2. What Is Financial Literacy? Formal Definition: The ability to effectively evaluate and manage one’s finances in order to make prudent decisions toward reaching life’s goals. More simply: Knowing what you need to know to achieve your financial goals, or common sense with your dollars and cents. What we will cover: Money and savings Budgeting (AKA cash flow) Debt/risk management Taxes/basic financial concepts
3. America’s financial literacy American families: The average American family spends $1.22 for every dollar it earns. One in five American families with annual household income of less than $50,000 is spending 40% of after-tax income to service its debt. In 2003, the average American household owed over $8,000 in credit cards, compared to $2,600 in 1989. In 2005, over 2 million Americans filed for bankruptcy – the highest amount in history.
4. America’s financial literacy American families: (continued) Only 26% of teens understand how card interest and fees work. (2007 Charles Schwab Teens & Money Survey) The average college senior will graduate with $4,100 in credit card debt before they even have a job. (Sallie Mae’s 2009 National Study of Usage Rates and Trends) Nearly 20% of bankruptcy filers are college students. (Sallie Mae’s 2009 National Study of Usage Rates and Trends)
5. Money and Savings Time is money Continuous education Savings and the power of compounding interest “Make all you can, save all you can, give all you can.”- John Wesley
6. Money and Savings Time is money How many hours do you need to work to pay for your rent/mortgage, car insurance, electricity bills, extras, etc? Paid $10/hr Rent is $200 Food is $100 Electric $50 If I make $10 hr then I will need to work 35 hours in order to pay out $350 that is due for that week.
7. Money and Savings Continuing Education Congratulations! The other side of the time equation More knowledge/skills = greater pay You will either learn to manage money, or the lack of it will always manage you! "All days are not same. Save for a rainy day. When you don't work, savings will work for you." - M.K. Soni
8. Money and Savings The power of compounding interest “Get Rich Quick” never works. You will lose your money. Saving faithfully over time will always build wealth – it just takes a little while (and patience) The story of Ben and Arthur: Both save $2,000 per year at 12%. Ben starts at age 19 and stops at age 26, while Arthur starts at age 27 and stops at age 65. At age 65, Ben has more than $2.2 million, while Arthur has only $1.5 million.
9. Savings and Investing –8 Simple Strategies Start small Contribute to your retirement plan Save through payroll deduction plans Round up your mortgage Bank your raises Keep paying off a loan Pay off your credit cards Keep track of where the money goes "Money grows on the tree of patience." Proverb
10. Budgeting AKA Cash Flow Management Budgeting Prioritizing “Life is like a coin you can spend it only once. Choosing one thing over all the rest throughout life is a difficult thing to do. This is especially true when the choices are so many and the possibilities are so close.” - Chuck Swindoll You can only spend what you have if you want to reach your financial goals.
15. Communication (with family, spouse, roommate or partner)Today, there are three kinds of people: the have's, the have-not's, and the have-not-paid-for-what-they-have's. -Earl Wilson
16. Budgeting Gross monthly income Net income Fixed expenses Flexible expenses Discretionary expenses Total it up Increase your savings A nickel ain't worth a dime anymore. -Yogi Berra
21. Debt Traps: Pay Day Loans, Title Loans, and Six month no interest credit card scamsIt is an unfortunate human failing that a full pocketbook often groans more loudly than an empty stomach. -Franklin Delano Roosevelt
22. Steps to Getting Out of Debt Stop using credit cards and other types of credit Have a cash flow plan Save $500 - $1000 for emergencies Sell something to pay off a debt Use money from a part-time job or overtime to payoff debt Develop a plan to pay off your debt
23. Plan for Paying off Debt List your debts starting with the smallest first Make the minimum payments each month on each debt except for the smallest one Pay more than the minimum on the smallest debt until it is paid off Once the smallest debt is paid off, add that payment amount to the next debt on the list so that you are paying more than the minimum payment Continue until all debts are paid off
28. Review your statementsReport a lost or stolen card immediately Protect personal information Pay on time Avoid cash advances Protect your credit history If you think nobody cares if you're alive, try missing a couple of car payments. -Earl Wilson
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30. The borrower gives the lender a postdated check or other authorization to repay the loan on payday
31. On payday, the borrower must repay the loan, plus pay a fee, but is also given the option to renew the loan
32. The borrower is led to believe that he is receiving more money and the new fees applied are not explained until the debt amount is unmanageable and the borrower is trapped
33. Pay Day lenders target low-income workers living paycheck to paycheck
34. 91% of Pay Day loans are renewed 5 times or more
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36. On pay day you go to payoff the loan. You are offered a renewal of the $300 loan
61. With a credit score between 620 and 650 you will probably need to provide more information to get a loan
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63. Risk Management Insurance Health insurance (If nothing else, high deductible plan) Life insurance (If married & have kids) Long-term disability insurance Auto insurance Home owners insurance Identity theft protection
64. Taxes: RALs RALs (Rapid Anticipation Loans) Provide a check for tax payers with in 24 to 48 hrs. However some portion of the checks are not available for 10 to 15 days. Charges for RALs can range from ($250 -$500) $25 Bank Fee 36% Interest $110 to $160 Does not include the cost to cash the check for those who do not have a checking account.
65. Alternative Programs VITA (Volunteer Income Tax Assistance Program) LITCs (Low Income Taxpayer Clinics) Focusing your life solely on making a buck shows a poverty of ambition. It asks too little of yourself. And it will leave you unfulfilled.- Barack Obama
66. VITA Volunteer program provided by the IRS and SCDOR The program is intended for anyone with income under $49,000 a year that is unable to prepare their own return. Only basic returns; complicated returns, such as those with business are not eligible for this program. Can receive money into a bank account in 10-15 days.
67. LITCs Provided by non-profit organizations with partial funding from the IRS. Represent low income taxpayers before the Internal Revenue Service and assist taxpayers in audits appeals and collections. Also assist provide tax assistance for people who speak English as a second language. Assistance is free or nominal cost.
68. Financial literacy education Lifelong learning courses Financial media Internet resources Your CPA Can anybody remember when the times were not hard and money not scarce? - Ralph Waldo Emerson
69. For more information www.360financialliteracy.org features financial education to help consumers make more informed financial decisions through every stage of life.
No interest for six months - 80% does not pay off and they go and back date the amount. Refer back to slide on 6% and 18% House & Credit Card companies building.
Importance of an emergency fund: start with $500 to $1000. If less than 20k a year $500.What happens?Car brakes downLose your jobMedical expensesAppliance breaksAccording to Money Magazine 80% of people with have a major unexpected expense of 5 to 10 in any given 10 year period.Only 9% did not loss a job, have medical event, or a divorce.2 out 3 lost their jobs 66%“The Fragile middle class: American’s in debt” Written by Elizabeth Warren, Harvard Law School
