Avoiding The Mine Fields of Personal Finance

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Avoiding The Mine Fields of Personal Finance

• Presented by
• Evelyn Edwards
• Vice President
• Regional Community Reinvestment Officer
• BancorpSouth
• and
• Vice President
• Program Implementation
• Mississippi Council on Economic Education
• Presented to
• Mississippi Adult Education Students and
  Instructors
• Sponsored by
• State Board for Community and Junior Colleges
• April 18, 2006

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Reunion for the CJC Adult Learners Class of
1981Celebrating 25 YearsGraduate Profile

• Name
• Do you have a family (yes/no) If so, how many
  children do you have?
• Where do you live?
• What do you do for a living?
• What kinds of things do you enjoy doing (hobbies,
  recreation, etc.)?
• Do you consider yourself a HAPPY person? (yes/no)
• What is your philosophy for a successful life?
• Should we nominate you for our schools SUCCESS
  HALL of FAME? (yes/no)

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Why consumers dont pay

• Loss of Income (48)
• Unemployment (24)
• Illness (16)
• Other (divorce, death, etc.) (8)
• Overextension (25)
• Poor money management
• Emergencies
• Materialism
• Need for instant gratification
• Defective goods and services (20)
• Fraudulent use of credit (4)
• Other (3)

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Raising Awareness of Personal Finance Mine Fields

• Decision Making
• Budgeting
• Skit Invalid Account Number
• Economic Pitfalls
• Compound Interest
• Trainer Notes
• FAQs
• Adult Education has a national goal to attain
  economic literacy and the material in this lesson
  relates to the Math Individual Life Skills and
  the functionality in the workplace for levels 4,
  5 and 6.

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Decision MakingFive-Step Model

• Step 1. Define the Problem
• Step 2. List Your Alternatives (options)
• Step 3. State Your Criteria (personal goals you
  feel are important)
• Step 4. Evaluate Your Alternatives
• Step 5. Make a Decision

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Personal Decision MakingDianas Credit Scenario

• Define the Problem Dianas daughter Cassandra
  had unexpected dental work done. The bill is due
  by the end of the week. After Diana pays the
  bill, she will be short 200 and wont be able to
  get through to her next paycheck. She must
  choose how she will pay the bill.
• List the Alternatives Diana has considered
  three alternatives. 1. She can go to
  CASH COW and get 200 immediately, for two
  weeks, at 20 interest. All that is required is
  some identification and proof of employment. 2.
  She can use her credit card and get a cash
  advance. The credit card interest is 18 and the
  cash advance fee is 20. Her average account
  balance is 1000 and there is no annual fee. She
  pays her bill on time, so there is no late fee.
  3. A friend suggested that she make payment
  arrangements with the Dentists office. No
  interest.
• Identify Your Criteria Dianas most important
  criteria are these take care of her daughter
  continue to pay bills on time stay within her
  budget increase income and decrease debt

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Personal Decision MakingDianas Credit Scenario
Cont.

• Evaluate Your Alternatives Diana must now
  evaluate her alternatives against her criteria.
  She has decided to use a decision making grid
  that her Adult Educator provided. She will use a
  and - system to evaluate each alternative.
  One plus sign is positive and two plus signs are
  even better---very positive. A minus sign is
  negative.

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Dianas Decision-Making Grid
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Personal Decision MakingDianas Credit Scenario
Cont.

• Make a Decision Diana decided to take her
  friends advice and ask the Dentists office to
  set-up a payment plan that will fit her budget.
  Continuing to pay bills on time and providing the
  necessary care for a child is very important to
  Diana.

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Staying Financially Fit Means Budgeting

• Examination of income expenses
• Plan for regular savings
• Strategy for thoughtful spending
• Spending less than you earn

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Budgets Are BeautifulCall-In Show

• Introduces some of the basics of money management
• By means of a radio call-in show script, students
  learn about setting up a family budget and
  distinguishing between income and net worth
• Stress the idea that decisions made regarding the
  use of your income are similar to other choices.
  There are advantages and disadvantages to various
  spending decisions. Sacrifices can be difficult
  to make when the costs must be paid in the short
  term and most of the benefits occur in the
  future.

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• BUDGETS ARE BEAUTIFUL
• CALL-IN SHOW

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Budgets Are BeautifulCall-In Show Review
Questions Answers

• What is disposable income? Disposable income is
  the money that you have to spend or save as you
  wish after deductions have been taken out of your
  gross pay
• What does Dr. Saver recommend as the three parts
  of a family budget? A family budget should
  include a listing of income, expenses, and
  savings.
• What are fixed and variable expenses? Use
  examples to illustrate each. Fixed expenses are
  ones that are relatively constant each month,
  such as a house, rent, and car payments.
  Variable expenses are ones that are likely to
  change or can be changed in the short term.
  Telephone bills, groceries, medical bills not
  covered by insurance, entertainment, recreation,
  and charge account purchases are examples.

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Budgets Are BeautifulCall-In Show Review
Questions Answers

• What does this idea of pay yourself first mean?
  Some savers include their savings goal in the
  fixed expenses part of their budget.
• What is net worth? Net worth is a way of
  measuring wealth. It is the current value of
  assets minus liabilities. (Liabilities are debts
  you owe)

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Basic Financial Plan

• Name of Planner ______________________________
• Date _________________________
• Part I Goal Statements
• List short-term Goals
• ___________________________________________
• ___________________________________________
• ___________________________________________
• ___________________________________________
• List medium-term goals
• ___________________________________________
• ___________________________________________
• ___________________________________________
• ___________________________________________
• List long-term goals
• ___________________________________________

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Basic Financial Plan

• Part II Income Information
• Complete the following using monthly income.
• Sources Amount of Income
• Wages _______________
• Gifts _______________
• Allowance _______________
• Interest on Savings _______________
• Sales _______________
• Other _______________
• Other _______________
• Total _______________

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Basic Financial Plan

• Part III Expenditures
• Complete the following using monthly figures.
• Expenditures Amount of Expenditures
• Housing ____________________
• Food ____________________
• Clothing ____________________
• School Supplies ____________________
• Job Equipment ____________________
• Car Payment ____________________
• Gas and Oil ____________________
• Car Maintenance ____________________
• Car Insurance ____________________
• Medical Care ____________________
• Entertainment ____________________
• Taxes ____________________
• Personal Care ____________________
• Gifts ____________________

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Basic Financial Plan

• Part IV What do the numbers tell you?
• Calculate the discretionary income by
  subtracting your total monthly expenses from your
  total monthly income.
• Total monthly income _____________________
• Total monthly expenses _____________________
• Discretionary income _____________________
• Given your monthly income, monthly expenses, and
  discretionary income, evaluate your ability to
  obtain the goals and live the lifestyle you have
  selected. Are your short, medium, and/or
  long-term goals being met? Will you be able to
  meet them in the future, given your financial
  condition and plan? Write your evaluative
  statement now

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SKITINVALID ACCOUNT NUMBERFeaturing
Grandma Rosetta
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Economic Pitfalls

• Failure to budget
• Misuse of Credit Cards
• Check cashing entities
• Cash for title entities
• Rent to own entities

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Misuse of Credit CardsMajor Economic Pitfall

• Cash or credit card----does it matter?
• Cash is a medium of exchange accepted by both
  buyer and seller.
• When you pay cash the transaction is complete
• Credit is a loan---signing a credit card receipt
  is a promise to pay the money later
• If you dont pay off the bill by the end of the
  grace period, interest charges will be added
• The transaction has two parts the exchange of
  goods or services for a promise and paying the
  credit card company when the bill comes in.

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Misuse of Credit CardsMajor Economic Pitfall

• Neway, a non-profit debt management organization,
  produces the following statistics for 1999
• The average American household has 10 credit
  cards
• The average balance on a credit card is 7,000
• The average APR (annual percentage rate of
  interest) is 18.9
• Americans paid about 64 million in interest on
  credit card debt of 565 trillion
• The typical monthly payment is 90 interest and
  10 principal

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Credit CardCounting The Cost For 1 Year

• Interest Pd 1440
• (Avg. acct. bal. X APR) (8000 x .18)
• Annual Fee 240
• Late fees 145
• Total 1,825

• Average account bal. 8,000
• APR of 18 interest
• 240 annual fee
• 29 late fee 5 times

The total cost paid does not include the minimum
monthly payment of 160
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Lets PlayCredit Card Coin Toss

• Give a chart to each player faced down
• Give each person a quarter
• Turn the chart over
• Each player will flip the coin 4 times
• Circle the outcome in each row of the chart
• If the coin lands on heads, circle the cost in
  the heads column. If the coin lands on tails,
  circle the cost in the tails column.
• The winner of the game is the person with the
  LOWEST cost
• The winner gets everyones coin

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Compound Interest

• Compounding means that you earn interest on the
  interest earned in previous years
• If you save 2000 and earn 8 annual interest
• You will have 2160 at the end of the first year
• You earned 160 in interest
• The second year, however, you will earn more than
  160 in interest because you earn 8 of 2160,
  not 2000
• This is 172 in interest, or 12.80 more than the
  first year

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Compound Interest Tomorrows Money

• How much difference does this compounding make?
• If you save 2000 a year at 8 annual interest
  from age 22 to age 65, you will have saved
  86,000 over 43 years
• At age 65, you would have a total of 713,899, or
  627,899 more than you saved
• Think of compound interest as the fertilizer that
  makes money grow

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The Power of Compounding Using the Rule of 72

• Some wealthy parents were deciding how to pay
  their daughter her allowance this month. She was
  given two choices
• Choice 1 Receive 300,000 for the month
• Choice 2 Starting with a penny on the first
  day, double her earnings everyday for one month.
  (Example day 1 0.01 day 2 0.02 day 3
  0.04 day 4 0.08 etc.)
• Which is the better choice? Lets look at the
  table in the handout.
• The second choice is by far the BEST! It will
  make her a millionaire in just 38 days!
• As the numbers get bigger, the doubling gets more
  and more dramatic
• Compound interest is almost as dramatic

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The Power of Compounding Using the Rule of 72

• With compounding you can double your money in a
  pretty short time, depending on the interest rate
  you are earning.
• It is called the Rule of 72
• Just divide 72 by the rate of interest youre
  earning
• It tells you the number of years it takes to
  double your money
• If your are earning 6 interest, doubling takes
  12 years 72 6 12 years
• If the interest rate is 8, doubling takes 9
  years
• 72 8 9 years
• Lets see you determine how long doubling will
  take
• Complete the bottom portion of the handout.

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Warning Signs of Financial TROUBLE!

• You dont know how much you owe.
• You often pay bills late.
• You get a new loan to pay old loans.
• You pay only the minimum balance due each month.
• You spend more than 20 of your net income (after
  rent/mortgage) on debt maintenance.
• You would have an immediate financial problem if
  you lost your job.
• Youre spending more than you earn, using your
  savings to pay for day-to-day expenses.

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Summary Personal Finance Mine Fields

• Decision Making Dianas dilemma illustrated how
  we can utilize the decision making grid and its
  benefits.
• Budgeting Budget Bob introduces terms that your
  students will need to understand in order to
  build and maintain a successful budget
• Skit Invalid Account Number --- Emphasized the
  importance benefits of having a banking
  relationship
• Economic Pitfalls Raised awareness of several
  pitfalls with focus on the misuse of credit cards
  
• Compound Interest Starting early, and the
  opportunity to double your money is awesome

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Teacher Resources

• www.ncee.net The National Council on Economic
  Education has a bibliography and Internet
  resource list that are constantly updated.
• www.mscee.org the Mississippi Council on
  Economic Education has a listing of ongoing
  workshops and a compound interest calculator!
• The Millionaire Next Door by Thomas J. Stanley
  and William D. Danko Longstreet Press and Pocket
  Books, 19996. This bestseller has surprising
  facts about millionaires. The book debunks the
  image of the rich as high-living spendthrifts and
  shows how anyone with a steady job who tries to
  amass a fortune can succeed.
• Financial Fitness for Life A series of
  publications for teachers, parents and students
  in K-12 available from the National Council on
  Economic Education.
• Your Credit Counts, available from the National
  Council on Economic Education is designed to
  teach about income, money and credit management
  in 6 practical units.

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QUESTIONS?!?!
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THANK YOU!!!!

• Evelyn Edwards
• BancorpSouth Bank
• 525 E. Capitol St.
• Jackson MS 39201
• 601-592-4848 (f) 601-592-4503
• evelyn.edwards_at_bxs.com