MCI 34.20e

MARINE CORPS INSTITUTEMARINE CORPS INSTITUTE

PERSONAL FINANCIALMANAGEMENT

MARINE BARRACKSWASHINGTON, D.C.

34.20e1 Mar 98

MCI 34.20e, PERSONAL FINANCIAL MANAGEMENT

1. Purpose. MCI course 34.20e, Personal Financial Management, has been published to assistMarines in their management of personal financial matters.

2. Scope. MCI 34.20e addresses the need to inform our Marines of the many aspects of personalfinancial management. Items addressed are collecting and safeguarding important papers;veterans benefits; insurance policies, including Servicemen's Group Life Insurance (SGLI) andVeteran's Group Life Insurance (VGLI); miltary retirement; budget formation and management;choosing financial institutions; check writing, recording, and reconciliation; opening andmaintaining checking accounts; obtaining loans; credit guidelines; and other pertinent subjects.

3. Applicability. This course is intended for instructional purposes only. It is designed for use byMarines in the ranks of Pvt-MSgt in all MOSs.

4. Recommendations. Comments and recommendations on the contents of the course are invitedand will aid in subsequent course revisions. Please complete the course evaluation questionnairelocated at the end of the text and return it to:

Director Marine Corps InstituteATTN: Support TeamWashington Navy Yard912 Poor Street SEWashington, DC 20391-5680

G. White Lieutenant Colonel, U.S. Marine Corps

Deputy Director

UNITED STATES MARINE CORPSMARINE CORPS INSTITUTE

912 POOR STREET SEWASHINGTON, DC 20391-5680

IN REPLY REFER TO:

PERSONAL FINANCIAL MANAGEMENT

CONTENTS

Page

Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

Student Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Study Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

Study Unit 1 Important Papers

Lesson 1 Identify, Locate, and Safeguard Your Important Papers . . . . . . . . . . . . . 1-1Lesson 2 Estate Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-8

Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-15

Study Unit 2 Military Benefits

Lesson 1 Life Insurance Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-1Lesson 2 Military Health Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-17Lesson 3 G.I. Bill Educational Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-22Lesson 4 Other Veterans Administration (VA) Benefits . . . . . . . . . . . . . . . . . . . . . . . 2-25Lesson 5 Retirement Pay Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-31Unit Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-38

Study Unit 3 Financial Planning

Lesson 1 Planning Your Financial Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-1Lesson 2 Choosing a Financial Institution and Type of Savings Program . . . . . . . 3-9Lesson 3 Selecting and Maintaining Your Checking Account . . . . . . . . . . . . . . . . . . 3-17Unit Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-32

Study Unit 4 Financing Major Purchases

Lesson 1 Examining Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-1Lesson 2 Purchasing a Motor Vehicle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-10Lesson 3 Purchasing Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-13Unit Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-18

Review Lesson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-1

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STUDENT INFORMATION

TITLE&NUMBER: PERSONAL FINANCIAL MANAGEMENT MCI 34.20e

STUDY HOURS 7

COURSEMATERIALS: Text

REVIEWAGENCY: MARINE CORPS FINANCE CENTER Kansas City, Missouri 64197

RRC: 2 Reserve Retirement Credits

ACE: This course is scheduled for review by the American Council on Educationduring 1998.

ASSISTANCE: For administrative assistance, have your training officer or NCO use the Unit Activity Report (UAR) or MCI Hotline: 1-800-MCI-USMC.

For assistance concerning course content matters, call the instructor at DSN288-0219 or Commercial (202) 433-0219.

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STUDY GUIDE

Congratulations on your enrollment in a distance training course from the Marine Corps Institute(MCI). Since 1920, the Marine Corps Institute has been helping tens of thousands ofhard-charging Marines, like you, improve their technical job performance skills through distancetraining. By enrolling in this course, you have shown a desire to improve the skills you have andmaster new skills to enhance your job performance.

The distance training course you have chosen, MCI course 34.20e, Personal FinancialManagement, provides instruction to all Marines on personal finances. Items addressed arecollecting and safeguarding important papers; veterans benefits; insurance policies, includingServicemen's Group Life Insurance (SGLI) and Veteran's Group Life Insurance (VGLI); miltaryretirement; budget formation and management; choosing financial institutions; check writing,recording, and reconciliation; opening and maintaining checking accounts; obtaining loans; creditguidelines; and other pertinent subjects.

Because you have chosen to learn at a distance by enrolling in this MCI course, your professionaltraits are evident and we know

YOU ARE PROPERLY MOTIVATED. You made a positive decision to gettraining on your own. Self-motivation is perhaps the most important force in learningor achieving anything. Doing whatever is necessary to learn is MOTIVATION. Youhave it!

YOU SEEK TO IMPROVE YOURSELF. You enrolled to improve those skillsyou already possess and learn new skills. When you improve yourself, you improvethe Corps!

YOU HAVE THE INITIATIVE TO ACT. By acting on your own, you haveshown you are a self-starter, willing to reach out for opportunities to learn and grow.

YOU ACCEPT CHALLENGES. You have self-confidence and believe in yourability to acquire knowledge and skills. You have the self-confidence to set goals andthe ability to achieve them, enabling you to meet every challenge.

YOU ARE ABLE TO SET AND ACCOMPLISH PRACTICAL GOALS. Youare willing to commit time, effort, and the resources necessary to set and accomplishyour goals. These professional traits will help you successfully complete this distancetraining course.

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STUDY GUIDE, continued

BEGINNINGYOURCOURSE

Before you actually begin this course of study, read the StudentInformation page. If you find any course materials missing, notifyyour training officer or training NCO. If you have all the requiredmaterials, you are ready to begin.

To begin your course of study, familiarize yourself with thestructure of the course text. One way to do this is to read the Table of Contents. Notice the Table of Contents covers specificareas of study and the order in which they are presented. You willfind the text divided into several study units and a review lesson.Each study unit is comprised of two or more lessons, lesson or unitexercises, exercise solutions and references.

LEAFINGTHROUGHTHE TEXT

Leaf through the text and look at the figures and tables. Read afew lesson exercise items (questions) to get an idea of the type ofitems in the course. If the course has additional study aids, such asa handbook or a plotting board, familiarize yourself with them.

THE FIRSTSTUDY UNIT

Turn to the first page of study unit 1. On this page, you will find anintroduction to the study unit and generally the first study unitlesson. Study unit lessons contain learning objectives, lesson text,and exercises.

READING THELEARNINGOBJECTIVES

Learning objectives describe in concise terms what the successfullearner, you, will be able to do as a result of mastering the contentof the lesson text. Read the objectives for each lesson and thenread the lesson text. As you read the lesson text, make notes on the points you feel are important.

COMPLETING THEEXERCISES

To determine your mastery of the learning objectives and text,complete the exercises developed for you. Exercises may becontained in a lesson, at the end of a lesson, or at the end of a study unit. Without referring to the text, complete the exerciseitems and then check your responses against those provided.

CONTINUINGTO MARCH

Continue on to the next lesson, repeating the above process untilyou have completed all lessons in the study unit. Follow the sameprocedure for each study unit in the course.

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STUDY GUIDE, continued

SEEKINGASSISTANCE

If you have problems with the text or exercise items that youcannot resolve, ask your training officer or training NCO forassistance. If they cannot help you, request assistance from yourMCI distance training instructor by completing the ContentAssistance Request Form located at the back of the course.

THEREVIEWLESSONEXAM

When you have finished all the study units, complete the reviewlesson exam located at the end of the course text. Try to completethe review lesson exam without referring to the text. For thoseitems you are unsure of, restudy the text. When you have finishedthe review lesson exam and are satisfied with your responses, checkyour responses against the answer key provided with your coursematerials.

PREPARINGFOR THEFINAL EXAM

learnedin the course. The following suggestions will help make the reviewinteresting and challenging.

CHALLENGE YOURSELF. Try to recall the entire learningsequence without referring to the text. Can you do it? Now lookback at the text to see if you have left anything out. This reviewshould be interesting. Undoubtedly, you'll find you were not able torecall everything. But with a little effort you'll be able to recall agreat deal of the information.

USE UNUSED MINUTES. Use your spare moments to review.Read your notes or a part of a study unit, rework exercise items,review again; you can do many of these things during the unusedminutes of every day.

APPLY WHAT YOU HAVE LEARNED. It is always best to usethe skill or knowledge you've learned as soon as possible. If it isn't possible to actually use the skill or knowledge, at least try toimagine a situation in which you would apply this learning. Forexample, make up and solve your own problems. Or, better still,make up and solve problems that use most of the elements of astudy unit.

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STUDY GUIDE, continued

USE THE "SHAKEDOWN CRUISE" TECHNIQUE. Ask another Marine to lend a hand by asking you questions about thecourse. Choose a particular study unit and let your buddy "fireaway."

MAKE REVIEWS FUN AND BENEFICIAL. Reviews are goodhabits that enhance learning. They don't have to be long andtedious. In fact, some learners find short reviews conducted moreoften prove more beneficial.

TACKLINGTHEFINAL EXAM

When you have completed your study of the course material andare confident with the results attained on your review lesson(s),take the sealed envelope marked "FINAL EXAM" to your unittraining NCO or training officer. Your training NCO or officer willadminister the final exam and return the exam and answer sheet toMCI for grading. Before taking your final exam, read thedirections on the generic DP-37 answer sheet carefully andcomplete all requested information.

COMPLETINGYOURCOURSE

The sooner you complete your course, the sooner you can betteryourself by applying what you've learned! HOWEVER--you dohave 12 months from the date of enrollment to complete thiscourse. In addition, you may be granted one 6-month extension if approved by your commanding officer. If you need an extension,please complete the Student Request/Inquiry form (MCI-R11)located at the back of the course, and deliver it to your trainingofficer or training NCO.

GRADUATING! As a graduate of this distance training course and as a dedicatedMarine, your job performance skills will improve, benefiting you,your unit, and the Marine Corps.

Semper Fi!

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STUDY UNIT 1

IMPORTANT PAPERS

Introduction. A key to sound financial management is proper documentation. Mostfinancial experts agree that preparing the necessary documents and keeping them up-to-dateis the biggest challenge to successfully managing personal finances. These documents areessential to your financial well-being.

Lesson 1. IDENTIFY, LOCATE, AND SAFEGUARD YOUR IMPORTANT PAPERS

This lesson helps you identify important documents--your birth certificate, social security card,leave and earning statement (LES), motor vehicle title, military records, etc.--and providesstrategies for storing and safeguarding them. Since these important papers define your personalfinancial status, it is important to organize and safeguard them.

LEARNING OBJECTIVES

1. Identify three categories of important papers.

2. Identify sources for assistance in locating your important papers.

3. Identify the appropriate places for duplicating your important papers.

4. Identify safe and secure places to store your important papers.

1101. Categories of Important Papers

Important papers generally fall into three categories: financial records, entitlement records, andpersonal records. Each category is broadly outlined below.

a. Financial records.

(1) LES. Each active duty Marine receives a monthly LES. Here is what it provides:

(a) Detailed information (pay entitlements and deductions) covering your payaccount for the previous month

(b) Forecasted amounts due for the paydays of the current month

(c) Leave balance

(d) Pay received

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Note: Each LES shows your cumulative record of pay, leave, and deductions for the year. This means you will not need to keep every statement, but occasionallyyou will need a copy of your current statement to qualify for a loan orsubstantiate your employment, so treat your LES with respect! Also, as youcan see, you may need to refer to your LES when preparing your financialplans!

(2) Financial securities and investments. These are records of any stocks or bonds youmay have purchased or sold. (Remember these transactions always affect yourincome tax and should be reported.)

(3) Life insurance policies. These policies guarantee a specific sum of money to adesignated beneficiary upon the death of the insured or to the insured if he or she livesbeyond a certain age.

Note: The danger of loss of life is called "risk." Death is naturally your greatest riskbecause, in most cases, your spouse and family depend on your income. Youmust plan for their support in case you die before your earning years are over.

(4) Estate planning documents.

(a) Will. A will is a legal declaration of how a person wishes his or her possessionsto be distributed after death. Every Marine should have a will, regardless ofhow much or how little he or she owns. You will learn how to draw up yourwill in the next lesson, Estate Planning.

(b) Trust. A trust is an agreement where a person (grantor) makes arrangements togive his or her property/assets to someone else (trustee) to manage andadminister for the benefit of a designated third party (beneficiary). Trusts arealso discussed at greater length in the Estate Planning lesson.

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(The four pieces of information are your previous month's pay record; a forecast of your currentmonth's pay record; your leave balance; and finally, your pay received.)

b. Entitlement records.

(1) Titles (boats, cars, RV). A title justifies legal claim to property.

(2) Original deeds and mortgage liens. A deed is a document sealed as an instrument of bond, contract, or conveyance.

c. Personal records.

(1) Birth certificate. Issued by the hospital or attending physician to record parentageand the date, place, and time of birth. This certificate is required for getting apassport, entering the military, applying for a marriage license, and other significant lifetime events.

(2) Death certificate. Issued by the hospital or attending physician to substantiate thedate, place, and time of death. This certificate is needed for insurance claims, social security, and veteran's benefits, as well as for estate claims.

(3) Social security card. Financially identifies you to the IRS and entitles you to socialsecurity benefits when eligible. These benefits are financed by taxes withheld from your earnings and contributions made by your employer. You also need a socialsecurity card to enroll dependents in the Defense Enrollment Eligibility ReportingSystem (DEERS). Your children may need social security numbers to be enrolled in school. Most states now issue social security cards at birth.

(4) Registration papers. Proves legal ownership of valuable personal possessions, such ascars and boats, and proves permission to be operated in that location.

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Before you go on to the second type of financial documents (entitlement documents), writedown the four pieces of information your LES provides:

a. ____________________________________________________________

b. ____________________________________________________________

c. ____________________________________________________________

d. ____________________________________________________________

(5) Military records. Includes dates of service at various locations, promotions, awards,and retirement orders. You need your military records to obtain Veteran'sAdministration (VA) benefits or to pursue a career after leaving military service.

(6) School records. Includes diplomas (high school, college) certificates, and otheracademic awards. School records are useful when pursuing a career after you leavemilitary service.

(7) Religious records. Documents that may include the date you joined a religiousaffiliation, date of baptism, and day of confirmation. They could also specify yourpreferred burial arrangements.

(8) Marriage certificate. Issued by the state to declare that a man and a woman arelegally married. You need a marriage certificate for BAH or to obtain base housing.

Note: Different states have different marriage licensing requirements!

(9) Power of attorney. A power of attorney provides written authorization for a personyou designate to legally represent you, that is, to be your agent, when you are notpresent. This person may be referred to as your "attorney-in-fact."

Note: Power of attorney is mandatory for all Marines in case of deployment.

Are you familiar with these financial, entitlement, and personal records? Have you been making amental inventory of which of these records you need? Which do you already have? Do you knowwhere they are? Suppose you are unable to find a record? Where would you go to get areplacement copy? Read on!

1102. Locating Important Papers

In your quest to locate these important papers, start with your family (father/mother). Yourparents are likely to have your birth certificate, baptism record, and other legal documentspertaining to your early life. If you can't find a record at home, contact your legal assistanceoffice. They are experts in directing you to the appropriate agency where you may obtainreplacement papers and records. Below are some of the agencies where you might go forreplacement copies.

a. S-1. Your S-1 (personnel office on base) can provide assistance in obtaining copies ofmilitary records and other important documents.

b. Hospitals. Normally, the hospital where you were born will be able to send you a copy of your birth certificate. And, if you or a family member dies at a hospital, death certificate recordsare kept there too. Hospitals are a good place to start. If they do not have the record they canoften tell you where to go to get these records.

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c. Circuit courts and agencies. These are referred to as "courts of record." Eventually,hospitals and other agencies file their records here. Circuit courts may hold marriage and divorcerecords. State agencies, such as the Department of Health and Human Services, can oftenprovide replacement copies of important documents. There are so many state agencies, you mayneed to check with your Marine legal assistance officer for further guidance.

Note: You should record your DD-214 (discharge certificate) and the deed to yourhouse (if you own one) at a circuit court. New social security numbers orreplacement cards are obtained at the Social Security Administration.

Now that you have collected your important papers, it would be wise to list them. Then make aduplicate copy of the list and a copy of each important paper or document. This relatively simpleprecaution gives you copies to work with while leaving the originals in a more secure location.Don't forget to update the files periodically.

1103. Duplicating Your Important Papers

There are two kinds of facilities where you can make copies of your important papers:

a. Libraries. Most libraries (base and off-base) have copiers you can use for a nominal fee.

b. Commercial. There are many professional printing and publishing businesses (listed in the"yellow pages") that make copies for you or allow you to use their reproduction equipment.Copy fees are usually not expensive.

(Answers: financial, entitlement, and personal)

IT IS ILLEGAL TO USE A GOVERNMENT COPIER MACHINE TODUPLICATE IMPORTANT PERSONAL PAPERS!

Before you consider where to permanently keep your important papers, stop to recall somekey points covered so far.

Can you list the three categories of important papers you will be keeping together?

a. _______________________________________________________________

b. _______________________________________________________________

c. _______________________________________________________________

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(Your list of personal records should include a copy of your LES, your investment papers, estateplanning documents, life (and other) insurance policies, any titles or mortgage papers, and anyother personal records, such as a marriage license.)

(Your legal assistance office or S-1 will guide you in your attempt to replace missing records.Remember to inquire at appropriate hospitals for copies of birth and death certificates and atcircuits courts and state agencies for other records.)

So far, you have identified what kinds of records and documents are important to keep and whomto go to for assistance in replacing them. Now, seriously consider what you will do with yourimportant paper collection to protect it.

1104. Safeguarding Important Papers

After listing your documents and copying them, consider carefully where to file and store theoriginals so they will not be in danger of being misplaced, stolen, or damaged in a fire or flood.

Keep in mind three considerations when filing your important papers: affordability, convenience,and degree of safety. Any one of the following types of storage areas would ensure a higherdegree of safety (and peace of mind) than your desk at home.

Name all of the personal records that you now have in your own collection of importantpapers.

a. _________________________________________________

b. _________________________________________________

c. _________________________________________________

d. _________________________________________________

e. _________________________________________________

f. __________________________________________________

Now if one of these documents is missing and your family does not have it, where would yougo for assistance?

____________________________________________________

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a. Special safe. You can purchase or lease safes that are fireproof (and reasonably flood-proof) to store your papers at home. This type of safe isn't expensive and, depending on yourneeds, could be your best choice.

b. Lawyer's office. Your attorney may have special accommodations for storing clients'important papers. If not, he or she may assist you in your search for safe document storage.

c. Safety deposit box. Visit your financial institution to find out its particular facilities,policies, and procedures since these vary from place-to-place. Be sure you understand theregulations and their meanings. Ensure that someone you trust has access to your safety depositbox in case something happens.

After you have copied your important papers and decided where to keep your original documents,share the information with someone you trust. Tell that person what the documents are, how theyare filed, and where those files are physically located.

(Answer: Commercial printing and publishing businesses or your local base or off-base libraries.)

(Answer: No!)

(Answer: Special safes at home, at your lawyer's office, or in a safety deposit box at your bank.)

Lesson Summary. You must keep your important papers in a safe place where you can locatethem. Be sure to check on them periodically. In lesson 2, you will cover assets and liabilities inmore detail. You will compare wills and trusts as estate planning instruments. This will help youdevelop a perspective on the factors you will need to balance to enhance your financial plan.

Now, test yourself to see if you remember where would you go to duplicate importantpapers? __________________________________________

Will you ever use your government office copier to copy your important papers?____________

Give one example of a location for your important papers that's more secure than your desk athome. _________________________________

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Lesson 2. ESTATE PLANNING

This lesson helps you gauge your financial standing or net worth by determining your assets andliabilities. This lesson also presents guidelines for ensuring these assets are protected and passedon to your loved ones using such legal instruments as a will, trust, or power of attorney.

Your estate is everything you own (and everything you owe). Estate planning is an importantpart of personal financial management. Establishing an estate plan is the best way to ensure yourfamily's future.

LEARNING OBJECTIVES

1. Define the term "asset."

2. Define the term "liability."

3. List two sources available for legal advice in planning your estate.

4. Describe the purpose of a will.

5. Describe the purpose of a power of attorney.

1201. Assets

An asset is defined as something of value which is owned, and is usually something tangible suchas a building or car.

When you talk about assets you immediately think about common ones, such as checkingaccounts and savings account balances. Look at other kinds of assets listed below.

A S S E T S

CASH VALUE OF MUTUAL FUNDS, LIFE INSURANCE POLICIES, BONDS, STOCKS, AND LIQUID ASSETS REAL ESTATE PERSONAL POSSESSIONS SUCH AS CARS AND JEWELRY

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1202. Liabilities

A liability is a legal responsibility to pay a debt. When you talk about liabilities, you immediatelythink about common ones such as automobile loans, credit card balances, or the balance on amortgage loan for your house.

Take a look at other kinds of liabilities listed below.

ASSETS - LIABILITIES = NET WORTH. By subtracting your liabilities from your assets, youcan determine your net worth. If your assets are greater than your liabilities, you are said to havea negative net worth. Therefore, your goal would be to reverse that and make it positive.

It would be a good idea to take the time now to make a list of your personal assets and liabilitiesand to come up with at least a rough idea of your financial balance. Does it seem generally to bewhat you thought it was, or was it a surprise? Does it suggest a need to adapt a new financialstrategy, especially in these difficult and perplexing economic times? If so, in the process ofgetting information, you might need to contact a legal assistance agency. Legal assistanceagencies are available to help you understand your legal matters and papers.

1203. Legal Assistance Agencies

There are two types of legal assistance agencies that are available to help you with your legalmatters. These agencies have experience and knowledge that is so essential when it comes tohelping you understand your legal matters and papers. As you may already know, legaldocuments are not written in "plain English." There are clauses, addendums, and attachments thatyou should review and have explained before you dare sign your name to any document.

Here are the two types of agencies you can call on for legal assistance.

a. Staff Judge Advocate (SJA). The Marine Corps legal assistance programs that provide freeprofessional help for Marines falls under the Office of the SJA. The SJA provides legal assistanceattorneys to give legal advice and help prepare legal documents and correspondence. You shouldbe reassured to know that any information you exchange with your legal assistance attorney eitherorally or in writing is confidential since the "attorney-client privilege" protects thiscommunication.

LIABILITIES

BANK LOANS INCOME TAXES OWEDINSURANCE LOANS DPP ACCOUNT BALANCESFINANCE COMPANY LOANS OTHER DEBTS AND BILLSPROPERTY TAXES OWED

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Note: A legal assistance officer is a licensed attorney, though not always licensed inthe state where stationed.

When you meet with your attorney, take with you any relevant background information aboutyour problem, including documents, records, and correspondence. Those well versed in legalmatters will advise that the best advantage you can give yourself in any legal situation is thesound, professional counsel of a lawyer.

b. Private attorneys with private law firms. You always have the option of taking your legalproblem to a private attorney. However, since it is usual for a private attorney to charge a fee forservices rendered, be sure to visit your legal assistance office before trying this route.

You've covered a lot of information so far. Stop to review some key points.

(Credit card balances are liabilities.)

("Savings" are your money; therefore, they are assets.)

(Two legal assistance agencies available to help are the Staff Judge Advocate (SJA) and privateattorneys.)

(Yes, the legal assistance office has licensed attorneys.)

What are credit card balances considered to be?

_______________________________________________

What are savings account balances considered to be?

_______________________________________________

Name the two legal assistance agencies available to help you and your family.

a. _______________________________________________

b. _______________________________________________

Does the legal assistance office have licensed attorneys? _________

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1204. Drawing Up a Will

Every Marine should have a current will that legally specifies the distribution of assets in case ofdeath. This is true regardless of how little he or she owns! If you're married, it's especiallyimportant for both you and your spouse to each have a will. Whatever expense and bother youincur for the preparation of even a simple will could be very worthwhile and perhaps even paylarge dividends when it's time to settle your estate. A will may save your survivors a small fortunein estate or death taxes. A will clearly stating your wishes could save your loved ones the troubleand cost of repeated court trips and legal fees.

If you die without a will, then you have died intestate. When this occurs, a probate court willdivide your property according to state laws. While intestate laws vary from state-to-state, moststates are very interested in collecting estate taxes. After all, it's their last chance to tax thedeceased! Besides avoiding taxes, there are other reasons why disposing of your estate accordingto a will instead of state law is better. For instance, disposal of your estate according to state lawcould cause serious financial problems and hardships for your survivors. Let's look carefully atwhat a will is and does and then at some precautions and guidelines for drawing one up.

a. Will. What exactly is a will? A will is a legal declaration of how a person wishes his or herpossessions to be distributed after death. It can be very short and simple or very complex andmany pages long.

Since a will is a legal document, you can often do more harm than good by writing it yourselfwithout the benefit of legal guidance. You may use your legal assistance office since it is free orpay a civilian lawyer. After you have selected a lawyer to help you draft your will, you will nextneed to choose an executor. This is the person who will "execute" or carry out the directives ofyour will when you die. This should be someone you trust and someone who has agreed toadminister your will. Have this person confer with your lawyer to get a clear idea of an executor'sresponsibilities and have any questions answered.

Further, it is not wise to select your executor based on sentiment. Remember, the person youselect is going to decide your affairs after you are deceased. Imagine that you are not able tohandle your affairs right now because of a serious medical problem. Ask yourself if you wouldwant this person to step in and take charge? Think about it!

Note: Most people appoint their spouse as the executor. But, this is not always thewisest choice. You must keep in mind that there is a possibility of both spousesdying simultaneously. Not only does this reinforce the need for both spouses tohave a will, but to appoint someone else as executor too.

b. Trusts. A trust is an agreement which a person (grantor) makes arrangements to give his orher property/assets to someone else (trustee) to manage and administer for the benefit of adesignated third party (beneficiary). The beneficiary is usually an individual, but it can be anestate. So, to repeat the definition of a trust in a slightly different way, it is a legal arrangementwhere the beneficiary has been designated by the grantor to receive the benefits of the property

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being managed and administered by the trustee. The trustee may be an individual, a bank, or atrust company.

There are two basic types of trusts.

(1) Living Trust is a trust that takes effect while you are still alive.

(2) Testamentary Trust can be created after your death by your will or your "last will andtestament," as it is sometimes called. An important factor for you to examine whencreating a testamentary trust is possible income and estate tax savings. Seek soundlegal advice, because sometimes those tax savings may not be enough to justify theadded expense of setting up the trust.

When a living trust is created, you have the choice of making it revocable or irrevocable. Arevocable trust can be changed or canceled as you wish. However, once an irrevocable trust isestablished, you cannot change it.

All trusts have certain advantages and disadvantages, but a living revocable trust has a distinctadvantage. Imagine that you have named a third party as trustee to a trust. Now you are in aposition to observe and evaluate the trustee's performance and skill in managing the trust assets.If you are not satisfied with the results, you can revoke the trust or appoint another trustee. Besure to choose someone you trust.

For guidance concerning trusts, contact your legal assistance office. Trusts can be quitecomplicated, so it is important to make sure yours is drawn up by a lawyer who knows the pitfallsto avoid. Only careful preparation and drafting can ensure a sound trust.

c. Guidelines for drawing up a will. As we have said before, a will (or a trust) is a specializedlegal document, and you can often do more harm than good by writing it yourself without thebenefit of legal guidance. Keep in mind the precautions listed below when planning your will:

(1) Don't write it yourself unless you're a lawyer. It is possible that if you omit a singleword or phrase you could cause your survivors considerable problems andunexpected costs. Since lawyers generally charge by the hour, have your records in order and decisions made before seeing the lawyer. You may even have your ownoutline or rough draft of your will for your lawyer to use.

(2) Don't make changes by marking out some information and writing in new informationwithout getting legal advice. This kind of do-it-yourself rewrite of a will couldinvalidate the document entirely.

(3) Sign only the original copy of a will.

(4) Don't postpone the preparation of your will--tomorrow may be 1 day too late!

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(5) Review your will from time-to-time and have it updated as necessary to reflect thechanges in your life. While having a will or trust is very important, make sure to keepit current. Keep in mind that tax laws change, as well as your personal circumstances.Consider changing your will or trust, for example, upon the following life events:

(a) The value of your assets changes substantially.

(b) The birth or death of an immediate family member or loved one.

(c) You marry, remarry, divorce, or separate.

(d) The executor named in your will dies or can no longer be considered competent.

(e) You change your legal residence.

(f) A guardian for a minor child is named or a new one is appointed.

(The four guidelines are don't write it yourself; don't make changes without legal advice; sign onlythe original copy; and don't postpone the preparation of your will.)

1205. Power of Attorney

a. Definition and purpose. From time-to-time, most people will face some situation in whichthey are unable to be present for a legal transaction. Again, choose someone you trust when yougrant power of attorney. For example, you are being deployed next week, you want to sell yourcar but you won't have time to do it before you leave. Therefore, you need to have someone youtrust sell it for you. This person will be your agent, will be present at necessary transactions, andwill act as your "attorney-in-fact." To do this, legally arrange to give your substitute person a"power of attorney," which is a written document transferring your legal authority to anotherperson in the terms you set forth.

Note: A power of attorney is mandatory for all Marines in case of deployment.

Now for a quick review! You've looked at what a will is and how important it is to have one.Do you remember four guidelines to follow when you draw up a will for your family?

a. ________________________________________________________

b. ________________________________________________________

c. ________________________________________________________

d. ________________________________________________________

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b. Types. There are basically two types of power of attorney:

(1) General gives broad power and authority.

(2) Special (or limited) gives power confined to the specific act(s) described or for a specified time frame.

c. When a power of attorney is needed. A U.S. Marine needs a power of attorney more thanmost people. Legal situations can arise at any time, often when it is inconvenient or impossiblefor you to be present. You could be on leave, involved in permanent change of station (PCS)orders (especially while moving overseas), or away on TAD orders. These are ideal times to havegranted a trusted person back home your power of attorney.

d. The dangers of executing a power of attorney. Since the acts of your "attorney-in fact" arelegally binding, there are two dangers to consider before giving someone power of attorney.

(1) The first danger is there is always the possibility the person assigned with your powerof attorney will be negligent or even malicious and abuse the power.

Example: Marital or family problems could occur. An angry spouse or familymember who had earlier been given power of attorney could exact revenge byemptying bank accounts or selling property.

(2) The second danger is that, once arranged, it is extremely difficult to revoke a powerof attorney. Drafting a special power of attorney for a limited time and specificevents can narrow this danger.

Because of problems like these, many people, especially in real estate transactions, will not accepta power of attorney.

The dangers of a power of attorney can be limited by giving a special power of attorney instead ofa general power of attorney. In a special power of attorney, both the power and the time arelimited. You may also prefer to frequently renew a power of attorney rather than grant a singleone for unlimited or very long duration. Because of these dangers, it is obvious that a power ofattorney should not be drawn until a legal assistance officer or a civilian attorney has beenconsulted.

Lesson Summary. As you can see you must total your assets and liabilities to understand youroverall financial status. We discussed how to obtain and keep important papers and how to planyour estate. To help you with these important legal matters, use a legal assistance agency. Keepin mind that all agencies providing assistance are very busy operations. So call ahead and make anappointment!

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Study Unit 1 Exercise: Complete items 1 through 9 by performing the action required. Checkyour responses against those listed at the end of this study unit.

1. What are the three categories of important papers?

a. _____________________________________________________

b. _____________________________________________________

c. _____________________________________________________

2. Identify who will first provide assistance in locating important papers.

_____________________________________________________

3. The one place that is inappropriate to duplicate your personal papers is

_____________________________________________________.

4. List suggested safe storage areas for your important papers.

a. _____________________________________________________

b. _____________________________________________________

c. _____________________________________________________

5. Define "asset."

_____________________________________________________

_____________________________________________________

6. Define "liability."

_____________________________________________________

_____________________________________________________

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7. List two sources available for legal advice.

a. _____________________________________________________

b. _____________________________________________________

8. State the purpose of a will.

____________________________________________________

____________________________________________________

9. State the purpose of a power of attorney.

____________________________________________________

____________________________________________________

STUDY UNIT 1 SUMMARY

This study unit identified your important papers and discussed why each is important. Youdiscovered where you could find missing papers, where to make copies, and how important it is tostore them in a safe place. Then, you were encouraged to take an inventory of your personalassets and liabilities, to consult with a legal assistance agency for professional guidance, and thento seriously consider planning for your estate using either a will or a trust. Finally, you describeda power of attorney and how you may need to use one in your legal transactions when you cannotbe physically present.

Study Unit 2 will introduce you to Government Issued (GI) and VA benefits and retirement paysystems, all of which are special assets for you in military service.

Study Unit 1 Exercise Solutions

Reference

1. a. Financial 1101b. Entitlementc. Personal records

2. Legal assistance office personnel 11023. Government office copier 11034. a. Special safe 1104

b. Lawyer's officec. Safety deposit box

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Study Unit 1 Exercise Solution, continuedReference

5. Something of value which is owned 12016. Legal responsibility to pay a debt 12027. a. Staff Judge Advocate (SJA) 1203

b. Private attorneys8. A will is a legal declaration of how a person wishes his 1204

or her possessions to be distributed after death.9. A power of attorney is a written document 1205

transferring legal authority to another person in theterms you set forth.

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STUDY UNIT 2

MILITARY BENEFITS

Introduction. Do you know how lucky you are as a Marine to have service-sponsored lifeinsurance, Veterans Administration (VA) GI benefits, and special retirement benefits? Theseprograms have generous provisions. At first, digesting all the details of each program canbe overwhelming. However, before planning how to use these programs to optimumadvantage in your personal life, you will need to digest the details and consider your needs.This study unit will devote a lesson to each of these special benefit programs and describeits financial value to you.

Lesson 1. LIFE INSURANCE OPTIONS

Most people jump into a policy without having enough information about insurance. They alsodo not reevaluate their insurance coverage as their circumstances and needs change. This lessonwill help you understand general life insurance and the benefits available to you from yourServiceman's Group Life Insurance (SGLI) and Veterans Group Life Insurance (VGLI) militaryinsurance.

You will see definitions to common insurance terms and discussions of different insurance optionsthat are available outside of government-sponsored programs. This information may help youmake appropriate choices when buying civilian life insurance.

LEARNING OBJECTIVES

1. Match insurance terms with their correct definitions.

2. Identify a description of the Servicemen's Group Life Insurance (SGLI).

3. Identify a description of the Veterans Group Life Insurance (VGLI).

4. Identify a description of a term life insurance policy.

5. Identify a description of a whole life insurance policy.

2101. Why You Need Life Insurance

Arranging for life insurance coverage now may seem unimportant. But think about those whorely on you financially. Your death would deprive your family of your income, yet they wouldstill have to pay rent, car payments, credit card bills, and medical expenses.

Life insurance provides the financial cushion that allows your loved ones to adjust financially tolife without you.

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Most people buy life insurance to provide financial protection for their dependents in the event oftheir death. Some people buy financial protection for their retirement years. For those in themilitary, maintaining adequate insurance is especially important. As a responsible, thoughtfulMarine, you will want to carefully provide for your family in the event of your death, no matterhow remote it may seem today.

Think of your insurance needs in these terms. You will read about them in the next few pages.

ACTIVE SERVICEINSURANCE BLOCK

SEPARATIONINSURANCE BLOCK

RETIREMENTINSURANCE BLOCK

2102. Language of Life Insurance

While some companies are beginning to issue policies with simplified language, most policiesremain hard to understand because the insurance industry seems to have a language all its own.Here are some of the common terms you will be seeing in this study unit:

Policy, premium, and beneficiary Term and whole life insurance Grace period and lapsed policy Face amount and cash surrender Policy loan Annuity Participating policy Rider Settlement option Accidental death benefit

The definitions that follow are meant to help you understand these terms so you can begin to usethem comfortably.

a. Policy. A written contract or certificate issued by the insurance company that dictates theterms of the insurance.

b. Premium. The amount of payment for insurance coverage paid by the policyholder to keepa policy in force. Depending on the terms of the policy, the payment could be made weekly,monthly, or yearly.

c. Beneficiary. The person who is to receive the insurance proceeds when the insured dies.

d. Term insurance. Provides protection only for a specific period (number of years) at acertain cost. There are many types because the amounts of coverage and premiums change basedon the age of the insured and the period of time (term) of coverage. The face amount of thepolicy is only payable if death occurs. Term insurance usually costs less than other types.

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e. Whole life insurance. Provides protection (and keeps its annuity value) for the entire lifespan of the insured person. This type of insurance is initially more expensive than term insurancebut premiums remain constant.

f. Grace period. A set period of time during which overdue payments may be paid withoutpenalty and the insurance coverage remains in effect.

g. Lapsed policy. A policy that has terminated because premium payments to keep theinsurance policy in force were not paid.

h. Face amount. The amount of money stated on the policy to be paid upon the death of theinsured person. The amount paid might be decreased by the amount of any policy loans.

i. Cash surrender value. The money to be paid upon voluntary termination of a policy by thepolicyholder. The cash surrender value is always less than the face amount of the policy.

j. Policy loan. A loan made by the insurance company to the policyholder. Generally, theface amount that would be paid upon the death of the insured person is decreased by the amountof the loan until it is repaid. For example, a policy with a face amount of $15,000 would only pay$10,000 to the beneficiaries if there was a $5,000 policy loan outstanding.

k. Annuity. An investment yielding fixed payments beginning at a certain time in thepolicyholder's lifetime. Although sold by insurance companies, an annuity does not provideinsurance, which means it does not pay a face amount to a beneficiary at the death of the insured.With an annuity, the policyholder is betting that he will live a long time and receive manypayments.

l. Participating policy. The premium is set high enough to build cash value that can be passedon to the policyholder as dividends. The premium is higher than that of a non- participatingpolicy.

m. Rider. An addendum the insurance company can attach to your life insurance policy.

n. Settlement option. The choice a policyholder or beneficiary makes concerning the waybenefits are paid on an insurance policy. For example, the beneficiary could receive the money asa lump sum or as periodic payments over a time span.

o. Accidental death benefit. An added policy provision for payment of a special extra benefitin case of accidental death. (An "accidental death benefit" is often referred to as a "doubleindemnity" clause.)

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(Term insurance is defined as protection only for a specific period (number of years) at a certaincost.)

2103. Servicemen's Group Life Insurance (SGLI)

ACTIVE SERVICEINSURANCE BLOCK

SEPARATIONINSURANCE BLOCK

RETIREMENT INSURANCE BLOCK

Remember the chart shown at the beginning of this lesson? SGLI fills the first block, whichrepresents your active service timeframe. The government-sponsored SGLI program was createdin 1965 to provide term insurance to all active duty personnel to cover their military years in agroup plan. It was created to cover all active duty personnel and has the following features:

Provides term life insurance to cover a serviceman's military years. Does not build cash value. Premiums depend on the level of coverage desired. Any individual or legal entity can be designated the beneficiary. Proceeds are payable to the beneficiary as a lump sum or in 36 equal payments. Continues to provide insurance protection for 120 days following separation from

active duty. During this period, you can convert your SGLI coverage to VeteransGroup Life Insurance (VGLI) without taking a medical examination.

Although SGLI is probably a better deal than civilian policies, it is not mandatory. If you choosenot to accept SGLI, you may so indicate on the SGLI application form. Additionally, coveragefor less than $200,000 can be requested, in writing, at $.90 per $10,000 of coverage.

(SGLI costs $.90 per $10,000 of coverage).

Take a moment to see if you remember what you've read by answering the followingquestion.

Term insurance is defined as _________________________________________________.

How much does SGLI cost you per month?____________________________

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2104. Veterans Group Life Insurance (VGLI)

ACTIVE SERVICEINSURANCE BLOCK

SEPARATIONINSURANCE BLOCK

RETIREMENT INSURANCE BLOCK

The VGLI is an opportunity to extend your previous SGLI coverage. You then have the option torenew every 5 years through your life, so VGLI transitions from the active service to theseparation timeframe block. Your VGLI program is designed to go into effect on the 121st dayfollowing your separation, thereby providing continuous insurance protection.

Payments for VGLI coverage are made by you and sent directly to the Office of Servicemen'sGroup Life Insurance.

VGLI has the following features:

It's an optional term insurance. The face amount is based on and limited to the amount of coverage carried under

SGLI. Coverage begins on the 121st day following military separation and lasts up to 5

years. (Renewable every 5 years thereafter.) Premiums range from $12 to $450, depending on age and level of coverage. Payments are sent to the Office of Servicemen's Group Life Insurance (OSGLI) in

Newark, NJ.

(SGLI covers the period of time when you are in the military and for 120 days afterward, andVGLI covers from the 121st day after your separation and is renewable every 5 years for the restof your life.)

Can you remember which periods of time during and after service your SGLI and VGLIinsurance covers?

SGLI ________________________________________________________________

VGLI ________________________________________________________________

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ACTIVE SERVICEINSURANCE BLOCK

SEPARATIONINSURANCE BLOCK

RETIREMENTINSURANCE BLOCK

Government-sponsored SGLI and VGLI programs are good, but you may want to supplementyour SGLI or VGLI coverage. To do so, you should be familiar with other types of lifeinsurance, especially when your retirement or separation draws near or as your life circumstanceschange. 2105. Comparison of Term and Whole Life Insurance Policies

While whole life and term insurance are the basis for virtually all forms of life insurance, there areother types of insurance that combine the features of term and whole life insurance. Rememberthe definition for term insurance: It provides protection for only a specific period of time (numberof years) at certain cost. The face amount of the policy is only payable if death occurs. a. Your term policy limits coverage to a specific period of time. As you get older, you maypay more for that coverage or the coverage may be for a smaller amount. The insurance companycan also decide you are no longer eligible for their coverage, if the company deems you anunacceptable risk.

There are two general types of term insurance:

Level-term - the amount of insurance coverage remains the same over each renewalperiod; however, at the start of each renewal period the cost of the insuranceincreases.

Example: A $100,000 level-term policy for a male nonsmoker might costapproximately $173 a year at age 35 and $443 per year at age 50. The increase inpremium cost is the insurance company's way of addressing the increased risk that thecompany faces in providing $100,000 of insurance coverage for someone who is 50versus someone who is 35.

Decreasing term - provides a reduced amount of coverage for the same premiumcost at each renewal.

Example: The same 35-year-old nonsmoking male will continue to pay $173 peryear, but by the time he is 50 years of age, his insurance coverage will have decreasedto approximately $50,000.

b. Your whole life policy provides the maximum amount of protection against your death for an indefinite amount of time, or throughout your "whole life."Premiums remain at a fixed rate and there is no change in the amount of insurance coverage forthe entire lifespan of the policyholder. Whole life insurance companies also include a savingselement called cash value. You may borrow against the cash value of your policy.

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The comparison is easiest to understand when you first look at the way whole life works. Whenyou buy a certain amount of whole life at a certain price, there generally will be no change in theamount of premium you will have to pay, no change in the period between payments, and nochange in the amount of insurance coverage you will have for the rest of your life, no matter whathappens to you!

But, if you were to buy that same amount of coverage as term insurance, as you got older youwould pay more for that coverage or the coverage would be for a shorter period. In fact, theinsurance company could decide you were no longer eligible for their coverage. You see, withterm insurance the company underwriters (who determine the acceptability of risks) adjuststandards as insurance conditions change. This means you become, in effect, a new "case" forthem to evaluate at the beginning of each new term.

So, while term insurance looks great at the beginning because it is cheaper, you now understandthat there are benefits to whole life coverage too!

("Term" insurance is purchased for specified time periods.)

These two basic types of coverage, whole life and term, structure virtually all forms of lifeinsurance. If you get professional guidance to help you understand the details of different plansunder these two basic types, then choose according to your personal needs, you will be able todesign a basic life insurance program most appropriate for your personal situation. Then, afteryou've set up your basic plan, you can explore ways to modify or increase that coverage.

2106. General Types of Insurance Policies

Following are general types of insurance policies that are either term policies or combinations ofterm and whole life policies.

a. Universal life. This is a type of term insurance policy that builds a cash reserve accountsimilar to the cash value associated with whole life insurance. With a universal life insurancepolicy, the amount of premiums you pay is more than the actual cost of the term insurance. Afterthe insurance company deducts its administrative expenses, the additional premium amount isallowed to build up for the policyholder. Then, the policyholder has the option of choosing eithera fixed amount of death benefit to be paid to his or her beneficiary (the actual face amount of theinsurance coverage) or a death benefit that increases (the face amount of the insurance coverageplus the cash value of the policy).

Do you remember what kind of life insurance is purchased for specified time periods?

________________________________________

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There are some special features to universal life insurance policies:

The policyholder may pay premiums at any time in virtually any amount (up to certainlevels).

Payment of income tax on this cash reserve is deferred until the cash value is actuallywithdrawn.

This cash value reserve can be used to borrow against for emergencies, to pay off amortgage, for retirement income, or can be used to provide increased death benefits to the insured person's beneficiaries. However, because it is term insurance, the cost of a universal life policy will increase as you get older.

b. Permanent (cash value). This insurance provides the same coverage for the entire life span of the insured person. There are participating and nonparticipating features in different typesof permanent policies ranging from whole life to retirement insurance. Here are some of the waysthis policy can be used:

For loan purposes with the insurance company or a bank (the policyholder must pay interest on the loan to replace the cash value of the interest the company would have earned on that money if they had invested it themselves).

The cash value of the policy is paid to the policyholder in cash should he or she decide to surrender the policy.

c. Ordinary whole life. Whole life is also "permanent" (providing the same coverage for life)and you usually pay the same premium as long as you live, although some whole life policies letyou pay premiums for a shorter period (such as 20 years or until age 65).

d. Adjustable life. This type of policy protects through a combination of term and permanent coverages. The policyholder may "adjust" coverage by increasing or decreasing it as his or herneeds increase or decrease by changing the amount paid as a premium (within certain limits), bychanging the period of coverage, or even by switching coverage between the term and permanentlife insurance aspects of a policy.

e. Variable life. This is a form of permanent insurance where a portion of the amounts youpay as premiums is invested and the death benefit can "vary" by going higher than the originalamount (depending on the earnings from your investment).

f. Annuity and endowment. These pay a lump sum or income to you if you live to be acertain age, or pay a specified amount to your beneficiary if you die before then.

Sorting out the differences between these types of insurance policies can be very confusing. Youare learning a new but very important language!

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The chart below will help you review the main differences between the various types of insurance.

Table 2-1. Characteristics of Insurance Types

TYPE FEATURES

UNIVERSAL Cash reserves build from the amount you pay over the premium. The increase can be borrowed against or paid to the beneficiary. Policyholder can pay premiums at any time in any amount (with

limitations). Income tax is deferred until the cash is withdrawn.

ORDINARY The policyholder usually pays the same premium throughout the life of the policy (although sometimes he/she can arrange to pay a specified amount for a specified period of time).

PERMANENT Covers whole life span. Premium can be borrowed with interest or paid to the policyholder upon

surrender of the policy.

ADJUSTABLE Policyholder can "adjust" coverage to meet his/her needs by increasing or decreasing the premium amount or period covered.

VARIABLE What "varies" could be the amount of death benefit or profits from the portion of the premium invested.

ANNUITY ANDENDOWMENTS

Pay a lump sum or income to policyholder who lives to a certain age or after a certain amount is paid (or pays a beneficiary).

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(1. b; 2. c; 3. d; 4. e; 5. a)

Match each insurance type from column I with its special feature from column 2 by writingthe letter of the special feature on the line before each type.

Column 1 Column 2

Type Special Feature ___ 1. Ordinary a. Owner can increase or decrease

(whole) coverage.___ 2. Universal b. Usually pay same premium for life (or ___ 3. Variable for a specified time period). ___ 4. Permanent c. Builds cash reserves from amount paid

over the premium. ___ 5. Adjustable

d. Because part of the premium is invested, the profits from this and/or the death benefit can vary.

e. Covers whole life span.

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2107. Choosing the Best Insurance Policy

Before buying insurance, read the policy and understand the coverage you are buying. Make sureyou consider the information in Table 2-2.

Table 2-2. Insurance Purchase Considerations

Know your insurancerights

Make sure your insurance company is licensed with the state. If it is,the insurance commission can be helpful if a misunderstanding ordispute occurs between you and the insurance company. Insuranceprofessionals can give you general guidelines about your rights whenbuying insurance.

You can cancel or lapse a policy at any time, but you must pay the premium for the time the policy was in force.

If your insurance company collects personal information about you, ask how it will be used.

If your insurance company has incorrect information about you in their files that resulted in your being turned down for insurance, make sure it is corrected.

Know the insurancecompany's rating

Insurance companies are rated by independent rating services, such asBest's Insurance Reports (available in most libraries). A rating of"A" or better (A+ or A++) indicates financial stability and that thecompany is good on paying claims. Your insurance broker or stateinsurance commissioner can give you the rating. Use "A-rated"companies only!

Evaluate your needs The amount of insurance you need depends on your situation, howold you are, marital status, number of dependents, income, etc.

Read the free Federalgovernmentpublication

"What You Should Know About Life Insurance" is a free publicationavailable quarterly. Contact: Consumer Information Center, Pueblo,CO 81009.

Also, be aware that there are two types of insurance professionals: agents and brokers.

a. An agent represents the insurance company. An advantage for using an agent is theinsurance company must honor everything the agent promises you. A disadvantage is the agentcan help you with just one company's policies.

b. A broker sells a wide range of products from many companies. An advantage for using abroker is that he or she can help you compare many different policies and represents you, theconsumer, not the interests of the insurance company. A disadvantage is the insurance companyis not bound by the promises the broker makes to you.

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2108. Determine the Amount of Life Insurance You Will Need

Here are some money-saving tips:

Shop around. Call at least three insurance agents. Make sure to ask each agent thesame questions. Compare rates, ask about discounts and special rates.

Read sources of information such as Consumer Reports. Purchase more than one kind of insurance from the same company (automobile,

homeowner's, renters, etc.) Do not smoke; take care of your health. Carefully consider the reasons for adding riders or floaters to your coverage. Make sure your policy is guaranteed renewable. Decide how much life insurance you need.

As you can see, picking a life insurance policy is a multifaceted problem. Since there are manyfactors involved in projecting the future economy (like inflation and recession) and one's futureemployment, there cannot be any fixed formula for determining the amount of life insurance aperson should have--but, you could take one of the following approaches: multiple earnings,needs, or common sense. Table 2-3 will help you review the main differences between the varioustypes of insurance.

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Table 2-3. Differences Between Insurance Formulas

APPROACH DESCRIPTION

MultipleEarnings

Under this model the required amount of life insurance is a direct function ofthe insured annual income. One version of this approach multiplies currentearnings by a factor of five and increases that amount by the value of theunpaid home mortgage plus $50,000 for each child living at home.

EXAMPLE: A member with a spouse, two children in high school, $125,000outstanding mortgage, monthly gross income (base pay, BAH) of $5,100.

Required insurance:Salary: $5,100 x 12 x 5 = $306,000Outstanding Mortgage Balance 125,000Children: $50,000 x 2 = 100,000Total Insurance Requirements $531,000

Needs This technique of estimating insurance requirements examines the financialsituation of the insured and considers other resources that may be available.While it takes more effort than the multiple earnings method, it produces anestimate specifically tailored to an individual's situation. The worksheetprovides an outline for developing insurance requirements under the "needs"approach and explains the eight steps involved. (See the worksheet on page2-14.)

Common Sense Calculates the future financial expenses of your family (like car, house,education). Based upon these expenses, you purchase the amount of lifeinsurance you need. Use the life insurance calculation worksheet on page2-16 to estimate your current and future insurance needs using the commonsense approach.

(Answer: d)

Try this situation to see if you remember how to calculate your insurance needs based on themultiple earnings approach:

Situation: You are a sergeant with a spouse and no children. You have an outstandingmortgage of $63,000 and a monthly gross income (base pay, BAH) of $2,300. Using themultiple earnings approach, how much life isurance would you carry?

a. $100,000 c. $170,000b. $138,000 d. $201,000

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INSURANCE WORKSHEET(Needs Approach)

Step No. 4: Information on Family's Insurance Policies Already in Force.

Policy No. Type Insurance Name of Insurance Company Beneficiary Face Value

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Step No. 1: Income for My Family When I Die.

Determine the amount of income survivors have available:

Military Death Gratuity Pay $___________Back Pay and Allowances $___________VA Death Benefit Payment $___________Social Security Death Benefit $___________Proceeds of SGLI/VGLI Insurance $___________ Policy No. ________________ $___________ Policy No. _______________ $___________Other Sources of Income (explain) From ___________________ $____________ From __________________ $____________ From _________________ $____________ From __________________ $____________Total Income Available to Survivors $_____________

Step No. 2: Expenses of My Family When I Die.

Special Expenses (not continuing financial needs)

Executor's Fund (Count of $5,000) $__________Home Mortgage Payoff (1st Mortgage) $__________Home Mortgage Payoff (2nd Mortgage) $__________Funeral Expenses (Count on $5,000) $__________Emergency Expenses (Count on $5,000) $__________Auto Loans to be Paid Off $__________Other Loans to be Paid Off (explain) For:_______________________ $__________ For:______________________ $__________ For:_____________________ $__________ For:______________________ $__________Other Expenses (explain) For:_____________________ $__________Total Expenses Upon My Death $____________

Step No. 3: Reconciliation of Family's Immediate Income Versus Immediate Expenses.

Total Income Available to Survivors immediate expenses-it does not provide for a continued source of (from Section 1, above) $___________ income for their day-to-day, month-to-month living expenses. ThisLESS: Total Expenses Upon My Death will be the next greatest concern you will face. (from Section 2, above) $___________Excess Income Available Or Shortage On the other hand, if the computation shows that your survivors (if shortage, show here in brackets) $__________ will not have enough immediate cash available to cover their

expenses, they will be in deep trouble and you'll need to takeIf the above "Income Minus Expenses" computation indicates immediate actions to ensure their financial security.that your family's income is enough to cover the immediateexpenses they will face, your first concern about their financial Other than to immediately increase the amount of your life securitywell-being is satisfied, but remember, this only covers their insurance, there are very few actions you can take to provide a

source of immediate funds, unless you have investments.

INSURANCE WORKSHEET, (Continued)(Needs Approach)

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Step No. 5: Family's Monthly Income From:

Surviving Spuse's Salary $___________Survivor Benefit Plan Payments $___________Dependency & Indemnity Comp. Payments $___________VA Pension $___________VA Benefits (explain) For Spouse: $___________ For Children: $___________ For Parents: $___________Social Security Benefits: For Spouse: $___________ For Children: $___________ For Parents: $___________Other Income (explain): For: ________________________ $___________ For: ________________________ $___________Total Monthly Income for Family $___________Total Monthly Income for Family $___________

Step No. 6. Family's Monthly Living Expenses.

Rent Payment: $________________Mortgage Payment $________________Electricity/Gas Payment $________________Telephone Payment $________________Food $________________Clothing $________________Entertainment $________________Transportation $________________Loan Payments (explain) $________________ For: ________________________ $________________ For: ________________________ $________________ For: _______________________$________________Other Expenses: For: _______________________$________________ For: _______________________$________________ For: _______________________$________________Total Monthly Living Expenses $________________

Step No. 7. Reconciliation of Family's Monthly Expenses Versus Monthly Income.

Total Amount of Monthly Income for Family While it appears they will be provided for, they should have an (From Secion 5 above) $___________ income "cushion" to guard them against emergencies, inflation,Total Amount of Monthly Expenses disasters, and the death of other family members. (From Section 6 above) $___________Excess Income Available or Shortage On the other hand, if the computation shows that your survivors (If there's a shortage, show the will not have enough monthly income to cover their expenses, they amount in brackets.) $___________ will surely be in deep trouble and it is time to take immediate

action to preclude this from happending. The quickest and leastIf the above monthly "Income Minus Expenses" computation expensive way to accomplish this is to immediately increaseindicates that your family's monthly income (after your death) your insurance. Little can be done to protect your family afteris enough to cover their anticipated monthly expenses, your you are gone - and you could be "gone" tomorrow!immediate concern regarding their financial security shouldbe at ease.

Step No. 8. Determining How Much (If Any) Insurance You Need.

After the above computations, you might find yourself in the As your income level increases and you are able to place morefortunate position of having enough insurance to satisfy your money into sound investments which provide you the financialpresent financial needs, as well as the needs of your survivors security you seek, your insurance needs might very well decline.after you are gone. If this is the case, your family is indeed But until you reach that "safety net," it is better to be safe thanfortunate to have someone who cares so very much about sorry!their protection.

At the end of this study unit, you will find different methods of By the same token, you might have determined that the determining how much, if any, insurance you need. After amount of life insurance protection you are presently carrying reviewing the income and expenses your survivors would incur,will be insufficient to provide your family with the financial it might be prudent to re-read this section of the lesson and takeprotection they will need and deserve. another look at your requirements.

Notes, Comments & Points to Check:____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

INSURANCE WORKSHEET(Common Sense Approach)

Directions: Use this worksheet to estimate how much insurance you need.

NEEDS AMOUNTImmediate ExpensesFuneral Costs $__________Uninsured Medical Costs $__________Estate Settlement Costs $__________Long-Term NeedsEmergency Fund $__________Repayment of Debts $__________Family Living Expenses $__________Homemaking Expenses (child care, house and lawn care, etc.) $__________Education Fund $__________Retirement Fund $__________Other $__________TOTAL NEEDS: $__________

ASSETSCurrent Life Insurance $__________Any pension benefits $__________Cash and Savings $__________Equity in real estate (if it is to be sold) $__________Investment (stocks, bonds, mutual funds, IRA, & Keogh plans) $__________Social Security Survivor Benefits (monthly amount X # months) $__________Other $__________

INSURANCE CALCULATIONTotal Needs $__________Total Assets $__________Life Insurance Needed $__________

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(Answer: c.)

Lesson Summary. In this lesson you learned to talk the language of insurance, the timeframes ofyour SGLI and VGLI coverage, the typical options included in private insurance policies thatyou'll need to investigate as your separation or retirement draws near, and the three approachesyou can take to determine your insurance needs. As you can see, insurance is an importantconsideration in your financial planning. Another important consideration is health and dentalcare for your dependents. You will cover these topics in the next lesson.

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Lesson 2. MILITARY HEALTH BENEFITS

Military benefits are based on the need to maintain an effective, combat-ready force by rewardingthose who have served their country and providing them with benefits and retirement pay basedon their service. The system is meant to be attractive enough to encourage retention of highlyqualified individuals to meet the military's needs. The military provides for the well-being of thosewho have served faithfully. As a Marine, you are entitled to many financial benefits.

LEARNING OBJECTIVES

1. Identify the system that authorizes medical care for active duty, retired military, andtheir dependents.

2. Identify the person whom most military hospitals employ to assist active duty andtheir dependents in using health care benefits.

3. Identify the free hospital care facilities for Department of Defense (DoD) eligiblepersons.

4. Identify the system that brings together the health care delivery systems and theCivilian Health and Medical Program of the Uniformed Services (CHAMPUS).

5. Identify the person to contact to enroll your dependents in the Family MembersDental Plan (FMDP).

How many steps are in the needs approach?

a. 3 c. 8b. 4 d. 10

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2201. Health Care Benefits

Health care costs are drastically increasing. Fortunately, from your active service throughretirement, you and your dependents are covered for both general medical and dental care.These are the options you have available to you:

Health Benefits Advisor (HBA)Military Treatment Facility (MTF)TricareDefense Enrollment Eligibility Reporting System (DEERS)Family Members Dental Plan (FMDP)

The health care services provided to military personnel and dependents are complicated, but notimpossible to use. Just like everything else, the more you know about how your health careservices work, the better you will be at using the systems.

2202. Defense Enrollment Eligibility Reporting System (DEERS)

DEERS is a computerized data bank maintained by DoD. Its purpose is to serve as the officialrecord of eligibility for individuals receiving uniformed service benefits. Active and retiredmembers are listed automatically, but members must initially report their dependents and anysubsequent changes to dependent status (for example, birth, divorce, or marriage).

Important papers needed for DEERS enrollment are: birth certificate and social security number.

Registration in DEERS is absolutely critical to maintaining your official record of eligibility forhealth care treatment. PRIMUS and NAVCARE clinics and Tricare claims processors all use thesystem to verify specific eligibility.

Questions regarding DEERS enrollment can also be directed to the DEERS BeneficiaryTelephone Center at 1-800-538-9552; in California call 1-800-334-4162; in Alaska, Hawaii, orPuerto Rico call 1-800-527-5602.

2203. Health Benefit Advisors (HBA)

To assist you and your dependents in using the health care services, almost every military hospitalor medical facility employs HBAs. HBAs are consultants, but are not responsible for Tricarepolicies and procedures, and may have no authority to make benefit determinations or to obligatefunds.

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2204. Military Treatment Facilities (MTF)

MTFs provide free health care services for DoD active duty personnel, their dependents, andretired military personnel. MTFs are opertated by military personnel. First priority is the activeduty member. All other DoD beneficiaries receive care on a space-available basis. MTF issuesnonavailability statements, which may be required for civilian inpatient care and certain outpatientprocedures.

2205. Tricare Overview

Tricare is the DoD regional managed care program for members of the uniformed services andtheir families, and survivors and retired members and their families. Tricare brings together thehealth care delivery systems of each of the military services, as well as CHAMPUS, in acooperative and supportive effort to better serve you and your family.

All active duty members will be enrolled in Tricare Prime. All Medicare-eligible DoDbeneficiaries, and those CHAMPUS-eligible beneficiaries who elect not to enroll in Tricare Prime,will remain eligible for care in MTFs on a space-available basis.

Tricare introduces to beneficiaries three choices for their health-care delivery:

Standard Extra Prime

a. Tricare standard is a fee-for-service option which is the same as standard CHAMPUS.Annual deductibles under Tricare Standard and Extra are

E-4 and below: $50 for one person$100 for two or more

`E-5 and above: $150 for one person

$300 for two or more

Beneficiaries should check with their Tricare service center to determine if they need anonavailability statement which may be required for civilian inpatient care and certain outpatientprocedures.

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Tricare Standard benefits:

Greatest flexibility in choosing health care providers. Most convenient when travelling or away from home. Enrollment not required. Space-available care in military hospitals, but at low priority.

Pays for 80 percent of the approved or allowable cost.

The disadvantage to Tricare Standard is its expense over all the other options.

b. Tricare Extra offers a preferred provider option with discounts. The annual deductible isthe same as for Tricare Standard.

Tricare Extra benefits:

Can choose any doctor in Tricare network. Is less expensive than Tricare Standard. Enrollment is not required. Can still seek space-available care in military hospital, but at low priority. Will pay for 85 percent of the approved or allowable cost.

The disadvantage to Tricare Extra is it may still be expensive.

c. Tricare Prime is an enrolled Health Maintenance Organization (HMO) option that providesguaranteed access to timely medical care.

Tricare Prime benefits:

Automatic enrollment for active duty personnel Priority for care at military hospitals and clinics Primary Care Manager provides and guides health care delivery Lowest cost for treatment among the three options

Tricare Prime disadavantages:

Requires enrollment for 1 year Retirees pay enrollment fee Retirees and their families must elect this option Very expensive to receive care outside Tricare Prime (Point of Service Option) Not available everywhere

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2206. Family Members Dental Plan (FMDP)

Military dependents are covered for dental care through FMDP. As with Tricare, active dutyMarines are not eligible for coverage since their treatment is free in military dental facilities.

Your Health Benefits Advisor (HBA) or FMDP Customer Service (1-800-866-8499) can answerany questions you may have about the extent of your FMDP coverage and guide you through itsrelated paperwork.

FMDP benefits:

Covers all types of professional dental services. Coverage ranges from 50 to 100 percent, depending on type of dental service. Low premiums with no deductible. Participating dentists will complete and submit your claim at no additional charge. Participating dentists are monitored to ensure a high level of quality in the service

they provide.

(Answer: c.)

Lesson Summary. This lesson introduced you to the range of health and dental benefits coveringyour dependents from the time you are actively serving through your retirement. These benefitsare provided through Tricare and the Family Members Dental Plan (FMDP). Your HealthBenefits Advisor (HBA) can give you updated and detailed information about both programs.These programs can save you money and time as long as you follow their procedures verycarefully before getting treatment. Next, we will discuss your education benefits both duringactive duty and later under the G.I. Bill.

To obtain care in service hospitals or to have claims for civilian health care processed, allmilitary members and their dependents must enroll in ______.

a. Tricare c. DEERS b. HBA d. FMDP

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Lesson 3. G.I. BILL EDUCATIONAL BENEFITS

LEARNING OBJECTIVES

1. Identify the agency that administers the educational benefits of the G.I. Bill.

2. Identify the type of discharge that qualifies you for the educational benefits of the G.I.Bill.

In today's economy, the value of education is obvious. Yet, at the same time, educational costskeep spiraling upwards! The good news is that, as a service member, you have access to atremendous cost-saving educational program called the G.I. Bill, which can help you during orafter active service.

2301. G.I. Bill Programs

The G.I. Bill is administered by the Veterans Administration (VA). Congress, through the G.I.Bill, authorized VA to pay tuition costs and some living costs for veterans enrolled in qualifiedcolleges or training schools who maintain successful academic grades.

There are three G.I. Bills currently in affect. The one that applies to you depends on when youentered the service. Table 2-4 shows which G.I. Bill applies to you.

Table 2-4. Three G.I. Bills

IF YOU ENTERED THESERVICE...

THEN...

Between 1 Feb 1955 and31 Dec 1976

You are covered by the Vietnam-era G.I. Bill.

Between 1 Jan 1977 and 29 June 1985

You are covered by the Veterans EducationalAssistance Program (VEAP).

After 30 June 1985

You are covered by the Montgomery Bill (ActiveDuty Educational Assistance Program).

Note: This program is available to some Vietnam-era veterans still on active duty. However, specificconditions apply. For further information, contactyour local education officer or VA representative.

To qualify for G.I. Bill benefits, you must meet a minimum standard of discharge or separationwhen you leave the service to return to civilian life. This means your discharge must be"honorable." To receive maximum benefit, the participant must serve for 3 years.

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An individual may also qualify for the full benefit by initially serving 2 continuous years on activeduty, followed by 4 years of Selected Reserve service, beginning within 1 year of release fromactive duty.

The participant generally must have a high school diploma or an equivalency certificate before thefirst period of active duty ends. Completing 12 credit hours toward a college degree also meetsthis requirement. Individuals who initially serve a continuous period of at least 3 years of activeduty even though they were initially obligated to serve less, will be paid the maximum benefit.

Benefits under this program generally end 10 years from the date of the veteran's last discharge orrelease from active duty, but some extenuating circumstances qualify for extensions. Contactyour nearest VA regional office for details about your benefits.

2302. G.I. Bill Benefits

Table 2-5 compares the three types of G.I. Bill benefits: college/university degree coverage,cooperative training and remedial refresher programs, and tutorial assistance.

Table 2-5. Types of G.I. Bill Benefits

BENEFIT COVERAGE

College/university degreecoverage

All or part of the cost for seeking an associate, bachelor, masters,or doctorate degree (including overseas programs).

Cooperative training andremedial refresherprograms

All or part of the cost for business, technical, or vocational courses leading to a certificate or diploma. Training in an apprenticeship program offered by a company. Correspondence courses. Flight training.

Tutorial assistance Individual tutoring (for up to $100 a month) if you enter the schoolin the middle of the semester or later and if you have a deficiency.

Note: Tutorial assistance has a maximum limit of $1,200. Also, theschool must certify the specific tutor's qualifications and the hoursof tutoring needed.

The G.I. Bill can be used for obtaining most types of education or training. However, there aresome restrictions.

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The G.I. Bill is NOT payable for these types of courses: - Audited courses (or if taken and passed before) - Courses offered over the radio or open circuit television - Courses on subjects such as "bartending" and "personality development"

(Yes, if the course of study would lead to an approved degree. You would need to check withyour local VA office for advice.)

2303. General Procedure for Obtaining Educational Benefits

Table 2-6 shows the steps to obtain educational benefits.

Table 2-6. Obtaining Educational Benefits

STEPS PROCEDURE

1 Select an educational program.

2 Consult your VA representative at the regional office with jurisdiction overthe state where you will attend school.

3 Fill out the appropriate VA forms.

4 Apply to the school. Once your course of study has been approved by yourVA educational advisor and you establish eligibility with the school, you areready to enroll.

5 Once you start receiving benefits, comply with the standards of the schoolregarding attendance, conduct, and progress.

6 Keep in touch with the VA to let them know of any changes as you gothrough your program.

Before you get into the details of using the G.I. Bill, take a minute to review the basic principles of the coverage it gives you, and consider how to apply them to the followingquestion.

If you decided to study abroad to learn another language (while learning about anotherculture at the same time), would the G.I. Bill pay your tuition? ____________________

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(Step 5 - Comply with the standards of the school.)

Before commencing any educational move, check with your local career planner and then youreducation counselor to map out a formal educational plan. Check to see if any of your militarycareer experiences (such as attending formal schools or completing MCI courses) will earnacademic credit toward a degree. You might be pleasantly surprised!

Lesson Summary. In this lesson you learned about the educational benefits of the G.I. Bill, who iseligible; what the restrictions are; and the types of academic, vocational, and training programscovered. In lesson 4, you will learn about other VA benefits--more of your assets as a Marine.

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Lesson 4. OTHER VETERANS ADMINISTRATION (VA) BENEFITS

LEARNING OBJECTIVES

1. Identify the two types of disability pensions.

2. Identify when a veteran's spouse would be entitled to burial in a national cemetery.

Regardless of whether you have a family of your own, or if you are currently on active duty, youneed to factor several VA benefits into your plans. These include disability benefits, dependencyand indemnity benefits, and burial benefits. Further, if you are a married veteran, you will qualifyfor VA financial aid for your spouse's and childrens' education, as well as a death pension for yoursurviving spouse.

To review, the six steps to obtain educational benefits are listed below. Step 5 isincomplete. Please complete step 5!

Step 1 - Select a program. Step 2 - Consult your VA representative (for the state where you will attend school). Step 3 - Complete the appropriate VA benefit forms. Step 4 - Apply to the school. Step 5 - Comply with ____________________________________________. Step 6 - Notify the VA of any changes.

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2401. VA Disability Pensions

There are two types of disability pensions:

a. Service-connected disability pension applies if you are disabled by injuries (or by diseases)incurred while serving on active duty. After separation from active duty, the veteran will usuallyqualify for monthly disability compensation, provided he or she was not separated or releasedunder dishonorable conditions.

The amount of this compensation is based on the veteran's percentage of disability, as determinedby the VA. Amounts presently authorized are shown in table 2-7. Additional amounts areauthorized for other severe disabilities such as loss of eyesight, limbs, vital organs, etc. Table 2-8shows the conditions you must meet to get specific benefits and table 2-9 shows nonserviceconnected disabilities for which you may be eligible.

b. Nonservice-connected disability pension applies if you are permanently disabled for areason not traceable to your military service.

Table 2-7. Service-Connected Disability Compensation

Percentage of Disability Monthly Pension

10% $ 91

20% 174

30% 266

40% 280

50% 542

60% 683

70% 862

80% 1009

90% 1124

100% 1870

Note: A veteran having a 30-percent or higher rate of disability may be entitled toadditional allowances for his or her dependents.

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Table 2-8. Service-Connected Disabilties

CONDITIONS SPECIFIC BENEFITS

You were separated under honorableconditions.

Monthly compensation after separation from activeduty.

Disability is NOT the result of theabuse of alcohol or drugs.

Note: Amount of compensation based on your percentage of disability as determined by the VA.

Orthopedic or prosthetic devices provided, if necessary.

If you die, or become a POW or MIAmore than 90 days, or become disabledas a result of military service.

Survivors and dependents may receive funds for education or training.

Table 2-9. Nonservice Connected Disabilities

CONDITION SPECIFIC BENEFITS

You were separated under honorableconditions.

Pension

You served at least 90 days during a wartime period.

You have a limited income.

Note: You must meet all three conditions to earn the pension.

(Yes, because he meets all three criteria: an honorable discharge, at least 90 days service duringwartime, and a limited income.)

2402. Dependency and Indemnity Benefits

Because you are a veteran, your surviving spouse and dependent children are eligible forindemnity benefits if you die.

a. Death due to service-connected disability (DIC) payments. The acronym "DIC" stands for"Dependency Indemnity Compensation." DIC payments are authorized for surviving spouses,unmarried children under 18 (as well as certain children considered "helpless" and those between

Here is a situation to test your knowledge of nonservice connected disability: Mr. EdwardBenson is a retired Marine who was honorably discharged in 1976. He lost his eyesight yearsago because of an illness. He served two tours in Vietnam and now lives on a limited income.Does he qualify for a disability pension? __________________________________________________________

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18 and 23 if attending a VA-approved school), and certain parents of service personnel orveterans who died from one of the following conditions:

(1) Disease or injury incurred or aggravated in line of duty or while on active duty for training.

(2) An injury incurred or aggravated while on annual training for reserves.

(3) A disability otherwise compensable under laws administered by the VA.

Note: For these benefits to apply, death cannot be the result of willful misconduct.

b. Death due to nonservice-connected cause. Some surviving spouses and children (subject tothe same restrictions as for DIC benefits) can even receive DIC payments of disabled veteranswhose deaths were not the result of their service-connected disability.

(1) If the veteran was continuously rated "totally disabled" for a period of 10 years ormore or

(2) If the veteran was so rated for less than 10 years, then he or she must have been rated"totally disabled" for a period of not less than 5 years from the date of discharge frommilitary service.

Payments under this provision are subject to offset by the amount received from any judicialproceedings brought on because of the veteran's death.

Note: If death occurred after service, the veteran's discharge must have been under conditions other than dishonorable.

Take a moment to review by answering the following questions:

(Answer: children/dependents)

(Yes. DIC payments are authorized for parents of service personnel or veterans who died from aninjury incurred in the line of duty.)

Because you are a veteran, your surviving spouse and ______ are eligible for indemnitybenefit payments when you die.

Situation: Bob and Ellen McDonald are applying for indemnity on their son Patrick who diedlast January during a training exercise. Are they qualified? ______________

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2403. Burial Benefits

Veterans, service members, and dependents are eligible for burial in one of VA's 114 nationalcemeteries. An eligible veteran must have been discharged or separated from active duty underconditions other than dishonorable, and have completed the required period of service.

Persons entitled to retired pay as a result of 20 years of creditable service with a reservecomponent are eligible.

A U.S. citizen who served in the armed forces of a government allied with the United States in awar also may be eligible.

The following are your specific burial benefits:

a. Burial in a national cemetery. Veterans may be buried in any national cemetery.Furthermore, a veteran's spouse who did not remarry, a veteran's widow/widower, minor childrenand, under certain conditions, unmarried adult children also can receive this privilege. ArlingtonNational Cemetery is under the jurisdiction of the Army. It has more limited eligibility than othernational cemeteries. Eligibility for cremated remains in Arlington's columbarium is the same aseligibility for burial in VA national cemeteries. For information on Arlington burials, write toSuperintendent, Arlington National Cemetery, Arlington, VA 22211 or call 703 695-3250.

b. Burial in a private cemetery. A veteran can also choose to be buried in a private cemetery.In such cases, a certain amount is paid by the VA.

c. Headstone or grave marker. A grave marker or headstone is provided and even shipped tothe cemetery free of charge by the VA if the veteran's death occurred before November 1990.But, no headstone or gravemarker allowance may be paid for a veteran who died after October31, 1990.

d. Burial flags. An American flag is made available to drape the casket of an eligible veteran,after which it may be given to the next of kin, a close friend, or an associate of the deceased. TheVA may also issue a flag for a veteran who is missing in action and is later presumed dead. (Toarrange for a flag, you may apply at any VA regional office or most post offices.)

e. Presidential memorial certificate. Presidential Memorial Certificates expressing thecountry's grateful recognition of a veteran's service in the armed forces and bearing the signatureof the President are given to the next of kin of deceased eligible veterans or to the next of kin ofpersons who were members of the military at the time of death.

f. Eligible recipients. This includes the next of kin (widow, widower, oldest child, parent, oroldest sibling), a relative or friend (upon request), or an authorized representative acting on behalfof such a relative or friend.

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g. Notice of a veteran's death. Normally, notice of a veteran's death is received at one of theVA's regional offices. That facility identifies the next of kin from the veteran's records andrequests the Presidential Memorial Certificate from Washington, D.C. so the next of kin arespared that chore. (If there are no next of kin, interested friends should apply to a VA regionaloffice to see if a certificate can be arranged.)

h. Reimbursement of burial expenses. VA will pay a burial allowance up to $1,500 if theveteran's death is service-connected. VA also will pay the cost of transporting the remains of aservice-disabled veteran to the national cemetery nearest the home of the deceased that hasavailable gravesites. In such cases, the person who bore the veteran's burial expenses may claimreimbursement from VA. VA will pay a $300-burial and funeral expense allowance for veteranswho, at time of death, were entitled to receive pension or compensation or would have beenentitled to compensation but for receipt of military retirement pay. Eligibility is also establishedwhen death occurs in a VA facility or a nursing home with which VA contracted. Additionalcosts of transportation of the remains may be reimbursed. There is no time limit for filingreimbursement claims of service-connected deaths. In other deaths, claims must be filed within 2years after the permanent burial or cremation.

VA will pay a $150-plot allowance under the following circumstances: when a veteran is notburied in a cemetery that is under U.S. government jurisdiction; if the veteran is discharged fromactive duty because of disability incurred or aggravated in line of duty; if the veteran was inreceipt of compensation or pension or would have been in receipt of compensation, but for receipt of military retired pay; or if the veteran died while hospitalized by VA. The $150-plot allowance may be paid to the state, if a veteran is buried without charge for the cost of a plot, orinterment in a state-owned cemetery reserved solely for veteran burials. Burial expenses paid bythe deceased employer or a state agency will not be reimbursed.

(Answer: b.)

When would a veteran's spouse be buried in a national cemetery?

a. If the marriage lasted more than 10 yearsb. If the spouse did not remarryc. If this wish was documented in a (deceased) veteran's willd. If the marriage lasted at least 20 years

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(Answer: Circle all except "medical.")

Lesson Summary. This lesson contained a lot of legal language explaining some of the currentbenefits available to families of disabled and deceased veterans. The discussion covered whetherany difference was made by such factors as the disability being a direct result of a service-relatedinjury or not, and if the veteran had died as a direct result of the injury or not. The terms of yoursurvivors' benefits are subject to change, so all "survivors" should know to check with their localVA office to find out exactly what benefits they are entitled to.

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Lesson 5. RETIREMENT PAY BENEFITS

LEARNING OBJECTIVES

1. Identify the number of years of active service required to qualify for retirement pay.

2. Identify which retirement plan would apply, given a retirement scenario.

3. Calculate the monthly pay using the Retirement Table when given a retirement scenario.

2501. General Retirement Information

Generally, to qualify for retirement, you must complete at least 20 years of military service(unless you retire for reasons of disability). It is always a good idea to know how to calculateyour potential retirement pay.

Note: Your retirement pay cannot exceed 75 percent of your basic monthly pay.

There are three general plans now in effect: the "final pay" system, the "high-3" retirementsystem, and the "two-tier" system (in addition to disability retirements which can be figured usingpart of the "two-tier" system).

Suppose you died after leaving the military with a service-connected disability. What typesof benefits might your spouse find himself or herself entitled to (after checking with the VAoffice)? Circle them below.

financial medical educational burial

How many years you need to retire? ___________

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(Answer: 20)

In previous years, it was a simple task for a service member planning a nondisability retirement todetermine the amount of retirement pay he or she would receive for his or her active duty militaryservice. However, over the past few years, two major changes have been made to militaryretirement pay. As a result, how you compute your retirement pay now depends on when youentered active military service.

Table 2-10 shows when to use each retirement system.

Table 2-10. Determining Retirement Pay Dates

IF YOU ENTEREDACTIVE DUTY...

THEN COMPUTE YOUR RETIREMENT BENEFITS USINGTHE...

Before 8 Sep 1980 Final Pay System (par a.)

Between 8 Sep 1980and 31 July 1986

High-3 System (par b.)

After August 1986 Two-Tier System (par c.)

2502. Calculate Your Retirement Pay Using the Final Pay System Table 2-11 shows how much of your pay you rate when you retire. Table 2-12 shows how tocalculate your retirement pay using the final pay system.

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Table 2-11. Final Pay System Retirement Table

YEARS OF SERVICE PERCENT

20 50

21 52.5

22 55

23 57.5

24 60

25 62.5

26 65

27 67.5

28 70

29 72.5

30 75

Note: Your retirement pay cannot exceed 75 percent of your base pay.

Table 2-12. Calculating Final Pay System

STEPS PROCEDURE

Determine your retirement percent Multiply your years of service for retired pay by 2.5percent.

20 years of servicemultipled by x.025 (=2.5%) 100 400result .500 (=50%) retirement percent

Determine your monthly retirement pay Multiply your basic monthly pay (for the grade inwhich you retire) by your retirement percent.

Example:$2,000 your basic payx .50=50%$1,000 your monthly

retirement pay

2503. Calculate Your Retirement Pay Using the High-3 System

Table 2-13 shows what percentage of your base pay you would receive with the high-3 System.Table 2-14 shows how to calculate your retirement pay using the high-3 system.

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Table 2-13. High-3 System Retirement Table

YEARS OF SERVICE PERCENT

20 50

21 52.5

22 55

23 57.5

24 60

25 62.5

26 65

27 67.5

28 70

29 72.5

30 75

Table 2-14. Calculating Retirement Pay Using the High-3 System

STEPS PROCEDURE

Determine your retirement percent. Multiply the number of years of service by 2.5percent.

Determine your highest 3 years of active dutypay.

Example:

$1850 year 18 average monthly basic pay$1950 year 19 average monthly basic pay$2200 year 20 average monthly basic pay

Compute your average monthly basic pay forthese 3 years.

Example:

$1850 + $1950 + $2200 = $6000$6000 ÷ 3 = $2000 average basic pay for

highest 3 years of service

Determine your monthly retirement pay. Multiply your average basic pay for highest 3years by your retirement percent (2.5 x 22years).

Example:

$2000 x 55% = $1100 your monthly retirementpay

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2504. Calculate Your Retirement Pay Using the Two-Tier System

Table 2-15 shows what percentage of your base pay you would rate using the two-tier system.Table 2-16 shows how to calculate your retirement pay using the two-tier system.

Table 2-15. Two-Tier Retirement Table

Old Retirement (after age 62) New Retirement (before age 62)

YEARS OF SERVICE PERCENT YEARS OF SERVICE PERCENT

20 50 20 40

21 52.5 21 43.5

22 55 22 47

23 57.5 23 50.5

24 60 24 54

25 62.5 25 57.5

26 65 26 61

27 67.5 27 64.5

28 70 28 68

29 72.5 29 71.5

30 75 30 75

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Table 2-16. Calculating Retirement Pay Using the Two-Tier System

TIER #1 TIER #2

Compute the first tier (what you will receivefrom the time you retire until age 62).

a. Determine your retirement percent using the"new" retirement percents column of theretirement table shown in the chart (or multiplyyour years of service by 2.5% minus 1% foreach year less than 20).

b. Determine your average monthly basic payfor your highest 3 years' (36 months) salaryduring active duty.

c. Multiply your average monthly basic pay bythe "new" retirement percent.

d. Round the amount DOWN to the nearestwhole dollar.

Compute the second tier of your retirement(what you will receive after reaching age 62).

a. Determine your retirement percent using the"old" retirement percents column of table 2-12(or multiply your years of service by 2.5%).

b. Multiply that percent by your highest 3years' (36 months) salary during active duty.

c. Round the amount DOWN to the nearestwhole dollar.

EXAMPLE: You have been working on your personal retirement figures. Compare yourcomputations with these examples. Situation: Suppose you were a 43-year old GySgt with 20years of active service.

Your highest 3 years's (36 months) salaryaveraged $2050. The "new" retirement percentfor 20 years of service is 40%.

$2050 x 40% = $820 your monthly pension forthe next 19 years until reaching age 62.

Upon reaching age 62, you will multiply yourhighest 3 years' (36 months) salary average bythe "old" retirement percent for20 years ofservice, which is 50%.

$2050 x 50% = $1025 your monthly pensionafter reach age 62.

2505. Disability Retirements

If you retire because of a disabling injury, you can usually choose to base your retired pay on yourdisability rating or your length of service. Table 2-17 helps you determine your eligibility.

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Table 2-17. Disability Determination

IF YOU CHOOSE TOBASE YOUR PAY

ON...

THEN...

Your disability Multiply your basic pay by your disability rating (with 75 percent ofyour basic pay as the limit).

Your length of service Use the formula (final pay, high-3, or two-tier) based on the dateyou entered active duty.

Note: If you are under the two-tier system, you are not subject to the 1 percent retirement penalty before age 62.

(Answer: c)

Lesson Summary. In this lesson you examined retirement pay systems available to you as a Marine. As with all the other entitlements and benefits, check with your local VA office to get themost current details affecting you or your family's benefits. Now, try answering the questions inthe study unit exercise and see how much you remember.

Check your understanding of retirement benefits by answering the following question.

Suppose you joined the Marine Corps in June 1987 and you are now a Sergeant. You plan toretire (at age 40) in June of 2007 (with 20 years of active service). Which retirement plan willyou rate to calculate your monthly retirement allowance?

a. Final pay systemb. High-3 systemc. Two-tier system

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Study Unit 2 Exercise: Complete items 1 through 28 by performing the action required. Check your responses against those listed at the end of this study unit.

Matching: For items 1 through 6, match the six insurance terms in column 1 with the brief phrase describing each in column 2. Select the ONE letter that identifies the best description for each term and place it on the blank before the term.

Column 1 Column 2

Insurance Terms Definition

___ 1. Premium a. Written contract or certificate stating the terms of the insurance contract

___ 2. Beneficiaryb. Amount which will be paid upon death of

___ 3. Policy the insured

___ 4. Face amount c. Periodic payments for insurance paid by the policyholder

___ 5. Cash surrenderd. Person who is to receive the insurance

___ 6. Lapsed policy proceeds when the insured dies

e. Policy which has been terminated because premium payments have not been paid

f. Amount available to a policyholder upon voluntary termination of a policy by the

policyholder

7. Describe the Servicemen's Group Life Insurance (SGLI). Who is eligible? When? Is it a term or whole life policy?___________________________________________________

___________________________________________________

8. Describe the Veterans Group Life Insurance (VGLI). Compare it to the SGLI by stating who is eligible, when, and whether it is term or whole life insurance.___________________________________________________

___________________________________________________

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9. Describe a term life insurance policy. What are the two special types?

___________________________________________________

___________________________________________________

10. Describe a whole life insurance policy.

___________________________________________________

___________________________________________________

Matching. Match the type of insurance policy from column 1 on the left to its description in column 2.

Column 1 Column 2

Insurance Premium Description

____ 11. Universal life a. Policyholder usually pays the same throughout the life of the policy premium

____ 12. Permanent (cash value)b. Pays a lump sum or income to policy

___ 13. Ordinary (whole life) holder who lives to a certain age or after a certain amount is paid (or pays beneficiary)

___ 14. Adjustable c. Builds a cash reserve

____ 15. Variabled. Coverage increases or decreases based on

____ 16. Amnity endowment insured's needs

e. Death benefit can vary by going higher than the original amount

f. Provides the same coverage for the entire

life span of the insured

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17. Which of the following are the three formulas (approaches) to determine insurance needs?

a. Multiple household c. Multiple earnings Needs Wants Tricare Tricare

b. Multiple earnings d. Multiple policies Needs Desires Common sense Consumer sense

18. The system that serves as the official record of eligibility for individuals receiving uniformed service benefits is ________.

a. Military/Dependent Health Benefits Systemb. Military hospital or health facility within 75 milesc. Service Health Care Benefits Pland. Defense Enrollment Eligibility Reporting System

19. The system that brings together the health care delivery systems and CHAMPUS is

______________________.

20. Who would enroll your dependents in the FMDP Plan?

_______________________________________________________

21 . Which agency administers the educational benefits of the G.I. Bill?

_______________________________________________________

22. What type of discharge qualifies you for all G.I. Bill benefits?

_______________________________________________________

23. Which of the following are the three types of G.I. benefits?

a. College c. Trade Compensatory training Cooperative training School assistance Math assistance

b. College d. Vocational Cooperative training Compensatory training

Tutorial assistance English assistance

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24 . What are the two types of disability pensions?

_______________________________________________________

_______________________________________________________

25. When would a veteran's spouse be entitled to burial in a national cemetery?

_______________________________________________________

26. How many years of active service are required to qualify for retirement pay?

_______________________________________________________

Items 27 and 28 refer to the situation that follows. Read the situation carefully, then answer theitems.

Situation: Suppose you joined the Marine Corps in June 1987 and you are now a sergeant. Youplan to retire (at age 40) in June of 2007 (with 20 years of active service).

27. Which retirement plan will you rate to calculate your monthly retirement allowance?

_______________________________________________________

28. In the situation above, if your highest average 36-month salary in June 2007 was $2,500, how much would your monthly retirement allowance be during the years before you were 62?

_______________________________________________________

(Use this space to calculate)

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STUDY UNIT 2 SUMMARY

In this study unit you read about Servicemen's Group Life Insurance (SGLI), Veterans Group LifeInsurance (VGLI), private life insurance (term and whole life), some VA benefits, and retirementsystems. In Study Unit 3, you will cover the concept of "planned" savings and suggest practicalways to implement savings into your financial plans.

Study Unit 2 Exercise SolutionsReference

1. c. 21022. d. 21023. a. 21024. b. 21025. f. 21026. e. 21027. Term insurance on the group plan offered to all active 2103 duty service members when they first enlist (and for 120 day s after separation)8. Term insurance on the group plan offered to newly 2104 separated service members. It covers the period from 121 days after separation and is renewable every 5 years

for the rest of your life.9. Provides protection for only a specific period (number of 2105 years) at certain cost. The full amount of the policy is

only payable if death occurs.10. Provides the maximum amount of protection against 2105 your death for an indefinite period of time, or

throughout your "whole life."11. c. 210612. f. 210613. a. 210614. d. 210615. e. 210616. b . 210617. b. 210818. d . 220219. Tricare 220520. Your S-1 or personnel officer 2206

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Study Unit 2 Exercise Solutions, continuedReference

21. Veterans Administration 230122. Honorable 230123. b. 230224. Service-connected 2401 Nonservice-connected25. If the spouse did not remarry 240326. 20 years 250127. "Two-tier" 250428. $1,000 ($2,500 X 40% = $1,000 (a month)) 2504

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STUDY UNIT 3

FINANCIAL PLANNING

Introduction. So far you've learned about the papers that identify you financially, your needto plan for a will and insurance, and some of your government VA benefits includingeducational funds, disability insurance, and retirement pensions. Now you're ready to planfor your financial future--commitment to saving.

Making a commitment to saving is not easy. Savings outlays are an expense and reduceyour spendable income. Nevertheless, you should allot a portion of your monthly incometowards savings. If you feel this is not possible now, perhaps a benefit of this course will beto show you how to manage your finances so you can implement a savings program in thefuture. Whatever your income, budgeting (including a sound savings program) should be arealistic and reasonable goal.

What are your financial goals? How will you achieve them? This lesson introduces afundamental approach to financial planning--saving. Budgeting and saving regularly willprovide you and your family with financial security. This lesson describes the basic steps todevelop a sound financial plan. Financial planning assistance is available to you if you needit.

Lesson 1. PLANNING YOUR FINANCIAL GOALS

LEARNING OBJECTIVES

1. Identify the three main activities in financial planning.

2. Identify the equation for determining financial status or net worth.

3. Identify the two general purposes of saving.

4. Classify expenses as fixed or variable.

5. Identify the basic steps to developing a budget.

6. Identify the key to proper budgeting.

7. Identify the two sources available for assistance in financial planning.

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3101. Three Main Activities in Financial Planning

The three main activities in financial planning are

Evaluate your financial status Set financial objectives Plan your budget

3102. Evaluate Your Financial Status

A financial plan is like a road map. First, you find out where you are. Then you find the best wayto get where you want to go.

Where you are is your current net worth, determined by the following equation:

Assets - (minus) liabilities = net worth

The best way to get where you want to go is to plan savings and budgeting strategies.

To review, answer the following question:

To evaluate your financial status, you must calculate your net worth, which is determined byyour assets minus your ____________________________________________________.

(Answer: Liabilities or debts)

3103. Two General Purposes of Saving

The principle vehicle that actually takes you to your destination is saving.

Saving has two general purposes:

It enables you to achieve your personal financial objectives. It provides you and your family with a financial security blanket.

Your savings security blanket can provide for emergencies or in case you become unable tosupport your family.

What are the two general purposes for saving?______________________________________________________________________

______________________________________________________________________

3-2

(Answer: It enables you to achieve your personal objectives, and it provides a security blanket incase of emergencies.)

Having a financial plan is essential, but a commitment to saving is the key to your plan. And akey part to successful saving is starting early. The earlier you start, the bigger the payoff downthe road.

3104. Set Financial Objectives by Working Backwards

Personal financial objectives consist of two types: short-term and long-term.

Short-term objectives are the building blocks used to attain the long-term objective.

Long-term objectives are things like buying a home, establishing a business, getting adegree, paying for college tuition, or affording an active retirement. Suppose yourlong-term objective was to buy a house. What steps would you take to achieve thisgoal? That is, what would be your short-term objectives? One way to uncover these short-term objectives is to work backwards.

Thinking backwards in terms of time, what would you need to consider? These become yourshort-term goals.

- You would need savings (a healthy bank account).- How would you get that?

- Get a steady job with a steady income. - How would you get that?

- Get education/training/certification/skills.- What is the first step toward getting qualified? - Get a realistic look at your abilities and background with your career planner. - What is the next step?

- Enroll in courses or training.

Your first short-term objective in this case would be to "enroll in courses or training."

You don't have a crystal ball and these are rapidly changing times! So, be prepared to adjust evenlong-range plans. Take the time to figure out the details, because any time you don't have enoughmoney, you will have to extend your timeframe.

When your plans look as realistic as you can make them, then commit to them. Your decision tocommit will be directly related to the degree of success you will have in reaching your goals andwill give you the edge you need to succeed.

What is one way to uncover the short-term objectives that lead to the achievement of along-term objective called?_______________________________________________________________________

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(Answer: Working backwards)

3105. Classifications of Expenses

Expenses may be classified in one of two ways:

a. Fixed expenses are expenses that are the same or almost the same every month (such asrent or mortgage payments, car payments, installment payments on large purchases, utilitiespayments, and insurance premiums).

b. Variable expenses are expenses that vary from month-to-month such as food, clothing,automobile expenses (gas and oil), entertainment, miscellaneous unbudgeted "necessities," andother unforeseen expenses such as medical emergencies, major home or auto repairs, etc.

(Answers: Fixed, variable, variable)

3106. Plan a Budget

A budget is a master plan for sound financial management. Your budget helps you set goals forspending (and saving) your money. The sample budget in table 3-1 shows how monthly income isallocated. Notice the three subheadings: net income, fixed expenses, and variable expenses.After that, you will see how to plan a budget step-by-step.

Determine which of the following are fixed or variable expenses:car payment_________ doctor____________ food__________

3-4

Table 3-1. Sample Budget

a. The three basic elements of a budget are

(1) Net income is your Marine Corps take-home pay (after taxes) and any other income(from a part-time job, earnings of your spouse, interest earned from savings accounts,etc.).

(2) Fixed expenses are expenses that are the same or almost the same every month (suchas rent or mortgage payments, car payments, installment payments on largepurchases, utilities payments, and insurance premiums).

(3) Variable expenses are expenses which vary from month-to-month such as buyingfood, clothing, automobile expenses (gas and oil), entertainment, miscellaneousunbudgeted "necessities," and other unforeseen expenses such as medicalemergencies, major home or auto repair, etc.

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RECORD OF EXPENSES TOTAL FOR

FIXED EXPENSES WEEK 1 WEEK 2 WEEK 3 WEEK 4 MONTH

Rent/mortgage $ 525 525 Utilities:Gas _______ _______ _______ 34 34 Electric _______ _______ _______ 101 101 Water _______ _______ _______ 18 18 Telephone _______ _______ _______ 45 45 Auto payment _______ _______ _______ 310 310 Furniture/appliance _______ _______ _______ 38 38 Other (identify and _______ _______ _______ --- -- list separately)

VARIABLE EXPENSES

Food 75 48 43 39 205 Auto expenses 21 30 29 25 105 Clothing 49 12 21 16 98 Necessities 28 12 37 23 100

Use only your net income to prepare your budget because it is the amount you actually haveavailable. Don't attempt to prepare a budget based on anticipated income. Use only income youare sure of.

b. Your budget is a plan to spend, and, if properly prepared, it is a master plan for soundfinancial management. When you draw it up, it is a written agreement you have made withyourself. But first, how do you draw it up?

c. Seven steps to developing a monthly budget

(1) Determine your net income. Remember to use your take-home pay and any otherincome to calculate your net income.

(2) List your fixed expenses (such as rent, car payments, and insurance premiums).

(3) List your variable expenses (such as food, clothing, gas, and entertainment).

(4) Write down what you spend or plan to spend on each fixed and variable expense.Use records from previous monthly expenses to help you determine fixed and variableexpenses. Remember that some expenses (such as car insurance, medical bills, orproperty taxes) may be yearly or semi-yearly expenses rather than monthly expensesand need to be factored in.

(5) Total your expenses. Add up your variable and fixed expenses for that month.

(6) Subtract total expenses from your net income (take-home pay).

(7) Determine the amount you can spend on saving. The remainder of your net income,after fixed and variable expenses have been subtracted, can be put towards savings. Ifthe remainder for investing in savings is too low, look for ways to reduce yourexpenses. The phrase "spend on saving" may sound strange, but that is exactly howyou should approach saving--as an expense. Pay your savings program just as youpay your other bills; it's the best way to ensure that you save consistently.

Part of planning your budget is to get realistic figures for your budget. You can do this bykeeping an accurate record of your income and expenses for at least three consecutive months.You should give further consideration to fixed and variable expenses, since those recorded for atwo-month period probably do not represent all your expenses. Other expenses may be due on aquarterly, semiannual, or annual basis instead of monthly. Also, you may encounter emergencyexpenses such as home repairs, automobile repairs, emergency leave, etc.

Therefore, the key to proper budgeting is to keep complete and accurate records that take allknown and foreseeable expenses into consideration.

3-6

After computing, recording, and verifying your figures, you can now analyze your financialsituation.

Are you spending too much money on clothing or entertainment?Are your automobile expenses higher than you planned?

Table 3-2 shows average expenditures for one person. It should help you see where you might beoverspending, and where you can cut back to add to your savings.

Table 3-2. Typical Expenditures

Expenditure Percentage of Income

Clothing 5%

Food 15%

Housing 30%

Medical 5%

Savings/Investments 5% to 10%

Transportation 15% to 20%

Other 15%

Since you can easily see where you have overspent or overbudgeted, it will now be obvious toyou which areas within your budget require adjustment or remedial action. On the other hand, ifyou are within your budget and have income in excess of your expenses, it would be wise toincrease the amount of your income allotted to "savings" (assuming that the additional income canbe applied toward savings on a regular basis). Otherwise, the additional income should bedeposited to savings as it occurs. The temptation to spend the extra money as a "reward" forstaying in your budget will be great, but must be avoided!

Because of the rapid changes in today's economy, your budget must be reviewed and updatedfrequently, possibly every three months, to be accurate, realistic, and effective. Your budget is ofno value unless you "live" within it!

What is the key to proper budgeting?

______________________________________________________________________

(Answer: To keep complete and accurate records)

3-7

3107. Develop Your Budget

Do you remember the seven steps to developing a budget? If not, turn back to paragraph 3106.Use them to complete the following worksheet, then update your budget a minimum of everyquarter (every 3 months).

Table 3-3. Budget Worksheet

Type of Expense Amount You Spend

FIXED

Rent/mortgageUtilitiesGasElectricWaterTelephoneOther (Identify)Auto PaymentFurniture/applianceInsurance PremiumOther (Identify and list separately)

_______________________________________________________________________________________________________________________________________________

VARIABLE:

FoodAuto ExpensesClothingNecessities (laundry, barber, cosmetics, etc.)EntertainmentSavingsOther (Identify and list separately)

___________________________________________________________________________________________

Total Expenses _____________

3108. Assistance Available in Budget Planning

You have at least two sources of help in your financial planning. They include the following:

Marine Corps Family Services Center The Navy-Marine Corps Relief Society

3-8

a. The Marine Corps Family Services Center has a lot of excellent literature available. Itfrequently offers classes and offers individual counseling at some locations. Check with yourcenter for further information.

b. The Navy-Marine Corps Relief Society is a private, non-profit emergency relieforganization. Its purpose is to provide temporary assistance to Marines and sailors, active dutyand retired, and their family members or survivors in need. The society can guide you concerningwhom to see, where to go, and what to do about your particular problem.

Lesson Summary. This lesson pointed out the two general purposes of saving which are basic toyour financial planning, and the key to proper budgeting. The next lesson will teach you how tochoose a financial institution and savings program.

------------------------------------------------------------------------------------------------------------------

Lesson 2. CHOOSING A FINANCIAL INSTITUTION AND TYPE OF SAVINGSPROGRAM

Introduction. How financially informed are you? Do you think CD stands for compactdisc? Do you know how to select the financial institution and savings plan that's right foryou; one that will enable you to achieve your long-term financial objectives? This lessonhelps you select a financial institution that fits your financial plan and introduces some of thebasic types of savings programs these institutions offer.

Choosing a savings plan starts with researching financial institutions and the various savingsprograms they offer. Selecting the right financial institution can help you meet your currentfinancial needs, and choosing the right savings program is the best way to insure yourfinancial future.

To make this important choice, you need to learn about the following three topics:

Financial terminology Financial institutions Savings programs

3-9

LEARNING OBJECTIVES

1. Match twelve important financial terms with their definitions.

2. Identify four basic types of financial institutions.

3. Identify three factors in choosing a financial institution.

4. Identify five specific types of savings plans.

5. Identify the minimum age at which an individual can normally withdraw funds from anIndividual Retirement Account (IRA).

6. Identify three types of electronic deposit systems.

7. Identify the block numbers on an LES that indicate the amount deposited to youraccount under direct deposit.

3201. Financial Terms

a. The three terms below pertain to interest.

(1) Simple interest is an amount of money paid for the use of money, usually expressedas a percent of the principal amount. Simple interest is a straight percentage. Forexample, 5 percent interest on a $10,000 principal is $500.

(2) Accrued interest is interest which has accumulated but has not been paid to thelender.

(3) Compound interest is interest earned over a period of time and is periodically addedto and becomes part of the principal. With compound interest, you make moremoney on your investment since your interest is added to your initial investment (theprincipal) and it, too, earns interest.

b. The three terms below pertain to investments.

(1) Maturity as it applies to investments (such as treasury notes, savings bonds, CDs,etc.) means the date when full earned payment is due you, the investor.

(2) A dividend is a payment in cash or stock to the owners (stockholders) from theearnings or capital of the company invested in. If you own stock in a company thatmakes a profit, your share of the profit (depending on how much stock you own) ispaid to you as a dividend.

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(3) Yield, as used in the financial market, is the annual net return on an investmentexpressed as a percent. The yield is your return on your investment. A $1,000 bondthat pays $100 interest has a yield of 10 percent.

c. The three terms below pertain to financial standing (managing debts).

(1) Balance sheets are lists of a person's (or company's) assets, minus the liabilities,giving the net worth as of a certain date.

(2) Bankruptcy is the condition of a debtor who has been adjudged insolvent by a courtof competent jurisdiction. If you are forced into bankruptcy, the courts decide howyou will repay your debts. If your assets are greater than your liabilities, then you aresolvent. To file for bankruptcy, you file a court petition saying you are insolvent,meaning you do not have enough assets to pay your liabilities.

(3) Solvency is the condition that exists when a person's (or company's) total assets aremore than total liabilities.

d. The three terms below pertain to property and loans.

(1) An asset is something of value that is owned. You may have to put up one or moreof your assets as collateral for a loan.

(2) Collateral is property or evidence of property that is given to a creditor to guaranteeor provide security for the payment of a loan or debt. If you default on a loan (do notpay it back according to the agreement), the lender can seize and sell your collateral.

(3) A lien is a claim on property usually made to secure payment of a debt or fulfillmentof some form of contract obligation.

Interest earned over a period of time and added to the principal is called _______________.

(Answer: Compound interest)

3202. Four Basic Types of Financial Institutions

The four basic types of financial institutions are

Commercial banksSavings banksSavings and loan associations (S&Ls)

Credit unions

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Table 3-4 lists each of these institutions and their advantages and disadvantages. You shouldconsider these advantages and disadvantages when you choose where you want to place yoursavings.

Table 3-4. Advantages and Disadvantages of Financial Institutions

FinancialInstitution

Advantages Disadvantages

CommercialBanks

Offer the broadest range of lending, saving, andchecking services and generally guarantee theirinterest rates.

Offer lower interest rates andmany fees.

SavingsBanks

May have lower fees and more personal service.They offer savings services with the possibilityof year-end dividends paid out on interestearned.

Have limited services and alimited number of locations.

Savings andLoan

Offer low-cost savings and checking services,often with good rates.

Have few branches and can behigh risk. Most bank failureshave occurred among S&Ls.

CreditUnions

Have lower lending rates and fees because theyare not-for-profit. Earnings are paid out tomembers as year-end dividends.

You must be a member of acredit union; their chartersprevent them from doingbusiness with the generalpublic.

Have few branches.

Please read each of the following situations and choose the most appropriate type of financialinstitution--commercial bank, savings bank, S&L association, or credit union.

(Answers: Commercial bank, credit union, and savings bank)

Suppose you wanted your personal finances handled by an institution that offered lending,checking, and saving services. Which type would you choose?______________________________________________________________________

Suppose you wanted to buy shares in a financial institution that didn't offer its services to thegeneral public and charged a generally lower rate of interest for borrowing. Which type ofinstitution would you choose?______________________________________________________________________

Suppose you wanted to join a financial institution that offered a somewhat higher rate ofinterest and maybe offered dividends. Which type would you join? ______________________________________________________________________

3-12

3203. Three Factors to Consider When Choosing a Financial Institution

You may want your personal finances handled by an institution that offers lending, checking, andsaving services. You may also want the convenience of many branches and ATMs (automatedteller machines). You want a place to put your savings. You may want a better rate of interestthan at a commercial bank and are interested in an institution that offers dividends.

There are three main factors to consider when choosing a financial institution for your savings:insurance, terms and conditions, and customer service. Pick an insured financial institution withgreat service, good terms, low costs, and high interest rates. Make sure it meets your personalneeds as well.

a. Insurance. While most institutions offer insurance protection for their accounts, somestate-chartered financial institutions are not required to carry such insurance. It is important thatyou choose a type of financial institution for savings that has insurance to protect yourinvestment if it fails.

Such insurance is usually provided by one of the following agencies:

FDIC - Federal Depositors Insurance Corporation SCUSIC - State Credit Union Share Insurance Corporation

Note: Most insurance coverage protects only deposits. Check with your financialinstitution to see what insurance coverage it provides.

Financial organizations must pay a premium for insurance protection for their depositors. Afinancial organization that does not carry insurance will often pay a higher interest rate on savingsaccounts. However, at such an institution, savers have no protection from losing part or all of themoney in their accounts if the financial organization defaults.

b. Terms and conditions. Choose a financial institution that has terms and conditions thatsupport your financial plan. The terms and conditions that financial institutions impose and/oroffer customers are varied and change constantly. For instance, are canceled checks returned withthe monthly statements? Can you arrange for automatic deposit of your paycheck? How aboutimmediate credit on deposits? How about a loan or line of credit? What are the fees for theseservices?

Sometimes you have to compare differences in rates, loan fees, and accessibility very carefully.But, remember, don't consider opening an uninsured account unless you are willing to gamble!

c. Customer service. Customer service is the financial institution's way of providing youwith personal service. Do they have many locations and automated teller machines (ATMs)? Arethe hours of operation convenient? Can you bank from home or by phone?

3-13

Three factors you should consider when choosing a financial institution for your savings areinsurance, terms and conditions, and ________________________________________.

(Answer: Customer service)

3204. Savings Plans

Table 3-5 provides a comparison of the five major types of savings plans. It may help you makeyour decision.

Table 3-5. Five Types of Savings Plans

Type Advantages/Disadvantages Description

Basic savingsor traditionalaccount

Advantage: Funds immediatelyavailableDisadvantage: Lower interest rates

Funds are immediately available for withdrawalor transfer to checking. However, you may notearn as much interest as with other types ofsavings programs, and interest earned on savingsaccounts is fully taxable.

Certificate ofDeposit (CD)

Advantage: Earns higher interestrate than most savings accountsDisadvantage: You must keepfunds in a CD for a specified timeand penalized for early withdrawal.

Earns a higher rate of interest than most savingsaccounts, but you must keep your funds in a CDfor a specified term, such as 6 months or a year,and you pay financial penalties for earlywithdrawal.

TreasuryBonds

Advantage: Safe investment andhigh fixed rate of interestDisadvantage: Requires aminimum investment and funds aretied up for a specified term.

Safest program since the government backs yourinvestment. They earn a high rate of fixedinterest (the interest rates remain the same). But,a minimum investment is usually required andyour funds are tied up for a specified term,usually at least 5 years, until the bond is mature.

TreasuryNotes

Advantage: Same as treasurybonds; can be bought directly from aFederal Reserve or from brokersDisadvantage: You must wait untilthe bond matures (1-7 years) orinterest is lost.

Offer the same advantages as treasury bonds, butthey can be bought directly from a FederalReserve Bank or from brokers. As with bonds,you must wait until the note matures (usually 1-7years) or you lose the interest.

IndividualRetirementAccounts(IRAs)

Advantage: Earn a high rate oftax-deferred interestDisadvantage: Penalty forwithdrawal before age 59 ½

Offer good interest rates and earnings are nottaxed until you begin making withdrawals atretirement, when your income and therefore thetax you'll pay on it is lower. However, if youwithdraw funds before age 59½, you pay a 10percent penalty plus taxes owed (unless you arepermanently disabled).

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After figuring your expenses, you have $500 left over for savings. You want to earn the mostinterest with the least risk, and you are confident you will not need the money for at least 2years. Which savings plan makes the most sense for you?

a. Basic savings c. IRAb. CD d. Treasury bond

(Answer: b)

What is the normal age required to withdraw funds from an IRA account without penalty?_____________________________________________________________________

(Answer: 59½ years)

3205. Setting Up Your Savings Account for Electronic Deposit

In addition to other savings programs, you should have a basic savings account so that you canearn some interest on your money and have the money available immediately if you need it.

A good way to put money into a savings account is through an electronic deposit system. Thissystem allows the bank to automatically withhold a specified savings allotment from yourpaycheck and deposits it into your savings account.

You can set up your electronic savings deposit in three ways: through "S" (savings), "B" (bond)allotment, or "direct deposit."

a. "S" (savings) allotment. A set amount of money is withheld from your paycheck at themid-month and the beginning-of-the-month paydays. This amount is automatically deposited toyour savings account at the end of the month.

b. "B" (bond) allotment. Many Marines purchase U.S. Savings Bonds by means of a "B"(bond) allotment deduction from their paycheck. There are many amounts and types of savingsbond deduction plans. Obtain information about them at your administrative or disbursing officeor from your savings bond representative.

c. Direct deposit. Direct deposit is the U.S. Treasury's name for an electronic funds transfersystem that transfers your salary directly to your checking and/or savings accounts. The directdeposit system is fast and reliable because it uses the Federal Reserve Distribution System.

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The three types of electronic deposit systems are "S" (savings) allotment, "B" (bond) aloment,and _____.

a. Split allotment c. Direct depositb. Income distribution d. Tax deferral

(Answer: c.)

3206. LES Block Numbers Indicating Your Direct Deposit Amount

Check blocks 29 and 30 of your LES to be sure the amount you wish is being taken out of yourpaycheck.

BLOCK 29 BLOCK 30

Amount of your pay for the 1st of the month Amount of your pay for the 15th of the month

If the actual amount of your pay varies $5 more or less from the amount in block 30, you willreceive an "advice-of-deposit" notification. This will inform you of the deposit date and theamount that will be deposited in your account.

Which blocks of your LES do you check to see what part of your salary was depositedafter deductions? ______________________________________________________

(Answer: 29 and 30)

Lesson Summary. In this lesson you learned some basic financial terminology, how to choose thetype of institution for your savings needs, how to set up your savings account electronically, andhow to select the type of savings program that will meet the financial goals you identified inlesson 1. Lesson 3 will teach you how to select a checking account plan and how to maintainyour checking account. Remember to check out the institution of your choice carefully and getthe scoop on terms and security of funds before depositing or investing a cent.

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Lesson 3. SELECTING AND MAINTAINING YOUR CHECKING ACCOUNT

Introduction. The checking account is perhaps the most useful, and certainly the most used,item in an individual's financial arsenal. But few people keep their checkbooks in goodworking order. This lesson gives an overview of the three types of checking accounts andthe three ways they may be set up, writing checks, preparing deposit slips, and (mostimportant) balancing your checkbook.

LEARNING OBJECTIVES

1. Identify the most important reason for having a checking account.

2. Identify the three types of checking accounts.

3. Identify three ways checking accounts may be set up.

4. Identify correctly written checks.

5. Identify correctly written check registers.

6. Identify correctly written deposit slips.

7. Identify the reason to keep deposit receipts.

8. Identify the four types of check endorsements.

9. Identify the steps to balancing your checking account.

10. Identify the most important thing to remember about managing your checkingaccount.

3301. Why Have a Checking Account?

The most important reason to have a checking account is for safety, it is simply unwise to leave orcarry large amounts of cash around! Also, in this day and age, it is highly impractical not to havea checking account. Once upon a time cash was the common method of payment, but, for manyreasons, payment by checks has largely replaced payment by cash.

Here are some other reasons to have a checking account:

Convenience - Checks save time. You do not have to personally pay bills. Paymentscan be made anytime.

Accuracy - Canceled checks are proof of payment. Using checks helps you keepwithin your budget since you record your expenses.

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Establish credit - A checking account is a good reference when you apply for a loan,open a charge account, etc.

Most adults have a checking account, but few maintain their account properly. Propermaintenance of your checking account enables you to

Avoid unnecessary fees and penalties Track your spending habits Stick to your budget and savings plan Get the most mileage out of your money

(Answer: It is unwise to carry large amounts of cash around.)

Managing your checking account can be divided into three topics.

Opening or setting up a checking account Writing and recording checks Balancing your account

What is the most important reason to use checks? ______________________________

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3302. Types of Checking Accounts

Banks offer a variety of types of checking accounts. Three of them are described in table 3-6.

Table 3-6. Types of Checking Accounts

Type Features

Regular No minimum balance necessary No interest paid on balance Usually a charge for check writing Monthly maintenance charge likely

NOW (NegotiableOrder of Withdrawal)account

Minimum balance usually necessary Bank pays interest on balance Possible charge per check and monthly maintenance charge if

balance falls below minimum

Super NOW Account Bank pays higher interest rate on balance Large minimum balance necessary No charge for check writing Possibly no monthly maintenance charge

3303. Types of Checking Account Services Banking has become a competitive industry which means you, the consumer, benefit. Today,banks offer many special services so be smart! Shop around before deciding where to put yourhard-earned money.

Two types of special checking account services offered by some financial institutions are

Bill paying account. Funds are deposited in your account and the depositor requeststhe payment of specific amounts for various purposes. This permits you to earninterest on all of your funds except the portion that you request to be used forpayment of specific bills. You can pay bills for fixed expenses (such as utilities,gasoline, and other credit card purchases, etc.) by telephone using special codes andnumbers.

Credit cards to back up checking. Checking accounts can be set up to allowcertain credit cards to provide an emergency advance of funds to prevent anoverdrawn checking account. This overdraft protection coverage has various namesand different methods are used to apply for it Make sure you understand therepayment procedures and the type of interest rate charged if you choose this type ofaccount.

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3304. Setting Up a Checking Account

There are three ways you can set up a checking account. Accounts are set up according to whocan write checks against them.

Joint accounts. Two or more people are authorized to use the account. Manymarried couples use joint accounts.

Individual accounts. Only one person is authorized to use the account. If you aresingle, you would probably have this type of account.

Business accounts. One or more people are authorized to write checks for acompany or organization.

If a checking account has two signature cards (meaning two people are authorized to use theaccount), the account is termed a ______.

(Answer: Joint account)

When you first establish your checking account, you will have to fill out a signature card. Thesignature card records your check-signing signature. Sign (or endorse) this card exactly as youwould sign the checks in your checking account. Figure 3-1 shows a sample signature card.

Fig. 3-1. Signature card for joint account.

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3305. How to Write and Record Checks

Once you have opened your checking account, you must learn the correct procedures for writingand recording your checks. In short, you must know how to prepare three items: the check, thecheck register, and the deposit slip.

a. The check. A check is a written order instructing the bank to pay money from your accountto a payer. Figure 3-2 shows an example of a correctly written check.

Fig 3-2. Sample check.

The circled numbers in figure 3-2 identify where to enter information. Follow them with theirsteps in table 3-7 to complete the check writing process.

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Table 3-7. How to Write a Check

Step Explanation

1 Check number. The assigned sequential number of the check used in record keeping.Most checks have pre-printed check numbers.

2 Date: Write today's date. Do not postdate checks. Postdating a check (writing afuture date on the check) is a dangerous and illegal practice. Besides, the check maystill be paid before the date, since bank scanners cannot read the hand-written date.

3 Pay to the order of: Write the name of the person or business to whom you arewriting the check.

4 Amount in numbers: Write in numbers the amount to be paid.

5 Amount written out: Write in words the amount to be paid. Any amount under onedollar is written as a fraction. To prevent anyone from altering your checks, extend aline all the way to the word DOLLARS.

6 Memo: Write the purpose for the payment here. This will help your record keeping.

7 Signature: Sign the check EXACTLY as you did on the signature card when youopened the account. Signing the check makes it negotiable or payable.

Important things to remember about writing checks:

Always use ink to prevent anyone from attempting to alter it.

Initial all changes. If you make an error, cross out the error, put in the correctinformation, and then initial the change. Void and rewrite the check if required.

Keep track of voided checks. If you do void a check, file it with the canceled checksyou receive with your bank statement, or tear it up and throw it away. Be sure torecord it in your check register.

When you want cash from your checking account, don't make a check out to "cash."Instead, make the check out to yourself. In that way, if you lose the check, no oneelse can cash it.

b. Check register. When you write a check, use an ATM card to withdraw money fromchecking, or use a debit card to withdraw money or make a purchase, you must record thetransactions in your check register. In the register you also record the date, amount of eachdeposit, and balance after you make each "deposit" (amount of cash and/or checks put into youraccount).

Check registers have one of two types of entries. The double line entry is shown in figure 3-3 andthe single line entry is shown in figure 3-4. The double line entry provides separate space tocompute your addition or subtraction, whereas the single line entry expects you to compute inyour head or on other paper.

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As an example for both types of entries, let's assume that on 20 June you wrote a check to yourdoctor in the amount of $95 for your annual physical, and the following day you deposited $200to your checking account. The circled numbers in figure 3-3 show where you would put theinformation in a double line entry.

Fig 3-3. Sample check register (double line entry).

Notice that in the double line entry (figure 3-3), you wrote the amount of the transaction (checkor deposit) on the first line in the balance column and you wrote the new balance on the secondline.

Looking at the circled numbers representing the same information in the single line entry (figure3-4), notice how you would record the same transaction to the left of the balance column and thenew balance on the same line to the right.

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Fig 3-4. Sample check register (single line entry).

The circled numbers in figures 3-3 and 3-4 identify where to enter information. Follow them withtheir steps in table 3-8 to complete the check register.

Table 3-8. Explaination of Check Register Entries

Number Explanation

1 Number or transaction code: Record the number of the check here. This will helpyou keep track of checks and help you balance your account when the bank sendsyour statement.

2 Date: Write the date of the check.

3 and 4 Transaction description: Write the name of the payee (the person or business towhom you are writing the check) here. If your register has two spaces (as manydo), write the purpose of the check underneath the payee. The purpose informationwould likely duplicate what you wrote in the MEMO line of the check.

5 and 6 Payment/debit: Write the amount of the payment or withdrawal to be subtractedfrom your account. Some registers also provide space to record any fees (checkwriting or cashing fee, ATM fee). (Notice the dollars column is separate from thecents column.)

7 Deposit/Credit: Write the amount to be deposited to your account here.

8 Balance: Compute your checking account balance by subtracting the amount of thepayment/debit or by adding the amount of the deposit/credit.

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Now that you've completed the check register, you must transfer the information directly to thecheck you are writing. This will ensure that you write the check exactly as the transactionappears in your register.

c. Deposit slip. In addition to blank checks and a check register, your checkbook containsdeposit slips printed with your name and account number. Deposit slips are used to itemize anycash and checks that you put into your account. When you make a deposit, make sure you retainthe deposit receipt. It can serve as proof that you actually made the deposit in case the depositdoesn't appear on your bank statement. See figure 3-5 for a completed deposit slip and table 3-9for its explanation.

Fig 3-5. Completed deposit slip with cash being received.

The circled numbers in figure 3-5 identify where to enter information. Follow them with theirsteps in table 3-9 to complete the deposit slip.

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Table 3-9. Completing the Deposit Slip

Number Explanation

1 Date: Write the date of the deposit here.

2 Signature: Sign here if you plan to get some cash back from your deposit insteadof depositing the full amount.

3 Currency and coin: Write the amount of any currency (cash) or coins you aredepositing.

4 Checks: List each check separately and identify it by its source.

5 Total: Total the amount of currency, coins, and checks you are depositing.

6 Less cash received: Write the amount of cash (if any) you want back. If youwant no cash back and want to deposit the full amount, enter a dash.

7 Net deposit: Write the amount that is left after subtracting the cash you wantback from the total amount of your deposit. This is the amount you will record inthe Deposit/Credit box of your check register.

Why should you keep your deposit receipt after making a deposit into your bank account?

a. FDIC regulations require itb. To use when preparing federal income taxesc. To prove that the deposit was maded. To submit all deposit receipts to your bank at year's end

(Answer: c)

Complete and maintain all documents associated with checking accounts very carefully. Failure todo so or doing so carelessly could result in an overdrawn account or make it very difficult to tracea check you have written!

3306. Check Endorsements

If you make your deposit using a check, you must endorse the check before the bank will acceptit. To endorse a check, sign your name on the back exactly as it appears on the front of thecheck. Your endorsement must appear within the top inch-and-a-half of the left end of the check.

There are four types of endorsements:

A blank endorsement (which is your signature alone) should not be made on a checkuntil you are at the bank and ready to cash or deposit the check. Otherwise, if youmisplace the check and if it has a bank endorsement, anyone can cash it!

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To avoid the possible misuse of your check, make a restrictive endorsement. Therestrictive endorsement contains the words "FOR DEPOSIT ONLY" with yoursignature below. A check endorsed in this way cannot be used for any purpose otherthan to deposit to a specified account.

If you wish to transfer a check payable to you to another person or account, theproper endorsement would be the words "PAY TO THE ORDER OF (NAME OFTHE SECOND PARTY)" with your signature below. This type is a specialendorsement.

Finally, if for some reason your name is misspelled on the check, attempt to have thecheck reissued to you. If this is impossible or impractical, you must first sign yourname exactly as it appears on the face of the check (misspelled), and then sign yourname correctly below it.

Look at the comparison of these four types in figure 3-6.

Fig 3-6. Four types of endorsements.

(Answer: First sign your name exactly as it appears on the face of the check and then sign itcorrectly below it.)

If you were given a check on which your name was misspelled (and you were not able tohave the check reissued) how could you cash it?_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

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3307. How to Balance Your Checking Account

Balancing your account helps you manage your cash flow, control spending, and guard againstover-drawing your account. You can also keep track of any fees you are paying for writingchecks, using ATMs, etc. Since you should balance your checkbook monthly, make sure youhave your checking account at a bank that sends monthly statements.

These are the documents you need to balance your checking account: bank statement, checkregister, canceled checks and deposit slips, and reconciliation form. All of these forms aredescribed in the following pages.

Bank statement. See the sample statement in figure 3-7 on the next page. Thefinancial institution will provide periodic "statements" (usually monthly) which list alltransactions affecting your funds during that time, including your beginning andending balances, all deposits made, all checks written which the financial institutionhas paid, and any service charges deducted from your account. These paid("canceled") checks and your deposit slips are often included with the checkingaccount statement when it is sent to you.

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Fig 3-7. Bank statement.

Check register. Compare your bank statement with your check register to make surethe checks you wrote were cashed by the recipients. Having outstanding checks(those not yet canceled) can throw off your records. Also compare your canceledchecks with your check register to detect any recording errors. Check to see if thebalance you have in your check register matches the balance on the bank statement (atthe time the statement was sent out).

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Canceled checks and deposit slips. Canceled checks are checks that have been paid. The canceled checks and your deposit slips are often not included with your checkingaccount statement when it is sent to you.

Reconciliation form. If there is a mistake on your bank statement, you should use areconciliation form like the one in figure 3-8 to "reconcile" (balance) your checkingaccount. One is usually printed on the reverse side of your monthly bank statement.

Table 3-10 shows the steps to balance your checking account:

Table 3-10. Steps in Balancing a Checking Account

Step Action

1 Compare each transaction on your bank statement with your check register.Make corrections to your register as necessary.

2 Take the closing balance number from the bank statement.

3 Add deposits made since the bank closing date.

4 Subtract withdrawals, fees, or checks written since the closing date.

5 Compare the result to the check register.

Fig 3-8. Reconciliation form.

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3308. Maintain Your Checking Account

The last and most important information you need to know about a checking account is that youmust never write a check in excess of the amount of funds in your checking account! If you writea check on your account and do not have the money to cover it, the bank will return the check tothe payee unpaid. The check will be marked "NSF" for "not sufficient funds," and is said to be a"bad check" or to "bounce." Most financial organizations assess a service charge for processing a"bad check," with a typical charge of $25 or more. And many will not allow you to ever write acheck there again!

Both the Marine Corps Manual and the Legal Administration Manual states that Marines areexpected to pay their just financial obligations in a proper and timely manner. Writing a check ona closed account or writing a check when there are insufficient funds in your account to coversuch a check are serious criminal offenses under both military and civilian law.

Writing a bad check on base can lead to non-judicial punishment (NJP) and revocation of basecheck-writing privileges.

In addition to the personal financial problems resulting from dishonored checks, these checkscreate an air of mistrust in the civilian community towards all Marines and thereby jeopardizecheck cashing privileges for other Marines and their dependents.

(Answer: To prevent you from writing a bad check.)

Lesson Summary. In this lesson, you learned how to select a checking account plan and how toset up and maintain the checking account.

Why is accuracy in all checking account documents so important?

______________________________________________________________________

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Study Unit 3 Exercise: Complete items 1 through 32 by performing the action required. Check your responses against those listed at the end of this study unit.

1. The three main activities in financial planning are evaluating your financial status, setting financial objectives, and planning your _____________.

a. long-term objectives c. budgetb. short-term objectives d. savings

2. The equation for determining financial status or net worth is

a. net worth = liabilities - assets.b. net worth = liabilities + assets.c. net worth = assets - liabilities.

3. State the two general purposes of saving.

a._____________________________________________________

b._____________________________________________________

4. One method of setting financial objectives is to work ____________.

5. Automobile payment, rent, insurance, and utilities are all examples of _____expenses.

a. fixedb. variable

6. State the key to proper budgeting.

_______________________________________________________

7. Your two sources for assistance in budget planning are _______________ and ________________________.

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Matching: For items 8-11, match the term in column 1 to its definition in column 2.

Column 1 Column 2

Term Definition

___ 8. Accrued interest a. The condition when the assets weighmore ___ 9. Yield than the liabilites___ 10. Solvency b. What has accumulated but not paid___ 11. Collateral c. What you put up as security for a loan

d. Annual net return on an investment (percent)

12. List four basic types of financial institutions.

a._____________________________________________________

b._____________________________________________________

c._____________________________________________________

d._____________________________________________________

13. List three factors to consider when choosing a financial institution.

a._____________________________________________________

b._____________________________________________________

c._____________________________________________________

14. The five types of savings programs are IRAs, basic or traditional accounts, treasury bonds, treasury notes and _______________________.

15. The minimum age you can normally withdraw frunds from an IRA is ______.

16. List three types of electronic deposit systems.

a._____________________________________________________

b._____________________________________________________

c._____________________________________________________

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17. State the LES block numbers which indicate the amount deposited to your account under direct deposit. ________________________

18. What is the most important reason for having a checking account?

________________________________________________

19. What are the three types of checking accounts banks offer?

a.____________________________________________________

b.____________________________________________________

c.____________________________________________________

20. List two types of special checking account services offered by some banks.

a._______________________________________________________

b._______________________________________________________

21. What are the three ways you can set up your checking account?

a._________________________________________________

b._________________________________________________

c.._________________________________________________

22. Why would you not make out a check to "cash?"

______________________________________________________

23. The place you record the checks you have written is called the ______________.

24. Why should you keep your deposit receipts for your checking account?

_________________________________________________________

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Directions: Use the sample DEPOSIT SLIP, CHECK, and REGISTER provided belowto complete items 25 through 27.

25. Suppose on 30 January 1993 you receive your Marine Corps paycheck for $350 and also receive a $10 check from Aunt Sally as a birthday gift. Correctly complete the deposit slip below to show these deposits.

26. Enter the two deposits made (in item 25) on the register below.

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27. Having made these deposits, on the next day (31 January 1993) you purchase groceries at Bestway Foods with a check (#101) for $53.18. Please fill out the sample check below for this amount and also enter this check into the register in item 26.

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Matching: For items 28 through 31, match each type of check endorsement in column 1 with the letter of the appropriate sample in column 2. Place answers in the spaces provided.

Column 1 Column 2

Type of Endorsement Sample

___ 28. Blank a.

___ 29. Restrictive b.

___ 30. Special c.

___ 31. Misspelled d.

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32. State the most important thing to remember about a checking account.

________________________________________________________

STUDY UNIT 3 SUMMARY

As you can see, there are alot of factors (other than income) that enter into a personal savingsplan. First, you must have a goal to maximize your chances for success. Then, take some time tovisit and talk to various financial institutions about what they can do for you and your money.Find out about the financial institution before you deposit your money! As you learned in thisstudy unit, there are always several account plans from which you may choose the one best foryour needs. Once you choose an account, ensure that you understand what it means and canmean (its terms and conditions). Finally, if the financial institution you choose is not INSURED,remember you are taking a big risk. In the next and final study unit, you will learn financialaspects of making major purchases like motor vehicles and homes.

Study Unit 3 Exercise SolutionsReference

1. c. 31012. c. 31023. a. Enable you to achieve your personal objectives 3103

b. Provide you and your family with a financialsecurity blanket

4. backwards 31045. a. 31056. to keep complete and accurate records 31067. a. Marine Corps Family Services Center 3108

b. The Navy-Marine Corps Relief Society8. b. 32019. d. 320110. a. 320111. c. 320112. a . Commercial banks 3202

b. Savings banks c. Savings and loan associations d. Credit unions13. a. Insurance 3203

b. Terms and conditionsc. Customer service

14. Certificate of deposit (CDs) 320415. 59 1/2 3204

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Study Unit 3 Exercise Solution, continuedReference

16. a. Savings allotments ("S") 3205b. Bond allotments ("B")c. Direct deposit

17. Blocks 29, 30 320618. It is unwise to carry large amounts of cash 330119. a. Regular 3302

b. NOW (Negotiated Order of Withdrawal)c. Super NOW

20. a. Bill paying and 3303b. Credit card

21. a. Joint 3304b. Individualc. Business

22. If you lose it, no one else can cash it. 330523. Check register 330524. Receipt will serve as proof that you made the deposit 330525. 3305

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Study Unit 3 Exercise Solutions, continuedReference

26. 3305

27. 3305

28. c. 330629. d. 330630. b. 330631. a. 330632. Never write a bad check 3308

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STUDY UNIT 4

FINANCING MAJOR PURCHASES

Introduction. Any type of planning has these three phases:

. Determine where you are.

. Decide where you want to be.Plan how to get from here to there.

Now that you have a good idea of where you are financially now, you can decide where youwant to be in the future and make your plans more specific.

This study unit helps you practically plan for the types of hurdles that lay ahead. It will listand describe basic costs of credit and of buying a car or a house. You will learn where togo to borrow money and how to use credit wisely. Even if your main objective is notbuying a car or a house, you must have a thorough understanding of credit because that'show you will probably pay for your biggest investments.

Lesson 1. EXAMINING CREDIT

LEARNING OBJECTIVES

1. Identify credit terminology.

2. Identify two disadvantages of using credit.

3. Identify six guidelines for using credit.

4. Identify six suggested precautions to safeguard your credit cards.

5. Identify general advantages and disadvantages to apply for a loan from three types offinancial institutions.

6. Identify three undesirable clauses that should be avoided when making a loanagreement.

Credit means "buy now, pay later." Credit permits you to purchase goods or services as you needthem, but pay for them over time. Uses range from "credit-card shopping" to arranging "loans"from financial institutions for very expensive items. Borrowing with credit is so popular in today'ssociety that many of us could not imagine a world without credit--a world in which we wouldhave to wait until we had saved the cash for such things as going to school or buying furniture,automobiles, houses, or other items. Our national and global economies are very dependent uponthe availability of credit to consumers.

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Lenders extend credit because, in return, they expect the original loan amount plus a financecharge for the use of the money. The amount of credit you can obtain depends on your networth, your income, and your credit rating.

4101. Credit Terminology

Before diving into this topic, become familiar with the fundamental terms of credit.

APR (Annual Percentage Rate). This indicates the actual cost of a loan per year. Itcombines the interest charged and any fees. When comparing the costs of loans, usethe APR.

Credit line. This is the amount of credit a lender will extend to you. For example, anew credit card may come with a credit line of $1,000. Your credit line depends onyour net worth, your income, and your credit rating.

Credit rating. Your credit rating or credit history is a summary of your bill-paying behavior over a number of years. All creditors may submit bill-paying information toa credit agency. The credit agency then produces a credit report. Any place that youapply for credit can access the credit report.

Finance charge. This is usually expressed as interest, a percentage of the originalloan amount (called the principal).

Installment credit. Installment credit allows a buyer to pay for a purchased item inregular installments, usually monthly payments. Since the goods purchased are usedas security for the loan, the seller owns the goods until all payments are made.

Interest. Interest is a charge for a financial loan, usually a percentage of the amountloaned. When using credit to make a purchase, always add the interest costs todetermine the true cost of what you are purchasing.

Open end credit. You promise to repay the full balance owed each month with nofinance charge added if the bill is paid in full when due. Credit of this type includes some credit cards, such as American Express and Diner's Club, as well as utility and telephone bills, doctor bills, etc.

Principal. This is the original loan amount. Interest is calculated on the principal.

Revolving credit. This is a line of credit that may be used over and over again.The most common form of revolving credit is a credit card from Visa, MasterCard, ormost department store charge accounts. With a revolving credit agreement, you havethe option of paying the balance in full each month or making a minimum payment.

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4102. Determine If You Should Borrow and Use Credit Despite the Disadvantages

The advantages of using credit include:

It's convenient. It may be used to meet emergencies. It helps you establish a credit rating. You may get better service on an item. You can get earlier use of an item.

Credit can also allow you to take advantage of bargains, as long as you need the item and you donot pay more in interest than you save on the item.

There are two main disadvantages to using credit. You pay extra in interest and it is so easy touse, it encourages unnecessary spending!

a. Interest costs. Because companies charge to lend you their money, always add interestcosts to the cost of what you are investing in. For example, people with 30-year mortgages, insome cases, can pay triple for their houses.

Banks and finance companies charge lower interest rates for large loans for cars and houses thanother businesses that deal with time-payment plans like department stores and oil companies, orbank credit card companies such as VISA and Master Card; these sometimes charge 1 1/2 to 2percent as a "finance charge" (interest) on the unpaid balance of your account per month. Thisdoesn't sound like much, but when you compound it on an annual basis, 1 1/2 percent becomes 18percent, and 2 becomes 24 percent!

b. Impulse spending. Probably the biggest disadvantage of credit is that it's so easy to use, itencourages unnecessary spending. To avoid such spending, only carry your credit cards whenyou actually plan on purchasing an item or service on credit.

What are two disadvantages of using credit?

______________________________________________

______________________________________________

(Answer: Interest costs and impulse spending)

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4103. Six Guidelines for Using Credit

If you decide to use credit, follow the guidelines listed in table 4-1.

Table 4-1. Credit Guidelines

ACTIONS TO TAKE REASONS

Shop around Find the lowest interest rate!

Pay cash Consider paying cash. Maybe the investment is not reallynecessary right now or you could save up and pay for it with oneor two paychecks.

Ensure it's a wise investment

Make sure it is a wise investment. It would be very discouragingto wind up paying for something outdated or worn out!

Put as much down as youcan

The larger the down payment, the less your payments will be,and the fewer the number of months you must make payments,or both!

Monthly limit Set monthly credit spending limits. Make sure the payment willfit into your budget!

Reduce debt Always try to reduce debt. Resist the temptation to keep buyingthe most you can on credit! Instead, try to pay off debt inadvance and even save the amount in your budget allotted tocredit payments!

(Credit guidelines are to shop for the lowest interest rate, consider paying cash, consider whetheryou are making a wise investment, pay as much down as you can, set a monthly credit-paymentspending limit, and always try to reduce debt.)

Look at table 4-2 showing comparisons between interest and payment periods. See how muchmore it would cost you to buy a car on credit for 48 months instead of 36? Sure, the paymentsare smaller; at 10 percent, they would be $490.56 instead of $385.52. But, you're paying anadditional $845 for those smaller payments!

Can you summarize the guidelines for using credit in one or two sentences?

__________________________________________________________

__________________________________________________________

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Table 4-2. Interest Comparison Chart

PAYMENT PERIOD PAYMENT PERIOD

INTEREST 36 MONTHS 48 MONTHS

10% $17,660 $18,505

15% 18,969 20,305

18% 19,783 21,432

20% 20,336 22,202

4104. Credit Cards

The following types of cards are generally lumped into one category:

Credit cards allow you to pay back what you borrow at your own pace, providedyou pay the minimum due. Examples: Visa, MasterCard, Optima, Discover

Time and Attendance (T&A) cards require you to pay the amount in full eachmonth, but they do not charge interest. Examples: Amex, Diner's Club, CarteBlanche

Debit work like checks, with the amount you spend automatically deducted fromyour account. Examples: Any bank debit card. (Note: not really credit, but youcould forget to write the amount you take out in your register, so be careful that youdo.)

Charge cards offered by department stores and oil companies. They work the sameas credit cards, but normally can be used only to buy products from the issuingcompany. Examples: Texaco, Sears, Pennys, etc.

Although credit cards may be convenient, the danger of loss or theft requires you to take goodcare of them. An unscrupulous person could use your card and run up thousands of dollars ofcharges. Federal laws help protect you. A court can punish a person who illegally uses a creditcard with a fine of up to $10,000 and confinement up to ten years.

Table 4-3 lists some easy and sensible precautions you can take to safeguard your credit cards andprotect yourself from credit card fraud.

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Table 4-3. Safeguard Your Credit Card

PRECAUTION EXPLANATION

Sign your credit cards. When you sign your credit card, anyone whofinds the card will have to forge your signatureto use it. Although this may not stop the illegaluse of the card, it may act as a deterrent.

Know where your credit cards are. Do not leave any cards lying around; make sureyou have a special place to keep any cards youuse and that you return them when done.

Keep a list of cards you use. Keep this list (including account numbers) in asafe place and check your cards against it tomake sure none is missing!

Get rid of any card you no longer use. If the company does not require it back, cut itinto little pieces and throw it away!

Check your credit card slips. Make sure the amount(s) is/are correct and thatthe total amount is in the "total" block.

Ask for any carbons from your charge slip. An unscrupulous person could use one of thosecarbons to make a card with your name.

(Answer: a.)

4105. Loans

A loan is a type of credit and is defined as a sum of money lent at interest over a period of time.Here are some terms you should know:

Collateral is property used to secure the loan. For a lender to secure a loan usingcollateral, the borrower must make a pledge of property in case he doesn't repay themoney borrowed. In most cases, the collateral is the property bought with theborrowed money. For example, when a loan is obtained to buy a house, the houseitself is the collateral.

Which of the choices contains two of the six guidelines for safeguarding your credit cards?

a. Check your credit card slip and ask for the carbons from your charge slip.b. Never obtain more than one credit card and know where it is at all times.c. Keep a list of your credit cards and use as many different cards as possible.d. Sign your credit cards and carry them with you always.

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Cosigner. For a lender to secure a loan using a cosigner, another responsibleperson makes a pledge, in writing, that he, the cosigner, is legally responsible to repaythe loan if the borrower does not repay it. For example, when a loan is secured by acosigner and the borrower defaults on the loan, the cosigner must repay the loan.

When you apply for a loan, creditors have 30 days to respond to your application. They mustgive you a reason for denial. If it's based on information from a credit bureau, you can contact thebureau and receive a report on your file.

Lenders look for the "3 C's" which are

a. Character. Are you reliable? Do you pay your bills? You may be asked for references orthe names of other creditors.

b. Capacity. Is your income enough to pay the debt? What about other expenses?

c. Collateral. Do you have enough assets? (If collateral is not necessary, the loan is called an"unsecured loan.")

When you take out a loan you sign a loan agreement that should state

The total number of payments and their amounts APR and total finance charge Security agreement, if collateral is pledged

A word of caution: avoid loans designed to consolidate your debts. Consolidation loans areintended to help consolidate many debts into one debt and should be avoided if at all possible.Your monthly payment for a consolidation loan may be smaller than the total of many monthlydebts, but the loan often involves a longer repayment period, with possibly more total interestbeing paid.

4106. Choosing a Financial Institution For Obtaining a Loan

Consider these factors when choosing a financial institution for obtaining a loan:

Credit rating requirements Interest and fee charges

Use table 4-4 to help you compare financial institutions for obtaining a loan.

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Table 4-4. Financial Institution Comparison

TYPE ADVANTAGES DISADVANTAGES

Credit Union Possibly small down payment (on autos) Low interest rate

May require a member to maintain ashare balance equal to their monthlyloan payment

CommercialBank

Low interest rate Requires a much higher credit ratingthan other institutions

FinanceCompany

Easy to obtain a loan (doesn't requireas high a credit rating as otherinstitutions)

May have highest interest rates May have prepayment penalties

(Answer: c.)

You want to take out a loan, but do not have a good credit rating. Which financial institution would make it easiest for you to obtain a loan?

________________________________________

(Answer: Finance company)

4107. Loan Contracts

Although federal laws provide some protection to you as a borrower, you need to know all thefacts about your loan and understand your loan agreement.

Here are some terms you should know:

Promissory note. When you borrow money, the lender wants some assurance thatyou are going to repay the loan. Therefore, you must usually sign a "promissorynote." This note is a written promise by you, the borrower, to pay the lender a sum ofmoney, either when the lender demands it or at an agreed time. In addition to thepromissory note, the lender may require the loan to be secured.

What is the definition of collateral?

a. A disclosure of payment schedule by the lenderb. A pledge of someone who is legally responsible for a debt if you do not pay itc. A pledge of property made by the borrower to secure a loand. A processing fee charged by the lender for conducting a credit check

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Secured loan. A loan can either be "secured" or "unsecured." A secured loanprovides protection to the lender. The protection is provided through the borrowerpledging something of value as assurance that he will repay the loan. Whether thelender will require security depends on the amount you want to borrow and whetheryou are a good credit risk. Loans are usually secured through collateral or a cosigner.

Truth in lending. The Consumer Protection Act, also known as the Truth inLending Act, requires a lender to give full disclosure of all costs of the loan including:

(a) The annual interest rate and the total amount of interest you will pay during thelife of the loan.

(b) Any requirements for credit life or health and accident insurance.(c) Any separate fees for investigating your credit or handling your loan.

If it is necessary for you to obtain a loan, you should be on guard for some undesirable clauses inyour loan contract. Table 4-5 gives a list of undesirable clauses you need to be aware of.

Table 4-5. Undesirable Clauses

UNDESIRABLECLAUSE

DESCRIPTION

Balloon payment Requires you to pay off the debt with a large final payment (after smallerearly payments). The small early payments may look appealing, but if youcannot pay off the large one at the end of the contract period, you couldlose the property that was security for the loan.

Prepayment penaltyclause

Describes how much you will be penalized for deciding to make largerpayments to pay off your loan before the original term ends. (A penalty could really hurt if you wanted to sell your car, home, or furniture before moving to a new duty station!)

Confession ofjudgment clause

Also known as an acceleration clause, is a statement that legally admitsyou are in the wrong if you miss a single payment. In that case, you mustimmediately pay off the entire amount due or give up your legal rights.(Fortunately, these clauses are illegal in most states.)

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(Answer: A promise by the borrower to repay the lender.)

(Answers: Balloon payments, prepayment penalty clauses, and confession of judgment clauses)

Lesson Summary. Has this lesson given you food for thought? Do you think you can apply theguidelines for using credit to make practical decisions regarding what to use credit for and whatto save for? Will you know which type of financial institution to apply to if you need to arrangefor a loan? Do you know what kinds of clauses in a loan agreement to avoid? Don't forget tokeep careful track of all your credit cards. The fewer cards, the easier (and safer) for you! In thenext lesson you will learn about what to consider before purchasing a motor vehicle.

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Lesson 2. PURCHASING A MOTOR VEHICLE

LEARNING OBJECTIVES

1. Identify five extra expenses incurred when purchasing a motor vehicle.

2. Identify two precautions to take when signing a buyer's contract for a motor vehicle.

Financing major purchases combines information you have seen in this course--setting goals andobjectives, financial planning and budgeting, using credit wisely, and obtaining a reasonable loanfrom a reputable institution.

What is a promissory note?

_______________________________________________________

What are three undesirable clauses to avoid when making a loan agreement?

a.______________________________________________________

b.______________________________________________________

c.______________________________________________________

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Two major purchases for which you may need to use credit are motor vehicles and real estate.Before you buy a car or house, consider the extra expenses beyond the selling price. Make sureyou understand how the financing works.

In terms of taxes and insurance, the "motor vehicle" category legally includes cars, trucks, vans,motorcycles, recreational vehicles, and in some instances, boats.

It is a fact that first-time car buyers think their car will cost only one-third of its full cost. Beforeyou buy that red Camaro, you'd better plan for all the costs of ownership. Otherwise, that dreammachine could make your life a financial nightmare.

4201. Five Extra Expenses in Purchasing a Car

Listed below are the 5 extra expenses in purchasing a car that you must consider before "signingon the dotted line."

a. Taxes (sales and personal property). When you buy a motor vehicle, many states require youto pay a one-time state sales tax to obtain the title registration and license plates. Your county,city, or state may also require you to pay a property tax at this time. Each of these taxes could behundreds of dollars (based on the value of your vehicle), so be sure you find out the rate oftaxation in advance and include provision for taxes in your budget.

b. Registration. After purchasing your motor vehicle, you must register the vehicle with astate (normally the state of your permanent residence). This requires you to pay a registration fee,and in return, you get your vehicle's registration and license plate. Also, you may be required topay an annual license renewal fee.

c. Insurance. Insurance costs are high and rising. Insurance rates vary from state to state, butare usually higher for persons under the age of 25. Therefore, if you are in this age bracket, yourinsurance costs will probably be exceptionally high. Some types of insurance you should havewhen owning a motor vehicle are:

(1) Personal liability. If you are personally at fault (liable) in an accident, the liabilitycomponents of your policy protect you against bodily injury and property damagescaused to third parties in the accident, including legal bills. The insurance coversrepairs to other cars in an accident in which you are liable, but will not cover your car.Some states require this insurance, and will take your driver's license as well as fineyou if they catch you without it.

(2) Comprehensive. This covers repairs for damage caused by weather (hail, flood, etc.)theft, or vandalism. Your lender will usually require you to have comprehensiveinsurance.

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(c) Collision. This covers the cost of vehicle repairs after an accident and insures thelender against the loss of his asset (the motor vehicle) in the event of an accident.Most lenders require this insurance, too.

d. Repairs. When you own and operate a motor vehicle, you can be certain that sooner orlater something is going to fail. A part that fails translates into costly component repairs orreplacement. Sometimes these can cost more than the original purchase price of the motorvehicle.

e. Operation/Maintenance. Now that you have figured in the taxes, registration, insurance andrepairs, add in the actual costs of operating the vehicle. These costs depend on the number ofmiles you'll drive and the type of driving you do. Examples of these costs are oil, gasoline,tune-ups and tires.

The cost to replace the four tires on your new red Camaro is approximately $422.00. Your car isgoing to get 11 miles to the gallon of gas, which means it is going to cost you approximately$28.00 to travel 200 miles. Consider all these facts before committing yourself to a 5-year loan!

(Answers: Taxes, registration, insurance, repairs, and operation/maintenance)

4202. Precautions To Take When Signing a Contract to Purchase a Motor Vehicle

Whether you are buying a new or used car, examine your legal contract. If you have anyquestions, get legal assistance.

Before purchasing a motor vehicle, always check the seller's record with a consumer protectionorganization such as the Better Business Bureau, a consumer fraud agency, or a state regulatoryagency.

What five extra expenses will you have to add to your budget (beyond your monthly loanpayment) when you buy a motor vehicle?

a._________________________________________________________

b._________________________________________________________

c._________________________________________________________

d._________________________________________________________

e._________________________________________________________

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Before signing, check that

All verbal sales "promises" for any contract are written into it.

Any blank spaces on the contract are crossed out (so the salesperson will not be able to add something later).

In addition, when buying a USED motor vehicle, check to see that the dealer has placed a"Buyer's Guide" in the window with information about the following:

a. Any warranty (or an "implied" warranty) coverage

b. Your rights to inspection by a mechanic of your choosing

c. Any potential problems to look out for in a used car

(Answers: Any promises should be in writing and any blank lines should be crossed out)

Lesson Summary. This lesson listed some areas to consider before purchasing a motor vehicle.As you can see, there is much more to buying a motor vehicle than driving it off the lot! The nextlesson presents considerations for purchasing real estate.

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Lesson 3. PURCHASING REAL ESTATE

LEARNING OBJECTIVES

1. Identify three family needs to consider before house-hunting.

2. Identify three preliminary settlement expenses (in addition to mortgage payments).

3. Identify five types of mortgages.

When purchasing a home, be prepared to make many big decisions and expensive commitments.Become informed and make your plans first!

Do you remember what two things you should look for when signing any contract?

a.___________________________________________________

b.___________________________________________________

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4301. Consideration Factors in Purchasing a Home

Here are some factors to consider when purchasing real estate:

a. Savings plans. How much of your savings do you want to invest for the down payment andstandard moving expenses (which can be very high)? Next, consider looking realistically at yourprospects for income. If you are in a highly specialized field, can you reasonably expect to findwork for the foreseeable future?

b. Family needs.

(1) Location. What are your family's needs in terms of location?

(2) Community services. What types of community services do you consider necessary for your life style?

(3) Condition of property. How much work are you prepared to do on your house?

Exactly what is a mortgage? It is the monthly payment for the money borrowed to buy the realestate. This monthly payment includes interest charges, taxes on the property, and any insurancecoverage.

Think for a moment in terms of risk. If illness or some other type of disaster strikes, you could beunable to make a mortgage payment on time, or perhaps at any time. The wise and safe idea is tominimize the risk of losing your home by keeping a financial "cushion" and by careful planning.

When you have considered all these factors, you will be able to compare types of mortgages anddecide which is the best type for your personal financial situation.

(Answer: c.)

The three family needs to consider before house-hunting are location, community services,and ___________.

a. Zoning restrictionsb. Size of the propertyc. Condition of the propertyd. Real estate

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4302. Consider Preliminary Settlement Expenses

"Settlement" is the legal term for the meeting between you, your lawyer, the seller and his or herlawyer to transfer ownership of real estate. During settlement there are various costs that must bepaid to finalize the purchase of the home. Prepare to pay these types of costs at settlement.

a. Down payment. Amount of money that you pay up front toward the purchase of yourhome. The larger the down payment, the smaller your monthly mortgage payments.

b. "Points" on mortgage loan. Points are up-front interest charges levied by banks andmortgage companies. One point represents one percent of the amount.

Example: On a loan amount of $100,000, the bank might state an interest rate of "7.5percent plus 1 point." In this case, the one point would be $,1000 and would be paidup-front, usually at closing.

c. Closing costs. Miscellaneous charges, adding up to hundreds of dollars, for immediatetaxes and legal fees and for establishing your escrow account. Your escrow account is used topay future annual or monthly taxes and insurance.

(Answer: Down payment, "points," and closing costs)

4303. Mortgages

You must obtain a mortgage when you purchase a home on credit. A mortgage is the monthlypayment for the money you borrowed to buy the home. Your mortgage payment includes interestcharges, taxes on the property, and any insurance coverage.

A mortgage is a long-term commitment. When you buy a home with a mortgage, it is risky. Ifillness or some other type of disaster strikes, you could be unable to make a mortgage payment ontime, or perhaps at any time. The wise and safe idea is to minimize the risk of losing your homeby keeping a financial "cushion" (remember your savings?) and by careful planning.

What are preliminary settlement expenses that you should be prepared to pay when you buy ahouse?

______________________________________________________

______________________________________________________

______________________________________________________

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The Veteran's Administration (VA) guarantees loans made to service members, veterans,reservists, and unremarried surviving spouses. VA guarantees loans made for the purchase ofrefinancing of homes, condominiums, and manufactured homes. VA guarantees part of the totalloan, permitting the purchaser to obtain a mortgage with a competitive interest rate, even withouta down payment if the lender agrees. VA requires a down payment for the purchase of amanufactured home. VA also requires a down payment for a home or condominium if thepurchase price exceeds the reasonable value of the property or the loan has a graduated paymentfeature. With a VA guaranty, the lender is protected against loss up to the amount of theguaranty if the borrower fails to repay the loan. A VA loan guaranty can be used to

Buy a home Buy a residential condominium Build a home Repair, alter or improve a home Refinance an existing home loan Buy a manufactured home with or without a lot Buy and improve a manufactured home lot Install a solar heating or cooling system or other weatherizaton improvements Purchase and improve a home simultaneously with energy-efficient improvements Refinance and existing VA loan to reduce the interest rate and make energy-efficient

improvements Refinance a manufactured home loan to acquire a lot

Eligibility: Applicants must have a good credit rating with an income sufficient to supportmortgage payments, and agree to live on the property. To obtain a VA certificate of eligibility,complete VA Form 26-1880, "Request for Determination of Eligibility and Available LoanGuaranty Entitlement," and submit it to the nearest VA regional office.

When shopping for a mortgage, a big question is, "How much can I afford to pay?" You mustconsider the following:

Present and future housing needs. Consider your needs from now through the next 5 to 10 years, as this is the average turnover period in real estate.

Amount of savings expenditure. While planning for mortgage payments you will haveto make on your newly purchased home, you must consider how much of your savings you will want to invest for the down payment. Also, you must consider how much you can spend on normal moving expenses (which can be very high).

Outlook for income. Be sure to look realistically at your prospects for income. Table 4-6 shows five types of mortgages and their descriptions.

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Table 4-6. Mortgage Types

TYPE DESCRIPTION

Fixed rate Has a fixed interest rate and fixed duration of time. Both of these factors are determinedby the lender and borrower at settlement. Two examples of fixed rate mortgages: 30years at 7 percent interest 15 years at 8 1/2 percent interest

Graduatedpayment

Has a variable interest rate that is lower at the beginning, then gradually increases to acertain point, and then stabilizes. For example: a 5-year graduated payment mortgage could work like this Year Percentage Rate 1 5 2 5 1/2 3 6 4 6 1/2 5-30 7

AdjustableRateMortgage(ARM)

Has an interest rate which generally begins at a lower rate and is adjusted at set timeperiods throughout the remainder of the mortgage--this interest rate can either increase ordecrease, and is based on some type of monetary index. (ARMs have an annual cap anda lifetime cap.)

Assumable With an assumable mortgage, you take over the previous owner's mortgage payments.

Balloon The most undesirable kind of mortgage. At the end of the duration of the mortgage, thereis one large payment for the original amount borrowed. For example, if you were to get a balloon mortgage for $100,000, your payments wouldbe only for the interest until your last payment, when you would have to pay the wholeprincipal of $100,000!

(Answer: Balloon mortgage)

Which type of mortgage is used in this example: Buy a house for $100,000 with monthlypayments of $600 (but still owe the entire $100,000 at the end of the loan)?

______________________________________________________

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Lesson Summary. This lesson discussed the three family needs to consider before beginning yourhouse hunt. You also covered the preliminary settlement expenses you can expect to incur duringthe process of buying real estate. In addition, the lesson presented the major characteristics offive types of mortgages that are available to finance your house. Now that you know all about thevaried and complicated options available, you will hopefully make very careful decisions. If youtake your time to study the details, you can only benefit. Now, try your hand with the study unitexercise and see how much you can remember. After that, the course has a review lesson exam tohelp prepare you for your final exam. Good luck!

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Study Unit 4 Exercise: Complete items 1 through 20 by performing the action required. Check your responses against those listed at the end of this study unit.

Matching: For items 1 through 5, match the term in column 1 with its definition in column2. Place your answers in the spaces provided.

Column 1 Column 2

Terms Definitions

___ 1. APR a. A line of credit that may be used over and ___ 2. Credit rating over again___ 3. Installment credit b. The original loan amount___ 4. Principal c. A summary of your credit history___ 5. Revolving credit d. The actual cost of the loan per year

e. Allows you to make monthly payments

6. List the two disadvantages of using credit (or borrowing).

a. ______________________________________________________

b. ______________________________________________________

7. Considering paying cash, deciding whether or not you are making a wise investment,paying as much down as you can, and setting a monthly credit payment spending limitare all guidelines to using credit wisely. What else should you try to do?

a. Consolidate your loans into one big loan with one credit payment per month.b. Use credit to save your cash and postpone paying as long as possible.c. Reduce credit debt whenever you can by paying it off ahead of time.d. Renegotiate new and longer terms of payment.

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8. Signing any credit cards you use, keeping a list of your credit cards, getting rid of anycards you don't use, checking credit card slips for errors, and asking for the carbonsfrom sales slips when you charge are all precautions to safeguard your credit cards.Which one of the following is another?

a. Keeping all your unsigned credit cards togetherb. Carrying all credit cards with you alwaysc. Using various cards instead of just oned. Making sure you don't ever leave one of your credit cards lying around

9. Lenders look for the "3 C's" which are ________, _________, and __________.

a. Charisma c. Character Collateral Capacity Cosigner Collateral

b. Charm d. Cosigner Cosigner Collateral Capacity Capacity

10. If you were in the military and wanted to buy a new motor vehicle using a loan with a low rate of interest, and making a small down payment, which kind of financialinstitution would you probably apply to for your loan?

a. Credit unionb. Finance companyc. Commercial bankd. Savings and loan bank

11. List three undesirable clauses to avoid when making a loan agreement.

a.______________________________________________________

b.______________________________________________________

c.______________________________________________________

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12. List five extra expenses incurred when purchasing a motor vehicle.

a.______________________________________________________

b.______________________________________________________

c.______________________________________________________

d.______________________________________________________

e.______________________________________________________

13. List two precautions to take when signing any contract.

a.______________________________________________________

b.______________________________________________________

14. Two basic family needs to consider before starting your house hunting are thelocation of the house and the community services that are available. What is a third?

a. Real estate company listing the houseb. Zoning laws of the communityc. Choice of available financingd. Condition of the property

15. If you were at settlement and had paid your down payment, closing costs, points onthe mortgage loan, homeowner's insurance premium, and utility deposits, you stillwould have to pay for your ____________ .

a. real estate agent's commissionb. system of creditc. sales taxd. escrow account

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Matching: For items 16 through 20, match the type of mortgage in column 1 with the letter of its description in column 2. Place your answers in the spaces provided.

Column 1 Column 2

Type of Mortgage Description

___ 16. Adjustable rate a. Low interest rates but risky, because you mortgage (ARM) pay the entire principal at the end of the

___ 17. Assumable loan. ___ 18. Graduated b. 30-Year loan, with a fixed interest rate and___ 19. Balloon duration time.___ 20. Fixed rate mortage c. You take over the previous owner's

mortgage payments.d. The interest rate is adjusted at set periods over the life of the loan.e. The interest rate starts low, but increases-- for the first-time home buyer who expects to earn more later.

STUDY UNIT 4 SUMMARY

This study unit emphasized applying guidelines to using credit when you make major purchases.In lesson 1, you examined some basic considerations in obtaining and using credit. In lessons 2and 3, you learned the considerations you need to remember when you purchase a motor vehicleand real estate.

Study Unit 4 Exercise SolutionsReference

1. d. 41012. c. 41013. e. 41014. b. 41015. a. 41016. a. You pay extra in interest 4102

b. It is too easy to overspend-impulse spending7. c. 41038. d. 41049. c. 410510. a. 410611. a. Balloon payment 4107

b. Prepayment penaltyc. Confession of judgement

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Study Unit 4 Exercise Solutions, continuedReference

12. a. Taxes 4201b. Registrationc. Insuranced. Repairse. Operation/maintenance

13. a. All verbal sales "promises" should be written 4202in contract

b. Any blank spaces on the contract should be crossed out14. d. 430115. d. 430216. d. 430317. c. 430318. e. 430319. a. 430320. b. 4303

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PERSONAL FINANCIAL MANAGEMENT

REVIEW LESSON EXAMINATION

INSTRUCTIONS: The purpose of the review examination is to prepare you for the finalexamination. When you are confident you know the course material, try to complete the reviewexam without referring to the text or other references. When you compete the review exam,compare your responses with the answer key provided. For any questions you missed, check thereferenced pages and restudy those topics.

Select the ONE answer that BEST completes the statement or answers the question. After thecorresponding number on the answer sheet, blacken the appropriate circle.

1. Which of the following are the three categories of important papers?

a. Financial, entitlement, personalb. Life insurance, investment, estatec. Social security, registration, militaryd. Titles, deeds, mortgages

2. Who can direct you to the appropriate agency to locate a missing important paper?

a. Legal Assistance Officeb. Navy/Marine Corps Reliefc. Circuit Courtd. Police Department

3. Where can you go for duplicating personal important papers?

a. Libraries or commercial copying servicesb. Government officesc. Printing businesses or government officesd. Personal businesses

4. What are the three most secure types of storage areas?

a. Desk at home, office desk, safety deposit boxb. Lawyer's office, office desk, special safec. Legal assistance office, lawyer's office, special safed. Special safe, lawyer's office, safety deposit box

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5. What is the best and most complete definition of an asset?

a. A motor vehicleb. A homec. Something of value which is ownedd. Cash value

6. What is the best and most complete definition of a liability?

a. Tax billsb. Legal responsibility to pay a debtc. Mortgage commitmentsd. Credit card balances

7. Choose the two sources available to you for legal assistance.

a. S-1 office and company officeb. Company office and legal assistance officec. Staff Judge Advocate's office and private attorneysd. Staff Judge Advocate's office and Navy and Marine Corps Relief office

8. What is a will?

a. Document to choose an executor after deathb. Agreement to control your assets after deathc. Document to describe an estate after deathd. Legal declaration distributing a person's possessions as desired after death

9. What is a power of attorney?

a. Power to buy assets on behalf of a lawyerb. Power to substitute for an attorneyc. Written instrument authorizing an attorney to actd. Written instrument transferring your legal authority to someone else

10. The amount of money a policyholder must pay the insurance company periodically to keepthe insurance policy in force is a/an ________.

a. option c. incentiveb. premium d. settlement

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11. An insurance policy that has been terminated because payments were not made is called a_______________ policy.

a. limited c. lapsedb. universal d. temporary

12. A government-sponsored term insurance policy for all active duty personnel is called__________.

a. DOD insurance c. VGLIb. SGLI d. Federal insurance

13. A term insurance you may elect 121 days after separation from the service is called_______ .

a. SGLI c. VGLIb. permanent d. indemnity

14. A life insurance policy that covers you for a specific time is called ________________insurance.

a. time c. whole lifeb. term d. specific

15. An insurance policy that provides coverage for the entire life span of the insured person iscalled _______________ insurance.

a. whole life c. termb. medical d. SGLI

16. To receive care in service hospitals or to have claims for civilian health care processed byTricare, all active duty and retired military sponsors and all family members have to enroll inthe ___________.

a. Defense Enrollment Eligibility Reporting Systemb. Military/Dependent Health Benefits Systemc. Service Health Care Benefits Pland. Military hospital or health facility within 75 miles

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17. The person who enrolls your family in the Tricare Active Duty Family Members Dental Plan(FMDP) is your ____________.

a. dentistb. S-1/personnel officec. Health Benefits Advisor (HBA)d. field XO

18. Which system brings together the healthcare delivery systems and CHAMPUS?

a. S-1/personnel officeb. Your doctorc. Military hospital personnel officed. Tricare

19. Which agency administers the G.I. Bill?

a. GI Administration c. VAb. DOD d. HUD

20. What type of discharge qualifies you for all G.I. Bill benefits?

a. Good of Service c. Honorableb Dishonorable d. General

21. Name the two types of disability pensions.

a. Limited, completeb. Divested, investedc. Service-connected, non-service connectedd. Employed, unemployed

22. A veteran's spouse would be entitled to burial in a national cemetery if the _______.

a. Marriage lasted more than 10 yearsb. Spouse did not remarry a civilianc. Wish was documented in a (deceased) veteran's willd. Marriage lasted at least 20 years

23. How many years of active service are required to qualify for retirement pay?

a. 25 c. 15b. 20 d. 10

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24. If you were a sergeant who joined the Marine Corps after August 1986, which plan wouldyou use to calculate your monthly retirement allowance?

a. Final pay c. High-3b. Two-tier d. Disability

25. Using the retirement table below, what would your "first-tier" monthly retirement salary beif your highest 3-year salary averages $2,600 and you have completed 20 years of activeservice?

a. $1140 c. $1045b. $1100 d. $1040

RETIREMENT TABLE

Old Retirement New Retirement

Years of Service Percent Years of Service Percent

20 50.0% 20 40.0%

21 52.5% 21 43.5%

22 55.0% 22 47.0%

23 57.5% 23 50.5%

24 60.0% 24 54.0%

25 62.5% 25 57.5%

26 65.0% 26 61.0%

27 67.5% 27 64.5%

28 70.0% 28 68.0%

29 72.5% 29 71.5%

30 75.0% 30 75.0%

26. One main purpose for saving is to enable you to achieve your personal objectives. What isthe other main purpose?

a. Make sure you have enough funds in your account to buy a car.b. Have enough funds so you can go on vacation once a year.c. Enable you to provide a financial security blanket for emergencies.d. Make sure you avoid the high cost of interest charged for credit buying.

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27. What is the key to proper budgeting?

a. Use estimated, fixed, and variable expenses.b. Add a certain amount to cover any miscellaneous expenses.c. Make sure you have correctly estimated your income.d. Keep complete and accurate records.

Matching: For items 28 through 32, match each financial term in column 1 with the letterof its description in column 2. After the corresponding item number on the answer sheet,blacken the appropriate circle.

Column 1 Column 2

Financial Term Description

28. Compound interest a. Evidence of property a debtor presents29 Solvency to a creditor to guarantee payment30. Simple interest of a loan31. Dividend b. Payment to owners from the32. Collateral earnings of a company

c. Amount of money paid for theuse of money over a period oftime

d. Condition when total assetsare more than liabilities

e. Interest is periodicallyadded to and becomes part ofthe principal

33. What are four basic types of financial institutions?

a. Mutual banks, allotments, credit unions, savings banksb. Commercial banks, savings and loan associations, savings banks, credit unionsc. Finance companies, savings banks, credit unions, Navy Reliefd. Disbursing, mutual banks, credit unions, savings banks

34. Three factors to consider when choosing a financial institution for your accounts are termsand conditions, customer service, and _______.

a. financial ratingb. asset/liability ratioc. insuranced. electronic capabilities

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35. Here are four of the most familiar types of savings accounts: basic savings, treasury bonds,treasury notes, and IRAs. Which is the fifth type?

a. CDS c. ATMb. Automated d. IRS

36. The minimum age at which you can draw funds from your IRA without penalty is ___.

a. 55 c. 60b. 59 1/2 d. 61 1/2

37. Which of the following systems are electronic deposit methods?

a. Income distribution, "S" (savings allocation), "B" (bond allocation)b. "S (savings allocation), "B" (bond allocation), direct depositc. Income allotment, direct deposit, "S" (savings allocation)d. Checking, direct deposit, "B" (bond allocation)

38. To verify the salary amounts and when they were deposited into your account, look atblocks ______ and ________ of your LES.

a. 20 and 21 c. 29 and 30b. 24 and 25 d. 39 and 40

39. The most important reason for having a checking account is to ______.

a. Keep a written record of expendituresb. Avoid carrying a large amount of cash aroundc. Simplify payment of financial obligationsd. Organize a budget

40. What are the three basic types of checking accounts?

a. Commercial, residential, businessb. Regular, NOW account, Super NOW accountc. Direct, managed, tax-freed. Joint, individual, company

41. One special checking account service offered by some financial institutions is a bill-payingaccount. What is another?

a. Insurance account to pay to insure your fundsb. IRS account to automatically pay your taxesc. Use of credit cards to backup checking accountd. Special tax free account

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42. Why should you keep your deposit receipts?

a. You can add them up to estimate your taxes.b. To prove you made the deposit.c. You can use them to regulate your financial priorities.d. They will help you keep track of your checks.

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43. Of the three following deposit slips, which one has been completed correctly?

a.

b.

c.

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44. Below are three pages from a check register. Which one has been properly maintained?

a.

b.

c.

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45. Of the three following checks, which one has been completed correctly?

a.

b.

c.

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Matching: For items 46 through 49, match each type of check endorsement in column 1with the letter of the appropriate sample in column 2. After the corresponding item numberon the answer sheet, blacken the appropriate circle.

Column 1 Column 2

Type of Endorsement Sample

46. BLANK a.47. RESTRICTIVE48. SPECIAL49. MISSPELLED

b.

c.

d.

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50. What is the most important thing to remember about a checking account?

a. You must never write a check in excess of the amount in your checking account.b. You can postdate a check if you know when you will have enough funds to cover it.c. Your checks are the safest and most convenient way to spend money!d. If you should lose your checks, your checking account funds will grow!

51. One major disadvantage of using credit is that you pay extra in interest. Another is that it

a. encourages unnecessary spending and debt.b. complicates your bookkeeping, and it becomes easy to make mistakes in computation.c. is expensive to write a lot of checks.d. is expensive to mail a lot of checks.

Use the five guidelines for using credit listed below to answer item number 52.

Shop around (for the lowest interest rate).Consider paying cash (instead of charging).Consider whether or not the item is needed and will last.Pay as much as you can in the down payment.Set a monthly credit-payment spending limit.

52. What is the sixth guideline?

a. Always strive to reduce debt (by paying off loans ahead of time).b. Consolidate your loans into one big loan with one credit payment per month.c. Use credit to save your cash and postpone paying.d. Renegotiate new and longer terms for credit loans.

Use the following list of five precautions to take to safeguard your credit cards to answer itemnumber 53.

Sign your credit cards.Keep a list of cards you use.Get rid of any card you no longer use.Check any credit card slip.Ask for any carbons from your charge slip.

53. Which of the following choices is the sixth precaution?

a. Make sure you know where all your credit cards are located. b. Keep all unsigned credit cards together.c. Carry all your credit cards with you always.d. Use a variety of cards instead of just one.

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54. The type of financial institution that may charge the highest interest rate on loans is a__________.

a. credit unionb. finance companyc. commercial bankd. savings & loan association

55. When you enter into a loan agreement, it is wise to make sure these types of clauses are notin it:

a. Annual interest rate, balloon, confession of judgment.b. Prepayment penalty, confession of judgment, accident insurance.c. Balloon, credit life insurance, loan handling.d. Balloon, prepayment penalty, confession of judgment (acceleration clause).

56. When you purchase a motor vehicle, be prepared for these extra expenses: annualregistration, operation/maintenance, insurance, repairs, and _________.

a. taxes c. road testingb. repainting d. undercoating

57. When you sign a buyer's contract for a motor vehicle, be sure that all verbal sales promisesare written into the contract and that ____________.

a. a lawyer is presentb. a mechanic is presentc. you use a pen with black inkd. any blank spaces on the contract are crossed out

58. The three things a family needs to consider about a house it may wish to buy are thecondition of the house, the community services that are available, and __________ .

a. location of the propertyb. choice of available financingc. zoning laws of the communityd. real estate company listing the house

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59. If you were at settlement and had paid your down payment and points on the mortgageloan, you still would have to pay for your __________.

a. sales taxb. closing costsc. system of creditd. real estate agent's commission

Matching: For items 60 through 64, match the type of mortgage in column 1 with the letterof its description in column 2. After the corresponding item number on the answer sheet,blacken the appropriate circle.

Column 1 Column 2

Type of Mortgage Description

60. Assumable mortgage a. Low interest rate but riskybecause you pay the entire

61. Balloon mortgage principal at the end of the loan62. Adjustable rate mortgage (ARM)

b. Fixed interest rate and fixed63. Fixed rate mortgage duration of time determined

by the lender and borrower64. Graduated payment mortgage

c. You take over the previousowner's mortgage payments

d. The interest rate begins lowand is adjusted at set

periods throughout theduration of the mortgage;it can either go up or downbased on a monetary index

e. The interest rate starts lowbut increases to a certainpoint and stabilizes

LAST PAGE OF REVIEW EXAM

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Review Lesson SolutionsReference

1. a. 11012. a. 11023. a. 11034. d. 11045. c. 12016. b. 12027. c. 12038. d. 12049. d. 120510. b. 210211. c. 210212. b. 210313. c. 210414. b. 210515. a. 210516. a. 220217. c. 220318. d. 220519. c. 230120. c. 230221. c. 240122. b. 240323. b. 250124. b. 250125. d. 250426. c. 310327. d. 310628. e. 320129. d. 320130. c. 320131. b. 320132. a. 320133. b. 320234. c. 320335. a. 320436. b. 320437. b. 320538. c. 320639. b. 330140. b. 330241. c. 330342. b. 3305

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MARINE CORPS INSTITUTECOURSE EVALUATION QUESTIONNAIRE

MCI 34.20e Personal Financial Management

Directions:

This questionnaire is extremely important to the Marine Corps Institute. The course you have justcompleted has undergone extensive development and revision. As an integral part of thecontinued success of this course, YOUR HELP IS NEEDED. By completing this questionnaire,your responses may result in a need to review the course.

Please take five minutes to complete the questionnaire and return it to MCI in the self-addressedenvelope provided with your course materials. Additional comment sheets may be attached tothis questionnaire. If you want to be contacted by the course instructor, please provide yourname, rank, and phone number. Regardless of whether you want to be contacted or not, pleaseenter your primary military occupational specialty (MOS).

Information About YOU:

Information About the COURSE:

1. How long did it take you to complete this course including the review lesson examination? ___ Less than three hours If more than fifteen hours___ Three to six hours enter number of hours___ Seven to ten hours here: _________ Eleven to fourteen hours

2. Were the learning objectives stated at the beginning of each lesson clear? (Circle your response)

a. Yes b. No

If you circled "NO" please list below the study unit and lesson numberfor those unclear objectives.

Name (Optional) Rank MOS

Telephone Number (Optional)

DSN Commercial (Area Code)

MARINE CORPS INSTITUTECOURSE EVALUATION QUESTIONNAIRE

Information About the COURSE (continued):

3. Did the figures, that is illustrations, photographs, tables, charts, etc., clearly supportthe information/text within the lesson? (Circle your response)

a. Yes b. No

If you circled "NO" please list the figure or table number(s) below.______ ______ ______ ______ ______ ______ ______ ______

4. Did the exercise at the end of a lesson or study unit test your skills and knowledgegained by studying the lesson? (Circle your response)

a. Yes b. No

If "NO" please list the exercise question/item number, the lesson number,and the study unit number below. (Attach additional sheet, if necessary)

Question Number Lesson Number Study Unit Number______ ______ ______

5. When you read the lesson the first time, did it make sense to you? (Circle your response)

a. Yes b. No

If "NO" please list the lesson number and/or paragraph number below.______ ______ ______ ______ ______ ______ ______ ______

6. Would you recommend that a revision be made to any portion of this course? (Circleyour response)

a. Yes b. No

If "YES", is your recommendation based on (check all that apply):

___ Outdated procedures or process. Enter Study Unit Nos. _______ Outdated equipment or material. Enter Study Unit Nos. _______ Information not accurate. Enter Study Unit Nos. _______ Other (Please describe)

7. Comments: Please attach separate sheet.

Review Lesson Solutions--continuedReference

43. a. 330544. b. 330545. c. 330546. b. 330647. a. 330648. d. 330649. c. 330650. a. 330851. a. 410252. a. 410353. a. 410454. b. 410655. d. 410756. a. 420157. d. 420258. a. 430159. b. 430260. c. 430361. a. 430362. d. 430363. b. 430364. e. 4303

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MARINE CORPS INSTITUTECOURSE CONTENT ASSISTANCE REQUEST

MCI 34.20e Personal Financial Management

Use this form for questions you have about this course. Write out your question(s) and refer tothe study unit, lesson exercise item, or the review lesson exam item you are having a problemwith. Before mailing, fold the form and staple it so that MCI's address is showing. Additionalsheets may be attached to this side of the form. Your question(s) will be answered promptly bythe Distance Training Instructor responsible for this course.

YOUR QUESTION:

INSTRUCTOR'S RESPONSE:

NAME RANK MOS

COMPLETE MILITARY ADDRESS (INCLUDING RUC IF KNOWN)

TELEPHONE NUMBER

DSN COMMERCIAL (Area Code)

MARINE CORPS INSTITUTE--STUDENT REQUEST/INQUIRY-MCI - R-11 (3/96)

MCI 34.20e Personal Financial Management DATE: _______________

SECTION 1. STUDENT IDENTIFICATION

INSTRUCTIONS: Print or type clearly: (Section 1. Information is needed by MCI to act/respond to input provided in Section 2.)

SECTION 2. STUDENT REQUEST/INQUIRY

INSTRUCTIONS: Complete only those sections requiring an action/response from MCI.

AUTHORITY: Title 5, USC, Sec. 301. Use of your Social Security Number is authorized by Executive Order 9397 of 22 Nov 43.PRINCIPAL PURPOSE: The Student Request/Inquiry is used to transmit information concerning student participation in MCI courses.

ROUTINE USES: This information is used by MCI personnel to research student inquiries. In some cases information contained therein is used toupdate individual student records maintained by the Marine Corps Institute.

MANDATORY OR VOLUNTARY DISCLOSURE AND EFFECT ON INDIVIDUAL NOT PROVIDING INFORMATION: Disclosure isvoluntary. Failure to provide information may result in the provision of incomplete service to your inquiry. Failure to provide your Social SecurityNumber will delay the processing of your request/inquiry .

RANK FIRST NAME MI. LAST NAME MOS RUC SOCIAL SECURITY NO.

MILITARY ADDRESS (INCLUDE ZIP CODE) (Reservists may use civilian address)

FROM:CHANGE NAME:

RANK:SSN:RUC:

TO:NAME:RANK:SSN:RUC:

The following materials are needed:

Lessons:Manual:Answer Sheets:

Others:

Final Exam Overdue:Lesson sent to MCI on ___________

Missing Diploma or Completion Certificate:The course or program was completed(day) ________ (month) ________ (year) ________

Exam sent to MCI on ____________

Request Extension _____

(Students are only eligible for one extension prior totheir Course Completion Date (CDD))

Request Reenrollment _____

(Students are only eligible for reenrollment once andonly after their CDD. If already reenrolled anddisenrolled, a new enrollment must be requested)

Request New Enrollment ______ OTHER Requested Action: