Achieving Your Financial

GoalsPresenter Name | Presenter Title

America’s Financial Literacy

• 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.

• Credit card debt has tripled in past two decades, and the average American household owes more than $9,000 ($2600 in 1989).

America’s Financial Literacy

• 2 out of 3 households will probably fail to realize life goals

• Financial illiteracy is passed to the next generation

• Average high school senior failed 2006 financial knowledge survey

What is Financial Literacy?

Financial Literacy

• The ability to effectively evaluate and manage one’s finances in order to make prudent decisions toward reaching life’s goals

• The understanding of:- Money- Cash flow- Basic economic/financial concepts- Debt/risk management

Financial Literacy

Key areas of personal finance:• Money & income• Spending & debt• Savings & investments• Risk management• Life’s milestones

Money & Income

Money & Income

• Time is money• How many hours do you need to work to pay

for your mortgage, car insurance, electricity bills, extras, etc?

Money & Income

Developing a budget:• A plan for coordinating income and expenses• No average budget to follow• Unique to your financial situation• Depends on set savings/spending priorities

Money & Income

Budget exercise:• Enter your net income or take-home monthly income. • Enter your fixed expenses, such as car payments and rent. • Enter your flexible expenses, using figures you gathered from a typical month, such as your phone or electricity bill. • Enter your discretionary expenses, such as clothing and entertainment. • Enter the amount you put into savings. • Now total all of your expenses and your savings and subtract this total from your net income. • If you have money left over, you may want to use it to increase your savings.

Spending & Debt

Spending & Debt

• Weigh benefits and costs of spending alternatives

• Credit can be a friend — and not a foe — as a basic financial tool

Spending & Debt

Use credit wisely:• Beware of credit card intro rates• Avoid having multiple credit cards• Pay in full every month• Pay on time• Avoid cash advances

Spending & Debt

Use credit wisely:• Stay within your credit limit

• Review your statements carefully

• Protect your credit history

• Report lost/stolen cards immediately

• Protect personal information

• Access and review your free credit report annually at www.annualcreditreport.com

Spending & Debt

How to reduce debt:• Cut back on spending• Consolidate your debt• Seek out payment options• Don’t miss payments or default• Homeowners: use your equity • Home equity credit is often cheaper

Saving & Investing

Saving & Investing

• Saving means not spending money.• Investing means that you earn a return on

the money you put into it.

Saving & Investing

Saving money:• Save on a regular basis• Willpower + a good plan = success• You’ll feel the power• You’ll be motivated

Saving & Investing

Small changes add up:• Get out your piggy bank– again!• Feed the Pig• Small amounts add up

to big savings

Saving & Investing

7 steps to get started:• Think small• Be consistent• Make it easy• Pay yourself first• Allow for slip-ups• Team up• Congratulate yourself

Saving & Investing

Small money saving tips:• Brew your own coffee — at 1/8th the price of latte• Cook on the weekends; eat portions during the week• Borrow library DVDs; save on rental and cable fees• Use your own bank’s ATMs; avoid other banks’ charges• Find out whether your health insurer covers gym dues• Don’t spend your next raise; bank it• Sign up for payroll deductions• Invest in savings bonds or CDs• Sign up for payroll direct deposit

Saving & Investing

Investing money:• Compound interest• Rule of 72• Planning for wealth• Make the most of a 401(k)

Saving & Investing

Compound interest:• Consistent steps, even small ones, can add up• $25/week for 10 years @ 5% = $16,950• Add $1 a week, and you’ll have $17,840!

$25/Week for 10 years

$0

$5,000

$10,000

$15,000

$20,000

1 2 3 4 5 6 7 8 9 10

Years

Acc

um

ula

tio

n

4 % Return

6 % Return

Saving & Investing

The Rule of 72Growth over Time

$-

$10,000

$20,000

$30,000

Years

Val

ue

4%

6%

8%

4% $6,083 $7,401 $9,005 $10,956

6% $6,691 $8,954 $11,983 $16,053

8% $7,347 $10,795 $15,861 $23,305

5 yrs 10 yrs 15 yrs 20 yrs

Saving & Investing

Short-term investment options:• Certificate of Deposit (CD)• Money Market Funds• Savings Account

Saving & Investing

Long-term investment options:• Mutual fund• Stocks• Bonds

Saving & Investing

Retirement investment options:• 401(k)• Individual Retirement Account (IRA)• Social Security

Risk Management

Risk Management

• Insurance• Identity theft

Risk Management

Health care insurance: • Types of Managed Care Plans

> Health Maintenance Organizations (HMOs)> Preferred Provided Organizations (PPOs)> Point-of-Service Plans (POS)

Risk Management

Long-term disability insurance: • Benefit amount• Term• Elimination period• Noncancelable• Guaranteed renewables• Own vs. any occupation• Workers’ compensation• Social security disability• Veterans benefits• Federal Employees Retirement System

Risk Management

Life insurance:• Choosing coverage

> premiums> family need> time period

• Term vs. Permanent

Risk Management

Permanent life insurance options:• Whole life• Universal life• Variable life

Risk Management

Identity theft:• Make a list of all of your credit cards, and store in a

secure place that is easily accessible.• Keep your credit card in sight when you use it to pay

for a purchase, if possible. • Don't carry your birth certificate or Social Security card

in your wallet. • Install a locked mailbox to prevent mail theft. • When dining out, keep your purse or wallet secure. • Use drive-through ATMs or use only in safe, well-

trafficked area, if possible.

Risk Management

Identity theft:• Shred pre-approved credit card or loan applications. • Check your bank statements as soon as you receive

them, and order a copy of your free credit report once a year.

• Ask DMV to remove Social Security number on your driver's license and assign random number.

• Never give your Social Security, credit card or bank account numbers to anyone who calls you.

• If you are concerned about a potential scam, call the local police.

Life’s Milestones

Life’s Milestones

Buying your first home:• Establish good credit• Understand “real costs”• Assess risks

Life’s Milestones

Getting married:• Understand “financial partnership”• Establish separate and joint credit/bank accounts• Create wills and trusts• Identify beneficiaries• Choose owners on title assets

Life’s Milestones

Finance a family:• Budget

- Education

- Health care

- Child care

• Manage risk, insurance

• Create wills

• Instill financial literacy

Life’s Milestones

Starting a business:• Understand

- cash flow- expense timing

• Manage income and expenses

Life’s Milestones

Planning for retirement:• Determine how much money you will need. • Determine where your retirement income will come

from.• Devise a budget and investment strategy to help you

meet your goals.

Life’s Milestones

Preparing a will:• Designate beneficiaries• Determine asset distribution• Identify insurance

Life’s Milestones

Tax planning:• Make the system work for you• Get a tax credit for any dependent care you provide• Keep good records to document your deductions• Deduct mortgage interest and real estate taxes• Plan your investment gains to minimize taxes• Bank your tax refund

Life’s Milestones

Planning for unexpected milestones:

• Loss• Sandwich generation• Divorce

Financial Education Resources

Financial Education Resources

• Lifelong learning courses• Financial media• Internet resources• Your CPA• Organizations:

> Virginia Society of CPAs (www.vscpa.com)> American Institute of CPAs (www.aicpa.org)> Virginia Jump$tart Coalition for Personal Financial

Literacy (www.vajumpstart.org)

Financial Education Resources

Virginia Society of CPAs:• www.FinancialFitness.org • Financial planning articles• Personal budget guide & spending plan• E-newsletter• “Ask a CPA” E-mail Program (free advice from CPAs)• Financial check-up quiz• Consumer workshops• Speakers Bureau• Nonprofit pro bono assistance• Tax help programs

Financial Education Resources

American Institute of CPAs:• www.360financialliteracy.org • Financial education to help consumers at every life stage• Feed the Pig Ad Council campaign• www.feedthepig.org

Financial Education Resources

Your friend Benjamin Bankes:• A joint creation of the AICPA, state

CPA societies and the Ad Council.• Help is available at

www.FeedthePig.org• Take charge of your money and

your life!

Free weekly e-mail savings tip: www.FeedthePig.org

Financial Education Resources

Financial Literacy:

Knowing What You Need To Know To

Achieve Your Financial Goals

Thank You!