Personal Finance For College Freshmen

1. Personal FinanceFor College Freshmen May 15, 2008 Fred Hower, CPA Sr. Director Finance, IHS Inc.

2. Financial strategies? • If you don’t know what a credit card APR is, then this is the perfect topic for you. According to the College Board, you can plan on shelling out an average $12,127 for tuition, room and board at public colleges this year. Are You Ready?

3. Financial strategies? • If you don’t know what a credit card APR is, then this is the perfect topic for you. According to the College Board, you can plan on shelling out an average $12,127 for tuition, room and board at public colleges this year. • But there's another $3,000 likely to be spent on textbooks, supplies, transportation and "other." And you, as a student, will often be responsible for budgeting that money yourself. So how do you keep from draining your bank account by the end of the first month? How do you make sure you don’t get sucked into a high interest credit card? Are You Ready?

4. At the start of the semester, record your purchases. Keep a financial journal for at least six weeks, writing down every penny you spend. That way, you will find how much you are spending at Starbucks or Caribou — money that could be used for a better purpose. Once you know where all those twenties are going, it's easier to cut back on unnecessary buys, as well as budget for those that are often forgotten. Pause, then plan:

5. When you get to school you will meet lots of new people. Some will have less money than you, some will have more. Lots more. Do not try to keep up with their spending. If you find yourself hanging out with people who constantly want to go out to eat or go shopping, consider the impact on your finances first. Develop a “Cheap Eats” Strategy Don’t Try to Keep Up!

6. You will need a checking account, not all are the same: Checking Accounts

7. You will need a checking account, not all are the same: • Free ATM use, this is valuable. At $2.00 to $4.00 per transaction, it is easy t spend $100 per year just to access your money. Checking Accounts

8. You will need a checking account, not all are the same: • Free ATM use, this is valuable. At $2.00 to $4.00 per transaction, it is easy t spend $100 per year just to access your money. • Free online banking. No checks, No Postage. You can schedule payments. Good Stuff! Checking Accounts

9. You will need a checking account, not all are the same: • Free ATM use, this is valuable. At $2.00 to $4.00 per transaction, it is easy t spend $100 per year just to access your money. • Free online banking. No checks, No Postage. You can schedule payments. Good Stuff! • Don’t leave checks around. Banks DO NOT check signatures! Canceled checks also have your bank account number and your signature! Checking Accounts

10. You will need a checking account, not all are the same: • Free ATM use, this is valuable. At $2.00 to $4.00 per transaction, it is easy t spend $100 per year just to access your money. • Free online banking. No checks, No Postage. You can schedule payments. Good Stuff! • Don’t leave check around. Banks DO NOT check signatures! • Be careful with automatic payments. If the payments are fixed this is a good way to build credit. If the payments are not fixed this is a good way to be taken! Checking Accounts

11. Credit card companies target college students, but the best rates are typically found off campus. Keep credit to a minimum

12. Credit card companies target college students, but the best rates are typically found off campus. • You are 18 or will be very soon. You can now enter transactions as an adult. You can now be held responsible for your debts. Keep credit to a minimum

13. Credit card companies target college students, but the best rates are typically found off campus. • You are 18 or will be very soon. You can now enter transactions as an adult. You can now be held responsible for your debts. • If you need a credit card it's smart to do your research — find one with no annual fee, a low APR, and keep your credit line low — $500 or $1,000 at the most. Keep credit to a minimum

14. Credit card companies target college students, but the best rates are typically found off campus. • You are 18 or will be very soon. You can now enter transactions as an adult. You can now be held responsible for your debts. • If you need a credit card it's smart to do your research — find one with no annual fee, a low APR, and keep your credit line low — $500 or $1,000 at the most. • You don’t have to accept the amount of the line of credit offered. You can actually LOWER it. You can also reject a credit line increase if and when it's offered. Also when it comes to credit: it is vitally important to pay your bill on time. Once you have a credit card, you have a credit history and a series of late payments means it'll be tougher for you to buy a car, rent an apartment, or even get a job in future years. If you can get buy without a credit card, do so. If you need to have one, use it very sparingly. Keep credit to a minimum

15. Credit vs. Debit vs. ATM Cards: Very different cards – how they work. • Debit and ATM cards access your checking account. • Credit cards lend you the money for the purchase, to be repaid later Credit Vocabulary

16. Credit vs. Debit vs. ATM Cards: Very different cards – how they work. • Debit and ATM cards access your checking account. • Credit cards lend you the money for the purchase, to be repaid later APR – Annual Percentage Rate. The amount lender charge you to use their money. Credit Vocabulary

17. Credit vs. Debit vs. ATM Cards: Very different cards – how they work. • Debit and ATM cards access your checking account. • Credit cards lend you the money for the purchase, to be repaid later APR – Annual Percentage Rate. The amount lender charge you to use their money. Teaser or Introductory Rate – A low rate, sometimes 0%, for a limited time, usually six months Credit Vocabulary

18. Credit vs. Debit vs. ATM Cards: Very different cards – how they work. • Debit and ATM cards access your checking account. • Credit cards lend you the money for the purchase, to be repaid later APR – Annual Percentage Rate. The amount lender charge you to use their money. Teaser or Introductory Rate – A low rate, sometimes 0%, for a limited time, usually six months Cash Advance (Rate) – The rate and fees charged if you use a credit card to obtain cash. Credit Vocabulary

19. Credit vs. Debit vs. ATM Cards: Very different cards – how they work. • Debit and ATM cards access your checking account. • Credit cards lend you the money for the purchase, to be repaid later APR – Annual Percentage Rate. The amount lender charge you to use their money. Teaser or Introductory Rate – A low rate, sometimes 0%, for a limited time, usually six months Cash Advance (Rate) – The rate and fees charged if you use a credit card to obtain cash. Grace Period – The number of days from when you borrow the money to when the lender begin to charge interest. Credit Vocabulary

20. Credit vs. Debit vs. ATM Cards: Very different cards – how they work. • Debit and ATM cards access your checking account. • Credit cards lend you the money for the purchase, to be repaid later APR – Annual Percentage Rate. The amount lender charge you to use their money. Teaser or Introductory Rate – A low rate, sometimes 0%, for a limited time, usually six months Cash Advance (Rate) – The rate and fees charged if you use a credit card to obtain cash. Grace Period – The number of days from when you borrow the money to when the lender begin to charge interest. Late Fee – The amount lenders charge when you make a late payment Credit Vocabulary

21. Credit vs. Debit vs. ATM Cards: Very different cards – how they work. • Debit and ATM cards access your checking account. • Credit cards lend you the money for the purchase, to be repaid later APR – Annual Percentage Rate. The amount lender charge you to use their money. Teaser or Introductory Rate – A low rate, sometimes 0%, for a limited time, usually six months Cash Advance (Rate) – The rate and fees charged if you use a credit card to obtain cash. Grace Period – The number of days from when you borrow the money to when the lender begin to charge interest. Late Fee – The amount lenders charge when you make a late payment Universal Default - The ability for lenders to raise your rate even when you are not late. Credit Vocabulary

22. Credit vs. Debit vs. ATM Cards: Very different cards – how they work. • Debit and ATM cards access your checking account. • Credit cards lend you the money for the purchase, to be repaid later APR – Annual Percentage Rate. The amount lender charge you to use their money. Teaser or Introductory Rate – A low rate, sometimes 0%, for a limited time, usually six months Cash Advance (Rate) – The rate and fees charged if you use a credit card to obtain cash. Grace Period – The number of days from when you borrow the money to when the lender begin to charge interest. Late Fee – The amount lenders charge when you make a late payment Universal Default - The ability for lenders to raise your rate even when you are not late. Minimum Payment – The smallest payment accepted by the lender for that month (it will change based on the balance), usually 2.5-5.0% of the outstanding balance. Credit Vocabulary

23. Credit vs. Debit vs. ATM Cards: Very different cards – how they work. • Debit and ATM cards access your checking account. • Credit cards lend you the money for the purchase, to be repaid later APR – Annual Percentage Rate. The amount lender charge you to use their money. Teaser or Introductory Rate – A low rate, sometimes 0%, for a limited time, usually six months Cash Advance (Rate) – The rate and fees charged if you use a credit card to obtain cash. Grace Period – The number of days from when you borrow the money to when the lender begin to charge interest. Late Fee – The amount lenders charge when you make a late payment Universal Default - The ability for lenders to raise your rate even when you are not late. Minimum Payment – The smallest payment accepted by the lender for that month (it will change based on the balance), usually 2.5-5.0% of the outstanding balance. Transfer Balance Rate – The interest rate the lender charges to transfer a balance from another card. Credit Vocabulary

24. When considering a credit card offer, review the following: • Is it the best interest rate available to you? • If the card offers a low introductory interest rate, when does it expire? • Does the bank charge an annual fee for the credit card? • What is the credit line offered by the card? • Cash advance fees, these are sometime a fixed amount of $25 to $45, just to borrow the money. • What is your existing debt on other credit cards or loans? • Application fees, why pay for the privilege of applying to use their card? • Late fees, these can grow faster than you laundry pile. • Residual interest, just another fee • “Come On Gifts” Nothing is Free! The banks are there to make money. You are essentially buying a loan, don’t confuse it with free gifts and promises of rewards. Credit Card Considerations

25. Assume that you use your card to borrow $100 to go out to dinner. If you made only the minimum payments, how long would it take to pay off the balance? How much in interest? ? How much does it really cost?

26. Assume that you use your card to borrow $100 to go out to dinner. If you made only the minimum payments, how long would it take to pay off the balance? How much in interest? How much does it really cost?

27. Assume that you use your card to borrow $1,000 to go out to home or buy books. If you made only the minimum payments, how long would it take to pay off the balance.? How much will you pay in interest? How much does it really cost?

28. Assume that you use your card to borrow $1,000 to go out to home or buy books. If you made only the minimum payments, how long would it take to pay off the balance.? How much will you pay in interest? Answer: 8 years and 1,665.01! How much does it really cost?

29. Assume that you use your card to borrow $1,000 to go out to home or buy books. You make only the minimum payments and you also miss 3 payments. How long would it take to pay off the balance? How much in interest? How much does it really cost?

30. Assume that you use your card to borrow $1,000 to go out to home or buy books. You make only the minimum payments and you also miss 3 payments. How long would it take to pay off the balance? How much in interest? Answer: 11 years and 2,598.26! How much does it really cost?

31. According CardRatings.Com. The cards best suited for college students currently are: Warning: These cards can still cause you problems! Better Cards

32. According CardRatings.Com. Just some of the worst cards available: Choose wisely: Worst Cards

33. Some of you will have a credit card for “emergencies”. So let’s define what an emergency is. An emergency is when the transmission falls out of your car. An emergency is when you drop your laptop. Pizza is not an emergency. Itunes are not an emergency. Define an “Emergency”

34. A credit report is like a college grade transcript. Credit Report Facts

35. A credit report is like a college grade transcript. • A credit report lists: • All credit cards and loans listed in your name Credit Report Facts

36. A credit report is like a college grade transcript. • A credit report lists: • All credit cards and loans listed in your name • Your payment history to creditors (on-time, late) Credit Report Facts

37. A credit report is like a college grade transcript. • A credit report lists: • All credit cards and loans listed in your name • Your payment history to creditors (on-time, late) • Amount of available credit on credit cards Credit Report Facts

38. A credit report is like a college grade transcript. • A credit report lists: • All credit cards and loans listed in your name • Your payment history to creditors (on-time, late) • Amount of available credit on credit cards • FICO Score – Fair Issacs & Co. has developed a scoring method. Lenders, Landlords and even your insurance carrier look at this score. 740+ is good. Generally this will take a number of years to establish. Credit Report Facts

39. Negative information, such as late payments, non-payment or exceeding your credit limit, can stay on your credit report for seven years. Credit Report Facts

40. Negative information, such as late payments, non-payment or exceeding your credit limit, can stay on your credit report for seven years. • Bankruptcy can stay on your credit report for up to 10 years. Credit Report Facts

41. Negative information, such as late payments, non-payment or exceeding your credit limit, can stay on your credit report for seven years. • Bankruptcy can stay on your credit report for up to 10 years. • A credit report can be reviewed by a potential employer before you are hired. Credit Report Facts

42. Two really good products that can help. • Intuit’s Quicken • Microsoft Money • They will track your expenses for you. • You can link them to you checking, creditors and savings. • They both have beginner versions in the $20-$30 range (after rebates). Tools

43. Good luck and much success! Last, But Not Least