Sebs rutgers-young adults and money-03-13

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Sebs rutgers-young adults and money-03-13

  1. 1. Millionaire in the Making: What Young AdultsNeed to Know About Money Barbara O’Neill, Ph.D., CFP® oneill@aesop.rutgers.edu
  2. 2. What are Your $$$ Questions?
  3. 3. Jump$tart’s Twelve Principlesof Personal Financial Literacy• Twelve principles for young adults to become financially successful – http://jumpstart.org/12-principles-calendars.html• Available as a calendar in PDF format: – http://jumpstart.org/assets/files/12%20Principle%20 Calendars/2012_J$_Calendar-time-CM.pdf
  4. 4. The Twelve Principles• Know your take-home pay • Money doubles by “The Rule of 72”• Pay yourself first • High returns equals high• Start saving young risks• Compare interest rates • Don’t expect something for nothing• Don’t borrow what you can’t repay • Map your financial future• Budget your money • Your credit past is your credit future • Stay insured
  5. 5. 1. Know Your Take-Home Pay• Take-Home Pay = Net Pay = Disposable Income – Amount of income remaining after mandatory deductions (e.g., taxes) and withholding• Discretionary Income – Money left after paying household expenses – Include savings for goals as an “expense”• Know these numbers before committing to large expenses
  6. 6. 2. Pay Yourself First• Treat savings as a household “expense”• Give it the priority of a car loan payment• Make savings automatic – Employer retirement savings plans – Mutual fund and DRIP stock automatic investment plans – Checking to savings transfers – Need more ideas? See http://www.americasaves.org/
  7. 7. 3. Start Saving YoungTime + Money = Magic!Source: TIAA-CREF; assumes an 8% average annual return
  8. 8. Source: NEFE High School Financial Planning Program
  9. 9. 4. Compare Interest Rates• Bankrate.com: http://www.bankrate.com/• Consumer Action: http://www.consumer-action.org/• Federal Reserve: http://www.federalreserve.gov/creditcard/survey.html
  10. 10. Rule of Three Credit Card Comparison• See Personal Finance class assignment http://rci.rutgers.edu/~boneill/assignments/creditcard.html• Key Criteria: – Annual fee – Late fee – Over-the-limit fee – Method for computing balance – Rewards for use – APR
  11. 11. Key Credit Terms• Finance charge – Total dollar amount you pay to use credit – Includes interest costs and fees, such as service charges or credit-related insurance premiums• Annual Percentage Rate (APR) – Percentage cost of credit on a yearly basis – Key to comparing costs when shopping for rates – “Apples to Apples” comparison required by law It is important to shop around for credit
  12. 12. 5. Don’t Borrow What You Can’t RepayDebt stinks! (http://www.itsahabit.com/musiccd.html)– Ties up future income– Prevents people from saving– Costs money (interest and fees)– Can lead to repossession, foreclosure, bankruptcy– Causes physical symptoms of stress
  13. 13. The High Cost of Minimum PaymentsData derived from Credit Card Smarts calculator
  14. 14. Warning Signs of Debt Problems• Paying only the minimum balance each month• Trouble even paying the minimum amount due• Total balance increases every month• Missing loan payments or paying late• Using savings to pay for necessities• Getting second or third payment notices• Borrowing money to pay old debts• Exceeding the credit limits on your credit cards• Denied credit due to a bad credit report
  15. 15. 6. Budget Your Money• Spending Plan Worksheet: http://njaes.rutgers.edu/money/pdfs/fs421worksheet.pdf• Positive Cash Flow: Income > Expenses – Increase income – Reduce expenses – Do both
  16. 16. Seven Step Budgeting Process1. Set financial goals and identify required savings2. Estimate income from all sources3. Budget an emergency fund and goal savings4. Budget fixed expenses (include 1/12 occasional expenses)5. Budget variable expenses6. Record spending amounts7. Review and revise as needed
  17. 17. What are Your Latte Factors™?
  18. 18. 7. Money Doubles By “The Rule of 72”• Calculates the number of years it takes for principal to double – Number of Years = 72 divided by interest rate – Example: 72 ÷ 6% = 12 years• Calculates the interest rate it takes for principal to double – Interest rate = 72 divided by number of years – Example: 72 ÷ 10 = 7.2% http://www.moneychimp.com/features/rule72.htm (calculator)
  19. 19. The Rule of 72 Source: Garman/Forgue, PERSONAL FINANCE, Fifth Edition
  20. 20. 8. High Returns Equals High RisksSource:Garman/Forgue,PERSONALFINANCE, FifthEdition
  21. 21. Investment Risk FactorsSource: Garman/Forgue, PERSONAL FINANCE, Fifth Edition
  22. 22. 9. Don’t Expect Something For NothingIf it sounds too good to betrue, it probably is”• Phishing scams• “Pump and dump” scams• “Free lunch” seminars• “Guaranteed” returns > other investments• Exotic sounding deals• Exclusive, limited-time offers
  23. 23. 10. Map Your Financial Future• Be a “future-minded” planner• Set SMART Goals: http://njaes.rutgers.edu/money/pdfs/goalsettingworksheet.pdf – Short-Term: Under 3 years – Medium-Term: 3 to 10 years – Long-Term: 10 or more years• Match savings/investments to goals• “What you think about, you bring about”
  24. 24. 11. Your Credit Past is Your Credit Future• People with low credit scores pay more to borrow money – FICO score range: 300 (low) to 850 (high)• Negative information stays on your credit report for 7 years (bankruptcy- 10 years)• Credit scores are used in job hiring, car insurance premiums, apartment rentals
  25. 25. Credit Scoring Factors• Bill payment history, weighted to emphasize past 12 months (35%)• Proportion of outstanding debt to available credit limits (30%)• Length of credit history (15%)• Number of recent credit inquiries (10%)• Mix of types of credit used (10%)
  26. 26. 12. Stay Insured• Health insurance: “Age 26 law” (federal), NJ “Dependent Under 31” law, and COBRA – http://www.state.nj.us/dobi/division_consumers/du31.html• Life insurance (if dependents)• Disability insurance• Renter’s and Auto insurance with adequate liability limits
  27. 27. Key MessagesYou are a Millionairein the MakingTime + Money =Magic!
  28. 28. Financial Education Resources• NEFE Cash Course: http://www.cashcourse.org/rutgers• Personal Finance Course: http://rci.rutgers.edu/~boneill/• America Saves: http://www.americasaves.org/• PowerPay: https://powerpay.org/• Rutgers Cooperative Extension: http://njaes.rutgers.edu/money/default.asp#resources
  29. 29. Questions? Comments? Experiences

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