MoneyCounts: A Financial Literacy Series What is Financial Literacy? Dr. Daad Rizk MoneyCounts: A Financial Literacy Series 301 Outreach Building University Park PA 16802 dar39@psu.edu 814-863-0214 Learning Objectives • • • • Define Financial Literacy Discuss mission, needs and benefits Discuss Core Competencies Review principles of budgeting, credit and debts management, saving and investing MoneyCounts: A Financial Literacy Series What is Financial Literacy? • To explore strange new worlds • To seek out new life and new civilizations • To boldly go where no one has gone before – Topic is personal – Topic is emotional – Mission: • To provide financial knowledge and skills to make informed decisions and take effective actions regarding money management – Subliminal -Underlined Mission • To alter people’s core attitudes and beliefs as a prelude to changing their behavior MoneyCounts: A Financial Literacy Series Why Financial Literacy? • • • • • USA Population = 319 million Taxpayers = 116 million Credit card debt = 889 billion Student loan debt = 1,297 trillion Mortgage debt = 13,355 trillion – Total Personal Debt = $16,642 trillion – Debt per Citizen = $52,178 • Citizen = man, woman, child U.S. Debt Clock MoneyCounts: A Financial Literacy Series What does that mean? • • • College student graduates with $27,000 in student loan (average) 1 out of 2 college graduates go back to live at home Unemployment rate 10.8% -11% (varies) – • • Average of 9 months to 1.5 year to find work 49% of taxpayers do not have saving accounts Average credit card debt per taxpayer = $7,600 • Total saving per family $8,640 U.S. Debt Clock MoneyCounts: A Financial Literacy Series No College Fund? MoneyCounts: A Financial Literacy Series Life on the Edge MoneyCounts: A Financial Literacy Series MoneyCounts: A Financial Literacy Series • Core Competencies MyMoney.gov – Earning – Saving & Investing – Borrowing – Spending – Protecting MoneyCounts: A Financial Literacy Series Gross versus net paycheck Understand your paycheck Verify and adjust your exemptions and deductions on your W4 (withholding) Benefits and taxes Learn about potential benefits and taxes Education is important Knowledge Invest in your future, plan for your career through education – search the market Action/Behavior Saved money grows Start saving early, pay yourself first Banking – saving and checking accounts Comparison shopping for a financial institution – reconcile your accounts Long-term financial planning Plan for retirement, child education, renting versus owning a home Eliminate or reduce waste Knowledge Replace waste with saving Action/Behavior Difference between needs and wants Develop a quantitative awareness of your spending habits Get the most/best value for your money Knowledge Develop a spending plan Track spending habits Live within your means Understand the social and environment impact of your spending decisions Action/Behavior Distinguish net income from loans Cost of borrowing – Penalty, Interest, late fee, surcharge (PILS) Amortization schedules Credit Score - FICO (Fair Isaac &Company) Equifax, Experian, TransUnion Credit cards Knowledge Borrow only what you need not want Avoid high cost loans, avoid penalties, late fees, and surcharge Minimize interest payments Get your free annual credit report, check your financial grade, review and correct if necessary Shop for low interest cards, use only in emergencies, avoid paying (PILs) Action/Behavior Risk management and insurance coverage Shop for insurance, review and update insurance, build up an emergency fund Identity theft Watch for your social security number and card, your date of birth and your banking information Fraud and scam Knowledge If it is too good to be true, it most certainly is Action/Behavior MoneyCounts: A Financial Literacy Series • Student Specific Topics Plan Your Finances [Penn State Office of Student Aid] – Budgeting – Cost and Student Aid – Borrowing & Repayment of Student Loans MoneyCounts: A Financial Literacy Series Basic Steps • Steps to Financial Literacy–Practical Elements – Commitment to change • Acknowledge the financial challenge • Take the Pledge to make changes • Get the family on board – Financial challenges » 65% of couples argue » 45% of divorce cases Examiner.com MoneyCounts: A Financial Literacy Series Assessment • Assess your financial situation – Examine: • • • • • Earning Saving Spending Borrowing Protecting MoneyCounts: A Financial Literacy Series Organization • Clean out financial clutter – Organize information – Protect against identity theft MoneyCounts: A Financial Literacy Series Expectations • Set yourself up for success – Get the family involved – Create a plan – Designate a task for each member MoneyCounts: A Financial Literacy Series Money In • Earning – Explore ways to increase earning • Turn a hobby into cash • Get more education/specialization • Explore seasonal work – Review paystub for tax withholding and deductions • Take advantage of pre-tax benefits • Take advantage of tuition assistance • Take advantage of military/government programs MoneyCounts: A Financial Literacy Series Money Saved • Saving – Pay Yourself First • Make Saving automatic • Set SMART goals and work toward them • Get the family involved – Establish an emergency fund • Expect the unexpected – EXIT Strategy • 3 – 6 months MoneyCounts: A Financial Literacy Series Money Spent • Spending – Wants Versus Needs • Wants disguised as needs • Examine spending habits – Evaluate one by one • Set a budget • Adopt a cause • Get the family involved – Live within your means MoneyCounts: A Financial Literacy Series How Time Changes Values? MoneyCounts: A Financial Literacy Series Money Borrowed • Borrowing – Get copies of your credit reports – AnnualCreditReport.com • Equifax • Experian • TransUnion – Clean & protect credit reputation – Watch out for student loans – Understand the cost of borrowing MoneyCounts: A Financial Literacy Series Debts • Pass the Debt Test? 20/10 Rule – All Debt (outside mortgage) should not exceed 20% of net annual income – Monthly payment should not exceed 10% of monthly take home income – Pay by due date and in full (if possible) – Watch debt to limit ratio - Keep your credit card charges at no more than 30% of your credit limit to protect your FICO Score MoneyCounts: A Financial Literacy Series Mortgage • Mortgage – Monthly payment should not exceed 28% -30% of net monthly income – Send ½ a payment every 2 weeks instead of one payment a month • $800 a month = $9,600 a year (800 X 12) • $400 every 2 weeks = $10,400 a year (400 X 26) MoneyCounts: A Financial Literacy Series Freedom from Debts • Debt Management Strategies – Pay debt with highest interest rate first – Pay debt with small amounts first to free funds • Save for Big Purchases – Calculate cost of items before you charge on credit cards MoneyCounts: A Financial Literacy Series Understanding Budgeting • Where does all the money go? – Create a BUDGET • Examine spending HABITS • Practice TRACKING – Identify and document your • Fixed monthly expenses • Variable and periodic monthly expenses • Document your spending – Analyze, divide and conquer – Identify ways to reduce/control spending MoneyCounts: A Financial Literacy Series Budget at a glance • Earning – – – – – – 100% Saving Housing Meals Loans Car All other 10% 30% 20% 10% 10% 20% MoneyCounts: A Financial Literacy Series Budget at a glance 1. Saving 10.00% 10.00% 10.00% 2. Housing 30.00% 10.00% 3. Utilities 5.00% 4. Food 20.00% 5.00% 30.00% 5. Transportation 10.00% 10.00% 6. Entertainment 5.00% 20.00% 5.00% 7. Debt 10.00% 8. Other 10.00% MoneyCounts: A Financial Literacy Series Waste Reduction • Manage Waste! – Average family throws $1,500 a year of unused food items • Expiration date, sell by date, use by date • No time to cook • Want to try new products • It was on sale MoneyCounts: A Financial Literacy Series Risk and Insurance • Manage Risk – Review Insurance coverage periodically – Assess current and future need • • • • • Health/medical Life and Term insurance Disability Home insurance Car insurance – Protect Identity from theft MoneyCounts: A Financial Literacy Series Retirement • Manage Retirement – Start saving early – compound interest – Do not rely solely on Social Security Funds • Delay SSF to get full benefits – Save money in your assets – Home – Invest and manage risks MoneyCounts: A Financial Literacy Series TIPS • Join a movement/Adopt a cause in life – Environment (3 R’s) • Recycle, reuse, reduce – Health • Food, exercise – Charity • Learn to give, make a difference MoneyCounts: A Financial Literacy Series Promote the Knowledge • Share a TIP! Things do not change, WE CHANGE Henry David Thoreau MoneyCounts: A Financial Literacy Series MoneyCounts: A Financial Literacy Series Thank You! Comments and Questions Dr. Daad Rizk MoneyCounts: A Financial Literacy Series 301 Outreach Building University Park PA 16802 dar39@psu.edu 814-863-0214