What Is 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.

• More simply: Knowing what you need to know to achieve your financial goals, or common sense with your dollars and cents.

• What we will cover:– Money and savings– Budgeting (AKA cash flow)– Debt/risk management– Taxes/basic financial concepts

America’s financial literacyAmerican 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.

America’s financial literacyAmerican families: (continued)– Only 26% of teens understand how card interest and

fees work. (2007 Charles Schwab 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 2009 National Study of Usage Rates and Trends)

– Nearly 20% of bankruptcy filers are college students. (Sallie Mae’s 2009 National Study of Usage Rates and Trends)

Money and Savings

• Time is money• Continuous education• Savings and the power of compounding

interest

“Make all you can, save all you can, give all you can.”- John Wesley

Money and Savings• Time is money– How many hours do you need to work to pay for your rent/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.

Money and Savings• Continuing Education– Congratulations!– The other side of the time equation– More knowledge/skills = greater pay– You will either learn to manage money, or the lack

of it will always manage you!

"All days are not same. Save for a rainy day. When you don't work, savings will work for you."

- M.K. Soni

Money and Savings• The power of compounding interest• “Get Rich Quick” never works. You will lose your

money. Saving faithfully over time will always build wealth – it just takes a little while (and patience)

• The story of Ben and Arthur:– Both save $2,000 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.– At age 65, Ben has more than $2.2 million, while Arthur

has only $1.5 million.

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

"Money grows on the tree of patience." Proverb

Budgeting AKA Cash Flow Management

• Budgeting • Prioritizing– “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.” - Chuck Swindoll

– You can only spend what you have if you want to reach your financial goals.

Creating a Budget• Your financial plan• Track income and expenses• Unique to you• Budget necessities/priorities first• Communication (with family, spouse, roommate

or partner)

Today, there are three kinds of people: the have's, the have-not's, and the have-not-paid-for-what-they-have's.

-Earl Wilson

Budgeting• Gross monthly income• Net income• Fixed expenses• Flexible expenses

• Discretionary expenses• Total it up• Increase your savings

A nickel ain't worth a dime anymore. -Yogi Berra

Where Does Your Money Go?

Item Cost per DayCost per

Week

Cost perMonth (4 x Per Week

Cost)

Cost per Year without interest

(Months x 12)

Cost over50 Years with 6% interest

compounded

Cost over50 Years with 12% interest compounded

Soda 1 drink a day

$1.25 $8.75 $31 $124 $117,989 $1,222,916

Cigarettes 1 Pack a day

$3 $21 $84 $1,008 $319,715 $3,313,724

Gourmet Coffee

$5 $35 $140 $1,680 $532,858 $5,552,847

Lunch (5 days/week)

$8 $160 $640 $7,680 $2,435,921 $25,247,302

Supersizing your meal (5 days/week)

$ .35 $ 2.45 $9.8 $117.60 $37,300 $386,559

Debt Management

• Credit Cards• Pay Day Loans• Credit Reports

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

It is an unfortunate human failing that a full pocketbook often groans more loudly than an empty stomach.

-Franklin Delano Roosevelt

Steps to Getting Out of Debt

1. Stop using credit cards and other types of credit2. Have a cash flow plan3. Save $500 - $1000 for emergencies4. Sell something to pay off a debt5. Use money from a part-time job or overtime to

payoff debt6. Develop a plan to pay off your debt

Plan for Paying off Debt

Company Owed

Total Amount Due

Minimum Payment

Extra Paid on Lowest Debt

Date Paid Off

         

         

         

         

         

         

1. List your debts starting with the smallest first2. Make the minimum payments each month on each debt except for the

smallest one3. Pay more than the minimum on the smallest debt until it is paid off4. 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 payment5. Continue until all debts are paid off

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

If you think nobody cares if you're alive, try missing a couple of car payments.

-Earl Wilson

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%

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?

Rule No. 1: Never lose money.Rule No. 2: Never forget rule No. 1.

- Warren Buffet

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

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!

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

 Money talks; the secret is to hold it long enough to hear what is says.

- W. G. P.

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

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 and monitoring your credit score• Will and/or Estate Plan• Power of Attorney (Durable & Health Care)

Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.

- Ayn Rand

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

Taxes: 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.

Alternative Programs

• VITA (Volunteer Income Tax Assistance Program)

• LITCs (Low Income Taxpayer Clinics)

Focusing your life solely on making a buck shows a poverty of ambition. It asks too little of yourself. And it will leave you

unfulfilled.- Barack Obama

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.

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.

Financial literacy education

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

Can anybody remember when the times were not hard and money not scarce?

- Ralph Waldo Emerson

For more information

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

Questions?