Family Financial Fitness Wrkshp


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Get Financially FIT!

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  • Welcome and thank you for having me here today. Today we’re going to learn how we can become better fit --- financially fit. The real purpose of this seminar is to address some of the basics of finance and economics and have some fun while doing it.
  • Family Financial Fitness Wrkshp

    1. 1. F Family INANCIAL Fitness ©The Northwestern Mutual Life Insurance Company - Milwaukee, WI
    2. 2. Today’s Workout <ul><li>Getting Grownups Into Shape </li></ul><ul><li>Three Exercises: </li></ul><ul><ul><li>The Chessboard of Life </li></ul></ul><ul><ul><li>Who Wants to Really Be a Millionaire? </li></ul></ul><ul><ul><li>Does This Make Cents? </li></ul></ul><ul><li>“Cool Down” Review </li></ul><ul><li>Tips for Future Workouts </li></ul>
    3. 3. Getting Grownups Into Shape <ul><li>Americans whose parents talked with them as children about money management are more likely to save 20% of their income as adults. </li></ul><ul><li>However: </li></ul><ul><ul><li>Most parents don’t feel comfortable talking about money with their children. </li></ul></ul><ul><ul><li>Therefore, the majority of children are inheriting poor money management and saving habits. </li></ul></ul>February 2001 Northwestern Mutual Financial Network’s “Money Maladies” Study reveals: Source: Northwestern Mutual Financial Network’s Money Maladies Study (2001)
    4. 4. Curing Money Maladies <ul><li>8 out of 10 Americans are comfortable with their own retirement planning. </li></ul><ul><li>However: </li></ul><ul><ul><li>More than 33% has not even begun to save. </li></ul></ul><ul><ul><li>1/4 doesn’t know how much they have saved. </li></ul></ul><ul><ul><li>1/4 of Americans haven’t saved at all for long-term goals such as retirement or a child’s education. </li></ul></ul>Source: Northwestern Mutual Financial Network’s Money Maladies Study (2001)
    5. 5. The Chessboard of Financial Life
    6. 6. This exercise is for illustration purposes only. It does not take into consideration fees, taxes, commissions, etc. and does not represent any specific product or investment. Chessboard of Financial Life X .01
    7. 7. Chessboard of Financial Life X 1.28 .32 .08 .02 .64 .16 .04 .01
    8. 8. Chessboard of Financial Life X 163.84 40.96 10.24 2.56 1.28 .32 .08 .02 327.68 81.92 20.48 5.12 .64 .16 .04 .01
    9. 9. Chessboard of Financial Life 85M 10.7M X 20971.52 5242.88 1310.72 163.84 40.96 10.24 2.56 1.28 .32 .08 .02 1.3M 41943.04 10485.76 2621.44 655.36 327.68 81.92 20.48 5.12 .64 .16 .04 .01
    10. 10. The Magic of Compound Interest <ul><li>Compounding -- multiplying that turns a penny into hundreds, then thousands, then millions. </li></ul><ul><li>Principal -- the amount originally saved. </li></ul><ul><li>Interest -- paid on the principal. </li></ul><ul><li>Compound interest -- paid on both the principal and interest already earned - makes the money grow much faster. </li></ul>
    11. 11. Rule of 72 (72 ÷ Interest Rate = Yrs) Passbook Savings 3 % 24 Money Market 6 12 U.S. Treasury Bond 7 10 Stock Market 10 7 Interest Years Investment Rate Double This exercise is for illustration purposes only. It does not take into consideration fees, taxes, commissions, etc. and does not represent any specific product or investment.
    12. 12. Save Early and Often <ul><li>When you begin to save </li></ul><ul><li>How much you save </li></ul><ul><li>The interest rate or return on investment </li></ul>Factors that affect how much savings grow:
    13. 13. Net Worth <ul><li>List your family’s assets and their value. </li></ul><ul><li>List your family’s liabilities . </li></ul><ul><li>The difference between a family’s assets and liabilities is its net worth </li></ul>Individuals can have a large income and, due to their liabilities, still have a low net worth.
    14. 14. How To Really Be A M ILLIONAIRE
    15. 15. <ul><li>4 of 5 millionaires are college graduates. </li></ul><ul><li>18% of millionaires have Master’s Degrees. </li></ul>1 True Most millionaires are college graduates True OR False?
    16. 16. 2 False Most millionaires work fewer than 40 hours a week <ul><li>About 2 / 3 of millionaires work 45-55 hours a week </li></ul>True OR False?
    17. 17. 3 False Most millionaires received financial help from their families - like inheriting a trust fund or estate <ul><li>Only 19% of millionaires received any income from a trust fund or estate </li></ul>True OR False?
    18. 18. 4 False Gift money, tax refunds, earnings from winnings are “found money.” <ul><li>Wealth builders view such funds as having the same potential for saving as any other money. </li></ul>True OR False?
    19. 19. 5 False More millionaires have American Express Gold Cards than Sears Cards. <ul><li>28.6% of millionaires have American Express Gold Cards -- 43% have Sears cards. </li></ul>True OR False?
    20. 20. 6 False More millionaires drive Cadillacs than Fords <ul><li>Ford is preferred by 9.4% of millionaires </li></ul><ul><li>Cadillac is preferred by 8.8% </li></ul><ul><li>Only 23% of millionaires drive a new car </li></ul>True OR False?
    21. 21. 7 False Most millionaires work in glamorous jobs, such as sports, entertainment, or high tech True OR False? <ul><li>Most millionaires work in ordinary jobs including: welding contractors, owners of mobile-home parks & paving contractors </li></ul>
    22. 22. 8 False Wealth builders always keep 2 to 3 credit cards to allow for a large line of credit for use in emergencies <ul><li>Many keep only 1 credit card for renting cars, guaranteeing hotel rooms, etc. </li></ul><ul><li>Most pay off the monthly balance each month </li></ul>True OR False?
    23. 23. 9 True OR False? False <ul><li>The chances of winning the lottery are 1 in 12 million. </li></ul>Many poor people become millionaires by winning the lottery
    24. 24. 10 False <ul><li>In recent years, the average college graduate earned 66% more than the average high school graduate </li></ul>True OR False? College graduates earn about 33% more than high school graduates
    25. 25. 11 False Most millionaires work for large, Fortune 500 companies <ul><li>Most millionaires are self employed and consider themselves to be entrepreneurs. </li></ul><ul><li>Most others are professionals, such as doctors, lawyers and accountants </li></ul>True OR False?
    26. 26. 12 Day traders usually beat the stock market and many of them become millionaires. <ul><li>Recent studies show that 80% of day traders lose money </li></ul>True OR False? False
    27. 27. 13 False If you want to be a millionaire, avoid the risky stock market. <ul><li>Nearly 95% of millionaires own stocks. </li></ul><ul><li>Since 1926, stocks have increased 11% at a compounded annual rate of return. </li></ul>True OR False?
    28. 28. Hypothetical example. This example does not take into consideration fees, taxes, commissions, etc. and does not represent any specific product or investment. 14 True If you save $2,000 a year from age 22 to age 65 at 8% interest, your savings will be over $700,000 at age 65. <ul><li>The earlier you begin saving, the better. </li></ul>True OR False? <ul><li>Regular saving may make you a millionaire even if your income is modest. </li></ul>
    29. 29. Questions 1-15: Belsky & Gilovich. Why Smart People Make Big Money Mistakes . Simon & Schuster, 1999. Lee & McKenzie. Getting Rich in America . HarperBusiness, 1999. Stanley & Danko. The Millionaire Next Door. Longstreet Press, 1996. 15 False Most millionaires are single <ul><li>Most millionaires are married and stay married. </li></ul>True OR False? <ul><li>Divorce can be costly. </li></ul>
    30. 30. Rules for Improving Your Financial Life <ul><li>Get a good education </li></ul><ul><li>Work long, hard, and smart </li></ul><ul><li>Live below your means </li></ul><ul><li>Use credit cards with care </li></ul><ul><li>Regard all income – regardless of its source – as a chance to save </li></ul>
    31. 31. Solving the mysteries of finance and economics Does This Make Cents?
    32. 32. Does This Make Cents? <ul><li>Many derive pleasure from watching pro athletes -- high demand. </li></ul><ul><ul><li>Will pay a lot for tickets </li></ul></ul><ul><ul><li>Own special TV sets for viewing </li></ul></ul><ul><li>Pro skills are rare -- limited supply. </li></ul><ul><li>High consumer demand + low supply = high salaries. </li></ul><ul><li>But remember: Many of the pro athletes “retire” with little or no money. </li></ul><ul><ul><li>Failed to learn how to manage their money. </li></ul></ul>Why does the kid who skipped college earn big bucks playing games while others -- nurses, police officers and teachers -- make far less? Source: National Council on Economic Education and NBC Nightly News (2001)
    33. 33. Does This Make Cents <ul><li>Convenience </li></ul><ul><li>High risk </li></ul><ul><li>Easily consumed goods </li></ul><ul><li>Need to be profitable </li></ul><ul><li>But remember: Americans current credit card debt is about $600 billion! </li></ul>Why do we have high interest rates with credit cards when other rates are so much lower? Source: National Council on Economic Education and NBC Nightly News (2001)
    34. 34. Does This Make Cents Why do people struggle to find special gifts when it would be easier and more efficient just to give money? <ul><li>The gift giver feels good -- the incentive. </li></ul><ul><li>Money by itself is less satisfying because it takes less time and thought. </li></ul><ul><li>Money is the preferred gift for strangers -- paper and mail carriers and waiters. </li></ul><ul><li>But remember: gift money can grow as shown by the Rule of 72. </li></ul>
    35. 35. Review <ul><li>What is the magic of compounding? </li></ul><ul><li>What are some of the characteristics of millionaires? </li></ul><ul><li>How do supply and demand affect salaries, prices? </li></ul><ul><li>How do people respond to incentives? </li></ul>
    36. 36. Additional Sources <ul><li>If you like these activities, consider visiting </li></ul> Sign up for SmartCents newsletter.
    37. 37. Why the Mint? Because what our kids don’t know will hurt them down the road.
    38. 38. <ul><li>Teenagers spent an average of $135 per month on clothing and related items in spring 2002, up from $110 in spring 2001. 1 </li></ul><ul><li>Individually, kids age 5-17 spend an average $3,500-$4,000 annually. 2 </li></ul>Kids certainly know how to spend money- 1. U.S. Bancorp Piper Jaffray, 2002 2 Kipp Cheng,”Setting Their Sights in GenerationY” AdWeek, 1999
    39. 39. <ul><li>About 28% of preteens do not know that credit cards are a form of borrowing. 1 </li></ul><ul><li>60% of preteens cannot explain the difference between cash, checks and credit cards. 2 </li></ul><ul><li>More 12th graders have their own credit cards, 12.1% in 2002, up from 7.7% in 1997 3 </li></ul>Consider these facts- 1 Consumer Reports , 1997 2 V. Rice, Kids, Money and the Web, cited in Understanding money in everyday family life , April 2001, Kid Capital, Anne Schorr) 3 2002 Personal Finance Survey, Jump$tart Coalition
    40. 40. <ul><li>The value of money </li></ul><ul><li>the importance of saving </li></ul><ul><li>the risk of credit </li></ul><ul><li>the ways to stretch a dollar </li></ul><ul><li>the ways to make money work for you </li></ul><ul><li>the difference between want and need </li></ul><ul><li>the connection between education and earning </li></ul><ul><li>how to track spending and budgeting </li></ul> can help kids understand-
    41. 41.
    42. 42. Fitness Family ©The Northwestern Mutual Life Insurance Company - Milwaukee, WI F INANCIAL