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 homeimprovement 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
•
•
•
•
Interest Rate 7.25%
Monthly Payment - $234
Total interest paid (10 yrs)
$8,176
Karen – 650 FICO Score
•
•
•
•
•
Interest Rate - 13.25%
Monthly Payment - $302
Total interest paid (10 yrs)
$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.
Karen – 650 FICO Score
Emily - 750 FICO Score
• Interest Rate - 10.99%
• Annual Interest- $880
• Lifetime interest $44,000
•
•
•
•
Interest Rate – 19.99%
Annual Interest- $1,600
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 60month 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
Karen – 650 FICO Score
Emily - 750 FICO Score
•
•
•
•
Interest Rate - 5.78%
Monthly Payment - $481
Interest cost per car $3,843
Lifetime interest paid $30,768
•
•
•
•
Interest Rate – 13.24%
Monthly Payment - $572
Interest cost per car $9,310
Lifetime interest paid
$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 datacollecting 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?
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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
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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
information
General Civil
Judgments
Tax Liens
Maximum time on credit
report
7 years from the date filed
7 years from the date paid
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
Paid
How much
you really
pay for the
item
Total
years to
pay off
$500
18%
$439
$939
8
Computer $1,000
18%
$1,899
$2,899
19
Furniture $2,500
18%
$8,781 $11,281
TV
34
Benefit of Making Higher
Payments
Original
Balance
APR
Monthly
Payments
Total
Number
of
Payments
Total
Years to
Pay off
Total of
Payments
$2,500
18%
Minimum
payment
404
34
$8,781
$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