
If you want to earn your Eagle-required Personal Management merit badge, you’re in the right place! In this guide, I’ll be providing you with all of the facts that you’ll need to complete your merit badge worksheet, answer all of the questions with your own knowledge, and build a solid understanding of personal finance. 😀
You’ve reached part 2 of my ultimate guide to the Personal Management merit badge! If you’re new to ScoutSmarts, you should first check out part 1 for the answers to requirements 1-4b of the Personal Management merit badge.
If you’ve come over from part one, congratulations! You’re one-third of the way done with one of the most difficult badges in Scouting. Give yourself a big pat on the back!
Let’s get back into it! Take the time to closely review and think through requirements 4c-6 of the Personal Management merit badge:
What Are The Personal Management Merit Badge Answers?
- Explain the following to your merit badge counselor:
- 4a) The differences between saving and investing, including reasons for using one over the other.
- 4b) The concepts of return on investment and risk and how they are related.
- 4c) The concepts of simple interest and compound interest.
- 4d) The concept of diversification in investing.
- 4e) Why it is important to save and invest for retirement.
- Explain to your merit badge counselor what the following investments are and how each works:
- 5a) Common stocks
- 5b) Mutual funds
- 5c) Life insurance
- 5d) A certificate of deposit (CD)
- 5e) A savings account
- 5f) A U.S. savings bond
- Explain to your counselor why people might purchase the following types of insurance and how they work:
- 6a) Automobile
- 6b) Health
- 6c) Homeowner’s/renter’s
- 6d) Whole life and term life
- Explain to your merit badge counselor the following:
- 7a) What a loan is, what interest is, and how the annual percentage rate (APR) measures the true cost of a loan.
- 7b) The different ways to borrow money.
- 7c) The differences between a charge card, debit card, and credit card. What are the costs and pitfalls of using these financial tools? Explain why it is unwise to make only the minimum payment on your credit card.
- 7d) Credit reports and how personal responsibility can affect your credit report.
- 7e) Ways to eliminate debt.
- Demonstrate to your merit badge counselor your understanding of time management by doing the following:
- 8a) Write a “to do” list of tasks or activities, such as homework assignments, chores, and personal projects, that must be done in the coming week. List these in order of importance to you.
- 8b) Make a seven-day calendar or schedule. Put in your set activities, such as school classes, sports practices or games, jobs or chores, and/or Scout or church or club meetings, then plan when you will do all the tasks from your “to do” list between your set activities.
- 8c) Follow the one-week schedule you planned. Keep a daily diary or journal during each of the seven days of this week’s activities, writing down when you completed each of the tasks on your “to do” list compared to when you scheduled them.
- 8d) With your merit badge counselor, review your “to do” list, one-week schedule, and diary/journal to understand when your schedule worked and when it did not work. Discuss what you might do differently the next time.
- Prepare a written project plan demonstrating the steps below, including the desired outcome. This is a project on paper, not a real-life project. Examples could include planning a camping trip, developing a community service project or a school or religious event, or creating an annual patrol plan with additional activities not already included in the troop annual plan. Discuss your completed project plan with your merit badge counselor.
- 9a) Define the project. What is your goal?
- 9b) Develop a timeline for your project that shows the steps you must take from beginning to completion.
- 9c) Describe your project.
- 9d) Develop a list of resources. Identify how these resources will help you achieve your goal.
- 9e) Develop a budget for your project.
- Do the following:
- 10a) Choose a career you might want to enter after high school or college graduation. Discuss with your counselor the needed qualifications, education, skills, and experience.
- 10b) Explain to your counselor what the associated costs might be to pursue this career, such as tuition, school or training supplies, and room and board. Explain how you could prepare for these costs and how you might make up for any shortfall.
Personal Management Requirement 4: Saving, Investing, and Interest
4c) The concepts of simple interest and compound interest.
- Simple interest: Simple interest is the principal amount multiplied by the rate of interest and the number of periods.
- What this means practically, is that if you were to take out a $50 loan with the rate of interest being 10% and there being 2 payback periods, the calculation would be as follows: $50x.1×2=$10.
- You’d pay $5 twice, as interest. Essentially, on that loan, you would be paying $10 as added interest, as well as later paying the original $50 back.
- Compound interest: Compound interest, on the other hand, is interest paid on top of the interest that you’ve gained in the past.
- For example, when investing, if you were to gain 4% interest on $100 in one year, you would have $104. If you were to gain 4% interest again in the second year on that $104, now you would have $108.16.
- With compound interest, you get interest on your interest!
Essentially, with compounding interest, you gained more money in the second year, even with the same rate of interest. That’s because interest is compounded on your previous interest, meaning that the $4 you got in your first year resulted in an additional $.16 in your second year.
This may not seem like a lot, but over time compound interest can be an enormous tool for growing your wealth. Check out this one-minute video on the benefits of compound interest vs simple interest:
4d) The concept of diversification in investing.
As I said earlier, some investments are riskier than others. However, riskier investments often have more potential upside. Diversification means buying a balanced portion of both of these types of investments so that your risk is distributed.
To be properly diversified, you’ll need to have many different investments in different sectors. The reason for this is so that if one basket of investments does poorly, the gains in other sectors will balance out your losses. Do you know the saying, “don’t put all your eggs in one basket”? This holds especially true when investing!
The ultimate goal of diversification is to own a great enough assortment of investments that your rate of return is fixed, even with the typical fluctuations that come from investing. Of course, humanity’s brightest minds have been working on this problem for the past 100 years, with practically none able to solve it, so don’t set your expectations too high!
4e) Why it is important to save and invest for retirement.
In retirement, your income decreases substantially. Unless you want to survive off of ramen noodles and live in a cardboard box, you’ll want to save enough money to maintain your standard of living.
Saving and investing over the course of your career is the only way that you’ll be able to retire comfortably. Interestingly enough, the value of money in the present is lower than the value of invested future money. By delaying gratification today, you’ll see greater rewards when it comes time to retire.
This is where compound interest comes into play. If you consistently invest money throughout your life before reaching retirement, the interest that you’ll gain from your investments will likely double or even triple the total amount of money you’ve saved over time.
Personal Management Requirement 5: Types of Investments
Explain to your merit badge counselor what the following investments are and how each works:
5a) Common stocks
Although there is a lot more nuance involved, common stocks essentially represent your ownership in a percentage of a company. While these used to be paper certificates, now almost all trading of common stocks are done digitally through online brokerage accounts.
How to trade stocks: Individuals can buy or sell stocks at a trading price which is shown online. When individuals buy a stock (percentage ownership) of a company, they are hoping that the company grows and that their share gains value.
If you think of buying a stock like you’re buying a percentage of the company, and the overall company doubles in size, then the share that you’ve purchased would also double in value!
After the stock doubles in value, if you don’t think the company will continue to grow, your goal will be to sell the share to someone else. This isn’t difficult, as there are countless buyers and sellers in the market. You will be able to sell the share at the trading price which is displayed online and often changing.
The trading price of a stock represents the value that you are able to buy or sell at. When selling the stock, the amount of money you receive will be equal to the trading price of the stock, minus taxes.
However, not all stocks will go up in value. If the company loses money, and the public believes that it won’t do well in the future, the trading price will decrease. If you own stock in a company whose trading price decreases, you have two options — you can either sell or hold the stock.
- If you sell: You will lose money, as the value you bought the stock for is higher than the value sold for. However, you might be able to avoid losing more money in the long run.
- If you hold: The stock may go back up in price and you could still potentially gain money. However, the price could also continue to decrease, meaning that when you eventually do sell the stock you might be losing even more money.
As you’ve probably already noticed, investing is tough! However, the upside is much greater than the downside, especially if you have time to let your stocks grow. If you choose to start investing, you should speak with your parents and be sure to have a strategy before spending any money.
Before we go any further, I’d suggest watching this informative video (7:26) to brief you on the types of investments that you need to know about for this requirement. You learn much more by adsorbing information in different formats, so getting prepared with this info will make the rest of the requirements I help you answer in this section much easier to understand!
5b) Mutual funds
Firstly, a “portfolio” is essentially a basket of investments like stocks, bonds, and other assets. Any investments within these baskets are called securities. If you invest money into multiple sources, you are owning a portfolio with different securities.
A mutual fund is essentially a giant portfolio managed by a professional investor who takes money from many different people and tries to invest in the right balance of securities for their client’s needs.
Mutual funds charge an annual fee for ownership, as your money will be actively managed by a team of investors. Any increases in the value of a mutual fund portfolio will be given back each year in the form of a distribution, which equals the fund’s total gains minus the fees.
The benefits of mutual funds lie in their diversification (see requirement 4d). While you can lose a lot of money if you own a stock and it falls in value, since a mutual fund is a large portfolio, any sudden changes in the price of a stock within the mutual fund won’t have too significant an effect on your overall investment.
I’m going to be transparent in saying that I don’t personally like mutual funds. Studies have shown that index funds (unmanaged baskets of stocks that mirror the performance of markets/industries) have greater returns the mutual funds, without unnecessarily high fees.
I’d recommend you do your own due diligence, so if you’re interested in looking further into investing in indexes or mutual funds, this NerdWallet article is a good place to start!
5c) Life insurance
Like all other topics here, life insurance is a pretty complex subject. To put it simply though, life insurance will provide security to immediate family members who depend on the income of the deceased upon the insured person’s death.
Having life insurance means that if you one day have a spouse and children, and somehow die unexpectedly, your life insurance will make sure that they’re taken care of financially.
Life insurance can be considered an investment, as it will allow you to spend most of your money in retirement with peace of mind that you’ll be able to pay for your funeral, as well as provide for your dependents even in death.
While the idea of needing to use your insurance isn’t too fun to think about, it’s an important part of future planning. Life insurance can be purchased in 2 ways: term or whole life insurance.
- Term insurance: Most often lasting 20 or 30 years, term insurance usually can cost around $200-$600 per year and is based on your age, the amount insured, as well as other risk factors. If you were to die within this time, your family would receive a sum of money between $250,000 and $500,000 depending on the policy you’ve chosen.
- Whole life insurance: This is much more expensive than term insurance, and must be paid each year for the entirety of your life. Average costs range anywhere from $2500-$8000 per year. The premium (annual amount paid), however, will remain the same even as you get older.
5d) A certificate of deposit (CD)
CDs are one of the safest investments and involve depositing a lump sum into a bank or credit union that cannot be withdrawn for a long period of time. In exchange, you are guaranteed a high interest rate that remains fixed for the entire period.
When buying a CD, there are two main things you need to keep in mind:
- Interest rate: Interest rates could vary substantially between different CDs. As you won’t be able to move your money for a long time, you should put some time into finding the CD with the highest interest rate.
- Term: This is the amount of time you’re required to keep your money in the CD. Typically, CDs with longer terms tend to have higher interest rates.
The typical interest rate on a CD is around 2%, while the term generally lasts from 1 to 5 years.
While a CD may be a good investment for saving money to purchase a house or any other long-term expenses, if you might need money in the short term, a CD will likely not be a good investment option for you. Note that if you try to withdraw your money early, you will incur large penalties. Additionally, your rate of return (and risk) are typically higher when investing in stocks.
5e) A savings account
In most banks, you will have the option of depositing money into two accounts: your checking or savings account. However, be warned — some banks limit the number of withdrawals you can make from your savings account to around six times per month.
A savings account also has a higher interest rate than a checking account and will differ from bank to bank. However, note that a bank or credit union can change its interest rates at any time without notice.
You should always have a savings account, as you will be able to quickly access your money if the need arises. This means that your money is liquid (able to be quickly converted into cash). In contrast, because you cannot withdraw money from a CD before the end of the term without penalty, money invested there is considered illiquid.
My recommendation is to keep enough money for around 3 to 6 months worth of expenses in a high-interest savings account. Outside of this safety net, you should be investing most of your extra income into a balanced portfolio aimed at growing your total asset value through compound interest over the long term.
Pro tip: While most savings accounts offered at banks have interest rates below 1%, some online savings accounts are FDIC insured and have interest rates above 2%. These are fantastic rates that are very similar to the high interest you’d get from a CD. This website does a good job of tracking the best online savings account interest rates.
5f) A U.S. savings bond
There are different types of U.S. savings bonds. Most offer a fixed rate of interest over a fixed period of time. A bond is essentially a loan that you’re giving to the government, with the government promising to pay back your money at a maturity date (length of the term after buying a bond) with interest.
U.S. savings bonds are one of the safest types of investments and are endorsed by the federal government. However, they do not earn as much interest as you would typically receive when investing in the stock market.
Bonds are pretty similar to CDs, aside from the fact that CDs are offered by banks and credit unions, while bonds are offered by the federal government. Bonds are better than CDs when interest rates are low. However, CDs are better than bonds when banks are offering higher interest rates.
Investors are able to buy and sell bonds prior to the maturity date (which you can’t do with CDs). If interest rates rise, then a bond purchased prior to the increased interest rate would be worth less than a bond purchased afterward. Basically, you should only buy a bond if you think that the bank’s interest rates will decrease in the future.
Personal Management Requirement 6: Insurance
6) Explain to your counselor why people might purchase the following types of insurance and how they work:
Before we get into the different types of insurance, let’s first clarify what insurance actually is. Basically, insurance involves paying a monthly amount (premium) so that if an emergency ever arises, the insurance company will financially compensate you with enough money to handle the situation.
Whenever you need to use your insurance, typically you first must pay an amount called a deductible. This can vary based on your insurance plan, but essentially this means that the insurance company does not cover the entire cost of your losses. Instead, your insurance will pay for all costs exceeding the amount of your deductible, up to the total value of your insurance plan.
Hopefully, you won’t need to use your insurance. However, if the case arises that you do need financial aid, insurance could mean the difference between manageable healthcare/lawsuit costs and bankruptcy. Insurance is a smart way of managing risk and being prepared for the worst. As a Scout, I’m sure you can understand the value of having insurance! 🙂
6a) Automobile
Let’s use automobile insurance as an example. Say you’re behind the wheel and are hit by another car. Suddenly, you need emergency medical attention. However, you live in the United States where the cost of a hospital bill could be in the tens of thousands of dollars.
For the sake of this example, let’s say that there’s no way you would be able to pay the bill. Lucky for you though, you have insurance. Because you’ve paid your monthly premiums, you’re insured for any sort of automobile accident.
Automobile insurance is insurance for all vehicles driven on a road. This includes cars, trucks, buses, and motorcycles. This insurance will cover the costs of both damage and injuries resulting from traffic collisions. It will also cover costs if you are liable for any injuries in any accidents where you may have been at fault.
By opting to pay a higher premium, you can also be insured against theft, natural disasters, and other sorts of damage to your vehicle.
Back to the earlier case where you are hypothetically hit by another driver. There are two possible situations:
- The driver who hit you has insurance: If this is the case, the cost of your bills and vehicle repairs will be covered by the other driver’s insurance.
- The driver who hit you doesn’t have insurance: If you have collision coverage insurance for your vehicle, your insurance company will cover the cost of your repairs after you pay the deductible. Otherwise, you will need to pay for the costs yourself and pursue reparations from the other driver in court.
Note that if you do file an insurance claim from your own company, your premiums will likely rise. This is because you are seen as a more risky driver. Therefore, under most circumstances, you should avoid making a claim unless there are significant costs to repair your vehicle.
6b) Health
Health insurance will cover your medical expenses. This can include anything from the cost of surgeries, medical tests, doctor’s appointments, hospital stays, or prescriptions. Check out this quick video (2:32) on the basics of health insurance:
Typically, health insurance is included in a full-time employers’ benefits packages. However, if you were to pay for health insurance coverage yourself, it would cost you around $300-$500 per month.
The cost of your health insurance can vary based on many individual factors, including:
- Smoking/tobacco use
- Age
- Location
- Other risk factors
- Your deductible
- Your income (if using a government-subsidized plan)
Not only will health insurance provide you with peace of mind, as is the case with any other kind of insurance, but you’ll also be able to seek treatment early on so that you can avoid your condition worsening.
Prevention is always better than treatment, and with health insurance, you’ll be able to visit physicians for routine checkups, rather than only in case of an emergency. Additionally, most people in their early 20s and younger can remain on their parent’s health insurance plans.
6c) Homeowner’s/renter’s
Homeowner’s or renter’s insurance can protect your personal property in the case it is destroyed, damaged, lost, or stolen. Oftentimes, these policies even encompass injuries to guests stemming from accidents occurring on your property.
Renter’s insurance is relatively inexpensive, with the average policy costing around $200 per year. Again, this will vary based on your amount of coverage, as well as your location and prior risk history.
Note that homeowners and renters insurance will not cover damages caused by floods, war, neglect, or intentional destruction of your own property. However, it is generally a good idea to get homeowner’s or renter’s insurance.
If you are robbed or your property is destroyed, you will need to file a claim with all of the missing items included. You will need to create an itemized list of the items as well as their actual cash value.
Actual cash value is also known as replacement cost coverage. This means that the insurance company will pay you the estimated cost to replace your item, rather than the cost you originally purchased it at.
6d) Whole life and term life
These are two different types of life insurance, with ‘term’ being for a set duration and ‘whole life’ being for the entirety of one’s life. ‘Whole life’ has the same premium costs throughout one’s life, whereas ‘term’ will typically cost more the older you are.
- Term insurance: Most often lasting 20 or 30 years, term insurance usually can cost around $200-$600 per year and is based on your age, the amount insured, as well as other risk factors. If you were to die within this time, your family would receive a sum of money between $250,000 and $500,000, depending on the value of your policy.
- Whole life insurance: This is much more expensive than term insurance, and must be paid each year for the entirety of your life. Average costs range anywhere from $2500-$8000 per year. The premium, however, will remain the same even as you get older.
Once you’re ready to begin part 3 of the Personal Management merit badge
(Requirements 7-10)Â click here!
Congrats on Finishing Part 2 of the Personal Management Merit Badge!
From investment diversification to life insurance, we just answered a ton of important questions on your Personal Management merit badge worksheet. Well done, you’re making terrific progress toward becoming a responsible young adult! 🙂
Also, if you’re on the path to Eagle and could use a bit of extra support along the way, be sure to check out some of these other useful articles. You won’t regret it!
- The Easiest (And Hardest) Eagle-Required Merit Badges
- Advance Fast in Scouting (5 Rank-Up Keys To Earn Eagle Quickly)
- 50+ Incredible BSA Scout Facts (To Wow Your Troop)
- The 3 Easiest Merit Badges That You Can Earn
- Leadership in Scouting: A Scout’s Ultimate Guide
Definitely check out any of these articles later on if they interest you! Now, on to part 3 of my ultimate guide to the Personal Management merit badge! To get started on requirements 7-10 click here!