is worth less than the shs. 1,000 you gave him (because it buys less). Your investment,although nominally returned, has lost value: you have your Shs. 1,000 back, but you can't do as much with it; it is less useful at the moment. If the value of currency-the units in which wealth is measured and stored-is unstable.then investment returns are harder to predict. In those circumstances, investment involves more risk. Both inflation and deflation are currency instabilities that are troublesome for an economy and also for the financial planning process. An unstable currency affects the value or purchasing power of income. Price changes affect consumption decisions, and changes in currency value affect investing decisions. It is human nature to assume that things will stay the same , but financial planning must include the assumption that over a lifetime you will encounter and endure economic cycles You should try to anticipate the risks of an economic downturn and the possible loss of wage income and/or investment income. At the same time, you should not assume or rely on the windfalls of an economic expansion. 1.4 EXERCISES 1. Identify and describe your current life stage. How does your current age or life stage affect your financial thinking and behavior?To what extent and in what ways does your financial thinking anticipate your next stage of life? What financial goals are you aware of that you have set? How are your current experiences informing your financial planning for the future? 2. How does the micro factors, such as your present family structure, health , career choices, and other individual factors affect your financial planning? 3. Identify the macroeconomic factors that are influencing your financial thinking and behavior today. What are some specific examples? How have large-scale economicchanges or cycles, such as the global economic recession of 2008-2009 affected your financial planning and decision making? 4. How does the health of the economy affect your financial health? How healthy is the Kenyan economy right now?On what measures do you base your judgments?How will your appreciation of the big picture help you in planning for your future? 5. How do business cycles and the health of the economy affect the value of your labor?In terms of supply and demand, what are the optimal conditions in which to sell your labor? How might further education increase your mobility in the labor market (the value ofyour labor)? Brainstorm on the effective personal financial strategies for: (a) protecting against recession, (b) hedging against inflation, (c) mitigating the effects of deflation,

Question

is worth less than the shs. 1,000 you gave him (because it buys less). Your investment,although nominally returned, has lost value: you have your Shs. 1,000 back, but you can't do as much with it; it is less useful at the moment. If the value of currency-the units in which wealth is measured and stored-is unstable.then investment returns are harder to predict. In those circumstances, investment involves more risk. Both inflation and deflation are currency instabilities that are troublesome for an economy and also for the financial planning process. An unstable currency affects the value or purchasing power of income. Price changes affect consumption decisions, and changes in currency value affect investing decisions. It is human nature to assume that things will stay the same , but financial planning must include the assumption that over a lifetime you will encounter and endure economic cycles You should try to anticipate the risks of an economic downturn and the possible loss of wage income and/or investment income. At the same time, you should not assume or rely on the windfalls of an economic expansion. 1.4 EXERCISES 1. Identify and describe your current life stage. How does your current age or life stage affect your financial thinking and behavior?To what extent and in what ways does your financial thinking anticipate your next stage of life? What financial goals are you aware of that you have set? How are your current experiences informing your financial planning for the future? 2. How does the micro factors, such as your present family structure, health , career choices, and other individual factors affect your financial planning? 3. Identify the macroeconomic factors that are influencing your financial thinking and behavior today. What are some specific examples? How have large-scale economicchanges or cycles, such as the global economic recession of 2008-2009 affected your financial planning and decision making? 4. How does the health of the economy affect your financial health? How healthy is the Kenyan economy right now?On what measures do you base your judgments?How will your appreciation of the big picture help you in planning for your future? 5. How do business cycles and the health of the economy affect the value of your labor?In terms of supply and demand, what are the optimal conditions in which to sell your labor? How might further education increase your mobility in the labor market (the value ofyour labor)? Brainstorm on the effective personal financial strategies for: (a) protecting against recession, (b) hedging against inflation, (c) mitigating the effects of deflation,

Answer 1

1. To identify and describe your current life stage, consider factors such as your age, marital status, and major life events. Your current age or life stage affects your financial thinking and behavior by influencing your financial goals, risk tolerance, and investment strategies. Anticipating your next stage of life involves considering future life events and financial needs, such as retirement or children's education. Financial goals you may have set include saving for retirement, buying a home, or funding education. Your current experiences, such as job stability or income changes, inform your financial planning for the future by helping you adjust your budget, savings, and investment strategies.2. Micro factors such as family structure, health, and career choices affect your financial planning by influencing your income, expenses, and financial priorities. For example, having a family may require you to allocate more funds towards childcare or healthcare expenses. Your health can impact your ability to work and generate income, while your career choices determine your earning potential and job security. These factors can influence your financial planning by affecting your budget, savings, and investment decisions.3. Macroeconomic factors such as inflation, unemployment, and economic growth influence your financial thinking and behavior. Specific examples include changes in interest rates, fluctuations in stock market prices, and variations in consumer confidence. The global economic recession of 2008-2009 may have affected your financial planning by leading to job losses, reduced income, and decreased investment returns. These macroeconomic changes can impact your financial planning by influencing your budget, savings, and investment strategies.4. The health of the economy affects your financial health by influencing factors such as employment opportunities, income levels, and investment returns. To assess the health of the Kenyan economy, consider indicators such as GDP growth, inflation rate, and unemployment rate. Your appreciation of the big picture helps you in planning for your future by enabling you to make informed decisions about investments, savings, and risk management.5. Business cycles and the health of the economy affect the value of your labor by influencing demand and supply conditions in the labor market. Optimal conditions to sell your labor occur when there is high demand for labor and low supply. Further education can increase your mobility in the labor market by enhancing your skills and making you more competitive, thereby increasing the value of your labor.Brainstorm on effective personal financial strategies for:(a) Protecting against recession: Diversify investments, maintain an emergency fund, and reduce debt.(b) Hedging against inflation: Invest in assets that appreciate with inflation, such as real estate or inflation-protected securities.(c) Mitigating the effects of deflation: Maintain liquidity, invest in assets that appreciate during deflation, and reduce debt.

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