Transcript Personal Finance 101 - Bessie B. Moore Center for Economic

Personal Finance 101
Dr. Rita Littrell
Bessie B. Moore Center for Economic Education
What can you do with money?




Spend it
Save it
Invest it
Share it
Cosby Show Economics Lesson
http://www.youtube.com/watch?v=nFY0HBk
Um8o
Spending








Make good decisions
Use a budget
Research products
Compare prices
Consider the opportunity cost
Keep receipts & warranties
Return faulty items
Use credit wisely
Consumer Credit
A loan – spending money you have not earned
Two types:
 Closed End Credit -- Ex: Auto Loans, Mortgage
Loans
 Open End Credit -- Ex: Credit Cards
Interest is the cost of credit
Credit Cards
 Make Sure You Know All The Terms and Conditions
 Beware of “Store Credit Cards” & Their High Interest
Rates
 Avoid Getting Too Many Credit Cards
 Beware of the Minimum Monthly Payment Trap
 Home Equity Line of Credit
Building Your Credit Rating
 Credit Bureaus – Collect Credit Information About
You
 Three Main Credit Bureaus in U.S.

Equifax

Experian

TransUnion
 Your Credit (FICO) Score
Building Your FICO Score
Fair Isaac Company credit score
FICO scores:
 Are your credit rating
 Range from 300 – 850, higher is better
 Most lenders base approval on FICO
 Higher scores result in lower interest rates
Free Credit Report:
https://www.annualcreditreport.com/cra/index.jsp
FICO Scores Based On
FICO scores are based on your rating in:
Payment history – 35%
Amount owed – 30%
Length of credit history – 15%
New credit – 10%
Types of credit used – 10%
http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx
How a Good FICO Score Can Help
36 month auto
loan
In Arkansas on
Sept. 26th, 2008
FICO score
For a loan of
$25,000
APR
Monthly payment
720-850
6.0%
$761
690-719
7.07%
$773
660-689
8.00%
$783
620-659
10.23%
$809
590-619
12.95%
$842
500-589
n/a
$0
Fico Help Center
Credit Counseling Services
 If You Are Having A Problem Paying A
Bill, You Can…
1. Contact the Creditor
2. Contact A Nonprofit Financial
3. Counseling Program
 Credit Counseling of Arkansas
Credit Counseling of Arkansas
 CCOA Is a Local NonProfit Org.
1. Provides Educational Services
2. Debt Counseling Services
3. Supported By Contributions From Banks,
Merchants, etc.
4. Service May Be Free or There May Be a Small
Charge
 Beware of Predatory Counseling Organizations
Saving
Consuming less than you earn.
Ways to save:
 Saving Account
 Certificate of Deposit
 Savings Bond
Rainy day or to invest
Sharing
Contributions of philanthropic organizations
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Walton Family Foundation
Wal-Mart Foundation
Winthrop Rockefeller Foundation
Winthrop Rockefeller Trust
Walton Family Charitable Support Foundation
Charles A. Frueauff Foundation,
Arkansas Community Foundation
Ross Foundation
Harvey and Bernice Jones Center for Families
Murphy Foundation
Windgate Charitable Foundation
Arkansas Philanthropy
Between 1997 & 2004, AR ranked among top 7 states
in individual charitable contributions while being
among the five least wealthy
National or International nonprofits groups
Heifer International – LR – eliminate starvation by
enabling low-income people to feed themselves on a
sustained basis
Potluck Food Rescue for Arkansas – redirects
otherwise wasted food to low-income Arkansans
AR Foodbank Network & AR Rice Depot – work to
relieve hunger and malnutrition
Investing
Options for Investing




Open a Savings Account
Invest in the Stock Market
Buy Bonds
Invest in a Mutual Fund
First step is to determine short and long term financial
goals.
Fundamentals of Investing
1. How Much Money Do You Want to Accumulate?
2. How Long Will It Take?
3. How Much Risk Are You Willing to Assume?
4. Are Your Goals Reasonable?
5. Are You Willing to Make the Necessary Sacrifices?
6. What Are the Consequences If You Don’t Reach Your
Goals?
Before Investing
Get Your Financial House In Order
 Make Sure You Have Adequate Insurance
 Start an Emergency Fund
 Balance Your Budget
Use These Options
1. Employer Sponsored Retirement Plans
2. Employer Savings Plans
3. Gifts, Inheritances or Windfalls
Save – Even If It Is a Small Amount!
(www.dinkytown.net)
Stocks
 Ownership in a company
 Buy Stock for:
1. Dividends
2. Price Appreciation
 Level of Risk
Mutual Funds
 Stocks in several companies
 Professionally managed
 Wide variety of funds
 Less risk due to diversification
 But You Can Lose Money Too!!
Bonds – a loan
 Corporate Bonds – not insured by
Federal Government
 US Government Bonds – Treasury Bills,
Bonds & Notes (terms vary)
 Municipal Bonds – issued by state and local
governments – Fed tax exemptions & that
state
 Bureau of Public Debt - US Dept of Treasury
 For ratings – Moody’s Investor Service Standard and Poor’s Corp
Financial Institutions
Use financial institutions to:
 protect your money
 help you manage your money – checks,
debit cards
 savings, checking and other accounts
 to help your money work for you
 for financial advice
Stock Market
 New York Stock Exchange (NYSE)
 American Stock Exchange (AMEX)
 Nasdaq (Nat’l Assn of
Securities Dealers
Automated Quotation)
List of up and coming
companies from Fast
Company!
Influences on the Market
•
•
•
•
•
War
Emotions
Politics
Economy
Natural Disasters
What influences the price of a stock
•
•
•
•
•
Conditions in the Industry
Changes in Technology
Competition
Health of the Company
Supply and Demand
The Arkansas 20
Reading a Stock Table
What Does it Mean?
Reading a Mutual Fund Table
Understanding the Mutual Fund Table
Reading a Bond Table
Understanding the Bond Table
Three Rules for Building Wealth
1. Start early.

Give money time to grow.
2. Buy and hold.

Keep you money invested.
3. Diversify.

Don’t put your eggs in one basket.
Use the Magic of Compounding
Compound Interest Calculator
Buy & Hold
1. Spend less than you receive.


Earn more by improving your formal education or job
skills.
Spend less by using a budget to keep track of where your
money is going.
2. Become connected to financial institutions?

Open and maintain accounts at mainstream financial
institutions.
3. Manage your credit responsibly?



Limit the number of credit cards you have.
Limit the number of purchases to what you can pay off
each monthly.
Apply for loans only when you are confident you can
repay with your current income.
Stock-Market Roller Coaster
If you hold long enough, the ups are greater than the downs.
Diversify
Don’t put all your
eggs in one basket!
Costs & Benefits of Saving & Investing
• Saving accounts: provide small but steady return
• Certificates of deposit: very safe, but instant
access is penalized
• Bonds: lending money to a corporation or
government, with a promise of higher returns than those
offered by bank savings accounts and CDs
• Stocks: part ownership in a company, offering higher
risks and potentially higher returns than some other
investments
• Real estate: the risks and benefits of being a landlord