Personal Finance 101

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					    Personal Finance 101
                Dr. Rita Littrell
Bessie B. Moore Center for Economic Education
What can you do with money?

   Spend it
   Save it
   Invest it
   Share it
Cosby Show Economics Lesson
   Make good decisions
   Use a budget
   Research products
   Compare prices
   Consider the opportunity cost
   Keep receipts & warranties
   Return faulty items
   Use credit wisely
     Consumer Credit

A loan – spending money you have not earned

Two types:
 Closed End Credit -- Ex: Auto Loans, Mortgage
 Open End Credit -- Ex: Credit Cards

           Interest is the cost of credit
   Credit Cards
 Make Sure You Know All The Terms and Conditions
 Beware of “Store Credit Cards” & Their High Interest
 Avoid Getting Too Many Credit Cards
 Beware of the Minimum Monthly Payment Trap
 Home Equity Line of Credit
   Building Your Credit Rating
 Credit Bureaus – Collect Credit Information About
 Three Main Credit Bureaus in U.S.
        Equifax

        Experian

        TransUnion

 Your Credit (FICO) Score
   Building Your FICO Score
   Fair Isaac Company credit score
   FICO scores:
     Are your credit rating
     Range from 300 – 850, higher is better
     Most lenders base approval on FICO
     Higher scores result in lower interest rates

Free Credit Report:
      FICO Scores Based On
      FICO scores are based on your rating in:
         Payment history – 35%
         Amount owed – 30%
         Length of credit history – 15%
         New credit – 10%
         Types of credit used – 10%
How a Good FICO Score Can Help
   36 month auto   In Arkansas on     For a loan of
   loan            Sept. 26th, 2008   $25,000

      FICO score           APR         Monthly payment
   720-850         6.0%               $761
   690-719         7.07%              $773
   660-689         8.00%              $783
   620-659         10.23%             $809
   590-619         12.95%             $842
   500-589         n/a                $0

                   Fico Help Center
Credit Counseling Services

  If You Are Having A Problem Paying A
   Bill, You Can…
        1. Contact the Creditor
        2. Contact A Nonprofit Financial
        3. Counseling Program
  Credit Counseling of Arkansas
Credit Counseling of Arkansas
 CCOA Is a Local NonProfit Org.
   1. Provides Educational Services
   2. Debt Counseling Services
    3. Supported By Contributions From Banks,
        Merchants, etc.
    4. Service May Be Free or There May Be a Small

 Beware of Predatory Counseling Organizations
Consuming less than you earn.

Ways to save:
 Saving Account
 Certificate of Deposit
 Savings Bond
Rainy day or to invest
  Contributions of philanthropic organizations
     1.    Walton Family Foundation
     2.    Wal-Mart Foundation
     3.    Winthrop Rockefeller Foundation
     4.    Winthrop Rockefeller Trust
     5.    Walton Family Charitable Support Foundation
     6.    Charles A. Frueauff Foundation,
     7.    Arkansas Community Foundation
     8.    Ross Foundation
     9.    Harvey and Bernice Jones Center for Families
     10.   Murphy Foundation
     11.   Windgate Charitable Foundation
  Arkansas Philanthropy
Between 1997 & 2004, AR ranked among top 7 states
 in individual charitable contributions while being
 among the five least wealthy
National or International nonprofits groups
   Heifer International – LR – eliminate starvation by
    enabling low-income people to feed themselves on a
    sustained basis
   Potluck Food Rescue for Arkansas – redirects
    otherwise wasted food to low-income Arkansans
   AR Foodbank Network & AR Rice Depot – work to
    relieve hunger and malnutrition

Options for Investing

   Open a Savings Account
   Invest in the Stock Market
   Buy Bonds
   Invest in a Mutual Fund

First step is to determine short and long term financial
    Fundamentals of Investing
1. How Much Money Do You Want to Accumulate?
2. How Long Will It Take?
3. How Much Risk Are You Willing to Assume?

4. Are Your Goals Reasonable?

5. Are You Willing to Make the Necessary Sacrifices?

6. What Are the Consequences If You Don’t Reach Your
     Before Investing

Get Your Financial House In Order

 Make Sure You Have Adequate Insurance

 Start an Emergency Fund

 Balance Your Budget
   Use These Options

1. Employer Sponsored Retirement Plans

 2. Employer Savings Plans

 3. Gifts, Inheritances or Windfalls

Save – Even If It Is a Small Amount!

 Ownership in a company
 Buy Stock for:
    1. Dividends
    2. Price Appreciation

 Level of Risk
Mutual Funds
 Stocks in several companies
 Professionally managed
 Wide variety of funds

 Less risk due to diversification

 But You Can Lose Money Too!!
 Bonds – a loan
 Corporate Bonds – not insured by
    Federal Government
 US Government Bonds – Treasury Bills,
  Bonds & Notes (terms vary)
 Municipal Bonds – issued by state and local
  governments – Fed tax exemptions & that
 Bureau of Public Debt - US Dept of Treasury
 For ratings – Moody’s Investor Service -
  Standard and Poor’s Corp
Financial Institutions
  Use financial institutions to:
   protect your money
   help you manage your money – checks,
    debit cards
   savings, checking and other accounts
   to help your money work for you
   for financial advice
    Stock Market
        New York Stock Exchange (NYSE)
        American Stock Exchange (AMEX)
        Nasdaq (Nat’l Assn of
          Securities Dealers
          Automated Quotation)
List of up and coming
companies from Fast
Influences on the Market
•   War
•   Emotions
•   Politics
•   Economy
•   Natural Disasters
What influences the price of a stock
•   Conditions in the Industry
•   Changes in Technology
•   Competition
•   Health of the Company
•   Supply and Demand
The Arkansas 20
Reading a Stock Table
What Does it Mean?
Reading a Mutual Fund Table
Understanding the Mutual Fund Table
Reading a Bond Table
Understanding the Bond Table
Three Rules for Building Wealth
1. Start early.
      Give money time to grow.
2. Buy and hold.
      Keep you money invested.
3. Diversify.
      Don’t put your eggs in one basket.
Use the Magic of Compounding
Compound Interest Calculator
Buy & Hold
1. Spend less than you receive.
     Earn more by improving your formal education or job
     Spend less by using a budget to keep track of where your
      money is going.
2. Become connected to financial institutions?
     Open and maintain accounts at mainstream financial
3. Manage your credit responsibly?
     Limit the number of credit cards you have.
     Limit the number of purchases to what you can pay off
      each monthly.
     Apply for loans only when you are confident you can
      repay with your current income.
    Stock-Market Roller Coaster

If you hold long enough, the ups are greater than the downs.

            Don’t put all your
            eggs in one basket!
Costs & Benefits of Saving & Investing
• Saving accounts: provide small but steady return
• Certificates of deposit: very safe, but instant
  access is penalized
• 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
• Real estate: the risks and benefits of being a landlord

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