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First Presbyterian Church CollegeCARE Ministries presents Smart Personal Finance Workshop. By Dave Berkow & Kevin Kelley. Banking. The Role of Banks. Banks are in business to earn a profit! HOW???? Interest, Fees, Financial Advice Banks provide security! HOW???? - PowerPoint PPT Presentation
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First Presbyterian ChurchCollegeCARE Ministries
presents
Smart Personal Finance Workshop
By Dave Berkow
& Kevin Kelley
The Role of Banks• Banks are in business to earn a profit!
– HOW????– Interest, Fees, Financial Advice
• Banks provide security!– HOW????– FDIC (Federal Deposit Insurance Corporation)
• Insures deposits up to $250,000
• Banks make mistakes– Balance your accounts
Types of Money• Advantages of Using Checks
– Safety• Valuable only to payee• Legal proof of payment• If lose checkbook, money is safe
– Convenience– Help keep financial records– You can send via mail– Online account access
Your Checking Account
• What do you need to Opening a Checking Account?– Be 18 years old or older– Signature card (record of signature)– Valid identification– Initial deposit (some banks will give you money
to open an account)
• Account signatures• Add your parents
Parts of a Check
2-7135/2710
Check Number
Check NumberBank RoutingNumber
Account Number
ABA Number
Andrea Davis9800 N Lawler AveSkokie, IL 60077
Your Checking Account (How Checks Work…)
• Always write in pen!!!• Show your driver’s license• Can NOT ask for your SS#
• Store deposits in their bank, bank transfers checks to your bank for payment.
• If your account has enough $, it is paid and canceled.– If not enough $$ - NSF check + FEE
Non Sufficient Funds
Your Checking Account• After writing a check, you need to record in the
check register• You can keep track on your smartphone using a
spreadsheet program• Also record & deduct debit card transactions
Checkno.
Date Description of transaction
SubtractionsPayment, fee, or withdrawal
T AdditionsDeposit or
interest
BALANCE
• WARNING: The speed of deducting $$ from your checking account will increase. Be certain you have enough money before you write the check.
Endorsements• Instructions and permission to
the bank about what to do with the check:– Cash it– Put it in your account– Put some in your account and
take some in cash– Pass it along to someone else
Blank Endorsement
• Use when you are in the building where you will cash or deposit the check
• Anyone holding the check can cash or deposit it
• Write your account number under your signature
Endorse Here
Andrea Davis
Restrictive Endorsement
– Used when depositing the check into an account
– Safest type
– Can be used when sending checks through the mail, putting them in a night depository, or having someone else take them to the bank
– Write your account number under your signature
Endorse Here
For deposit onlyAndrea Davis
Your Checking Account
• Checking Account Types– Interest-Bearing Account– Non interest-Bearing Account
• Checking Account Fees– Maintenance Fee
• Flat fee – Service Fee
• For every check you write
Electronic Banking
• Automated Teller Machines• Electronic Funds Transfer – move
money from 1 account to another by computer
• Use of Electronic Funds– Direct Deposit– Debit Cards– Automatic Bill Payment
• Pay by Phone• Automatic Withdrawals
– Online Banking
Reconciliation Form• Statement Column
– Balance from bank statement
– (+)Deposits not on statement
– (=)Total statement balance and deposits
– Checks not on statement (Outstanding Check)
– (=)Total checks– Statement balance
• Checking Column– Balance from checkbook
register– (+)Deposits not in
checkbook– (=)Total Checkbook
balance and deposits– Fees not in checkbook– (=)Total fees – Checkbook balance
Savings Accounts
• Earn greater interest than checking• May have withdrawal restrictions• Use for funds not immediately required
Debit Cards
• Used like a check to access funds in your checking account
• Can also be linked to a savings account• Potential pitfalls
– liability
Students & Credit Cards A good way to establish a credit rating, but be
careful . . . Some recent statistics
84% of students (18-25) have credit cards (up from 73% in 2004)
50% of students have four credit cards or more Only 65% of students pay their bill on time and in full. The average undergrad has $3,173 in credit card debt Nearly 20% owe $7,000 or more Seniors graduate with an average credit card debt of
more than $4,100 In 2002 more than 100,000 people under the age of 25
filled for bankruptcySource: http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php#topofpage
Students & Credit Cards
Only 2% of undergrads had NO credit historyOnly 38% have obtained a copy of their credit
report and 36% have checked their credit report in the past 12 months
What is the average rate for a credit card?
14.67%What is the average
default rate for a credit card?28.6%
What is the average late fee on credit cards?
$28.19How much in credit card How much in credit card
penalty fees will penalty fees will American's pay?American's pay?
$20.5 billion
What is the Average Household Credit Card
Debt?$15,799
What is the Total U.S. What is the Total U.S. Consumer Debt?Consumer Debt?
$2.45 Trillion$2.45 Trillion
What is the total Bankruptcy filing in 2009?
1.4 million AmericansWhat is the Total U.S. credit What is the Total U.S. credit
card 30-day delinquency card 30-day delinquency rate?rate?33%33%
How many credit card offers do the credit
card companies send out to the American
Family?6 billion
(average of 6 per household per month)
True or False?
You can easily get credit if you have never borrowed before and have not had any credit problems.
FALSE You can help yourself to obtain larger amounts of
financing if you use small amounts of credit first and repay them as agreed.
TRUE
True or False?
Interest rates can vary greatly from lender to lender.
TRUE Applying for as many credit cards as possible
will improve your credit rating. (ex. AE credit card, Best Buy credit card)
FALSE
• And what if you use your credit card to buy the television and you make monthly payments of $300?
• Assume you never miss a payment and the annual percentage rate on your card is 8%.
• Now, instead of an 8% rate, assume that, because your credit rating is poor, you must pay interest at a rate of 24%.
• Also assume that you pay the MINIMUM MONTHLY PAYMENT of only $50 per month.
How long will it take you to pay for the television?
How much will you end up paying for the television?
Your choices:• pay $2,000
cash
• pay $2,052 over seven months
• pay $4,062 over seven years
More About Balances
Read the credit card agreement
• What is meaning of the following provision: “Your APRs may increase if . . . you fail to make payment to another creditor when due . . . .”?
• What’s this provision called?
– “Universal default clause”
• Credit CARD Act of 2009 cut back on – but did not completely ban -- these provisions.– Card issuers cannot raise rates on existing balances
based on a universal default clause
– But they can raise rates immediately on new charges for any reason or no reason at all (as long as the credit card agreement gives them this right)
– They can even raise rates on existing balances if you are 60 days late on your payments
Credit card companies are constantly searching for the next
“unbanked population”• What does this term mean?
– Industry term for potential credit card customer groups that have not previously had access to credit cards.
• What was the key unbanked population that credit card issuers discovered in the 1990s?
YOU!!College-bound students became a lucrative new market starting in the 1990s*
Recent Developments
Regular Charge Accounts(aka: Charge Account)
Must pay entire amount each month Often within 25-30 days after billing date.
No stated interest rate…Do not pay interest Must come in grip with credit problems every
month
Examples:
Revolving Charge Accounts Carry a balance from one month to the next. Minimum payment due or more APR is the annual percentage rate of interest the is
charged for credit. The maximum rate that may be charged is
controlled by state law.
Buy when the time is right…and pay when the time is right.
Examples:
To Summarize on Card Shopping*
• How do you figure out the right card for you? Shop by– APR
– Introductory rate (don’t be seduced)
– By affinity
– By annual fee (don’t pay one)
– By other fees
Your credit history
• Begins now—when you choose and use credit cards
• Includes your missteps for as long as 7 years
Your credit history makes up your credit score
• Timely payments (35%)• Total debt (30%)• Length of history (15%)• New credit (10%)• Kinds of other debt (10%)
Credit scores are given as numbers between 300 and 850. Higher is better.
• Your credit score can influence the interest rate you will be charged on– Credit cards, car loans, student loans, mortgages
• Your credit score can also influence whether you can even get– A credit card, car loan, student loan, mortgage– Life insurance– Employment– Lease
The single most important component of your credit score is whether you make
payments on time
• Your parents can make a payment for you.• Your parents cannot make a late payment not late.
• A late payment stays on your credit history and impacts your credit score for as long as 7 years.
Don’t exceed your credit limit (avoid the over-the-limit fee)
• Know what your unpaid balance is before you charge more
• Know what amount will be put through to your credit card account (what is “blocking”?)
• Know what you may need to charge before you can make your next payment (budget)
• Know what you are statistically like to need to charge… (realistic budget)
If you pay the bill in full and on time,
• There will be no unpaid balance• So, no interest• So, no fees
If you pay at least the minimum payment (but not the full unpaid balance),
• There will be no fee,• But interest will run on the unpaid balance• AND ON ANY NEW PURCHASES YOU MAKE
FROM THE TIME OF THE PURCHASE
If either you do not pay at all or if you pay something (even the full amount) LATE,
• There will be a late payment fee• Interest will run on the unpaid balance• AND ON ANY NEW PURCHASES YOU MAKE
FROM THE TIME OF PURCHASE
Your bank, other credit cards, other financial relationships are intertwined.• This can be good. You can pay bills online
from your bank account so you won’t have to worry about mail being received late.
• Mostly this can be bad. If you make any payment to any creditor late, your credit card company are likely to increase your interest rate.
So, how are you doing? What is your credit history? What is your credit score?
• Three companies track credit historyEquifax, Experian, TransUnion
• You can get a free credit report from each of the three once a year
• You cannot get a free credit score
There is only one source for the free credit report to which you are legally entitled under federal law.
www.annualcreditreport.com
• Other source that advertise free credit reports require you to pay for something else such as your credit score, monitoring in order to get the “free” credit report.
Useful links
• www.ftc.gov (Federal Trade Commission)– Select Credit & Loans under “Quick Finder”
• www.controlyourcredit.gov (US Treasury)
• www.ace.uiuc.edu/cfe/ccs/– (University of Illinois Extension)
Your Credit Score Matters
• Ms. Good Credit and Ms. Bad Credit both graduated from the same college, both work downtown at the same business and both are purchasing identical one bedroom condos in the same building in the Lincoln Park area.
• Both are going to take out a 30 year mortgage for $300,000.
• Ms. Good Credit has a credit score of 770.• Ms. Bad Credit missed a few payments while in
college and has a credit score of 570.
Your Credit Score Matters
• Due to her 770 FICO score Ms. Good Credit qualifies for a mortgage at 6.148%.
• Due to her 570 FICO score Ms. Bad Credit qualifies for a mortgage at 9.993%.
• How much less will Ms. Good Credit pay a month (and over the life of the loan)?
Your Credit Score Matters
• Ms. Good Credit’s monthly payments are $804 less.
• Ms. Good Credit saves $9,648 a year or $289,440 over the life of the loan.
• YOUR CREDIT SCORE MATTERS
FICO Score
Interest Rate
Monthly Payment
720-850 6.148% $1,827
690-719 6.373% $1,871
660-689 6.661% $1,928
620-659 7.482% $2,094
590-619 9.406% $2,502
500-589 9.993% $2,631
Interest rates as of 11/04/08 – information from FICO.com
TRUE• A prospective
employer can review your credit report if you give written authorization. More employers are asking to see credit reports.
How do you build a good credit history?
• According to Fair Isaacs Corp., the 5 biggest factors helping credit are:
1. Good payment history
2. Carry low or no balance relative to the card limit
3. Lengthy credit history
4. Inquiries from creditors who grant credit
5. Diverse types of credit
What would happen to typical student’s credit score if…
Score DROPS 590 - 640
Missed one payment within past 3 months
Missed one payment within past 3 – 6 months
Score DROPS 595 - 645
Original score was 675 to 725
To Maximize Your Score… Don’t procrastinate – pay all your bills on time
Avoid owing more than 30% of your available revolving credit
“Less is more” – keep your revolving debt as low as possible
“Older is better” – older accounts score more favorably
Minimize the opening of new revolving accounts
Types of Consumer Borrowing
TRUE or FALSE There are 2 different types of consumer
spending Unsecured loan (Open-End Credit) Secured loan (Closed-End Credit)
Section 3
Credit card protections Unauthorized charges
If you report your card lost before it is used, you cannot be held responsible for any unauthorized charges
If you card is used before you report it lost, you are liable for $0 if reported within 2 business days. After that, you are liable for no more than $50.00
Disputes about merchandise In some circumstances, you have the right to withhold
payment for unsatisfactory merchandise or services.
Consumer Credit Responsibilities
Credit is a privilege, not a right! Accept responsibility Know your debt capacity Self-Control with Credit
• Pay more than the minimum • Avoid too many credit cards• Pay with cash• Keep accurate records
Credit Card Don’ts
Don’t get a card with a high limit Don’t get more than 1 card Don’t use them for cash advances Don’t charge more than you can pay off in a
month Don’t let banks increase your credit limit
Source: USA Funds Life Skills -Module 1
Credit Card Do’s
Limit the number of cards you have Use a debit card vs. a credit card Use a card that has no annual fee and lower
interest rates Know all of your card’s hidden fees Always pay more than the minimum amount
each month Pay on time, all the time.
TIP ONE: STUDENT LOANS
• College costs• Sources• Grants and scholarships• Student loan features• Loan costs v. college quality
78
Soaring Annual Costs
79
$0 $10,000 $20,000 $30,000 $40,000
Pub tuition
Priv costs
Average cost
Priv costs
2001
2011
$37,000
$21,889
$27,000
$7,600
TIP ONE: STUDENT LOANS
• College costs• Sources• Grants and scholarships• Student loan features• Loan costs v. college quality
82
Sources for college financing
84
33%
30%
15%
11%
7%4%
Sources
Grants & Scholarships
Parent Income & Savings
Loans to Students
Student Income & Savings
Loans to Parents
Friends & Relatives
TIP ONE: STUDENT LOANS
• College costs• Sources• Grants and scholarships• Student loan features• Loan costs v. college quality
85
Scholarships
• Apply early• Need based and merit-based scholarships• Scholarship Sources
– Ask your school’s college counselor– fastweb.com– collegeanswer.com– collegeboard.com
88
TIP ONE: STUDENT LOANS
• College costs• Sources• Grants and scholarships• Student loan features• Loan costs v. college quality
92
Fixed interest rates
3.4%5%
6.8%7.9%
0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%
Stafford subsidized
Perkins Stafford unsubsidized
PLUS
Interest rate
Interest rate
99
Other private loan features
• Immediate payment• Negotiated deal• No right to postpone or extend payments• Fees
103
TIP ONE: STUDENT LOANS
• College costs• Sources• Grants and scholarships• Student loan features• Loan costs v. college quality
106
Summarize
• Figure out how much in student loans you need
• Work college aid officers• Fed loans first, private loans last• Is your school “cost efficient”?• Loan debt versus first year salary
109
Earnings Statements & Tax Forms
• Must file income return annually• Most students can use Form 1040-EZ• Gather your documents
– W-2s– Pay stubs– Interest earned Form 1099