Teen Money Management Presented by Glendale Public Library Instructor: Annette Fisher
Introductions Name and what you hope to get out of the class.
Why Money Management? • If you Google “money” – 1,280,000,000 references online • 57% of divorces claim money issues as the reason why • As of Feb., 2009 – current consumer credit in US - $2.56 trillion • U.S. Bankruptcy filings up 31% in 2008 (includes both business and consumers) • 2,350 versus in the Bible on how to handle money and possessions.
What we will cover • Goals • Budgeting – car, insurance, etc • Net worth – assets, liabilities • Saving - Checking/Savings accounts • Borrowing – credit cards, loans, etc • Investing - basics
Goal Sheet In groups of two or three, fill out your goal sheet
How much do we need to save to meet that Goal http://www.finra.org/Investors/index.htm
Bank Products Two Main products Checking Accounts – also called transaction accounts, which allow you to transfer money by check or electronic payment to a person or organization Savings Accounts – also known as savings accounts, which pay interest on your money in those accounts
Other Services • Cashier’s checks • Notary service • Online banking and bill pay • Lines of Credit • Loans • Investment accounts
Safety in Banking: • Commercial Banks are insured against loss by the Bank Insurance Fund (BIF) of the FDIC – Federal Deposit Insurance Company • Savings and loans are insured through the Savings Association Insurance Fund (SAIF) of the FDIC
Safety in Banking: • Credit Unions are insured through the National Credit Union Share Insurance Fund (NCUSIF) which is administered through the National Credit Union Administration.
FDIC Indicator at a Bank look for the official FDIC sign where deposits are received. Beginning in 2007, insured banks will display this new official FDIC sign:
FDIC Covers: the balance of each depositor's account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank's closing.
FDIC doesn’t cover: • money invested in stocks, mutual funds, life insurance policies, annuities, or municipal securities, even if these investments were bought from an insured bank. • U.S. Treasury bills, bonds, or notes. These are backed by the full faith and credit of the United States government.
Checking Accounts • Write checks • Online Bill Pay • Transfer Funds • Debit Card • ATM withdraws
Types of Checking Accounts • Basic • Lifeline • Free Checking • Interest Bearing • NOW – Super Now • Express • No-Frills • Credit Union Share Drafts • Relationship Accounts
Basic Checking Basic checking accounts let you deposit and withdraw money and write checks to pay bills and daily expenses. They are perfect if you don't plan to keep a high account balance. The details of basic checking accounts are different for each financial institution
Lifeline Checking Bare bones, low-cost for qualifying low-income customers This type of checking accounts waive many of the fees banks may charge, such as monthly service fees for low balances and surcharges for ATM usage.
Lifeline Checking Lifeline checking accounts are meant for low-income bank customers. Lifeline accounts have low: • Minimum deposit and balance requirements. • Monthly fees, ranging from zero to $3 depending on the bank. • Limits on the number of checks per month that you can write. Certain states have laws requiring banks to offer lifeline accounts. Currently, those states are: Illinois, Massachusetts, Minnesota, New Jersey, New York, Rhode Island and Vermont.
“Free Checking” A way to reduce fees • Typically require you to maintain a minimum balance in your account • Fees for ATM and check fees are eliminated
Interest-Bearing Accounts Earn Interest on your account • Usually require more money to open • A high minimum balance or you will be charged fees • Interest paid monthly Be aware, the fees for falling below the minimum balance may be more than the interest you earn
Now Accounts • A NOW account (Negotiable Order of Withdrawal) is a "Free Checking" and an interest-bearing account offered by a savings and loan or "thrift" institution. • Super Now has a higher interest rate and a higher minimum balance.
Express Checking Express checking accounts are designed for people who are on the move and who don't go inside the bank often. These people prefer to bank by ATM, telephone or computer.
Express Checking Usually offer: • Unlimited check writing • Low minimum balance requirements • Low or no monthly feesNote: There is a catch. When you do visit a bank branch, you can expect to pay a fee to talk to a teller on either a per visit or a monthly basis.
“No-Frills” Checking Many banks offer special checking deals if you are age 55 or over or if you are a student.
“No-Frills” Checking The benefits may include: • Free personal checks • Free cashiers or traveler's checks • Wider ATM use • Better rates on loans and credit cards • Discounts on a variety of items including travel or prescriptions
Credit Union Share Drafts Most Credit Unions offer checking accounts, called Share Drafts, often with no service charges or reduced fees.
Relationship Accounts These accounts link all the accounts you have with the bank. They typically offer free checking and ATM withdrawals along with other banks services if your combined balance is high enough.
Questions to Ask: Does the financial institution: • Pay interest on a basic checking account?Note: Most basic checking accounts do not pay interest. • Require direct deposit or a minimum balance? • Charge a monthly fee for services? • Charge a fee for each check you write over a certain limit?
Questions to Ask: Does the financial institution: • Charge fee for online bill pay? • Charge fee for ATM at other banks? • Charge fee to download transactions? • Is there a charge for using your debit card to pay for a purchase? • Is overdraft protection available?
Checking Do’s and Don’ts The Golden Rule of Checking Accounts: Only write checks for money you have in your account. If you remember nothing else, following this rule will help you the most in keeping your account in good standing.
Tips to be a Smart Bank Customer • Regularly balance your checkbook. • Use the telephone, Internet, or ATM to get the most current information about your account. • Ask your bank about their fees so that you are not surprised when you get your statements • Don't get caught "floating". • Use overdraft protection.
Common mistakes to avoid • You forgot to stop automatic payments from being taken out before you closed your account. • You close your checking account by letting it go to a zero balance. • A check you deposit in your account does not clear or bounces, causing the account to go into overdraft. • You forgot about your recent ATM (or other) withdrawals. • You co-signed on an account that was abused the other party.
Common mistakes to avoid • You gave your PIN (Personal Identification Number) to someone else and they took funds from your account. • You post-dated a check and it was cashed too early. • Your checks get lost or stolen. • You're not receiving statements or correspondence from your financial institution. • Account or handling error by the financial institution.
Overdraft Protection • Checking linked to savings account • Line of credit • Credit card charge Banks may cover amounts and still charge a fee. They usually pay the clear the largest check first and then you get charged a fee for the smaller ones.
Deposit Accounts • Savings • Money Market Accounts • Money Market Mutual Funds • Certificates of Deposit
Savings Accounts • Usually low minimum balance to maintain. • Usually no fees • Allows frequent deposits and withdrawals • May impose limits on transfers • Earn compound interest (APY)
Money Market Accounts • Minimum Balance • Tiered Interest Rates based on size of the account • Write limited number of checks – usually three • Can withdraw in person • FDIC Insured
Money Market Mutual Funds Similar to money market accounts • Pay interest at about the same rate • May offer check writing privileges • Usually no limit on number of checks – but may need to be a minimum amount $500 Not FDIC Insured and could lose some principal
Certificates of Deposit • Fixed Term • Can rollover at maturity • Less liquid than savings accounts • Penalty if cash early • Pay higher interest rates • FDIC Insured • Consider laddering
Picking a CD • Think about your Financial Goals • Find out when the CD matures • Investigate any call features • Confirm the interest rate you’ll receive and how you’ll be paid • Ask whether interest rate ever changes • Research any Penalties for Early withdrawal
Check out Bank Rates http://bankrate.com
Balance Sheet – Net Worth • Assets • Liabilities • Net Worth
Balance Sheet – Net Worth • Assets – what you own Cash Car House Investments
Balance Sheet – Net Worth Liabilities – what you owe Credit Cards Car Loan Mortage School Loans
Balance Sheet – Net Worth Net Worth Assets minus Liabilities
Budget What do we spend our money on?
Spending Information Government http://www.bls.gov/cex/ http://www.nytimes.com/interactive/2008/05/03/business/20080403_SPENDING_GRAPHIC.html http://www.prx.org/pieces/36912-teen-spending-way-down http://www.crown.org/Library/ViewArticle.aspx?ArticleId=263
Budgeting Tools • Sheet in Book • Excel Software • Quicken • Money
Conclusion What we learned today: Goals Interest/Savings Bank Accounts Net Worth Budgeting What to expect tomorrow: Review Budget Sheet Auto Purchase College Housing