The book is unique in that it discusses the important topics within personal finance, but does so within the context of the well-known football metaphor: Offense wins games, defense wins championships. Specifically, the book takes four important areas of personal finance–Investments, Credit, Insurance, and Retirement—and discusses each within the context of this metaphor. The salient features of the book that make it unique among the personal finance texts on the market today are:

(1) The book uses a conversational (and non-quantitative) approach to a very quantitative area.

(2) The book makes a conscious effort to link the underlying theory to observed empirical regularities in each of the four areas of personal finance. In so doing, the book separates itself from the pack of personal finance texts that have a “recipe book” feel. Thus, the readers, young and older, are given powerful tools with which to structure their behavior and the theoretical basis for doing so.

(3) the author’s use of anecdotes from his personal life and elsewhere to make subtle points. A bonus is the Guide to Time Value of Money (TVM) supplement at the end of the book that walks the reader through some practical calculations related to the four modules. Particularly illuminating are the computations related to mortgage loan repayment schedules (including early repayment options), insurance premium computations, retirement savings, and much more.

About the author

Sugato Chakravarty is a professor and the head of the Department of Consumer Sciences and Retailing at Purdue University. He received his B.S. in chemical engineering from Jadavpur University (India), his M.S. in mechanical engineering from the University of Kentucky, and his Ph.D. in finance from the Kelley School of Business at Indiana University.

Over his career, Sugato has worn many hats. He has taught and researched in interdisciplinary fields of psychology, marketing, finance, and mathematics. His primary research areas include market microstructure, banking and asset pricing involving stock, options and fixed income securities, and spans both domestic and foreign markets. Dr. Chakravarty’s research has appeared in leading academic journals, including the Journal of Finance, Journal of Financial Economics, Journal of Business, Journal of Financial and Quantitative Analysis, Journal of Empirical Finance, and the Journal of Financial Markets. His work has been cited in leading newspapers like the Wall Street Journal, Barron’s, Investor’s Business Daily and others. His research has also been used as evidence in hearings by the U.S. Congress. He serves as Associate Editor of the Journal of Financial Markets. Dr. Chakravarty has won research awards including the Barclay’s Global Investors Research Award for the best paper on Australasian Markets (with P. Kalev and L. Pham) and the Best Paper Award (with B. Van Ness and R. Van Ness) at the Eastern Finance Annual Conference. He has also won a Q-group Research award and is listed in the Marquis Who’s Who in American Education. He is probably best known for his work on the decimalization of stock prices, insider trading, and stealth trading. According to Harzing’s Publish or Perish citation tracking software, Dr. Chakravarty’s research has been cited well over 1,000 times. At Purdue, he is best known for popularizing a Personal Finance course that teaches undergraduates the basic skills of money management, credit, insurance, and retirement. The course also covers popular and current topics relating them to the basic principles. The class is structured around the football cliche: “Offense wins games but defense wins championships.” Dr. Chakravarty argues that in order to win the game of life one needs to have solid offensive and defensive strategies. Investments (including those for retirement) is an offensive strategy while insurance is a defensive strategy. Credit plays the role of good special teams in that a judicious use of credit can move the line of scrimmage from one’s 20-yard line to the 45 or 50 yard line making it easier to score a personal finance touchdown. The class boasts enrollments of over 400 students every semester and is an elective in almost all majors across the West Lafayette campus. Dr. Chakravarty loves to spend time with his family including his wife, two dogs, three cats, and lots of colorful tropical fish. He plays his guitar, piano, and mouth harp whenever the mood hits him.

Section A: Investments
Chapter 1: Why Study Personal Finance?
  Evolution of the Financial Crisis
  Thought Questions

Chapter 2: Time Value of Money
  Bernard Madoff
  I Believe I Too Was a Ponzi Trader
  A Theory of Investment Decision Making
  The Reality of the Beta
  Trading versus Investing
  Discounting and Compounding
  Thought Questions

Chapter 3: What Are Stocks?
  Private and Public Companies
  Research on IPOs
  Importance of the Stock Price
  What Does Stock Ownership Provide?
  What to Look for When Buying Stocks
  Are All Stocks Equally Risky?
  Trading Stocks
  Selling of Stock Prices
  Valuation of Stocks: The Dividend Growth Model
  Practical Ways to Tell If a Stock Price Is Too High or Too Low
  Price/Earnings
  Dividend Yield
  Price/Book Value
  Finding Winning Companies
  The Top-Down Approach
  Random Thoughts on Specific Stocks
  Beware of E-mail Scams
  The Saga of the Beardstown Ladies: Crooks or Just Naďve
  Investor Sentiment and Overconfidence

    How Does Behavioral Finance Help (or Hurt) Individual Investors?
      Contributed by Avandihar Subrahmanyam

  Stock Indexes: It’s All about the Pulse
  Thought Questions

Chapter 4: Basket of Stocks—Mutual Funds
  Explosive Popularity
  Why Mutual Funds?
  Diversification
  Professional Management
  Efficiency
  Ease of Use
  Liquidity
  Cost
  Risk
  Measuring Fund Performance
  It’s the Prospectus, Stupid!
  Fund Objectives
  Fund Investment Strategy Section
  Fund Expenses
  Other Expense-Related Information
  Turnover Rate
  Index Mutual Funds
  Index Funds Have Lower Fees
  Index Funds Don’t Have Fund Manager Continuity Issues
  Life-Cycle Funds
  Exchange Traded Funds (ETF)
  Advantages of Exchange Traded Funds
  Disadvantages of ETFs
  Bond ETFs
  When Is an ETF Right for You?
  Comparing Active Funds versus Passive (like Index) Funds

      Hedge Fund Protection in Bear Markets for the Retail Investor
        Contributed by Greg N. Gregoriou

  Risks of ETF Investment
  Research on Mutual Funds
  Thought Questions

Chapter 5: Bonds
  Who Issues Bonds?
  Par Value, Coupon Rate, Maturity Date, Call, Default . . . Ugh!
  Bonds: What Are They Good For?
  Yet Another Benefit of U.S. Treasury Bonds
  How to Calculate Bond Yields
  Why Bond Yields Can Differ from Coupon Rates
  How to Make Money from Bonds
  Bond Ratings and Trading Strategies
  Bond Trading Strategies
  How Much of Your Portfolio Should Be in Bonds?
  Reverse Repos and the Orange County Fiasco
  Research on Bonds
  Thought Questions

Chapter 6: Pizza Coupons and Stock Options
  What Are Options?
  Options and Pizza Coupons
  Long Call Options
  Put Options—For Investment Insurance
  Short Calls and Puts
  Pricing Options
  Properties of the Black-Scholes Option Pricing Formula
  Exercising Options
  What If You Want Out of Your Contract?
  How Are Options Similar to Stocks?
  How Do Options Differ from Stocks?
  Research on Options
  Credit Default Swaps (CDS)

      Madoff: A Path Littered with Clues
        Greg N. Gregoriou and Francois-Serge Lhabitant

  Thought Questions

Chapter 7: Trading Assets
  The Saga of Wide Spreads
  Decimal Pricing
  Has Decimalization Cut into Wall Street’s Profit Margins?
  How Does Decimalization Change the Way We Invest?
  Trading Places
  Stock Tickers
  Where Your Stock Lists Is Important Too!
  Why Bid-Ask Spreads May Have Been Higher in the 1990s
  How to Reduce Excess Volatility in Our Stock Markets
  How to Narrow Down Your List of Stocks
  Google Finance Web Site—An Example of Technology Convergence
  Basic Rules of Trading and Investing
  Shopping for Stocks
  Buying on Margin and Short Selling
  When to Buy
  When to Sell
  Trading on Trends
  Are Moving Averages an Effective Investment Tool? The Research Evidence
  Thought Questions

Chapter 8: Advanced Topics
  Stock Analysts
  Leveling the Playing Field through Regulation FD
  Stock Splits
  Why Do Companies Split Their Shares?
  Reverse Stock Splits
  Insider Trading
  Martha Stewart and Insider Trading
  The Fascinating Saga of a High School Trader
  Stealth Trading
  Intermarket Sweep Orders (ISO)
  Games That Large Investors Play
  Shifting Gears
  Thought Questions

Section A: Action Plan

Section B: Credit
Chapter 9: Consumer Credit
  Banking in a Different Culture
  Fast-Forward to the Present: Why Do We Need Credit?
  Credit Use in the United States
  Is All Credit Created Equal?
  How Lenders Use Your Credit Score
  The Credit Report: Make Sure You Know Its Contents
  How Do You Score?
  Credit Score Computation Is Top Secret
  The Invasion of the Credit Cards
  New Rules to Increase the Minimum Payments on Your Credit Card Balance
  Pay One Bill Late, Get Punished by All: Universal Default
  Eleven Ways to Repair Credit and Pay Back Credit Card Debt
  Bankruptcy (as a Way Out of Debt) May Have Just Gotten Harder!
  The Look-Alikes: Debit Cards
  Credit Counseling
  What You Can Do to Protect Yourself against Identity Theft
  Credit Cardholders’ Bill of Rights Act of 2009
  What Does It Mean for You?
  Street Smarts: A Real-Life Example
  Research on Consumer Lending
  Thought Questions
  Appendix A to Chapter 9
  Appendix B to Chapter 9

Section B: Action Plan

Section C: Insurance
Chapter 10: Life Insurance
  Risk: How to Deal with It?
  What Is Underwriting?
  Whole Life Policies
  Evolution of Life Insurance Policies
  The Seamier Side of Whole Life
  Universal Life Policies
  Variable Universal Life Policies
  Borrowing from Insurance
  How Much Can You Borrow from Your Insurance Policy?
  An Example of Adverse Tax Consequences of Borrowing from Insurance
  An Insurance Mistake to Avoid
  Do You Really Need Life Insurance?
  A Specific Boilerplate to Calculate Need
  Viatical Insurance
  Thought Questions
  Appendix to Chapter 10

Chapter 11: Health and Property Insurance
  Sobering Statistics
  Optimal Design of Health Insurance Contracts
  Major Providers of Health Insurance
  Types of Medical Expense Coverage
  Health Insurance Coverage You Don’t Need
  Long-Term Care Insurance
  Other Considertions in Purchasing Long-Term Care Insurance
  Disability Income Insurance
  Property Insurance
  Homeowner’s Insurance
  Insurance Claim Statistics
  Mortgage Insurance
  Avoid Paying Mortgage Insurance
  Conventional Mortgages
  Woes of the Subprime Borrowers
  What Are Your Rights As a Renter?
  Auto Insurance
  Other Types of Property and Liability Insurance
  Settling Claims

      A Bird’s Eye View of the Insurance Industry
        By Joe Gallo (BullishBankers, LLC)

  Intuition from Insurance Research
  Bringing It Together: Shop Around for the Right Policy
  Thought Questions
  Appendix to Chapter 11

Section C: Action Plan

Section D: Retirement
Chapter 12: Retirement
  We Are All Potential Millionaires
  The Three-Legged Stool
  The First Leg—Social Security
  How Do We Tackle the Problem of the Shrinking Social Security Fund?
  The Bush Plan for Social Security
  Who Qualifies for Retirement Benefits?
  Disability Insurance under Social Security
  The Second Leg: Pension
  Qualified versus Nonqualified Plans
  Defined Benefit versus Defined Contribution
  The Most Popular Defined Contribution Plan: The 401(k)
  Exempt from Bankruptcy?
  Word of Warning about Borrowing from Your 401(k): Don’t!
  Other Types of Defined Contribution Plans
  Vesting—An Ancient Sport?
  The Third Leg: Do It on Your Own
  The Most Important Form of IRA: The Roth IRA
  Other Types of IRAs
  Retirement FAQs
  Thought Questions
  Appendix to Chapter 12

Section D: Action Plan

Chapter 13: In Conclusion—The 50 Percent Rule
  A Prescription for Living while at College
  After Graduation—Invoke the 80–20 Rule
  In Your Thirties and Forties—Move to 70–30
  In Your Fifties: Think 50–50
  In Your Sixties and Seventies: Think 35–65
  In Your Eighties: Think 20–80

A Guide to Understanding Time Value of Money
TVM Awareness Quiz
Answers
The Basics
  Why Should I Learn Time Value of Money?
  The Time Value of Money
  The Intuition behind TVM
  Why TIME?
  How Can We Compute Amounts in Different Time Periods?
  Simple Interest
  Defining Present and Future Values
  Exponential Growth under Compounding

Single Sum Problems
  Future Value of a Single Sum
  Examples
  Present Value of a Single Sum
  Some Examples
  Variations of the Above
  Frequency of Compounding
  Frequency of Compounding Example
  Nominal Interest Rates
  Fed Funds Flow Rates
  Relationship between Mortgage Rates and Federal Funds Rate
  Effective Annual Interest Rate

Annuities
  Learn to Recognize Annuities
  Word of Warning
  How to Solve Annuity Problems
  Annuity Formulas
  Formulas or Tables?
  Advantage of Using Tables
  Disadvantages of Using Tables
  Advantage of Using Formulas
  Disadvantage of Using Formulas
  Solving Annuity Problems
  Some Quick Practice Problems Involving Annuities
  Some More ANNUITY Practice Problems
  Time Value, Annuity, Cash Flows, Present Value: A Real World Story
  Thought Questions

Specific Applications of Annuities in the Various Areas of Personal Finance
  Bond Pricing Example
  A Stock Pricing Example
  Amortizing a Loan
  Application of Loan Amortization to Automobile Refinancing
  Credit Cards and TVM
  Application of TVM to Insurance
  Application of TVM to Retirement
  General TVM Examples
  The Ultimate TVM Challenge Problems
  TVM Is Everywhere

About the Author
Index
Post-course Questionnaire

Testimonials

In contrast to the vast majority of personal finance books which are excellent antidotes for insomnia, Chakravarty has crafted a breezy and entertaining text which both informs and entertains. All the important aspects of personal finance are discussed. This is an excellent text!

Robert A. Wood
Distinguised Professor of Finance, University of Memphis

This is an extremely valuable volume which presents the basic principles of finance in a lucid and easily understood way. For laypersons, the world of finance often seems impenetrable with arcane terminology and seemingly complex conceptual frameworks. The author brings these terms and concepts to life using simple analogies and examples that every individual can relate to. Even I, as a finance professor with several years of experience, have learned much from this manuscript about how to exposit material in introductory finance classes. I strongly recommend this book for laypeople as well as professionals who deal with clients that require finance exposition in an accessible manner.

Avanidhar Subrahmanyam (Subra)
Goldyne and Irwin Hearsh Professor of Finance
Co-editor, Journal of Financial Markets
The Anderson School of Business, UCLA

Keywords

Investments, credit, insurance, retirement, stock markets, credit cards, insider trading, bid ask spreads, time value of money, Roth IRA, homeowners insurance, universal life, annuities, stocks, bonds, mutual funds, exchange traded funds, options, credit default swaps.