Financial Literacy for High School Students

Investing in Your Future

MontanaMontanaMoney SchoolMoney School

State Auditor John Morrison

Financial Literacy Defined

Financial literacy refers to the basic skills people need to manage money and make financial decisions.

A Financial Literacy Crisis

61 percent of people age 24-64 have no retirement savings account of any kind.

Average credit card debt among college students is more than $2,300.

2002 Personal Finance Survey4,024 High School Seniors

Average Score 50.2% -- a failing grade

Yet, 65% of students said they felt very or somewhat sure about their ability to manage money

Where They Learned About Money

0

10

20

30

40

50

60

Home Friends Self

HomeSchoolFriendsMediaSelf

Jump$tart Coalition for Personal Financial Literacy Study

Financial Tasks of Young Adults

Train for a career Save and invest for future goals Establish a good credit record Develop a financial plan Consider insurance protection Start a family

The Time Value of Money

The time value of money is the growth of money over time as a result of investment earnings.

Investments made earlier in life have a greater pay-off than those

made later in life.

How Long to Double Your Money

Earnings Rate Years to Double2% 36

3% 24

6% 12

12% 6

18% 4

36% 2

Savings and Investment Products

Savings Products

• Savings Accounts

• Money-Market Funds

• CDs Investment Products

• Stocks represent ownership

• Bonds are a type of loan

• Mutual Funds

Types of InvestmentsStocks

– Ownership of a corporation represented by shares, which are a claim on the corporation’s earnings and assets.

Types of Investments

Bonds– A loan that pays interest over

a fixed term, or period of time. When the bond matures at the end of the term, the principal, or investment amount, is repaid to the lender, or the owner of the bond.

Types of Investments Mutual Funds

– A fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, futures, currencies or money market securities.

Selecting Savings & Investments

Liquidity: the speed and ease with which an asset can be converted into cash– How quickly will you need your money– Highly liquid: savings accounts & money

markets– Less liquid: stocks, bonds, CDs

Selecting Savings & Investments

When choosing investments consider…

risk = potential return or risk = potential return

Interest rate riskBusiness failure riskMarket price risk

Inflation riskPolitical riskFraud risk

Smart Investing Tips

Diversify your investments. Invest for the long term. Make regular contributions to

your savings and investments.

Work with an investment representative who understands your goals.

How Americans Invest

20% 18%5%

47%10%

Mutual Funds Stocks Bonds Savings Other

Bull vs. Bear Market

Bull Market When the stock market

moves upward for a period of time

Bear MarketWhen the stock market falls 15% to 20% for a period of time

Dow vs. Nasdaq

Dow Jones Industrial Average– Computed based on the stock prices of 30

major industrial companies, which are worth about 20% of the total value of all U.S. stocks

Nasdaq Composite Index– Tracks the performance of the 5,200

stocks traded on the Nasdaq Stock Market. It usually shows more volatility than other indexes because of the kinds of companies it includes

Investing Basics

Year 5%* 8% 15%

1 $1,050 $1,180 $1,1505 $1,276 $1,469 $2,011

10 $1,629 $2,159 $4,046

20 $2,653 $4,661$16,36

7

Future Value of a Single $1,000 Deposit

*Interest rates

Relationship between Education Level and Annual Income

Males (25 years and older) with a bachelor’s degree– $19,207 more than men who had a high school diploma

– $28,287 more than men who never graduated from high school

Females (25 years and older) with a bachelor’s degree– $13,629 more than women who had a high school

diploma

– $17,833 more than women who never graduated from high school

Source: U.S. Census Bureau

The Cost of CollegeMonthly investment for 4-year

cost

Years ‘til child starts college

Public Private

1 $3,808 $7,9573 $1,314 $2,7465 $815 $1,7027 $600 $1,253

15 $310 $647Source: T. Rowe Price Associates, 1996

The Cost of CollegeMonthly investment for 4-year

cost

Years ‘til child starts college

Public Private

1 $3,808 $7,9573 $1,314 $2,7465 $815 $1,7027 $600 $1,253

15 $310 $647Source: T. Rowe Price Associates, 1996

Tips for Financial Success

Get started early Invest for the long term Continue to study and learn Participate in employer-sponsored plans Know when to seek advice

Avoiding Scams

Do not give your credit card, bank account, or social security numbers or personal information to people who contact you.

Be wary of claims that you can earn huge profits in an investment with little or no risk.

Avoiding Scams

Get information in writing before you agree to buy a product or service.

Do not be pressured into making an immediate decision.

Make sure you know the per minute rate for any 900 call you make.

Get Rich Quick

Don’t be taken in by promises that you can “get rich quick.”

It’s a scam! Be a smart investor.

Where to Go for Help

Montana Securities Commissioner– 1-800-332-6148– www.discoveringmontana.com/

sao Securities and Exchange

Commission– 1-800-732-0330– www.sec.gov

Montana State AuditorJohn Morrison

840 Helena Avenue

Helena, MT 59601

1-800-332-6148

(406) 444-2040

www.discoveringmontana.com/sao