Building a Financial Future for Georgia Families

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Building a Financial Future for Georgia Families

• Presented by Jeanne Hogarth
• Consumer Community Affairs
• Federal Reserve Board
• to the Georgia Extension Association of
• Family Consumer Sciences
• 9/5/2003
• The analysis and conclusions are the work of the
  author and do not indicate concurrence of the
  Federal Reserve Board, the Federal Reserve Banks,
  or their staff. Marianne Hilgert Chris Anguelov
  provided research assistance.

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Checkbook Check -- Which one are you?

• I keep a running tab of my balance, then check it
  religiously against the monthly statement
• I write down what I spend, but give up on the
  math. Then I go by the statement
• I figure if I still have checks, Im probably
  fine. Then I find a nice drawer for the unopened
  statements to live in.

3
What does it take to build a financial future?

• Economic knowledge
• When the Fed raises interest rates, what happens
  to your credit card interest rate? To you
  savings account interest rate?
• Consumer knowledge
• If you lease a car today and change your mind
  tomorrow, can you take it back, since its within
  the 3-day cooling off period?

4
What does it take to build a financial future?

• Stock market knowledge
• Over a 25 year period, which instrument has
  performed better stocks, bonds, treasury
  securities, or savings accounts?
• Money management knowledge
• How does paying your bills late affect your
  credit record? If you make only the minimum
  payment on your credit card, how long will it
  take you to pay it off?

5
Theres a lot to learn about money

• Set goals
• Develop a budget
• Start saving
• Manage credit wisely
• Protect your credit rating

• Get the best deal
• Take control
• Maximize your benefits
• Learn more about money

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Set goals

• Rich people plan for four generations. Poor
  people plan for Saturday night.
• Gloria Steinem

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Goals

• Concrete, specific, measurable
• 5,000 in 5 years
• 83/month or 21/week
• Realistic
• Check adjust
• Goal-getter funds
• Do they do it?
• Often or always plan and set goals for financial
  future 36

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Develop a Budget

• Annual income, twenty pounds annual expenditure
  nineteen pounds result, happiness.
• Annual income, twenty pounds annual expenditure
  twenty-one pounds result, misery
• Charles Dickens

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Develop a budget

• Track current spending
• Mental accounting
• Add in all expenses
• bank fees, ATM fees, bounce coverage fees
• Account management in an electronic era

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Do they do it?

• Use a spending plan or budget 46
• Have recordkeeping system or
• track expenses 79
• Pay all bills on time 88
• Have checking account 89
• Reconcile checkbook every month 75

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Start saving

• Stop smoking for three years and save enough
  money to buy an ox.
• Slogan of Chinas 1995 anti-smoking campaign

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Saving

• Save More Tomorrow program
• Save out of future raises
• The humble Savings Bond
• I Bonds 4.66
• Finding money for saving
• spend less, earn more, get more for your dollar

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Do they do it?

• Have savings account 80
• Have emergency fund 63
• Save or invest money out of each
• paycheck 49
• Save for long-term goals 39
• Have certificates of deposit 30

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Families Who Saved
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Investing A Quiz

• Who will have the bigger pot of money at
  retirement (assuming the same investment
  returns)?
• a) Alan saves 2000/yr from 23-27 and then saves
  nothing till retirement at 65
• b) George saves nothing till 35, and then saves
  2000/yr from 35-65

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Median Net Worth Distribution
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Financial Assets in 2001(median value percent
holding)
18
Financial Assets in 2001(median value percent
holding)
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Investment Advice

• October is one of the singularly most dangerous
  months to speculate in stocks.
• Others are November, December, January, February,
  March, April, May, June, July, August, and
  September. Mark Twain

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Non-Financial Assets in 2001(median value
percent holding)
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Manage credit wisely

• Shop, compare, negotiate
• 1,200 cards
• Re-fi car loans
• Subprime credit card terms
• APR 18.9
• Fees
• Account set up 29 Program 95
• Participation 6/mo (72/yr) Annual 48
• Late payment 25 Over the limit 25
• Initial charge 178

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Minimum payments
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Look for the Box
23
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Look for the Box to Shop

• Especially important with
• Sub-prime credit cards
• Secured credit cards
• READ EVERYTHING!

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Debt Held in 2001(median value percent holding)
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Median Debt Payment/Income Ratio
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of Debtors with Debt Payment/Income Ratio Above
40
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Protect your credit rating

• Why?
• Loans, employment, rentals, insurance premiums
• Risk-based pricing
• Pay bills on time
• 7 have some bills 60-days past due
• low income 13
• moderate income 12
• middle income 8

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Get the best deal

• Shop, compare, negotiate
• Know the rules of the marketplace
• Electronic check conversion float
• What do they know?
• After signing a contract to buy a new car, you
  dont have three days to change your mind.
  18

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Maximize your benefits

• Dont leave money on the table
• What do they know?
• The earlier you start saving for retirement, the
  more money you will have because the effects of
  compounding interest increase over time. 92
  
• Employers are not responsible for providing the
  majority of funds that you will need for
  retirement. 72

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The Good, the Bad, and the Ugly
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Learn more . about money

• What do they do?
• Read about money management 20
• Group environment
• classes, seminars
• Individual
• print, Internet, media
• on demand
• Combination

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How do people learn?
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How do people want to learn?

• Media (TV/radio, magazines,
• newspapers) 71
• Brochures/print materials 66
• Video 64
• Internet 56
• School 53
• Community courses 53

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What we didnt ask

• Learning from peers
• Employer-based programs
• Counseling coaching
• Planning ahead -- wills advance directives
• How people sort through sources of info
• Extension vs commercial information on (fill in
  the blank)

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Theres a lot to learn about money

• Set goals
• Develop a budget
• Start saving
• Manage credit wisely
• Protect your credit rating

• Get the best deal
• Take control
• Maximize your benefits
• Learn more about money

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How will we know if were making a difference?

• Information is not education
• Need to change behaviors
• Credit scores go up
• Savings rates go up
• Bankruptcies go down
• Self-anchoring measures

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Subjective Measures of Making a Difference

• Satisfaction with life and lifestyle
• Attitudes -- feel confident
• Feel prepared for events -- getting married, home
  buying, having kids, taking vacations, college
  education, home repairs, car buying, retirement

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Its Not Just About a Financial Future

• Try not to become a man of success but rather try
  to become a man of value. Albert Einstein

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5-Star Wisdom

• Every gun that is fired, every warship launched .
  . . signifies, in a final sense, a theft from
  those who hunger and are not fed, those who are
  cold and are not clothed. The world in arms is
  not spending money alone. It is spending the
  sweat of its laborers, the genius of its
  scientists, the hopes of its children.
  Dwight D. Eisenhower