FDIC Money Smart Financial Education Program

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Transcript FDIC Money Smart Financial Education Program

UNDERSTANDING
AND INCREASING
WEALTH IN LOW
AND MODERATE
INCOME
COMMUNITIES
Gregory Housel
Money Smart Month
Representative
PEW Video
http://www.pewstates.org/news-room/videolibrary/economic-mobility-and-the-american-dream85899378857
http://www.youtube.com/watch?v=fTDhi12rqYc
Factors of
Wealth Development
 Dependents
 Education (Level and school system)
 Good Credit
 Income/Employment
 Health/Disability
 Homeownership
 Marriage
 Savings
 Hope and Confidence
 Retirement Contribution
 Comparison Shopping
 Criminal Records
 Inheritance
Why Financial Education For Youth?
Children are in stores and retail venues an average of
two to three times per week.
Children ages 4 to 12 shell out an estimated $35.6
billion of their own cash annually, more than 4 times
what they did a decade ago.
Alternative Financing Services = $11 Billion Dollars
=$35.6 Billion Dollars
Young Adults and Bank Accounts
• Young adults are six times more
likely to go to college if they open a
bank account between the ages of
12 and 15.
529 College Plan
A 529 plan is a savings plan for college.
A parent or guardian can set up a 529 plan on his or
her own, and it doesn’t need to go through the
employer. These state-sponsored savings plans let
you build up savings, tax-free, for tuition in any
college or university in the country.
Average Annual Income of a
15-17 year old is $4,023!
Teens Spent Over $200,000,000,000 Last Year
79% Of Teens Employed
40% Of Teens Are Saving
Top Categories For Saving:
Clothes
College
Car
57%
54%
38%
1st Step: Stay In School
 United States graduation rate: 75.5%
 1.3 million high school student
dropouts per year. 2,500 dropouts per
day
 2008 dropouts will cost $319 billion in
their lifetime.
 59% of prison system population are
High School dropouts
Marketable Skill & Military
payscale.com
College Student
Graduation Rates
Approximately 10% of the population has an associate’s
degree and 30% has a bachelor’s degree
2008 college graduation rates for a six-year timeframe:
4 Year Degree: 57.2% Graduation Rate
2 Year Degree: 30.5% Graduation Rate
(National Center for Education Statistics)
Student Savings Lead To Higher
Graduation Rates
Families With Less Than $50,000 Annual Income
Even having a small amount of savings designated for
school can have a positive effect on low- and moderateincome children’s persistence in college through
graduation
Enrollment
Graduation
No college savings
45%
5%
$1 to $499 saved
65%
25%
$500 or more saved
72%
33%
The Assets and Education Initiative (AEDI) Research Team University of Kansas School of Social Welfare
Support System, Is It Needed To
Build Wealth?
Support System
A network of personal or professional contacts available
to a person or organization for practical or moral support
when needed.
In 2010, about 40 percent of full-time and 73 percent of
part-time college students ages 16 to 24 were employed.
Who helps low income students that RUN OUT OF MONEY???
College Attainment By Race
52.4%
30.3%
19.8%
13.9%
Asian and Pacific Islander
White
Black
Hispanic
29.9%
Total
Source: U.S. Census Bureau
Getting a college degree is a ticket
to economic mobility!
For those raised at the bottom of the income ladder,
nearly one-half of children were stuck there as adults
if they didn't go to college. But only 10% of those
with a college degree remained at the bottom.
Some 41% of students who come from families in the
lowest income ranks move up to the highest two rungs
if they earned a college degree.
(Pew Economic Mobility Project)
More Education = More Money
Earnings of persons over age 25
2012 Annual Earnings
Lifetime
$24,492
$1,846,728
High School graduate $33,904
$2,556,404
Some College
$37,804
$2,850,469
Associate’s degree
$40,820
$3,077,879
Bachelor’s degree
$55,432
$4,179,643
Master’s degree
$67,600
$5,097,125
Professional Degree
$90,220
$6,802,702
Some High School
*Lifetime defined as 40 years of full-time work with a 3% annual cost-of-living increase of annual earnings.
Statistics reflect 2012 fulltime workers.
(Bureau of Labor Statistics, Current Population Study
Is a College Education Worth
The Debt???
2012 Student Loan Balances
Average debt 2012:
Median debt 2012:
$24,218
$13,662
Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax
Conceptual Framework
Many times people make bad financial
decisions because they do not know
enough to make good financial
decisions.
75% of the population is 18
years or older and out
of school.
(Kansas City Federal Reserve Bank)
Having Money Helps,
Having Education Helps More
Bankruptcy records indicate that even though
the median winner of a large cash prize
could have paid off all of his unsecured debt
or increased equity in new or existing
assets, he chose not to do either.
(The Ticket to Easy Street? The Financial Consequences of Winning the Lottery)
Money Without A Plan
Nearly one third of multimillion dollar lottery winners
become bankrupt in just a few short years after their
big win.
(Associated Content)
Understanding Financial Terms
Asset:
A valuable item that
is owned
Wealth:
What you own minus what you owe
Income:
Amount of money received
for doing work
Understanding What Builds Wealth
Job
House
Savings
Small Business
Retirement
Savings
Asset
Household in 2011
MEDIAN 2011 Family Income
$50,054
Federal poverty level reached 15% in 2011. Almost
46,200,000 lived below the poverty level.
(Census Bureau 2011)
Literacy in the United States
15% of adults lack basic literacy skills.
Approximately 33 million adults
(Census Bureau)
Quantitative Literacy
 Quantitative literacy is knowledge of and
confidence with basic mathematical/analytical
concepts and operations required for problemsolving, decision-making, economic productivity
and real-world applications; this entails the ability
to: competently perform basic
computational/arithmetic operations; demonstrate
skills at estimating and approximating results;
perform basic algebraic and/or logical operations
that involve levels of abstraction; demonstrate
basic problem-solving skills; and show competence
in applied analytical skills.
Quantitative Literacy
 22% of adults lack even basic quantitative literacy skills
(48,000,000 adults).
 33% of adults have only basic quantitative literacy skill
levels (72,000,000 adults).
 120 million American adults may be vulnerable to
predatory lending practices or make seemingly small
mistakes with major financial consequences.
(National Center for Education Statistics)
U.S Personal Savings Rate
For Every Dollar Earned, Americans Saved:
1982
1992
2002
2012
11.3 cents
7.6 cents
4.3 cents
3.9 cents
Underbanked and Unbanked
Households
17,000,000 Unbanked In the United
States
43,000,000 Underbanked in the United
States
Total Percentage of Underbanked and
Unbanked Households
 54% of African American households are unbanked
or underbanked.
 44.5% of American Indian/Alaskan households are
unbanked or underbanked.
 43.3% of Hispanic households are unbanked or
underbanked.
 10.5% of White households are unbanked or
underbanked
(FDIC Economic Inclusion Study)
Alternative Financing Services Utilized by
the Underbanked
 81.1% use money orders
(34,873,000)
 30% use check cashing
(12,900,000)
 16.2% use pay day loans
(6,966,000)
 15.8% use Pawn Shops
(6,794,000)
 13.2% use Refund Anticipation Loans
(5,676,000)
 13% use rent-to-own services
(5,590,000)
The number one reason for utilizing AFS
products was convenience.
Mobile and Underbanked
Have mobile phone
Underbanked
91%
U.S. Consumers
87%
Have smartphone
57%
44%
Used mobile banking in the
past 12 months
29%
21%
Used mobile payments
17%
12%
Pay bills using mobile phone
62%
47%
—Source: Federal Reserve Board Survey: Consumers and Mobile Financial Services,
March 2012
Fair Isaac Corporation (FICO)
Three Companies Reporting
Credit Scores:
 Equifax
 Experian
 TransUnion
Receive a free credit report at:
www.annualcreditreport.com
Credit Reports – FICO Scores
A total of 59.5 million Americans have a credit score
of 649 or below. Subprime is generally defined as
scores 640 or below.
25.5 percent of consumers -- nearly 43.4 million
people - now have a credit score of 599 or below.
The typical consumer has access to approximately
$19,000 on all credit cards and 1 in 7 are using 80%
or more of their credit card limit.
(www.myfico.com and Newsweek)
Why Have A Good Credit Score?
Finance a car
Rent an apartment
Get a home mortgage
Set up utility accounts
Obtain employment
Purchase insurance
Why do you pay more if you have a
lower credit score???
60,000 car loans study 2006-2010
Credit Rating
600- 640
640-670
670-700
700 – 740
740 and over
Loan Default
9%
5%
3%
1.5%
.5%
Credit Site to Help You
Understand Your Credit
Building Assets Through Homeownership
Income: $30,000 to $49,999
Owners' average net worth: $126,500
Renters' average net worth: $10,600
Income: $16,000 to $29,999
Owners' average net worth: $112,600
Renters' average net worth: $4,240
Income: Under $16,000
Owners' average net worth: $73,000
Renters' average net worth: $500
(Federal Reserve’s Survey of Consumer Finances)
Homeownership Rates
United States Average 2010
White
Black
Hispanic
Asian
66.9%
74.9%
45.4%
47.5%
58.9%
82.2% Homeownership rate above the median
family income and 51.5% below the median
family income
(United States Census Bureau 2010)
Homeownership as an Investment
 Before 2008, homeownership accounted for
over 70% of the low and moderate income
asset.
(NBC)
Inheritance
In 2010, White families ages 59-67 had an
average net worth of $1.1 million. In
contrast, the average African-American
wealth was $161,000, while Hispanic
wealth was $226,000.
(Urban Institute)
Incarcerated Americans,
Barriers to Wealth Building
65 Million
Americans
With Criminal
Records Face
Unprecedente
d Barriers to
Employment!
Retirement – Where’s the Savings?
Who Wants to be a Millionaire?
Retirement
 Less than half of workers (43 percent) report they
and/or their spouse have tried to calculate how much
money they will need to have saved for a comfortable
retirement by the time they retire.
 43% of ages 55 or older
have less than $25,000 saved
for retirement.
 An additional 22% have $99,999 or less.
(2011 Retirement Confidence Survey)
Let’s look at the numbers
 Median family income approximately $50,000
Net income: $35,000
Retire at age 67 with $100,000
$18,400
Social Security
$11,600
Retirement Distribution
$30,000 or 14.3% decrease from working income
 You are completely out of retirement money in 9 to 11 years
(Rate of return on retirement savings 3-4%)!
Lottery Retirement Plan

State lotteries posted more than $53 billion in ticket sales
in 2006.

Very low income households earning less than $13,000
spend approximately 9% ($1,000 annually) of their
earnings per year on the lottery.

20 percent of lottery players are low income, minority men,
with a high school education or less and their dollars are
funding 80 percent of the money going into the lottery.

If you start to invest $85 per month at age 18 and you
retire at age 67 with a 6.5% investment rate you would
have approximately $360,000.
(MSN Money and Carnegie Mellon University)
Chances of Winning the Lottery!
1/176,000,000
6 Balls Drawing
If you win a $1,000,000 Lottery Annuity:
You could take the $500,000 Instant Cash
-30% Federal Tax and 7% state tax
Total Winnings
$315,000
Other Ways
Not To Plan On Retiring!
CHANCES OF BECOMING A PROFFESSIONAL RAPPER?
1/10,000
BABY BOOMERS
1946 -1964
 69,350,000 (10,000 per day) will reach
retirement age in next 19 years or by
2030
 74% say they will keep working after
they retire (51,319,000).
 23% currently work during retirement
(2011 Retirement Confidence Survey)
Social Security/Retirement
 Social Security was not created to supplement an individuals
entire living standard.
Pre Retirement
Income
$15,000
$25,000
$35,000
$50,000
$100,000
Percentage of Social
Security Benefits
60.4%
46.6%
40.7%
36.2%
24.2%
Why Don’t We Save For Retirement?
LACK OF HOPE!
INSTANT GRATIFICATION!
NEGATIVE SITUATIONS!
(Divorce, illness, negative budget or loss of job)
Understanding The Millionaire Next Door
In 2013 there were 8,900,000 millionaire households in the
United States.
80% accumulated their wealth in one generation
80% are college grads
97% are homeowners
95% are married (20-30 years)
66% work 45-55 hours per week
THE AVERAGE MILLIONAIRE SAVES 15% OF THEIR
INCOME!
Millionaires are not workaholics and enjoy spending time
with family and friends.
(Yahoo, The
Millionaire Mind and The Millionaire Next Door)
Building Hope - The Millionaire Plan
If a family with a median family income would
save 6% per year shopping over a 40 year period,
and would reinvest the savings into a matched
retirement account earning 6.5% interest, the
family would have over 1.2 million dollars.
(Calculation includes a 3% annual increase in family income and an initial family income of $50,000)
What Could A Millionaire
Plan Look Like?
 Over 80% of companies match 401k retirements
 GOAL– Contribute $3,000 per year to retirement!
You Contribute
Company Match (50% of Contribution)
Total =
$3,000
$1,500
$4,500
(Tax benefit of $600 if in 20% tax bracket)
I’m 40 and haven’t saved anything
for retirement?
Are you in the right job?
Do you have any retirement savings?
Do you own your home?
How long to you plan to work?
If the median income family started giving 15% of their
income to a matching 401k retirement plan at age 40
(401K matched 50% of first 5% of total salary), then that
person could have over $840,000 when they retire at age
67 (6.5% interest earned).
How Much Will $1,000,000 be
Worth in Retirement???
Retirement Account
Annual Withdrawal
2012
3% Interest
$1,000,000
3% Inflation
$33,333
2022
$895,944
$44,797
2032
$602,037
$60,203
2041
$78,552
$78,552
Year
In this example, if you retired at age 65 you would run out of your
retirement savings at the age of 95.
Suggestions To
Build Wealth!
1.
2.
3.
4.
Understand where you spend your money
Establish a budget
Establish a Plan for your future
Invest in a 401K or some retirement savings
program
5. Access your free credit report at
Annualcreditreport.com
6. Analyze Your Job – Income, Matching 401K,
Pension, benefits, etc.
7. ASK YOURSELF – Will My Wants Require Me To
Obtain Further Education???
Money Smart Month
APRIL 2014
Greg Housel
Money Smart Month Representative
[email protected]