Transcript Document

Money 101: Getting Started
Julie D. Judy
Extension Educator
Family & Consumer Sciences
Montgomery County Office
UNIV 100
College of Agriculture and Natural Resources
Presented by University of Maryland Cooperative
Extension
Maryland Cooperative Extension Programs are open to all citizens
without regard to race, color, gender, disability, religion, age or national origin.
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Trends in College Campuses
Growing college student debt
– Rising college costs
– Financial aid has not kept pace with
rising costs
– Increase in financially independent
students
– Lack of financial literacy
– Dramatic growth in credit card usage
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What Are the Facts?
 76% of undergraduates possess at least one
credit card
 Average credit card balance = $2,169
 23% students = > $3,000 in credit card debt
 Average undergraduate student carries four
credit cards
 Average college graduate has more than
$20,000 in debt
 15% is owed to credit card companies
Source: Nellie Mae
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Consequences of Student Debt
Problems
 Young adults (18-24) now have the second highest
rate of bankruptcy (GAO, 2001)
 Debt is linked to dropping out of college, physical
and emotional health problems, family conflict,
bankruptcy, job rejections, loan denials, inability to
rent apartments, professional school rejection, and
even suicide (Manning, 2001)
 Debt problems are associated with high levels of
anxiety (Nellie Mae, 2005)
 Affects personal and professional choices about
graduates’ jobs, where they live, and whether they
can buy a home or start a family (Smith, 2006)
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Closer to Home
University of Maryland College Park
• Total In-State Costs
• In-State Costs, After Aid
$17,530
$12,808
• Total Out-of-State Costs
• Out-of-State Costs, After Aid
$30,969
$26,247
• Average Debt at Graduation
$14,076
Source: Kiplinger Website
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Today’s Topics
Budgeting
Credit
• Why Have a Budget?
• Purpose & Cost of Credit
• Monthly Spending Plan • Building Good Credit
• Spending Diary
• Credit Report
• Credit Score
• Effects of Bad Credit
• Credit Tips
Identity Theft
Financial Record Organization
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Futures
Contracts
Collectibles
Aggressive Growth, Junk Bonds,
Stocks and Mutual Funds
Real Estate
High Quality Corporate Stocks, Bonds and Mutual Funds
Life Insurance Investments
Government Securities
Insured Savings, Savings Bonds, Money Market Funds, Certificates of Deposits
Goals
Budget
Financial Plan
Emergency Financial
Fund
Records
Life
Credit
Record
Health
Insurance
Disability
Property
Liability
Financial Foundation
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Emergency Fund
Goals
Budget
Financial Plan
Financial Financial
Statements Records
Life
Credit
Record
Health
Insurance
Property
Disability
Liability
Financial Foundation
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Spending Plan or Budget
A spending plan or budget forces you
to think about…
What is important (needs versus wants)
What you want to own in the future
How you want to live and what it will take
to get you there
Where you’re spending your money
How you could improve your spending
habits to help you reach your financial
goals
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Spending Plan (Budget) Process
1.
2.
3.
4.
5.
6.
Estimate available income
Define major expenses
Set spending levels
Develop spending plan
Monitor and control expenditures
Review periodically
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Spending Diary
How do I create a spending diary?
• For at least one month, write down EVERY purchase
you make in a planner or notebook; keep receipts
 Every purchase means every penny of every
purchase - - - includes the vending machines,
fast food, entertainment, coffee, etc.
• Use specific categories like “Groceries” and
“Eating Out” instead of a general category
(“Food”)
• Keep a check card/ATM/debit card registry
• Total amounts you spend in each category
• Use this spending diary to create a functional
budget or spending plan, based on averages
spent in each category
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Important
Reminder
Use 70% of take-home pay for living expenses
Use 20% to repay debt
Save 10% for you and your future
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Money Traps Can Catch You!
• Eating out
• Cigarettes
• Vending machines
• Soda, beer, wine,
alcohol, coffee
• Video/DVD rentals
• Personal care
products
• ATM withdrawals
• Others??
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Types of Cards
ATM Card (requires a PIN)
Allows you to access your funds from a checking or savings
account at an ATM machine
Debit Card (requires a PIN)
Allows you to access your funds immediately
Electronically linked to a checking or savings account
Check Card
Enables you to withdraw your money from a checking account
May be used as an ATM or debit card (with PIN)
Credit Card (does not require a PIN)
Issued by a bank or business authorizing you to buy goods/services
on credit. You borrow their money and pay it back with interest.
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Automatic Teller Machine
(ATM) CARDS
 Available 24 hours a day
 Don’t trust ATM account balances!
 Memorize your Personal Identification
Number (PIN)
 Keep receipts & track in checkbook!
 Remember to subtract ATM fees!
 Handle carefully
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ATM/Debit Card Laws and
Limitations
Report Lost or Stolen Cards!
If Reported within 2 Business Days
Maximum Liability - $50
If Reported w/in 3-60 Business Days
Maximum Liability - $500
If Not Reported for Over 60 Business
Days
Maximum Liability - Unlimited
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Credit
General Credit Information
Being granted credit is a privilege, not a right
Using credit = promising to repay a debt; a
contractual relationship
Different forms of credit include:
Credit Cards
Car Loans
Home Mortgages
Personal Loans
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Pros & Cons of Credit
ADVANTAGES
DISADVANTAGES
 Emergencies
 Loss of financial flexibility
 Identification
 High interest
 Convenience
 Temptation to overspend
 Reservations for
traveling
 Additional fees
 Privacy and identity theft
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Building Good Credit


Most college students are considered credit
“ghosts” (i.e., someone with no credit history)
What are some sources of credit that can be
used to build a credit history?



Credit Cards (e.g., gas company, bank credit
card, department store)
Personal Loans
It is important to use credit wisely!
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What’s the Cost to You for
Using Credit?
 Interest
Rates
 Annual
 Monthly
percentage rate (APR) – will vary
Payments
 Original
principal borrowed (purchases)
+ interest (finance charge) = Monthly
payment
 Interpersonal
Costs
 Time/emotions
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Cost of Credit
Example
Credit card balance = $2,500
Annual Percentage Rate (APR) = 18%
You make a minimum payment of the
greater of…
2% of the balance OR
$15.00 minimum each month
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Cost of Credit…continued
Month Payment
Interest
Principal Balance
1
$50.00
$37.50
$12.50
$2487.50
2
$49.75
$37.31
$12.44
$2475.06
3
$49.50
$37.13
$12.38
$2462.69
4
$49.25
$36.94
$12.31
$2450.37
5
….
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Consequences of Minimum Payments
If you pay only the minimum, it will take you
approximately 29 years to pay off the original
$2,500 debt!
You will have paid a total of $8397 ($5897 in
interest)!
If you pay the minimum plus $100 per month,
it will take only 2 years to pay off the original
$2,500 debt!
You will have paid a total of $2951 ($451 in interest)
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Effects of Bad Credit






Pay higher interest rates (APR)
May not be eligible for sales promotions
May have lower maximum credit limit
Money spent on debt, including interest
charges, will not be available for future
needs or wants
Could impact your ability to rent an
apartment, qualify for a mortgage or auto
loan, secure employment, etc.
Bad credit stays with you (negative entries
remain on your credit report for 7 years)
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General Credit Tips
Borrowing
Borrow only student loans that are needed,
not the entire amount for which you are
eligible
 Live like a student when you are a student;
avoid living like a professional until you
have a full-time position in your field
 Use credit only as a last resort, unless you
have a detailed plan (that you will follow)
to help yourself build credit

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What Do Credit Bureaus Do?
Collect data:
Provide information to:
 Personal information
 Employment history
 Credit Use and
Repayment history
 Creditors
 Employers
 Insurers
 Landlords
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Credit Bureaus
3 Major Credit Bureaus:
Equifax
Experian
Transunion
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Credit Reports
 Credit
Reports Include…
Payment history of credit cards and
loans
Bills in collection
Bankruptcies
Inquiries about your creditworthiness
 Free Reports (1 annually from each major
credit bureau)

www.annualcreditreport.com
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Credit Reports
Other ways to obtain credit report…


If you have been denied credit, insurance or
employment within the last 60 days
If you have reason to believe your report
contains inaccurate information, due to fraud
 Example – if you received a bill or late notice
for a purchase that you did not make or for
an account that you did not open
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Start Here
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Correcting a Credit Report
Contact company that reported the
error
Ask company to correct error, in
writing, with each credit bureau
Photocopy pertinent documents
Write credit bureau, explain error and
enclose documentation
Send certified mail with return receipt
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What Is A Credit Score?
Requests for new
credit
10%
10%
35%
Types of credit in
use
15%
Length of credit
history
Current total debt
Payment History
30%
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Credit Score Ranges
780-850 – Low Risk
740-780 – Medium Low Risk
690-740 – Medium Risk
620-690 – Medium High Risk
620 and Below – High Risk or
Sub-Prime
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Identity Theft
is the fastest growing
type of crime today.
Are You A Target?
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How Does It Happen?
Thieves Steal:
 Wallets and purses
 Mail
– bank cards
– bank statements
– new checks
– checks owed to you
– pre-approved credit offers
– phone bills
 Trash
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How Does It Happen?
Thieves also use practices such
as:
Pretexting
Phishing
Skimming
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Preventing Identity Theft
Don’t give out
personal information
over the phone, by
mail or on-line… unless
you know who you are
dealing with or you
initiated the contact
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Preventing Identity Theft
Keep personal information
in a safe place
Try to use other forms of
identification besides your
Social Security number
Order a copy of your credit
report yearly and check for
accuracy
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Preventing Identity Theft
 Put passwords on your credit
cards, bank and phone
accounts
 Make passwords random
 Carry only credit cards, checks
and papers you will need
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Preventing Identity Theft
• Pay attention to billing
cycles. Follow up with
creditors if bills don’t arrive
on time
• Guard your mail from
theft – both outgoing
and incoming
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Preventing Identity Theft
 Tear up or shred
personal information
before putting it in the
trash
 Don’t have a cross-cut
shredder? Buy one or
ask for one as a holiday
or birthday gift.
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What to Do if You’re a Victim
1. Place a fraud alert on your credit
report
2. Close accounts that have been
tampered with or opened
fraudulently
3. File a report with your local police
4. File a complaint with the Federal
Trade Commission
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Why Keep Records?
• Tax preparation
• In case of crisis
• For proof of payment
• For proof of ownership
• For protection
• It’s the sensible thing to do
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Options for Keeping Records
Best way? One that works for you…
– Simple handwritten records
– Computer software programs, e.g.
• MS Money
• Quicken / Quicken Deluxe
• Kiplinger’s Your Family Records Organizer
• Other software…
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Where to keep records?
In Your Wallet
driver’s license
personal identification
health insurance card
name of doctor and
person to call in case
of accident
card showing medical
problems
credit cards
(minimum #)
membership cards
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Where to keep records?
Where you live (e.g., dorm
room, apartment, with
parents)
– Personal papers,
Family Records
– Property Records
– Financial Records
Consider using a file box or
accordion file
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Where to keep records?
In a Safe Deposit Box or Home Safe
 title and bill of sale
 certificates: birth, death,
marriage, divorce, etc.
 contracts, notes and debts
 personal property inventory
 list of records in home file
 list of insurance policy names
 and numbers
 government or court recorded
documents
 copy of will
 leases and deeds
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without regard to race, color, gender, disability, religion, age or national origin.
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