Educating People to Help Themselves Money 101: Getting Started Julie D. Judy Extension Educator Family & Consumer Sciences Montgomery County Office UNIV

Educating People to Help Themselves

Money 101: Getting Money 101: Getting StartedStarted Julie D. Judy

Extension EducatorFamily & Consumer Sciences Montgomery County Office

UNIV 100College of Agriculture and Natural Resources

Presented by University of Maryland Cooperative Extension

Maryland Cooperative Extension Programs are open to all citizens without regard to race, color, gender, disability, religion, age or national origin.


Trends in College CampusesTrends in College Campuses

Growing college student debt – Rising college costs– Financial aid has not kept pace with

rising costs– Increase in financially independent

students– Lack of financial literacy– Dramatic growth in credit card usage


What Are the Facts?What Are the Facts? 76% of undergraduates possess at least one

credit cardAverage credit card balance = $2,169 23% students = > $3,000 in credit card debt

Average undergraduate student carries four credit cards

Average college graduate has more than $20,000 in debt 15% is owed to credit card companies Source: Nellie Mae


Consequences of Student Consequences of Student Debt ProblemsDebt Problems

Young adults (18-24) now have the second highest rate of bankruptcy (GAO, 2001)

Debt is linked to dropping out of college, physical and emotional health problems, family conflict, bankruptcy, job rejections, loan denials, inability to rent apartments, professional school rejection, and even suicide (Manning, 2001)

Debt problems are associated with high levels of anxiety (Nellie Mae, 2005)

Affects personal and professional choices about graduates’ jobs, where they live, and whether they can buy a home or start a family (Smith, 2006)


Closer to HomeCloser to HomeUniversity of Maryland College University of Maryland College

ParkPark• Total In-State Costs $17,530• In-State Costs, After Aid $12,808

• Total Out-of-State Costs $30,969• Out-of-State Costs, After Aid $26,247

• Average Debt at Graduation $14,076Source: Kiplinger Website


Today’s TopicsToday’s TopicsCredit• Purpose & Cost of Credit• Building Good Credit• Credit Report• Credit Score• Effects of Bad Credit• Credit Tips

Identity Theft

Financial Record Organization

Budgeting• Why Have a Budget?• Monthly Spending

Plan• Spending Diary


Financial Foundation

Goals

Emergency Fund

Budget

Financial Records

Credit Record

Life

Disability

Health

Property Liability

Financial Plan Insurance

Insured Savings, Savings Bonds, Money Market Funds, Certificates of Deposits

Life Insurance Investments Government Securities

High Quality Corporate Stocks, Bonds and Mutual Funds

Real Estate

Aggressive Growth, Junk Bonds, Stocks and Mutual

Funds

Futures Contracts Collectibl

es


Emergency Fund

Goals Budget

Financial Plan

Financial Statement

s

Financial Records

Credit Record

Life Health

Insurance

Disability

Property

Financial FoundationLiability


A spending plan or budget forces you to think about…

What is important (needs versus wants)What you want to own in the futureHow you want to live and what it will take to get you thereWhere you’re spending your money How you could improve your spending habits to help you reach your financial goals

Spending Plan or BudgetSpending Plan or Budget


Spending Plan (Budget) ProcessSpending Plan (Budget) Process

1. Estimate available income2. Define major expenses3. Set spending levels4. Develop spending plan5. Monitor and control

expenditures6. Review periodically


How do I create a spending diary?• For at least one month, write down EVERY

purchase you make in a planner or notebook; keep receipts

Every purchase means every penny of every purchase - - - includes the vending machines, fast food, entertainment, coffee, etc.

• Use specific categories like “Groceries” and “Eating Out” instead of a general category (“Food”)

• Keep a check card/ATM/debit card registry• Total amounts you spend in each category• Use this spending diary to create a functional

budget or spending plan, based on averages spent in each category

Spending DiarySpending Diary


Use 70% of take-home pay for living expenses

Use 20% to repay debtSave 10% for you and your future

Important

Reminder


Money Traps Can Catch You!Money Traps Can Catch You!

• Eating out

• Cigarettes

• Vending machines

• Soda, beer, wine, alcohol, coffee

• Video/DVD rentals

• Personal care products

• ATM withdrawals

• Others??


ATM Card (requires a PIN)Allows you to access your funds from a checking or savings account at an ATM machine

Debit Card (requires a PIN)Allows you to access your funds immediately

Electronically linked to a checking or savings account

Check CardEnables you to withdraw your money from a checking account

May be used as an ATM or debit card (with PIN)

Credit Card (does not require a PIN)Issued by a bank or business authorizing you to buy goods/services on credit. You borrow their money and pay it back with interest.

Types of CardsTypes of Cards


Automatic Teller Machine Automatic Teller Machine (ATM) CARDS(ATM) CARDS

Available 24 hours a day Don’t trust ATM account balances! Memorize your Personal Identification

Number (PIN) Keep receipts & track in checkbook! Remember to subtract ATM fees! Handle carefully


ATM/Debit Card Laws ATM/Debit Card Laws and Limitationsand Limitations

Report Lost or Stolen Cards!If Reported within 2 Business Days

Maximum Liability - $50If Reported w/in 3-60 Business Days

Maximum Liability - $500If Not Reported for Over 60

Business DaysMaximum Liability - Unlimited


CreditCredit

General Credit InformationBeing granted credit is a privilege, not a rightUsing credit = promising to repay a debt; a contractual relationshipDifferent forms of credit include:

Credit CardsCar LoansHome Mortgages Personal Loans


Pros & Cons of CreditPros & Cons of Credit

ADVANTAGES

Emergencies

Identification

Convenience

Reservations for traveling

DISADVANTAGES

Loss of financial flexibility

High interest

Temptation to overspend

Additional fees

Privacy and identity theft


Building Good CreditBuilding Good Credit Most college students are considered

credit “ghosts” (i.e., someone with no credit history)

What are some sources of credit that can be used to build a credit history? Credit Cards (e.g., gas company, bank credit

card, department store) Personal Loans

It is important to use credit wisely!


What’s the Cost to What’s the Cost to YouYou for Using Credit?for Using Credit?

Interest Rates Annual percentage rate (APR) – will vary

Monthly Payments Original principal borrowed (purchases) + interest (finance charge) = Monthly

payment

Interpersonal Costs Time/emotions


Cost of CreditCost of Credit

ExampleCredit card balance = $2,500Annual Percentage Rate (APR) = 18% You make a minimum payment of the greater of…

2% of the balance OR$15.00 minimum each month


Cost of Credit…continuedCost of Credit…continued

MonthPayme

ntInteres

tPrincip

alBalanc

e

1 $50.00 $37.50 $12.50$2487.5

0

2 $49.75 $37.31 $12.44$2475.0

6

3 $49.50 $37.13 $12.38$2462.6

9

4 $49.25 $36.94 $12.31$2450.3

7

5 ….


Consequences of Minimum Consequences of Minimum Payments Payments

If you pay only the minimum, it will take you approximately 29 years to pay off the original $2,500 debt!

You will have paid a total of $8397 ($5897 in interest)!

If you pay the minimum plus $100 per month, it will take only 2 years to pay off the original $2,500 debt!

You will have paid a total of $2951 ($451 in interest)


Pay higher interest rates (APR) May not be eligible for sales promotions May have lower maximum credit limit Money spent on debt, including interest

charges, will not be available for future needs or wants

Could impact your ability to rent an apartment, qualify for a mortgage or auto loan, secure employment, etc.

Bad credit stays with you (negative entries remain on your credit report for 7 years)

Effects of Bad CreditEffects of Bad Credit


Borrowing Borrow only student loans that are

needed, not the entire amount for which you are eligible

Live like a student when you are a student; avoid living like a professional until you have a full-time position in your field

Use credit only as a last resort, unless you have a detailed plan (that you will follow) to help yourself build credit

General Credit TipsGeneral Credit Tips


What Do Credit Bureaus What Do Credit Bureaus Do?Do?

Collect data:

Personal information

Employment historyCredit Use and

Repayment history

Provide information to:

CreditorsEmployers Insurers Landlords


3 Major Credit Bureaus:

EquifaxExperianTransunion

Credit BureausCredit Bureaus


Credit ReportsCredit Reports Credit Reports Include…

Payment history of credit cards and loans

Bills in collectionBankruptcies Inquiries about your creditworthiness

Free Reports (1 annually from each major credit bureau)

www.annualcreditreport.com


Other ways to obtain credit report…

If you have been denied credit, insurance or employment within the last 60 days

If you have reason to believe your report contains inaccurate information, due to fraud

Example – if you received a bill or late notice for a purchase that you did not make or for an account that you did not open

Credit ReportsCredit Reports


Start Here


Correcting a Credit Correcting a Credit ReportReport

Contact company that reported the error

Ask company to correct error, in writing, with each credit bureau

Photocopy pertinent documentsWrite credit bureau, explain error

and enclose documentationSend certified mail with return

receipt


What Is A Credit Score?What Is A Credit Score?

10%

10%

15%

30%

35%

Requests for newcredit

Types of credit inuse

Length of credithistory

Current total debt

Payment History


780-850 – Low Risk740-780 – Medium Low Risk690-740 – Medium Risk620-690 – Medium High Risk620 and Below – High Risk or Sub-Prime

Credit Score RangesCredit Score Ranges


Identity Theft is the fastest

growing type of crime

today.Are You A Target?


How Does It Happen?How Does It Happen?

Thieves Steal:Thieves Steal: Wallets and purses Mail

– bank cards– bank statements – new checks– checks owed to you– pre-approved credit offers– phone bills

Trash


Thieves also use practices such as:

PretextingPhishingSkimming

How Does It Happen?How Does It Happen?


Don’t give out personal information over the phone, by mail or on-line… unless you know who you are dealing with or you initiated the contact

Preventing Identity TheftPreventing Identity Theft


Keep personal information in a safe place

Try to use other forms of identification besides your Social Security number

Order a copy of your credit report yearly and check for accuracy



Put passwords on your credit cards, bank and phone accounts

Make passwords random

Carry only credit cards, checks and papers you will need



• Pay attention to billing cycles. Follow up with creditors if bills don’t arrive on time

• Guard your mail from theft – both outgoing and incoming



Tear up or shred personal information before putting it in the trash

Don’t have a cross-cut shredder? Buy one or ask for one as a holiday or birthday gift.



What to Do if You’re a What to Do if You’re a VictimVictim

1. Place a fraud alert on your credit report

2. Close accounts that have been tampered with or opened fraudulently

3. File a report with your local police4. File a complaint with the Federal

Trade Commission


Why Keep Records?Why Keep Records?

• Tax preparation• In case of crisis• For proof of payment• For proof of ownership • For protection• It’s the sensible thing to do


Options for Keeping Options for Keeping RecordsRecords

Best way? One that works for One that works for youyou…– Simple handwritten records– Computer software programs, e.g.

• MS Money• Quicken / Quicken Deluxe• Kiplinger’s Your Family Records Organizer• Other software…


Where to keep records?Where to keep records?In Your Wallet

driver’s licensepersonal identificationhealth insurance cardname of doctor and

person to call in case of accident

card showing medical problems

credit cards (minimum #)

membership cards


Where to keep records?Where to keep records?

Where you live (e.g., dorm room, apartment, with parents)–Personal papers,

Family Records–Property Records–Financial Records

Consider using a file box or accordion file


Where to keep records?Where to keep records?

In a Safe Deposit Box or Home Safe

title and bill of salecertificates: birth, death,

marriage, divorce, etc.contracts, notes and debtspersonal property inventory list of records in home file list of insurance policy names and numbersgovernment or court recorded

documentscopy of will leases and deeds


THANK YOU!THANK YOU!Please turn in your evaluation form!Please turn in your evaluation form!

Maryland Cooperative Extension Programs are open to all citizens without regard to race, color, gender, disability, religion, age or national origin.

Documents

Educating People to Help Themselves Money 101: Getting Started Julie D. Judy Extension Educator Family & Consumer Sciences Montgomery County Office UNIV