Personal Financial Management for Teens

Personal Financial Management for TeensM.A. Goldberg, February 2013

Presented by

Michael A. Goldberg, BComm, BEdRichview Branch, TPL, February 2013

Personal Financial Management for

Teens


Agenda

A) Budgeting - managing your • Income• Savings• Expenses and budgets more effectively

B) Percentage & Interest Calculation C) Saving & InvestingD) Debt & Credit CardsE) Selecting & Opening a Bank

Account


“FLingo!”


A) Budgeting

1. Income2. Expenses3. Creating a

Budget


1. Income & its Sources

What is Income?– Basically, its Money you Earn or simply receive– Write down all of your sources of income!

Income Sources:– Job– Parents! (eg. Allowance, gifts)– Government – Investments– Others?


2. Expenses

What are Expenses?– Things you pay for, that have little value

once purchased– Write down all of your expenses

Examples of Expenses:– Clothing – Entertainment (eg. movies, video games,

music)– Transportation– Food – Haircut– Rent


3. Creating a Budget

What’s a Budget?– A plan for saving and spending (calculated

monthly, yearly or for a special event)

What are the steps involved in creating a budget?

– Calculate all income– Calculate all expenses– Find the difference between Income &

Expenses to determine if you have a • Budget surplus (positive result) • Budget deficit (negative result)• Balanced Budget


Budgeting

Budget Surplus/ = Income – Expenses Deficit


Budgeting

What’s next?• Figure out where you can reduce

expenses/increase surplus• Do something with the surplus!• What would happen if the end

result was a budget deficit?


Expenses

How do you control Expenses?– Make sure you really need the purchase– Comparison shop

• Don’t just go into a store and buy something – do some research and ask yourself “Is this the best price?”

– Ask “Can you do any better on the price?”• This sometimes gets you a better deal • What’s the worst that can happen? They say “No!”

– Avoid going into debt because of the purchase• Ask yourself “Can I afford this?”

– Find cheaper ways to play • eg. Rent movies instead of buying (or borrow from

the library)– Coupons!


Budgeting Tips

• Keep receipts when making purchases (to get accurate calculations)

• Keep it up-to-date – things change over time• Always look for places where you can spend

less• If you’re comfortable with computers, use a

spreadsheet, or other pre-set budget maker.• Use a Budgeting App!• Keep it realistic! Sometimes things don’t go

as planned, so don’t be too critical.


Budget Tips – Cut Spending!

• The Latte Factor! Avoid getting into the habit of buying expensive coffees/drinks EVERYDAY!!! (This could save you about $1000/year!)

• Bag your lunch instead of buying it• Think of the yearly (annual) expense


B) What does Percent mean?

Per Centout of/

divided by100

%


C) Saving & Investing


Saving

Why Save for the Future?– Rainy Day– To meet certain Goals– Emergency– Retirement


Saving – The 10% Solution

How much should I save?– According to David Chilton, author

of The Wealthy Barber, you should save 10-percent of all the money you receive (income)


With saving, the most important step is to

get started.

Investing Video

http://www.inspirefinanciallearning.ca/index.php/tools-videos/videos/funny-money-building-long-term-wealth/


Investing

Definition?It’s an item of value that you buy to get income or to grow in value.


Investing

Types of Investments– GICs (Guaranteed Investment Certificates)– Savings Bonds– Stocks– Mutual Funds– ETFs (Exchange Traded Funds)– Real Estate– Others?


Investing

Five Basic Steps of Investing1. Set Goals2. Determine what kind of investor you

are (how much risk can you handle)3. Pick a mix of investments (asset

mix)4. Choose investments5. Keep track of your investments


Investing - The Miracle of Compound Interest

• Compounding is simply making interest on interest.

Year Principal

Interest

Total

1 $100.00

$10.00 $110.00

2 $110.00

$11.00 $121.00

3 $121.00

$12.10 $132.10

4 $132.10

$13.21 $145.31


Investing - Rate of Return Calculation

(New-Old) Old

For example, if you have a $100 investment that has turned into $110 after a year, the rate of return is calculated like this:

($110-$100) 100

=10/100 x 100%= .1 x 100%= 10%

X 100%

X 100%


Investing – Rule of 72

This is a simple calculation used to determine how many years it will take your money to double.

Example:Your investment earns 8% interest per year. How long will it take to double? Answer: It will take 9 years for your investment to double.

72

Interest Rate

72

8


Investing

Tax Shelters• TFSA (Tax-Free Savings Account)• RRSP (Registered Retirement

Savings Plan)• RESP (Registered Educational

Savings Plan)• RDSP (Registered Disability Savings

Plan)


D) Debts & Credit Cards

1. Why do People Borrow Money?2. Why you should Avoid Borrowing

Money3. Credit Rating4. Types of Debt5. Credit Cards

Credit Card Video

http://www.getsmarteraboutmoney.ca/en/managing-your-money/planning/managing-debt/Pages/video-get-it-on-credit.aspx?group=Funny%20Money&page=1

http://www.getsmarteraboutmoney.ca/en/managing-your-money/planning/managing-debt/Pages/video-get-it-on-credit.aspx?group=Funny%20Money&page=1


1. Why do People Borrow Money?

• Large purchases they couldn’t otherwise afford, like…

• House• Car• Education (after high school)• Start a business• Emergency• Pay off another debt, but at a lower

interest rate


2. Why you should avoid borrowing money

• It can become a habit• You have to pay interest (takes

money away from other things you need)

• If misused, it could damage your credit rating


3. Credit Rating

• Your ability to repay what you borrow, is scored

• Your credit rating will have an effect on how much, or at what rate, you may borrow in the future

• If your credit rating’s bad, you may not be able to borrow at all

• Once you start borrowing, you should check your credit rating every year (sometimes mistakes are made)


4. Types of Debt

• Credit Cards• Overdraft Protection (let’s your

chequing account go negative without bouncing checks – a big money maker for banks!)

• Loan• Mortgage (used to finance house)• Lease (like a long term rental)


5. Credit Cards

Credit Cards– Let you pay for things without money

(for now!)– Most are issued by banks

(Visa/Mastercard)Charge Cards

– Issued by particular stores– Avoid these, as their use is limited to

the one store– Charge higher interest rates than

regular credit cards


Credit Card Tips– Pay credit cards off every month – once

you carry a balance, you get charged interest (and it’s expensive debt)

– Ask the bank for a better/lower interest rate– Avoid cards with annual fees– Look for rewards associated with the card

(travel points, groceries, cash bonuses, etc.)– Shop around – lots of banks will eventually

offer you a credit card – find the lowest interest rate

– Only own ONE credit card


APR

– Annual Percentage Rate• The interest rate you’ll pay, which is quoted

on an annual basis– Must be quoted/stated when you sign-

up for credit– Always try to figure out “What will this

cost me per year?”

18%???


E) Selecting & Opening a Bank Account

1. Types2. Savings3. Chequing4. Which one’s for Me?


Types of Bank Accounts

Savings vs. Chequing


Opening a Bank AccountSavings Account

Advantages of savings accounts:• Good for emergencies• Good if you’re not comfortable with investing• Convenient – can use a debit card for deposits

(putting-in) or withdrawals (taking-out)• No risk of losing your money

• Deposits in Canada are protected by the CIDC (Canadian Deposit Insurance Corporation)• Insures up to $100,000/institution

Image Source: (http://www.cdic.ca/Protecting_Your_Deposits.html, October 23, 2010)


Opening a Bank AccountChequing Account

Similar to Savings accounts?• Chequing accounts are a safe - covered by the

CDIC

Differences?– Used for different reasons (bill payments, etc.)– Pays less interest – Can cost more in fees

• Cheques• Transaction charges• Service charges• Minimum balance charges• NSF (non-sufficient funds) charges


Which One’s for Me?

Depends on the purpose of having an account

– Save money?– Pay bills?– Internet banking/access? – Debit card needed?

– Whatever you use the bank for, make sure you minimize any charges!!!


FCAC’s Bank Selector Tool

http://www.fcac-acfc.gc.ca/eng/resources/toolCalculator/banking/bankingPackage/BanStep1-eng.asp


Who can get an account/what’s needed?

• Anyone can have an account• If you’re under 18, you need a

parent/guardian to help you sign-up• When you get your account, you will

need to provide identification


High Interest Savings Accounts

• This should be considered• Lately, some high interest savings

accounts are paying 2% interest/year• Examples – President’s Choice

Financial, ING Direct, ICICI, Ally


FLingo Revisited & Feedback!


ResourcesCanada Deposit Insurance Corporation. <http://www.cdic.ca>Chilton, David. The Wealthy Barber. Stoddart: Toronto, 1989.Financial Consumer Agency of Canada. <http://www.fcac-

acfc.gc.ca/>Investor Education Fund.

<http://www.getsmarteraboutmoney.ca>Vaz-Oxlade, Gail. Debt Free Forever. Collins: Toronto, 2009.Vaz-Oxlade, Gail.

<gailvazoxlade.com/resources/interactive_budget_worksheet.html> (The site includes a link to an Excel/spreadsheet version! Check out the rest of her site.)

http://www.getsmarteraboutmoney.ca/education-programs/Documents/2008_fm_10_creditreport.pdf (Additional information on Credit Reports)