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Personal finance

Personal finance is the financial management which an individual or a family unit performs to budget, save, and spend monetary resources over time, taking into account various financial risks and future life events.

When planning personal finances, the individual would consider the suitability to his or her needs of a range of banking products (checkingsavings accountscredit cards and consumer loans) or investment in private equity, (companies’ sharesbondsmutual funds) and insurance (life insurancehealth insurancedisability insurance) products or participation and monitoring of and- or employer-sponsored retirement planssocial security benefits, and income tax management.

Before a specialty in personal finance was developed, various disciplines which are closely related to it, such as family economics, and consumer economics were taught in various colleges as part of home economics for over 100 years.

The earliest known research in personal finance was done in 1920 by Hazel Kyrk. Her dissertation at University of Chicago laid the foundation of consumer economics and family economicsMargaret Reid, a professor of Home Economics at the same university, is recognized as one of the pioneers in the study of consumer behavior and Household behavior.

In 1947, Herbert A. Simon, a Nobel laureate, suggested that a decision-maker did not always make the best financial decision because of limited educational resources and personal inclinations. In 2009, Dan Ariely suggested the 2008 financial crisis showed that human beings do not always make rational financial decisions, and the market is not necessarily self-regulating and corrective of any imbalances in the economy.

Personal finance education is crucial in enabling individuals and families to make sound financial decisions over the course of their lives. Historically, prior to 1990, the study of personal finance received little attention from mainstream economists and business faculties.However, several American universities such as Brigham Young UniversityIowa State University, and San Francisco State University have started to offer financial educational programs in both undergraduate and graduate programs in the last 30 years. These institutions have published several works in journals such as The Journal of Financial Counseling and Planning and the Journal of Personal Finance. Research into personal finance is based on several theories such as social exchange theory and andragogy (adult learning theory). Professional bodies such as American Association of Family and Consumer Sciences and the American Council on Consumer Interests started to play an important role in the development of this field from the 1950s to 1970s. The establishment of the Association for Financial Counseling and Planning Education (AFCPE) in 1984 at Iowa State University and the Academy of Financial Services (AFS) in 1985 marked an important milestone in personal finance history. Attendances of the two societies mainly come from faculty and graduates from business and home economics colleges. AFCPE has since offered several certifications for professionals in this field such as Accredited Financial Counselor (AFC) and Certified Housing Counselors (CHC). Meanwhile, AFS cooperates with Certified Financial Planner (CFP Board).

As the concerns about consumers’ financial capability have increased in recent years, a variety of education programs have emerged, catering to a broad audience or to a specific group of people such as youth and women. The educational programs are frequently known as “financial literacy“. However, there was no standardized curriculum for personal finance education until after the 2008 financial crisis. The United States President’s Advisory Council on Financial Capability was set up in 2008 in order to encourage financial literacy among the American people. It also stressed the importance of developing a standard in the field of financial education.

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