Preparing Future Faculty
March 21, 2014
How to Graduate Successfully
and Prosper Financially
Contact
Rebecca Smith, Ph.D.
Director, Extension Center for
Economic Education and
Financial Literacy
Becky.smith@msstate.edu
Extension
Center
for
Economic
Education
and
Financial
Literacy
3
Agenda
•
•
•
•
The Case for Financial Literacy
Resources
Introduction to Maroon Money Management
Evaluation
Connect With Us
maroonmoneymanagement@msstate.edu
Please follow MMM Twitter account: @MSStateMoney
#CreditForCredit
– What did you like most about this workshop?
– What topic would you like to learn more about?
Getting Good Judgment
Good judgment comes
from experience, and
experience well, that
comes from poor
judgment.
Confederate Army General Simon Bolivar Buckner
Cash Course
http://www.cashcourse.org/prep
http://www.feedthepig.org/
http://www.360financialliteracy.org/
www.Bankrate.com
http://www.youtube.com/watch?v=rK6WLHNYjwM
Is mint.com safe?
Pros
 The site is protected with the
same level of security as your
financial institutions
 No personal identifying
information connected to your
account other than your email
address
Cons
ᵪ
You must give them your bank
account login ID and password
ᵪ
Anytime you enter or access
personal information on-line
there is a risk
 You may not transfer money to
or from your accounts through
mint.com
“Should You Trust Mint.com?” by Jennifer Saranow Schultz, The New York Times
http://www.themintgrad.org/
https://www.learnvest.com/
www.annualcreditreport.com
• Free once per year and
after denial of credit
– 877-322-8228
Government Credit Education
http://www.consumer.ftc.gov/articles/0
155-free-credit-reports
http://www.consumerfinance.gov/askcfpb/search?
selected_facets=category_exact:credit-reporting
http://studentaid.ed.gov/
http://www.nslds.ed.gov
How to Graduate Successfully
and Prosper Financially
http://www.youtube.com/watch?v=EM_p
1Az05Jo
For Most,
College is a Good Investment!
Benefits
• Higher job satisfaction
• Healthier lifestyles
• Contribute more to society
• More prosperous children
• Higher pay
• Lower unemployment
Costs
• Public funding is declining
• Cost of higher education is
increasing
• More students and parents
are taking out loans
• Delinquency rates are rising
Financial Return on Higher Education
Student Debt Loan Load is Rising
Source: http://www.newyorkfed.org/studentloandebt/
How to Graduate Successfully
and Prosper Financially
Objective of MMM
What?
• A campus-wide initiative to increase personal finance literacy
and practices of MSU students
Why?
• To empower participants to add more value to their lives, so
that they can achieve their dreams and live their lives more
fully
How?
• Provide new perspectives, knowledge, experiences, and
resources
• http://www.moneymanagement.msstate.edu/
MMM Opportunities
• Participate in MMM programming
• Programming for your organizations
• MMM Peer Mentors
MMM Session Topic
F2F Monday 12:30
Student Support Services
Montgomery Hall
Webinar Wed. 3:30 p.m.
http://msues.adobeconnect
.com/beckys/
Know Thyself & Your Success
Feb. 3
Feb. 5
To Buy or Not to Buy?
Decision-Making & Cutting Expenses
Feb. 17
Feb. 19
Saving & Budgeting
Feb. 24
Feb. 26
Student Loans
Mar. 3
Mar. 5
Credit Cards
Mar. 17
Mar. 19
Taxes
Mar. 31
April 2
Making Your Major Profitable
April 14
April 16
Investing and Protecting
April 28
April 30
Register at
maroonmoneymanagement
@msstate.edu
http://msues.adobeconnect.com/beckys/
Worth Your Time
Treasurer Lynn Fitch Roundtable
• Wed., March 26 at 2:00pm in 310 Lloyd Ricks Watson
April 8 Open House 11:00am-2:00 pm
• Dawg House “Life After College”
Mississippi Saves
• www.mississippisaves.org
MS Savers Club
• Meets every 4th Wednesday at noon in Bost 409
• Bring your lunch!
Success, Anxiety, and Failure
You be the One to Define Your Success
•
Alain de Botton – Job snobbery – judging the worth of people based on what they do
•
•
•
Begins from idea that we can be anything
Envy from perceived equality; spirit of equality with existence of deep inequality
“We can be anything” and “anything is possible” leads to low self-esteem
– Meritocracy – position achieved in life is merited and deserved
•
•
“Unfortunates” (victim of fate) vs. “Losers” (self-caused outcome)
It is wrong to judge anyone by their position in life
– Fear failure because we fear the judgment and ridicule of others
•
Tragedy (learning) vs. Failure (ridicule)
– Self-worship – there is nothing greater than us to believe in
– Success and failure
•
•
Idea of success = money, renown in field
Can’t be successful (excellent) at everything
–
http://www.youtube.com/wat
ch?v=-dMoK48QGL8
To be successful (excellent) in one facet, means can’t be successful in other facets
– Have your OWN IDEA of SUCCESS – you get to define it because you are the one that must live
with it; make it your own
Hiring Managers’ Assessment of Recent Grad
Candidates Vs. Students’ Self-Assessment
(% Responding Very Prepared or Completely Prepared)
Hiring Managers
Students
60%
Developing slide presentations in concise, compelling way
25% difference
75%
54%
Organization
79%
51%
Writing to summarize results, convey information, etc.
70%
50%
27% difference Prioritizing work
77%
49%
Writing to communicate ideas or explain information clearly
71%
22% difference
Incorporating information to develop strategic insights
46%
Managing a project by identifying key steps, resources & timelines
46%
63%
67%
43%
Public speaking (e.g. giving a presentation)
37%
Making a decision without having all the facts
34%
Managing a meeting
54%
47%
49%
30%
22% difference Creating budget or financial goal
0%
10%
20%
30%
52%
40%
50%
60%
Bridge That Gap: Analyzing the Student Skills Index;
www.chegg.com/pulse
70%
80%
Relieving Stress
• Time management
strategies and division
(reduction) of
responsibilities have been
shown to reduce stress
• Relaxation techniques,
physical activity, exercise,
and other enjoyable (!)
activities also serve as
effective stress relievers
Remember the Big Picture
• Make healthy choices when they are available and
most of the time in general.
• Focus on what to eat, not what NOT TO EAT.
• Remember that you don’t have to eat perfectly all
the time.
• Allow fun foods.
Maximize the Return on Investment in
Your College Major
http://www.bls.gov/ooh/
http://www.gradsense.org/gradsense
40
How to Graduate Successfully
and Prosper Financially
Improving Decision-Making
42
Are you waiting for a future you?
• Is there an important change or task that you are putting off, hoping that a
future you with more willpower will show up?
– All the time? Often?
Sometimes?
Rarely?
• Do you optimistically overcommit yourself to responsibilities, only to find
yourself overwhelmed by impossible demands?
•
All the time? Often?
Sometimes?
Rarely?
• Do you talk yourself out of something today, telling yourself that you’ll feel
more like it tomorrow?
•
All the time? Often?
Sometimes?
Rarely?
• How does this affect your choices today?
• What are strategies that can help you become the future self you want to
become?
43
Use A Spending Diary
• Date
• Item
• Amount
Look back to see what the most common
categories were in your spending and how much
you spent in each category.
Plugging Spending Leaks
•
•
•
•
•
•
•
•
•
Leave your debit/credit card at home
Attend free campus concerts and plays
Use your bike or public transportation
Carry a refillable water bottle instead of purchasing soft
drinks or coffee drinks
Limit the number of songs, ringtones, etc., you download
Avoid buying sodas and snacks out of vending machines
Kick a costly habit (cigarettes, lattes)
Use the library
Use the Internet for comparison shopping
How Much is Your Daily Brew Costing
You?
46
Cutting Expenses—MSU Account
•
•
•
•
Due FROM Student
Personal Payments
Monthly eBills
Balance due on the 9th
HOLDs & Fees
Due TO Student
• MoneyMate
• Refund
• Leave on Account
– Federal Aid recipient: it
is critical that you clear
your account at the END
of each aid year (end of
SUMMER term)
Where Did All the Money Go?
• Saving
• Budgeting
Why is it important to start saving early?
Because TIME is your
best friend !!!
http://www.bankrate.com/calculators.aspx
What a Difference a Few Years Make
Jorge’s IRA
Olivia’s IRA
Interest rate
9%
9%
Years contributions
were made
9 years (age 22 to age 31)
34 years (age 31-65)
Amount contributed
$1,000 per year
For 9 years = $9,000
$1,000 per year
For 34 years = $34,000
Value of IRA at age 65
$13,021 at age 31; this
lump sum then compounds:
At age 65 equals: $243,863
At age 65 equals:
$196,982
Compound Interest
$250,000
$200,000
$150,000
Earnings
Invest
$100,000
$50,000
$0
25 - 35
35 - 65
“Compound Interest is the eighth wonder of the world. He who understands it,
earns it…he who doesn’t …pays it.”
-Albert Einstein
Pay Yourself First
• Save at least 10% of your gross income
• Use payroll deduction—never miss it!
• Never touch retirement funds
Emergency Savings Account
• 3-6 months living expenses
– Begin with a goal of $500
– Then at least $1,000
– Then one month living expenses
– One year living expenses for retirees
Creating a Budget
A budget will let you tell your money where to go,
instead of wondering where it went!
1.
2.
3.
4.
5.
Identify your sources of income
Identify your expenses
Setting goals
Monitor
Make adjustments
Stick to Your Budget!
Expenditure Guidelines
10%
Housing 30%
11%
30%
7%
Transportation 18%
Debt 10%
14%
10%
18%
Food 14%
Household 7%
Savings 10%
Everything else 11%
Source: Department of Labor, Bureau of Statistics
57
Live Beneath Your Means
• Stop spending when you reach your budget
limits
– Groceries
– Gasoline
– Eating out
– Personal allowance
– Gifts or office contributions
What type of account should I open?
Easy Accessibility
Cash
Savings
Money Market
CD’s
Brokerage Account
Qualified Retirement Plans
Access with Penalties
IRA Accounts
59
Borrower Consequences
• No additional financial aid
• Reduced credit score
– Takes years to repair
•
•
•
•
•
•
Pay higher interest rates or inability to get credit in the future
Wages, Social Security benefits garnished
Tax refunds withheld
Lottery winnings withheld
Professional license withheld
Legal action
– borrowers are liable for original balance, accrued interest, court fees,
collection fees
• Virtually impossible to discharge student loans through bankruptcy
61
Debt “Rules of Thumb”
Total Debt
• 20-10 rule
– Maximum total consumer
debt should be no more than
20% of income
– Monthly debt re-payments
should not exceed 10% of
monthly income.
Student Loan Debt
• Total student loan debt
should be less than starting
annual salary after
graduation
62
Student Loan Best Practices
• Calculate repayment amounts BEFORE you
borrow
• Financial Aid Shopping Sheet
– http://collegecost.ed.gov/shopping_sheet.pdf
Student Loan Best Practices
Take out the minimum!
• The less you borrow,
less you have to repay
the
– Find scholarships http://www.fastweb.com/
• Use loans only for educational expenses, not
food, clothes, gas
• You don’t have to take out the whole student
loan refund check out of your student account
• Graduate!
64
Student Loan Best Practices
• Consider paying as you go
– Principle
– Interest
65
http://studentaid.ed.gov/
http://www.nslds.ed.gov
Loan Forgiveness:
• For a borrower who is not in default and who makes 120 monthly
payments on the loan after Oct. 1, 2007, under certain repayment
plans, while the borrower is employed full-time in a public service
job.
• You may NOT apply for forgiveness after you have made all of the
required 120 qualifying monthly payments.
Loan Consolidation
• Some loans are eligible
– One payment
– Potential for lower
interest rates
– Fixed interest rates
– Potential for loan
forgiveness
– Potential for extending
the payment period
• https://studentloans.gov
69
Higher Interest Costs of Consolidation
Undergrad borrow max $31,000
– Additional $7,422 for Extended
– Additional $3,131 for Graduated
Higher Interest Costs of Consolidation
Grad borrow max $138,500
– Additional $102,727 for Extended
– Additional $86,298 for Graduated
Biggest Mistakes Affecting Credit
• Not using a credit card wisely
• Being disorganized about paying bills
• Paying the minimum amount on your credit
cards
Irresponsible Credit Card Usage Leads to…
• Denial of credit
• High APR b/c of the higher risk
• Universal Default Clause
– Allows an issuer to increase an individual’s APR if they fail
to make a payment to another lender
•
•
•
•
•
Difficulty renting an apartment
Denied employment
Denied financial aid
Higher automobile insurance premiums
High security deposits, e.g., Cell phone, gas,
electronic
How much car can you afford?
• 1/3 annual income maximum
• Payment 15% of monthly take-home pay
http://www.edmunds.com/apps/calc/CalculatorController?pmtcalAction=affordability&tid=edmunds..calculators.basic_loan_tab.affo
rd.tab_link..*
edmunds.com
calculators
Never get upside-down in a car!
20/4/10 rule of thumb for buying a car
• Pay at least 20% down
• Finance for no more than four years,
• Payment should be less than 10% income
The first part of this rule prevents you from owing
more than the car is worth, and the last two parts
prevent you from buying more car than you can
afford
Credit Card Strategies
•
•
•
•
Limit use to one card
Define “emergency use”
Understand credit terms
Pay more than the minimum
Credit Card
Balance
Interest Rate
(%) Charged
Monthly
Payment
Months to
Pay Off
Balance
Years to Pay
Off Balance
Total Cost
(Balance +
Interest)
$2,000
18%
$40
minimum
90
7.5
$3,608
$2,000
18%
$50
60
5.0
$3,004
$2,000
18%
$150
15
1.3
$2,211
Credit Reports
• Financial report card reflecting the extent of an
individual’s credit and payment history
– Negative information can stay on for 7 years while bankruptcies
remain for 10 years
– Lenders buy the reports to determine whether they will grant an
individual credit and at what rate
• Three U.S. Credit Reporting Agencies
• Annualcreditreport.com
– Get one free credit report from each agency each year
– Do not use any others
Credit Scores
• Numeric value obtained
from a credit report
– Defines you by a single
number
– Quick Screening
Mechanism for Lenders
• Low Credit Score = No
Credit or High Interest
Rates
– Many employers check
credit reports
• Scores range from 300-850
• National Average = 678
Scoring
Don’t focus on the credit score number
– Focus on the factor that is lowering your score
– Scores change over time as you pay off debt, etc.
Most common scoring system is Fair Isaac Corporation
(FICO)
– Payment history: 35%
– Total amount owed: 30%
– Length of credit history: 15%
– New credit: 10%
– Types of credit: 10%
Improving Your Score
• Pay credit card off
• http://www.bankrate.c
before due date
om/finance/video/credi
t-debt/steps-improve• Make multiple
credit-score.aspx
payments in a month
• Ask for a “good-will”
deletion
• Pay for removal of a late
• http://www.bankrate.com/financ
payment
e/video/credit-debt/stepsimprove-credit-score.aspx
Saving from Having a Better Score
Example of the Cost of
Lower Credit Score
Avoid Predatory Loans
85
Debt Repayment Decisions
•
•
•
•
•
•
•
•
Low balance method
High interest method
Most important method
Percentage method
Pro-rate & Negotiate
New plan method
Debt consolidation
Professional credit counseling
Which One Should I Pay
Off First?
Low balance method
High interest method
Most important method
Percentage method
Create a Debt Payment Plan
Credit Source APR Owe MO Payment Overdue
Card #1
Mortgage
Car note
How to Graduate Successfully
and Prosper Financially
Taxes
90
Gross v. Net
• Gross Pay
– Amount you make before deductions on your
paycheck
• Deductions include
– Taxes, insurance, retirement, and optional items
• Net Pay
– Amount you make after deductions
• Net Pay is usually 60-70% of Gross Pay
91
A “Kinder, Gentler” IRS
http://apps.irs.gov/app/understandingT
axes/hows/mod01/sim_mod01_04.jsp
http://www.irs.gov/Individuals/IRSWithholding-Calculator
http://www.cashcourse.org/working-earning/wages-benefits/making-sense-of-the-w92
4.aspx
Lowering Your Tax Bill
• Defer income to when you retire and are in a
lower income tax bracket by using a
retirement account like a 401(k)
• Take advantage of any “voluntary deduction”
programs your employer allows
– Acts as a shelter for income in the form of health
care, child care, or retirement
93
How to Graduate Successfully
and Prosper Financially
Investing, Insurance, &
Identity Protection
Younger
Strategy
Stocks
Corporate Bonds
Real Estate
Mutual Funds
US Treasury Bonds
Older
Strategy
CDs
Money Market
Savings Account
Can you retire?
• If you have 20 times your annual income or
needs saved, then you should be able to retire
http://www.choosetosave.org/ballpark/
Insurance for College Students
• Health and Renter’s Insurance are a good
ideas for college students
• Life Insurance is not
Insurance Information
http://www.iii.org/
http://www.insurancejournal.co
m/
98
Connect With Us
maroonmoneymanagement@msstate.edu
Please follow MMM Twitter account: @MSStateMoney
#CreditForCredit
– What did you like most about this workshop?
– What topic would you like to learn more about?
http://www.youtube.com/watch?v=EM_p
1Az05Jo
Sources
• Duke University Financial Aid Office
• Bobbie Shaffet, MSU Extension Service
• Alex Washington, MSU Office of Student Financial Aid