Teen Money Management

1. Teen Money Management Presented by Glendale Public Library Instructor: Annette Fisher

2. What we learned yesterday • Auto Purchase and Insurance • Planning for college • Housing

3. Let’s Review • What are the steps when purchasing a car? • What should you consider when planning for college? • Where can you easily find a place to live?

4. What we will learn today: • Credit • Identity Theft • Investing

5. Goals For This Session • To review investing prerequisites • To learn key investing concepts • To discuss strategies for finding money to invest

6. Basic Building Blocks of Successful Financial Management

7. Cash Management • Live by spending plan • Financial record keeping • Maximize the amount of interest earned • Complete annual financial checkup, including net worth and cash flow • Review and revise periodically

8. Emergency Cash Reserve • Money for unexpected expenses • 3 to 6 months living expenses • Amount depends on situation • Money can be sub-divided

9. Risk Management • Protect against catastrophic financial losses • Purchase comprehensive insurance coverage if needed • Evaluate current policies and be a smart consumer

10. Tax Management • Pay only what you owe • Use tax laws to your financial advantage • As tax laws change, adjust financial strategies

11. $MART Financial Goals • $ SPECIFIC • M MEASURABLE, MUTUAL • A ATTAINABLE • R RELEVANT, REALISTIC • T TIME-LINE, TRADE-OFFS

12. Credit Management • Avoid overuse of credit • Lower the total amount of debt • Shorten the term of debt • Reduce interest and finance charges

13. Home Ownership • Think of buying a home as purchasing shelter • Not as an investment that will rapidly appreciate • Home equity is an asset

14. Investments • Begin investing after a firm foundation is laid • Develop investing strategies to accomplish specific financial goals

15. Children’s Education • Start early • Make an estimate of the cost • Develop a plan for accomplishing goal • Consider tax implications • Explore other ways to pay for education

16. Retirement Planning • AGAIN - • Start early • Make an estimate retirement needs • Develop plan for accomplishing goal • Consider tax implications

17. Estate Planning • The prize for successfully managing finances throughout your lifetime is the opportunity to pass assets on to loved ones or favorite causes at the end of your life

18. Key Investing Concepts • Difference between saving and investing • Risk tolerance • Risk versus rate of return • Impact of time on money accumulation • Asset allocation • Personal factors that affect investing decisions

19. The Difference BetweenSavings and Investing • Savings: • Money held in a short-term cash assets • Money used for emergencies and specific purchases • Investing: • Money used to increase net worth and achieve long-term financial goals

20. Savings $ Investment $ • Kept in safe, low-risk vehicles • Liquid • Yield low returns • Used for short-term goals • Involve risk • Value can go up and down in short time periods • Offer potential for growth • Used for mid-& long-term goals

21. Investment Return • Total return • Profit (or loss) on an investment • Income PLUS capital gain or loss • $8.50 + $4.50 = $13 per share • Rate of return (%) • Profit (or loss) on an investment • Return ÷ price of security • $3 ÷ $24 = .125 or 12.5%

22. Compound Annual Rate of Return 1925-2000 • Large Company Stocks…….…….11.0% • Small Company Stocks…………..12.4% • Government Bonds………….……..5.3% • Treasury Bills……………………….3.8% • Inflation………………………………3.1% • Source: Ibbotson Associates

23. Risk • Associated with all investments because the future value of investments is never certain. • Caused by: • Inflation - Changes in economy • Business failure - Interest rate changes

24. Risk and Return Are Related

25. Techniques toOffset Risk: • Diversification • Putting your money, “your eggs,” into several baskets (assets) • Dollar Cost Averaging • Investing regular amounts at regular intervals regardless of price

26. Impact of Time and Rate of Return on Money Accumulation • To grow the largest sum of money you need: • Maximum time • A high rate of return • Tax advantages • A generous pot of money • Frequent compounding of interest

27. Asset Allocation • The ratio of stocks, bonds and cash assets in your portfolio Conservative Moderate Aggressive • The most important determinant of overall investment success

28. Factors Affecting Asset Allocation Decisions • Investment goals and return needs • Risk tolerance • Time horizon • Time & skill to manage portfolio • Tax situation

29. Investing Action You Can Take Today • Review your financial holdings and obligations. Calculate your net worth. • Read investment pubs • Sign up for financial classes • Set short and long-term financial goals. • Seek assistance if you are short on time or skill

30. Finding Money To Invest • 70% of Americans live “paycheck to paycheck” • Americans are not saving much money

31. Review Your Financial Status • Do you have 3-6 months income in an emergency fund? • Do you save regularly? • Do you know how much you need to save to reach your goals? • Do you save to buy major items instead of using credit?

32. Review Your Financial Status • When you use credit, do you pay as large a down payment as possible? • Do you save at least 10% of your disposable income? • Do you know how much you need to save for retirement?

33. Strategies for Saving Money to Invest • Establish savings plan • Needs vs wants • Pay yourself first • Save bonus/coupon money • Continue loan repayments • Collect loose change • Save lunch money • Shop for sale prices • Plan a “Nothing Week” • Avoid paying credit charges

34. Breaking Habits = $$ to Invest 6 Easy Steps • 1. Identify habit, frequency, and cost • 2. Make decision to change • 3. Act immediately • 4. Share your plan • 5. Stick with your plan to change • 6. Celebrate your success

35. Step 1Identify Habits, Frequency, & Cost • Think of habits you might be able to adjust (hair care, soft drinks, cigarettes, … • Frequency of habit • Calculate total cost for a year Where’s the Money?

36. Step 2Make a Decision to Change • Look for alternative ways to spend your money • Take control of your money • Choose another way to spend your money

37. Step 3Act Immediately • Write down new behavior • Start within 24 hours • The sooner you begin a new behavior, the sooner it will become a habit START TODAY

38. Step 4Share Your Plan • Tell others about your plan • Provides opportunity for support • Increases your determination to succeed • Family must work together

39. Step 5Stick With Your Plan • This is a critical step • Stay focused • Takes 30 days for a new behavior to become a habit • Will serve you well • Set an example for your children

40. Step 6Celebrate Your Success • Let others know of your success • Enjoy the fruits of your savings • Continue with your new behaviors • Watch pennies grow into dollars CELEBRATE

41. Other Strategies • Be a comparison shopper • Investigate untapped strategies

42. More Strategies To Stretch Your Money... • Adopt the two-week rule • Avoid unnecessary waste • Become a coupon clipper

43. Next : Characteristics of Specific Investment Products • Equity Investments (e.g., stock) • Fixed-Income Investments (e.g., bonds) • Mutual Funds

44. Equity Investing

45. Categories of Investments • Ownership • Loanership

46. Risk Pyramid

47. Fees • Cost of purchase and sale may include brokerage fees • Comparison shop

48. Investing Strategies • Dollar-Cost Averaging • Buy and Hold

49. Real Estate Options • Home • Rental property • Crop/mineral land • Land for development • Real Estate Investment Trust (REIT) • Real estate limited partnership

50. Collectibles • Stamps • Coins • Art • Cars • Autographs • Toys • Books • Cards