SWRC Cultural Orientation Program Supplemental Training Curriculum. Financial Literacy

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1 SWRC Cultural Orientation Program Supplemental Training Curriculum Financial Literacy The International Rescue Committee in Silver Spring s Cultural Orientation Program serves refugees and asylees resettled by the four resettlement agencies that comprise the Suburban Washington Resettlement Center (SWRC). The CO Program provides intensive Initial Cultural Orientation to both refugees and asylees within their first several months in the United States, as well as additional training opportunities on specific topics throughout their resettlement process. Overview The Financial Literacy curriculum is designed to assist refugees and asylees to manage money, budget, understand credit and taxes, navigate the complex US banking system. It is intended to provide more intensive and detailed information than can be delivered during Initial Cultural Orientation sessions. The material is divided into four units: Banking, Budgeting, Credit and Taxes. A student handbook containing worksheets and sample documents accompanies the curriculum. Content Covered Banking Overview of the U.S. banking system Types of bank accounts Information about choosing a bank and opening an account Checks, Debit Cards, ATM Machines Credit Introduction to purpose, use, and system of credit Consumer credit report and credit scores Lending prerequisites Credit building techniques Budgeting What is a budget & Goal setting Needs vs. Wants Fixed vs. Flexible Expenses Making a budget Taxes Reading paychecks and paystubs Distinguishing between gross pay, net pay, deductions, and types of taxes Information about filing taxes and tax timelines Intended Audience This curriculum is designed to be used with adults, but may also be suitable for teenagers. Having a bank account is not a prerequisite, but participants should already understand the value of US money and be able to use coins and bills. The four units may be taught independently in a group or one-on-one setting. The student handbook may also be separated by unit. Credits The SWRC Financial Literacy curriculum contains material from existing Financial Literacy curricula including: Money Smart (FDIC), Pathways to Financial Freedom (IRC), Money Matters (IRC), Picture This (ISED Solutions). Curriculum development was also informed by resources from TD Bank, Bank of America, and partner resettlement agencies.

2 Financial Literacy: Banking What is a Bank? Objectives Time Materials Procedure By the end of this lesson, participants will: Understand what a bank is Understand why banks in the U.S. are safe places to store money 15 minutes This lesson requires no materials Introduce this lesson by asking participants about their past experience with banks and banking. Do you have experience with banks in your home country or the country you were living in? Do you have experience with banks in the U.S.? What are some of the reasons people use banks? Ask the class: What is a bank? A bank is an insured depository institution. This means: o Banks accept deposits. Banks keep your money in a safe place until you need it. o Deposits in the bank are insured. The federal government guarantees every dollar in U.S. banks up to $250,000 per depositor. o A depositor is someone who deposits his or her money in a bank. o The Federal Deposit Insurance Corporation (FDIC) is the agency that guarantees the money in every bank account. The FDIC is an independent agency created by Congress to maintain the public s confidence in the nation's financial system. o Consumer banks in the United States are all private. Although the United States federal government insures money when it is put in the bank, a bank is still a private, for-profit entity. Ask the class: Why open a bank account? Write down the participants correct answers. Make sure to repeat the participants answers when they are correct. Explain that without a bank account you have to pay for all your needs with cash. Carrying a lot of money and paying for everything with cash can be risky, inconvenient and expensive. Identify some downsides of using cash: o It is unsafe because if cash is lost or stolen, you can't get it back. o It is inconvenient because you have to carry around a lot of money if you plan on buying something expensive. Every time you want more money you have to go home to get it. o It is expensive because you will have to pay to have your checks cashed and to buy money orders. Financial Literacy: Banking

3 Assessment Remind participants that banks are businesses that provide safe and easy places to keep your money. They offer many different services to make managing money safer and easier than using cash: o Banks are safe because they are insured by the United States government. o Banks are convenient because they have branches throughout the United States; you can access your money almost anywhere. o Banks are easy. They provide customers with debit cards and checks, which makes paying bills and paying for large purchases much easier. o Banks can be inexpensive. If you choose the right bank and the right bank account, banking will be free. Participants can articulate in discussion why banks are safe places to store money. Financial Literacy: Banking

4 Financial Literacy: Banking Opening a Bank Account Objectives Time Materials Procedure By the end of this lesson, participants will be able to: Understand the difference between savings accounts and checking accounts Know what documents and information they need to bring with them to open a bank account Know what they will leave the bank with once they have opened a bank account Identify at least four major banks in the United States and list some of the criteria they needed to decide with which bank to open an account 15 minutes Bank Comparison Chart Bank Accounts Information Sheet Explain to participants that we are going to begin this lesson by discussing two types of bank accounts: checking accounts and saving accounts. Ask the participants, Do you know the difference between a checking account and a savings account? A checking account is a transactional deposit account held at a financial institution that allows for withdrawals and deposits. Explain that this means that a checking account is an account at a bank from which you can easily deposit and withdraw money. Most banks allow for unlimited withdrawals and deposits. It is very easy to access the money in a checking account. Money held in a checking account is very liquid and can be withdrawn using: o Checks o Electronic debits o ATMs o Banks There are different types of checking accounts: o Business Account o Student Account o Joint Account o Personal Account A savings account is a deposit account held at a financial institution that provides principal security and a modest interest rate. Explain that this means Financial Literacy: Banking

5 that a savings account is an account at a bank which you use to save money and earn interest. o Interest is small amounts of money the banks pay you on a regular basis for having access to your money. Explain that it is not possible to write checks from most savings accounts. A savings account has a limited amount of free transactions and transfers. Savings accounts are for money that you do not expect to use on a day to day basis. Saving accounts pay you interest for keeping your money. The more money you have in the bank and the less often you agree to take your money out of the bank, the higher the interest rate you will earn. Draw a comparison chart on the board to highlight key differences: Checking Account An account at a bank to easily deposit and withdraw money Unlimited withdrawals and deposits Can write checks Money is easy to access the most liquid Does not accrue interest Savings Account An account at a bank to save money and earn interest. Limited number of free withdrawals and deposits Cannot write checks Money is slightly harder to access less liquid Accrues interest Ask participants, Have you already opened a bank account? With what bank? Ask, Have you opened a checking account and/or a savings account? Do you know the type or the name of the checking account you have opened? Ask participants who already have bank accounts to explain to other participants what documents they needed to open their bank accounts. Tell participants that in order to open a bank account, they will need: o Two types of photo I.D.: Driver s License, State ID, I-94. o Proof of address: utility bill, lease agreement, pay stub o Social security number o Money: check, paycheck or cash to deposit in the account Explain that when participants open a bank account, bankers will ask them questions and enter application information directly into their computer systems. Ask participants, What are some of the types of questions that your banker asked you while opening your bank account? o Information about you: name, social security number, DOB o Address information: Address and telephone number o Employment information Financial Literacy: Banking

6 o Account type desired Ask participants, What did the bank give you when you opened a bank account? Repeat correct answers: o An Account Number: the primary identifier for your ownership of your account. o An Account Balance: the amount of money in your account. o Several Checks: most banks charge for a book of checks. o A Check Register: a booklet to track your deposits and withdrawals. o A Debit Card: Card with which to withdraw money from your account. Explain that there are many different banks in the U.S. Ask the class, Can you name some banks in the United States? How do you choose which bank to open an account with? Tell participants that before they choose a checking account they should compare: o Minimum Balance: Some banks and credit unions require that you keep at least a certain amount of money in your account. If you have less money in your account than the required amount, they will charge you a fee. The lower the minimum balance the better. o Annual Fees: Different banks charge different amounts for opening an account. Some will be free while others will have an annual or monthly fee. o Direct Deposit: Some banks require that you have an employer direct deposit or they will charge you a fee. Other banks will wave monthly fees with direct deposit. o ATM Fees: Some banks will charge you for using another bank s ATM. This fee may be higher at some banks than others. o Overdraft Fee: If you try to take more money out of your account than you have, the bank will charge you an overdraft fee. Some banks charge higher overdraft fees than others. Some banks give you the option of having checks/charges bounce rather than charging you an overdraft fee. o Number of Transaction: Some banks will only allow you to write checks or withdraw money a certain number of times per month. If you write more checks than you are allowed the bank will charge you an extra fee. o Documentation for Account: Some banks only require one form of picture ID while others require a green card and employment authorization document. Be aware of what documents each bank requires to apply. o Rewards: Some banks will reward you with Airplane miles, or cash rewards for banking with them. Tell participants that before choosing a savings account they should compare: Financial Literacy: Banking

7 o The interest rate: Some types of savings accounts pay you more interest than others. You should pick the account with the highest interest rate you can find. o Minimum Balance: Some banks require that you keep at least a certain amount of money in your account. If you have less money in your account, they will charge you a fee. o Annual Fees: Different banks charge different amounts for opening an account. Some will be free while others will have an annual or monthly fee. o Terms: There are some kinds of accounts where, once you deposit the money you have to keep it in the account for a certain amount of time, sometimes a month, sometimes a year, sometimes many years. If you try to take your money out before the term is over they will charge you a very large fee. Assessment Participants articulate the difference between a saving and a checking account, participants begin to fill out the Bank Comparison Chart correctly. Financial Literacy: Banking

8 Financial Literacy: Banking Using your Bank Account Objectives Time Materials Procedure By the end of this lesson, participants will be able to: Write and endorse checks Fill out deposit slips Use check registers Understand the different services the bank provides 30 minutes Checks Deposit and Withdrawal Slips Check Registers Begin by explaining to participants that once they have opened a bank account, they will need to know how to use it. Explain that money held in a checking account is very liquid and can be withdrawn using: o Checks o Electronic debits o ATMs o Banks A check is a written, dated and signed instrument that contains an unconditional order from the drawer directing a bank to pay a definite sum of money to a payee. This means: o The person writing the check is called the drawer. o The person for whom the check is addressed is the payee. o A check, once signed, orders a payment of money from the signer s bank account. o Checks are a type of bill exchange and were developed as a way to make payments without the need to carry around large amounts of gold and silver. o When you write a check to somebody it is almost the same thing as giving him or her cash. When they bring your check to their bank the money will be automatically taken from your account. Use a real check to demonstrate the parts of a check. Ask a participant to share with you one of their temporary checks or their check book. Go over the parts of a check with the class: o Your name and Address o Payee name o Date of the check Financial Literacy: Banking

9 o Check number o Memo o Check Amount in Words o Check Amount in Numbers o Signature Have the class get in partners. Have each participant write two checks to their partner, one for $78.00 and one for $ Explain that you can deposit checks at the bank. Tell participants that at the bank they will wait on line and speak with a teller. Before they get in line, they will need to fill out a deposit slip if they are depositing money, or a withdrawal slip if they are withdrawing money. Explain to participants that to deposit money they will have to fill out a deposit slip. They will give the deposit slip to the bank teller along with the cash or checks they are depositing. Tell participants that they will get deposit slips in the back of their checkbook with all of their information already printed on it. If they do not have a checkbook or forget their checkbook, the bank has many extra blank deposit slips. If they use a blank slip make sure that they fill in all of the information required so the bank knows where to put the money. o Go over the parts of the deposit slip with the class. Explain to the participants that without their account number they will not be able to deposit money at the bank. Ask the participants if they remember where they can find their account number. Explain to the class that if they do not remember a check and do not know their account number, they can hand the teller their debit card and the teller will look up their account number for them. o Depositing Money: Have participants fill in the deposits slips provided. Have them deposit the two checks written to them before and ask for 40 dollars cash back from the teller. Endorsing a Check: Tell participants that when they deposit a check in the bank, they have to sign the back of the check. This is called endorsing a check. Tell participants: o BE CAREFUL! Once the check has been signed anyone can cash it, so wait until you are at the bank to sign it! o Always use a pen with black or blue ink. o Sign only where it reads Endorse here. o Sign your name exactly as it appears on the Pay to the Order Of line on the front of the check. Write your account number under your signature. o If you want to sign the check over to someone else, write Pay to the Order Of and the name of the person you want to make the check payable to. Then sign your name underneath it. Have one partner act as the teller and the other act as the bank client. Have the blank client endorse the checks and hand both of the endorsed checks and the Financial Literacy: Banking

10 deposit slip to the teller. Have the teller check to make sure everything is correct and give the client their 40 dollars in cash. Then have the partners switch roles. Explain to participants that a debit card is a card issued by a bank which allows bank clients access to their account to withdraw cash or pay for goods and services. This card transfers money from the client s account to the businesses account. Explain that when participants open their checking account, they will get a debit card. This will be a temporary debit card. The bank will send them their real debit card in the mail. This debit card will have their name on it. Hold up a debit card and go over with the class the parts of the debit card: o Bank Name: the name of your bank. o Card Type: Visa, MasterCard. These are payment networks not companies. These payment networks are the computer systems that allow for processing of credit card transactions. o Card Number: the number on the front of your card. Not the same as your checking account number. o Valid through Date: the date through which your card will still work. o Authorized signature: you must sign the back of your debit card to authorize it for use. o Security Code: A code that identifies your card. Asked for when you use your card not in person. Where can you use your debit card? o Almost all stores o Internet o ATMs for cash Tell participants that when they open a bank account, they will have access to ATMs to withdraw and deposit cash (in addition to using checks and their debit card.) Tell participants that an ATM is an Automated Teller Machine. An ATM is an electronic banking outlet, which allows customers to complete basic transactions without the aid of a branch representative or teller. There are ATMs all over the U.S cities, so they are often more convenient and faster than using a bank. Explain that different ATMs have different features or allow for different transactions. At most ATMs participants can: o Withdraw cash o Deposit money o Facilitate credit card payments o Receive a report of the account balance Explain to participants that they can choose from their checking account or savings account when withdrawing or depositing money at an ATM. Financial Literacy: Banking

11 Ask the class if anyone has questions about using the ATM machine. If so, briefly explain the steps of using an ATM. Make sure to talk about the PIN Number. Say, The pin number is a four digit code that allows you access to your money. Make sure to choose a pin number that is not too easy to guess like your birthday but not too hard to remember. Tell participants that their ATM card will also work in other banks ATMs but warn participants that if they use an ATM not operated by their bank: The ATM will charge them a fee for getting cash Their bank may charge them a fee for using another bank s ATM They will not be able to deposit money or look at their account information Explain to participants that they can deposit checks and cash directly into an ATM machine without a deposit slip. The ATM will scan the check that they deposit, show them an image of the check on the screen and print a receipt with the check image on it. Tell participants that it is safe to deposit checks directly into the ATM. It is safer, however, to deposit large sums of cash in the bank, to prevent from theft. Check Register: Explain to participants that if they have a checking account, the amount in their account will change a lot over the course of the month. They have to know exactly how much money is in their account to make sure they don t write a check for more than they have. To do this, they must keep track of every time they take money out of their account, write a check, or deposit money into their account. Keeping track of how much money is in an account is called balancing a checkbook. Tell participants that if they do write a check for more money than they have in the bank it is called bouncing a check. If they bounce a check, the bank will charge them a fee. To keep track of their checks, deposits, and withdrawals, tell participants to use the check register that they received when opening a bank account. Explain that to use a check register, they should follow these steps: o If you are writing a check write the check number first. o Write the date. o Write a brief description of the transaction. If you are withdrawing money from your account write who you paid or what the money was for (rent, clothing, food, etc.). If you are depositing money into your account write where the money came from (paycheck, gift). o If you are taking money out of your account or writing a check, put the amount in the Payment/Debit column. o If you are adding money to your account put the amount in the Deposit/Credit column. Financial Literacy: Banking

12 o Write the amount of the decrease or increase in the last column. Subtract or add the amount to the balance and put the new balance on the next line. Have students enter all the transactions they have made so far into their check registers. Explain to participants that every month their bank will send them a bank statement. Tell participants to make sure that they read their bank statement carefully to make sure all the transactions listed are correct. The balance in their check register does not necessarily have to be the same as the balance on their bank statement. If they have written a check that has not yet been deposited, it will not show up in their bank statement but will appear in their register. Assessment Students ability to write checks accurately, students completed deposit forms, students endorsed checks, students can check over each other s work for errors, students can use their check registers. Financial Literacy: Banking

13 Financial Literacy: Credit What is Credit? Objectives Time Materials Procedure By the end of this lesson, participants will: Understand what credit is Understand what a credit report is and what it is used for Understand what a credit score is and what it is used for 45 minutes Credit Worksheet Begin by explaining to participants that credit is the ability to obtain goods or services before payment, based on the trust that payment will be made in the future. Explain that this means that you are using someone else s money to pay for things. It also means you are making a promise to repay the money (loan) to the person or company that loaned you the money (Creditor of lender). Tell participants that someone with good credit makes his loan payments on time and repays his debts as promised. Having good credit is important because it makes it easier to get a loan in the future. When you have good credit, lenders feel confident that you will be willing and able to pay them back in the future. Tell participants that in the U.S. it is very important to have credit. Most Americans do not have enough money saved up in their bank accounts to buy a car, a home, or an expensive appliance. So, they take out loans which enable them to buy these valued items. If they have good credit, they will be able to take out a home mortgage loan or a car mortgage loan. If they have bad credit, they will not be able to take out the loan or they will, but it will be costly. Tell participants that there are many benefits to having credit: o Needs: Credit lets you buy things like a house or a car that you would not be able to afford if you had to pay for all at once. o Flexibility: Having credit gives you the flexibility to spend more over a week or month than you could normally afford. o Emergencies: If you have a short-term emergency, credit can help you buy what you need, even if you cannot afford it right now. For example, if your fridge breaks or someone in your family gets sick and has to go to the hospital. Tell participants that you can get credit in different ways. The most common types are: o Credit Cards o Buying a home: Banks will give you a mortgage so you can afford to buy a home. Usually you pay the bank back over 30 years. o Buying a car: Banks or other companies will give you loans to buy a car Financial Literacy: Credit

14 o College: The government and banks will give you loans to go to school. Tell participants that banks will consider many different things when determining whether or not they have good credit: o Payment History: For creditors, it is very important that you pay your bills back on time every month. Of course, sometimes people forget to pay a bill back on time because of illness or vacation this is not a problem. However, if people make a habit of paying bills late their credit score will suffer. Creditors want to know that you will pay the money you owe them on time every month. o Amount of Credit you owe: Creditors consider you a lending risk if you are in too much debt. Most creditors prefer to lend to clients who are using less than 30% of their possible credit. o Length of your Credit History: Having no credit is considered having bad credit. The longer your credit history the better the creditor will be able to evaluate your potential risk. Make sure to start building credit as soon as possible! o New Credit: If you apply for credit too often creditors may be concerned that you are using too much credit. Creditors may think this means you are having cash flow problems. o Credit Mix: For creditors it is important that you have diversified credit (installment loans like mortgages, revolving loans like credit cards). If you are just starting to build credit, having a credit mix is less important. Explain to participants that the best way to find out if they have good credit is to get a copy of their credit report. The Consumer Credit Report is a factual record of an individual s credit payment history as reported by his or her creditors. Credit reports are used most frequently to help lenders quickly and objectively decide whether to grant credit. A credit report can also be used as a tool in making decisions about employment, rental, licensing, and insurance. Explain to participants what is in a Consumer Credit Report: o Identifying Information: Your name, current and previous addresses, social security number, date of birth, employer, and your spouse s name. This information comes from your credit applications, so its accuracy depends on you filling out the forms clearly and consistently each time you apply for credit. There may be variations in the information. o Inquiries: A record of those who have viewed your credit history. This information comes from the credit reporting agency. Inquiries remain on your credit report for two years. Inquiries that you initiate also are included on your credit report. o Account History: Specific information about each account such as date opened, credit limit, or loan amount, balance, monthly payment, payment status, payment history, your association with the account and whether anyone else besides you is responsible for paying the account. This information comes from the companies that do business with you. For open accounts positive information Financial Literacy: Credit

15 Assessment may remain on your credit report indefinitely. Most negative information remains up to seven years. Closed accounts with no negative information remain for 10 years. o Public Records: Federal bankruptcy records, tax liens and monetary judgments, and in some states overdue child support statements will appear on your credit report. Explain to participants that a credit score is a statistical summary of the information in a credit report at the moment the credit report is reviewed. A credit score is not part of their credit history and does not appear on their personal credit report. Explain that: o A credit score is a tool used to predict how likely an individual is to repay a new loan. o There are many different types of businesses that calculate credit scores: Independent companies, credit grantors, and credit reporting companies have their own computer programs to calculate credit scores. Furthermore, there are scoring systems for different types of lenders and risks. Your credit score will therefore be different depending on the scoring system used. o Creditors use credit scoring because it is a fast and objective way to evaluate a credit report. Your credit score protects your identity. Your age, health, race, religion, gender, national origin, marital status, income and employment are not considered in determining your credit score. Read to the class the following descriptions of consumers in the USA and ask the class whether each person has good credit or bad credit. When a student gives their answer, ask them why they chose the answer they did. o Bob: Often pays his bills late. However, he has a long credit history and he has a house mortgage, a car mortgage, and two credit cards. o Jake: Has never had a credit card or a mortgage. However, he has a lot of money in his savings account and never pays his rent or utility bills late. o Dirk: Always pays his bills on time. He has three credit cards each with a $600 dollar credit limit. He uses his $1,800 of credit in full each month and pays back the full amount each month. He does not apply for many credit cards. He has been borrowing for five years. o Nina: Pays her bills back on time every month. Has only two credit-cards each with a $300 credit limit. She uses only $120 of credit a month, $ 60 on each card. Participants apply what they have learned about credit, credit reports and credit scores to analyze good and bad credit scores during the credit assessment activity. Financial Literacy: Credit

16 Financial Literacy: Credit Building Credit Objectives Time Materials Procedure By the end of this lesson, participants will: Understand how to avoid having bad credit Understand how to build credit 15 minutes Chart paper and markers Begin the lesson with a discussion about avoiding bad credit. Have everyone volunteer one way of avoiding bad credit and write the answers on a large sheet of paper. Allow time for discussion following each response. At the end of the lesson, write your answers on the board and make sure students know which answers are correct and which answers are incorrect. Explain the volunteered correct answers and supplement with others: o Establish a credit report. You need credit history to get new credit. o Get a credit card. Revolving credit provides creditors with more insight into how you manage your credit. o Pay as agreed. Late payments or delinquencies are the most significant factor in your credit history. Pay your loans before you spend money on frivolous things like eating out or going to the movies. o Only apply for the credit you need. Do not apply for multiple accounts within a short period of time. Demonstrate stability. o Choose a credit card with a low interest rate and no or very low annual fees. Banks offer the most competitive credit cards. Research different credit cards before you choose one so that your credit card will not cost you too much money. o Try to pay more than the minimum due each month. When you only pay the minimum due you end up paying a lot of money in interest charges. o Use caution when closing accounts. Closing an account can result in the loss of positive credit history. Keeping older credit cards open with no balance will more likely have a positive than negative impact on a credit score. Older credit cards add to your average length of credit history. Open lines of credit also increase your total credit limit and thus decrease the debt to limit ratio. o Have a plan. Be accountable for your decisions and know how you are going to repay your debts. High balances are a sign of risk. Financial Literacy: Credit

17 o Do not use more than 25% of an accounts credit limit. Utilization should be at 25% no matter what the credit limit is. A high amount of debt to credit lowers a credit score. A credit grantor wants to know your overall utilization or how much of your total available credit you are currently using. Overall utilization is calculated by adding together the balances on all your revolving accounts and then adding together all of the credit limits and then dividing the balance by the limit. Individual Credit Utilization is also taken into account if there is any individual account with a balance greater than 25% of the credit limit it could also hurt your credit. Assessment Participants can articulate ways to build their credit and avoid having a bad credit report. Financial Literacy: Credit

18 Financial Literacy: Taxes Paycheck and Stub Objectives Time Materials Procedure By the end of this lesson, participants will be able to: Read a paycheck and stub Understand the different taxes in the U.S. 45 minutes Sample Paycheck and Stub W-4 Form Have students turn to the sample paycheck and stub handout in their student books for this lesson. Explain to the participants that this is a real paycheck and stub; the only reason that the check says not a real check is because the individual is enrolled in direct deposit. The check is just a receipt to take home for their records. Ask participants if they remember what direct deposit is. Explain to participants that the value of their paycheck is less than their hourly wage times the number of hours they worked. This is because: o Gross Pay: The total amount you have earned, your hourly wage, times the number of hours you have worked is your gross pay. In the sample, Damien s rate is $8.25 an hour and he worked hours. This means his gross pay is $8.25 x or $ o Have students look at the paycheck and ask participants if Damien took home his full gross pay. Damien only received $ in his paycheck. This means that he is missing $ o Explain to participants that in the U.S., no one receives their gross pay because all U.S workers are required to pay taxes. o Net Pay: What you receive is called your net pay your salary minus taxes and insurance costs. Explain that the U.S. government collects money from all people and businesses in the U.S to pay for government expenses. These are called taxes. Explain that: o The Internal Revenue Service is the part of the government responsible for collecting taxes. o There are two main types of taxes, income tax and social security tax. o Income tax is taken from any money you earn from a job or at a business that you own. The amount of income tax that you pay depends on the size of your family and the amount of income you earn. Generally, the more children you have the less money you will pay, and the less money you make the less money you will pay. Financial Literacy: Taxes

19 Explain to participants that when they start work, their employer will ask them to complete a W-4 form. Have the class turn to the W-4 form in their student books. Tell participants that they fill in the W-4 form so that their employer can withhold the correct amount of federal income tax from their pay. They should complete a new form W-4 each year to account for changes in their personal and financial situation. Explain to participants how to fill out a W-4 form: o The W-4 asks you questions about your spouse and children. o Line A: If another person can claim you as a dependent on his or her tax form than you cannot claim exemption from withholding. o Line D: The term dependents refers to children. On this line you claim the number of children that you have. o Line E: You claim the exemption if you are the head of your household. You can claim head of household filing status only if you are unmarried and pay more than 50% of the costs of keeping up a home for yourself and your dependants. o Line G: Child Tax Credit a special tax credit for families that have a total income of less than $61,000 of single and $90,000 if married. o For line H you add together lines A G. The number that you get indicates your filing status and the number of allowances you are claiming. o The W-4 determines the amount of money you will have to pay for federal income tax. Have participants turn back to the paycheck and stub handout. Point to the top of the paystub and show the class where it says taxable marital status: single. And exemptions/allowances Federal 2, DC 1. Explain to participants that Damien claimed 2 Federal exemptions and therefore he paid $29.05 in federal income tax or around 4.4%. Explain to participants that each state also has state income tax. For tax year 2011, Maryland's graduated personal income tax rates started at 2 percent on the first $1,000 of taxable income and increase up to a maximum of 5.50 percent on incomes exceeding $500,000. Nonresidents are subject to a special nonresident tax rate of 1.25 percent, in addition to the state income tax rate. Explain that another type of tax is the social security tax. For example: If you and your spouse work for ten years, when you retire after 65, the government will send you a social security check each month. The Social Security tax rate for employees is 4.2 percent. The Social Security tax rate for employers is 6.2%. The Social Security tax rate for self-employed is 10.4 percent through the end of the year. Show the class how Damien paid $27.55 or 4.2%. Tell participants that they will also pay Medicare tax. Explain to participants that this money is withheld from your paycheck for the Medicare program, which helps lower the costs of medical care in the U.S. The Medicare tax rate is 1.45 percent for employees and employers. The Medicare tax rate is 2.9 percent for self-employed. Show the class how Damien paid $9.51 or 1.45%. Financial Literacy: Taxes

20 Assessment Health Insurance: Explain to the class that many people in addition to tax deductions pay for medical insurance. The money that they pay for medical insurance is also deducted from their bimonthly paychecks. This information will also be listed under deductions. Participants can read a paycheck and stub, participants understand what a W-4 form is and how to fill one out, participants understand that federal income tax, state income tax, social security tax, and Medicare tax will be removed from their gross pay. Financial Literacy: Taxes

21 Financial Literacy: Taxes Filing your Taxes Objectives Time Materials Procedure By the end of this lesson, participants will: Understand how to file their taxes 15 minutes 1040 Form Assessment Begin by explaining to participants that every year in January, they will get a W-2 form from their employer. This form shows them how much they earned last year and how much tax they and their employer paid. Explain that they will use this form to send the IRS a summary of their income and all the taxes that they paid throughout the year. Have students turn to the form 1040 in their student books. Tell them that they will send a summary of their taxes on the form This is called filing a tax return. All tax returns for the year previous must be filed with the government by April 15 th. Tell participants that it is important that they get help to fill out their tax return: o The IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) Programs offer free tax help for taxpayers who qualify. o The VITA Program offers free tax help to people who generally make $50,000 or less and need assistance in preparing their own tax returns. Tell participants that they can also file their taxes online. Stress to participants that it is extremely important to be honest on their tax returns. If the IRS catches them lying, the IRS will make them pay all the taxes they owe plus fines and fees. Explain to participants that when they have completed filing their taxes, if the amount shown on the return is less than the amount of tax they have already paid, they will receive a refund. If the amount of tax shown on their return is more than the amount of tax they have already paid, they will need to make a payment with their return. Participants ability to articulate where they will file their taxes and why it is important to get help when filing taxes. Financial Literacy: Taxes

22 Financial Literacy: Budgeting Beginning to Budget Objectives Time Materials Procedure By the end of this lesson, participants will: Understand what a budget is Articulate the differences between needs and wants Express their own long-term and short-term goals 30 minutes Monthly Expenses Worksheet Paper and pens/pencils Begin this class by asking the participants, What is a budget? Has anyone ever had a budget? Why would an individual or family create a budget? Explain that a budget allows participants to: o Understand where your money goes o Make sure you do not spend more money than you make o Help you to save money o Helps you decide what to spend money on in the future Explain to participants that a budget helps you to understand the amount of money that goes into your household (income) and the amount of money that leaves your household (expenses). Additionally, a budget helps you to achieve your financial and personal goals. Although participants may think their income is small, tell them that creating a budget will help them to see ways they can stretch their money to cover all of their basic needs. It is important to be able to tell the difference between a need and a want. Tell participants: A need is something you must have. Examples of needs are water and food. A want is something you would like to make your life more comfortable or easier. Examples of a wants are cable TV and candy. When you are about to buy something, think about whether you really need it. This can sometimes be difficult, but you may be surprised by how many things you buy are not really needs. If you do not really need it, you may be better off saving the money for the future. You should spend money on needs before wants. o Have a class discussion regarding needs and wants. Point out that needs and wants are different for different people. Ask the class, Can you think of some needs and wants? Why are needs and wants different for different people? Tell participants that expenses are everything that they spend money on. There are two types of expenses: fixed expenses and flexible expenses. Fixed Financial Literacy: Budgeting

23 expenses are those that do not change from month to month. Flexible expenses are those that can change if necessary. Flexible expenses could be needs or wants. o Brainstorm with the class and make a list on the board of flexible and fixed expenses. For each flexible expense, have the class come up with ways of spending less or more money on the same expense. Tell the class that it is important to create financial goals. Identifying goals can help them focus on the things they most want to spend their time and money on. Goals give direction. Tell participants: o Goals must be specific, measurable, attainable, realistic, and time bound. o In many cases, the goals that are most important to us will take years to accomplish: like becoming an American citizen, buying a house or starting a business. These are called long-term goals and may feel overwhelming. But each long-term goal has lots of smaller parts. These are called short-term goals and may take only a couple of days or weeks to accomplish. o By clearly stating what our goals are and the smaller steps we must take to achieve our goals, we can plan how to spend our money and budget the time necessary to accomplish those goals. o Have each class member write down a personal goal. Make sure the goal is specific, measurable, attainable, realistic, and time bound. Make sure the goal has a price. Have class members share their goals. Assessment Participants identify ways to spend more or less money on expenses, participants write their own short-term and long-term financial goals. Financial Literacy: Budgeting

24 Financial Literacy: Budgeting Creating a Budget Objectives Time Materials Procedure By the end of this lesson, participants will be able to: Create a budget Know how to achieve financial goals 20 minutes Monthly Expenses Worksheet Monthly Budget Worksheet Explain to participants that in order to create a realistic budget, they should know their income and expenses. Ask participants, What is your income? Explain that income is any money that you earn or receive. Ask participants, What types of income do you receive? Repeat correct answers: o Salary o Food Stamps o Cash Assistance o Social Security o Housing Assistance Ask participants, Do you know your monthly income? Work with students to determine their monthly income and enter the information into the Monthly Budget Worksheet. Ask participants, What are your expenses? Explain that expenses are everything that participants spend money on. Ask, What are some common household expensed categories? Repeat correct answers: o Rent o Utility o Transportation o Childcare o Food o Supplies o Clothing o Medical Ask participants, How can you keep track of your expenses? Explain that one way to keep track of expenses is by tracking your money day-to-day. Tell participants that each time they buy something, they can write down what they Financial Literacy: Budgeting

25 Assessment purchased and how much it cost. Hand out the Monthly Expenses Worksheet to the class and explain how they can use the worksheet to track their monthly expenses. Have students estimate their monthly expenses and fill in the monthly expenses portion of the Monthly Budget Worksheet. Show students that their income minus their expenses is their savings. Now have each class member remember their goals. Tell the class that because they put a price on their goal, they can figure out based on their current spending habits how long it will take them to achieve their goal. For example: If they are saving 50 dollars a month and their goal is to buy a used computer for $700, they will achieve their goal in 14 months. Ask the participants to reexamine their budgets to determine if there is anything in their budgets they could change to save more money. Have them share their responses with the class. Participants create their own budgets, participants identify ways to spend more or less money on expenses, participants determine how long it will take them to achieve a financial goal based on their monthly savings. Financial Literacy: Budgeting