Unit 4 - Finance
Needs versus wants
• Needs are the essentials of everyday life
that you cannot live without
• Wants are items, activities or services that
increase the quality of life. Can be
wasteful if your income is limited
Needs vs. Wants
• Needs examples
• Wants examples
What do YOU do with your
money?
• Jot down the last 10 things (items,
activities or services) you bought.
• Categorize each as a need or want.
Master expense list-$30,000 exercise
(from Power Play-fixed vs. variable)
Item
$ Amount
# of $500 bills
Details
Taxes
5,000
10
Income tax deducted
Rent
8,500
17
Approx. $700/mth, 1bedroom
deluxe basement suite
Car payment
3,000
6
$250/mth (used Honda Civic)
Car Insurance
1,000
2
ICBC quote for young driver of
used 1997 Honda civic.
Gas
1,000
2
Works out to just over
$80/mth.
Food
5,000
10
This is no dining out!
Clothes
1,000
2
Approx. $80 mth.
Spending money
1,000
2
Works out to just over
$80/mth.
Gifts
1,000
2
“
Heat
1,000
2
“
Phone
500
1
Inexpensive cell phone/plan
Healthcare
1,000
2
Prescriptions, dental, etc
Training/education
1,500
3
Part-time courses
What’s the moral of the story?
• Buy only things you really want, set limits.
• Buy things on sale.
• Pay yourself first. Usually 10% of net
income.
• $10.25 per hour is less than $19,700 per
year so training and education is key.
• Set goals and follow a BUDGET!
But wait..its not a budget?
•
•
•
•
People have a hard time with
budgeting because it has
restrictive connotation to it.
A budget shows you exactly
where money goes while a
spending plan lets you save for
things that are important to you
(car, house, etc).
Should be customized to meet
your needs, the simpler the better!
The basics of creating a budget:
choose a budgeting period,
calculate expenses, balance
expenses and income..that easy!
•
•
Recognize the difference between
fixed and variable expenses.
Fixed expenses are expenses that
don’t change month after month
(e.g. rent) while variable expenses
can change from month to month
(e.g. entertainment, food).
If your budgeting isn’t working, ask
yourself what money means to
you: is it a self esteem booster?
To make yourself seem worth
while? Do you get a rush out of
making a new purchase?
How budgeting can improve
your life
•
•
•
•
•
•
Sets guidelines for reaching
financial goals.
We expect our government to
have a budget: why shouldn’t we.
Lets you control your money
instead of your money controlling
you.
Lets you know if you are living
within your needs.
Lets you meet saving and
investment goals.
Frees up spare cash so you can
spend it on things you really want
instead of things you don’t even
remember buying.
How budgeting can improve
your life
•
•
•
•
•
•
Helps families focus on common
goals.
Helps you prep for emergencies
and other unanticipated expenses.
Strengthens marriages as it is a
communication tool.
Reveals excessive spending
areas. Creates a visual spending
picture.
Can help get you out of debt or
keep you out of debt.
Can help you sleep better at night
because you don’t worry about
how to make ends meet.
Personal vs. Financial goals
Personal: ______________
Financial: _____________
• What I can be doing now to
work towards this goal?
• What I can be doing now to
work towards this goal?
• The resources I need to
achieve this goal are
Personal? External?
• The resources I need to
achieve this goal are
Personal? External?
Where does your money come from?
Determining anticipated income.
•
Answer these questions in full sentences, be prepared to discuss your
answers in class.
1. List your current source(s) of income.
____________________________________________________________
____________________________________________________________
_________________________________________________________
2. What do you expect your source(s) of income to be in the near future?
____________________________________________________________
____________________________________________________________
_________________________________________________________
3. What are your feelings about being financially dependant vs. financially
independent?
____________________________________________________________
____________________________________________________________
_________________________________________________________
Where does your money go?
•
Think back to everything you bought during the last week and answer
the following questions.
What patterns can you see in your spending habits?
____________________________________________________________
____________________________________________________________
____________________________________________________________
How do you decide what to purchase?
____________________________________________________________
____________________________________________________________
____________________________________________________________
What factors do you think influence your purchasing decisions?
____________________________________________________________
____________________________________________________________
____________________________________________________________
Steps to setting up and
maintaining a budget
Estimate your income
Estimate your expenses to
include:
•
•
•
Fixed regular monthly expenses.
Fixed “irregular” monthly expenses.
Flexible monthly expenses.
•
Personal expenses.
Keep your personal and
financial goals in mind.
•
Balance your budget
•
Estimate your future expenses:
•
•
Begin by keeping a record of
everything you spend.
What are your financial goals and your
plans for obtaining those goals?
Cope with change.
•
•
Plan for change.
Plan for changing conditions that increase or
decrease your expenses.
Set money aside to meet financial
goals.
•
Each month, compare your income to
your expenses. Continue reworking
your budget until your income is greater
than your expenses.
Discuss different budget options
available.
Practice setting up a personal
budget.
Assignment: Create your own personal budget
This is an individual assignment in which you will create your own detailed budget. The budget
will not be a reflection of the funds you have now. Your budget will be based on one of the two
occupations you chose in your Career Cruising assignment in which you hope to be working ten
years from now. This is a required component of your GT package. It will be marked using the
following criteria:
1. Title page and table of contents. …………………………………………………………/10
- Name, block, course, date, teacher, title
- Bright and colorful, table of contents includes topics and page #’s
2. Employment description/salary…………………………………………………………../10
- Type of job, description, location, daily hours
- Daily, monthly and yearly salary.
3. Occupational Income Sheet………………………………………………………………./10
- Accurate completion of Occupational Income Sheet.
4. Shelter/accommodation………………………………………………………………….../10
- Location and reasons for selection.
- Include the advertisement.
- Rent, hydro, telephone, cable, insurance, internet, other..
5. Food costs (optional)..……………………………………………………………………./10
- detailed daily menu (7 days a week, 3 meals per day).
- grocery list complete and accurate.
DUE DATE: __________________________________________
Assignment: Personal Budget-Job
Description Details
Job Description Details.
1. Describe the job in pain staking detail (300 of your own words
minimum).
2. Find a location to work and provide all the details (e.g. address, etc.)
3. Yearly salary before taxes.
4. Monthly salary before taxes.
5. Daily salary before taxes (based on 22 working days per month)
6. Hourly salary before taxes.
This section will be approximately 1 ½ pages in length, typed,
single space, 12 size font. Use Career Cruising as your primary
source.
Assignment: Personal BudgetOccupational Income Sheet
•
•
My occupation is _________________
I need __ year(s) of post secondary
training for this career. I got this
information from:
_______________________________
(One year of university costs approx.
$6500-7000. One year of college $6,5007000. $8500 per year for a Masters
program. $17,000 for a doctorate
program. Trades vary-use the training
institute’s approximation.)
•
•
•
Number of years __ X above amount =
_____________.
What is your anticipated first year’s
income? ___________
What is your pay now (10 years after
you graduate high school)?
______________
TAX RATES: $0- 30,000 (27%),
30,001-59,999 (35%) 60,000 and over
(40%).
•
GROSS PAY for one year is _______
X the TAX RATE as a decimal. This
equals your yearly taxes which is
___________.
•
GROSS PAY for one year ________
minus taxes equals NET PAY for one
year which is _____________.
•
Take NET PAY __________ divided
by 12 months equals NET PAY per
month ___________.
What do students know about saving?
Canadian survey results.
Two-thirds of students say it is very/somewhat important to be aware of how to
manage money
Only 15% of students believe managing money is unimportant or not very important.
Almost 2/3 of respondents found it to be an important topic.
Budgeting behavior appears to change as students progress through school
As students go through high school, their behavior towards budgeting appears to
change.
By grade 12 fewest proportion do not budget their money (25% in grade 12 do not
budget vs. 42% in grade 10).
Slight increase in per cent who claim to always budget in grade 12 vs. those in junior
grades.
Males and females have very similar budgeting habits.
Less than half of students have been shown how to create a budget
Over half of the respondents have never been shown how to create a budget (57%)
68% of those in grade 10 have not been shown how to budget vs. 50% of those in
grade 12.
What do students know about saving?
Canadian survey results.
Savings accounts and Debit cards are the top financial products that students
use and are familiar with
16% of all students indicate having access to a credit card
When asked about credit card repayment, over half of credit card holders indicate
they pay off the entire amount each month (57%).
Grade 12s are 28% less likely to pay off the entire amount each month than grade
10s.
Grade 12s are also less likely to have “someone else pay” their monthly bill.
Students earn money from PT jobs or allowance and think of “savings” when
asked about finances.
More than double those in grade 12 have earned money from part time work than
those in grade 10.
73% grade 12s have earned money from a PT job vs. 28% in grade 10.
“Saving” is one of the top responses when asked for top of mind comments about
“personal finances and managing money”.
What do students know about saving?
Canadian survey results.
Clothes are the top item to save for while school-related costs lead as biggest
concern.
The top items that all students save for are “clothes” and “entertainment” (66% and
55%)
There is difference between the grades for the top third spot. Grade 10s save for
“gifts for others”, grade 10s and 11s save for “technology” and grade 12s save for
“education”.
For all high school students “paying off tuition and school expenses” is the
number one financial concern (30%)
Those in grade 10 are slightly more concerned about “buying or paying for a car or
house”(12%) than “having enough money to do what I want” (10%)
Two-thirds of students say it is very/somewhat important to be aware of how to
manage money
Only 15% of students believe managing money is unimportant or not very important
Almost 2/3 of respondents found it to be an important topic.
What do students know about saving?
Canadian survey results.
Buying a car is the number one area students have most interest in learning
more about
Knowledge Interest Gap
Buying a car
24%
62%
38%
Investing money safely
21%
50%
29%
Saving money to move out from home
21%
50%
29%
Saving for education
37%
62%
25%
Buying a home
14%
39%
25%
Most students do not indicate that they feel prepared to manage their money
after graduation
About 7% of students feel very prepared while 31% of students feel that they have
some level preparedness and 35% of students clearly indicated that they do not feel
prepared to manage their money. Self perceptions of being prepared to manage
money gain strength with increase in grade level.
Students indicate schools should provide some information on money
management and rate their schools today as weak in this regard.
Thinking about the survey.
• What statistics could you relate to?
______________________________________________________
______________________________________________________
______________________________________________________
• What statistics stuck out as odd to you?
______________________________________________________
______________________________________________________
______________________________________________________
• How do you feel your thinking about finances will change as you
approach Grade 12/post secondary?
______________________________________________________
______________________________________________________
______________________________________________________
What are financial institutions?
In Canada, you can use, banks, credit unions and trust companies for banking services.
Each of them provides a range of services and fees vary from one to another.
They run as a business to make profits for their owners and make money by taking in
deposits and then using that money to lend to other customers or to invest in other profitmaking activities. They pay interest to depositors for the right to use their money
Level of service, fees and interest rates paid to depositors vary because financial
institutions vary in their scope of operations; some have more customers and are able to
leverage better deals for their customers, some have more efficient business practices or
even less services. Some can even pay more interest usually at the cost of limiting
depositor withdrawals.
Depositor insurance is insurance that covers depositors in the event of a financial
institution going bankrupt. Most financial institutions are members of the Canada
Deposit Insurance Corporation (CDIC) and are covered for deposits in accounts of up
to $60,000 CDN but investment accounts are not covered. Credit Unions are covered up
to $100,000 per depositor. The CDIC hasn’t had to pay a claim since 1996 which
demonstrates that most Canadian financial institutions unlike their American counterparts
are based on solid business models first and foremost.
Challenge: Can you name the 4 largest Canadian financial institutions in 2014?
1. ____________ 2. _____________ 3. _____________ 4. ______________
Guide to banking services
Services
Features
Chequing account, savings account or
chequing/savings account
•A savings account usually pays more interest
than a chequing account but has fewer features
and different fees.
•Savings accounts may not allow cheques and
can limit withdrawals.
•A chequing/savings account offers features of
both.
Automated teller machines (ATM’s)
•Convenient access for withdrawals, deposits and
other transactions.
•There may be extra fees, especially to use
machines from other institutions or private
machines
•Prone to fraud (skimming, identity theft).
ATM debit card
•Allows you to pay for purchases with money in
your account.
•There may be charges for each transaction, plus
annual or monthly fees.
Credit card
•Allows you to pay for purchases with
BORROWED money.
•Charges interest on amounts unpaid after a
SHORT grace period (usually 18 days).
•There are usually annual fees.
•Prone to fraud (skimming, identity theft)
Guide to banking services (con’t)
Services
Features
Telephone and online banking
•Allows you transfer money, pay bills and do other
business without visiting a branch.
•There may be extra fees for this type of service.
•Prone to scams (phishing).
Automatic deposits and payments
•No need to visit the branch or remember to make
payments.
•You must be sure your balance will cover
automatic payments and when they come out of
your account.
•Some banks offer rewards (e.g. Airmiles) for
setting up your account as such.
Account transfers
•May be by ATM, online or in person.
•You may be able to transfer money to accounts
within the same institution or a different one.
•Fees may apply.
Overdraft protection
•Will cover cheques you write or withdrawals you
make even if there’s not enough money in the
account.
•Interest charges and monthly fees will apply.
•Not everybody can qualify for this service.
Guide to banking services (con’t)
Service
Features
Traveller’s cheques
A traveler's cheque is a preprinted, fixed-amount
cheque designed to allow the person signing it to
make an unconditional payment to someone else as
a result of having paid the issuer for that privilege.
Money order
•Can be acquired from a bank or even a post office.
•Provide the representative with the funds, as well as
the name of the recipient, and you will be presented
with a money order for that amount.
•A small fee is usually involved.
•Value is typically limited to $1,000 or less.
Certified cheque
•Just like a regular cheque from your bank account.
•Means that the bank guarantees that there are funds
in your account to accommodate this cheque,
typically setting the money aside so that it cannot be
touched. For larger purchases (e.g. car)
•Small fee applies.
Safety deposit box
•Is an individually-secured container, usually held
within a larger safe or bank vault.
•Used to hold valuable possessions. Fees apply.
Guide to banking services (con’t)
Services
Features
US dollar accounts/foreign exchange
•Can hold funds in US dollars.
•Benefit from favorable exchange rates.
•Banks can convert your CDN dollars to popular
foreign currencies (e.g. Euro, Pounds, Rupees)
Line of credit
•You can borrow money as you need it up to a pre
approved limit.
•Usually charges a lower rate than credit cards.
Loans
•You can borrow money through student loans,
car loans, mortgages, etc.
Credit union
•A non-profit financial institution that is owned and
operated entirely by its members.
•Provide financial services for their members,
including savings and lending.
Investment services
•Most banks today can provide added services to
their customers that include: Registered
Retirement/Education Savings Plans
(RRSP/RESP), mutual funds and web-based
stock trading (e.g. TD Waterhouse)
Bank Brochure Assignment
As the new bank president, you have been tasked with coming up with a visually
appealing, informative and easy-to-read brochure that outlines what services your bank
provides and why becoming a customer of the bank is a good idea. Your brochure
should include the following elements:
1. Name of the bank.
2. What type of services your bank provides (no less than 8 services: services
can include items such as: chequing/savings accounts; consumer loans; line
of credits; safety deposit boxes, etc). A detailed explanation of each service
and its corresponding fee (if any) is required in your brochure. Using online
banking sources would be a good idea here.
3. Selling points of your bank. (e.g. “ We have the lowest interest rates on car
loans” or “We give a free monthly bus pass to all new student customers”).
4. Creativity, originality and neatness. How visually attractive is your brochure?
Originality and neatness count for a lot and the brochure must be
appealing and have a certain “wow” factor attached to it.
This assignment will be marked out of 30 (10 for each of criteria areas 2-4) and your
mark will depend on how closely your project meets the defined criteria set forth.
DUE DATE: ________________________
What is credit?
1) Allows you to buy the things you need and want today
while deferring or extending the payment into the future.
2) It can help you purchase certain things that would take
far too long to save for.
e.g. house or car
NOTE:
Credit can be a useful tool in your financial planning.
Unfortunately it can also result in financial disaster.
Knowing HOW to use credit is key.
Types of Credit
1) Consumer loan: (e.g. Purchasing a TV from
Best Buy)
2) Term loan (through a bank—must have dollarfor-dollar collateral)
3) Trust companies
4) Credit unions (like banks but owned by
customers)
5) Life Insurance companies
6) Outside mortgage providers (high rates)
7) Parents (a.k.a. the bank of mom and dad)
Things to consider before using
credit (i.e. borrowing)
1) Do you really need or want the item?
2) Is the “sale” item better than the “interest” charges you
might pay! Can you pay for the sale item quickly –before
the grace period ends?
3) Will the cost of buying now cut into the “interest” in your
“savings” account!
4) Will the price of your PURCHASE increase too much in
the time period!
Using Credit Wisely (handout questions)
1. List 3 strategies for using credit wisely listed in the handout.
____________________________________________________________
____________________________________________________________
____________________________________________________________
2. List 3 signs you could have a debt problem.
____________________________________________________________
____________________________________________________________
____________________________________________________________
3. List 3 possible solutions to a debt problem.
____________________________________________________________
____________________________________________________________
____________________________________________________________
4. What are some of the drawbacks of claiming personal bankruptcy?
____________________________________________________________
____________________________________________________________
Getting control of Debt (handout
questions)
1) List 3 danger signals that you may have a debt problem.
________________________________________________________
________________________________________________________
2) What is the absolute best thing you can do if you have a financial
problem?
________________________________________________________
________________________________________________________
3) What is the most important thing to look for when shopping for a debt
consolidation loan?)
________________________________________________________
________________________________________________________
4) What is a Consumer Proposal?
________________________________________________________
________________________________________________________
Handout questions
1. Complete Credit and Debt
review questions.
2. Complete Credit and Debt
review quiz.
Taxes in Canada
Basic information
a) Tax is a compulsory payment
b) Purpose is to raise revenue for government
c) Collected at a federal, provincial and municipal level.
List a type of tax collected by each level of government.
Federal ______________
Provincial _______________
Municipal _______________
Good tax:
a) Its fair
b) Its easy to figure out
c) Its easy to collect
d) Its direct and not shifted to someone else (opposite: indirect or hidden)
Kinds of taxes
Income tax
• Types include personal and corporate
• Collected by Revenue Canada
• Canada Pension, Employment Insurance (EI), etc.
Sales tax
• Federal and provincial used to be separate (PST-5% and GST-7%=12% total) but
since July 2010, BC has seen the introduction of the 12% HST (Harmonized Sales
Tax which is collected by the federal government. HST applies to more items than
the tax it replaced. (e.g. haircuts, sports/theatre tickets, some grocery items).
Excise tax and excise duty (federal)
• Luxury tax on vehicles over $40,000 (e.g. cars)
• Excise duty (alcohol and tobacco)
Customs duty
• On imported goods (e.g. something you purchase abroad off eBay)
Property tax
• Levied on real property by municipal governments
Business tax (municipal-enforced by bylaws)
• Business license
• Dog license
Legal requirements for reporting
personal income tax
Complete the following questions after reading the booklet: Students and
Income Tax.
1. As a student, what is probably the most important reason you would want to file an income tax
return?
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
2. What is a SIN and why does the federal government need it?
_________________________________________________________________________________
_________________________________________________________________________________
3. If you don’t feel comfortable filing income tax and would prefer to have someone else (e.g. a parent
or accountant) represent you, what are two steps you can take?
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
4. What are the four ways in which you can file your return?
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
Legal requirements for reporting
personal income tax (con’t)
5.
What is the date that your return is due?
______________________________________________________________________________
______________________________________________________________________________
6. What do you include with your return and what records do you keep?
______________________________________________________________________________
______________________________________________________________________________
7. How long should you keep your supporting documents for?
______________________________________________________________________________
8. What tax package should you use?
______________________________________________________________________________
______________________________________________________________________________
9. What do you do if you are missing information like a T4 slip?
______________________________________________________________________________
______________________________________________________________________________
10. What are types of income you don’t have to report?
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Legal requirements for reporting
personal income tax (con’t)
11. What is the most common deductible expense for students and how does it work?
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
12. How will the scholarship exemption be treated after 2010?
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
13. What are federal non refundable tax credits? What are examples of some?
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
14. Describe the Public Transit amount.
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
Legal requirements for reporting
personal income tax (con’t)
15. Why do you think the federal government makes interest on student loans a nonrefundable tax credit?
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
16. List four institutions from which you can claim tuition fees.
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
17. List eight eligible tuition fees.
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
Shopping for credit cards
Student credit cards differ substantially and you must comparison shop for the
one that is right for you-here are some questions to ask yourself:
How do I plan to use the card? (carry a balance or pay the balance
monthly)
 What is the annual fee?
 What are other associated fees?
 What is the grace period?
 What is the balance computation method used?
Important terms to know when credit card shopping:
Grace period: time following the purchase in which interest is not charged.
APR: Annual Percentage Rate on a credit card. It is the amount you will pay in
interest charges per year. In its most simplistic form, you can figure out how
much you pay per day, take the APR divided by 365.
Balance computation method: The method by which your interest charges
are computed
. There are four methods.
Balance computation method
Examples of balance computation methods include the following:
•
Average Daily Balance. This is the most common calculation method. It
credits your account from the day payment is received by the issuer. To
figure the balance due, the issuer totals the beginning balance for each day
in the billing period and subtracts any credits made to your account that
day. While new purchases may or may not be added to the balance,
depending on your plan, cash advances typically are included. The resulting
daily balances are added for the billing cycle. The total is then divided by
the number of days in the billing period to get the "average daily balance.“
•
Adjusted Balance. This is usually the most advantageous method for card
holders. Your balance is determined by subtracting payments or credits
received during the current billing period from the balance at the end of the
previous billing period. Purchases made during the billing period aren't
included. This method gives you until the end of the billing cycle to pay a
portion of your balance to avoid the interest charges on that amount. Some
creditors exclude prior, unpaid finance charges from the previous balance.
Balance computation method (con’t)
• Previous Balance. This is the amount you owed at the end of the
previous billing period. Payments, credits and new purchases during
the current billing period are not included. Some creditors also
exclude unpaid finance charges.
• Two-cycle Balances. Issuers sometimes use various methods to
calculate your balance that make use of your last two month's
account activity. Read your agreement carefully to find out if your
issuer uses this approach and, if so, what specific two-cycle method
is used.
If you don't understand how your balance is calculated, ask
your card issuer. An explanation must also appear on your
billing statements.
How does APR affect my credit card bill?
If you do not pay your credit card bill in full each month, the APR can greatly affect how much
money you give your credit card company for the short-term use of their money.
•
•
•
•
For example, say you have $1,000 charged on a credit card with minimum monthly payments of
only $20. Sounds nice, right? You may think you can afford that payment each month, with little
effect on your pocketbook. But let's look closer and figure out what it really costs to pay only the
monthly minimum.
With a 15% APR, and making only the minimum payments, it would take over 6 years to pay off
your charges, and with an additional hit of $546.18 in interest over those years going to the
company. Your $1,000 charge just turned into over $1,500!
If you have bad credit or frequently do not pay your bills on time, you may have a higher annual
percentage rate, say 21%. At 21% interest, that initial bill will take you over 9 years to pay. You
would pay in over $1,200 in interest for that $1,000 purchase. This does not include any annual
credit card fees, late charges, or over limit fees that may be charged against your account during
that time, and remember, those extra fees will also accrue interest charges!
However, if you have a good credit history and shop around for a low-interest rate card, you may
have an APR of only 7%. At this rate, it will only take just under five years to pay that bill, with only
an extra $177.55 in interest charges coming out of your pocket.
Of course, the three scenarios above do not take into consideration that you are probably
putting additional purchases onto your card at the same time. Therefore, the amount paid to
the APR will increase, as will the amount of time it takes to pay the card off. A high interest
card that is not paid off quickly can result in a lot of consumer debt. This is why it (literally)
pays to shop around for the best deal, and to keep your credit history clean.
Student credit cards: some suggestions
 Shop for student credit card terms that are best for you.
 Make sure you understand the terms of a card plan before you accept the card.
Review the terms and fees that must appear on credit-card offers you receive in the
mail.
 Pay bills promptly to keep finance charges as low as possible.
 Keep copies of merchandise sales slips and promptly compare charges when your
bills arrive. Do your accounting and keep a history of your accounting.
 Protect your credit cards and account numbers to prevent unauthorized use. Draw a
line through blank spaces above the total when you sign receipts. Rip up or retain
carbon copies.
 Keep a list of your credit card numbers and the telephone numbers of each card
issuer in your phone and in a safe place in case your cards are lost or stolen.
Remember that there is a difference between a debit card and a credit
card. The debit card pulls the money from your chequing account at the
time of transaction when you buy your merchandise. The credit card bills
you at the end of the month. Remember to keep a history of your
accounting and book-keeping. Good records are your best defense to any
disputes that you might have with a credit card company.
Student credit card shopping list
 Make a list of features that best fit your needs, and rank them according to how you
plan to use the card.
 If you are currently a cardholder and have a good credit rating, ask the issuer of your
card to lower your current rate or to reduce or waive your annual fee. Negotiate.
Review the following information about the plans:
 Availability - Is the card accepted internationally or nationally?
 Interest rate pricing - Is the interest rate fixed, variable or tiered? If the rate is
variable, what is the index? The margin? The multiple?
 APR - What is the APR for purchases, cash advances, balance transfers, etc? Is
there a late payment penalty rate?
 Finance charge - What balance computation method is used to calculate the finance
charge?
 Annual fee - What is the annual fee?
 Grace period - What is the grace period for purchases?
 Other features - Does the plan offer enhancements that are attractive to you, such
as cash rebates, purchase protections, warranties or guarantees, travel accident or
automobile rental insurance, discounts on goods and services purchased, and
incentives for use, such as frequent flyer miles? Are these features available at no
extra cost.
Investing 101 – Why invest?
• Investing as a student is a
wonderful time of life in which
to get started in building your
financial portfolio. Investing
even just a little bit of money in
your late teens and early
twenties can grow to
thousands of dollars in your
middle age. When you begin
investing as a student, you
have time on your side. Here’s
what you need to know before
starting your portfolio.
Investing 101 – Simple interest
Simple Interest
• Simple interest is calculated on the original principal
only. Accumulated interest from prior periods is not used in
calculations for the following periods. Simple interest is normally
used for a single period of less than a year, such as 30 or 60 days.
• Simple Interest = p * i * n
• where:
p = principal (original amount borrowed or loaned)
i = interest rate for one period
n = number of periods
• Example: You borrow $10,000 for 3 years at 5% simple annual
interest.
• interest = p * i * n = 10,000 * .05 * 3 = 1,500
Investing 101 – Compound interest
Compound Interest
• Compound interest is calculated each period on the original principal and
all interest accumulated during past periods. Although the interest may
be stated as a yearly rate, the compounding periods can be yearly,
semiannually, quarterly, or even continuously.
• Think of compound interest as a series of back-to-back simple interest
contracts. The interest earned in each period is added to the principal of
the previous period to become the principal for the next period. For
example, you borrow $10,000 for three years at 5% annual interest
compounded annually:
interest year 1 = p * i * n = 10,000 * .05 * 1 = 500
interest year 2 = (p2 = p1 + i1) * i * n = (10,000 + 500) * .05 * 1 = 525
interest year 3 = (p3 = p2 + i2) * i * n = (10,500 + 525) *.05 * 1 = 551.25
Investing 101 – A twin story
•
•
A father was so happy that his twin children, T.J. and C.J., graduated that
he gave each of them $20,000. (Some children are more fortunate than
others.) T.J., the brother, had not learned about compounding interest, so
he spent $10,000 and kept the remaining $10,000 in his checking
account. He did not want his father to claim he wasted all his money. Now
C.J., the sister, had learned about compounding and she invested her
$20,000 in a fund that earned 10% compounded annually. After five years
she had $32,210. That year the twins talked about investing and she
suggested that her brother learn about compounding. He followed her
advice and then invested his $10,000 he had in his checking account in a
fund that earned 10% compounded annually.
Ten years after the twins had received their $20,000 they got together to
compare their investments. C.J. had $51,875 and her brother had
$16,105. Getting together again twenty years after they had received their
money they again compared their results. C.J. had $134,500 and T.J. had
$41,772. Thirty years after receiving their money T.J. had $108,347. He
was hoping he might be getting close to what his sister had. Well when
they got together to compare results he found out just how powerful
compounding really is, for she had $348,988 !!
Investing 101- Rule of 72
The 'Rule of 72' is a simplified way to
determine how long an investment
will take to double, given a fixed
annual rate of interest. By dividing 72
by the annual rate of return, investors
can get a rough estimate of how
many years it will take for the initial
investment to duplicate itself.
For example, the rule of 72 states that
$1 invested at 10% would take 7.2
years ((72/10) = 7.2) to turn into $2. In
reality, a 10% investment will take 7.3
years to double (1.10 x 7.3 = 2).
Investing 101 - Types of Investments
• Deposits in a financial institution (savings accounts, term
deposits and guaranteed investment certificates (GIC’s)).
• Shares - also called stocks or equities (part ownership of
a company)
• Bonds and debentures (loans to a company or
government)
• Mutual funds (a professionally managed pool of money
for investments)
• Real estate (land, buildings)
• Direct investment in a business
What is insurance?
Insurance is a contract *the policy) under which the insured pays a
premium to the insurer in exchange for compensation for certain
losses. The insured pays the first part of the loss-the deductible.
• E.g. In car insurance, the owner (the insured) pays an annual
premium to ICBC (the insurer), if a crash occurs causing personal injury
or damage (the loss) then ICBC pays money (compensation) to the
person who suffers the injury or damage.
Types of Insurance
•Travel: If you travel outside of BC, travel medical insurance will protect you
from the high cost of medical expenses elsewhere
•Home: If you want to protect your property from fire, theft or other risks, you
may want home or contents insurance.
•Life: When you are older and have family members that depend on your
income, life or disability insurance can protect them from financial risks.
•Employment: A portion of your earnings are deducted from your paycheque
for Employment Insurance (EI) which covers you in the event of job loss
through no fault of your own (lay offs).
Car insurance questions (from icbc.com)
What are the 4 things that determine what basic Autoplan costs?
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What are the 8 things that basic Autoplan does not cover?
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What is third party liability coverage and what does that coverage pay?
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How does the claim-rated scale work in determining premiums for drivers?
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How does a crash affect your premium?
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Consumer Price Index and Inflation
The Consumer Price Index (CPI) is a measure that examines the weighted
average of prices of a basket of consumer goods and services, such as
transportation, food and medical care. The CPI is calculated by taking price
changes for each item in the predetermined basket of goods and averaging
them; the goods are weighted according to their importance. Changes in CPI
are used to assess price changes associated with the cost of living.
Inflation is the rate at which the general level of prices for goods and services
is rising, and, subsequently, purchasing power is falling. Central banks attempt
to stop severe inflation, along with severe deflation, in an attempt to keep the
excessive growth of prices to a minimum. As inflation rises, every dollar will buy
a smaller percentage of a good.
For example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in
a year. Most countries' central banks will try to sustain an inflation rate of 2-3%.