommending actions in each situation?
didn’t expect it right now.” This was the reaction of Patrick
3. Based on the information provided and your assessment
Hamilton when his company merged with another orga-
of the situation, what actions would you recommend for
nization and moved its offices to another state, resulting
the Blakes, Patrick, and Nina?
in him losing his job. Patrick does have some flexibility in
Personal Financial Planner PERSONAL FINANCIAL PLANNER IN ACTION
in Action
Starting Your Financial Plan
Planning is the foundation for success in every aspect of life. Assessing your current financial situation, along with setting goals is the
key to successful financial planning.
Your Short-Term Financial Planning Activities Resources
This feature provides long- and short-term 1. Prepare a list of personal and financial information for yourself and family members. Also
create a list of financial service organizations that you use.
PFP Sheets 1, 2
http://time.com/money/
financial planning activities per the concepts

www.kiplinger.com
2. Set financial goals related to various current and future needs. PFP Sheet 4
http://financialplan.about.com
learned within the chapter, and links each to 3. Monitor current economic conditions (inflation, interest rates) to determine possible
actions to take related to your personal finances.
PFP Sheet 3
www.federalreserve.gov
relevant Personal Financial Planner sheets

www.bls.gov
Your Long-Term Financial Planning Activities Resources
(located at the end of the book) and websites 1. Based on various financial goals, calculate the savings deposits necessary to achieve
those goals.
PFP Sheet 5
www.dinkytown.net
for further personal financial planning.

2. Identify various financial planning actions for you and other household members for the Exhibit 1-6
next two to five years. www.brightpeakfinancial.com
Confirming Pages
29
CONTINUING CASE
Continuing Case
Confirming Pages
Personal Finance Basics and the Time Value of Money
Jamie Lee Jackson, age 24, has recently decided to switch from attending college part-time to full-time in order to pursue her busi-
ness degree and aims to graduate within the next three years. She has 55 credit hours remaining in order to earn her bachelor’s
The new continuing case gives students the

degree, and knows that it will be a challenge to complete her course of study while still working part-time in the bakery department kap20683_ch01_001-030.indd 29 11/10/16 01:57 PM
of a local grocery store, where she earns $390 a week. Jamie Lee wants to keep her part-time job at the grocery store, as she loves
baking andCONTINUING
creates very decorative cakes. CASE She dreams of opening her own cupcake café within the next five years. She also realizes
that by returning to school full-time, she will forgo any free time that she enjoys now socializing with friends.
Jamie Lee
utilities.
Jamie Lee
andness
Personal
shedegree
currentlyFinance
She Jackson,
would really
has noand aims
plans
age 24,likehas
to graduate
to buy
Basics
shares a small
to recently
eventually
a new onewithin
and the
apartment
anythetime
withTime
have atoplace
decided
next three
soon. She
Value
a friend,
switchoffrom
her own.
years.
of Money
and they
She hasa55
is carrying
split all of the associated living expenses, such as rent and
Her car
attending is still
college going strong,
part-time
credit on
balance hours
eveninthough
to full-time
her remaining
credit cardinand
order
it is
order to sevenher
pursue
to earn her
is making
years old,
busi-
bachelor’s
regular monthly
opportunity to apply course concepts in a life
degree, and
payments
of
having
a
knows
of $50
local grocery
withthat
creates
$9,000
it will
hopes
store,
verypayment
down
of be
where
decorative
a challenge
paying
she
cakes.toShe
needed
to complete
it off within
earns $390 a
a year.her
week.
dreams
start
Jamie
course
Jamie
Lee
of opening
the cupcake
hasofalso
study
wants
caféher
twoown
to
while still
recently
keep
cupcake
years
her
takenworking
part-time
after café
part-time
out a student
job at the
costs and expenses. Jamie Lee also began depositing $1,800 a year in a savings account that earns 2 percent interest, in hopes of
baking theand
in to
loan thecover
grocery
bakery
store,
herdepartment
as
educational
she
within the next five years. She also realizes
graduation.
loves situation. This feature encourages students to
that by returning to school full-time, she will forgo any free time that she enjoys now socializing with friends.
Current Financial
Jamie
utilities.
Checking
Situation:
Lee currently
Sheaccount:
would really
shares a small apartment with a friend, and they split all of the associated living expenses, such as rent and
$1,250 like to eventually have a place of her own. Her car is still going strong, even though it is seven years old,
evaluate the changes that affect a family and
then respond to the resulting shift in needs,
and she has no
Emergency plans
Fund to buyaccount:
savings a new one any time soon. She is carrying a balance on her credit card and is making regular monthly
$3,100
payments
Car: $4,000 of $50 with hopes of paying it off within a year. Jamie has also recently taken out a student loan to cover her educational
costs
Studentandloan:
expenses.
$5,400 Jamie Lee also began depositing $1,800 a year in a savings account that earns 2 percent interest, in hopes of
resources, and priorities through the questions

having
Credit the
card$9,000 down
balance: $400payment needed to start the cupcake café two years after graduation.
Gross annual
Current salary:
Financial $2,125
Situation:
Net monthly salary: $1,560
Checking account: $1,250
Emergency Fund savings account: $3,100
Questions
Car: $4,000
1. Using Personal
Student Financial Planner Sheet 3, Personal Financial Goals, as a guide,what are Jamie Lee’s short-term financial
loan: $5,400
at the end of each case.
goals?
Credit How
carddobalance:
they compare
$400 to her intermediate financial goals?
Gross Jamie
2. Browse annualLee’s
salary: $2,125financial situation. Using the SMART approach, what recommendations would you make for her
current
to Net monthly
achieve salary: $1,560
her long-term goals?
3. Questions
Name two opportunity costs that would be considered in Jamie Lee’s situation.
4. 1.Jamie Lee
Using needs toFinancial
Personal save a total of $9,000
Planner Sheet in
3, order to get
Personal startedGoals,
Financial in her as
cupcake café venture.
a guide,what SheLee’s
are Jamie is presently depositing
short-term financial
$1,800
goals?a How
year in
doathey
regular savings
compare account
to her earningfinancial
intermediate 2% interest.
goals?
2.Using Personal
Browse Jamie Financial Planner
Lee’s current Sheet
financial 5, TimeUsing
situation. Valuethe
ofSMART
Money,approach,
as a guide, howrecommendations
what much will she have accumulated
would fiveher
you make for
years from now
to achieve her in this regular
long-term savings account, assuming she will be leaving her Emergency Fund savings account balance
goals?
untouched and for a rainy day?
3. Name two opportunity costs that would be considered in Jamie Lee’s situation.
4. Jamie Lee needs to save a total of $9,000 in order to get started in her cupcake café venture. She is presently depositing
$1,800 a year in a regular savings account earning 2% interest.
DAILY
Using PersonalSPENDING DIARY
Financial Planner Sheet 5, Time Value of Money, as a guide, how much will she have accumulated five
years from now in this regular savings account, assuming she will be leaving her Emergency Fund savings account balance
untouched and for this
“I first thought a rainy day? would be a waste of time, but the information has helped me become much more careful of
process
Daily Spending Diary

how I spend my money.”
Directions
DAILY SPENDING DIARY
Nearly everyone who has taken the effort to keeping a Daily Spending Diary has found it beneficial. While at first the process
may seem “Itedious, after awhile, recording
wouldthis
be ainformation becomes
but theeasier and faster.
Do you buy a latte or a soda every day before

first thought this process waste of time, information has helped me become much more careful of
Using the
how“Daily
I spendSpending
my money.”Diary” sheets, record every cent of your spending each day in the categories provided. Or you may
create your own format to monitor your spending. You can indicate the use of a credit card with (CR). This experience will help
youDirections
better understand your spending patterns and identify desired changes you might want to make in your spending habits.
Nearly everyone who has taken the effort to keeping a Daily Spending Diary has found it beneficial. While at first the process
Analysis
may seemQuestions
1. What
tedious, after awhile, recording this information becomes easier and faster.
didthe
Using your DailySpending
“Daily Spending Diarysheets,
Diary” revealrecord
about every
your spending habits?
cent of your Whateach
spending areas
dayofinspending mightprovided.
the categories you consider
Or you may
class? Do you and your friends meet for a
changing?
create
2. you
How
your own format to monitor your spending. You can indicate the use of a credit card with (CR). This experience will help
better understand
might your
your Daily spendingDiary
Spending patterns andyou
assist identify
whendesired changes
identifying andyou might want
achieving to make
financial in your spending habits.
goals? movie once a week? How much do you spend
on gas for your car each month? Do you try to
The Daily Spending
Analysis Diary sheets are located in Appendix D at the end of the book and on the library resource site within Connect.
Questions
1. What did your Daily Spending Diary reveal about your spending habits? What areas of spending might you consider
changing?
30
2. How might your Daily Spending Diary assist you when identifying and achieving financial goals?
The Daily Spending Diary sheets are located in Appendix D at the end of the book and on the library resource site within Connect. donate to your favorite local charity every year?
30
These everyday spending activities might go
kap20683_ch01_001-030.indd 30 11/10/16 01:57 PM
largely unnoticed, yet they have a significant
effect on the overall health of an individual’s
finances. The Daily Spending Diary sheets (in
kap20683_ch01_001-030.indd 30 11/10/16 01:57 PM
Appendix D and online) and end-of-chapter

activities offer students a place to keep track
of every cent they spend in any category.
Careful monitoring and assessing of these daily
spending habits can lead to better control and
understanding of students’ personal finances.
xxii
Personal Finance continues to provide instructors and students with features and
materials to create a learning environment that can be adapted to any educational
setting.
First Pages
Personal Financial
Planner Sheets
Name: ______________________________________________________ Date: __________________
22 Tax Planning Activities

The PFP sheets that correlate with sections Purpose: To consider actions that can prevent tax penalties and may result in tax savings.
PERSONAL FINANCIAL PLANNER

Instructions: Consider which of the following actions are appropriate to your tax situation. This
of the text are conveniently located at the end

sheet is also available in an Excel spreadsheet on the library resource site in Connect.
Suggested websites: www.irs.gov turbotax.intuit.com/tax-tools/
of the text. Each worksheet asks students to

Action to be
taken (if applicable) Completed
Filing Status/Withholding
work through the application and record their • Change filing status or exemptions because of changes in life
situation.
own personal financial plan answers. These • Change amount of withholding because of changes in tax
situation.
• Plan to make estimated tax payments (due the 15th of April,
sheets apply concepts learned to students’ June, September, and January).
Tax Records/Documents
personal situation and serve as a road map to • Organize home files for ease of maintaining and retrieving data.
• Send current mailing address and correct Social Security
their personal financial future. Students can fill

number to IRS, place of employment, and other sources of
income.
Annual Tax Activities

them out, submit them for homework, and keep • Be certain all needed data and current tax forms are available
well before deadline.
them filed in a safe spot for future reference! • Research tax code changes and uncertain tax areas.
Tax Savings Actions
Key websites are provided to help students • Consider tax-exempt and tax-deferred investments.
• If you expect to have the same or lower tax rate next year,
research and devise their personal financial

accelerate deductions into the current year.
• If you expect to have the same or lower tax rate next year,
delay the receipt of income until next year.
plan, and the “What’s Next for Your Personal • If you expect to have a higher tax rate next year, delay
deductions because they will have a greater benefit.
• If you expect to have a higher tax rate next year, accelerate
Financial Plan?” section at the end of the receipt of income to have it taxed at the current lower
rate.
• Start or increase use of tax-deferred retirement plans.
each sheet challenges students to use their Suggested

Apps:
• IRS2go
• Other.
responses to plan the next level, as well as

• iDonatedit What’s Next for Your Personal Financial Plan?
• Identify saving and investing decisions that would minimize future income taxes.
• Develop a plan for actions to take related to your current and future tax situation.
foreshadow upcoming concepts. The authors

also recommend favorite apps to help students
master the relevant contents.
kap20683_pfp.indd 24 11/11/16 09:50 AM
Look for one or more PFP icons next to

many Practice Quizzes. The icons direct
students to the Personal Financial Planner
sheet that corresponds with the preceding
section.
xxiii
Required=Results
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effective.
73% of instructors who use

Connect require it; instructor Using Connect improves retention
rates by 19.8%, passing rates by
satisfaction increases by 28% when 12.7%, and exam scores by 9.1%.
Connect is required.
Analytics
Connect Insight®
Connect Insight is Connect’s new one-
of-a-kind visual analytics dashboard that
provides at-a-glance information regarding
student performance, which is immediately
actionable. By presenting assignment,
assessment, and topical performance results
together with a time metric that is easily
visible for aggregate or individual results,
Connect Insight gives the user the ability to
take a just-in-time approach to teaching and
learning, which was never before available.
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SmartBook’s adaptive technology provides precise,
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and remember key concepts, targeting gaps in
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Supplements
Few textbooks provide such innovative and practical instructional

resources for both students and teachers. The comprehensive
teaching–learning package for Personal Finance includes the extensive
tools housed on the book’s website.
For Instructors
The Instructor Resources for this edition can be found in Connect, and include all supplementary
material, including the Instructor’s Manual, Test Bank, computerized Test Gen testing software,
PowerPoint, and related Web links:
∙ The Instructor’s Manual includes a “Course Planning Guide” with instructional strategies,
course projects, and supplementary resource lists. The “Chapter Teaching Materials” section
of the Instructor’s Manual provides a chapter overview, the chapter objectives with summaries,
introductory activities, and detailed lecture outlines with teaching suggestions. This section also
includes concluding activities, ready-to-duplicate quizzes, supplementary lecture materials and
activities, and answers to concept checks, end-of-chapter problems, and cases.
∙ The Test Bank, revised by Michelle Grant, Bossier Parish Community College, and reviewed by
Montgomery Hill, Northern Virginia Community College, consists of almost 2,000 true–false,
multiple-choice, and essay questions. Each test item is tagged with a corresponding learning
objective, topic, level of difficulty, page number, and Blooms category. Use these tags to easily
and effectively customize your test bank.
∙ Computerized Testing Software—TestGen is a complete, state-of-the-art test generator and
editing application software that allows instructors to quickly and easily select test items from
McGraw Hill’s TestGen testbank content and to organize, edit and customize the questions and
answers to rapidly generate paper tests. Questions can include stylized text, symbols, graphics,
and equations that are inserted directly into questions using built-in mathematical templates.
TestGen’s random generator provides the option to display different text or calculated number
values each time questions are used. With both quick-and-simple test creation and flexible and
robust editing tools, TestGen is a test generator system for today’s educators.
∙ Chapter PowerPoint Presentations revised by Michelle Grant, Bossier Parish Community
College, offers more than 300 visual presentations that may be edited and manipulated to fit a
particular course format.
Online Support for Students and Instructors

Many helpful study tools for students now reside in Connect. These include Narrated PowerPoint
slides, crossword puzzles, the Excel-based Personal Financial Planning sheets, and video case
media.
xxvi
Personal Finance Telecourse
If you teach personal finance as a telecourse, this text is a perfect fit! A telecourse program is
available from Coastline Community College titled Dollar$ & Sense: Personal Finance for the
21st Century that is based on the Kapoor, Dlabay, Hughes, and Hart text. The program includes
26 thirty-minute videotapes, which you purchase directly from Coast by contacting Lynn Dahnke,
Marketing Director, Coast Learning Systems, 11460 Warner Ave., Fountain Valley, CA 92708,
(800) 547-4748 or www.CoastLearning.org. The course also has a Telecourse Study Guide available
that connects the videos to the text.
McGraw-Hill Customer Care Contact Information

At McGraw-Hill, we understand that getting the most from new technology can be challenging.
That’s why our services don’t stop after you purchase our products. You can e-mail our product
specialists 24 hours a day to get product-training online. Or you can search our knowledge bank of
Frequently Asked Questions on our support website. For customer support, call 800-331-5094, or
visit www.mhhe.com/support. One of our technical support analysts will be able to assist you in a
timely fashion.
xxvii
Brief Contents
1 Planning Your Personal Finances
1. Personal Finance Basics and the Time Value of Money 1
Appendix: The Time Value of Money 31
2. Financial Aspects of Career Planning 43
Appendix: Résumés, Cover Letters, and Interviews 69
3. Money Management Strategy: Financial Statements and Budgeting 80
4. Planning Your Tax Strategy 109
2 Managing Your Personal Finances

5. Financial Services: Savings Plans and Payment Accounts 146
6. Introduction to Consumer Credit 176
7. Choosing a Source of Credit: The Costs of Credit Alternatives 218
3 Making Your Purchasing Decisions

8. Consumer Purchasing Strategies and Legal Protection 254
9. The Housing Decision: Factors and Finances 284
4 Insuring Your Resources

10. Property and Motor Vehicle Insurance 318
11. Health, Disability, and Long-Term Care Insurance 350
12. Life Insurance 393
5 Investing Your Financial Resources

13. Investing Fundamentals 428
14. Investing in Stocks 461
15. Investing in Bonds 498
16. Investing in Mutual Funds 532
17. Investing in Real Estate and Other Investment Alternatives 564
6 Controlling Your Financial Future

18. Starting Early: Retirement Planning 589
19. Estate Planning 629
Appendixes
A. Education Financing, Loans, and Scholarships A-1
B. Financial Planners and Other Information Sources B-1
C. Consumer Agencies and Organizations C-1
D. Daily Spending Diary D-1
Endnotes N-1
Index I-1
Personal Financial Planner
xxviii
Contents
1 Planning Your
Career Opportunities: Now and in the Future 48
Social Influences 48
Personal Finances Economic Conditions 50
Industry Trends 50
1
| Personal Finance Basics and the
Time Value of Money 1
Employment Search Strategies 51
Obtaining Employment Experience 51
Using Career Information Sources 52
The Financial Planning Process 2
Identifying Job Opportunities 55
Step 1: Determine Your Current Financial
Applying for Employment 56
Situation 3
Step 2: Develop Financial Goals 4 Financial and Legal Aspects of
Step 3: Identify Alternative Courses of Action 5 Employment 57
Step 4: Evaluate Your Alternatives 5 Accepting an Employment Position 57
Step 5: Create and Implement Your Financial Evaluating Employee Benefits 57
Action Plan 7 Your Employment Rights 60
Step 6: Review and Revise Your Plan 8 Long-Term Career Development 60
Influences on Personal Financial Planning 8 Training Opportunities 61
Life Situation and Personal Values 8 Career Paths and Advancement 61
The Financial System and Economic Factors 9 Changing Careers 62
Developing Personal Financial Goals 13 Appendix: Résumés, Cover Letters, and

Types of Financial Goals 13 Interviews 69
Goal-Setting Guidelines 14
|
Opportunity Costs and the Time Value of Money 16
3 Money Management Strategy:
Personal Opportunity Costs 17
Financial Statements and
Financial Opportunity Costs 17
Budgeting 80
Achieving Financial Goals 20 Successful Money Management 82
Components of Personal Financial Planning 20 Opportunity Cost and Money
Management 82
Developing a Flexible Financial Plan 23
Components of Money Management 82
Implementing Your Financial Plan 24
A Personal Financial Records System 82
Studying Personal Finance 24
Personal Financial Statements 85
Appendix: The Time Value of Money 31
The Personal Balance Sheet: Where Are You
Now? 85
2
| Financial
Planning
Aspects of Career
43
Evaluating Your Financial Position 88
The Cash Flow Statement: Where Did Your
Career Choice Factors 44 Money Go? 88
Trade-Offs of Career Decisions 45 Budgeting for Skilled Money Management 92
Career Training and Skill Development 45 The Budgeting Process 93
Personal Factors 46 Characteristics of Successful Budgeting 97
Career Decision Making 47 Types of Budgeting Systems 98
xxix
xxx CONTENTS
Money Management and Achieving

Financial Goals 100
2 Managing Your
Identifying Saving Goals 101 Personal Finances
Selecting a Saving Technique 101
Calculating Savings Amounts 101 5
| Financial Services: Savings Plans
and Payment Accounts 146
4
| Planning
Strategy
Your Tax
109
Financial Services for Financial Planning 148
Managing Daily Money Needs 148
Taxes and Financial Planning 110 Types of Financial Services 149
Taxes on Purchases 111 Online and Mobile Banking 150
Taxes on Property 111 Prepaid Debit Cards 151
Taxes on Wealth 111 Opportunity Costs of Financial Services 151
Taxes on Earnings 112 Financial Services and Economic
Conditions 152
Income Tax Fundamentals 112
Step 1: Determining Adjusted Gross Financial Institutions 152
Income 112 Deposit Institutions 153
Step 2: Computing Taxable Other Financial Institutions 153
Income 114 Comparing Financial Institutions 155
Step 3: Calculating Taxes Owed 117 Savings Plans 157
Making Tax Payments 120 Regular Savings Accounts 157
Deadlines and Penalties 121 Certificates of Deposit 158
Filing Your Federal Income Tax Return 122 Money Market Accounts and Funds 159
Who Must File? 122 Savings Bonds 159
Which Tax Form Should Evaluating Savings Plans 161
You Use? 123 Rate of Return 161
Completing the Federal Income Tax Inflation 163
Return 123
Tax Considerations 163
Filing State Income Tax Returns 125
Liquidity 163
Tax Assistance and the Audit Safety 163
Process 126
Payment Methods 165
Tax Information Sources 126
Types of Checking Accounts 166
Tax Preparation Software 130
Evaluating Checking Accounts 166
Tax Preparation Services 130
Electronic Payments 166
What if Your Return Is
Managing Your Checking Account 169
Audited? 132
Other Payment Methods 170
Tax Planning Strategies 134
Consumer Purchasing 134
Investment Decisions 136
Retirement and Education
6
| Introduction
Credit 176
to Consumer
Plans 137 What Is Consumer Credit? 178

Tax-Savings Strategies: A The Importance of Consumer Credit in Our
Summary 139 Economy 179
CONTENTS xxxi
Uses and Misuses of Credit 179 When the Repayment Is Early: The Rule
Advantages of Credit 180 of 78s 232
Disadvantages of Credit 181 Credit Insurance 234
Summary: Advantages and Disadvantages of Cost of Credit and the Credit Card Accountability,
Credit 181 Responsibility, and Disclosure Act of 2009
(The Credit CARD Act) 234
Types of Credit 182
Closed-End Credit 182 Managing Your Debts 235
Open-End Credit 182 Debt Collection Practices 235
Warning Signs of Debt Problems 236
Measuring Your Credit Capacity 189
The Serious Consequences
Can You Afford a Loan? 189
of Debt 237
General Rules of Credit Capacity 190
Cosigning a Loan 191 Consumer Credit Counseling Services 239
Building and Maintaining Your Credit What the CCCS Does 239
Rating 192 Alternative Counseling Services 240
Applying for Credit 196 Declaring Personal Bankruptcy 242

A Scenario from the Past 196 The Bankruptcy Abuse Prevention and
What Creditors Look For: The Five Cs of Credit Consumer Protection Act
Management 196 of 2005 242
What if Your Application Is Denied? 200 Effect of Bankruptcy on Your Job and Your Future
Credit 244
Avoiding and Correcting Credit Mistakes 201
Should a Lawyer Represent You in a Bankruptcy
In Case of a Billing Error 201
Case? 245
Your Credit Rating During the Dispute 203
Defective Goods or Services 203
Identity Crisis: What to do if Your Identity Is
Stolen 203
3 Making Your
Complaining about Consumer Credit 205
Purchasing Decisions
Complaints about Banks 205
Protection Under Consumer Credit
Laws 205
8
| Consumer Purchasing Strategies
and Legal Protection 254
Your Rights Under Consumer Credit Consumer Buying Activities 255
Laws 210 Financial Implications of Consumer
Decisions 255
Wise Purchasing Strategies 256
7
| Choosing a Source of Credit: The
Costs of Credit Alternatives 218
Warranties 260
Major Consumer Purchases: Buying Motor
Sources of Consumer Credit 219
Vehicles 262
What Kind of Loan Should You Seek? 220
Phase 1—Preshopping Activities 262
The Cost of Credit 223 Phase 2—Evaluating
Finance Charge and Annual Percentage Rate Alternatives 264
(Apr) 223 Phase 3—Determining Purchase
Tackling the Trade-Offs 225 Price 267
Calculating the Cost of Credit 226 Phase 4—Postpurchase Activities 268
xxxii CONTENTS
Resolving Consumer Complaints 271

Step 1: Initial Communication 273
4 Insuring Your
Step 2: Communication with the Resources
Company 273
10
| Property and Motor Vehicle
Step 3: Consumer Agency Assistance 274
Step 4: Legal Action 274 Insurance 318
Legal Options for Consumers 274 Insurance and Risk Management: An
Small Claims Court 275 Introduction 319
Class-Action Suits 275 What Is Insurance? 320
Using a Lawyer 275 Types of Risks 320
Other Legal Alternatives 275 Risk Management Methods 321
Personal Consumer Protection 277 Planning an Insurance Program 322
Property and Liability Insurance 325
9
| The Housing Decision: Factors
and Finances 284
Potential Property Losses 326
Liability Protection 326
Housing Alternatives 285 Home and Property Insurance 327
Your Lifestyle and Your Choice of Homeowner’s Insurance Coverages 327
Housing 286 Renter’s Insurance 330
Opportunity Costs of Housing Home Insurance Policy Forms 332
Choices 286
Home Insurance Cost Factors 334
Renting Versus Buying Housing 287
How Much Coverage Do You Need? 334
Housing Information Sources 289
Factors That Affect Home Insurance
Renting Your Residence 289 Costs 335
Selecting a Rental Unit 290 Reducing Home Insurance Costs 335
Advantages of Renting 290
Automobile Insurance Coverages 336
Disadvantages of Renting 291
Motor Vehicle Bodily Injury Coverages 336
Costs of Renting 292
Motor Vehicle Property Damage
The Home-Buying Process 293 Coverages 338
Step 1: Determine Home Ownership Other Automobile Insurance Coverages 340
Needs 293
Automobile Insurance Costs 340
Step 2: Find and Evaluate a Property to
Amount of Coverage 340
Purchase 297
Automobile Insurance Premium
Step 3: Price the Property 298
Factors 341
The Finances of Home Buying 300 Reducing Automobile Insurance
Step 4: Obtain Financing 300 Premiums 341
Step 5: Close the Purchase Transaction 307
Home Buying: A Summary 309
Selling Your Home 311
Preparing Your Home for Selling 311
11
| Health, Disability, and Long-Term
Care Insurance 350
Determining the Selling Price 311 Health Care Costs 351

Sale by Owner 311 High Medical Costs 352
Listing with a Real Estate Agent 312 Why Does Health Care Cost So Much? 354
CONTENTS xxxiii
What Is Being Done about the High Costs of 12 | Life Insurance 393
Health Care? 355
Life Insurance: An Introduction 394
What Can You Do to Reduce Personal Health
What Is Life Insurance? 395
Care Costs? 355
The Purpose of Life Insurance 395
Health Insurance and Financial
The Principle of Life Insurance 396
Planning 357
How Long Will You Live? 396
What Is Health Insurance? 357
Life Expectancy and Education 396
Medical Coverage and Divorce 358
Determining Your Life Insurance
Types of Health Insurance Coverage 360
Needs 397
Types of Medical Coverage 360
Do You Need Life Insurance? 398
Long-Term Care Insurance 362
Determining Your Life Insurance
Major Provisions in a Health Insurance
Objectives 398
Policy 364
Estimating Your Life Insurance
Health Insurance Trade-Offs 365
Requirements 398
Which Coverage Should You Choose? 366
Online Calculators and Applications
Private Sources of Health Insurance and (Apps) 400
Health Care 366
Types of Life Insurance Companies and
Private Insurance Companies 367
Policies 402
Hospital and Medical Service Plans 367
Types of Life Insurance
Health Maintenance Organizations Companies 402
(HMOs) 367
Types of Life Insurance Policies 402
Preferred Provider Organizations
Term Life Insurance 403
(PPOs) 369
Whole Life Insurance 404
Home Health Care Agencies 370
Other Types of Life Insurance
Employer Self-Funded Health Plans 371
Policies 407
New Health Care Accounts 371
Important Provisions in a Life Insurance
Government Health Care Programs 372
Contract 410
Medicare 372
Payments to Life Insurance Policies 410
Medicaid 376
Clauses in Life Insurance Policies 410
Health Insurance and the Patient Protection and
Payments from Life Insurance
Affordable Care Act of 2010 376
Policies 411
The Affordable Care Act and the Individual
Riders to Life Insurance Policies 412
Shared Responsibility Provision 378
Fight Against Medicare/Medicaid Fraud and Buying Life Insurance 413
Abuse 380 From Whom to Buy? 413
Government and Private Consumer Health Comparing Policy Costs 415
Information Websites 381 Obtaining a Policy 418
Examining a Policy 418
Disability Income Insurance 382
Definition of Disability 383 Life Insurance Proceeds 418
Disability Insurance Trade-Offs 383 Death (or Survivor) Benefits 419
Sources of Disability Income 383 Income from Life Insurance
Determining Your Disability Income Insurance Policies 419
Requirements 385 Switching Policies 420
xxxiv CONTENTS
5 Investing Your Evaluating a Stock Issue 468

Classification of Stock Investments 468
Financial Resources The Internet 468
Stock Advisory Services 469
13 | Investing Fundamentals 428 Newspaper Coverage and Corporate
News 472
Preparing for an Investment Program 429
Establishing Investment Goals 429 Numerical Measures That Influence Investment
Performing a Financial Checkup 430 Decisions 472
Managing a Financial Crisis 432 Why Corporate Earnings Are Important 472
Getting the Money Needed to Start an Projected Earnings 474
Investment Program 433 Dividend and Total Return Calculations 474
How the Time Value of Money Affects Your Other Factors That Influence the Price of a
Investments 433 Stock 477
Investment Theories 478
Factors Affecting the Choice of
Investments 435 Buying and Selling Stocks 479
Safety and Risk 435 Secondary Markets for Stocks 480
The Risk–Return Trade-Off 435 Brokerage Firms and Account Executives 481
Components of the Risk Factor 437 Should You Use a Full-Service, Discount, or
Investment Income 440 Online Brokerage Firm? 481
Investment Growth 440 Commission Charges 482
Investment Liquidity 440 Completing Stock Transactions 483
Asset Allocation and Investment Alternatives 441 Long-Term and Short-Term Investment
Asset Allocation and Diversification 441 Strategies 484
An Overview of Investment Alternatives 444 Long-Term Techniques 484
A Personal Plan for Investing 446 Short-Term Techniques 486
Factors That Reduce Investment Risk 447

Your Role in the Investment Process 447 15 | Investing in Bonds 498
Other Factors That Improve Investment Characteristics of Corporate Bonds 500
Decisions 449
Why Corporations Sell Corporate Bonds 501
Sources of Investment Information 449 Types of Bonds 501
The Internet 450 Provisions for Repayment 503
Newspapers and News Programs 450
Why Investors Purchase Corporate Bonds 504
Business Periodicals and Government
The Psychology of Investing in Bonds 504
Publications 451
Interest Income 505
Corporate Reports 451
Dollar Appreciation of Bond Value 506
Investor Services and Newsletters 452
Bond Repayment at Maturity 507
A Typical Bond Transaction 508
14 | Investing in Stocks 461 The Mechanics of a Bond Transaction 509
Common and Preferred Stocks 462 Government Bonds and Debt Securities 510
Why Corporations Issue Common Stock 463 U.S. Treasury Bills, Notes, and Bonds 510
Why Investors Purchase Common Stock 463 Federal Agency Debt Issues 513
Preferred Stock 467 State and Local Government Securities 513
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DANCE ON STILTS AT THE GIRLS’ UNYAGO, NIUCHI
Newala, too, suffers from the distance of its water-supply—at least

the Newala of to-day does; there was once another Newala in a lovely
valley at the foot of the plateau. I visited it and found scarcely a trace
of houses, only a Christian cemetery, with the graves of several
missionaries and their converts, remaining as a monument of its
former glories. But the surroundings are wonderfully beautiful. A
thick grove of splendid mango-trees closes in the weather-worn
crosses and headstones; behind them, combining the useful and the
agreeable, is a whole plantation of lemon-trees covered with ripe
fruit; not the small African kind, but a much larger and also juicier
imported variety, which drops into the hands of the passing traveller,
without calling for any exertion on his part. Old Newala is now under
the jurisdiction of the native pastor, Daudi, at Chingulungulu, who,
as I am on very friendly terms with him, allows me, as a matter of
course, the use of this lemon-grove during my stay at Newala.
FEET MUTILATED BY THE RAVAGES OF THE “JIGGER”
(Sarcopsylla penetrans)
The water-supply of New Newala is in the bottom of the valley,

some 1,600 feet lower down. The way is not only long and fatiguing,
but the water, when we get it, is thoroughly bad. We are suffering not
only from this, but from the fact that the arrangements at Newala are
nothing short of luxurious. We have a separate kitchen—a hut built
against the boma palisade on the right of the baraza, the interior of
which is not visible from our usual position. Our two cooks were not
long in finding this out, and they consequently do—or rather neglect
to do—what they please. In any case they do not seem to be very
particular about the boiling of our drinking-water—at least I can
attribute to no other cause certain attacks of a dysenteric nature,
from which both Knudsen and I have suffered for some time. If a
man like Omari has to be left unwatched for a moment, he is capable
of anything. Besides this complaint, we are inconvenienced by the
state of our nails, which have become as hard as glass, and crack on
the slightest provocation, and I have the additional infliction of
pimples all over me. As if all this were not enough, we have also, for
the last week been waging war against the jigger, who has found his
Eldorado in the hot sand of the Makonde plateau. Our men are seen
all day long—whenever their chronic colds and the dysentery likewise
raging among them permit—occupied in removing this scourge of
Africa from their feet and trying to prevent the disastrous
consequences of its presence. It is quite common to see natives of
this place with one or two toes missing; many have lost all their toes,
or even the whole front part of the foot, so that a well-formed leg
ends in a shapeless stump. These ravages are caused by the female of
Sarcopsylla penetrans, which bores its way under the skin and there
develops an egg-sac the size of a pea. In all books on the subject, it is
stated that one’s attention is called to the presence of this parasite by
an intolerable itching. This agrees very well with my experience, so
far as the softer parts of the sole, the spaces between and under the
toes, and the side of the foot are concerned, but if the creature
penetrates through the harder parts of the heel or ball of the foot, it
may escape even the most careful search till it has reached maturity.
Then there is no time to be lost, if the horrible ulceration, of which
we see cases by the dozen every day, is to be prevented. It is much
easier, by the way, to discover the insect on the white skin of a
European than on that of a native, on which the dark speck scarcely
shows. The four or five jiggers which, in spite of the fact that I
constantly wore high laced boots, chose my feet to settle in, were
taken out for me by the all-accomplished Knudsen, after which I
thought it advisable to wash out the cavities with corrosive
sublimate. The natives have a different sort of disinfectant—they fill
the hole with scraped roots. In a tiny Makua village on the slope of
the plateau south of Newala, we saw an old woman who had filled all
the spaces under her toe-nails with powdered roots by way of
prophylactic treatment. What will be the result, if any, who can say?
The rest of the many trifling ills which trouble our existence are
really more comic than serious. In the absence of anything else to
smoke, Knudsen and I at last opened a box of cigars procured from
the Indian store-keeper at Lindi, and tried them, with the most
distressing results. Whether they contain opium or some other
narcotic, neither of us can say, but after the tenth puff we were both
“off,” three-quarters stupefied and unspeakably wretched. Slowly we
recovered—and what happened next? Half-an-hour later we were
once more smoking these poisonous concoctions—so insatiable is the
craving for tobacco in the tropics.
Even my present attacks of fever scarcely deserve to be taken
seriously. I have had no less than three here at Newala, all of which
have run their course in an incredibly short time. In the early
afternoon, I am busy with my old natives, asking questions and
making notes. The strong midday coffee has stimulated my spirits to
an extraordinary degree, the brain is active and vigorous, and work
progresses rapidly, while a pleasant warmth pervades the whole
body. Suddenly this gives place to a violent chill, forcing me to put on
my overcoat, though it is only half-past three and the afternoon sun
is at its hottest. Now the brain no longer works with such acuteness
and logical precision; more especially does it fail me in trying to
establish the syntax of the difficult Makua language on which I have
ventured, as if I had not enough to do without it. Under the
circumstances it seems advisable to take my temperature, and I do
so, to save trouble, without leaving my seat, and while going on with
my work. On examination, I find it to be 101·48°. My tutors are
abruptly dismissed and my bed set up in the baraza; a few minutes
later I am in it and treating myself internally with hot water and
lemon-juice.
Three hours later, the thermometer marks nearly 104°, and I make
them carry me back into the tent, bed and all, as I am now perspiring
heavily, and exposure to the cold wind just beginning to blow might
mean a fatal chill. I lie still for a little while, and then find, to my
great relief, that the temperature is not rising, but rather falling. This
is about 7.30 p.m. At 8 p.m. I find, to my unbounded astonishment,
that it has fallen below 98·6°, and I feel perfectly well. I read for an
hour or two, and could very well enjoy a smoke, if I had the
wherewithal—Indian cigars being out of the question.
Having no medical training, I am at a loss to account for this state
of things. It is impossible that these transitory attacks of high fever
should be malarial; it seems more probable that they are due to a
kind of sunstroke. On consulting my note-book, I become more and
more inclined to think this is the case, for these attacks regularly
follow extreme fatigue and long exposure to strong sunshine. They at
least have the advantage of being only short interruptions to my
work, as on the following morning I am always quite fresh and fit.
My treasure of a cook is suffering from an enormous hydrocele which
makes it difficult for him to get up, and Moritz is obliged to keep in
the dark on account of his inflamed eyes. Knudsen’s cook, a raw boy
from somewhere in the bush, knows still less of cooking than Omari;
consequently Nils Knudsen himself has been promoted to the vacant
post. Finding that we had come to the end of our supplies, he began
by sending to Chingulungulu for the four sucking-pigs which we had
bought from Matola and temporarily left in his charge; and when
they came up, neatly packed in a large crate, he callously slaughtered
the biggest of them. The first joint we were thoughtless enough to
entrust for roasting to Knudsen’s mshenzi cook, and it was
consequently uneatable; but we made the rest of the animal into a
jelly which we ate with great relish after weeks of underfeeding,
consuming incredible helpings of it at both midday and evening
meals. The only drawback is a certain want of variety in the tinned
vegetables. Dr. Jäger, to whom the Geographical Commission
entrusted the provisioning of the expeditions—mine as well as his
own—because he had more time on his hands than the rest of us,
seems to have laid in a huge stock of Teltow turnips,[46] an article of
food which is all very well for occasional use, but which quickly palls
when set before one every day; and we seem to have no other tins
left. There is no help for it—we must put up with the turnips; but I
am certain that, once I am home again, I shall not touch them for ten
years to come.
Amid all these minor evils, which, after all, go to make up the
genuine flavour of Africa, there is at least one cheering touch:
Knudsen has, with the dexterity of a skilled mechanic, repaired my 9
× 12 cm. camera, at least so far that I can use it with a little care.
How, in the absence of finger-nails, he was able to accomplish such a
ticklish piece of work, having no tool but a clumsy screw-driver for
taking to pieces and putting together again the complicated
mechanism of the instantaneous shutter, is still a mystery to me; but
he did it successfully. The loss of his finger-nails shows him in a light
contrasting curiously enough with the intelligence evinced by the
above operation; though, after all, it is scarcely surprising after his
ten years’ residence in the bush. One day, at Lindi, he had occasion
to wash a dog, which must have been in need of very thorough
cleansing, for the bottle handed to our friend for the purpose had an
extremely strong smell. Having performed his task in the most
conscientious manner, he perceived with some surprise that the dog
did not appear much the better for it, and was further surprised by
finding his own nails ulcerating away in the course of the next few
days. “How was I to know that carbolic acid has to be diluted?” he
mutters indignantly, from time to time, with a troubled gaze at his
mutilated finger-tips.
Since we came to Newala we have been making excursions in all
directions through the surrounding country, in accordance with old
habit, and also because the akida Sefu did not get together the tribal
elders from whom I wanted information so speedily as he had
promised. There is, however, no harm done, as, even if seen only
from the outside, the country and people are interesting enough.
The Makonde plateau is like a large rectangular table rounded off
at the corners. Measured from the Indian Ocean to Newala, it is
about seventy-five miles long, and between the Rovuma and the
Lukuledi it averages fifty miles in breadth, so that its superficial area
is about two-thirds of that of the kingdom of Saxony. The surface,
however, is not level, but uniformly inclined from its south-western
edge to the ocean. From the upper edge, on which Newala lies, the
eye ranges for many miles east and north-east, without encountering
any obstacle, over the Makonde bush. It is a green sea, from which
here and there thick clouds of smoke rise, to show that it, too, is
inhabited by men who carry on their tillage like so many other
primitive peoples, by cutting down and burning the bush, and
manuring with the ashes. Even in the radiant light of a tropical day
such a fire is a grand sight.
Much less effective is the impression produced just now by the
great western plain as seen from the edge of the plateau. As often as
time permits, I stroll along this edge, sometimes in one direction,
sometimes in another, in the hope of finding the air clear enough to
let me enjoy the view; but I have always been disappointed.
Wherever one looks, clouds of smoke rise from the burning bush,
and the air is full of smoke and vapour. It is a pity, for under more
favourable circumstances the panorama of the whole country up to
the distant Majeje hills must be truly magnificent. It is of little use
taking photographs now, and an outline sketch gives a very poor idea
of the scenery. In one of these excursions I went out of my way to
make a personal attempt on the Makonde bush. The present edge of
the plateau is the result of a far-reaching process of destruction
through erosion and denudation. The Makonde strata are
everywhere cut into by ravines, which, though short, are hundreds of
yards in depth. In consequence of the loose stratification of these
beds, not only are the walls of these ravines nearly vertical, but their
upper end is closed by an equally steep escarpment, so that the
western edge of the Makonde plateau is hemmed in by a series of
deep, basin-like valleys. In order to get from one side of such a ravine
to the other, I cut my way through the bush with a dozen of my men.
It was a very open part, with more grass than scrub, but even so the
short stretch of less than two hundred yards was very hard work; at
the end of it the men’s calicoes were in rags and they themselves
bleeding from hundreds of scratches, while even our strong khaki
suits had not escaped scatheless.
NATIVE PATH THROUGH THE MAKONDE BUSH, NEAR

MAHUTA
I see increasing reason to believe that the view formed some time
back as to the origin of the Makonde bush is the correct one. I have
no doubt that it is not a natural product, but the result of human
occupation. Those parts of the high country where man—as a very
slight amount of practice enables the eye to perceive at once—has not
yet penetrated with axe and hoe, are still occupied by a splendid
timber forest quite able to sustain a comparison with our mixed
forests in Germany. But wherever man has once built his hut or tilled
his field, this horrible bush springs up. Every phase of this process
may be seen in the course of a couple of hours’ walk along the main
road. From the bush to right or left, one hears the sound of the axe—
not from one spot only, but from several directions at once. A few
steps further on, we can see what is taking place. The brush has been
cut down and piled up in heaps to the height of a yard or more,
between which the trunks of the large trees stand up like the last
pillars of a magnificent ruined building. These, too, present a
melancholy spectacle: the destructive Makonde have ringed them—
cut a broad strip of bark all round to ensure their dying off—and also
piled up pyramids of brush round them. Father and son, mother and
son-in-law, are chopping away perseveringly in the background—too
busy, almost, to look round at the white stranger, who usually excites
so much interest. If you pass by the same place a week later, the piles
of brushwood have disappeared and a thick layer of ashes has taken
the place of the green forest. The large trees stretch their
smouldering trunks and branches in dumb accusation to heaven—if
they have not already fallen and been more or less reduced to ashes,
perhaps only showing as a white stripe on the dark ground.
This work of destruction is carried out by the Makonde alike on the
virgin forest and on the bush which has sprung up on sites already
cultivated and deserted. In the second case they are saved the trouble
of burning the large trees, these being entirely absent in the
secondary bush.
After burning this piece of forest ground and loosening it with the
hoe, the native sows his corn and plants his vegetables. All over the
country, he goes in for bed-culture, which requires, and, in fact,
receives, the most careful attention. Weeds are nowhere tolerated in
the south of German East Africa. The crops may fail on the plains,
where droughts are frequent, but never on the plateau with its
abundant rains and heavy dews. Its fortunate inhabitants even have
the satisfaction of seeing the proud Wayao and Wamakua working
for them as labourers, driven by hunger to serve where they were
accustomed to rule.
But the light, sandy soil is soon exhausted, and would yield no
harvest the second year if cultivated twice running. This fact has
been familiar to the native for ages; consequently he provides in
time, and, while his crop is growing, prepares the next plot with axe
and firebrand. Next year he plants this with his various crops and
lets the first piece lie fallow. For a short time it remains waste and
desolate; then nature steps in to repair the destruction wrought by
man; a thousand new growths spring out of the exhausted soil, and
even the old stumps put forth fresh shoots. Next year the new growth
is up to one’s knees, and in a few years more it is that terrible,
impenetrable bush, which maintains its position till the black
occupier of the land has made the round of all the available sites and
come back to his starting point.
The Makonde are, body and soul, so to speak, one with this bush.
According to my Yao informants, indeed, their name means nothing
else but “bush people.” Their own tradition says that they have been
settled up here for a very long time, but to my surprise they laid great
stress on an original immigration. Their old homes were in the
south-east, near Mikindani and the mouth of the Rovuma, whence
their peaceful forefathers were driven by the continual raids of the
Sakalavas from Madagascar and the warlike Shirazis[47] of the coast,
to take refuge on the almost inaccessible plateau. I have studied
African ethnology for twenty years, but the fact that changes of
population in this apparently quiet and peaceable corner of the earth
could have been occasioned by outside enterprises taking place on
the high seas, was completely new to me. It is, no doubt, however,
correct.
The charming tribal legend of the Makonde—besides informing us
of other interesting matters—explains why they have to live in the
thickest of the bush and a long way from the edge of the plateau,
instead of making their permanent homes beside the purling brooks
and springs of the low country.
“The place where the tribe originated is Mahuta, on the southern
side of the plateau towards the Rovuma, where of old time there was
nothing but thick bush. Out of this bush came a man who never
washed himself or shaved his head, and who ate and drank but little.
He went out and made a human figure from the wood of a tree
growing in the open country, which he took home to his abode in the
bush and there set it upright. In the night this image came to life and
was a woman. The man and woman went down together to the
Rovuma to wash themselves. Here the woman gave birth to a still-
born child. They left that place and passed over the high land into the
valley of the Mbemkuru, where the woman had another child, which
was also born dead. Then they returned to the high bush country of
Mahuta, where the third child was born, which lived and grew up. In
course of time, the couple had many more children, and called
themselves Wamatanda. These were the ancestral stock of the
Makonde, also called Wamakonde,[48] i.e., aborigines. Their
forefather, the man from the bush, gave his children the command to
bury their dead upright, in memory of the mother of their race who
was cut out of wood and awoke to life when standing upright. He also
warned them against settling in the valleys and near large streams,
for sickness and death dwelt there. They were to make it a rule to
have their huts at least an hour’s walk from the nearest watering-
place; then their children would thrive and escape illness.”
The explanation of the name Makonde given by my informants is
somewhat different from that contained in the above legend, which I
extract from a little book (small, but packed with information), by
Pater Adams, entitled Lindi und sein Hinterland. Otherwise, my
results agree exactly with the statements of the legend. Washing?
Hapana—there is no such thing. Why should they do so? As it is, the
supply of water scarcely suffices for cooking and drinking; other
people do not wash, so why should the Makonde distinguish himself
by such needless eccentricity? As for shaving the head, the short,
woolly crop scarcely needs it,[49] so the second ancestral precept is
likewise easy enough to follow. Beyond this, however, there is
nothing ridiculous in the ancestor’s advice. I have obtained from
various local artists a fairly large number of figures carved in wood,
ranging from fifteen to twenty-three inches in height, and
representing women belonging to the great group of the Mavia,
Makonde, and Matambwe tribes. The carving is remarkably well
done and renders the female type with great accuracy, especially the
keloid ornamentation, to be described later on. As to the object and
meaning of their works the sculptors either could or (more probably)
would tell me nothing, and I was forced to content myself with the
scanty information vouchsafed by one man, who said that the figures
were merely intended to represent the nembo—the artificial
deformations of pelele, ear-discs, and keloids. The legend recorded
by Pater Adams places these figures in a new light. They must surely
be more than mere dolls; and we may even venture to assume that
they are—though the majority of present-day Makonde are probably
unaware of the fact—representations of the tribal ancestress.
The references in the legend to the descent from Mahuta to the
Rovuma, and to a journey across the highlands into the Mbekuru
valley, undoubtedly indicate the previous history of the tribe, the
travels of the ancestral pair typifying the migrations of their
descendants. The descent to the neighbouring Rovuma valley, with
its extraordinary fertility and great abundance of game, is intelligible
at a glance—but the crossing of the Lukuledi depression, the ascent
to the Rondo Plateau and the descent to the Mbemkuru, also lie
within the bounds of probability, for all these districts have exactly
the same character as the extreme south. Now, however, comes a
point of especial interest for our bacteriological age. The primitive
Makonde did not enjoy their lives in the marshy river-valleys.
Disease raged among them, and many died. It was only after they
had returned to their original home near Mahuta, that the health
conditions of these people improved. We are very apt to think of the
African as a stupid person whose ignorance of nature is only equalled
by his fear of it, and who looks on all mishaps as caused by evil
spirits and malignant natural powers. It is much more correct to
assume in this case that the people very early learnt to distinguish
districts infested with malaria from those where it is absent.
This knowledge is crystallized in the
ancestral warning against settling in the
valleys and near the great waters, the
dwelling-places of disease and death. At the
same time, for security against the hostile
Mavia south of the Rovuma, it was enacted
that every settlement must be not less than a
certain distance from the southern edge of the
plateau. Such in fact is their mode of life at the
present day. It is not such a bad one, and
certainly they are both safer and more
comfortable than the Makua, the recent
intruders from the south, who have made USUAL METHOD OF
good their footing on the western edge of the CLOSING HUT-DOOR
plateau, extending over a fairly wide belt of
country. Neither Makua nor Makonde show in their dwellings
anything of the size and comeliness of the Yao houses in the plain,
especially at Masasi, Chingulungulu and Zuza’s. Jumbe Chauro, a
Makonde hamlet not far from Newala, on the road to Mahuta, is the
most important settlement of the tribe I have yet seen, and has fairly
spacious huts. But how slovenly is their construction compared with
the palatial residences of the elephant-hunters living in the plain.
The roofs are still more untidy than in the general run of huts during
the dry season, the walls show here and there the scanty beginnings
or the lamentable remains of the mud plastering, and the interior is a
veritable dog-kennel; dirt, dust and disorder everywhere. A few huts
only show any attempt at division into rooms, and this consists
merely of very roughly-made bamboo partitions. In one point alone
have I noticed any indication of progress—in the method of fastening
the door. Houses all over the south are secured in a simple but
ingenious manner. The door consists of a set of stout pieces of wood
or bamboo, tied with bark-string to two cross-pieces, and moving in
two grooves round one of the door-posts, so as to open inwards. If
the owner wishes to leave home, he takes two logs as thick as a man’s
upper arm and about a yard long. One of these is placed obliquely
against the middle of the door from the inside, so as to form an angle
of from 60° to 75° with the ground. He then places the second piece
horizontally across the first, pressing it downward with all his might.
It is kept in place by two strong posts planted in the ground a few
inches inside the door. This fastening is absolutely safe, but of course
cannot be applied to both doors at once, otherwise how could the
owner leave or enter his house? I have not yet succeeded in finding
out how the back door is fastened.
MAKONDE LOCK AND KEY AT JUMBE CHAURO

This is the general way of closing a house. The Makonde at Jumbe
Chauro, however, have a much more complicated, solid and original
one. Here, too, the door is as already described, except that there is
only one post on the inside, standing by itself about six inches from
one side of the doorway. Opposite this post is a hole in the wall just
large enough to admit a man’s arm. The door is closed inside by a
large wooden bolt passing through a hole in this post and pressing
with its free end against the door. The other end has three holes into
which fit three pegs running in vertical grooves inside the post. The
door is opened with a wooden key about a foot long, somewhat
curved and sloped off at the butt; the other end has three pegs
corresponding to the holes, in the bolt, so that, when it is thrust
through the hole in the wall and inserted into the rectangular
opening in the post, the pegs can be lifted and the bolt drawn out.[50]
MODE OF INSERTING THE KEY
With no small pride first one householder and then a second

showed me on the spot the action of this greatest invention of the
Makonde Highlands. To both with an admiring exclamation of
“Vizuri sana!” (“Very fine!”). I expressed the wish to take back these
marvels with me to Ulaya, to show the Wazungu what clever fellows
the Makonde are. Scarcely five minutes after my return to camp at
Newala, the two men came up sweating under the weight of two
heavy logs which they laid down at my feet, handing over at the same
time the keys of the fallen fortress. Arguing, logically enough, that if
the key was wanted, the lock would be wanted with it, they had taken
their axes and chopped down the posts—as it never occurred to them
to dig them out of the ground and so bring them intact. Thus I have
two badly damaged specimens, and the owners, instead of praise,
come in for a blowing-up.
The Makua huts in the environs of Newala are especially
miserable; their more than slovenly construction reminds one of the
temporary erections of the Makua at Hatia’s, though the people here
have not been concerned in a war. It must therefore be due to
congenital idleness, or else to the absence of a powerful chief. Even
the baraza at Mlipa’s, a short hour’s walk south-east of Newala,
shares in this general neglect. While public buildings in this country
are usually looked after more or less carefully, this is in evident
danger of being blown over by the first strong easterly gale. The only
attractive object in this whole district is the grave of the late chief
Mlipa. I visited it in the morning, while the sun was still trying with
partial success to break through the rolling mists, and the circular
grove of tall euphorbias, which, with a broken pot, is all that marks
the old king’s resting-place, impressed one with a touch of pathos.
Even my very materially-minded carriers seemed to feel something
of the sort, for instead of their usual ribald songs, they chanted
solemnly, as we marched on through the dense green of the Makonde
bush:—
“We shall arrive with the great master; we stand in a row and have
no fear about getting our food and our money from the Serkali (the
Government). We are not afraid; we are going along with the great
master, the lion; we are going down to the coast and back.”
With regard to the characteristic features of the various tribes here
on the western edge of the plateau, I can arrive at no other
conclusion than the one already come to in the plain, viz., that it is
impossible for anyone but a trained anthropologist to assign any
given individual at once to his proper tribe. In fact, I think that even
an anthropological specialist, after the most careful examination,
might find it a difficult task to decide. The whole congeries of peoples
collected in the region bounded on the west by the great Central
African rift, Tanganyika and Nyasa, and on the east by the Indian
Ocean, are closely related to each other—some of their languages are
only distinguished from one another as dialects of the same speech,
and no doubt all the tribes present the same shape of skull and
structure of skeleton. Thus, surely, there can be no very striking
differences in outward appearance.
Even did such exist, I should have no time
to concern myself with them, for day after day,
I have to see or hear, as the case may be—in
any case to grasp and record—an
extraordinary number of ethnographic
phenomena. I am almost disposed to think it
fortunate that some departments of inquiry, at
least, are barred by external circumstances.
Chief among these is the subject of iron-
working. We are apt to think of Africa as a
country where iron ore is everywhere, so to
speak, to be picked up by the roadside, and
where it would be quite surprising if the
inhabitants had not learnt to smelt the
material ready to their hand. In fact, the
knowledge of this art ranges all over the
continent, from the Kabyles in the north to the
Kafirs in the south. Here between the Rovuma
and the Lukuledi the conditions are not so
favourable. According to the statements of the
Makonde, neither ironstone nor any other
form of iron ore is known to them. They have
not therefore advanced to the art of smelting
the metal, but have hitherto bought all their
THE ANCESTRESS OF
THE MAKONDE
iron implements from neighbouring tribes.
Even in the plain the inhabitants are not much
better off. Only one man now living is said to
understand the art of smelting iron. This old fundi lives close to
Huwe, that isolated, steep-sided block of granite which rises out of
the green solitude between Masasi and Chingulungulu, and whose
jagged and splintered top meets the traveller’s eye everywhere. While
still at Masasi I wished to see this man at work, but was told that,
frightened by the rising, he had retired across the Rovuma, though
he would soon return. All subsequent inquiries as to whether the
fundi had come back met with the genuine African answer, “Bado”
(“Not yet”).
BRAZIER
Some consolation was afforded me by a brassfounder, whom I

came across in the bush near Akundonde’s. This man is the favourite
of women, and therefore no doubt of the gods; he welds the glittering
brass rods purchased at the coast into those massive, heavy rings
which, on the wrists and ankles of the local fair ones, continually give
me fresh food for admiration. Like every decent master-craftsman he
had all his tools with him, consisting of a pair of bellows, three
crucibles and a hammer—nothing more, apparently. He was quite
willing to show his skill, and in a twinkling had fixed his bellows on
the ground. They are simply two goat-skins, taken off whole, the four
legs being closed by knots, while the upper opening, intended to
admit the air, is kept stretched by two pieces of wood. At the lower
end of the skin a smaller opening is left into which a wooden tube is
stuck. The fundi has quickly borrowed a heap of wood-embers from
the nearest hut; he then fixes the free ends of the two tubes into an
earthen pipe, and clamps them to the ground by means of a bent
piece of wood. Now he fills one of his small clay crucibles, the dross
on which shows that they have been long in use, with the yellow
material, places it in the midst of the embers, which, at present are
only faintly glimmering, and begins his work. In quick alternation
the smith’s two hands move up and down with the open ends of the
bellows; as he raises his hand he holds the slit wide open, so as to let
the air enter the skin bag unhindered. In pressing it down he closes
the bag, and the air puffs through the bamboo tube and clay pipe into
the fire, which quickly burns up. The smith, however, does not keep
on with this work, but beckons to another man, who relieves him at
the bellows, while he takes some more tools out of a large skin pouch
carried on his back. I look on in wonder as, with a smooth round
stick about the thickness of a finger, he bores a few vertical holes into
the clean sand of the soil. This should not be difficult, yet the man
seems to be taking great pains over it. Then he fastens down to the
ground, with a couple of wooden clamps, a neat little trough made by
splitting a joint of bamboo in half, so that the ends are closed by the
two knots. At last the yellow metal has attained the right consistency,
and the fundi lifts the crucible from the fire by means of two sticks
split at the end to serve as tongs. A short swift turn to the left—a
tilting of the crucible—and the molten brass, hissing and giving forth
clouds of smoke, flows first into the bamboo mould and then into the
holes in the ground.
The technique of this backwoods craftsman may not be very far
advanced, but it cannot be denied that he knows how to obtain an
adequate result by the simplest means. The ladies of highest rank in
this country—that is to say, those who can afford it, wear two kinds
of these massive brass rings, one cylindrical, the other semicircular
in section. The latter are cast in the most ingenious way in the
bamboo mould, the former in the circular hole in the sand. It is quite
a simple matter for the fundi to fit these bars to the limbs of his fair
customers; with a few light strokes of his hammer he bends the
pliable brass round arm or ankle without further inconvenience to
the wearer.
SHAPING THE POT
SMOOTHING WITH MAIZE-COB
CUTTING THE EDGE

FINISHING THE BOTTOM
LAST SMOOTHING BEFORE

BURNING
FIRING THE BRUSH-PILE

LIGHTING THE FARTHER SIDE OF
THE PILE
TURNING THE RED-HOT VESSEL
NYASA WOMAN MAKING POTS AT MASASI

Pottery is an art which must always and everywhere excite the
interest of the student, just because it is so intimately connected with
the development of human culture, and because its relics are one of
the principal factors in the reconstruction of our own condition in
prehistoric times. I shall always remember with pleasure the two or
three afternoons at Masasi when Salim Matola’s mother, a slightly-
built, graceful, pleasant-looking woman, explained to me with
touching patience, by means of concrete illustrations, the ceramic art
of her people. The only implements for this primitive process were a
lump of clay in her left hand, and in the right a calabash containing
the following valuables: the fragment of a maize-cob stripped of all
its grains, a smooth, oval pebble, about the size of a pigeon’s egg, a
few chips of gourd-shell, a bamboo splinter about the length of one’s
hand, a small shell, and a bunch of some herb resembling spinach.
Nothing more. The woman scraped with the
shell a round, shallow hole in the soft, fine
sand of the soil, and, when an active young
girl had filled the calabash with water for her,
she began to knead the clay. As if by magic it
gradually assumed the shape of a rough but
already well-shaped vessel, which only wanted
a little touching up with the instruments
before mentioned. I looked out with the
MAKUA WOMAN closest attention for any indication of the use
MAKING A POT. of the potter’s wheel, in however rudimentary
SHOWS THE a form, but no—hapana (there is none). The
BEGINNINGS OF THE embryo pot stood firmly in its little
POTTER’S WHEEL
depression, and the woman walked round it in
a stooping posture, whether she was removing
small stones or similar foreign bodies with the maize-cob, smoothing
the inner or outer surface with the splinter of bamboo, or later, after
letting it dry for a day, pricking in the ornamentation with a pointed
bit of gourd-shell, or working out the bottom, or cutting the edge
with a sharp bamboo knife, or giving the last touches to the finished
vessel. This occupation of the women is infinitely toilsome, but it is
without doubt an accurate reproduction of the process in use among
our ancestors of the Neolithic and Bronze ages.
There is no doubt that the invention of pottery, an item in human
progress whose importance cannot be over-estimated, is due to
women. Rough, coarse and unfeeling, the men of the horde range
over the countryside. When the united cunning of the hunters has
succeeded in killing the game; not one of them thinks of carrying
home the spoil. A bright fire, kindled by a vigorous wielding of the
drill, is crackling beside them; the animal has been cleaned and cut
up secundum artem, and, after a slight singeing, will soon disappear
under their sharp teeth; no one all this time giving a single thought
to wife or child.
To what shifts, on the other hand, the primitive wife, and still more
the primitive mother, was put! Not even prehistoric stomachs could
endure an unvarying diet of raw food. Something or other suggested
the beneficial effect of hot water on the majority of approved but
indigestible dishes. Perhaps a neighbour had tried holding the hard
roots or tubers over the fire in a calabash filled with water—or maybe
an ostrich-egg-shell, or a hastily improvised vessel of bark. They
became much softer and more palatable than they had previously
been; but, unfortunately, the vessel could not stand the fire and got
charred on the outside. That can be remedied, thought our
ancestress, and plastered a layer of wet clay round a similar vessel.
This is an improvement; the cooking utensil remains uninjured, but
the heat of the fire has shrunk it, so that it is loose in its shell. The
next step is to detach it, so, with a firm grip and a jerk, shell and
kernel are separated, and pottery is invented. Perhaps, however, the
discovery which led to an intelligent use of the burnt-clay shell, was
made in a slightly different way. Ostrich-eggs and calabashes are not
to be found in every part of the world, but everywhere mankind has
arrived at the art of making baskets out of pliant materials, such as
bark, bast, strips of palm-leaf, supple twigs, etc. Our inventor has no
water-tight vessel provided by nature. “Never mind, let us line the
basket with clay.” This answers the purpose, but alas! the basket gets
burnt over the blazing fire, the woman watches the process of
cooking with increasing uneasiness, fearing a leak, but no leak
appears. The food, done to a turn, is eaten with peculiar relish; and
the cooking-vessel is examined, half in curiosity, half in satisfaction
at the result. The plastic clay is now hard as stone, and at the same
time looks exceedingly well, for the neat plaiting of the burnt basket
is traced all over it in a pretty pattern. Thus, simultaneously with
pottery, its ornamentation was invented.
Primitive woman has another claim to respect. It was the man,
roving abroad, who invented the art of producing fire at will, but the
woman, unable to imitate him in this, has been a Vestal from the
earliest times. Nothing gives so much trouble as the keeping alight of
the smouldering brand, and, above all, when all the men are absent
from the camp. Heavy rain-clouds gather, already the first large
drops are falling, the first gusts of the storm rage over the plain. The
little flame, a greater anxiety to the woman than her own children,
flickers unsteadily in the blast. What is to be done? A sudden thought
occurs to her, and in an instant she has constructed a primitive hut
out of strips of bark, to protect the flame against rain and wind.
This, or something very like it, was the way in which the principle
of the house was discovered; and even the most hardened misogynist
cannot fairly refuse a woman the credit of it. The protection of the
hearth-fire from the weather is the germ from which the human
dwelling was evolved. Men had little, if any share, in this forward
step, and that only at a late stage. Even at the present day, the
plastering of the housewall with clay and the manufacture of pottery
are exclusively the women’s business. These are two very significant
survivals. Our European kitchen-garden, too, is originally a woman’s
invention, and the hoe, the primitive instrument of agriculture, is,
characteristically enough, still used in this department. But the
noblest achievement which we owe to the other sex is unquestionably
the art of cookery. Roasting alone—the oldest process—is one for
which men took the hint (a very obvious one) from nature. It must
have been suggested by the scorched carcase of some animal
overtaken by the destructive forest-fires. But boiling—the process of
improving organic substances by the help of water heated to boiling-
point—is a much later discovery. It is so recent that it has not even
yet penetrated to all parts of the world. The Polynesians understand
how to steam food, that is, to cook it, neatly wrapped in leaves, in a
hole in the earth between hot stones, the air being excluded, and
(sometimes) a few drops of water sprinkled on the stones; but they
do not understand boiling.
To come back from this digression, we find that the slender Nyasa
woman has, after once more carefully examining the finished pot,
put it aside in the shade to dry. On the following day she sends me
word by her son, Salim Matola, who is always on hand, that she is
going to do the burning, and, on coming out of my house, I find her
already hard at work. She has spread on the ground a layer of very
dry sticks, about as thick as one’s thumb, has laid the pot (now of a
yellowish-grey colour) on them, and is piling brushwood round it.
My faithful Pesa mbili, the mnyampara, who has been standing by,
most obligingly, with a lighted stick, now hands it to her. Both of
them, blowing steadily, light the pile on the lee side, and, when the
flame begins to catch, on the weather side also. Soon the whole is in a
blaze, but the dry fuel is quickly consumed and the fire dies down, so
that we see the red-hot vessel rising from the ashes. The woman
turns it continually with a long stick, sometimes one way and
sometimes another, so that it may be evenly heated all over. In
twenty minutes she rolls it out of the ash-heap, takes up the bundle
of spinach, which has been lying for two days in a jar of water, and
sprinkles the red-hot clay with it. The places where the drops fall are
marked by black spots on the uniform reddish-brown surface. With a
sigh of relief, and with visible satisfaction, the woman rises to an
erect position; she is standing just in a line between me and the fire,
from which a cloud of smoke is just rising: I press the ball of my
camera, the shutter clicks—the apotheosis is achieved! Like a
priestess, representative of her inventive sex, the graceful woman
stands: at her feet the hearth-fire she has given us beside her the
invention she has devised for us, in the background the home she has
built for us.
At Newala, also, I have had the manufacture of pottery carried on
in my presence. Technically the process is better than that already
described, for here we find the beginnings of the potter’s wheel,
which does not seem to exist in the plains; at least I have seen
nothing of the sort. The artist, a frightfully stupid Makua woman, did
not make a depression in the ground to receive the pot she was about
to shape, but used instead a large potsherd. Otherwise, she went to
work in much the same way as Salim’s mother, except that she saved
herself the trouble of walking round and round her work by squatting
at her ease and letting the pot and potsherd rotate round her; this is
surely the first step towards a machine. But it does not follow that
the pot was improved by the process. It is true that it was beautifully
rounded and presented a very creditable appearance when finished,
but the numerous large and small vessels which I have seen, and, in
part, collected, in the “less advanced” districts, are no less so. We
moderns imagine that instruments of precision are necessary to
produce excellent results. Go to the prehistoric collections of our
museums and look at the pots, urns and bowls of our ancestors in the
dim ages of the past, and you will at once perceive your error.
MAKING LONGITUDINAL CUT IN
BARK
DRAWING THE BARK OFF THE LOG
REMOVING THE OUTER BARK

BEATING THE BARK
WORKING THE BARK-CLOTH AFTER BEATING, TO MAKE IT

SOFT
MANUFACTURE OF BARK-CLOTH AT NEWALA

To-day, nearly the whole population of German East Africa is
clothed in imported calico. This was not always the case; even now in
some parts of the north dressed skins are still the prevailing wear,
and in the north-western districts—east and north of Lake
Tanganyika—lies a zone where bark-cloth has not yet been
superseded. Probably not many generations have passed since such
bark fabrics and kilts of skins were the only clothing even in the
south. Even to-day, large quantities of this bright-red or drab
material are still to be found; but if we wish to see it, we must look in
the granaries and on the drying stages inside the native huts, where
it serves less ambitious uses as wrappings for those seeds and fruits
which require to be packed with special care. The salt produced at
Masasi, too, is packed for transport to a distance in large sheets of
bark-cloth. Wherever I found it in any degree possible, I studied the
process of making this cloth. The native requisitioned for the
purpose arrived, carrying a log between two and three yards long and
as thick as his thigh, and nothing else except a curiously-shaped
mallet and the usual long, sharp and pointed knife which all men and
boys wear in a belt at their backs without a sheath—horribile dictu!
[51]
Silently he squats down before me, and with two rapid cuts has
drawn a couple of circles round the log some two yards apart, and
slits the bark lengthwise between them with the point of his knife.
With evident care, he then scrapes off the outer rind all round the
log, so that in a quarter of an hour the inner red layer of the bark
shows up brightly-coloured between the two untouched ends. With
some trouble and much caution, he now loosens the bark at one end,
and opens the cylinder. He then stands up, takes hold of the free
edge with both hands, and turning it inside out, slowly but steadily
pulls it off in one piece. Now comes the troublesome work of
scraping all superfluous particles of outer bark from the outside of
the long, narrow piece of material, while the inner side is carefully
scrutinised for defective spots. At last it is ready for beating. Having
signalled to a friend, who immediately places a bowl of water beside
him, the artificer damps his sheet of bark all over, seizes his mallet,
lays one end of the stuff on the smoothest spot of the log, and
hammers away slowly but continuously. “Very simple!” I think to
myself. “Why, I could do that, too!”—but I am forced to change my
opinions a little later on; for the beating is quite an art, if the fabric is
not to be beaten to pieces. To prevent the breaking of the fibres, the
stuff is several times folded across, so as to interpose several
thicknesses between the mallet and the block. At last the required
state is reached, and the fundi seizes the sheet, still folded, by both
ends, and wrings it out, or calls an assistant to take one end while he
holds the other. The cloth produced in this way is not nearly so fine
and uniform in texture as the famous Uganda bark-cloth, but it is
quite soft, and, above all, cheap.
Now, too, I examine the mallet. My craftsman has been using the
simpler but better form of this implement, a conical block of some
hard wood, its base—the striking surface—being scored across and
across with more or less deeply-cut grooves, and the handle stuck
into a hole in the middle. The other and earlier form of mallet is
shaped in the same way, but the head is fastened by an ingenious
network of bark strips into the split bamboo serving as a handle. The
observation so often made, that ancient customs persist longest in
connection with religious ceremonies and in the life of children, here
finds confirmation. As we shall soon see, bark-cloth is still worn
during the unyago,[52] having been prepared with special solemn
ceremonies; and many a mother, if she has no other garment handy,
will still put her little one into a kilt of bark-cloth, which, after all,
looks better, besides being more in keeping with its African
surroundings, than the ridiculous bit of print from Ulaya.
MAKUA WOMEN

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hers. Each year she shares her common sense approach

Jack Kapoor Les Dlabay Bob Hughes Melissa Hart

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important is to set aside some money, even a small amount, for

organized using the objectives.

The My Life concept begins with the chapter

opener. It presents students with an engaging

1. When making major financial decisions, I research them using

scenario that relates what they’re about to learn

to their own lives. The follow-up questions are

designed to get students thinking about how

involved they currently are in their personal

The Financial Planning Process

chapters and the Learning Objectives in the

chapter summary expand on this concept.

The How To . . . boxes fit in with the It is EASY to…

…spend without planning.

…save for emergencies and the future.

Finance. Each box highlights a personal

…select investments carelessly. …research to avoid investment scams.

finance issue and walks students through

how to navigate the situation.

Financial difficulties Financial security

Financial Planning for

Financial Planning for My Life

ASSESSING YOUR FINANCIAL HEALTH

decisions. Many emphasize the use of

This feature presents more than 90

mathematical applications relevant to

personal financial situations.

YOUR EMPLOYMENT RIGHTS

My Life boxes appear next to material that my life 4