Money Tips for Teens. Before Reading Poll. Article

Transcription

1 Printed by: Jennifer Stoops Printed on: October 27, 2014 Money Tips for Teens Before Reading Poll Experts have tips for teens who are learning to manage money. Those tips include: put needs before wants, make a plan, start saving early, and save before spending. What do you think? Of those four tips, the best one is to save before spending. Agree Disagree Explain why you voted the way you did. Article PAGE 1 DENVER, Colorado (Achieve3000, September 27, 2010). The National Endowment for Financial Education (NEFE) wants to prevent today's teens from someday joining the millions of adults who are mired in debt and counting on credit cards and their next paycheck just to get by. So the organization has developed a set of money management tips that are geared toward helping young people develop habits that will ensure their financial independence. Here are NEFE's tips for teens: Put Needs First

2 According to NEFE, as teens learn to manage money, it is imperative that they first understand the difference between needs and wants. While many teens may consider movies and designer jeans to be needs, these nonessentials are actually wants. Needs are necessities such as food, clothing, and shelter. Teens should remember: Wants may make life easier and more fun, but it is important to identify and pay for needs before splurging on wants. Photo credit: 2010 / Jupiterimages Corporation A group of financial experts has developed a set of money management tips for teens. Save Before Spending According to experts, this personal finance axiom is one of the most sagacious. Whether teens receive a paycheck from a job or earn an allowance for work done at home, they should get into the habit of depositing a percentage of their earnings into a longterm savings account. Experts suggest beginning by saving 10 percent and gradually increasing the amount. Experts also recommend that teens think of the practice not as a sacrifice but as an investment in their future. Start Saving Early Speaking of investments, teens should begin saving at an early age by stashing money in an account that earns interest. In fact, experts say it is more important to begin saving even small amounts of money early than it is to save large amounts later. Here are the basics of investing in an interest-earning account: When people invest a sum of money, that initial sum is called the "principal." Periodically, investors receive "interest" on the principal. (Think of interest as extra money earned for making the initial investment.) There are two main types of interest. The first type is known as "simple interest." Let's say that a teen makes an investment of $10 that earns 10 percent interest annually. At the end of every year, the teen would make an extra dollar (because 10 percent of $10 is $1). However, experts recommend looking for investments that offer the second type: "compound interest." With compound interest, investors not only earn interest on the initial amount of the investment (the principal), but also on the interest that accrues on that investment. Determining the exact total of a long-term investment that earns compound interest can be complicated, but there are some ways to at least estimate the figure. One way is known as the "Rule of 72," which is a simple formula for calculating how long it takes for an initial investment to double. Under this rule, the number of years required to double an investment is equal to 72 divided by the interest rate earned. For example, let's say that a bank offers 4 percent interest on a money-market account. Since 72 divided by 4 equals 18, the investment will double in 18 years. Make a Plan According to financial experts, one of the best ways to learn about managing money is to set a simple financial goal, then budget accordingly. For example, a teen might benefit from opening a savings account and choosing something to save for, such as an item of clothing or a piece of sports equipment. This teen should begin by finding out how much the item costs, and then calculate how much he or she will need to save each week in order to reach the goal within a reasonable amount of time. According to experts, this is a good lesson in prioritizing and an introduction to the idea of planning for longer-term goals. Spend or Save? According to financial experts, it is also important for teens to identify their "money personality type." Some people are primarily spenders, while others are mainly savers. Teens should know which type they are so that they can plan accordingly and take steps to avoid potential pecuniary blunders. For example, teens who tend to spend money imprudently may want to avoid impulse purchases by depositing any money they want saved in the bank as soon as possible after getting paid. Plan To Avoid the Pitfalls of Credit Cards Financial experts cannot stress enough the importance of being smart about credit cards. When today's teens become tomorrow's adults, they will no doubt be offered credit card accounts. Experts suggest using this "plastic money" for emergencies only, not for non-necessities such as TVs and ipods. They add that when people do use credit cards, they should pay off the entire balance each month and avoiding falling victim to the minimum payment trap, which could pile thousands of dollars of interest onto the amount owed. (When consumers use credit cards, they often must pay compound interest to the credit card company instead of earning it, as they do with certain investments.)

3 "Carrying a credit card balance is never a great idea," said financial consultant Justin Sinnott, "and you will find yourself going backward." Going forward financially not backward early in life is the best way to develop good financial habits and to avoid the stress of falling into debt. The Associated Press contributed to this story. PAGE 2 Dig Deeper You may have already received a solicitation from a credit card company, or maybe you will in the next few years. Credit cards seem like amazing little pieces of plastic. You just hand one to the cashier, sign a slip, and you can take home anything you want even stuff you can't afford. It's that last part that gets so many people into trouble. They use credit cards to buy things they don't have the money for, and then pay interest fees month after month after month on top of their original debt. Avoiding this situation is a matter of using a credit card responsibly, which means understanding the terms of the credit card agreement and being aware of how much you're using the card. Companies issue credit cards because they hope to make money from you or rather, from the fees and interest you might end up paying. They often place the information about these charges in small print and confusing language on a credit card application or Web site, so it's important to read this information and look for certain words and terms so you can remain aware of what you're getting into. Credit card companies often charge an annual fee just for using the credit card, but fortunately, it's possible to avoid annual fees, which can be as high as $300. Credit card companies also have interest rates (often called annual percentage rates). This is where a lot of people get into trouble. When you use a credit card, you're taking a loan from the company, so it makes sense that the company would charge you interest a fee you pay for the privilege of taking that loan. Suppose you get your credit card and charge $200 on it during the first month. That is your balance, or your principal. Your bill will require at least a minimum payment before a set deadline. Otherwise, you'll be charged interest. When you get your bill, you've got four options: A. Don't pay anything. You'll be charged a late fee for not paying even the minimum payment and you'll be charged interest on your next credit card bill. Whatever you charge after this will be added to the initial $200, and as your balance grows, you'll have to pay more and more interest. Not a good idea. B. Pay the minimum amount. You won't be charged a late fee, but you will be charged interest on the remaining balance. The credit card company loves when you pay the minimum because, just as if you pay nothing, whatever you charge after this will be added to your balance and you'll owe tons of interest. Eventually, the debt will be higher than many people can afford to repay. C. Pay as much of the balance as you can. You'll still be charged interest, but the lower your balance, the less interest you'll pay. D. Pay the full balance. You won't be charged anything no late fee, no interest. This is the best way to use a credit card. Of course, the credit card company wants you to pay interest and lots of it but it's in your best interest to go with Option D. If you're thinking, "But I could never afford to pay back $200," it means you shouldn't charge that amount on a credit card. Financial experts will tell you that you should only use a credit card to buy what you know you can pay for in a timely manner. What if you end up with a high balance on a credit card that has a high interest rate? It's possible to transfer your balance to a card that has a lower interest rate, but be aware that some companies charge fees to transfer balances. Also, if you're moving

4 some of the balance to a new card just so you can charge more on an old card, it may mean that you're charging much more than you're paying back, and that you'll need to stop spending and concentrate on saving up enough money to pay off your balance. The bottom line is: Don't charge more than you can afford, and pay off your balance in full, if possible. This is the best way to avoid the problems that can sometimes come with having a credit card. Dictionary accrue (verb) to build up pecuniary (adjective) having to do with money sagacious (adjective) wise Activity PAGE 1 1. The best alternate headline for this article would be. Financial Advice for Teens Compound Interest Rates Who's Funding NEFE? The Credit Card Dilemma 2. Which is the closest synonym for the word sagacious? Fraudulent Lenient Prudent Complacent

5 3. Which of these is a statement of opinion? With compound interest, investors earn interest on the initial investment and also on the interest that accrues. With some credit card companies, consumers must pay compound interest on their outstanding credit card balances. The National Endowment for Financial Education provides unsurpassed financial information for young people. The Rule of 72 is a formula for calculating how long it takes an initial investment to double in value. 4. Which of the following best describes one similarity between simple and compound interest accounts? Simple and compound interest accounts both earn interest on the principal but not on the accrued interest. Simple and compound interest accounts both accrue interest on the interest but not on the principle. Simple and compound interest accounts both earn interest on the principal and on the accrued interest. Simple and compound interest accounts both accrue interest on the initial amount of the investment. 5. According to the article, what is one benefit of setting a simple financial goal and budgeting accordingly? It is a good introduction into the idea of planning for long-term goals. It will provide information on the challenges of credit card debt. It is a simple way to learn the difference between wants and needs. It will help teens understand why investors use the Rule of Which question is not answered by the article? How does the Rule of 72 work? What credit card company offers the lowest interest rate? What is the main difference between a want and a need? How does compound interest accrue?

6 7. The article states: According to experts, this personal finance axiom is one of the most sagacious. Which would be the closest synonym for the word axiom? Adage Acquisition Analogy Apathy 8. The author probably wrote this article to. Provide a list of financial tips to help teens better manage money Provide information about selecting the most advantageous credit card Provide readers with tips on managing a savings account Provide readers with a list of ways to identify spending habits After Reading Poll Now that you have read the article, indicate whether you agree or disagree with this statement. Of those four tips, the best one is to save before spending. Agree Disagree Thought Question What advice about money did you learn from the texts? Which piece of advice did you find most helpful? Support your response with information from the lesson. Type your answer in the text box below.

7 Poll Results OPINION STATEMENT: Of those four tips, the best one is to save before spending. BEFORE READING AFTER READING HOW YOU VOTED Agree Disagree Agree Disagree NATIONAL RESULTS Agree 86% Agree 88% Disagree 14% Disagree 12% 9% changed their opinion after reading the article. Math PAGE 1 1. Whitney opens a savings account. She makes an opening deposit of $366. The account collects simple interest at a rate of three percent. What will be the balance on Whitney's savings account after five years have passed? Assume that Whitney does not make any other deposits or withdrawals on the account. Use the following formula to help you decide: I = Prt I = interest earned ($) P = amount invested ($) r = interest rate (% in decimal form) t = time of the investment (years) $ $ $ $ Stretch Article

8 PAGE 1 DENVER, Colorado (Achieve3000, September 27, 2010). The National Endowment for Financial Education (NEFE) wants to prevent today's teens from someday joining the millions of adults who are embrangled in debt and counting on credit cards and their next paycheck just to get by. So the organization has developed a set of money management tips that are geared toward helping young people develop habits that will ensure their financial independence. Here are NEFE's tips for teens: Put Needs First According to NEFE, as teens learn to manage money, it is imperative that they first understand the difference between needs and wants. While many teens may consider movies and designer jeans to be needs, these nonessentials are actually wants. Needs are necessities such as food, clothing, and shelter. Teens should remember: Wants may make life easier and more fun, but it is important to identify and pay for needs before splurging on gratuitous wants. Photo credit: 2010 / Jupiterimages Corporation A group of financial experts has developed a set of money management tips for teens. Save Before Spending According to experts, this personal finance axiom is one of the most sagacious. Whether teens receive a paycheck from a job or earn an allowance for work done at home, they should get into the habit of depositing a percentage of their earnings into a longterm savings account. Experts suggest beginning by saving 10 percent and gradually increasing the amount. Experts also recommend that teens think of the practice not as a sacrifice but as an investment in their future. Start Saving Early Speaking of investments, teens should begin saving at an early age by stashing money in an account that earns interest. In fact, experts say it is more important to begin saving even small amounts of money early than it is to save large amounts later. Here are the basics of investing in an interest-earning account: When people invest a sum of money, that initial sum is called the "principal," on which investors receive periodic "interest" payments. (Think of interest as extra money earned for making the initial investment.) There are two main types of interest. The first type is known as "simple interest." Let's say that a teen makes an investment of $10 that earns 10 percent interest annually. At the end of every year, the teen would make an extra dollar (because 10 percent of $10 is $1). However, experts recommend looking for investments that offer the second type: "compound interest." With compound interest, investors not only earn interest on the initial amount of the investment (the principal), but also on the interest that accrues on that investment. Determining the exact total of a long-term investment that earns compound interest can be complicated, but there are some ways to at least estimate the figure. One way is known as the "Rule of 72," which is a simple formula for calculating how long it takes for an initial investment to double. Under this rule, the number of years required to double an investment is equal to 72 divided by the interest rate earned. For example, let's say that a bank offers 4 percent interest on a money-market account. Since 72 divided by 4 equals 18, the investment will double in 18 years. Make a Plan According to financial experts, one of the best ways to learn about managing money is to set a simple financial goal, then budget accordingly. For example, a teen might benefit from opening a savings account and choosing something to save for, such as an item of clothing or a piece of sports equipment. This teen should begin by finding out how much the item costs, and then calculate how much he or she will need to save each week in order to reach the goal within a reasonable amount of time. According to experts, this is a good lesson in prioritizing and an introduction to the idea of planning for longer-term goals.

9 Spend or Save? According to financial experts, it is also important for teens to identify their "money personality type," with some people being primarily spenders and others being mainly savers. Teens should know which type they are so that they can plan accordingly and take steps to avoid potential pecuniary blunders. For example, teens who tend to spend money imprudently may want to avoid impulse purchases by depositing any money they want saved in the bank as soon as possible after getting paid. Plan To Avoid the Pitfalls of Credit Cards Financial experts cannot stress enough the importance of being smart about credit cards. When today's teens become tomorrow's adults, they will no doubt be offered credit card accounts. Experts suggest using this "plastic money" for emergencies only, not for superfluities such as TVs and ipods. They add that when people do use credit cards, they should pay off the entire balance each month to avoiding falling victim to the minimum payment trap, which could pile thousands of dollars of interest onto the amount owed, which consumers amortize over time. (When consumers use credit cards, they often must pay compound interest to the credit card company instead of earning it, as they do with certain investments.) "Carrying a credit card balance is never a great idea," said financial consultant Justin Sinnott, "and you will find yourself going backward." Going forward financially not backward early in life is the best way to develop good financial habits and to avoid the stress of falling into debt. The Associated Press contributed to this story. PAGE 2 Dig Deeper You may have already received a solicitation from a credit card company, or maybe you will in the next few years. Credit cards seem like amazing little pieces of plastic. You just hand one to the cashier, sign a slip, and you can take home anything you want even stuff you can't afford. It's that last part that gets so many people into trouble. They use credit cards to buy things they don't have the money for, and then pay interest fees month after month after month on top of their original debt. Avoiding this situation is a matter of using a credit card responsibly, which means understanding the terms of the credit card agreement and being aware of how much you're using the card. Companies issue credit cards because they hope to make money from you or rather, from the fees and interest you might end up paying. They often place the information about these charges in small print and confusing language on a credit card application or Web site, so it's important to read this information and look for certain words and terms so you can remain aware of what you're getting into. Credit card companies often charge an annual fee just for using the credit card, but fortunately, it's possible to avoid annual fees, which can be as high as $300. Credit card companies also have interest rates (often called annual percentage rates). This is where a lot of people get into trouble. When you use a credit card, you're taking a loan from the company, so it makes sense that the company would charge you interest a fee you pay for the privilege of taking that loan. Suppose you get your credit card and charge $200 on it during the first month. That is your balance, or your principal. Your bill will require at least a minimum payment before a set deadline. Otherwise, you'll be charged interest. When you get your bill, you've got four options: A. Don't pay anything. You'll be charged a late fee for not paying even the minimum payment and you'll be charged interest on your next credit card bill. Whatever you charge after this will be added to the initial $200, and as your balance

10 grows, you'll have to pay more and more interest. Not a good idea. B. Pay the minimum amount. You won't be charged a late fee, but you will be charged interest on the remaining balance. The credit card company loves when you pay the minimum because, just as if you pay nothing, whatever you charge after this will be added to your balance and you'll owe tons of interest. Eventually, the debt will be higher than many people can afford to repay. C. Pay as much of the balance as you can. You'll still be charged interest, but the lower your balance, the less interest you'll pay. D. Pay the full balance. You won't be charged anything no late fee, no interest. This is the best way to use a credit card. Of course, the credit card company wants you to pay interest and lots of it but it's in your best interest to go with Option D. If you're thinking, "But I could never afford to pay back $200," it means you shouldn't charge that amount on a credit card. Financial experts will tell you that you should only use a credit card to buy what you know you can pay for in a timely manner. What if you end up with a high balance on a credit card that has a high interest rate? It's possible to transfer your balance to a card that has a lower interest rate, but be aware that some companies charge fees to transfer balances. Also, if you're moving some of the balance to a new card just so you can charge more on an old card, it may mean that you're charging much more than you're paying back, and that you'll need to stop spending and concentrate on saving up enough money to pay off your balance. The bottom line is: Don't charge more than you can afford, and pay off your balance in full, if possible. This is the best way to avoid the problems that can sometimes come with having a credit card. Dictionary amortize (verb) to pay off something with periodic payments that include the original amount owed plus interest embrangle (noun) to involve in difficulties gratuitous (adjective) unnecessary or unwarranted in a certain situation pecuniary (adjective) having to do with money Stretch Activity PAGE 1 1. The best alternate headline for this article would be. Who's Funding NEFE? Financial Advice for Teens The Credit Card Dilemma Compound Interest Rates

11 2. Which is the closest synonym for the word embrangle? Accrue Relegate Incur Mire 3. Which of these is a statement of opinion? With compound interest, investors earn interest on the initial investment and also on the interest that accrues. The Rule of 72 is a formula for calculating how long it takes an initial investment to double in value. The National Endowment for Financial Education provides unsurpassed financial information for young people. With some credit card companies, consumers must pay compound interest on their outstanding credit card balances. 4. Which of the following best describes one similarity between simple and compound interest accounts? Simple and compound interest accounts both earn interest on the principal but not on the accrued interest. Simple and compound interest accounts both accrue interest on the initial amount of the investment. Simple and compound interest accounts both earn interest on the principal and on the accrued interest. Simple and compound interest accounts both accrue interest on the interest but not on the principle. 5. According to the article, what is one benefit of setting a simple financial goal and budgeting accordingly? It will provide information on the challenges of credit card debt. It is a simple way to learn the difference between wants and needs. It will help teens understand why investors use the Rule of 72. It is a good introduction into the idea of planning for long-term goals. 6. Which question is not answered by the article? What is the main difference between a want and a need? How does compound interest accrue? How does the Rule of 72 work? What credit card company offers the lowest interest rate?

12 7. The article states: According to experts, this personal finance axiom is one of the most sagacious. Which would be the closest antonym for the word sagacious? Imprudent Prohibitive Monetary Ambiguous 8. The author probably wrote this article to. Provide readers with a list of ways to identify spending habits Provide information about selecting the most advantageous credit card Provide readers with tips on managing a savings account Provide a list of financial tips to help teens better manage money