Financial Literacy: Knowing What You Need To Know To Achieve Your Financial Goals

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Financial LiteracyKnowing What You Need To Know
To Achieve Your Financial Goals

• Mr. Chis-Luca

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Americas 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
  8,000 in credit cards, compared to 2,600 in
  1989.
• In 2003, 1.6 million Americans filed for
  bankruptcy the highest amount in history.

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Americas financial literacy

• 2 out of 3 households will probably fail to
  realize life goals
• Financial illiteracy is passed to the next
  generation

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What is Financial Literacy?
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Financial literacy

• The ability to effectively evaluate and manage
  ones finances in order to make prudent decisions
  toward reaching lifes goals
• The understanding of
• Money
• Cash flow
• Basic economic/financial concepts
• Debt/risk management

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Achieving financial literacy

• Five Key Areas of Personal Finance
• Money and income
• Money management
• Spending and debt
• Savings and investments
• Risk management

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Money and income

• Time is money
• How many hours do you need to work to pay for
  your mortgage, car insurance, electricity bills,
  extras, etc?

Money management

• Budgeting
• Prioritizing

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Spending and debt

• Benefits and costs of spending alternatives
• Credit as a basic financial tool

Savings and investing

• Saving means not spending money.
• Investing means that you earn a return on the
  money you put into it.

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Risk management

• Insurance
• Understanding the markets
• 50 of Americans own stocks
• Identity theft

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Financial literacy isnt just a matter of
knowing what you have and knowing your options.
It is a matter of planning for lifes milestones.
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Creating your first overall long-term financial
plan
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Buying your first home

• Establish good credit
• Understand real costs
• Assess risks

Getting married

• Understand financial partnership
• Establish separate and joint credit and bank
  accounts
• Create wills and trusts
• Identify beneficiaries
• Choose owners on title assets

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Financing a family

• Budget
• Education, health care, child care
• Manage risk, insurance
• Create wills
• Instill financial literacy

Planning for Retirement

• Determine how much money you will need.
• Determine where your retirement income will come
  from.
• Devise a budget and investment strategy to help
  you meet your goals.

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Preparing a will

• Designate beneficiaries
• Determine asset distribution
• Identify insurance

Financial literacy education

• Lifelong learning courses
• Financial media
• Internet resources
• Your CPA

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BUDGETING 101

• The first step is to know how much money is
  coming in so you know how much money you can
  spend.

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Budgeting Basics Determine wants vs
needs Determine your short term and long term
goals Do the math Are you tough enough to make
the decisions that will get you where you want to
be?
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Credit and Commercialism

• Makes you feel inadequate
• Answer is spend money whenever you need to
  resolve a problem or meet a need
• The have it now, pay later lifestyle is
  prevalent

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ATM Fees Computerware Home Parties Cosmetics Onli
ne Services Beauty Parlor Over the limit
fees Beepers Dating Ice Cream Parking
Fees CDs Gifts Overage Fees Bottled
Water Bounced Checks Clubs Cigarettes Greeting
Cards Tanning Haircuts Videos Cable TV Late
Payment Fees Dinners Out Bar Night Books
Fast Food Attacks Dry Cleaning Car Wash Lottery
Tickets Magazines Movie Rentals Sports Lunches
Out Film Development Gambling
Prescriptions Household Items Pet
Costs Licenses Speeding Tickets Cash Advance
Fees Munchies Vending Machines Souvenirs
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What is Credit?

• It is a loan, allowing you to receive goods and
  services now and pay for them later
• It is an agreement that the money borrowed will
  be paid back
• It is a debt, it is NOT income
• It comes with fees interest and other charges

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• Build your Credit Record
• Often called your second resume.
• Information stays on your credit report for
  seven years.
• Your credit rating is your reputation.
  Employers, insurers, creditors, and leasing
  agents check your credit rating. It can affect
  job prospects, ability to obtain loans at lower
  interest rates, ability to buy a house or other
  large items, and ability to rent an apartment.
• Your credit record is used for determining
  insurance premiums, etc.

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• What is my FICO score?
• Like your GPA the higher your FICO score the
  better
• FICO scores range from 300-850
• If your score is 680, Congratulations! Youre a
  prime borrower
• If your score is below 680 youll be stuck with
  sub-prime rates and will pay more for your loan
• If your score is below 550, just forget it
• A good FICO score of 750 can mean your interest
  rate on a home loan will be 4 percentage points
  lower than somebody with a 500 score. This can
  mean over 200,000 in saved interest on a house.

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• Getting a good score
• The longer you have a particular credit card the
  better (it takes time to develop a credit
  history)
• Pay your bills on time
• Keep your account balances below 50 of your
  available credit
• Be careful about co-signing
• Avoid excessive inquiries

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Credit Cards The Basics

• Fees, fees, and more fees
• Interest rate fees--what you pay for using the
  usually 17 - 21 for students (after intro rate)
• Annual fee for just having the credit card
• Over the limit fees, charged whenever you exceed
  your credit limit
• Late payment fees
• Transaction fees
• Other miscellaneous fees
• read the fine print!!!

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Credit Cards

• Some disadvantages are
• college students are more likely than other types
  of credit card users to run up debts they cannot
  pay
• college students (with limited or no credit
  history and income) are charged higher interest
  rates

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Credit Card Donts

• Dont get more than one
• Dont use them for cash advances
• Dont use them to pay for basics rent,
  groceries, etc.
• Dont charge more than you can pay off in a month
• Dont let banks increase you credit limit

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Credit Card Dos

• Use a debit card vs a credit card
• Use a card with no annual fee and low interest
  rates
• Know all of your cards hidden fees
• Always pay more than the minimum each month
• Pay on time, all the time

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Good Vs Bad Debt
Good debt is debt that returns something of long
term value such as a higher education or
home. Bad debt is often categorized as short-term
feel good debt and may be unwise purchases that
you cant afford and dont really need. Any bad
debt over 15 of your annual income after taxes
should set off an alarm.
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• Solutions
• Redefine the good life your own way.
• You have worked and studied hard to get into
  college and you deserve to be in control with
  financial peace of mind rather than buy with
  credit every pleasure, activity, or material
  thing desired, for now, anyway.
• Resist the pressure from your family, friends,
  and associates to live a life style that is
  beyond what you can currently afford.
• List your short-term financial obligations and
  goals for each month, for the year, and future 5
  years.

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Solutions Continued

• Focus on paying on the balance with the highest
  interest rate.
• Develop a budget
• Live within your means
• Transfer credit card debt to a low interest
  card or a lower interest personal loan
• Lose the credit cards
• Use your savings
• Sell stuff you dont need
• Consolidate your student loans