SHPE Foundation

Financial Education

Jr. Chapter 2013

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Outline

Today will cover the importance of Financial Education on the following topics:

Bank accounts Credit Creating and sticking to a budget

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Bank Accounts

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Type of Bank Accounts

There are many types of bank accounts:

Saving Accounts Free Checking Interest Bearing Checking Certificate of Deposits (CDs) Money Market Deposit Accounts (MMDAs)

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Saving Accounts

Money in this account is not for daily usage

Limited free transfer/transaction Interest rate: earn a modest percentage Cannot write checks for this account

Better than a piggy bank

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Free Checking

Money in this account is for daily use

Money is available through ATMs Interest rate: No interest earned Can write checks from this account No minimum balance required

Easier access to money

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Interest Bearing Checking

Money in this account can be for daily use

Interest rate: earned interest varies on the balance Can write checks from this account Balance required: varies from bank to bank Other fees and requirements can apply

Look for any possible hidden fees in this account

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Certificate of Deposits (CDs)

Money is not available for a certain period of time

Money cannot be used for a designated time Interest rate depends on the duration

The longer your commitment, the more interest you can earn

Time Period3 months or 6 months1 year to 5 years

Make your money work for you

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Money Market Deposit Accounts (MMDAs)

Money availability is limited

Limited transfers/transactions to approximately 5 or less per month

Interest rate is competitiveHigher rates than other accounts

Typically maintain a balance of at least $1,000 or higher

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Deeper Look Into Banking

0 Interest Rate

0 Simple interest

0P= Principal0 I= Annual interest rate0N=years

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Deeper Look Into Banking

0 Interest Rate

0 Compound interest

0 P= Principal0 I= Interest rate 0 N= months

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Deeper Look Into Banking

0 For example, With a principal of $1000, annual interest rate is 6%, for 8 months

0 You have gain 40 dollars

0 You have gained 40.70 dollars

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Deeper Look Into Banking

Common Fees Overdraft Fee

Withdrawal higher amount than available in your account Return Item Fee

When a check bounces because your account does not have enough funds

Monthly Maintenance FeeFor some checking and saving accounts

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Credit Cards

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Credit Cards

Credit cards are a line of credit given to you by a lender

Credit cards are similar to a loan Each time you swipe your credit card, the lender is

paying for you In return, you will pay the lender back with interest

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Credit Cards

Interest ratesVary from 10% to 30%These interest rate can be increased or decreased by the

credit company without any reason Fees

Annual Fee - Yearly fee for cardholders to payCash Advanced Fee - Charge when you withdraw money from

your credit card Late Fee - Charge when you make a late payment

Avoid withdrawing money from your credit card at all times!

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Advantages of Credit Cards

Credit cards may provide advantages.

A safe alternative to cash Bails you out of emergencies Can track fraudulent purchases

not made by you

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Disadvantages of Credit Cards

The real problem is how easy credit cards are to use!

Highly temptingYou can use money that you

do not have the ability to repay

You can easily go into debt

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Disadvantages of Credit Cards

Carrying a balanceThe plain fact is that most of us

carry a balance (owe money) from month to month

Getting out of debtInterest charges can add up,

which makes paying off the credit card take longer (money you could have saved or used for other needs)

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Credit Score

Credit scores range from 300 to 850Excellent credit is in the 700’s

There are 3 credits scores given by the 3 main lenders of credit

These scores are highly importantInterest rates are based on these scoresAmount of credit line are based on these scoresYour possibility to buy a house is based on these scores

300 850

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Creating and Sticking to a Budget

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Making a Budget

When making a budget consider the following:

Monthly Income Fixed Expenses Variable Expenses

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Fixed Expenses

Housing Communication

Cell PhoneCable TVBroad Band Internet

TransportationPublic TransportationCar Payment

InsuranceAuto InsuranceRenters Insurance

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Fixed Expenses

DebtCredit cards paymentsCollege loans

Savings Add percentage of your monthly income into your savings account

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Variable Expenses

FoodGroceriesLunch and dinner

MiscellaneousClothingMoviesCoffeeTank of gas

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Creating a Budget

After adding expenses, take:

Total Monthly Income - Monthly Expenses = Left over

This leftover money can be used for investing, saving, and/or additional wants such as planning a trip

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By monitoring what you spend, creating and keeping a workable budget will be simple!

Making a budget will help you avoid debt you are not be able to pay for!