Financial Literacy Notes Slides - * Mrs. Burnettmrsburnett.weebly.com/uploads/6/7/...notes_slides.pdfFinancial Literacy Notes Slides Saving money is the cornerstone of a strong financial

Financial Literacy Notes Slides

NotesFinancial Literacy


Saving money is the cornerstone of a strong financial game plan. Some of the main reasons to save include:

> To meet a very specific goal (a summer road trip with friends)> To be ready for the unexpected (car repair costs)> To plan for a future goal (saving for college or an apartment)

Savings & Interest

> Short-Term Financial Goals« Saving for prom ticket, dress, and/or tux« Buying a car to take to college« Planning a vacation

> Long-Term Financial Goals« Planning for retirement« Setting up a college fund for your children

Savings & Interest


You may already be saving on a small scale. As you are able to increase your savings, here are some savings guidelines:

> Experts suggest saving at least 10% of your income.> If you can't save a lot, save a little. Saving is habit forming.> Save for emergencies. You should have three to six months' of living

expenses saved.

Savings & Interest

The first rule of saving: Pay yourself first. Don't treat savings as the lowest priority, or you may never get around to it.

An easy way to get started saving is simply to look for creative ways to shave money off your daily spending. Here are some examples:

> Eat breakfast at home instead of buying a drink and muffin. > Spend the afternoon in the park (free) instead of going to a fast food

restaurant. > Skip the movie theater ($20 with popcorn and soda) and rent a DVD

instead ($1 to $5).

$25 of more saved in just one day. Now let's see what can happen to $25 when it is deposited into a savings account...

Savings & Interest


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Savings & Interest

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Savings & Interest


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« Calculating Simple Interest:

» You open a savings account with $1,000, at a 5% simple APR. What will you earn in interest the first year?

Savings & Interest

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« Use the same information from the previous example, but assume the interest is compounded annually.

$1,000 x 0.05 x 1 = $50 interest earned in year one.$1,050 x 0.05 x 1 = $52.50 interest earned in year two.$1102.50 . . .

Savings & Interest


Want to know how fast your money will double? The Rule of 72 is a fast way to estimate how long it will take you to double your savings with compound interest.

72 ÷ interest rate = number of years to double your money

> : With our example, how long will it take you to double your money? ($1,000 deposited at 5% interest rate)

Savings & Interest

Read each question then calculate your answer. Use the space below each problem to show

how you arrived at your answers.

1. If you put $200 in a savings account that paid 5.5% simple interest each year, how

much interest would you earn in five years?

2. If you put $150 in a savings account that paid 6% compounded yearly, how much

interest would you earn in five years?

Calculating Interest Worksheet

Year 1: _________ x _______ = _________

Year 2: _________ x .06 = _________

Year 3: _________ x .06 = _________

Year 4: _________ x .06 = _________

Year 5: _________ x .06 = _________

Financial Literacy Notes Slides1.

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3. If you put $25 each month into a savings account that paid a simple

interest rate of 6.5% each year, how much would you have in your account

at the end of two years?

4. Extra Credit! If you put $10 each week into a savings account that paid 6%

interest compounded yearly, how much money would you have in your

account after three years?


(Hint: Use the How Much Will My Savings Grow Calculator on Mrs. Burnett’s website:

www.mrsburnett.weebly.com/intro‐to‐business.html)

For each problem below, fill in the missing information.



Liquidity refers to how easily or quickly you can withdraw your money and can be a factor in the type of account you choose.

> For example, high interest accounts often require that you do not withdraw any funds for a given amount of time and may charge you feesfor doing so. This makes the money in those types of accounts less "liquid" than money in an account with unrestricted withdrawals.

> Savings Account> Checking Account> Money Market Account> Certificate of Deposit

Types of Accounts

Most basic type of account: available at most banks, make deposits/withdrawals at anytime at the bank or using an ATM

>« low risk, high liquidity

>« low interest rate

Most convenient type of account: available at most banks, make deposits/withdrawals anytime at the bank or using an ATM, can write checks or use a debit card, some pay interest

>« low risk, high liquidity

>« low interest rate, usually require minimum balance

Types of Accounts


Combination of savings and checking accounts: earns interest, make deposits/withdrawals at the bank or using an ATM, can write a limited number of checks, requires higher minimum deposit

>« better interest rate, high liquidity

>« requires greater initial deposit, limited transfers/withdrawals (checks)

Savings option with a specific fixed term (from three months up to five years or longer) and usually a fixed interest rate.

>« higher interest rates

>« low liquidity (charged fees if you withdraw before the term ends)

Types of Accounts


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Budgeting

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Budgeting

Ex) rent, car payment, insurance, gym membership, child care

Ex) utility bill, groceries, gasoline, phone bill

Ex) soda, snack, fast food, movie tickets, vacations


The chart on the right shows the main types of expenses in the average adult's household. Also provided are guidelines for what percentage of your net income should be spent on each category.

Budgeting

Rent/Mortgage 30%Utilities 10%Car Payment 5%

Car Insurance 5%

Savings 10%

Food 15%

Entertainment 5%

Clothing 5%Other Debt 5%Miscellaneous 10%

Total Income - Total Expenses = Net Gain/Loss

Budgeting

Positive difference (earning more than you spend)

Negative difference (spending more than you earn)


Net Worth

We've learned that a balanced budget can help monitor monthly spending and maximize savings. In the long term, it can also improve one's overall net worth.

> - Net Worth = Assets - Liabilities

« - Ex) savings account, stocks, antique jewelry, real estate

« - Ex) home loan, auto loan, credit cards


Debit, Credit, and Prepaid CardsDebit, credit, and prepaid cards provide convenience by allowing users to buy items in stores without cash and make purchases online. They also provide "zero liability" protection, which means that if your card is lost or stolen, you are not responsible for any unauthorized merchant charges.

Debit Cards (Pay Now) Credit Cards (Pay Later) Prepaid Cards (Pay in Advance)

Debit, Credit, and Prepaid Cards

Debit Cards

Type of Card

Credit Cards

Benefits Drawbacks

#2/8, 7/14, 15/16

Prepaid Cards

#5, 18

#1, 2/8, 6 #4, 12, 13, 17

#7/14, 9, 15/16 #3, 10, 11


Understanding Your Credit Card Statement

1) Summary of Account Activity> -

maximum balance you can carry on your card

> - amount of unused credit

2) Payment Information> -

amount due based on % of balance

3) Late Payment Warning> -

charged if you pay after the due date

4) Minimum Payment Warning


5) Notice of Changes to Your Interest Rate> -

% used to calculate finance charges on unpaid balance



7) Transactions

> -fee for each cash advance, additional interest charged

> - amount of interest charged on outstanding balance

> - charged for use of card, not charged on all cards

9) Year-to-Date Totals

10) Interest Charge Calculation

Protecting Your Identity and Preventing Fraud

Fraud prevention is crucial to managing your credit, debit, and prepaid card account. Here is some common advice given to credit and debit cardholders to keep their accounts safe:

If your credit or debit card is lost or stolen, report it immediately.> Maintain a list of all your credit and debit account numbers in a secure location,

along with the phone numbers for each card company.

When ordering items online, look for websites that start with https: and utilize SSL (Secure Socket Layer) and certificates to keep your transactions safe from hackers.

Guard your account numbers.> Don't give your account number or Social Security number to anyone who contacts

you - share it only with those companies you contact.> Most merchants show only the last four digits of your card number on the bill; if the

full number appears, cross it out when signing the bill.> Shread any documents and receipts where your card number may appear.> Never send your card number or other personal information through email.


Protecting Your Identity and Preventing Fraud

Zero LiabilityYou have 60 days to report errors and the credit card company must respond within 30 days.If a merchant made an unauthorized charge, the credit card company will act on your behalf to dispute it.

Your PIN (Personal Identification Number) is a secret numeric password you use to authenticate yourself as the legal owner of the card.Choose a random number that you can remember, but that's not related to personalinformation.Never write your PIN on the back of the card or keep it in your wallet.

Managing Your Card Accounts

Stick to Your Budget> avoid impulse, only use cash advances for emergencies

Follow the "20-10" Rule> Limit your credit card debt to less than 20% of your total annual income.> Less than 10% of your net monthly income should go toward paying credit card debt.

If it's more, reevaluate your spending habits.

Be a Good Credit Customer> pay bills on time, pay at least the minimum payment, try to pay in full

Review Your Monthly Statements

Take Advantage of Online Access to Your Account Information> Review account activity.> Sign up for automatic payments or set up a payment before its due.> Set up account alerts by email or text.


Creditworthiness

Why is having good credit so important?Advantages to you for being creditworthy:

Challenges to you if your creditworthiness is low:

Creditworthiness

The Three "Cs" of CreditWhen lenders consider your loan or credit card application, their main concern is: Can and will you pay back the amount you borrow responsibly and on time? In other words, are you creditworthy?

- > Have you used credit before?> Do you pay your bills on time?> Have you ever declared bankruptcy?

- > What property do you own that you can

secure the loan?

- > Do you have a steady job?> What is your salary?> What are your current living expenses?

> Can you provide character references?> How long have you lived at your present address?> How long have you been at your present job?

> Do you have a savings account?> Do you have investments to use as collateral?

> How many other loan payments do you have?> What are your current debts?> How many dependents do you have?


Creditworthiness

How to Increase Your Creditworthiness

Pay off your credit card balances in full every month. If you find yourself unable to do so, pay down your debt as soon as possible. Creditors look at the gap between your balance and your credit limit. The more unused credit you have, the better your creditworthiness. Used wisely, credit cards help your creditworthiness.

Remember that lesson on budgeting? Having money in savings increases all three Cs above.

Credit card issuers and lenders often look at the length of your credit history. Keeping old credit card accounts open with a zero balance helps your credit history in two ways. First, it maintains the length of your credit history. Second, when you close an account, you lower the total amount of credit available to you, which in turn raises the ratio of balances on your other loans and credit cards.

If you cannot pay your bills on time, call each of the companies before you pay late and explain your situation. Often, you can work out an arrangement that will allow you to pay what you are able to pay at the time. And because you’re acting responsibly with your creditors, you won’t hurt your creditworthiness nearly as much as if you pay late or skip a payment.

Bankruptcy is a legal state granted by a court of law that declares you unable or impaired in your ability to pay back your debts to your creditors. Bankruptcy is a last resort. Most bankruptcies can be avoided. Bankruptcies stay on your credit history for a very long time.


Bank, Credit, or Thrift: Which One is Right For Me?Where do you stash your allowance, birthday cash or paycheck? There are lots of ways to keep your money safe, but knowing which option is best for you means researching your choices. Listen to the “How Having a Bank Account Protects Your Money” podcast at http://fdicmspodcast.com/podcasts/ to answer the questions below. Pause the podcast as you work or listen to it twice if needed.

1. Write down four facts that you learn about each type of institution below. Then decide which one you would choose to put your money in and why.

2. Give three benefits to putting your money in a bank rather than under your mattress.

a.

b.

c.

To rent or buy...that is the question.


Your HomeTo rent or buy…that is the question.

Types of Residences

> rent or buy> home within a large building> shared hallways, parking, laundry, etc.

> rent or buy> usually 2-3 residences per building> may have your own yard, balcony, garage, multiple floors

> rent or buy> individual home> have your own yard, garage, etc.

Your Home


Expenses

Renting or Buying

Association FeesFurniture

MortgageParking Space/Permit

PMI (Private Mortgage Insurance)

Property Insurance Property Taxes

Rent

Repairs/MaintenanceSecurity Deposit

Utilities


What expenses go into the cost owning a car?

Decide how much you can afford to spend.Decide which car model and options interest you.Research the reliability of the model of car you want.Shop for financing.Factor in the costs of the loan and the cost of maintenance.Find out the reputation of the dealer.Find out what type of warranty and/or service contract comes with the car, if any.


New Car Dealers - provide quality used vehicles, service department available, higher prices than other sources

Used Car Dealers - specialize in previously owned vehicles, limited warranty (if any), vehicles may be in poor condition

Private Parties - may be a good buy if vehicle was well maintained, few consumer protection regulations apply

Other sources such as auctions or sales by government agencies, auto rental companies, and on the Internet. Most of these vehicles have been driven many miles.

Decide which car model and specific options you want.Find out the invoice price (the price the dealer pays).Compare final sales prices and buying services from various dealers.If you already have a car, find out its value independently of the dealer's trade-in offer. Try to sell your old car yourself (dealers usually give better deals without trade-ins).


Implied Warranty - assurances that are presumed like the product will do what it is designed to do and what the seller says it will do

Manufacturer's Warranty - offered and specifically written, generally covers only the working parts (like the engine) and not wear-and-tear to leather or tires, for example

Extended Warranty - covers items in addition to the manufacturer's warranty, read carefully and make sure it is worth the cost

Your monthly car payment depends on: > price of car> down payment > trade-in value> APR (interest rate)> length of loan (3, 4, or 5 years), for example> new or used car> your creditworthiness


More about car loans:> Your monthly payment goes towards loan principal and interest

= price of car - down payment and

trade in valueusually simple interest

> The car payment is the same each month, but the part paid to principal and interest varies.

Your Monthly Car Payment

Principal Interest

Principal Interest

Principal Interest

Principal Interest

A person looking to buy a car, has the choice between buying a new car or a _____________ car. Either way, there are many expenses that go into the cost of owning a car. This includes registration fees, ______________ plates, and sales _____________ required by your local or state government. You must also buy automobile __________________ to cover expenses that would result from an accident and pay ___________________ if you will be buying your car with a loan. Finally, the cost of gasoline, repairs, and tolls should be factored into the cost of owning a car.

If you will be buying a used car, it is important to research more than just the price of the car. Because used cars generally require more maintenance, find the nearest _______________________________ location. Be sure to ask about the ______________________ and/or service contract if there is one. Your used car can be purchased from a private party, a __________ or ___________ car dealer, or through an auction.

When buying a new car, research the price of the car, but also any _____________ you will add (like leather interior or GPS). Learning the _________________ price, or the price the dealer pays, helps you determine a reasonable price you are willing to pay. If you have an old car to _____________-______, research the value of that car –independently and with the dealer. New cars will of course be covered by an _____________________ warranty, but two written warranties cover specific parts of your new vehicle. A manufacturer’s warranty covers the _______________ parts of the car like the engine. Parts not covered by the manufacturer’s warranty may be covered by the _________________ warranty – be sure to read this one carefully, though, and decide if it’s worth the cost.

Your monthly car payment will be determined by the following:price of the car________________________ (the amount you pay at purchase)trade-in value of your old car____________ (the interest rate)________________ of the loan (3, 4, or 5 years, for example)if car is new or usedyour creditworthiness

usedlicense

insurance

taxes

interest

repair facilitywarranty

new used

optionsinvoice

intradeimplied

workingextended

down payment

APRlength


Let's complete the table below to see the differences in the monthly car payment and total interest paid for various loan terms. Use the calculator at http://www.bankrate.com/calculators/auto/auto-loan-calculator.aspx.

Car Payment Calculator

Insurance


Risk

Insurance

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– different types of coverage – certain minimum requirements by law

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- – plans have different costs and coverage– may be provided by employer

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Types of Insurance


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InsuranceInsurance Vocabulary Review

Insurance Matchmaker


Insurance Matchmaker

You are a new student at the local college and will be living a few blocks away from campus. Because of the close proximity, you decide to forgo purchasing a car until graduation. You’re in good health and rarely visit the doctor, but since you are moving out of your parent’s house, you’re no longer included on their health insurance plan. What type of insurance should you purchase?

You have a basic health insurance plan to offer. With a premium of $30, a co-pay of $10 and a deductible of $100, the policy is a great bargain for those entering the workforce, students and the generally healthy.

You’re a recent high school graduate, and at 18 you are still covered by your parent’s health insurance. To save costs, you live at home with your parents and commute one hour to campus. You own a 1988 truck, and since you aren’t concerned about it getting damaged, you debate buying car insurance. What type of insurance should you purchase?

You have a no-fuss car insurance plan to offer. The deductible is $1,000 with a premium of $50. It the most basic plan, so if someone buys the policy you are selling, damage to his or her car won’t be covered—only damage to the other driver’s car.

You’re starting your first job in your dream city. Due to a signing bonus, you just purchased a new home in the suburbs. Although you plan to use public transportation, you also have a nice vehicle that you sometimes use for weekend getaways. You’re generally in good health, but have to see specialists frequently due to a medical condition you’ve had since childhood. You get health insurance through your new job, but it only covers prescriptions and yearly doctor’s visits, not the kind of specialists you need for your condition. What type of insurance should you purchase?

You are an insurance company that does it all. You specialize in car, homeowner’s and health insurance. You also offer a 20% discount if someone purchases all three types of insurance with you. Your health insurance plan has a fairly high deductible of $1,000, but your car insurance policy has a low premium of $40. Your homeowner’s policy covers the cost of property damage from theft, fire and natural disasters.

You were close to your grandfather and before he passed away, he left you his favorite Rolex watch. From the 1930s, the watch is worth a lot of money and has incredible sentimental value as a family heirloom. You’re still covered under your parent’s health insurance and don’t yet own a car. What type of insurance should you purchase?

You specialize in personal property insurance. If someone wants to insure a valuable item, like a diamond ring or antique collectibles, you offer the right policy. You provide flexible coverage and are a leader for personal property insurance in your area.

Auto Insurance Coverage

Covers injuries or property damage that you cause to others.Covers you (and others named on your policy) when driving someone else's car with their permission. Two types:

- Covers injuries that you cause to someone else.- Pays for damages you cause to someone else's car or to objects and

structures your car hits.

Uninsured coverage reimburses you if an uninsured or a hit-and-run driver hits you.Underinsured coverage pays when an at-fault driver doesn’t have enough insurance to fully pay for your loss.

Pays for treating injuries to you and your passengers.

Pays for the physical damage to your car from a collision with another car, an object or a pothole or from flipping over.

Coverage reimburses you for damage to your car that’s not caused by a collision. This includes theft, hail, windstorm, flood, fire, and hitting animals.Will also reimburse you if your windshield is pitted, cracked, or damaged.

Pays for towing your car when it is disabled.Pays a specific amount per day to rent a car while yours is being fixed.


Auto Insurance CoverageAmount of CoverageThe amount coverage for some coverages, like Bodily Injury, is often listed as 100/300, for example. This means you have a $100,000 limit for one person in an accident and a limit of $300,000 for all people injured in one accident.

Insurance RequirementsCertain types of insurance coverage are specifically required by law or your lender.

Auto Insurance Rates

Your Auto Insurance RateYou've probably figured out that the world of car insurance is – well, let's just say it's complex. When you apply for insurance, a company is going to look at many factors.

Generally, the more expensive the car, the more you pay for auto insurance.

Because of the higher frequency of issues like theft, accidents, and vandalism, urban drivers may pay more than those in rural areas.

People who drive a lot for work or commute a long distance usually pay more than those who drive less.

Accident rates are generally higher for drivers under 25, especially men, which often means higher insurance prices. Marriage may bring costs down.

Drivers with poor driving records usually pay more for coverage than people who have been accident-free for several years.

Insurance policies consist of a variety of coverages. Generally, the more coverage you buy, the higher the cost.

A deductible is the part of a loss that you've agreed to pay with your own money. Generally, the higher the deductible, the lower your premium.


Auto Insurance Rates

There are several things you can do to try saving money on auto insurance:

. Generally, the more expensive the car, the more expensive it is to insure.

. Insurers often increase premiums for cars that are a greater risk for damage or occupant injury.

. Typical discounts include those for good students, insuring multiple vehicles, accident-free driving, and more.

. Consider joining a car pool, or take alternate transportation when possible. Mileage reduction may help lower your premiums.

. Insurers love a clean driving record.

. Many insurers will offer discounts if you use them for multiple coverages (auto, home, life, etc.).


InvestingKey Terms

keep and store up for future use expend money with the expectation of achieving a profit

the percentage of a sum of money charge for its use

the amount returned per unit of time, expressed as a percentage of the cost

InvestingKey Terms

interest rate that stays the same throughout the investment period

interest rate that changes or fluctuates during the investment period

interest paid on the principal alone

interest calculated on both the principal and the accrued interest


How to Calculate Simple Interest:

You have $100 and plan to put it in the bank for 6 years with a 6% interest rate (0.06). Here’s what the calculation would look like:

$100 x 0.06 x 6 = $36

The amount will grow by $36 over 6 years using simple interest.

Year 6: $100 + $36 = $136

How to Calculate Compound Interest:

Imagine the same scenario, but this time with compound interest:

Year 1: $100 x 0.06 = $6, then $100 + $6 = $106Year 2: $106 x 0.06 = $6.36, $106 + $6.36 = $112.36 and so on…until Year 6: $141.85

But to determine the compound interest quickly, try:100 x (1 + 0.06)6 = $141.85

What's My Rate of Return?

Let’s Try!

What's My Rate of Return?


Investing

Savings and Investment Choices

1. John receives $1,000 as a graduation gift from his grandparents. Rather than spend it, he decides to invest it in a two-year bond that earns 3% simple interest. John doesn’t need access to the money right away because he wants to save it for when he’s ready to buy a home in about 10 years. Is the bond a wise investment for John? Why or why not? What other investment options does John have?

2. If you had the choice between investing $1,000 in a mutual fund that earns 7.5% compound interest or a bond that earns simple interest at 7.5%, which would you prefer and why?

Investing

Investment Challenge


Millionaire in the Making

Why are Damon’s inves ng methods successful?

What strategies does he use and why?

What factors does he consider when making investments?

What advantages does Damon have by star ng to invest while young?

Documents

Financial Literacy Notes Slides - * Mrs. Burnettmrsburnett.weebly.com/uploads/6/7/...notes_slides.pdfFinancial Literacy Notes Slides Saving money is the cornerstone of a strong financial