National Association of Black Accountants, Inc. M ney $ense.

National Association of Black National Association of Black Accountants, Inc.Accountants, Inc.

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Financial EducationFinancial Education

Workshop Learning Objectives:Workshop Learning Objectives: Understand creditUnderstand credit Recognize good debt vs. bad debtRecognize good debt vs. bad debt Learn the principles of setting SMART financial Learn the principles of setting SMART financial

goals goals Learn to win the money game using a budgetLearn to win the money game using a budget

NABA - Money $enseNABA - Money $ense

Credit in a Nutshell

Are You Trustworthy?

Are You Trustworthy?

If I lend you money, will you pay me back? Will you pay me on schedule according to

our agreement? What happens when you don’t pay on

time? At what point do you violate my trust? What will it cost you to regain my trust? What should I tell others when they ask

about your trustworthiness?

Types of Credit Accounts and Relationships

Mortgage loan (Countrywide, Quicken Loans, Bank of America)

Car loan (GMAC, Chrysler Financial, Ford Motor Credit)

Major credit card (Bank of America, Capital One, US Bank)

Dept. store credit (Macy’s, The Limited, Nordstrom)

Cell phone (AT&T, Sprint, Verizon)

Bank checking*

Type of Credit Lender Advantages Disadvantages

HOME MORTGAGE • Commercial bank

• Savings and loan

• Credit union

• Homes often increase in value.

• Interest rates for mortgages are relatively low

• The interest paid is tax-deductible.

• Mortgages are long-term commitments.

• Obtaining a home loan involves extensive credit checks.

CAR LOANS • Commercial bank


• Credit union

• Consumer finance company

• Cars can make it easier to work and earn an income.

• Cars lose their value relatively quickly. The car you purchase may have little value when the last payment is made.

COLLEGE LOANS • Commercial bank


• Credit union Federal governmentFederal government

• A college education is a good borrow investment. necessary.

• Interest rates can be relatively low.

• Students sometimes borrow more than necessary.

• New graduates can face difficulty in repaying large loans.

PERSONAL LOANS • Commercial bank


• Credit union

• Consumer finance company

• Personal loans allow individuals to purchase today that boat or vacation they want.

• Personal loans have relatively high interest rates.

• Some young people may borrow more than their income allows.

CREDIT CARDS • Commercial bank


• Department store

• Oil companies

• Other financial institutions, e.g., American Express

• Credit cards are convenient to use and useful in an emergency.

• Credit cards provide a record of charges.

• Credit cards have relatively high interest rates.

• Some young people may borrow more than their income allows.


Credit Cards, Credit Bureaus and Credit Reports

How They Work TogetherHow They Work Together

+ + =Your CreditScore

Credit Cards

Terminology you must know: APR – Annual Percentage Rate Finance Charge Grace Period Fees (annual, transaction, cash advance, late)

Credit Bureaus

Three credit bureaus (Equifax, Experian, TransUnion)

Role they play: Receive and report credit information from

and to various entities who have established or look to establish a credit relationship with you.

Maintain credit report

Credit Reports

What is reported? Name of creditor Length of credit history Amount of credit outstanding and borrowing capacity Status of payment on account: current or late Inquiries on account Other information Credit score*

How do you obtain a copy of report? FREE at www.annualcreditreport.com

Credit Score

Why is it important? Measurement of creditworthiness Basis for creditor’s lending decision Determines cost of borrowing (i.e. interest rate) Employers may pull it when evaluating potential candidates for hire

How is it calculated? Payment history – Payment history – (35%)(35%) Debt to credit limit – Debt to credit limit – (30%)(30%) Length of credit history – Length of credit history – (15%)(15%) New accounts and recent applications for credit – New accounts and recent applications for credit – (10%)(10%) Mix of credit cards and loans – Mix of credit cards and loans – (10%)(10%)

Debt

Friend Foe?

Or

Debt is rising...Debt is rising...


S.M.A.R.T. Goals ModelS.M.A.R.T. Goals Model Specific:Specific:

State exactly what you want to achieve.State exactly what you want to achieve.

Measurable:Measurable: In order to know when you’ve achieved your goal, you must be able to In order to know when you’ve achieved your goal, you must be able to

track them. track them.

Attainable:Attainable: Make sure the goal is within reach.Make sure the goal is within reach.

Relevant:Relevant: Is the goal something that’s important to you, i.e., saving for a much-Is the goal something that’s important to you, i.e., saving for a much-

needed vacation, college tuition, etc.needed vacation, college tuition, etc.

Timely:Timely: Determine timeframe appropriate for attaining the goal. Determine timeframe appropriate for attaining the goal.


The Money Game

How Do You Play?

Three Ways to Play

1. Getting Ahead – You make more money than you spend. Therefore, you have money at end of month that can be saved or invested.

2. Breaking Even – You spent everything you had –no more, no less

3. Falling Behind – You spent more than you had using borrowed funds.

BUDGET SCORECARD

CategoryGetting Ahead

BreakingEven

Falling Behind

Monthly INCOME: Wages/Income $1600 $1600 $1600 Interest Income $10 $10 $10 INCOME SUBTOTAL $1,610 $1,610 $1610 Monthly EXPENSES: Taxes $250 $250 $250 Rent/Mortgage $500 $600 $750 Utilities $100 $100 $100 Groceries/Food $250 $300 $350 Clothing $100 $100 $200 Shopping $75 $75 $100 Entertainment $100 $160 $200 Miscellaneous/Other $25 $25 $50 EXPENSES SUBTOTAL $1,400 $1610 $2000 NET INCOME (Income - Expenses) $210 $0 $(390)


Benefits of Budgeting

Evaluate source (s) of income – explore ways to increase this amount

Evaluate expenditures and where money goes – identify opportunities to reduce this amount

Save, invest, pay down debt faster

Cash Flow Equation:(+) Revenue or Source

of Income

(-) Less: Expense or

Use of Income _______________(=) Net Cash Flow

Budgeting Basics

1.1. Save at least 10% of income through automatic Save at least 10% of income through automatic payroll deduction (when available) payroll deduction (when available)

2.2. Create a contingency fund for unexpected Create a contingency fund for unexpected expenditures (minimum 6 months of salary) expenditures (minimum 6 months of salary)

3. Track your spending your spending Itemize necessities first and foremostItemize necessities first and foremost Update your budget monthlyUpdate your budget monthly Add new information timelyAdd new information timely Print it out and post it as a daily visual reminderPrint it out and post it as a daily visual reminder

4.4. Pay down expensive / excessive debt.Pay down expensive / excessive debt.


Make Your Money GrowMake Your Money Grow

TIMETIME

NO INTERESTNO INTEREST 5% DAILY5% DAILYCOMPOUNDINGCOMPOUNDING

Year 1Year 1 $ 365$ 365 $ 374$ 374

Year 5Year 5 $ 1,825$ 1,825 $ 2,073$ 2,073

Year 10Year 10 $ 3,650$ 3,650 $ 4,735$ 4,735

Year 30Year 30 $10,950$10,950 $25,415$25,415

Money that is invested will grow!Money that is invested will grow!


What if you saved $1 per day for 30 years?What if you saved $1 per day for 30 years?

Action Items…Action Items…Step 1 – Step 1 – Credit: MANAGE MANAGE youryour credit. Honor your commitments. Pay credit. Honor your commitments. Pay

your bills on time, review your credit report, watch out for “too good to be your bills on time, review your credit report, watch out for “too good to be true” offers.true” offers.

Step 2 - Goal Setting:Step 2 - Goal Setting: Set SMART financial goals.

Step 3 – Budgeting: Step 3 – Budgeting: Pay Pay YourselfYourself First. Begin saving a set amount First. Begin saving a set amount each pay period, monthly; no matter how small, just start.each pay period, monthly; no matter how small, just start.

Step 4:Step 4: TrackTrack the money. Know where your money is going and stop budget the money. Know where your money is going and stop budgetpitfalls.pitfalls.

Step 5:Step 5: Start investing. Your financial health and independence is within Start investing. Your financial health and independence is within your your control.control.


Thank You!Thank You!

National Association of Black Accountants, Inc.National Association of Black Accountants, Inc.

M ney $enseM ney $ense

For more information visit www.nabainc.orgFor more information visit www.nabainc.org


National Association of Black Accountants, Inc. M ney $ense.

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