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Who Earns More Money

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					                   Personal
                   Finance


               James B. Wilcox
                    RESOURCES PROVIDED BY:

              THE UNIVERSITY OF SOUTHERN MISSISSIPPI
     CENTER FOR ECONOMIC AND ENTREPRENEURSHIP EDUCATION,
          MISSISSIPPI STATE UNIVERSITY, VIRTUAL ECONOMICS,
NATIONAL COUNCIL ON ECONOMIC EDUCATION, THE MOODY’S FOUNDATION
Who Earns More Money?
Who Earns More? Round 1
• Bartender    • Taxi Driver
  (Nevada)      (New York)
      Bartender or Taxi Driver?
A. Bartender
B. Taxi Driver
     Who Earns More?
• Bartender     • Taxi Driver
  (Nevada)       (New York)
   $20,430        $26,800
                                  Job Duties
Bartender:                                Taxi Driver:
Mixes and serves alcoholic and            Drives taxicab to transport passengers for
nonalcoholic drinks to patrons of bar,    fee: Picks up passengers in response to
following standard recipes: Mixes         radio or telephone relayed request for
ingredients, such as liquor, soda,        service. Collects fee recorded on taximeter
water, sugar, and bitters, to prepare     based on mileage or time factor and
cocktails and other drinks. Serves        records transaction on log. Reports by
wine and draught or bottled beer.         radio or telephone to TAXICAB STARTER
Collects money for drinks served.         on completion of trip. May drive limousine
Orders or requisitions liquors and        or custom-built sedan to pick up and
supplies. Arranges bottles and            discharge airport passengers arriving or
glasses to make attractive display.       leaving on scheduled flights and be
May slice and pit fruit for garnishing    Designated Chauffeur, Airport Limousine.
drinks. May prepare appetizers, such
as pickles, cheese, and cold meats. May
tend service bar and be designated
Service Bartender.
              Job Requirements
Bartender                   Taxi Driver
-Bartending school          -Regular automobile
  -32 hours of training       driver’s license
-Many states require        -May need a taxi driver
  bartenders to be            license, aka “hack”
  certified in Serve Safe     license
  Alcohol program.          -May require 80 hours of
-May require other            classroom instruction
  certification.
Who Earns More? Round 2
  • Miner         • Taxi Driver
(West Virginia)    (New York)
                    $26,800
         Miner or Taxi Driver?
A. Miner
B. Taxi Driver
       Who Earns More?
  • Miner         • Taxi Driver
(West Virginia)    (New York)
  $30,680           $26,800
                         Miner Job Duties
Mines ore, coal, or rock in underground mine, performing any combination of
following tasks in areas where high production equipment is limited by
economic factors or natural formations: Cuts channel under working face to
facilitate blasting, using pick, or by operating cutting machine. Operates
mounted or unmounted power drill to bore blasting holes in working face.
Charges and shoots (sets off) explosives or air charges to blast down
materials. Shovels shattered materials into mine cars or onto conveyor. Installs
timbering, roof bolts, or cribs, to support walls and roof. Lays track to
accommodate mine cars or track-mounted equipment. May mine rock in coal
mine at contract price per ton or footage of advance and be designated Rock Contractor
(mine & quarry). May mine ore, coal, or rock, using pick and shovel, and be designated
Miner, Pick (mine & quarry). When digging passageways between rooms, may be
designated Entry Miner (mine & quarry). May do development work, such as opening up
new passageways, air vents, auxiliary tunnels, rooms, and shafts to facilitate mining, and
be designated Drift Miner (mine & quarry); Raise Miner (mine & quarry); Shaft Sinker
(mine & quarry); Stope Miner (mine & quarry); Tunnel Miner (mine & quarry).
Who Earns More? Round 3
  • Miner         • Police Officer
(West Virginia)    (New Mexico)
  $30,680
       Miner or Police Officer?
A. Miner
B. Police Officer
       Who Earns More?
  • Miner         • Police Officer
(West Virginia)    (New Mexico)
  $30,680            $36,120
                     Police Officer Duties
Patrols assigned beat on foot, on motorcycle, in patrol car, or on horseback to control
traffic, prevent crime or disturbance of peace, and arrest violators: Familiarizes self with
beat and with persons living in area. Notes suspicious persons and establishments and
reports to superior officer. Reports hazards. Disperses unruly crowds at public
gatherings. Renders first aid at accidents, and investigates causes and results of
accident. Directs and reroutes traffic around fire or other disruption. Inspects public
establishments requiring licenses to ensure compliance with rules and regulations. Warns
or arrests persons violating animal ordinances. Issues tickets to traffic violators. Registers
at police call boxes at specified interval or time. Writes and files daily activity report with
superior officer. May drive patrol wagon or police ambulance. May notify public works
department of location of abandoned vehicles to tow away. May accompany parking
meter personnel to protect money collected. May be designated according to assigned
duty as Airport Safety And Security Officer; Dance-Hall Inspector Traffic Police Officer; or
according to equipment used as Ambulance Driver; Motorcycle Police Officer; Mounted
Police Officer. May be designated: Emergency-Detail Driver; Patrol Driver; Pool-Hall Inspector;
     Radio Police Officer; Show Inspector.
    Police Officer Job Requirements
Must be able to pass a pre-employment physical and drug screen.
Must be a US Citizen.
Must have a valid New Mexico driver’s license or be able to obtain one.

Must be able to pass a pre-employment physical and drug screen.Education: High
   School Diploma or G.E.D. equivalent.
Experience:Prior Law Enforcement preferred (Up to one or more years of experience).
Knowledge:Requires work level knowledge, skills, and abilities related to a broad range
   of either complex or technical functions or apprentice level knowledge of a single
   function area or work specialization.
Certificates/Licenses:Must complete the State Accredited Basic Academy within first
   year.
Recertification:Will certify under Certified Officer when recertification requirements
   are needed.
Use of Tools/Equipment:Vehicle, baton, chemical sprays, handgun, shotgun, radar,
   computers, radio, handcuffs, breathalyzer, first aid equipment, telephone, tasers
   and AED machines.
   Who Earns More? Round 4
• Truck Driver – OTR   • Police Officer
     (Indiana)          (New Mexico)
                          $36,120
   Truck Driver or Police Officer?
A. Truck Driver
B. Police Officer
          Who Earns More?
• Truck Driver – OTR   • Police Officer
     (Indiana)          (New Mexico)
      $36,940             $36,120
              Truck Driver Job Duties
Drives truck with capacity of more than 3 tons, to transport materials to
and from specified destinations: Drives truck to destination, applying
knowledge of commercial driving regulations and area roads. Prepares
receipts for load picked up. Collects payment for goods delivered and
for delivery charges. May maintain truck log, according to state and
federal regulations. May maintain telephone or radio contact with
supervisor to receive delivery instructions. May load and unload truck.
May inspect truck equipment and supplies, such as tires, lights, brakes,
gas, oil, and water. May perform emergency roadside repairs,
such as changing tires, installing light bulbs, tire chains, and spark
plugs. May position blocks and tie rope around items to secure cargo
during transit.
   Truck Driver Job Requirements
-Commercial Driver’s license (CDL) (Federal Law)
-U.S. DOT regulations: 21 years old, pass physical once
  a year, at least 20/40 eyesight (with glasses), good
  hearing, cannot be colorblind, have epilepsy, have
  diabetes, or high blood pressure, cannot take
  controlled substances, no felony charges, DUIs, and
  speak and read English well enough to read road
  signs
Who Earns More? Round 5
• Truck Driver   • Electrical Repairer
  (Indiana)            (Kansas)
   $36,940
  Truck Driver or Electrical Repairer?
A. Truck Driver
B. Electrical Repairer
       Electrical Repairer Job Duties
Installs and repairs electrical systems, apparatus, and electrical and
electronic components of industrial machinery and equipment, following
electrical code, manuals, schematic diagrams, blueprints, and other
specifications, using handtools, power tools, and electrical and
electronic test equipment: Installs power supply wiring and conduit for
newly installed machines and equipment, such as robots, conveyors,
and programmable controllers, following electrical code and blueprints,
using handtools and voltage tester. Connects power supply wires to
machines and equipment, and connects cables and wires between
machines and equipment, following manuals, schematic diagrams, and
blueprints, using handtools and test equipment. Diagnoses malfunctioning
apparatus, such as transformers, motors, and lighting fixtures, using test
equipment, and replaces damaged or broken wires and cables, using
handtools. Tests malfunctioning machinery, using test equipment, and
discusses malfunction with other maintenance workers,
 Electrical Repairer Job Requirements
-Knowledge of electrical equipment necessary.
-May require degree from vocational technical
  school (1 to 2 years of training).
-Good eyesight, color perception.
-May need to be certified.
       Who Earns More?
• Truck Driver   • Electrical Repairer
  (Indiana)            (Kansas)
   $36,940             $57,930
  Who Earns More? Round 6
• Funeral Director   • Electrical Repairer
    (Florida)              (Kansas)
                           $57,930
Funeral Director or Electrical Repairer?
A. Funeral Director
B. Electrical Repairer
         Who Earns More?
• Funeral Director   • Electrical Repairer
    (Florida)              (Kansas)
    $48,440                $57,930
             Funeral Home Job Duties
Undertaker. Arranges and directs funeral services: Coordinates activities of
workers to remove body to mortuary for embalming. Interviews family or other
authorized person to arrange details, such as preparation of obituary notice,
selection of urn or casket, determination of location and time of cremation or
burial, selection of pallbearers, procurement of official for religious rites, and
transportation of mourners. Plans placement of casket in parlor or chapel and
adjusts lights, fixtures, and floral displays. Directs pallbearers in placement and
removal of casket from hearse. Closes casket and leads funeral cortege to
church or burial site. Directs preparations and shipment of body for out-of-state
burial. May prepare body for interment.
 Funeral Home Director Job Requirements

-Must be licensed: 21 years old, 2 years of
  formal education including mortuary science,
  serve one year apprenticeship, pass qualifying
  exam. To embalm requires its own license.
-College programs in Mortuary Science include:
  anatomy, pathology, restorative art, business
  management, grief counseling, business law,
  and ethics
Who Earns More? Round 7
  • Faller     • Electrical Repairer
(Washington)         (Kansas)
                     $57,930
    Faller or Electrical Repairer?
A. Faller
B. Electrical Repairer
      Who Earns More?
  • Faller     • Electrical repairer
(Washington)        (Kansas)
  $64,110            $57,930
                                   Job Duties
Fells timber trees, applying knowledge of tree characteristics and cutting techniques to
Control direction of fall and minimize tree damage: Appraises tree for characteristics,such
as twists, rot, and heavy limb growth, and gauges amount and direction of lean, using ax
as plumb bob. Determines position, direction, and depth of cuts to be made and
placement of wedges or jacks. Clears brush and debris from work area and escape
route,and cuts saplings and other trees from falling path, using ax and chain saw. Scores
cutting lines with ax, saws undercut along scored lines with chain saw, and knocks slabs
from cuts with ax. Saws back-cuts, leaving sufficient sound wood to control
direction of fall. Inserts jack or drives wedges behind saw to prevent binding of saw and
start tree falling. Stops saw engine as tree tips, pulls cutting bar from cut, and runs to
predetermined location to avoid injury from falling limbs and flying debris. May work on
piecework basis and be designated Busheler (logging). May cut trees into log lengths
[BUCKER (logging)]. Fallers of small timber (generally under 18 inches in diameter) are
classified as FALLER (logging) II.
         Faller Job Requirements
-Generally, there are no educational requirements for
   forest worker jobs.
-On-the-job training from the logging company
-State logging or forestry associations provide training
   sessions for fallers, lead to certification.
-Generally advance from occupations involving
   primarily manual labor to those involving the
   operation of expensive, sometimes complicated
   logging equipment.
Who Earns More? Round 8
  • Faller     • Sales Engineer
(Washington)       (Illinois)
  $64,110
      Faller or Sales Engineer?
A. Faller
B. Sales Engineer
      Who Earns More?
  • Faller      • Sales Engineer
(Washington)        (Illinois)
  $64,110           $73,120
      Sales Engineer Job Duties
Sells electronic products and systems and
  provides technical services to clients,
  performing other duties
   Sales Engineer Job Requirements
-A bachelor’s degree in engineering is typically
  required.
-A business, chemistry, or other science degree
  may be acceptable.
-May have work experience in an engineering
  specialty.
-May need training in sales.
  Who Earns More? Round 9
• Fashion Designer   • Sales Engineer
    (New York)           (Illinois)
                         $73,120
 Fashion Designer or Sales Engineer?
A. Fashion Designer
B. Sales Engineer
         Who Earns More?
• Fashion Designer   • Sales Engineer
    (New York)           (Illinois)
     $73,390             $73,120
           Fashion Designer Job Duties
Designs men's, women's, and children's clothing and accessories: Analyzes fashion trends and
predictions, confers with sales and management executives, compares leather, fabrics, and other
apparel materials, and integrates findings with personal interests, tastes, and knowledge of design to
create new designs for clothing, shoes, handbags, and other accessories. Sketches rough and
detailed drawings of apparel and writes specifications describing factors, such as color scheme,
construction, and type of material to be used. Confers with and coordinates activities of workers who
draw and cut patterns and construct garments to fabricate sample garment. Examines sample garment
on and off model and modifies design as necessary to achieve desired effect. May draw pattern for
 sample, using sewing equipment. May arrange for showing of sample garments at sales meetings or
fashion shows. May attend fashion and fabric shows to observe new fashions and materials. May be
identified according to specific group designed for, such as men, women, or children or areas of
specialization, such as sportswear, coats, dresses, suits, lingerie, or swimwear. May design custom
garments for clients and be designated Custom Garment Designer (retail trade). May conduct
research and design authentic period, country, or social class costumes to be worn by film, television,
concert, stage, and other performers and be designated Costume Designer. May design, fabricate,
repair, and sell leather articles and be designated Leather Crafter (leather prod.).
May design, copy, or modify clothing accessories and be designated according to article designed as
Handbag Designer (leather prod.); Hat Designer (hat & cap); or Shoe Designer (boot & shoe).
  Fashion Designer Job Requirements
-2 year or 4 year degree
-knowledgeable about fabrics, textiles,
  ornamentation, fashion trends, eye for color
  and detail, sketching ability, good portfolio.
-Coursework may include: anatomy,
  mathematics, CAD, textiles, pattern making,
  sewing and tailoring and fashion history.
  Who Earns More? Round 10
• Fashion Designer   • Psychiatrist
    (New York)        (Mississippi)
     $73,390
   Fashion Designer or Psychiatrist?
A. Fashion Designer
B. Psychiatrist
         Who Earns More?
• Fashion Designer   • Psychiatrist
    (New York)        (Mississippi)
     $73,390           $136,610
           Psychiatrist Job Duties
Diagnoses and treats patients with mental, emotional, and
behavioral disorders: Organizes data concerning patient's
family, medical history, and onset of symptoms obtained
from patient, relatives, and other sources, such as nurse,
and social worker. Examines patient to determine general
physical condition, following standard medical procedures.
Orders laboratory and other special diagnostic tests and
evaluates data obtained. Determines nature and extent of
mental disorder, and formulates treatment program. Treats
or directs treatment of patient, utilizing variety of
psychotherapeutic methods and medications.
   Psychiatrist Job Requirements
-4 year undergraduate degree
-4 years of medical school
-3-8 years of internship and residency
-Must be licensed – pass exam
-May be board certified
-Course work includes: anatomy, physics,
  biology, mathematics, organic chemistry,
  pathology, pharmacology, medical ethics
  Who Earns More? Round 11
• Secretary of State   • Psychiatrist
   Hillary Clinton      (Mississippi)
                         $136,610
  Secretary of State or Psychiatrist?
A. Secretary of State
B. Psychiatrist
          Who Earns More?
• Secretary of State   • Psychiatrist
   Hillary Clinton      (Mississippi)
     $186,600            $136,610
     Secretary of State Job Duties
The Secretary of State is responsible for the
overall direction, coordination, and supervision of
U.S. foreign relations and for the interdepartmental
activities of the U.S. Government abroad. The
Secretary is the first-ranking member of the
Cabinet, is a member of the National Security
Council, and is in charge of the operations of the
Department, including the Foreign Service.
 Secretary of State Job Requirements
-Nominated by the President
-Confirmed or rejected by the United States
  Senate by a majority vote.
  Who Earns More? Round 12
• Secretary of State   • Anesthesiologist
   Hillary Clinton        (Kentucky)
     $186,600
Secretary of State or Anesthesiologist
A. Secretary of State
B. Anesthesiologist
          Who Earns More?
• Secretary of State   • Anesthesiologist
   Hillary Clinton        (Kentucky)
     $186,600              $197,000
        Anesthesiologist Job Duties
Administers anesthetics to render patients insensible to pain during
surgical, obstetrical, and other medical procedures: Examines patient to
determine degree of surgical risk, and type of anesthetic and sedation
to administer, and discusses findings with medical practitioner
concerned with case. Positions patient on operating table and
administers local, intravenous, spinal, caudal, or other anesthetic
according to prescribed medical standards. Institutes remedial
measures to counteract adverse reactions or complications. Records
type and amount of anesthetic and sedation administered and condition
of patient before, during, and after anesthesia. May instruct medical
students and other personnel in characteristics and methods of
administering various types of anesthetics, signs and symptoms of
reactions and complications, and emergency measures to employ.
  Anesthesiologist Job Requirements
-4 year undergraduate degree
-4 years of medical school
-3-8 years of internship and residency
-Must be licensed – pass exam
-May be board certified
-Course work includes: anatomy, physics,
  biology, mathematics, organic chemistry,
  pathology, pharmacology, medical ethics
                Hillary Clinton
- B.A. Wellesley College
- J.D. Yale Law School
- Professor – School of Law at the University of
  Arkansas
- Lawyer – Rose Lawfirm
- First lady of Arkansas
- First lady of the United States
- United States Senator (New York)
- Secretary of State
Who Earns More: Bonus Round
  • LeBron James       • Angelina Jolie
ProBasketball player      Actress
   LeBron James or Angelina Jolie?
A. LeBron James
B. Angelina Jolie
  Who Earns More: Bonus Round
  • LeBron James        • Angelina Jolie
Pro Basketball player       Actress
    $27,000,000           $27,000,000
                    LeBron James
High School
-Attended St. Vincent – St. Mary High School, Akron, Ohio
-”Mr. Basketball” Ohio 3 times
-USA Today All-USA First Team
-Gatorade National Boys’ Basketball Player of the year
NBA Basketball
-First overall pick in the NBA draft by the Cleveland Cavaliers
-All Rookie First Team 2004
-6 time NBA All-Star (2005-2010)
-3 time first team All-NBA (2006, 2008, 2009)
-2009 NBA MVP
                Angelina Jolie
-Father is actor Jon Voight, Mother was actress
   Marcheline Betrand.
-Studied at the Lee Strasberg Theatre Institute at 11.
-Began modeling at 16.
-Won Oscar for Best Supporting Actress in Girl,
   Interruputed
-Won 3 Golden Globes, 2 SAG awards
-Goodwill Ambassador for the U.N. High Commissioner
   for Refugees (UNHCR)
                                            S




                                            D




How do these incomes relate to Supply and Demand?
Why Don’t People Save?

              Lesson 15
         The Risky Behavior Mystery
• People usually know what is good for
  them, but they often act as if they
  don’t know.
• Some people:
   – Drive too fast.
   – Fail to take medications.
   – Go surfing!
• Why would people do things that
  don’t seem to be in their interest?
                     Lesson 15 Visual 1
         Why Don’t People Do What They Should Do?



                                                                     Number of Yes
                            Question
                                                                     Responses
How many of you know that smoking is unhealthy?
How many of you know people--even people your age--who
smoke?
How many of you know that eating foods that are high in transfats,
such as packaged cookies, margarine and peanut butter, isn’t
healthy?
How many of you know people who eat foods that are high in
transfats?
How many of you know that regular exercise provides many
health benefits?
How many of you know people who don’t exercise regularly?
 Perhaps the answer lies in identifying
       the costs and benefits.
• Costs: All the things that have to be given up
  when a choice is made.
• Benefits: Gains or favorable outcomes that
  make people more satisfied when a choice is
  made.
                       An analogy


• Saving is like smoking, diet
  and exercise.
     What are the benefits of a eating a
    healthy diet and exercising regularly?
•   Feel better
•   Look better
•   Reduce your risk of heart disease
•   Reduce your risk of cancer
•   Boost your life expectancy
  Do the benefits of diet and exercise
      occur now or in the future?
• Although people may start to feel better right
  away, most of the benefits occur in the future.
 If people choose a healthful diet and exercise regularly,
          are they guaranteed these benefits?

• No.
• Some people may still get heart disease or
  cancer, no matter what they eat or how well
  they exercise.
• Also, a person engaged in a diet-and-exercise
  program could die prematurely from any
  number of causes other than heart disease or
  cancer.
What are the costs of choosing a healthful diet and
              exercising regularly?

• Possibilities include:
   – Giving up food that tastes really good.
   – Paying dues for membership at a fitness club.
   – Spending time on exercise that you could spend in
     other ways--napping, reading, gardening,
     watching television, playing video games.
                               Saving
• Saving is income not spent on
  consumption or taxes.
• Most people know that starting
  to save money at an early age
  and saving regularly are good
  habits that lead to financial well
  being.
• Yet many people fail to save early
  and regularly.
• Why?
  What are the benefits of saving?
• Ability to attain your goals for the future.
• A feeling of security and satisfaction.
    What are the costs of saving?
• Things you could obtain now if you weren’t
  saving.
     When do the benefits of saving occur?

• In the future.
       When do the costs of saving occur?

• In the present.




           Psychology – cookie experiment
           Instant vs. Delayed gratification
            Cookie Experiment
• “Training in self-control has been useful in
  helping children interact more effectively with
  their peers and perform higher quality
  schoolwork. These children also report higher
  self-esteem”
• Longer self-imposed delay of gratification
  durations in childhood have been linked to later
  social, cognitive, and academic competence.
  – Children with longer delay of gratification durations at
    age four were found better able to plan, think ahead,
    use reason, and cope with stress in adolescence, and
    they had higher SAT scores in high school.
    The Costs and Benefits of Saving
• The costs of saving are
  immediate and certain.
    – People have to give up things
      they could buy now.
• The benefits of saving occur in
  the future and are uncertain.
    – Events might prevent people
      from reaping the benefits of
      saving.
    Opportunity Cost and Incentives
• Considering the opportunity cost
  of spending might change how
  people analyze the costs and
  benefits of saving.
• Setting goals is an important
  factor related to saving.
• Goals act as incentives to save.
• Interest provides another
  incentive to save.
   Opportunity Cost and Incentives
• What are some things for
  which you would like to
  save?
            Setting Savings Goals
  Short-Term         Medium-Term           Long-Term
 Savings Goals      Savings Goals         Savings Goals
(One year or less) (One to five years)   (Over five years)
                            Review
• What is saving?
• How is failing to save like failing
  to eat right and exercise?
• What are incentives to save?
• What are short-term, medium-
  term and long-term saving
  goals?
Credit Cards
  Legal Disclaimer
The information contained in this presentation is
provided for informational and educational purposes
only, and should not be construed as financial or legal
advice on any matter. The University of Southern
Mississippi, Mississippi Council on Economic
Education, Southern Miss Center for Economic and
Entrepreneurship Education disclaim all liability in
respect to actions taken or not taken based on any or
all the content presented here. Before acting on any
information or material obtained through this
presentation, we strongly recommend you to seek
advice from a personal financial advisor or
professional legal counsel, as appropriate.
            Sound Advice
• 1. Charge only what you KNOW you can afford
  to repay
• 2.You pay more when you use your credit card
  and keep a revolving balance b/c you pay
  interest on your outstanding balance
• 3. Pay your credit card bill in full each month.
  If you can’t pay in full, ALWAYS pay more than
  the minimum monthly payment
• 4. Don’t spend over your credit limit and wind
  up paying special fees
             Sound Advice
• 5. Pay your bills on time
  – If not you will have late fees, higher APR, lower
    credit score
• 6. Learn how to protect your credit rating, it is
  your “financial report card”
• 7. Never use one credit card to pay another
  (i.e., take out a cash advance on one card to
  pay another
• 8. Only have one credit card
           Definition of Credit
• Credit is a system of doing business where you
  promise to pay at a later date for goods and
  services received today
• Credit cards function as a loan
  – Using a credit cards means that you are borrowing
    money from the issuer
  – The charges are unsecured loans that must be
    repaid
              Card Types
• Credit Card
   – A credit card allows you make purchases for which you
     are billed later.
      • Most allow you to carry a balance from one billing cycle to
        the next with interest.
      • Typically include a minimum payment each billing period.
   – A Charge Card is a special type of Credit Card
      • The balance on a charge card account is payable in full when
        the statement is received.
      • The balance cannot be rolled over from one billing to the
        next.
   – Debit Cards are not Credit Cards.
      • Debt cards allow payment and purchase to happen
        simultaneously.
                        It’s a Fact
• The U.S. has the lowest personal savings rate of any
  major industrialized nation.
   – 40% of Americans say they live beyond their means
   – Current debt-to-income ratio is 135%

• Americans have record credit-card debt
   – $874 billion in U.S. credit card debt as of Nov 2009
      • Source: www.federalreserve.gov/releases/G19/Current/

• The US has recently seen an over 50% increase in
  bankruptcies among people under age 25
   – Fastest growing age range for bankruptcies
                     College Student
                   Credit Card Statistics
• Over 75% of college students admit to having made
  mistakes with their money when they arrived on
  campus
   – Biggest mistakes were overspending on food,
     entertainment, and credit card purchases.
• University Administrators state that they loose more
  students due to credit card debt than they do to
  academic failure
   – Drop-Out Rates
      • Academic Failure – 6%
      • Debt / Financial Pressure – 8.5%
                 Budgeting
• We can all benefit from having a clear
  understanding of financial needs/wants and
  spending habits.
• Create a realistic budget gives a personal plan
  for spending a saving money, gives a sense of
  comfort and guidance
• Take the time to use the guide on page 2
            College Student
          Credit Card Statistics
• Credit Card Availability
   – Over 92% of college students have a credit card by
     their sophomore year
      • Only 55% pay off their balance monthly.
      • The average balance for college students is $885.
      • Over 21% of undergrads owed $3,000–$7,000 on credit
        cards
   – The average student has 2.8 credit cards.

• Recent Sallie Mae Survey:
   – Over 50% of college students surveyed
     accumulated $5,000+ in credit card debt
     while in school
   – Over 33% of college students surveyed accumulated
     $10,000+ in credit card debt while in school
         How Does this Happen?
• College Students are a Privileged Class
   – College students are able to obtain credit cards without a
     prior credit history, employment, or a parent’s co-
     signature.
   – Credit card companies are betting on the student’s future
     earnings potential.
Why You Should Use Credit Cards?

• Creates Opportunities
  – Imposes self-discipline
  – Proper use helps establish a good credit rating
     • Beneficial for a future house or car purchase
     • Free line of credit if you pay your balance monthly
• Convenience and Security
  – Accepted across United States and abroad
     • Often required to hold a reservation
  – Emergency buying power
  – Additional form of identification
  – Record of purchases on bill statement
Handout 4.2
             A Schumer Box
• The Schumer Box was introduced by Senator
  Chuck Schumer to make it easier to compare
  credit card offers.
A Schumer Box

19.99%
                Annual Fees
• An issuer may charge an annual fee for the
  privilege of using their card.
• There are many without such a fee
• If your current card has one and you are a
  good customer, your issuer will likely waive it
  if you ask them
               Interest Rates
• Every credit card has at least 4 different
  interest rates depending on the types of
  transactions
  – Purchase
  – Balance transfer
  – Cash advance
  – Default
A Schumer Box

19.99%
A Schumer Box
A Schumer Box

19.99%
                               APR
• Annual Percentage Rate
   – The monthly interest on unpaid credit card balances
   – The higher the APR, the more money is paid in interest
      • Look for a card with a low APR!
• APRs can be fixed or variable
   – Variable APR is based on a published index, like the “prime
     rate” plus a few percentage points
   – Can change without written notice
   – Fixed APRs can be changed with 15 days written notice
U.S. Prime Rate
                 Grace Period

• Grace period
  – If the balance is not paid off each month, interest
    is applied to new purchases when they are made
  – If the balance is paid off monthly, a grace period is
    allowed before interest is charged = Free Credit
• No grace Period
  – Regardless of the previous month’s balance,
    interest is applied to new purchases as they are
    made
A Schumer Box

19.99%
    Balance Calculation Methods
• “Average Daily Balance”
  – You pay interest on the average balance owed
    during the billing cycle
  – Creditor figures the balance in your account on
    each day and then adds together these amounts
    and divides by the number of days in the billing
    cycle
• See the handout and answer the questions
                Example
• Assume that you received this credit card with a
  credit limit of $2,000.
   – Assume that you bought a LG 32” LCD HDTV/DVD
     Combo at Best Buy as shown below for $1,049
     (Ignore sales tax and $49 HDMI cables).
   – How long will it take to pay off at the minimum
     payment of $35 per month?
      • Time = 41.86 Months
      • Time = 3.49 Years
   – What was the total amount paid?               1 Year
      • Total = $1,465.36                         Warranty
          – TV = $1,049.00
          – Interest = $416.36 (39.69%)
      • Any late payments would add $39.00+ in interest.
  Balance Calculation Methods

• “Adjusted Balance”
   – You pay interest on the opening balance after subtracting
     the payment or returns
• “Previous Balance Method”
   – Interest is only paid on the previous (opening) balance,
     regardless of payments made during the month.
• “Two-cycle Average Daily Balance”
   – The interest is paid on the current balance as well as the
     previous month’s balance, this leads to double finance
     charges
   – A zero-balance must be held for two months in order to
     avoid charges
   – This method should be avoided by consumers!
               Cash Advances
• Cash advances are cash loans one can get with
  a credit card
• Expensive—only use in a true emergency
  – Usually requires an up front fee plus 3% of the
    advance or a minimum fee
  – Higher APR
  – No grace period
  – Don’t always get to pay it off entirely if you have
    revolving credit
          Convenience Checks
• Pre-printed checks linked to a credit card
  account that are mailed to one’s home
• Act like cash advances
• Shred them before you put them in the trash!
               Default Rates
• A default rate has a high APR
• Most issuers apply a default rate if one:
  – Makes a late payment
  – Misses a payment
  – Exceeds a credit limit
  – Bounces a payment check
• Some default rates escalate according to the
  number of payments missed
               Balance Transfers
• Issuers try to get new customers by offering low
  introductory rates to individuals who transfer their
  balance from another card to theirs
• Find out..
   – Is there a fee?
   – How long does the “teaser rate” apply?
   – What is the APR that will replace the teaser rate?
   – Does the teaser rate apply to both the transferred balance
     and new purchases?
   – Choose a balance transfer offer only when there is no fee,
     has a long-term APR that applies to both the transferred
     balance and new purchases
                  Late Fees
• If a payment is received after the due date, a
  late fee will be added to your bill
• Fees often escalate depending on the amount
  of the outstanding balance
• Typically range from $15 to $39
• Negatively affects your credit rating b/c the
  late payment is reported to the three major
  credit reporting agencies
  – After one or two late payments
         Over-Credit Limit Fees
• Issuers will allow an individual to spend over
  their credit limit but a fee will be assessed
  every month until the balance is brought
  below the credit limit
• $29 to $39 or a tiered fee depending on the
  balance
• Default APR may be applied and it might be
  reported to the credit agencies
          Bounced Check Fees
• If the check you write to pay off your credit
  card bounces, you will likely pay a fee of $29
  to $39
• Default APR maybe applied and credit
  reporting agencies advised
      Currency Conversion Fees
• 3% to convert currency on foreign purchases
           Pay by Phone Fee
• Some issuers charge $10-$15 to make a
  payment by phone
             How to
Wisely Choose and Responsibly Use
          a Credit Card
       Knowing is Half the Battle!
• Understanding how credit cards work will help you
  use them effectively. Credit cards can either be
   – Short-term high interest loan (“Revolvers”), or
   – Short-term interest-free loans (Convenience Users)
• “Revolvers”
   – Keep a balance on their account and pay interest on all
     their purchases
   – Low APR is most important
• Convenience Users
   – Pay balances off in full each month
   – Long grace period is most important
   – Most cost effective
      Pay More than the MMP!
• Assuming discontinued use of the card, a
  MMP based on 1% of the outstanding balance
  plus accrued monthly interest or payment of
  $20 whichever is greater, and timely payments
• How long and what is the payoff for the
  following?
  – $1000 debt, 18% APR, MMP
  – $1000 debt, 18% APR, MMP + $10
                    Look for…
•   A low APR
•   No annual fee
•   A long grace period (at least 20 days)
•   Average Daily Balance Method
•   Low Penalty Fees
Using a Credit Card Properly
•   Limit yourself to only one card until you know you can trust your manage
    it properly
•   Student loans should be used for tuition, not credit cards
•   Wants do not equal needs
     – “Can I do without this purchase?”
•   Credit cards do not change our socioeconomic status
     – Buy only what you can afford to repay each month
•   Always pay off the entire balance….on time
     – If you cannot pay the entire balance in a month, stop using the card until it is
       paid off
          • Make sure you pay more than the minimum balance
•   Pay more than the MMP asap, don’t wait for the due date
•   Manage a credit card account like a checking account
•   Avoid cash advances, convenience checks, and going over your limit
•   Don’t skip payments…even if your bank says you can
•   Keep a low credit limit…even if your bank says you can have more
•   Record all expenses and keep receipts
     – Check credit statement for errors
• Notify issuers of change of address
            Handling Disputes
• Two Types of Disputes:
   – In the case of any unauthorized use:
      • Liability Limited to $50
      • Notify Bank ASAP – Phone and Written Notice
   – In the case of a billing error…
      • Notify Bank Within 60 Days
      • Include Form on Back of Bank Statement and a Letter
      • Letter and Form must include
          – Name and Account Number
          – Dollar Amount Involved
          – Reason for Dispute
          – Any Other Clarifying Information
       Credit Card Safety Tips

• Secure Your Cards
   – Sign card with Signature and “Please See ID”
   – Do not leave cards lying around
   – Do not give out account number unless making
     purchase with a reputable source
• Report Lost or Stolen Cards Promptly
   – Keep a list of account numbers and bank phone
     numbers in a safe place separate from cards
• Close unused accounts by phone, then in
  writing, and then cut up the card
   – Note: Closing a card may hurt your credit score
               Always a Solution
• If you have an overwhelming debt, it is better to deal
  with the problem rather than deny it
• Do not skip a payment
• Pay down higher APRs first
• Stop using the card
• Call the issuer and tell them the problem
• If they offer a more manageable payment plan, get it in
  writing
• Increase your monthly income and reduce monthly
  expenses
• Contact the National Foundation for Credit Counseling
  800-388-2227 or www.nfcc.org to enter a debt
  consolidation program
Credit Reports
     and
Credit Scores
                   Credit Reports
• Financial report card reflecting the extent of an
  individual’s credit and payment history
   – Negative information can stay on for 7 years while bankruptcies
     remain for 10 years
   – Lenders buy the reports to determine whether they will grant an
     individual credit and at what rate
• Three U.S. Credit Reporting Agencies
   – Equifax, Experian, and Trans-Union
• Can be obtained for free
   – Once per year and after denial of credit
   – 877-322-8228 or www.annualcreditreport.com
                        Credit Scores
• Numeric value obtained from a credit report
   – Defines you by a single number
   – Quick Screening Mechanism for Lenders
      • Low Credit Score = No Credit or High Interest Rates
   – Many employers check credit reports
   – Most common scoring system is Fair Isaac Corporation (FICO)
      •   Scores range from 300-850
      •   National Average = 678
      •   Payment history: 35%
      •   Total amount owed: 30%
      •   Length of credit history: 15%
      •   New credit: 10%
      •   Types of credit: 10%
FICO Scores by Age Group
Your Credit Reflects You
The Impact of Credit Scores
Consequences of
  Irresponsible
 Credit Card Use
    Irresponsible Credit Card Usage Leads to…
• Denial of credit
• High APR b/c of the higher risk
• Universal Default Clause
     – Allows an issuer to increase an individual’s APR if they fail
       to make a payment to another lender
•    Difficulty renting an apartment
•    Denied employment
•    Denied financial aid
•    Higher automobile insurance premiums
•    High security deposits, e.g., Cell phone, gas,
     electronic
          Make Good Choices!
• Students should clearly understand that while
  credit cards are a great financial tool, they are
  also a big responsibility, which require
  maturity, consistency and sound financial
  management skills so that they can enjoy the
  benefits of credit while avoiding the pitfalls.
Identity Theft
              Identity Theft
• Occurs when an impostor steals personal
  information such as a social security card,
  driver’s license, bank account or credit card
  number in order to impersonate someone else
• The information is then used to obtain credit,
  merchandize, and services using the victim’s
  identity
                     Signs
• A credit card or statement for an account that
  was not requested
• A missing statement
  – Unauthorized change of address
• Unauthorized changes on the credit card
  statement
• Denied credit for no apparent reason
• Debt collectors call and write regarding
  purchases you did not initiate
    Avoiding Identity Theft and Other
            Financial Trouble
• Guard your Social Security Number and other personal
  information
   – Shred old documents and credit card offers
   – Do not carry unnecessary documents/cards
   – Do not mail payments from home
• Monitor your Credit Report
   – Remove your name from the marketing lists of the three major
     credit reporting agencies
   – Subscribe to a credit monitoring service
– Avoid business with or loans to friends / family
• Never cosign a loan for anyone
   Avoiding Identity Theft and Other Financial
                     Trouble
• Become familiar with the billing cycles and when
  statements should arrive in the mail
• Don’t leave mail in the mailbox and use the Post
  Office for outgoing mail
• Use creative passwords—avoid the last 4 digits of
  your SSN or your mom’s maiden name
• Only make on-line purchases if the website is secure
  and protected by an encryption system
• Place virus protection software on your computer
                If you are a victim of
                    identity theft
• Contact the three major credit-reporting agencies
  and ask them to place a “fraud alert” on your file
• Order a free credit report from each of the agencies
  and review the reports
• Contact the fraud departments for creditors
• Close the accounts and follow up in writing
• File a police report and ask for a hard copy
• Federal Trade Commission maintains an identity theft
  clearinghouse that provides information for victims
   – 877-IDTHEFT or www.consumer.gov/idtheft
Auto Insurance: Coverage Types
        Time to Pick a Car
       and Get on the Road

        Closest to the MSRP
(Manufacturer’s Suggested Retail Price)
     Without going over – wins!
            2005 Honda Civic LX
• Automatic
  Transmission
• Dual Zone Air
  Conditioner
• Keyless Entry
• Auto Lock Brakes
 The MSRP is

$16,975
        2005 Mitsubishi Spyder GT


• Automatic, 4-Spd
  w/Overdrive &
  Sportronic
• V6, 3.0 Liter
• Leather Interior
 The MSRP is

$28,944
           2005 Hummer H2 SUV
• 7-Spoke Aluminum
• Automatic, 4-Spd HD
• Leather Surfaced
  Heated Bucket Seats
• V8, 6.0 Liter Engine
 The MSRP is

$53,280
   Are You Ready to Drive?

• Ask yourself…
  – Do I have a license?
  – Is my car registered?
  – Am I covered by auto insurance?
               Why do I need auto insurance
• It’s the law!

• There are risks you can’t afford to take

• What happens if…
   – You’re involved in a crash that causes property damage?
   – You hurt yourself or someone else?
   – Your car is damaged when you’re not driving it?
      (by weather, vandalism or a hit-and-run)
   – Your car is stolen?
   – Your car breaks down and needs to be towed?
        Automobile Insurance: The Basics

       What is the likelihood you will be in an
               automobile accident?
There are more than 12 million motor vehicle accidents annually


The typical driver will have a near automobile accident one or
two times per month


The typical driver will be in a collision of some type on average
of every 6 years


Crashes are the leading cause of death for ages 3-33
         Automobile Insurance: The Basics

Even a minor accident can result in thousands of
dollars in damages


•Damage to your car
•Damage to other cars involved
•Medical Bills
•Lost wages
•Pain and suffering
•Prosecution
•Legal Fees
•Fines
     Automobile Insurance: The Basics

If you are in an accident how do
         you pay for it?

Bank Account?
Parents?
Rich Uncle?
Best Friend?
Insurance?
      Automobile Insurance: The Basics

 What is Automobile Insurance?

An auto insurance policy is a contract between you
and an insurance company.


You pay a premium, and in exchange, the insurance
company promises to pay for specific car-related
financial losses during the term of the policy.
      Automobile Insurance: The Basics

    Are you a risk to the insurance
              company?

To keep premiums as low as possible to the insured,
a screening process is completed before an
insurance contract is completed
      Automobile Insurance: The Basics

   What is the insurance company
             looking for?

Some vehicles, and some drivers, carry more risk
than others

•Low risks will be charged a lower premium

•High risks will be charged a higher premium
  Automobile Insurance: The Basics

What determines your premium?

               Age

              Gender

           Vehicle Type

          Driving Record

        Geographic Location
      Types of Automobile Insurance Coverages

             Three Questions

1. What are third-party coverages?

2. What are first-party injury coverages?

3. What are first-party property
   coverages?
  Types of Automobile Insurance Coverages

    What are third-party coverages?

Bodily Injury Liability
   People costs (medical expenses, lost wages,
   pain and suffering)

Property Damage Liability
    Things (other cars and property)

Both are types of coverage required by law in
    most states
   Types of Automobile Insurance Coverages

 What are first-party injury coverages?
Medical Payments (MedPay)
    Covers medical and funeral expenses resulting from
    accidents with your vehicle

Personal Injury Protection (PIP)
     Extends MedPay to include lost wages

Uninsured Motorists
     Covers expenses if the at fault driver does not have
     coverage

Underinsured Motorists
    Covers expenses when the at fault driver does not have
    enough coverage
    Types of Automobile Insurance Coverages

What are first-party property coverages?
Comprehensive
   Compensates you for physical damage to your car,
   including theft, vandalism, natural disasters

Collision
     Pays for damage to your vehicle in case of
     collision

Both Coverages require you to pay a deductible
               What is a Deductible?


This is the amount per accident that you pay out
    of pocket before insurance starts to pay

Common deductible amounts are usually $250,
   $500, and $1000

The higher the deductible amount you pay the
   lower your premiums are
      Automobile Insurance: The Policy


A common mistake when shopping for
automobile insurance is looking only at the
price between two policies


Policies differ from policy to policy and
company to company
      Automobile Insurance: The Policy

    Five parts to an insurance policy

Declarations

Coverages

Exclusions

Conditions

Definitions
    Coverage Parts/Insuring Agreement

Outlines the coverage options and coverage
              limits purchased


In short, what your insurance company
promises to provide in return for your
payment, based on the coverages and
coverage limits selected
                       Exclusions

Details what is not covered by the policy


Examples:
Intentional damage to your own vehicle
Damages caused while vehicle is used as a delivery
vehicle
                        Conditions

Define the insured’s and the insurer’s duties
that, under the terms of the policy, must be
fulfilled


Includes:
      premium payment obligations
      steps to filing a claim
      procedures for resolving a claim
                        Definitions

 Explains specific terms used throughout the
                     policy


Examples:
“You” or “Your” refers to the “Named Insured”
“We” or “Us” or “Our” refers to the insurance
company
“Family Member” refers to a resident of your
household
     Automobile Insurance: Accidents

Chances are even if you are never in an
    accident you will witness one




What should you do if you are involved
          in an accident?
     Automobile Insurance: Accidents

Chances are even if you are never in an
    accident you will witness one




What should you do if you are involved
          in an accident?
         Steps to take after an accident

•Help anyone who is injured
   •You have an ethical and legal responsibility
•Notify the police
•Prevent further accidents
•Protect the accident scene
•Record information
   •Exchange information with the parties involved
   •Take note of time, location, weather, and road
   conditions
                   Filing a Claim

It is important that the accident is reported
promptly to the insurance agent or company


The policy will guide the insured on the
correct steps to take to report the claim


The company will guide the insured through
the process
                       Filing a Claim

When you are liable for an accident
•The insurance company covers the loss up to the
policy limits
•Your insurer represents you if you are sued
•Your insurer has the right to settle any legal action
without your permission
•Your premium may rise
•Insurer has the right to cancel your policy
•If the losses exceed the policy provisions, the
insured is responsible to cover the excess
      Automobile Insurance: The Basics

What can you do to reduce risk and
        lower premiums?

Use your seatbelt        Be Patient

Observe Speed Limits     Don’t Drink and Drive

Know your own limits     Get good grades

Concentrate on driving
     Automobile Insurance: Accidents

Chances are even if you are never in an
    accident you will witness one




What should you do if you are involved
          in an accident?
         Steps to take after an accident

•Help anyone who is injured
   •You have an ethical and legal responsibility
•Notify the police
•Prevent further accidents
•Protect the accident scene
•Record information
   •Exchange information with the parties involved
   •Take note of time, location, weather, and road
   conditions
                   Filing a Claim

It is important that the accident is reported
promptly to the insurance agent or company


The policy will guide the insured on the
correct steps to take to report the claim


The company will guide the insured through
the process
                       Filing a Claim

When you are liable for an accident
•The insurance company covers the loss up to the
policy limits
•Your insurer represents you if you are sued
•Your insurer has the right to settle any legal action
without your permission
•Your premium may rise
•Insurer has the right to cancel your policy
•If the losses exceed the policy provisions, the
insured is responsible to cover the excess
Building Wealth for the Long Term

               Lesson 12
           Lesson 12 Visual 1
     Three Rules for Building Wealth
1. Start early.
  – Give money time to grow.
2. Buy and hold.
  – Keep your money invested.
3. Diversify.
  – Don’t put all your eggs in one basket.
                         Lesson 12 Visual 2
            Charlayne Becomes a Millionaire-- Accidentally
           Beginning Addition to            Ending
Year       Balance    Principal  Return     Balance
       0         $0.00 $2,080.00     $88.40     $2,168.40
       1     $2,168.40 $2,080.00    $272.71     $4,521.11
       2     $4,521.11 $2,080.00    $472.69     $7,073.81
       3     $7,073.81 $2,080.00    $689.67     $9,843.48
       4     $9,843.48 $2,080.00    $925.10    $12,848.58
       5    $12,848.58 $2,080.00 $1,180.53     $16,109.11
       6    $16,109.11 $2,080.00 $1,457.67     $19,646.78
       7    $19,646.78 $2,080.00 $1,758.38     $23,485.16
       8    $23,485.16 $2,080.00 $2,084.64     $27,649.80
       9    $27,649.80 $2,080.00 $2,438.63     $32,168.43
               Lesson 12 Visual 2 (continued)
      Charlayne Becomes a Millionaire-- Accidentally
10    $32,168.43    $2,080.00    $2,822.72      $37,071.15
11    $37,071.15    $2,080.00    $3,239.45      $42,390.59
12    $42,390.59    $2,080.00    $3,691.60      $48,162.19
13    $48,162.19    $2,080.00    $4,182.19      $54,424.38
14    $54,424.38    $2,080.00    $4,714.47      $61,218.85
15    $61,218.85    $2,080.00    $5,292.00      $68,590.85
16    $68,590.85    $2,080.00    $5,918.62      $76,589.48
17    $76,589.48    $2,080.00    $6,598.51      $85,267.98
18    $85,267.98    $2,080.00    $7,336.18      $94,684.16
19    $94,684.16    $2,080.00    $8,136.55     $104,900.72
20   $104,900.72    $2,080.00    $9,004.96     $115,985.68
21   $115,985.68    $2,080.00    $9,947.18     $128,012.86
22   $128,012.86    $2,080.00   $10,969.49     $141,062.35
23   $141,062.35    $2,080.00   $12,078.70     $155,221.05
24   $155,221.05    $2,080.00   $13,282.19     $170,583.24
25   $170,583.24    $2,080.00   $14,587.98     $187,251.22
26   $187,251.22    $2,080.00   $16,004.75     $205,335.97
27   $205,335.97    $2,080.00   $17,541.96     $224,957.93
28   $224,957.93    $2,080.00   $19,209.82     $246,247.75
29   $246,247.75    $2,080.00   $21,019.46     $269,347.21
30   $269,347.21    $2,080.00   $22,982.91     $294,410.12
                  Lesson 12 Visual 3
     Charlayne Becomes a Millionaire-- Accidentally
31   $294,410.12   $2,080.00   $25,113.26 $321,603.38
32   $321,603.38   $2,080.00   $27,424.69 $351,108.07
33   $351,108.07   $2,080.00   $29,932.59 $383,120.66
34   $383,120.66   $2,080.00   $32,653.66 $417,854.31
35   $417,854.31   $2,080.00   $35,606.02 $455,540.33
36   $455,540.33   $2,080.00   $38,809.33 $496,429.66
37   $496,429.66   $2,080.00   $42,284.92 $540,794.58
38   $540,794.58   $2,080.00   $46,055.94 $588,930.52
39   $588,930.52   $2,080.00   $50,147.49 $641,158.01
40   $641,158.01   $2,080.00   $54,586.83 $697,824.84
41   $697,824.84   $2,080.00   $59,403.51 $759,308.35
42   $759,308.35   $2,080.00   $64,629.61 $826,017.96
43   $826,017.96   $2,080.00   $70,299.93 $898,397.89
44   $898,397.89   $2,080.00   $76,452.22 $976,930.11
45   $976,930.11   $2,080.00   $83,127.46 $1,062,137.57
             Lesson 12 Visual 4
         The Magic of Compounding
• When you save, you earn interest.
• When you take the interest out and spend it, it stops
  growing.
• But if you leave the interest in your account so it can grow,
  you start to earn interest on the interest you earned
  previously.
• Interest on interest is money you didn’t work for. It is
  money your money makes for you!
• Over time, interest on interest can increase your total
  savings greatly.
                    Lesson 12 Visual 5
                    Marcus’s Mistake
            Beginning     Addition to                Ending
Year        Balance       Principal     Return       Balance
        0            $0                         $0            $0
        1            $0                         $0            $0
        2            $0                         $0            $0
        3            $0                         $0            $0
        4            $0                         $0            $0
        5            $0                         $0            $0
        6            $0                         $0            $0
        7            $0                         $0            $0
        8            $0                         $0            $0
        9            $0                         $0            $0
       10         $0.00    $2,080.00        $88.40     $2,168.40
       11     $2,168.40    $2,080.00       $272.71     $4,521.11
       12     $4,521.11    $2,080.00       $472.69     $7,073.81
       13     $7,073.81    $2,080.00       $689.67     $9,843.48
       14     $9,843.48    $2,080.00       $925.10    $12,848.58
       15    $12,848.58    $2,080.00     $1,180.53    $16,109.11
       16    $16,109.11    $2,080.00     $1,457.67    $19,646.78
       17    $19,646.78    $2,080.00     $1,758.38    $23,485.16
       18    $23,485.16    $2,080.00     $2,084.64    $27,649.80
       19    $27,649.80    $2,080.00     $2,438.63    $32,168.43
       20    $32,168.43    $2,080.00     $2,822.72    $37,071.15
       21    $37,071.15    $2,080.00     $3,239.45    $42,390.59
             Lesson 12 Visual 6
             Marcus’s Mistake
22    $42,390.59   $2,080.00    $3,691.60    $48,162.19
23    $48,162.19   $2,080.00    $4,182.19    $54,424.38
24    $54,424.38   $2,080.00    $4,714.47    $61,218.85
25    $61,218.85   $2,080.00    $5,292.00    $68,590.85
26    $68,590.85   $2,080.00    $5,918.62    $76,589.48
27    $76,589.48   $2,080.00    $6,598.51    $85,267.98
28    $85,267.98   $2,080.00    $7,336.18    $94,684.16
29    $94,684.16   $2,080.00    $8,136.55   $104,900.72
30   $104,900.72   $2,080.00    $9,004.96   $115,985.68
31   $115,985.68   $2,080.00    $9,947.18   $128,012.86
32   $128,012.86   $2,080.00   $10,969.49   $141,062.35
33   $141,062.35   $2,080.00   $12,078.70   $155,221.05
34   $155,221.05   $2,080.00   $13,282.19   $170,583.24
35   $170,583.24   $2,080.00   $14,587.98   $187,251.22
36   $187,251.22   $2,080.00   $16,004.75   $205,335.97
37   $205,335.97   $2,080.00   $17,541.96   $224,957.93
38   $224,957.93   $2,080.00   $19,209.82   $246,247.75
39   $246,247.75   $2,080.00   $21,019.46   $269,347.21
40   $269,347.21   $2,080.00   $22,982.91   $294,410.12
41   $294,410.12   $2,080.00   $25,113.26   $321,603.38
42   $321,603.38   $2,080.00   $27,424.69   $351,108.07
43   $351,108.07   $2,080.00   $29,932.59   $383,120.66
44   $383,120.66   $2,080.00   $32,653.66   $417,854.31
45   $417,854.31   $2,080.00   $35,606.02   $455,540.33
                  Lesson 12 Visual 7
                    Buy and Hold
• In order to leave money in savings or investments, you have
  to do these things:
• Spend less than you receive. How?
   – Earn more by improving your formal education or job skills.
   – Spend less by using a budget to keep track of where your money is
     going.
• Become connected to financial institutions.
   – Open and maintain accounts at mainstream financial institutions--
     banks, credit unions and brokerages.
     Lesson 12 Visual 7(continued)
             Buy and Hold
• Manage your credit responsibility. How?
  – Limit the number of credit cards you have.
  – Limit your purchases to what you can pay off each
    month.
  – Apply for loans when you are confident that your
    current income (in the case of college loans,
    future income) will allow you to repay the loan.
            Lesson 12 Visual 8
     The Stock-Market Roller Coaster

If you buy and sell on the ups and downs,
you may lose money.




But if you buy and hold on for the long term,
the ups are greater than the downs.
              Lesson 12 Visual 9
     Don’t Put All Your Eggs in One Basket



If you put all your money in
one stock, a disaster
befalling that stock will hit
you hard--as if you had put
all your eggs in one
basket and then dropped the basket. With your money
spread out across variety of assets (stocks, bonds and
cash, for example), you’re not hurt as badly when any one
asset does poorly.
                  Lesson 12 Visual 10
 Forms of Saving and Investing: Some Benefits and Costs

• Savings accounts: provide a small but steady return.
• Certificates of deposit: very safe, but instant access carries a
  penalty.
• Bonds: lending money to a corporation or government, with a
  promise of higher returns than those offered by bank savings
  accounts and CDs.
• Stocks: part ownership in a company, offering higher risks and,
  potentially, higher returns than some other investments.
• Real estate: the risks and benefits of being a landlord.
                Lesson 12 Visual 11
               Investment Situations
• You have $5,000 to invest. No other information is available.
• You have $4,000 that you’ll need six months from now.
• You inherited $10,000 from your great-aunt; she has suggested that
  you save it for use in your old age.
• You are just starting a career and can save $50 per month for
  retirement.
• A new baby arrives, and Mom and Dad plan to save $100 a month for
  the child’s college education.
                Lesson 12 Visual 12
          The Pyramid of Risks and Reward

Highest Risk--Highest
Potential Return or Loss




Lowest Risk--Lowest
Potential Return or Loss
               Lesson 12 Visual 13
                  Mutual Funds
• A mutual fund pools investors’ money.
• The fund puts its investors’ money into the markets on
  their behalf.
• In effect, investors own small amounts of many different
  assets.
• Mutual funds enable investors to avoid the risk that comes
  from owning any one asset. In other words, mutual funds
  make it easy to diversify.
                   Personal
                   Finance


               James B. Wilcox
                    RESOURCES PROVIDED BY:

              THE UNIVERSITY OF SOUTHERN MISSISSIPPI
     CENTER FOR ECONOMIC AND ENTREPRENEURSHIP EDUCATION,
          MISSISSIPPI STATE UNIVERSITY, VIRTUAL ECONOMICS,
NATIONAL COUNCIL ON ECONOMIC EDUCATION, THE MOODY’S FOUNDATION

				
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