What is financial empowerment by xumiaomaio

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									      Why is Financial
Education/Literacy Important?
       “Financial   Empowerment”




             Presented By:

     Patrice B. Duncan, EVP
                 &
       Anthony Harris, AVP
      D&E, The Power Group
What is Financial Empowerment?
 • Empowerment itself is the process of increasing the
   capacity of individuals or groups to make choices and
   to transform those choices into desired actions.

 • Financial empowerment therefore is the transfer of
   personal money power (financial independence) to
   an individual.

 • It is a process of moving from financial instability to a
   position of financial stability through investment.
 What is Financial Literacy?

• Financial literacy is the knowledge about
  personal finance that enables people to
  confidently manage their financial lives.


• When it comes to managing your budget,
  paying bills, and knowing the right financial
  services for you, KNOWLEDGE IS POWER!
   Case Study – Emily & Karen
• Emily and Karen are friends who borrow
  about the same amount of money over
  their lifetimes:

  – Each gets $20,000 in private student loans
    to help pay for college.
Case Study – Emily & Karen
– During college they get their first credit
  cards, and each carry an $8,000 balance,
  on average, over the years.

– They buy new cars after graduation and
  replace them every seven years until they
  buy their last vehicles at age 70.
Case Study – Emily & Karen
– Each buys her first home with a $300,000
  mortgage at age 30 and then moves up to
  a larger house with a $400,000 mortgage
  after turning 40.

– Each takes out a $50,000 home-
  improvement loan to remodel the second
  house.
   Case Study – Emily & Karen
• Emily has a FICO Score of 750, which
  is considered good to excellent.
  – Emily maintains her good credit scores by always
    paying her bills on time, applying for credit
    sparingly and never maxing out her credit cards.

  – Lenders respond by increasing her credit limits
    and giving her more offers of credit, allowing her
    to spread her balances across several cards and
    further protect her scores.
   Case Study – Emily & Karen
• Karen has a 650 FICO score, which is
  considered fair to average, even poor
  depending on the lender.
  – Karen, on the other hand, doesn't always pay on
    time and sometimes maxes out her cards, which
    makes lenders reluctant to extend more credit.
  – She tends to carry larger balances on fewer cards
    than Emily, which further hurts her scores, and
    Karen has less ability to negotiate lower interest
    rates.
               Case Study
    Private student loans: An $8,000 difference


• Federal student loans don't take credit scores
  into account, but private student loans do,
  and the penalty for worse credit is significant.
  Interest rates vary by lender, but someone
  with a 750 score can expect rates that are
  around 5 to 6 percentage points cheaper than
  someone with a 650 score, said Mark
  Kantrowitz of FinAid.
      Case Study – Emily & Karen
               Private Student Loans - $8,000 difference


    Emily – 750 FICO Score              Karen – 650 FICO Score

•   Interest Rate -    7.25%        •   Interest Rate - 13.25%
•   Monthly Payment - $234          •   Monthly Payment - $302
•   Total interest paid (10 yrs)    •   Total interest paid (10 yrs)
•   $8,176                          •   $16,189
                                    •   Karen's Penalty $8,013
                  Case Study
     Credit Cards: $60 more a month
• Credit card issuers have tightened their lending
  standards in the past couple of years, which means
  higher rates and stricter standards for just about
  everyone.
• Whereas a 720 credit score used to get you the best
  rates and terms from many issuers, some now
  require 750. Even getting a card can be tough if your
  scores are below 675, according to Curtis Arnold of
  CardRatings.com. A few years ago, even those with
  "subprime" scores in the low 600’s had a slew of
  offers.
    Case Study – Emily & Karen
              Credit Cards- $60 difference per mth.


 Emily - 750 FICO Score              Karen – 650 FICO Score

• Interest Rate - 10.99%         •   Interest Rate – 19.99%
• Annual Interest- $880          •   Annual Interest- $1,600
• Lifetime interest $44,000      •   Lifetime interest $80,000
                                 •   Karen's Penalty $36,000
            Case Study
    Auto loans: $5,400 more per car
– A few years ago, Karen would have paid
  about 3 percentage points more for a 60-
  month new-car loan. Today, that penalty is
  more than twice as high, according to
  myFICO.com, which tracks rates for auto
  and mortgage loans based on FICO credit
  scores. The difference significantly inflates
  the interest costs for every $25,000 vehicle
  she finances over a lifetime.
      Case Study – Emily & Karen
                  Auto loans: $5,400 more per car


    Emily - 750 FICO Score             Karen – 650 FICO Score

•   Interest Rate - 5.78%          • Interest Rate – 13.24%
•   Monthly Payment - $481         • Monthly Payment - $572
•   Interest cost per car $3,843   • Interest cost per car $9,310
•   Lifetime interest paid -       • Lifetime interest paid
    $30,768                          $74,480
                                   • Karen’s Penalty $43,712
     The Role of Financial
          Education

• Financial education plays a significant
  role in our society by empowering
  people with required knowledge and
  skills to make accurate consumer
  decisions, follow appropriate financial
  practices, and achieve economic well
  being.
     The Role of Financial
          Education

• However, some financial education
  programs narrowly focus only on
  changing people's financial knowledge
  and make the assumption that this
  leads automatically to changes in
  financial behavior.
     The Role of Financial
          Education

• This assumption may work at times;
  however, changing financial behavior
  (not just increasing financial knowledge)
  is essential for a person to reach
  financial goals and achieve financial
  well being.
  Major Topics of Financial
         Education
• Financial education is a very broad
  subject and typical topics covered
  include:
  – Budgeting
  – Cash-flow management
  – Credit
  – Banking
  – Savings and Investments.
  Major Topics of Financial
         Education

Other topics of discussion can encompass:
  – Goal Setting
  – Wise Consumer Practices
  – Consumer Laws & Rights
  – Retirement Planning
  – Life & Death Insurance
  Major Topics of Financial
         Education
• While the importance of some topics may
  change over time, other topics, such as
  –   Decision-making
  –   Cash-flow management
  –   Savings
  –   Credit, debt, housing, and planning for the
      future will always represent the core topic
      areas of financial education.
     Educational Settings

• Financial education is very similar to
  other educational programs. It takes
  place in formal, non-formal, and
  informal educational settings.
• Formal settings include credit courses
  offered in high school and colleges.
     Educational Settings

• Non-formal settings include financial
  education training workshops and
  counseling programs provided by
  various organizations and individuals
  outside of formal educational
  institutions. i.e. non-profits
     Educational Settings

• Informal financial education comes from
  everyday interactions with people and
  mass media, i.e. news, work, internet,
  family etc.
          Key Elements

• Before the financial educator begins the
  program evaluation process, it is
  important to review the education
  program to make sure that it has all the
  key elements to function successfully.
Key Elements & Preparation
Must haves………..
• Identified target participant group
• Identified financial education needs
• Program objectives designed to meet
  identified needs
• Educational materials and lesson plans
  chosen to achieve learning objectives
Key Elements & Preparation
• Delivery method chosen to facilitate
  participant access to educational
  materials, i.e. lecture, internet, group,
  individual etc.

• Inclusion of evaluation plan and data-
  collecting instruments
Key Elements & Preparation
• Trained and/or certified financial
  educator(s) to facilitate learning, i.e.
  NeighborWorks, HUD, etc.

• Program monitoring plan to utilize
  evaluation data for building stronger
  programs and funding strategies
        Target Audiences
• Target audiences of financial education
  are very diverse. Participants' ages,
  levels of education, socio-economic
  backgrounds, and learning needs can
  vary greatly. For example, the ages of
  potential audiences can range from
  youth to older adult.
        Target Audiences
• The levels of education can range from
  elementary school to graduate school.

• This variation underscores the
  educational diversity of potential
  audiences of financial education
  programs.
        Target Audiences

• Additionally, the need determines how
  to carefully select educational materials,
  delivery methods, and the evaluation
  approach based on the needs of each
  audience to achieve desired results.
     Methods of Financial
      Education Delivery
• Various methods are used to deliver
  financial education programs. These
  methods can be classified under three
  main categories:
  – Individual Methods
  – Group Methods
  – Mass Methods
     Methods of Financial
      Education Delivery

• Individual Methods
  – One-on-one counseling
  – Telephone advising
  – Computer/Internet Learning
     Methods of Financial
      Education Delivery

• Group Methods
  – Seminars/presentations
  – Training workshops
  – Workshop series
  – Credit courses offered through formal
    educational institutions
     Methods of Financial
      Education Delivery

• Mass Methods
  – Web-based programs
  – Interactive CD programs
  – TV programs
  – Newsletters/papers
  – Radio programs
          Evaluation Tools
• Evaluation is a key component of Financial
  Education Programs. There are many
  different types of evaluation tools depending
  on the object being evaluated and the
  purpose of the evaluation. Perhaps the most
  important basic distinction in evaluation types
  is that between formative and summative
  evaluation.
        Evaluation Tools
• Formative evaluations strengthen or
  improve the object being evaluated --
  they help form it by examining the
  delivery of the program or technology,
  the quality of its implementation, and
  the assessment of the organizational
  context, personnel, procedures, inputs,
  and so on.
        Evaluation Tools
• Summative evaluations, in contrast,
  examine the effects or outcomes of
  some object -- they summarize it by
  describing what happens subsequent to
  delivery of the program or technology;
  assessing whether the object can be
  said to have caused the outcome;
        Evaluation Tools

• Determining the overall impact of the
  causal factor beyond only the
  immediate target outcomes; and,
  estimating the relative costs associated
  with the object.
        Evaluation Tools
• Formative evaluation includes several
  evaluation types:
  – Needs assessment determines who
    needs the program, how great the need is,
    and what might work to meet the need
  – Evaluability assessment determines
    whether an evaluation is feasible and how
    stakeholders can help shape its usefulness
         Evaluation Tools
• Formative evaluation includes several
  evaluation types:
  – Structured conceptualization helps
    stakeholders define the program or
    technology, the target population, and the
    possible outcomes
  – Implementation evaluation monitors the
    fidelity of the program or technology
    delivery
         Evaluation Tools
• Formative evaluation includes several
  evaluation types:

  – Process evaluation investigates the
    process of delivering the program or
    technology, including alternative delivery
    procedures
     Financial Education
      Resources & Curriculums
• FDIC Money Smart
• Freddie Mac – Credit Smart
• NEFE – National Endowment for
  Financial Education
• Federal Reserve Bank – Guide to
  Financial Literacy Resources
• Jump$tart Financial Literacy
Sample Presentation



    Goal Setting
     Budgeting
      Credit
 Five Rules to Goal Setting

Rule #1: Set Goals that Motivate You

  Making sure it is something that's
  important to you and there is value in
  achieving it.
 Five Rules to Goal Setting
Rule #2: Set SMART Goals

    -Specific
    -Measurable
    -Attainable
    -Relevant
    -Time Bound
 Five Rules to Goal Setting
Rule #3: Set Goals in Writing

 Put them on your walls, desk, computer
 monitor, bathroom mirror or refrigerator
 as a constant reminder.
 Five Rules to Goal Setting
Rule #4: Make an Action Plan

 Write out the individual steps, and then
 cross each one off as you complete it.
 Five Rules to Goal Setting
Rule #5: Stick With It!

 Remember to review your goals
 continuously.
           How to Budget
• Getting started with making a plan for your
  money
• Planning how to spend your money
• Developing a spending plan to meet your
  goals
• Making your spending plan
• The importance of saving
• Getting help
Why Do You Need a Spending Plan?

 • To prepare for large expenses

 • To encourage savings

 • To prepare for surprise expenses

 • To identify wasteful spending

 • To accomplish goals
         Rate Your Spending Habits
   • What would be hardest?

   • Is a house worth giving these things up?

   • Are you ready to do this now?

   • Are there other things you want to do first?

   • What things would be easiest to change?



Neighborhood Reinvestment Training Institute
The Steps in Establishing a Spending Plan

    1. Determine your monthly net income

    2. Calculate your monthly expenses

    3. Subtract your regular expenses from your
       income
     Keeping Track of Spending

   • Save all receipts

   • Use a small notebook



Neighborhood Reinvestment Training Institute
      Setting Family Goals
• Talk about goals as a family
• Be specific
• Write down all family members’ goals and
  rank them in order of importance
• Agree on your top goals
• Figure out how much it will cost to reach your
  goals
     Wants vs. Needs

• Needs= items you must have
  for basic survival

• Wants= things you desire but
  can live without
  Money Management Tips
• Plan according to current
  income
• Plan ahead for six months
• Include spending money for all
• Keep record keeping simple
Money Management Tips
• Set money aside for
  maintenance
• Pay yourself first at least
  10% of take-home pay
• Get consensus from
  entire family
       Reviewing the Plan
• Is our spending plan working?
• Are all family members able to follow it?
• Which costs always seem to be over the
  planned amount?
• Are we getting closer to reaching our
  goals?
Ways to Make Money Management Easier


 Consider consolidating credit card accounts
 Consider selling a car
 Check your interest rates
 Stick to the plan
     Importance of Saving


$2/ day    2% interest   =   $1,504.09 in 2 years




Try to save 10% of your income
on a monthly basis!
Types of Savings Accounts
• Regular savings account
• Club account
• Certificate of deposit (CD)
• Money market account
• Matched savings account
         Tips for Savers
• Pay yourself first
• Open a savings account far away
  from home and work
• Save change at end of day
• Bank your surprises
  Saving $1 a Day
          No Interest    5% Daily
                        Compounding
Year 1       $365          $374

Year 5      $1,825        $2,073

Year 10     $3,650        $4,735

Year 30    $10,950       $25,415
             Key Points
The value of credit
Different types of loans
What a credit report is and how it is used
How to read a credit report
How to start restoring credit
How to recognize credit restoration scams
Available credit resources
          Key Points
The characteristics of a credit card

The costs of using a credit card

The potential problems with credit
card use
  Importance of Credit
Can be useful in times of
emergencies

 Is sometimes more convenient
than cash

Allows you to make large
purchases
Types of Credit

     Secured



    Unsecured
   Collateral Items
Automobiles


Homes


Savings and investment accounts
Consumer Installment Loans
   Automobile

   Computer

   Furniture

   College tuition
        Credit Cards
Ongoing ability to borrow money for:

– Household

– Family

– Personal expenses
       Cost of Credit
Amount financed     $5,000

APR                 12%


Finance charge      $675.31


Total of payments   $5,675.31
Be careful of…

Rent-to-own services



Payday loans
Four C’s of Credit

    Capacity

    Capital

    Collateral

    (Character the 4th C)
Credit Reporting Agencies
 Equifax        www.equifax.com
                (800) 685-1111

 Experian        www.experian.com
                (888) EXPERIAN (397-3742)

 Trans Union    www.transunion.com
                (800) 916-8800
 For a merged report:
     True Credit (merged) www.truecredit.com
Tips to Manage Your Credit
If possible, pay off your entire bill
each month

Pay on time to avoid late fees and
protect your credit

Always check your monthly
statement to verify transactions
Tips to Manage Your Credit
 Ignore offers creditors may send
you to reduce or skip payments


Think about the cost
difference if you purchase your item
with cash versus credit
What is in a Credit Report?
  Identifying information

  Credit history

  Public record information

  Inquiries
     Credit Scoring
Payment history    35%
Outstanding debt   30%
Credit history     15%
Types of credit    10%
Credit inquiries   10%
Credit Agencies’ Credit Score


Experian       Fair Issac

Trans Union    Empirica

Equifax        Beacon
    FICO Credit Scoring

– The higher the score the better

– Most consumers score between
 300 and 850

– www.myfico.com
       FICO Credit Scoring
– 660+ = easy to obtain credit at a low
 interest rate

– 620-660 = may need additional
 documentation to get a good rate

– <620 = may prevent the borrower from
 getting best rates
           Definitions
Tax Lien - a claim against a property
filed by the taxing authority for unpaid
taxes


Judgment - a court order placing a lien
on a debtor’s property as security for a
debt owed to a creditor
            Definitions
Collection account - a past due account that
has been referred to a specialist to collect
part or all of the debt


Bankruptcy - a legal proceeding that can
legally release a person from repaying debts
that a person cannot pay back
           Bankruptcies
Chapter 13 - the debtor keeps all of his/her
property and makes regular payments on the
debts after filing for bankruptcy


Chapter 7 - the debtor gives up all
nonexempt property and keeps exempt
property (property that state law determines
is needed for support of the debtor and
his/her dependents)
      Negative Credit Report
           Information
  Type of negative       Maximum time on credit
     information                  report
General Civil         7 years from the date filed
Judgments
                      7 years from the date paid
Tax Liens             Indefinite if not paid
Chapter 13            7 years
Bankruptcy- dismissed
or discharged
All other Bankruptcies 10 years
When is your Credit Report free?
   You have been recently denied
   credit

   You have been recently denied
   employment or insurance

   You suspect someone has been
   fraudulently using your account
When is your Credit Report free?

   You are unemployed and intend to
   apply for employment within 60 days

   You receive public welfare
   assistance

   You live in certain states
        Identity Theft

Contact the fraud department of the
three major credit reporting agencies

Contact your creditors

File a report at your local police
station
   Identity Theft Resources

• www.consumer.gov/idtheft or
  1-877-IDTHEFT (438-4338)

• www.fraud.org or 1-800-876-7060
   What are ways to Build
     a Credit History?
Apply for a small loan at a bank or credit
union where you have checking or
savings accounts

Apply for credit with a local store

Make a large down payment on a purchase
and negotiate credit payments for the
balance
   What are ways to Build
     a Credit History?
Ask a friend or relative with an established
credit history to be a co-signer for you

Pay your bills on time

Establish nontraditional credit through
regular rent and utility payments
   To Rehabilitate Your Own
           Credit
Start by contacting credit reporting agencies to
get copies of your credit report

If there are errors, request an investigation

Contact lenders to renegotiate payment plans

Visit a credit counseling agency
   Tips for Credit Counseling
Interview several credit counseling agencies
before signing a contract

Check with your state attorney general, local
consumer protection agency and the Better
Business Bureau for complaints

Ask for information from the agency about
itself and its services

Ask questions about services and fees
      True Statements about
       Credit Rehabilitation
No one can have accurate information removed
from your credit report

If you have bad credit, it can take years to repair
your credit legitimately

No one can create a new identity for you

You can order your credit report yourself and
dispute any errors on your own
      Credit Card Terms
Annual percentage rate- the rate of
interest you are charged plus fees,
expressed as a yearly rate


Fees- charges for annual usage, late
payments or balances that over-the-limit
      Credit Card Terms
Grace period - the number of days you
have to pay your balance before a
creditor starts charging interest


Balance computation method - how
your interest is calculated
          Interest Rate


Fixed - the interest rate will not change


Variable - the interest rate can increase
or decrease
Shopping for a Credit Card

Decide how much you will use your card
Start small
Understand the terms
Be aware that introductory rates will change
Avoid application fees
Understand fixed and variable rates
       Cost of making Minimum
              Payments

     Item   Price   APR   Interest    How much      Total
                            Paid      you really   years to
                                     pay for the   pay off
                                        item

TV          $500    18%   $439         $939           8

Computer $1,000     18%   $1,899     $2,899          19
Furniture $2,500    18%   $8,781 $11,281             34
     Benefit of Making Higher
            Payments
Original   APR    Monthly     Total     Total     Total of
Balance          Payments    Number    Years to   Payments
                               of      Pay off
                            Payments
$2,500     18%   Minimum      404        34       $8,781
                 payment

$2,500     18%    $50         94          8       $4,698
$2,500     18%    $100        32          3       $3,163
Finance Charge Calculation
APR is 18%
Daily periodic rate is 0.0493% (18%
divided by 365 days)
Multiply the average daily balance ($200)
by the daily periodic rate
Equals $.10 per day (for each day you
have the $200 balance)
Finance charge is $.10 x 30 days or $3.00
 Tips for using Credit Cards
Pay your bills on time
Keep your receipts
Protect your credit card and account numbers
Keep a record of your account numbers
Carry only the credit cards you think you will
use
Pay off the total balance each month
Read the fine print
   Correcting Credit Card
         Problems
Pay off credit card and higher interest
rate loans first

Pay for future purchases using check or
cash

See a reputable credit counselor
           Contact Us
D&E, A Financial Education and Training
               Institute, Inc.
          4532 Jonesboro Road
                 2nd floor
         Forest Park, GA 30297
           1-877-790-1831 toll
          (770) 961-6900 office
           (770) 961-8900 fax
        info@depower.org email
       www.depower.org website

								
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