Scary Statistics

2. Scary Statistics In 2003, one billion credit cards were in circulation. The average household carried a balance of $7500 on their cards from month to month, and paid 18.3% in interest ($950 a year). In 2001, Americans charged up more than $400 billion on their credit cards. They were charged $50 billion in interest. The average household has seven credit cards and carries a balance of $14,000 By simply having a credit card, a person spends 34% more. Only 2 out of 3 people with credit cards keep them at their limit. If a store offers credit cards, there is a 4-7% mark up on items to cover the fee to the credit agency.

3. More Scary Facts • Utah ranks as the fourth-highest state in the amount of debt per capita and leads the nation in personal bankruptcy. • The average age of the filer in Utah is 27. • In 2005, 21,476 people declared bankruptcy in Utah. • Main cause = Credit Card Debt • In Utah, bankruptcies are filed at the rate of one in every 37 homes! • 1.1 million Americans filed personal bankruptcy last year • 137 Americans file every hour of every day The national average is one in every 73 homes file!

4. Credit, Debt, and Savings Firms go out of their way to offer me credit, for which I say, “I am Deeply Indebted”. Circle Juggle

5. Debt • Money that you have spent above and beyond the money that you have available to you. • Future money that you have not received yet but is already spent. • Credit and loans fall into this category • Getting Out of Debt • Pay off balances by the end of each month • Develop a repayment plan and pay debt off quickly! • Stop getting into more debt • Serious analysis of needs vs. want • Have the money before you buy it. SNL SKIT

6. The Facts on Credit Those who are wise never pay interest… they earn it! Borrow $200.00

7. Defining Credit Terms Annual percentage rate (APR): The cost of a loan over a full year expressed as a percentage. Bankruptcy: Legally getting out of having to repay debts; admitting and accepting financial failure. Destroys credit rating for seven -11 years; *Capacity: Ability to fulfill obligations evidenced by diligence at work and prospects of continuing employment or income. Can you repay the Loan? *Character: The quality of one's reputation or name; financial or economic trustworthiness. Will you repay the loan? *Collateral: Security on a loan (house, jewelry, car, etc.) What you have in case you do not pay the loan (*3 C’s Of Credit to determine if you are fit to have a credit card)

8. If school performance was used to determine credit worthiness, how would you do? M &M’s

9. Questions 1. Number of times you have missed class this quarter? 2. Number of times you have been tardy this quarter? 3. How many times you have turned in late assignments this quarter? 4. How many times you have turned in incomplete assignments this quarter? 5. How many times you have not turned in an assignment at all this quarter? 6. How many times you have been asked by the teacher to change or improve your behavior in class this quarter? 7. How many times you have forgotten to bring the required materials (textbook, pencil, etc.) to class this quarter?

10. Total the numbers from your answers! RESULTS SAY: 4 or Less = Credit Approved! 5 - 7 = Need Cosigner 8 or More = Credit Denied!

11. Establishing Credit #3 SG Have checking and savings accounts and manage them responsibly. Make regular deposits into them. Use layaway plans at stores Save for large down payments on cars and other purchases. Ask someone to be a cosigner for the loan. Always make payments for bills ON TIME!!! cell phone, utilities, credit cards, house payment etc. Pay the most amount you can – more than the minimum These are reported to the credit agencies Responsibly buying on credit helps to establish your credit.

12. Why is Good Credit Important?Bad Credit vs. Good Credit Bad Credit $3000 on credit card 18% interest rate If minimum payment of 2 ½% is only made… It takes 22 years and $4100 dollars in interest to pay of the debt. Total: $7100 to borrow $3000 Good Credit $3000 on credit card 4% interest rate If minimum payment of 2 ½% is only made… It takes 11 years and $400 in interest to pay off the debt. Total: $3400 to borrow $3000

13. If you are REJECTED… Obtain a copy of your credit report to determine what the problem is. If something is incorrect, notify the credit bureau in writing. Fixing credit problems may take up to six months.

14. Cosigner: Second signer who guarantees to pay for the loan if the first party ( person who obtains the loan) defaults. • Credit: A loan that allows immediate use of products or services in exchange for a promise to pay in the future. • Credit Bureau: A private corporation that is a clearing house for consumer credit information. Collect information on credit practices of individuals. • Credit rating (FICO): Creditor's evaluation of a debtor's willingness and ability to pay debts based on past performance. Ie: how promptly a person pays his/her debts. Ranges from 350 to 850. • Paying bills on time builds a good credit rating • Default Failure to repay a loan Video Credit BIG

15. Finance Charge The total dollar amount that it costs a consumer to use credit. TV Paid with Cash TV Paid with Credit Card Regularly $400.00 On Sale $360.00 No Interest Total Cost $360 21% A.P.R. 18 mo. pmts $26.00 per mo. $68.00 interest Months financed X monthly payment. Total Cost $468

16. The Cost of Credit -Magic of Interest “The magic of compounding interest is truly the 8th wonder of the world” Albert Einstein

17. Compounding Interest in Action You have just bought an iPod, and you paid for it with your shiny new credit card with an 15% interest rate. At a list price of $150, plus sales tax of 10.50, that’s $160.50 , let’s figure out how much your iPod really costs you in the end. Compounding Interest Chart Month Amount Interest Paid Total Amount Owed 1 160.50 15% (160.5x.015)+160.5=162.91 2 162.91 15% (162.91x.015)+162.91=165.35 3 165.35 15% (165.35x.015)+165.35=167.83 4 167.83 15% (167.83x.015)+167.83=170.35 To figure out compound interest: 1. Multiply your principal and any accrued interest (the number in the amount column) by the percentage of interest. In month one it’s .015: 160.50 x.015 = 2.41 160.50+2.41=162.91 2. Add this amount in the total column. 3. Continue. Be certain to start each calculation with the new total. What was the amount of interest charged the first month? 2.41 Second? 2.44 Third? 2.48 Fourth? 2.52 What would the total cost of the iPod be if you allowed interest to accrue for four months without making payments? 170.35

18. FIGURE COST OF CREDIT (What do you notice?) months financed x monthly payment = +down payment= (1st box) -cash price = credit cost

19. Garnishment Your employer pays your creditor before you receive your paycheck. • Interest Price paid for the use of rented or borrowed money. • Principal The original amount of a loan on which interest is based. Groceries on Credit Principle = $125.00 Interest = $14.00 Final Cost = $139.00 Clothing on Credit Principle = $350.00 Interest = $137.00 Final Cost = $487.00 When you make the last payment, will the stereo, clothing, food you purchased be long gone?

20. 3 Main types of credit: • Sales Credit • Credit you receive when you make a purchase and promise to pay later. • Cash Credit • Credit you receive when you borrow cash and promise to pay it back later. • Service Credit • Credit given for immediate service one receives (utilities, dentist, hospital, etc.) that will be payed for later.

21. Which Card For Me? 1. Different cards have different age requirements. A. I am under seventeen years old. B. I am seventeen years old and have a co-signer. C. I am eighteen years old or older. 2. I just found a jacket that I really want, but it is expensive. So I… A. Borrow the money from my parents and promise to pay them back. B. Save part of the money and borrow the rest. C. Save all of the money and then buy it. 3. Going to school takes up a lot of my time. So, A. I do not have a job. B. I will baby-sit or do other work when someone calls me. C. I have an after-school and/or weekend job with a regular income. 4. When I owe my parents money, A. I still buy other stuff. B. I try to pay them back quickly but might buy one or two small things. C. I save all my money until I can pay them back. 5. I have been to a bank before A. But I have never had my own banking account. B. And opened my own savings account, which I still use. C. And opened my own checking account, which I still use. 6. In the past when I have spent money, A. I have never tracked my spending (written down how much I spent and where I spent it). B. I have tracked my spending when I was saving for something in particular. C. I have always tracked my spending.

22. So, which card is best for you? Add up how many times you selected an A answer, B answer, and C answer Mostly A’s = Pre-funded Card • You probably like the idea of a credit card but have not had the opportunity to experience managing your own money. Some large credit card companies offer a great pre-paid card that might be perfect for you! It works like this: money is deposited into your account and then you can use your card anywhere your credit card company is accepted. Once you have spent all the money in your account, just add more money to keep shopping. The great thing about this card (aka “smart card”) is that you do not have to be eighteen to get one! If you are sixteen or older you can open your own account. If you are thirteen, fourteen, or fifteen you can still get an account in your name—as long as your parents sign with you. This card will give you the opportunity to start tracking your own money and let you build a history with a major credit card company.

23. Mostly B’s = Sales Credit (Gasoline or Store Credit Card) • It sounds like you have had some experience managing your own money. Good for you! As long as you are 18 years old or have a co-signer, a great first card for you might be a gasoline or store credit card. These cards are a good way to establish credit. They are usually easier to obtain than a bank credit card. Purchases are limited to the merchant that issues the card. It is a good idea to pay off the charges each month so you don’t get yourself in over your head. Pay the bill on time each month.

24. Mostly C's = Bank Credit Card • It appears that you know how to manage your spending well because you realize the responsibility of earning, saving, and owing money. As long as you are eighteen years old, a bank credit card might be right for you. Bank credit cards are exciting but come with a great deal of responsibility. With a bank credit card you can make purchases without paying for them immediately. Once you get your spending statement, you can make the minimum payment, the entire payment, or anywhere in between. It is important to know that if you do not pay your entire balance, you will pay interest on the money you still owe.

25. Cash Credit = Payday Loans *The borrower requests a loan for a short period of time, usually one to four weeks. *“Payday loan fee” - Up to 360% interest. *If the borrower continues to have a financial problems and cannot pay the loan as promised, the interest keeps building on the debt.

26. How much credit can I use? The total amount of credit should not exceed 20% of one years NET income… If your credit card has a 20% interest, you make a $1,000 purchase, and you choose to only pay the minimum monthly payments the entire time, it will take more than 20 years to pay that card off. How much can a person borrow for a car if they makes $36,000 p/year net? Answer: $7200 (net x .20) $7200/12 months= $600 a month!!! (not including interest)

27. Advantages of Credit Stimulates the economy Helps us take care of emergencies Allows us to take advantage of great deals Convenient – ordering over the phone Establishes a credit rating Advance notice of sales and cash back on purchases Easier to exchange and return items Detailed monthly bill

28. Disadvantages of Credit It always costs money Risky to spend future income Encourages careless buying (Needs vs. wants) Facilitates over-buying which increases sacrifice that must be made eventually Often increases family conflict May lead to Bankruptcy Increases the cost of doing business

29. Other Options…. Try a small loan from a credit union Ask for pay in advance from your employer Consider a loan from family or friends, (be sure to have the terms of the loan in writing) Use a credit card cash advance Request additional time to pay the bill from your creditors. Pawn Brokers Just don’t borrow money!!! Or you could…

30. SAVE FOR IT • Experts recommend that you pay yourself first by having a savings plan. Savings Video

31. The best time to start saving money was 20years ago, the 2nd best time is today. • Visualize yourself achieving your financial goals to help you save money for what you want to purchase. • Make savings a priority in your budget and never cut it when balancing a budget. • Keeping $500 - $1000 dollars in savings at all times will cover most unexpected expenses. • Trim variable expenses like shopping, food, entertainment, and transportation.. Catch the Money

32. Saving Strategies Which money Savings plan will work for you? Entertainment Clothing Go to matinees instead of evening shows Rent movies and make snacks at home with friends Share magazines, books, and music subscriptions with friends Check books out of the library instead of buying them Buy used CD’s and movies instead of new ones Use coupons and ID discounts What else….. Wait to buy clothes on sale at your favorite stores Buy clothing that can be washed rather than dry-cleaned Buy at discount stores Shop garage sales and thrift stores What else……

33. Food and Beverage Transportation Pack your lunch or snacks instead of buying food out everyday Share a meal with a friend instead of buying separate meals Drink water instead of soda at a restaurant Use coupons Join loyalty customer clubs What else…. Carpool, take a bus, walk ride a bike Wash your car at home instead of paying for a car wash Save gas by organizing errands more effectively Get good grades and have good driving record to reduce the cost of car insurance What else….

34. Phones Banking Use e-mail or instant messages instead of the phone Cell phone plans that have free minutes and no roaming charges Check bills for errors Choose companies that friends and family have to call for free Use the phone during off-peak hours Keep a listing of numbers instead of using 411 What else…. Deposit money gifts into a saving account Have savings automatically drafted from your paycheck Avoid using ATM’s with surcharges Have paycheck automatically deposited Ask bank for free checking Don’t bounce checks What else…

35. Moral of the Story… Don’t spend more than you earn!!! Use credit wisely!!! Don’t get into debt!!! SAVE YOUR MONEY

36. SMITH FAMILY BUDGET or Compare credit cards profile sheet.

37. References http://en.wikipedia.org/wiki/Credit http://www.bankhs.com/teachers/utah_bankruptcy.html http://www.utah.freebankruptcyevaluation.com/bankruptcy-statistics.html www.Suzeorman.com UEN Data Base