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

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

2. What is financial literacy?

3. Financial literacy • Formal Definition: The ability to effectively evaluate and manage one’s finances in order to make prudent decisions toward reaching life’s goals. • What we will cover: • Money • Cash flow • Debt/risk management • Taxes/basic financial concepts

4. America’s 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 over $8,000 in credit cards, compared to $2,600 in 1989. • In 2005, over 2 million Americans filed for bankruptcy – the highest amount in history.

5. America’s financial literacy American families: (continued) • Only 26% of teens understand how card interest and fees work. 2007 Charles Schwab 2007 Teens & Money Survey • The average college senior will graduate with $4,100 in credit card debt before they even have a job. “Sallie Mae’s National Study of Usage Rates and Trends 2009″ • Nearly 20% of bankruptcy filers are college students. Sallie Mae, “National Study of Usage Rates and Trends 2009″

6. Money and Savings • Time is money • Continuous Education • Savings and the power of Compounding Interest

7. Money and Savings • Time is money • How many hours do you need to work to pay for your mortgage, car insurance, electricity bills, extras, etc? • Paid $10/hr • Rent is $200 • Food is $100 • Electric $50 • If I make $10 hr then I will need to work 35 hours in order to pay out $350 that is due for that week.

8. Money and Savings • Continuing Education • Congratulations! • The other side of the time equation • More knowledge/skills = greater pay

9. Money and Savings • The power of compounding interest The story of Ben and Arthur. Both save $2000 per year at 12% . Ben starts at age 19 and stops at age 26, while Arthur starts at age 27 and stops at age 65.

10. Money and Savings • Holder (Link to Ben & Arthur) • Link to interest rate comparison • Is it worth the cost in the long run. • Link to tool on 360 website.

11. Savings and Investing –8 Simple Strategies • Start small • Contribute to your retirement plan • Save through payroll deduction plans • Round up your mortgage • Bank your raises • Keep paying off a loan • Pay off your credit cards • Keep track of where the money goes

12. Cash Flow Management • Budgeting • Prioritizing • Chuck Swindoll said “Life is like a coin you can spend it only once. Choosing one thing over all the rest throughout life is a difficult thing to do. This is especially true when the choices are so many and the possibilities are so close” • You can only spend what you have if you want to reach your financial goals .

13. Creating a Budget • Your financial plan • Track income and expenses • Unique to you • Budget necessities/priorities first • Communication (Married)

14. Budgeting • Gross monthly income • Net income • Fixed expenses • Flexible expenses • Discretionary expenses • Total it up • Increase your savings

15. Debt Management: Credit Cards Pay Day Loans Credit Reports

16. Know the Enemy • In 2003, 4 billion credit card offers were mailed • Capital One spends $280 million a year on credit cards offers • Citibank spends over $100 million a year on marketing to college students only • Debt Traps: Pay Day Loans, Title Loans, and Six month no interest credit card scams

17. Steps to Getting Out of Debt • Stop using credit cards and other types of credit • Have a cash flow plan • Save $500 - $1000 for emergencies • Sell something to pay off a debt • Use money from a part-time job or overtime to payoff debt • Develop a plan to pay off your debt

18. Plan for Paying off Debt • List your debts starting with the smallest first • Make the minimum payments each month on each debt except for the smallest one • Pay more than the minimum on the smallest debt until it is paid off • Once the smallest debt is paid off, add that payment amount to the next debt on the list so that you are paying more than the minimum payment • Continue until all debts are paid off

19. Danger of Credit Cards – What You Don’t Know Can Hurt You • Be aware of teaser rates • Stick with one credit card • Pay in full every month • Stay within the limit • Review your statements • Report a lost or stolen card immediately • Protect personal information • Pay on time • Avoid cash advances • Protect your credit history

20. Pay Day Loans • A Pay Day Loan is a small advance, usually $300 - $500 • The borrower gives the lender a postdated check or other authorization to repay the loan on payday • On payday, the borrower must repay the loan, plus pay a fee, but is also given the option to renew the loan • The borrower is led to believe that he is receiving more money and the new fees applied are not explained until the debt amount is unmanageable and the borrower is trapped • Pay Day lenders target low-income workers living paycheck to paycheck • 91% of Pay Day loans are renewed 5 times or more • The average interest rate on a Pay Day loan is 400%

21. A Pay Day Loan Example • It’s a week before pay day. You take out a pay day loan for $300 and walk out with $250 cash • On pay day you go to payoff the loan. You are offered a renewal of the $300 loan • You renew the $300 and borrow another $150 • You are charged another $50 fee and walk out with $100 cash • Next pay day, you don’t have $450 to repay the loan, so you renew without taking any money and owe another $50 fee • So now you have received $350 and owe $500 • Next pay day comes, you don’t have $500, you renew and now owe $550 • Living pay check to pay check, you are unable to repay the loan and are accruing $50 fees every pay day • Do you think a $150 fee on a $350 loan is a good deal?

22. Pay Day Loan Alternatives • Many Credit Unions now offer an alternative to pay day loans • A $35 one-time fee is charged for a $500 line of credit. • An annual interest rate of 18% applies ($7.40 per month maximum interest charge) • For each withdrawal made, 5% is withheld in a restricted savings account until the restricted savings is enough to payoff the loan

23. A Pay Day Loan Alternative Example • It’s a week before pay day. You take out a pay day loan from the credit union for $300 and walk out with $250 cash and $15 deposited into your savings account. You are charged a $35 fee. • On pay day you go to payoff the loan. You are offered a renewal of the $300 loan • You renew the $300 and borrow another $150 • You are not charged another fee and walk out with $143 cash and $8 deposited into your savings account • Next pay day, you don’t have $450 to repay the loan, so you renew without taking any money and are not charged another fee • So now you have received $393, have $23 in your savings account, and you owe $400. • Next pay day comes, you don’t have $400, you renew and now owe $403 • Living pay check to pay check, you are unable to repay the loan and are accruing $3 fees every pay day • This loan is $110 less than a Pay Day Loan!

24. Credit Reports • You are eligible to receive one free credit report a year at www.annualcreditreport.com • There are other offers such as www.freecreditreport.com that charge a fee to get the same level of detailed information on your report, such as your score • It is important to check your credit report at least annually to protect yourself from identity theft or incorrect reporting • Incorrect reporting or bad credit could cause you to be denied a loan, to be required to provide more information to get a loan, or to be turned down for a job

25. Credit Reports • Credit scores are usually between 300 – 900 • The higher the score the better • Higher credit scores mean that you are able to save money by getting lower interest rates on mortgages and loans • A credit score above 720 is considered very good • A credit score above 650 is considered good • With a credit score between 620 and 650 you will probably need to provide more information to get a loan • A credit score below 620 means that you may have trouble qualifying for a loan

26. Risk management Is about building the walls around your financial plan so that you protect your assets and your money as you build wealth. • Emergency Fund • Insurance • Understanding & monitoring your credit score • Will and/or Estate Plan • Power of Attorney (Durable & Health Care)

27. Risk management • Insurance • Health insurance (If nothing else high deductible plan) • Life insurance (If married & have kids) • Long-term disability insurance • Auto insurance • Home owners insurance • Identity theft protection

28. TAXES

29. RALs • RALs (Rapid Anticipation Loans) • Provide a check for tax payers with in 24 to 48 hrs. • However some portion of the checks are not available for 10 to 15 days. • Charges for RALs can range from ($250 -$500) • $25 Bank Fee • 36% Interest • $110 to $160 • Does not include the cost to cash the check for those who do not have a checking account.

30. Alternative Programs • VITA (Volunteer Income Tax Assistance Program) • LITCs (Low Income Taxpayer Clinics)

31. VITA • Volunteer program provided by the IRS and SCDOR • The program is intended for anyone with income under $49,000 a year that is unable to prepare their own return. • Only basic returns, complicated returns, such as those with business are not eligible for this program. • Can receive money into a bank account in 10-15 days.

32. LITCs • Provided by non-profit organizations with partial funding from the IRS. • Represent low income taxpayers before the Internal Revenue Service and assist taxpayers in audits appeals and collections. • Also assist provide tax assistance for people who speak English as a second language. • Assistance is free or nominal cost.

33. Financial literacy education • Lifelong learning courses • Financial media • Internet resources • Your CPA

34. For more information • www.360financialliteracy.org features financial education to help consumers make more informed financial decisions through every stage of life.

35. Questions?