THE ECONOMY: PERSONAL FINANCES Financial literacy is an issue that should command our attention because many Americans are not adequately organizing

Transcription

1 THE ECONOMY: PERSONAL FINANCES Financial literacy is an issue that should command our attention because many Americans are not adequately organizing finances for their education, healthcare, and retirement.

2 Personal Investments Checking account: An account to keep your money for purchases Savings account: An account to keep your money that you don t intend to spend right away (usually earns you a small amount of interest) Average interest rate:.17% Stocks: A share (part) of a company When you buy stock/invest in a company, you own part of that company Mutual funds: Money given to a company that manages your money, investing it in multiple companies This is less risky than buying stock because your money is spread out Bonds: Money you give to the government or a company as a loan You earn interest from the government or company in return Retirement (Pension) funds: Money put into an account that you can t (without penalty) touch until you reach a certain age Land: Land/property is an investment because the value can either go up or down

3 Checking Account Works like cash Can t spend more than you have Allows you to use a debit card or checks Online banking/bill pay Access to ATM machines Doesn t earn interest Protected by the government (up to $250,000)

4 Savings Account Earns a small amount of interest Cannot be used as cash Some banks require monthly deposits Protected by the government (up to $250,000)

5 Stocks An investment in a company High risk/high reward Stock value changes daily depending on the market If they earn money, you earn money If they lose money, you lose money Not protected by the government

6 New York Stock Exchange

7 Mutual Funds Sold/controlled by a company Similar to stocks Spreads your money out amongst multiple companies Risky, but not as risky as directly purchasing stock Not protected by the government

8 Bonds Investors give money to a company or the government Earns interest Can t touch the money for a certain amount of time (6 months multiple years) Low risk Not protected by the government

9 Retirement (Pension) Funds Created by employers Invested in the stock market Similar to a mutual fund Typically cannot be accessed until retirement

10 Land Because land/property typically increases in value, it can often be a good investment Example: Since purchasing my house in Gilbert three years ago, it has gone up in value by $80,000. If I were to sell my house today, I would make a profit

11 Credit What is interest? Credit: Borrowing money from a bank to pay for a good/service *Typically requires interest payments Personal loan: Money given (in a lump sum) to someone to help them pay for any personal needs they might encounter. Average interest rate: 10% Credit card: A card that allows someone to purchase goods/services Average interest rate: 13% Mortgage: Money leant from a bank to help someone purchase property (example: house) Current average interest rate: 4% Auto loan: Money leant from a bank to help someone purchase an automobile (example: car) Average interest rate: 4%

12 Personal Loan Make monthly payments Lower interest rate than credit cards Becoming more popular

13 Credit Card Bank pays for items You make monthly payments to the bank Some offer 0% interest, unless you miss your monthly payment

14 Advantages Able to buy now Don t have to carry cash Creates a record of purchases More convenient than checks Incentives (1-5% cash back, rewards, etc)

15 Disadvantages Interest May require additional fees Financial difficulties may arise if you can t make monthly payments Easy to quickly go into debt Increased impulse buying

16 Mortgage Used to buy property Large loan 30-year or 15-year Only given to those with good credit scores

17 Auto Loan Used to buy automobiles Most common: 60-month Similar to mortgage loan

18 Banks want to know The Three C s - Character - Capital - Capacity

19 Character character will you repay the debt? From your credit history, does it look like you possess the honesty and reliability to pay credit debts? Have you used credit before? Do you pay your bills on time? Do you have a good credit report? Can you provide character references? How long have you lived at your present address? How long have you been at your present job?

20 Capital capital what if you don t repay the debt? Do you have any valuable assets such as real estate, savings, or investments that could be used to repay credit debts if income is unavailable? What property do you own that can secure the loan? Do you have a savings account? Do you have investments to use as collateral?

21 Capacity capacity can you repay the debt? Have you been working regularly in an occupation that is likely to provide enough income to support your credit use? Do you have a steady job? What is your salary? How many other loan payments do you have? What are your current living expenses? What are your current debts? How many dependents do you have?

22 Your responsibilities Borrow only what you can repay. Read and understand the credit contract. Pay debts promptly. Notify creditor if you cannot meet payments. Report lost or stolen credit cards promptly. Never give your card number over the phone unless you initiated the call or are certain of the caller s identity.

23 Building Good Credit Establish a steady work record. Pay all bills promptly. Open a checking account and don t bounce checks. Open a savings account and make regular deposits. Apply for a local store credit card and make regular monthly payments. Apply for a small loan using your savings account as collateral. Get a co-signer on a loan and pay back the loan as agreed.

24 Activity: Personal Budget