Personal FinanceStudent Version!

Pop Quiz The median net worth of American families is $93,000 and

the mean amount is $448,000. (Those with high net worth

pull the mean above the median.) What are the median and

mean figures for families headed by a person less than 35

years of age?

A) $17,000 and $88,000

B) $30,000 and $128,000

C)$47,000 and $178,000

D) $60,000 and $198,000

Answer A) $17,000 median and $88,000 mean. Median net

worth goes up with age.

It’s all about saving money and building wealth over

time!

Financial Planning Identify your financial values, goals, and strategies so you can

always keep a balance between spending and saving and stay committed to your financial plans

Develop your own balance sheet and update it annually

Develop your own cash-flow statements monthly or quarterly and compile them into an annual statement each year

Calculate your financial ratios annually to assess your financial progress

Develop a list of your financial goals. Start with shorter-term goals and expand to longer-range goals. Update and revise annually.

Start an uncomplicated personal financial record-keeping system that meets your needs.

financial values, goals, and

strategies Values: education, spiritual life, health, employment,

family life, credit use, etc.

Goals: purchase vehicle, purchase home, child’s

education, vacation home, retirement expenses

Must be stated explicitly in terms of purpose, dollar

amounts, and projected dates

Strategies: automatic deposits in savings account

taken from paycheck, ½ of every raise go into savings,

etc.

Balance sheet Assets (what you own), liabilities (what you owe), and

net worth on a specific date

Cash-flow

Lists and summarizes income and expense

transactions over a period of time

Financial Goals

Budget

Top 3 Financial Misteps in Budget Planning

Fail to plan for occasional, nonmonthly expenditures

Underestimate how much they spend each month

Use credit cards to “balance” their budget

Rules for Successful Budgeting

Keep it simple

Make it personal

Keep it flexible

Be positive

Pop QuizPatti Patterson realized 2 weeks ago that she had

misplaced her ATM card. At first she reasoned that it had to be somewhere in the house. Last week she received her savings account statement. She looked at her statement today and found that $200 had been illegally withdrawn from her account on 5 different occasions ($1000 total). She immediately called her bank to report the fraudulent withdrawals. How much of this money will Patti lose because of the unauthorized withdrawals?

A) $0 B) $50C) $500 D) $1000

Answer C) $500

Because Patti waited more than 2 days after realizing

the card was lost to report it to her financial institution,

federal law states that she is liable for the first $500 in

unauthorized uses. If she had notified the bank within 2

days, her loss would have been only $50. If she failed

to notify her bank within 60 days, she would lose all the

money. Immediately report a lost debit card!

Checking and Savings Accounts Use a free, interest-earning checking account for your day-to-day

spending needs

Use high-interest savings accounts for funds you will not need for 6 months to about 5 years in the future

Use investments for needs that will not occur until 5 or more years in the future Over long period of time, you can triple or quadruple your $

Buy certificates of deposit when saved funds will not be needed until a specific future date

Move excess funds into a money market account Accounts that pay relatively high interest rates and offer limited check-writing

privileges

Reconcile your account statements monthly

Privacy for Online Banking Never check bank account online via wireless systems away from

home

Easily hacked

Home wireless systems still at risk

Avoid using someone else’s computer to manage your account (if you do shut down completely afterwards)

Do not provide any account information from an unsolicited e-mail (scam)

Always log off instead of just closing browser

Regularly change your password and keep it to yourself

Study your statements (ask about anything unusual)

Make and save paper copies of all online transactions until you can verify their accuracy on your next account statement

Pop Quiz People with no prior credit history (you?) or one that shows

poor repayment patterns in the past often wonder if they will ever be able to get credit. Why would any lender want to trust them? Which of the following is true today about the availability of credit for people in such situations?

A) No one will ever grant them credit

B) If they wait a few years, their situation could change

C) If they keep searching, they will find a lender that will treat them like everyone else

D) Credit is relatively easy to obtain

Answer D) Charging a high rate makes lenders willing to grant

credit to high-risk applicants

Credit ~12% of people who apply for credit (loans) are denied

No credit history

Bad credit history

Lower credit score = higher interest rates on loans

Credit Score

Payment history

Late payments? On how many accounts?

Amounts owed

Maxed out?

How many accounts have balances? Bad if you owe >30% credit limit

Length of credit history

How long have you had each account? How long since you used your accounts?

Taking on more debt

How many new accounts?

How long have you been in good standing (if you had poor credit usage in past)

Types of credit used

Good mix of credit usage with multiple types depending on purpose (e.g. don’t use credit card to buy a boat)

Building Good Credit Have a checking and savings account

Telephone and other utilities billed in your name

Get and use an oil-company credit card Easy to get (if one company refuses, apply to another!)

Use credit sparingly and repay promptly

Apply for bank credit card

Ask bank for small, short-term cash loan Put borrowed funds in savings account at the bank (you will

meet the 3/4 monthly payments & the interest earned on savings will partially offset interest on loan)

Pay off student loans

Credit Reports 3 major credit-reporting bureaus

Equifax

TransUnion

Experian

One free credit report each year from each national

credit report

= a free credit report every 4 months!

Notify credit report bureau if you find an error

Student Loans Standard repayment plan is equal monthly installments paid

over ten years

To pay debt off faster: graduated repayment plan (payments

lower in early years, increase in later years)

Pay electronically

Arrange for monthly payments transferred electronically out of

checking account, you can receive a reduction in the interest

rate

Make repayments on time, every time

Some programs give 2% interest rate reduction if you make first

48 payments on time

Failing to repay in timely manner can have dire consequences

(forfeiture of federal and state income tax refunds)

Continued… Consolidate student loans

Pay off all existing loans and create one new loan

More convenient repayment schedule

Monthly payment usually lower

Amount of time for repayment may be longer

Interest rate may be lower

Consolidate through private bank or 1 of 3 government

programs (Collegiate Funding Services, Sallie Mae,

Federal Direct Consolidation Loans)

The End! Sort of…