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Financial Literacy for Teens

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  1. Financial Literacyfor Teens Presented by: Linda S. Howard, CPA, CTP, MBA The Florida Institute of Certified Public Accountants (FICPA)

  2. Managing Debt – Buying a VehiclePaying for College Module 4B

  3. Learning objectives At the end of this module, students will be able to: 1. List several costs of owning a vehicle 2. Describe various options to pay for college

  4. Sunshine State Standards: MA.912.F.4.4 Establish a plan to pay off debt

  5. PART II Automobile Financing

  6. The total costs of owning a car It’s not just the initial purchase price Initial purchase price + Sales tax (6-plus%) + Tag and title + Interest payments on the loan = Total purchase cost Annual costs + Insurance premiums + Gas, oil, repairs, tires, general maintenance

  7. Automobile Purchase Example $12,000 Sales Price +50 Tag and title +840 Sales tax at 7% =12,890 Total price -2,890 Down payment =10,000 Amount to finance +$790 Total finance charges (5% for 36 mos.) $13,680 Total cost (12,890+790) Note: Monthly payment is $299.71 per month

  8. Financing an automobile • Purchase or lease? • Purchase (leases are traps) • Who should I borrow from? • Your bank or credit union, avoid dealer financing • What will affect my payments: • Amount of loan • Interest rate • Your credit score • Length of loan (3 years maximum)

  9. Car-buying tips • New or used? • “Used” to avoid the early depreciation • Sources: • Family, friends, neighbors • Credit union sales • CarMax • Internet/ Newspaper ads • Avoid used car lots • Research cars and prices at: www.edmunds.com, www.autobytel.com, www.beatthecarsalesman.com

  10. More car-buying tips • Before going to purchase a car, determine how much you can afford and obtain “pre-approved” financing from your bank or credit union • Never finance a car through a dealer • Always negotiate price over the phone, not at the dealership

  11. PART III COLLEGE FINANCING

  12. Paying for College • Scholarships • Merit (athletic, academic, talent) • Bright Futures • Federal Grants (Pell) • Work part time • Parents/relatives • Federal loans (last option) • Note: Going into debt is the last option

  13. Student loans – A few thoughts • Many factors affect the decision to go to college. If college is the right choice for you, then how to pay for college needs to be carefully considered and loans should not be the first choice. • Don’t assume it will be easy to pay off college loans after you graduate and begin making “real” money • The accumulation of debt during college should be avoided or at least minimized • If possible, work part-time and/or during summers to help pay for college • Seek out scholarships or federal grants • Student loans are NOT forgiven in bankruptcy

  14. Current status of debt for graduating seniors • The average student loan debt at graduation is $24,000 for students who have loans • 25% borrowed $30,000 or more • 10% borrowed $45,000 or more • To pay off $24,000 in 10 years at 6.8% interest would mean $276 per month in payments • = $3,312 per year • Total interest = $9,120

  15. Government or private loan? • New law: Private loans are eliminated so all student loans will be processed through the government. • Additional information: • www.finaid.org • www.students.gov

  16. 3 Types of Federal Government College Loans • Perkins - Student Loan • Stafford - Student Loan • Plus – Parent Loan U.S. Department of Education

  17. Perkins Student Loan • A subsidized loan for students with exceptional financial need (FAFSA) • Interest charges accumulated during school are paid by government • Payback begins 9 months after graduation or loss of eligibility • Maximum loan amount is $5,500 per year • Interest rate = 5% per year • Payback period = 10 years • Apply to: college

  18. Stafford Student Loan - Subsidized • Financial need test not as stringent as Perkins • Stafford loan statistics: • 65% of students with family income under $50,000 • 25% of students with family income $50,000 to $100,000 • 10% of students with family income over $100,000 • Interest charges accumulated during school are paid by government • Payback begins 6 months after graduation or loss of eligibility (may be based on income) • Maximum loan amount per year: • $3,500 Freshman year • $4,500 Sophomore year • $5,500 Junior and Senior years • Interest rates: 4.5% for 2010-11, 3.4% for 2011-12, 6.8% 2012-13 • Loan origination fee: 4% deducted from loan amount • Apply through: College

  19. Stafford Student Loan - Unsubsidized • Financial need not required (must still file FAFSA) • Interest charges accumulated during school are added to original loan amount • Payback begins 6 months after graduation or loss of eligibility (may be based on income) • Maximum loan amount per year for dependent students whose parents were not denied a PLUS loan: $5,500 Year 1; $6,500 Year 2; $7,500 Years 3 & 4 • Maximum loan per year for an independent student or a dependent student whose parents were denied a PLUS loan: $9,500 Year 1; $10,500 Year 2; $12,500 Years 3 & 4 • Interest rates: 6.8% • Loan origination fee: 4% deducted from loan amount • Apply through: College

  20. Parents Loan for Undergraduate Students - PLUS • Parents must submit financial information to lender and sign a promissory note • Maximum loan amount: Full cost of attendance minus costs already covered by the students total financial aid package • Interest rate: 7.9% • Apply: College • Repayment begins 60 days after funds are fully disbursed

  21. Free Application for Federal Student Aid - FAFSA What is it? • Required document to obtain any federal or State student loan or aid • Furnishes key financial information about you and your parents When to submit • Must be submitted every year that you want aid • Submit as early as possible after Jan. 1 of the next school year • Example: To receive aid for Fall 2012, submit FAFSA in January of 2012. Note: Don’t wait for parents to finalize their tax return. It’s better to estimate the tax return inputs and complete the FAFSA in January. How to submit • Online at www.fafsa.ed.gov (preferred method) • Paper version (PDF format)

  22. Questions?? Action Items • Pick 2-3 vehicles and research your annual costs (purchase and maintenance) • Using an online calculator, identify the “true cost” of several student loans • Complete your FAFSA