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What Young Adults Need to Know About Money

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Webinar for Rutgers Cooperative Extension 4-H at Home Smart Cents program.

Published in: Economy & Finance
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What Young Adults Need to Know About Money

  1. 1. What Young Adults Need to Know About Money Barbara O’Neill, Ph.D., CFP® boneill@njaes.rutgers.edu Twitter: @moneytalk1
  2. 2. Personal Intro • Worked for Rutgers Univ. for 41 years • CFP® for 35 years Now a financial education entrepreneur based in Florida
  3. 3. #1 Take-Away: The Two Sides of Compound Interest • When you invest, compound interest is your friend :-) • When you pay interest on credit cards and loans, compound interest is your enemy :-(
  4. 4. Information Resource: Jump$tart Coalition for Personal Financial Literacy • Washington DC-based non-profit • Promotes financial literacy for students from pre-K to college age • The NJ Coalition for Financial Education is a state affiliate of national Jump$tart
  5. 5. Jump$tart’s Twelve Principles of Personal Financial Literacy • Know your take-home pay • Pay yourself first • Start saving young • Compare interest rates • Don’t borrow what you can’t repay • Budget your money • Money doubles by “The Rule of 72” • High returns equals high risks • Don’t expect something for nothing • Map your financial future • Your credit past is your credit future • Stay insured
  6. 6. 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
  7. 7. 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 – Automatic investment plans – Checking to savings transfers – Need more ideas? See http://www.americasaves.org/
  8. 8. 3. Start Saving Young Source: TIAA-CREF; assumes an 8% average annual return Time + Money = Magic!
  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 • Key Criteria: – Annual fee – Late fee – Over-the-limit fee – Rewards for use – APR and balance calculation method https://www.slideshare.net/BarbaraONeill/credit-card- comparison-worksheet
  11. 11. 5. Don’t Borrow What You Can’t Repay Debt 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
  12. 12. The High Cost of Minimum Payments Data derived from Credit Card Smarts calculator
  13. 13. 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
  14. 14. What are Your Spending Leaks?
  15. 15. 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)
  16. 16. The Rule of 72 Source: Garman/Forgue, PERSONAL FINANCE, Fifth Edition
  17. 17. 8. High Returns Equals High Risks Source: Garman/Forgue, PERSONAL FINANCE, Fifth Edition
  18. 18. 9. Don’t Expect Something For Nothing If it sounds too good to be true, it probably is” • Phishing scams • “Pump and dump” scams • “Free lunch” seminars • “Guaranteed” returns > other investments • Exotic sounding deals • Exclusive, limited-time offers
  19. 19. 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”
  20. 20. 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 car insurance premiums and apartment rentals; employers can get specialized credit reports
  21. 21. 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%)
  22. 22. 12. Stay Insured • Health insurance: “Age 26 law” (federal), NJ “Dependent Under 31” law, http://www.state.nj.us/dobi/division_consumers/du31.html • Also, ACA exchanges: https://www.healthcare.gov • Life insurance (if dependents or co-signers) • Disability insurance • Renter’s and auto insurance with adequate liability limits (at least $300,000)
  23. 23. Closing Messages • You are a “Millionaire in the Making” • Time + Money = Magic! (Compound Interest) • Compound interest can be your best friend or your worst enemy
  24. 24. Questions? Comments? Experiences

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