Investments and Personal Finance
Introduction to Economics
Johnstown High School
Mr. Cox
Why invest? Now vs Later
 Jim invests $100 a month ($1,200/year) at age 25 for 10
years at 10.00% compounded monthly (compounding continues after
age 35)
 Sam invests $100 a month ($1,200) at age 35 for 30 years at
10.00% compounded monthly
Who has more money at age 65?
Time Is Money
$450,000
$409,736
$400,000
$350,000
$300,000
$227,930
$250,000
$200,000
$150,000
$100,000
$50,000
$1
5
10
15
20
YEARS
25
30
35
40
Where Can You Put Your Money?
 Under your mattress
 Little risk, no room for capital gain
 Savings
 bank holds your money
 CDs (Certificate of Deposit)
 bank holds your money, time specified
 Money Market
 short term
 Bonds
 “loan”, lower risk (usually)
Where Can You Put your Money?
 Stocks
 “ownership”, risk varies
 Mutual Funds
 “pool”, risk varies
 ETF’s
 “index”, risk varies
What Programs are Available for Retirement
Savings?
 What are they, how do they work, and what are the
underlying investments
 Traditional IRA
 Roth IRA
 403 (b)
 401 (k)
IRA (Individual Retirement Account)
 After-Tax Maximum annual contribution cannot be more
than gross income
 Account grows tax deferred
 Taxes paid once distributions are taken
Roth IRA
 Maximum annual contribution cannot be more than gross
income
 Taxes are applied before investment
 How to choose? Why one or the other?
https://investor.vanguard.com/ira/roth-vstraditional-ira
403(b)
 Section of IRS tax code for public employees
 Schools, colleges, state agencies
 Immediate vesting
 2009 max contribution $15500
 Portable/Movable to other accounts
401(k)
 Section of IRS tax code for private employees
 Corporations, LLC’s, self-employed
 Employer sponsored
 Matching/vesting schedules
 2008 max contribution $15500
 Portable? Maybe..
How To Manage Risk
 Consult an investment professional
 Match your investments with your time frame
 Pick funds managed by experienced professionals
 Invest regularly - in good times and bad
 Diversify!
 Large, mid, small companies
 Aggressive when young, conservative when older
How To Get Started.
 Talk to an advisor
 Start doing research
 Tips to help get started
 Begin planning
 401(k) - go to employer
 IRA - Bank/ mutual funds/ETFs
 do own investments
 T. Rowe Price, Vanguard, Fidelity, etc
 use a financial advisor
 Be sure to think about taxes……….
Completing Your Taxes
 For you as teenagers, you will more than likely be
completing the 1040EZ form
 1040 is basic income allowance sheet
 1040ez is filing for low income/minors/dependents/single
 Reports income and other financial information to federal government
 Separate forms used for state/local governments
 Use W-2 form to fill out
I’ve Got A Job!
What’s an I-9
and a W-4?
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Form I-9 – Employment Eligibility Verification
 Proves you aren’t an illegal alien
 Penalty if not one on file for each employee
 Keep 3 years after employee is gone
 Acceptable documents used to prove citizenship:
 Passport
 Voter’s registration
 School or military ID
 Driver’s license
 Social security card
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So What Is A W-4?
 New employees fill out this form
 Tells employers how much federal income tax to withhold
from paycheck
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Filling Out the W-4 Correctly
 If don’t fill out correctly:
 Owe money when taxes are due April
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 Could be taking out too much tax from
paycheck
 Lose potential interest
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A Few Key Terms You Need To Know
 WITHHOLDING:
 Represents money that an employer deducts from paycheck to
pay all or part of employee’s taxes
 However, depending how much make for the year, you may
not have to pay federal income tax. If this is you, you would
be EXEMPT from paying
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Can you put Exempt on your W4?

You can put “Exempt” if:
1.
2.
3.
4.
Weren’t required to pay federal income tax last year
Don’t expect to this year either (made less than $6100 {std
deduction - base amount of income that is not taxed})
If under 19 or a full-time student (or until 24 yr/full time)
CAN parent(s) claim you as a dependent?
DEPENDENT: A person who relies on another taxpayer for at least
half of his or her support (food, shelter, clothing, education, etc.)
If divorced


o
o
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Custodial parent (has child 1 more day than other)
One makes more money
Examples:
 If you live with parents and under 19, you can be claimed as
a dependent regardless of how much you make.
 While your parents may not choose to claim you, test is
whether they CAN.
 If they can claim you and you are under 19, and expect to
make under $6100 in the calendar year, you will likely NOT
have to pay federal income tax.
 Note: If you are at least 19 but under 24, parents can still claim you as
a dependent as long as you are a FULL-TIME Student!
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I don’t qualify for Exempt status – now
what?
 Need to fill out the personal allowances worksheet on the W-
4 form!
 The more exemptions (allowances) you claim, the _____ tax
withheld from paycheck
 Claim “____” will result in the largest amount of tax to be
withheld
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What if I Make a Mistake?
 Claim exempt and make more than $6100?
 More than likely have to owe taxes!
 If you don’t claim exempt (0 allowances)
 More than likely break even or receive a
refund!
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The Paycheck Stub
 Miscellaneous Information
 Gross Income
 Deductions
 May get refund on Fed and State
 No refund on SS or Medicare
 Net Income
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The W-2
 Must receive these by January 31st from your employer
 Summarizes
 How much you made during the year (Earned
Income)
 How much you paid in for taxes
 Use to help fill out tax return
 If error, see employer to fix
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W-2 continued
 W-2 – will have 3 copies
 Your records
 Attach to state tax return
 Attach to federal tax return
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Fill out w wb
1099-INT
 Receive this form from your bank
 Shows interest earned for year
 Remember: Interest is considered “unearned
income” and may have to pay tax on it!
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Fill out w wb
Am I Required to
File a Tax
Return?
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Am I Required to File a
Tax Return (as a dependent)?

Due April 15!

Required? Depends…
OR if…
3.
Filing Requirement Worksheet for Most Dependents
*Your income for the year
1.
*If parents can claim you, you
must file if:
2.
1.Your unearned income was
over $1000
2.Your earned income was over
$6100
Enter dependent's earned income plus $350
Minimum amount
3.
$1000
Compare lines 1 and 2. Enter larger amt
(Adjusted Earned Income)
4.
Maximum Amount
5.
Compare lines 3 and 4. Enter the smaller
amount
6.
Enter the dependent’s gross total income. If line
6 is more than line 5, the dependent MUST
FILE an income tax return.
$6100.00
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http://www.irs.gov/uac/Do-I-Need-to-File-a-Tax-Return%3F
Am I Required to File a Tax Return?
 Jill Williams, 18, had
two jobs during the past
year. She worked as a
waitress at La Fogata,
where she earned $6800
and as a summer
counselor, where she
earned $2400. Jill also
made $375 in interest.
Filing Requirement Worksheet for Most Dependents
1.
Enter dependent's earned income plus $350
2.
Minimum amount
$1000
3.
Compare lines 1 and 2. Enter larger amt
(Adjusted Earned Income)
4.
Maximum Amount
5.
6.
$6100.00
Compare lines 3 and 4. Enter the smaller
amount
Enter the dependent’s gross total income. If line
6 is more than line 5, the dependent MUST FILE
an income tax return.
Do I have to file return WS
Forms?
 1040EZ – simplest to file
 1040 – most lengthy to file
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How Do I File the
1040EZ?
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How Do I File the 1040EZ?
 Must meet requirements to use EZ:
 Single
 Claim no dependents
 Taxable income < $100,000
 No income other than wages, salaries, and tips (shown
on W-2)
 Up to $1500 taxable interest (shown on 1099INT)
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Filling out the 1040EZ
 Terminology:
 Adjusted Gross Income (AGI)
 Sum of wages and taxable interest
 Deduction
 Amount tax payers may subtract from their AGI before
tax is determined (reduction in income)
 Taxable Income
 Part of income you must pay taxes on
 Credit
 Direct reduction of taxed owed
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Fill out 1040EZ wb
Now it is your turn to try!
 Print your name, address and Social Security Number.
 Using the sample W-2 form, complete the Income section
and calculate your taxable income.
 Complete the payments and tax section and then go to the
booklet (sheet) provided in the handouts to calculate your
tax.
Continued
 Find out whether you will get a refund (Line 11a) or you




owe money to IRS (Line 12).
If you are getting a refund, you can have your refund mailed
to you or directly deposited into your bank account.
If you owe money, you have to write a check.
Be sure to sign your return and add in additional information
as required.
Good Luck!!
Sending in the Return
 Photocopy the EZ form for record
 Mail in W-2 & 1099 INT with return
 If owe
 payable to “United States Treasury”
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Don’t Want to Pay? What could you
have done differently?
 If you don’t choose to pay, IRS will add 5% to what
you owe for each month you don’t pay!
 W-2
 Claimed “0” rather than exempt so take taxes out
 Watch out for scam artists!
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