Financial Planning for Catastrophe
Procedures for Teachers is divided into two sections:
- Prep -- Preparing for the lesson
- Steps -- Conducting the lesson
- Computer Resources:
- Modem: 56.6 Kbps or faster.
- Browser: Netscape Navigator 4.0 or above or Internet Explorer 4.0 or above. Macintosh computer: System 8.1 or above and at least 32 MB of RAM.
- Personal computer (Pentium II 350 MHz or Celeron 600 MHz) running Windows® 95 or higher and at least 32 MB of RAM
- Software: Any presentation software such as Power Point or Hyperstudio (optional), and word processing programs like Microsoft Word, Word Perfect, ClarisWorks, AppleWorks, etc.
- Adobe Acrobat Reader 4.0 or higher. Download the free Adobe Acrobat reader here:
Teachers will need the following supplies:
- Board and/or chart paper
- Video or newspapers/magazines with images of hurricane devastation
- A screen on which to project the Web-based video clips.
- Handouts of Web resources if computers are not available in the classroom
- Budget Organizer .xls file
- Insurance Organizer .doc file
Students will need the following supplies:
- Bookmarked sites and video resources:
Before teaching this lesson, bookmark all of the Web sites used in the lesson on each computer in your classroom, create a word-processing document with all of the Web sites listed as hyperlinks, upload all links to an online bookmarking utility such as http://www.portaportal.com, or make paper handouts of necessary Web pages so that students can access the information on these sites. (Note: It's a good idea to preview these sites before presenting them to your class.) Make sure that your computer has necessary media players, like RealPlayer, to show streaming clips (if applicable).
Preview all of the sites and videos before presenting them to your class.
Web Resources for Students
- Nightly Business Report
The Gulf Coast: Road To Renewal
CLASS SESSION 1 (FINANCIAL SAFETY NET)
Goal: Provide a relevant and known context for students to understand the need for financial disaster planning. The idea is also to personalize the lesson by asking students to consider what would happen to their families in a disaster.
- Begin a discussion of Hurricane Katrina, and the devastation it wrought on the Gulf Coast. Ask students if they saw any photos or video footage of the neighborhoods that were damaged by the storm.
- Discuss what might have happened to people who lost their homes, or were unable to return to them because of extensive water damage.
- Ask students to think about and make a list of the options they would have for shelter if their families lost a home in a natural disaster. Some options might include staying with relatives, staying in a hotel, or finding temporary housing.
- Discuss if the different options have associated financial costs, including what income would be lost if the location of the housing option made it difficult for the wage earners in the family to be able to commute to work.
Goal: Provide a video example of the havoc that can be wrought by a storm. Learn the basic costs of living, with a focus on the costs that must be covered in an emergency situation.
Watch the embedded video of the devastation in East New Orleans. You may also ask members of the class to describe the damaged neighborhoods they saw in news footage and newspaper photos.
- Discuss as a group what families from that neighborhood may have lost. Be sure to include the following information on the board:
- Churches/community centers
- Discuss how these basic needs might be paid for or replaced in a time of disaster. Introduce the concept of an "emergency fund" or "financial safety net." An emergency fund can be defined as "a savings fund of three to six months' worth of basic living expenses which are necessary for financial security in the case of a loss of a job, medical disability, or an unexpected large bill."
- As a group, make a list of "basic living expenses" and discuss the number of months that should be covered in an emergency fund. Write the list of basic living expenses on a sheet of chart paper that will then be hung up on the wall. Be sure to include the following:
- Home repairs
- Medical costs
- Monthly debt payments like credit cards, student loans
- Insurance payments
Goal: Students learn how saving and budgeting are necessary
components of creating a financial safety net. Students also learn the basics of saving and budgeting,
looking at expenditures versus income, as well as different spending plan options.
- Hold a general discussion about saving money. Ask students how many of them save, and write the equation that determines savings on the board: Income – Expenses = Savings.
- Discuss with students that the income-expense equation can be looked at on a monthly basis. Be sure to highlight the difference between necessary living expenses like food and shelter, and expenses that are optional, like new clothes, entertainment, etc.
- Have the students break up into four groups. Ask each group to determine which types of expenses are "required" and which are "optional." Have students brainstorm how to cut back on "optional" spending, explaining that "required" spending cannot be changed.
- Ask students to determine different options for saving money if the income side of the equation is static. This means that the options need to come out of the "optional" spending side of the equation. Record these options on the board.
- Using the Spending Plan Organizer, ask students in their groups to compute the following:
- Monthly savings with three different "optional" spending plans.
- How long it will take to save a three-month cushion under each plan.
- How long it will take to save a six-month cushion under each plan.
- Come back together as a class. Discuss the importance of setting spending goals on optional items in order to save money. Also discuss the priority of saving for a disaster versus spending all of your disposable income when times are good. The point should be made that, although building an emergency fund requires self-restraint, there may be a time when the money is a huge necessity for a family.
CLASS SESSION 2 (INSURANCE COMPARISONS)
Goal: Recap the previous day's lesson, and introduce the concepts of different types of insurance in a time of financial crisis. Introduce the concept of the cost of insurance versus the cost of not having it.
Continue discussion of the previous day with a talk about the importance of an emergency fund in the time of an unexpected disaster. Also reiterate how different "optional" spending scenarios, paired with self-restraint, can impact the ability to save money for an emergency fund.
- Introduce the concept of insurance. In general terms, it can be defined as "protection against financial loss." Specifically, an insurance policy involves paying small monthly premiums in order to guarantee a large pay-out from the insurance company in case of an emergency. Owning insurance is an important part of a disaster plan, as insurance policies can cover large, unexpected expenses.
- Discuss the different types of insurance available, and write them and their definitions on the board.
- Health insurance — A policy that will pay specified sums for medical expenses or treatments, and for prescription medicine. Health policies can offer many options and vary in their approaches to coverage.
- Auto insurance — A policy that provides coverage on the risks associated with driving or owning an automobile. It can include collision, liability, comprehensive, medical, and uninsured motorist coverages.
- Homeowner insurance — A policy that provides an elective combination of coverages for the risks of owning a home. Can include losses due to fire, burglary, vandalism, earthquake, and other perils.
- Disability insurance — A policy that pays cash benefits to a policyholder in the event the insured is unable to work due to an accident or illness.
- Life insurance — A policy that will pay a specified sum to beneficiaries upon the death of the insured.
- Have a group discussion about why those types of insurance are an important part of a disaster plan. Specifically, focus on how the benefits of owning insurance in a time of crisis far outweigh the costs of the monthly premiums.
Goal: Cost-benefit analysis of paying for insurance. Examination of how insurance premiums impact a budget, compared to the cost of emergencies in the area of health, automobiles, homes, and physical disability.
- Reintroduce the concept of insurance: paying a small premium in exchange for a possible large pay-out in the future. Insurance is an important part of a financial safety net as it protects against major financial costs in important areas in case of unexpected disaster or accidents.
- Go over the Budget Organizer again. Ask students to consider how the monthly premium expenses for the five types of insurance in the budget spreadsheet impacts the budget. Ask students to consider how this impacts their monthly savings plan.
- Consider how much spending would have to change if insurance premiums were paid. Students should recognize that in the budget spreadsheet, their discretionary income would fall even further if they had to spend money on insurance premiums. Ultimately, they will learn that this is a small investment for a great deal of financial protection.
- Ask students to return to their groups from the previous day. Next, ask them to analyze how much of the "optional" savings could be spent on insurance. That figure will be used in the following activity.
Goal: Add to the budget scenario the worst-case scenario of major expenses related to the five insurance areas. Using the organizer, present clear numerical scenarios to students so they can see the impact of insurance on their financial disaster plan.
- Review the five general types of insurance, and how the premium costs impact the budget and emergency savings plan.
- Look at the different costs in the budget and the emergency plan.
- Hand out the Insurance Organizer, and ask students to read it quietly.
- Ask students to return to their groups. Ask the groups to compute how the cost of major disasters would impact their budget. Would their income be able to cover it? Would their emergency savings plan be able to cover it?
- Examine a scenario where there is no income due to a death or disability. Make sure students understand how quickly the emergency fund would be spent, and without income there are very few financial options once the savings are gone.
- Finally, ask the groups to reexamine those scenarios if the disaster costs were covered by insurance. However, the groups can only spend as much on insurance as they have determined in the previous activity (the "optional" savings figure).
- Ask each group to present their budget, and explain how much they spent on insurance, and the overall gain or loss given that expenditure in the disaster scenario.
- Poll the students on whether they think paying insurance premiums to manage financial risk is an important part of a financial disaster plan.
CLASS SESSION 3 (RECOVERY OPTIONS)
Goal: Integrate the concepts of a disaster savings plan and insurance as individual consumer options, and look at the role of the government in natural disasters.
- Continue discussion of the types of devastation that can occur in a natural disaster, and how an emergency savings plan and insurance can provide a financial cushion.
- Begin a discussion of what help the government should provide to people who have not had the opportunity to build a financial cushion, or whether the government has an overarching responsibility to help everyone.
Goal:To understand the role of the U.S. government in disaster relief, including before, during, and after the event.
- From the Introductory Activities, recap the discussion of the role of government in a natural disaster.
- Introduce the government agency "FEMA" by writing the acronym on the board, along with the actual name of the agency "Federal Emergency Management Agency."
- Discuss the role of FEMA, which is generally helping people before and after disasters, which can include hurricanes, floods, earthquakes, or other similar events that strike a community. FEMA is responsible for helping in the following ways:
- Assisting people before and after a disaster. FEMA workers help disaster victims find a place to stay if their homes were damaged or destroyed.
- Repairing homes and working with city officials to fix public buildings that have been damaged.
- Teaching people how to prepare for a disaster and how to make their homes as safe as possible.
- Working with communities to help them build safer, stronger buildings that are less likely to be damaged.
- Training firefighters and emergency workers, and running a flood insurance program.
- Have students look at the following page from the FEMA Web site to read a definition of
disaster assistance, and to learn about what kinds of assistance are available from FEMA. http://www.fema.gov/about/process/individual_assistance.shtm
Goal: Integrate the concepts of private and public responsibility for a disaster. Issues include how FEMA assistance fit in with a financial disaster plan, and how the government can help people who do not have the means to help themselves after a disaster.
- Divide the class into two teams.
- Using the following web site, ask one team to research what FEMA will pay for in a disaster.
Ask the other team to research the time it takes to obtain FEMA funding. http://www.fema.gov/about/process/dis_assis_process.shtm
- Bring the class back together so both teams can present their findings.
- Have a class discussion looking at the following issues:
- How might the timeframe impact the need for a disaster plan?
- Does FEMA pay monthly mortgage or rent?
- Will the government quickly provide everything needed after a disaster, or is it still a good idea to have a personal financial safety net?
- Recap the need for a financial safety net if one has the means to make and save enough money to create a financial cushion, and to pay for insurance premiums. Also include a discussion about how the government can help with that financial safety net through agencies like FEMA.