TEEN MONEY MANAGEMENTPresented by Glendale Public LibraryInstructor: Annette Fisher

WHAT WE LEARNED YESTERDAY Auto Purchase and Insurance Planning for college Housing

LET’S REVIEW What are the steps when purchasing a car? What should you consider when planning for

college? Where can you easily find a place to live?

WHAT WE WILL LEARN TODAY: Credit Identity Theft Investing

GOALS FOR THIS SESSION

To review investing prerequisites

To learn key investing concepts

To discuss strategies for finding money to invest

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BASIC BUILDING BLOCKS OF SUCCESSFUL FINANCIAL

MANAGEMENT

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CASH MANAGEMENT Live by spending plan Financial record keeping Maximize the amount of interest earned Complete annual financial checkup,

including net worth and cash flow Review and revise periodically

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EMERGENCY CASH RESERVE Money for unexpected

expenses

3 to 6 months living expenses

Amount depends on situation

Money can be sub-divided 8

RISK MANAGEMENT Protect against catastrophic financial losses

Purchase comprehensive insurance coverage if needed

Evaluate current policies and be a smart consumer

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TAX MANAGEMENT Pay only what you owe

Use tax laws to your financial advantage

As tax laws change, adjust financial strategies

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$MART FINANCIAL GOALS $ SPECIFIC M MEASURABLE, MUTUAL A ATTAINABLE R RELEVANT, REALISTIC T TIME-LINE, TRADE-OFFS

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CREDIT MANAGEMENT Avoid overuse of credit

Lower the total amount of debt

Shorten the term of debt

Reduce interest and finance charges

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HOME OWNERSHIP Think of buying a home as purchasing shelter

Not as an investment that will rapidly appreciate

Home equity is an asset

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INVESTMENTS

Begin investing after a firm foundation is laid

Develop investing strategies to accomplish specific financial goals

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CHILDREN’S EDUCATION Start early Make an estimate of the cost Develop a plan for accomplishing goal Consider tax implications Explore other ways to pay for education

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RETIREMENT PLANNING

AGAIN -

Start earlyMake an estimate retirement

needsDevelop plan for accomplishing

goalConsider tax implications 16

ESTATE PLANNING The prize for successfully managing finances

throughout your lifetime is the opportunity to pass assets on to loved ones or favorite causes at the end of your life

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KEY INVESTING CONCEPTS Difference between saving and investing Risk tolerance Risk versus rate of return Impact of time on money accumulation Asset allocation Personal factors that affect investing

decisions

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THE DIFFERENCE BETWEENSAVINGS AND INVESTING

Savings: Money held in a short-term cash assets Money used for emergencies and specific

purchases Investing:

Money used to increase net worth and achieve long-term financial goals

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SAVINGS $ INVESTMENT $

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Kept in safe, low-risk vehicles

Liquid

Yield low returns

Used for short-term goals

Involve risk

Value can go up and down in short time periods

Offer potential for growth

Used for mid-& long-term goals

INVESTMENT RETURN Total return

Profit (or loss) on an investment Income PLUS capital gain or loss $8.50 + $4.50 = $13 per share

Rate of return (%) Profit (or loss) on an investment

Return ÷ price of security $3 ÷ $24 = .125 or 12.5%

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COMPOUND ANNUAL RATE OF RETURN 1925-2000

Large Company Stocks…….…….11.0% Small Company Stocks…………..12.4% Government Bonds………….……..5.3% Treasury Bills……………………….3.8% Inflation………………………………3.1% Source: Ibbotson Associates

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RISK

Associated with all investments because the future value of investments is never certain.

Caused by: Inflation - Changes in economy Business failure - Interest rate changes

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RISK AND RETURN ARE RELATED

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TECHNIQUES TOOFFSET RISK:

Diversification Putting your money, “your eggs,” into several

baskets (assets)

Dollar Cost Averaging Investing regular amounts at regular intervals

regardless of price

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IMPACT OF TIME AND RATE OF RETURN ON MONEY ACCUMULATION

To grow the largest sum of money you need: Maximum time A high rate of return Tax advantages A generous pot of money Frequent compounding of interest

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ASSET ALLOCATION

The ratio of stocks, bonds and cash assets in your portfolio

Conservative Moderate Aggressive

The most important determinant of overall investment success

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C

B

SC

B

S

C

B

S

FACTORS AFFECTING ASSET ALLOCATION DECISIONS

Investment goals and return needs Risk tolerance Time horizon Time & skill to manage portfolio Tax situation

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INVESTING ACTION YOU CAN TAKE TODAY

Review your financial holdings and obligations. Calculate your net worth.

Read investment pubs Sign up for financial classes Set short and long-term financial goals. Seek assistance if you are short on time or

skill

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FINDING MONEY TO INVEST70% of Americans live “paycheck to

paycheck”

Americans are not saving much money

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REVIEW YOUR FINANCIAL STATUSDo you have 3-6 months income in an emergency fund?

Do you save regularly?Do you know how much you need to save to reach your goals?

Do you save to buy major items instead of using credit? 31

REVIEW YOUR FINANCIAL STATUSWhen you use credit, do you pay as large a down payment as possible?

Do you save at least 10% of your disposable income?

Do you know how much you need to save for retirement? 32

STRATEGIES FOR SAVING MONEY TO INVEST

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Establish savings plan

Needs vs wants Pay yourself first Save bonus/coupon

money Continue loan

repayments

Collect loose change Save lunch money Shop for sale prices Plan a “Nothing

Week” Avoid paying credit

charges

BREAKING HABITS = $$ TO INVEST 6 EASY STEPS

1. Identify habit, frequency, and cost 2. Make decision to change 3. Act immediately 4. Share your plan 5. Stick with your plan to change 6. Celebrate your success

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STEP 1IDENTIFY HABITS, FREQUENCY, & COST

Think of habits you might be able to adjust (hair care, soft drinks, cigarettes, …

Frequency of habit

Calculate total cost for a year

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Where’s the Money?

STEP 2MAKE A DECISION TO CHANGE Look for alternative

ways to spend your money

Take control of your money

Choose another way to spend your money

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STEP 3ACT IMMEDIATELY

Write down new behavior

Start within 24 hours

The sooner you begin a new behavior, the sooner it will become a habit

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START

TODAY

STEP 4SHARE YOUR PLAN Tell others about

your plan Provides

opportunity for support

Increases your determination to succeed

Family must work together 38

STEP 5STICK WITH YOUR PLAN

This is a critical step

Stay focused Takes 30 days for a

new behavior to become a habit

Will serve you well Set an example for

your children 39

STEP 6CELEBRATE YOUR SUCCESS

Let others know of your success

Enjoy the fruits of your savings

Continue with your new behaviors

Watch pennies grow into dollars

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OTHER STRATEGIESBe a

comparison shopper

Investigate untapped strategies

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MORE STRATEGIES TO STRETCH YOUR MONEY...

Adopt the two-week rule

Avoid unnecessary waste

Become a coupon clipper

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NEXT : CHARACTERISTICS OF SPECIFIC INVESTMENT PRODUCTS

Equity Investments (e.g., stock) Fixed-Income Investments (e.g., bonds) Mutual Funds

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EQUITY INVESTING

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CATEGORIES OF INVESTMENTS

Ownership

Loanership

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RISK PYRAMID

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FEES Cost of purchase and sale may include

brokerage fees

Comparison shop

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INVESTING STRATEGIESDollar-Cost Averaging

Buy and Hold

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REAL ESTATE OPTIONS Home Rental property Crop/mineral land Land for development Real Estate Investment Trust (REIT) Real estate limited partnership

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COLLECTIBLES

Stamps Coins Art Cars Autographs Toys Books Cards

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OWNING A BUSINESS

Many options

Know the risks

Plan carefully

Get help51

COMMODITIES Very high risk Be sure you can afford to lose Weigh costs of buying, selling, owning Know a lot about the commodity Know about the markets where it is created,

and sold Be aware of pertinent factors

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