FINANCIAL LITERACY FOR THE ELEMENTARY CLASSROOM

Day Two.

Sponsored by:Maryland Council on Economic Education and Towson University College of Business and Economics.

Standard Three (supplemental)Plan and Manage Money

Day Two Session I

First, let’s clarify something… How is saving different from investing?

Some think the two are the same. They are wrong!

Saving – short term Investing – long term

How are these distinct? Let’s take a look…

Saving

One saves by reducing present consumption - a fisherman who spares a fish for use as tomorrow’s bait, reduces his present consumption in the hope of increasing it in the future.

Savings are typically for short-term needs such as eating tomorrow (the fist), emergencies or upcoming expenses such as holiday season, vacation, weekend plans.

Since it is short term you earn a low, fixed rate of return and can withdraw your money easily. Savings account, money market, cd, piggy bank.

Investing

One invests in the hope of increasing future consumption (realizing higher long-term returns).

But, it is risky: Unlike bank savings, stocks and bonds over the long

term have returned enough to outpace inflation, but they also decline in value from time to time.

The decision about which investment to choose is influenced by factors such as yield (rate of return), risk (probability of losing money), and liquidity (how likely you are to need to convert to cash).

Phew!

Now that we have clarified the difference between saving and investing… let’s move on.

Spending Plan (aka Budget)

Budget – A plan that balances money coming in (income) with money going out (expenses). Make a list of all income sources. Make a list of all expenses. Do you have enough for everything?

Use to make decisions about what is most important to you (more on financial goals later).

Products at Financial Institutions Organizations that provide financial services for

its clients or members. Checking account (interest bearing on some, low

risk) Savings account (low interest rates, low risk) Money market account (minimum balance, interest,

low risk) Certificate of Deposit (fixed term, interest, fee for

early withdrawal) Mortgages Insurance

Bank websites are excellent sources for information on these account types.

Financial Goals

We talked about these last class – they are the things you want to accomplish that cost or involve money. Debt reduction, wealth accumulation for

retirement, buy a house/car/iPhone. Goals can be short term (one year), medium

term (3-5 years) and long term (5+ years).

Developing Financial Goals

Goals based on personal values What do you want to accomplish (helping others, self,

community, church, family). Allow them to define – do not tell what “should” be goal.

Age appropriate financial goals Time preference and young children (saving for college at

5?). Budget size.

Ways to earn (job opportunities) and save for future What do people need? Child or pet care (dog walking) Chores or errands for family or neighbor.

Taxation

Taxes are a compulsory payment by individuals or organizations to the government; fees placed on income, property, or goods to support government programs.

What do taxes support? Public goods. How do taxes affect individuals, families, and

communities? Services and opportunities. Reasons for paying taxes? Tragedy of the

commons.

Contracts with Consequences Contracts are legally enforceable written

or oral agreements between two of more parties to do or not so something. Credit is a contract.

Common for children: behavioral, cell phone, library card, jobs (babysitting, yard work, paper route), allowance, promises.

Standard FourManage Credit and Debt

Day Two Session 2

Why Do We Borrow?

Why do people borrow? Insufficient income or savings to cover current

expenses. To make an investment in an large asset (home,

car, business)

What are common things that we borrow for? Homes, home repairs Automobiles Education Vacations Clothes (layaway is back!), computers,

Where Can You Get Credit?

Who can you borrow / get credit from? Friends/relatives – borrow directly from or

use as a cosign (avoid whenever possible) Credit union / bank – credit cards, home

equity loans, car loans. store credit card – generally financed

through a bank and for use at store only. VISA / MC – financed through a bank (often

not local)

Credit Products and Services Loans from family / store / bank / credit union

often comes with requirements for repayment (loan contract or “note”) These may include:

Interest: Payment in excess of loan amount. Why? Time value of money. How it matters (next slide).

Fees Common for processing paperwork or payments. Flat or variable rates that depend upon loan size.

How does APR / payment matter

Balance APR Minimum monthly payment

Total interest

Time to pay

$4,500 12% 2% $4,196 24y 1mo

$4,500 12% 4% $1,455 10y 4mo

$4,500 18% 2% $12, 431 44y 4mo

$4,500 18% 4% $2,615 12y 2mo

Interest rate matters but so does minimum payment in computing the total interest paid.Even with slightly higher mandated minimum payments, still takesa long time period to pay off debt.

Some Details on Credit

2009 Credit Card Accountability, Responsibility, and Disclosures Act passed because of past abuses by credit card companies (snowballing finance charges, large penalties and fees).

Credit vs. debit: how different? Stored value cards (these are NOT credit

cards). Credit cards considered LOW priority debt.

Can You Get Credit

Credit is like a good friend. What characteristics do you look for in a good friend?

Creditors do the same thing when considering whether to loan money out. Creditworthiness is generally determined by three things: Character – past behavior as well as education

and training that will sustain income. Capacity – do you have enough excess cash. Capital (collateral) – assets to support the loan.

Standard SixManage Risks and Preserve Wealth

Day Two Session 3

Insurance – why do you need it?

Insurance is a form of risk management. Used to hedge against risk of a contingent, uncertain loss (insure things that are expensive to lose). Four most common forms: Property – theft, fire, burglary or natural calamity. Life – demise of policy holder. Auto – accident of a vehicle. Health – injury or ailment.

There are others (travel, credit, third party, amusement).

Advertising

What is it used for? To convey information to consumers about products.

Done through standard methods (television, radio, newspaper, magazine), referral, or through the internet (blog, online communities).

Methods include humor, testimonial and bandwagon (Debbie will discuss more).

Some advertising can be purposely misleading (false advertising is a type of fraud – more later).

The Informed Consumer

Advertisers are smart so you want to be an informed consumer - aware of what is inside the product, ask questions and have knowledge about the risks and benefits of the product. Be aware of hidden costs (S&H, taxes, set up

fees, …) “If it sounds too good to be true, it probably is.”

How can you be an informed consumer? What do you need to do?

To be an informed consumer:1. Know who you are dealing with. 2. Protect your personal information. Shred.3. Take your time. Resist any urge to “act now” 4. Read the small print. Get all promises in writing 5. Never pay for a “free” gift. 6. Know the risks

Fraud and Identity Theft

Fraud is a plan to cheat people or get their money dishonestly (forgery, bait and switch, counterfeiting, ponzi schemes, false advertising, false insurance claims, identity theft,…)

Identity theft is a type of fraud that involves using personal information on someone to take advantage of them.

Whose information are they stealing and how do they get the information?

Identity Theft Complaints By Age

18 -29

30 - 3940 - 49

50 - 59

60+

Under 18: 3%

28%

25% 21%

13%

10%

Source:Federal Trade Commission

Fraudulent e-mail 1.7% Computer virus/Hacker 2.2%

Taken from Trash 2.6%Computer spyware 5.2%

8.0%

Stolen mail/ Fraudulent address change

8.7% Corrupt employee

11.4%

Friends/relatives

12.9%

Accessed during transaction

28.8%

Lost/Stolen Wallet, Checkbook, Credit Card

Ways Identity Is Stolen

Source: USA Today, January 27, 2005

How to Detect Identity Theft

1. Check your credit card and bank account balances electronically and often.

2. Check your credit reports.3. Review your paper statements.4. Know your billing and statement

cycles.5. Watch out for unexpected phone calls.6. Look at insurance statements.

So, who is stealing your

identity?

32%

Family Member or Relative

24%Complete Stranger Outside the Workplace

18%Friend, Neighbor or In-Home Employee

13%

Someone at a Company

with Access to Your Info

8%

Someone Else4%

Someone at Your Workplace

Source: 2004 Javelin Strategy & Research

Who Misused Your Personal Information?

What Are They Doing With Your Information?

open credit accounts get a driver’s license apply for insurance benefits in your

name get cash advances from your accounts possibly commit another crime in your

name receiving medical treatments in your

name (new rising use of identity theft)

What can I do?

Review your credit report frequently (next slide) Put outgoing mail in an actual postal mailbox. NEVER put the flag up on your mailbox. Use a safe to secure personal information in your home. Don't carry your social security card, bank account PIN or other sensitive information with

you -- leave it at home in a secure place. Shred any mail that has account numbers, social security numbers or “preapproved”

credit offers. Make sure your payment tools such as credit cards, debit cards, checks and account

information are secure and secure your computer – anti virus and anti spyware software updated

Be wary of e-mail scams. If you did not enter an international lottery, it is unlikely that you won anything... If it sounds too good to be true, it probably is.

Don’t save your password on your computer. Opt-out of pre-approved credit offers by calling 1-888-5-OPT-OUT (567-8688) and junk mail by writing to the

direct marketing association at:

Mail Preference ServiceDirect Marketing AssociationP.O. Box 643Carmel, NY 10512

Credit Reports

Review your credit report from each of the three credit reporting agencies twice per year. You can stagger them so you are looking at a fresh report every two months. Under Maryland and federal law, you are entitled to two FREE credit reports from each of the Credit Reporting Agencies each year. Go to www.annualcreditreport.com or call 1-877-322-8228 to access your report through the federal Fair Credit Reporting Act. You must contact each of the three Credit Reporting Agencies individually to access your credit report under Maryland law:

Equifax: 1-800-685-1111Experian: 1-888-397-3742TransUnion: 1-800-680-7289 back

FYI -

A new law that took effect Jan. 1, 2013 enables parents and legal guardians to place a security freeze on their minor child's credit records that would prevent identity thieves from opening credit accounts in the child's name. For more information on how to submit freeze requests to each of the three major credit reporting agencies, see http://www.oag.state.md.us/Press/2012/122712a.html.

Some Great Resources:

Attorney General’s website:http://www.oag.state.md.us/idtheft/index.htm

Federal Trade Commission (FTC) is the nation’s consumer protection agency and works to prevent fraudulent, deceptive and unfair business practices in the marketplace. Their website:

http://www.consumer.ftc.gov/features/feature-0014-identity-theft