financial literacy – what you need to know to survive … · payday loans can exceed 400%...

FINANCIAL LITERACY – WHAT YOU NEED TO KNOW TO SURVIVE IN TODAY’S ECONOMY Presented by: Terry Lawson Lawson Law Center 700 E. 8th St. Kansas City, MO 64106 www.llckc.com

The Hard Truth

• The “system” is rigged against you. There are tricks and traps everywhere for the unwary.

• Unless you plan to drop out, tune out, and live on the

street, you must learn the system, and avoid the traps. In other words: • YOU MUST BE FINANCIALLY LITERATE TO SURVIVE

(AND EVEN THRIVE) IN TODAY’S ECONOMY

LAWSON LAW CENTER LLC – WWW. LLCKC.COM 2

What is the proof the system is “rigged”?


http://www.youtube.com/watch?v=QPKKQnijnsM

For a great video on the topic, see “Wealth Inequality In America” on YouTube:



Wealth tends to flow UP

• As the graphs show, wealth tends to collect in the top tiers of society, and flows away from the bottom tiers of society.

• How can YOU have a chance to accumulate wealth?


Financial Literacy • FANCY DEFINITION: The ability to effectively evaluate and manage

one’s finances in order to make prudent decisions toward reaching life’s goals

• In Plain English: FINANCIAL LITERACY = CONTROLLING YOUR MONEY INSTEAD OF MONEY CONTROLLING YOU • The understanding of:

- Money - Cash flow - Basic economic/financial concepts - Debt/risk management


Four Inputs to Your Finances


INCOME EXPENSES

WEALTH DEBTS

DANGER! If Monthly expenses exceed income, DEBT rapidly accumulates. Result: DISASTER.

If Income exceeds Expenses + Debt Service, then Wealth can GROW

Income vs. Expenses Business Leaders Follow this Rule, and you should too:

IF YOU DON’T MEASURE IT, YOU CAN’T MANAGE IT! Without a Budget, you CANNOT win with money. EVER.


Budgeting Basics LAWSON LAW CENTER LLC – WWW. LLCKC.COM 10

How to Budget – FREE HELP


mint.com powerwallet.com

check.me

Easy, low cost or free, and phone app capable. Makes budgeting and tracking finances a breeze.

Debt vs. Wealth • DEBT from excess EXPENSES = BAD No Wealth gain from this. • DEBT from ASSET PURCHASES = MAYBE GOOD If the asset goes up in value, then you have gained wealth. If not, you have LOST potential wealth Good Debt (usually) = Home Loan (value goes up) BAD DEBT (usually) = Car Loan (value goes down) • DEBT from NOTHING = BEST! Lots of money to invest, save, and purchase quality assets.


What About Student Loan Debt? LAWSON LAW CENTER LLC – WWW. LLCKC.COM 13

Growth in student loan debt is constant, and accelerating.

Student Loan Debt Delinquencies


Late payment is more common with student loans that any other type of debt.

2 Year Colleges are the Best Deal


How do you get the MOST for the cheapest price? Go to local 2 yr. and community colleges – the best deal in higher education – BY FAR.

Which one gets the job done?


1 Smashburger: $4.99

2 McDoubles: $2.00

Student Loans – Which Type is Best? Federal Loans are MUCH BETTER than Private Loans! WHY? Loans from the federal government have repayment options that make sense – private loans DON’T.

Federal repayment options: Graduated payments, Extended repayments, Income Based Repayment, Pay As You Earn (PAYE) Public Service Loan Forgiveness, Teacher Loan Forgiveness BUT BEWARE: Federal Loan failure to pay = prejudgment garnishment, seized tax refunds, seized social security payments and NO additional financial aid.

Private Loan options: PAY US NOW! You’re Broke? We don’t care – we’ll just sue.


Don’t be a Debt Rookie! 8 Tips 1. Always pay NEEDS first before WANTS

1. Food, Shelter, Utilities 2. Car / Housing 3. Taxes, Child support, court ordered payments 4. Student Loans 5. All others

2. NEVER pay unsecured loans (no collateral) before you pay secured loans (loans with collateral to repo)

1. Exception: student loans - federal loans are priority, then private 2. Exception: loans with household goods as collateral, are no

more important than credit card bills, generally (e.g. Best Buy) 3. Credit cards are NEVER the most important debt you have 4. Medical debt can almost always be negotiated


Don’t be a Debt Rookie! 8 Tips 3. NEVER take out loans higher than 12% - 18%

Payday loans can exceed 400% interest! Buy here, pay here car loans are the WORST car loans around Credit card cash advances often have highest interest rates (29.99%) Revolving fees make good traps to keep you in debt over and over

4. High Risk Lenders are NEVER a good idea – see #3 Payday Loans Title Loans Internet Loans Pawn Shops Rent to Own Buy Here / Pay Here Auto Dealer Renting or Leasing anything (except housing)


Don’t be a Debt Rookie! 8 Tips 5. THREATS of lawsuit and actual lawsuits don’t really change these priorities much - Only a judgment changes the power of a creditor - The loudest creditor is NOT necessarily the one you should pay first. 6. Credit repair / debt consolidation companies Generally a bad idea – commonly a scam Why pay them for things you can do yourself? 7. Refinances of debt – ONLY a good idea if total payment on the debt is reduced. Ignore the monthly amount and look at the total amount of the loan in the TILA disclosures.


Don’t be a Debt Rookie! 8 Tips


8. Avoid stored value debit cards – High Fees and Low Benefits Never better than Banks or Credit Unions

Best Bets: Local, smaller banks and credit unions that want your business and allow you to grow a relationships with real human beings!

Your Credit History Matters – From Day One

• Three Major Credit Reporting Agencies (CRAs) • Equifax / TransUnion / Experian • Tracks age of debt, amount, payment histories • VERY important to lenders for mortgages and auto loans • Beware of wrong amounts, mixed files, and re-aging of debt • Remember – if you never look, you’ll never know what’s there

• Check your own credit report, for free: • Once a year, or after a denial of credit • On the web at: www.annualcreditreport.com • Or write the CRA and request one


Your Credit History Matters • Many other Credit Reporting Agencies exist too:

• Rental history • Student loan history • Check writing history • Employment history • Insurance Claims

• We are in an era of BIG DATA. Facts about you are being vacuumed up and sold to the highest bidder – so make sure those facts show you are a smart and frugal consumer.


Managing Your Risks • Want to trade your risk to someone else?

Buy Insurance – let someone else carry the risks Car Life Health Renter’s / Homeowner’s


Consumer Law to the Rescue Federal and state laws prohibit: • Improper debt collection • Inaccurate credit reporting • Robocalls to your cell phone without your consent • Overcharges in banking and credit cards • Unfair and Deceptive Acts or Practices in consumer

transactions • Unpaid or underpaid wages for time spent at work • Unfair Interest Rates • And much more…..


If All Else Fails….Bankruptcy Works BANKRUPTCY is not a dirty word! Allows a “fresh start” to those who need it most. Ch. 7 (liquidation) Ch. 13 (payments) Ch. 11 (reorganized) Usually can KEEP much of your personal property Most of the time, you won’t lose home or car (unless you want to) Famous filers: Abraham Lincoln, Walt Disney, Mark Twain, Milton Hershey


References and helpful resources Guide to Surviving Debt, National Consumer Law Center www.nclc.org Federal Trade Commission www.ftc.gov Consumer Financial Protection Bureau www.consumerfinance.gov Mo. Attorney General – Consumer Protection Division http://ago.mo.gov/divisions/consumerprotection.htm


http://www.nclc.org/

http://www.ftc.gov/

http://www.consumerfinance.gov/

http://ago.mo.gov/divisions/consumerprotection.htm

financial literacy – what you need to know to survive … · payday loans can exceed 400%...

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