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Gregory Housel Money Smart Month Representative UNDERSTANDING AND INCREASING WEALTH IN LOW AND MODERATE INCOME COMMUNITIES.

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Presentation on theme: "Gregory Housel Money Smart Month Representative UNDERSTANDING AND INCREASING WEALTH IN LOW AND MODERATE INCOME COMMUNITIES."— Presentation transcript:

1 Gregory Housel Money Smart Month Representative UNDERSTANDING AND INCREASING WEALTH IN LOW AND MODERATE INCOME COMMUNITIES

2 PEW Video library/economic-mobility-and-the-american-dream

3 Dependents Education (Level and school system) Income/Employment Homeownership Savings Retirement Contribution Criminal Records Factors of Wealth Development Good Credit Health/Disability Marriage Hope and Confidence Comparison Shopping Inheritance

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6 Children are in stores and retail venues an average of two to three times per week. Children ages 4 to 12 shell out an estimated $35.6 billion of their own cash annually, more than 4 times what they did a decade ago. Why Financial Education For Youth?

7 Alternative Financing Services = $11 Billion Dollars =$35.6 Billion Dollars

8 Young Adults and Bank Accounts Young adults are six times more likely to go to college if they open a bank account between the ages of 12 and 15.

9 A 529 plan is a savings plan for college.savings plan A parent or guardian can set up a 529 plan on his or her own, and it doesnt need to go through the employer. These state-sponsored savings plans let you build up savings, tax-free, for tuition in any college or university in the country. 529 College Plan

10 Average Annual Income of a year old is $4,023! Teens Spent Over $200,000,000,000 Last Year 79%Of Teens Employed 40%Of Teens Are Saving Top Categories For Saving: Clothes57% College54% Car38%

11 United States graduation rate: 75.5% 1.3 million high school student dropouts per year. 2,500 dropouts per day 2008 dropouts will cost $319 billion in their lifetime. 59% of prison system population are High School dropouts 1 st Step: Stay In School

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15 Marketable Skill & Military payscale.com

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17 Approximately 10% of the population has an associates degree and 30% has a bachelors degree 2008 college graduation rates for a six-year timeframe: 4 Year Degree: 57.2% Graduation Rate 2 Year Degree: 30.5% Graduation Rate (National Center for Education Statistics) College Student Graduation Rates

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19 Even having a small amount of savings designated for school can have a positive effect on low- and moderate- income childrens persistence in college through graduation EnrollmentGraduation No college savings45%5% $1 to $499 saved65%25% $500 or more saved72%33% Student Savings Lead To Higher Graduation Rates Families With Less Than $50,000 Annual Income The Assets and Education Initiative (AEDI) Research Team University of Kansas School of Social Welfare

20 Support System A network of personal or professional contacts available to a person or organization for practical or moral support when needed. In 2010, about 40 percent of full-time and 73 percent of part-time college students ages 16 to 24 were employed. Who helps low income students that RUN OUT OF MONEY??? Support System, Is It Needed To Build Wealth?

21 52.4%Asian and Pacific Islander 30.3%White 19.8%Black 13.9%Hispanic 29.9%Total Source: U.S. Census Bureau College Attainment By Race

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24 Getting a college degree is a ticket to economic mobility! For those raised at the bottom of the income ladder, nearly one-half of children were stuck there as adults if they didn't go to college. But only 10% of those with a college degree remained at the bottom. Some 41% of students who come from families in the lowest income ranks move up to the highest two rungs if they earned a college degree. (Pew Economic Mobility Project)

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28 More Education = More Money Earnings of persons over age Annual EarningsLifetime Some High School $24,492$1,846,728 High School graduate $33,904 $2,556,404 Some College$37,804 $2,850,469 Associates degree $40,820 $3,077,879 Bachelors degree $55,432$4,179,643 Masters degree$67,600 $5,097,125 Professional Degree$90,220 $6,802,702 *Lifetime defined as 40 years of full-time work with a 3% annual cost-of-living increase of annual earnings. Statistics reflect 2012 fulltime workers. (Bureau of Labor Statistics, Current Population Study)

29 2012 Student Loan Balances Average debt 2012:$24,218 Median debt 2012:$13,662 Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax Is a College Education Worth The Debt???

30 Conceptual Framework Many times people make bad financial decisions because they do not know enough to make good financial decisions. 75% of the population is 18 years or older and out of school. (Kansas City Federal Reserve Bank)

31 Having Money Helps, Having Education Helps More Bankruptcy records indicate that even though the median winner of a large cash prize could have paid off all of his unsecured debt or increased equity in new or existing assets, he chose not to do either. (The Ticket to Easy Street? The Financial Consequences of Winning the Lottery)

32 Nearly one third of multimillion dollar lottery winners become bankrupt in just a few short years after their big win. (Associated Content) Money Without A Plan

33 Asset:A valuable item that is owned Wealth:What you own minus what you owe Income:Amount of money received for doing work Understanding Financial Terms

34 Job Understanding What Builds Wealth Asset Retirement Savings House Savings Small Business

35 Household in 2011 MEDIAN 2011 Family Income $50,054 Federal poverty level reached 15% in Almost 46,200,000 lived below the poverty level. (Census Bureau 2011)

36 15% of adults lack basic literacy skills. Approximately 33 million adults (Census Bureau) Literacy in the United States

37 Quantitative literacy is knowledge of and confidence with basic mathematical/analytical concepts and operations required for problem- solving, decision-making, economic productivity and real-world applications; this entails the ability to: competently perform basic computational/arithmetic operations; demonstrate skills at estimating and approximating results; perform basic algebraic and/or logical operations that involve levels of abstraction; demonstrate basic problem-solving skills; and show competence in applied analytical skills. Quantitative Literacy

38 22% of adults lack even basic quantitative literacy skills (48,000,000 adults). 33% of adults have only basic quantitative literacy skill levels (72,000,000 adults). 120 million American adults may be vulnerable to predatory lending practices or make seemingly small mistakes with major financial consequences. (National Center for Education Statistics) Quantitative Literacy

39 For Every Dollar Earned, Americans Saved: cents cents cents cents U.S Personal Savings Rate

40 17,000,000 Unbanked In the United States 43,000,000 Underbanked in the United States Underbanked and Unbanked Households

41 54% of African American households are unbanked or underbanked. 44.5% of American Indian/Alaskan households are unbanked or underbanked. 43.3% of Hispanic households are unbanked or underbanked. 10.5% of White households are unbanked or underbanked (FDIC Economic Inclusion Study) Total Percentage of Underbanked and Unbanked Households

42 81.1% use money orders (34,873,000) 30% use check cashing (12,900,000) 16.2% use pay day loans (6,966,000) 15.8% use Pawn Shops(6,794,000) 13.2% use Refund Anticipation Loans (5,676,000) 13% use rent-to-own services(5,590,000) Alternative Financing Services Utilized by the Underbanked The number one reason for utilizing AFS products was convenience.

43 Mobile and Underbanked UnderbankedU.S. Consumers Have mobile phone91%87% Have smartphone57%44% Used mobile banking in the 29%21% past 12 months Used mobile payments 17%12% Pay bills using mobile phone62%47% Source: Federal Reserve Board Survey: Consumers and Mobile Financial Services, March 2012

44 Three Companies Reporting Credit Scores: Equifax Experian TransUnion Receive a free credit report at: Fair Isaac Corporation (FICO)

45 A total of 59.5 million Americans have a credit score of 649 or below. Subprime is generally defined as scores 640 or below percent of consumers -- nearly 43.4 million people - now have a credit score of 599 or below. The typical consumer has access to approximately $19,000 on all credit cards and 1 in 7 are using 80% or more of their credit card limit. (www.myfico.com and Newsweek)www.myfico.com Credit Reports – FICO Scores

46 Why Have A Good Credit Score? Finance a car Rent an apartment Get a home mortgage Set up utility accounts Obtain employment Purchase insurance

47 60,000 car loans study Credit RatingLoan Default % % % 700 – % 740 and over.5% Why do you pay more if you have a lower credit score???

48 Credit Site to Help You Understand Your Credit

49 Income: $30,000 to $49,999 Owners' average net worth: $126,500 Renters' average net worth: $10,600 Income: $16,000 to $29,999 Owners' average net worth: $112,600 Renters' average net worth: $4,240 Income: Under $16,000 Owners' average net worth: $73,000 Renters' average net worth: $500 (Federal Reserves Survey of Consumer Finances) Building Assets Through Homeownership

50 United States Average % White74.9% Black45.4% Hispanic47.5% Asian58.9% 82.2% Homeownership rate above the median family income and 51.5% below the median family income (United States Census Bureau 2010) Homeownership Rates

51 Before 2008, homeownership accounted for over 70% of the low and moderate income asset. (NBC) Homeownership as an Investment

52 In 2010, White families ages had an average net worth of $1.1 million. In contrast, the average African-American wealth was $161,000, while Hispanic wealth was $226,000. (Urban Institute) Inheritance

53 Incarcerated Americans, Barriers to Wealth Building 65 Million Americans With Criminal Records Face Unprecedente d Barriers to Employment!

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55 Retirement – Wheres the Savings?

56 Who Wants to be a Millionaire?

57 Less than half of workers (43 percent) report they and/or their spouse have tried to calculate how much money they will need to have saved for a comfortable retirement by the time they retire. 43% of ages 55 or older have less than $25,000 saved for retirement. An additional 22% have $99,999 or less. (2011 Retirement Confidence Survey) Retirement

58 Median family income approximately $50,000 Net income: $35,000 Retire at age 67 with $100,000 $18,400Social Security $11,600Retirement Distribution $30,000 or 14.3% decrease from working income You are completely out of retirement money in 9 to 11 years (Rate of return on retirement savings 3-4%)! Lets look at the numbers

59 State lotteries posted more than $53 billion in ticket sales in Very low income households earning less than $13,000 spend approximately 9% ($1,000 annually) of their earnings per year on the lottery. 20 percent of lottery players are low income, minority men, with a high school education or less and their dollars are funding 80 percent of the money going into the lottery. If you start to invest $85 per month at age 18 and you retire at age 67 with a 6.5% investment rate you would have approximately $360,000. (MSN Money and Carnegie Mellon University) Lottery Retirement Plan

60 1/176,000,000 6 Balls Drawing If you win a $1,000,000 Lottery Annuity: You could take the $500,000 Instant Cash -30% Federal Tax and 7% state tax Total Winnings $315,000 Chances of Winning the Lottery!

61 Other Ways Not To Plan On Retiring! CHANCES OF BECOMING A PROFFESSIONAL RAPPER? 1/10,000

62 69,350,000 (10,000 per day) will reach retirement age in next 19 years or by % say they will keep working after they retire (51,319,000). 23% currently work during retirement (2011 Retirement Confidence Survey ) BABY BOOMERS

63 Social Security was not created to supplement an individuals entire living standard. Pre Retirement Percentage of Social Income Security Benefits $15, % $25, % $35, % $50, % $100, % Social Security/Retirement

64 LACK OF HOPE! INSTANT GRATIFICATION! NEGATIVE SITUATIONS! (Divorce, illness, negative budget or loss of job) Why Dont We Save For Retirement?

65 Understanding The Millionaire Next Door In 2013 there were 8,900,000 millionaire households in the United States. 80% accumulated their wealth in one generation 80% are college grads 97% are homeowners 95% are married (20-30 years) 66% work hours per week THE AVERAGE MILLIONAIRE SAVES 15% OF THEIR INCOME! Millionaires are not workaholics and enjoy spending time with family and friends. ( Yahoo, The Millionaire Mind and The Millionaire Next Door)

66 Building Hope - The Millionaire Plan If a family with a median family income would save 6% per year shopping over a 40 year period, and would reinvest the savings into a matched retirement account earning 6.5% interest, the family would have over 1.2 million dollars. (Calculation includes a 3% annual increase in family income and an initial family income of $50,000)

67 What Could A Millionaire Plan Look Like? Over 80% of companies match 401k retirements GOAL– Contribute $3,000 per year to retirement! You Contribute $3,000 Company Match (50% of Contribution)$1,500 Total =$4,500 (Tax benefit of $600 if in 20% tax bracket)

68 Are you in the right job? Do you have any retirement savings? Do you own your home? How long to you plan to work? If the median income family started giving 15% of their income to a matching 401k retirement plan at age 40 (401K matched 50% of first 5% of total salary), then that person could have over $840,000 when they retire at age 67 (6.5% interest earned). Im 40 and havent saved anything for retirement?

69 Retirement AccountAnnual Withdrawal Year 3% Interest3% Inflation 2012$1,000,000$33, $895,944$44, $602,037$60, $78,552$78,552 In this example, if you retired at age 65 you would run out of your retirement savings at the age of 95. How Much Will $1,000,000 be Worth in Retirement???

70 1.Understand where you spend your money 2.Establish a budget 3.Establish a Plan for your future 4.Invest in a 401K or some retirement savings program 5.Access your free credit report at Annualcreditreport.com 6.Analyze Your Job – Income, Matching 401K, Pension, benefits, etc. 7.ASK YOURSELF – Will My Wants Require Me To Obtain Further Education??? Suggestions To Build Wealth!

71 Money Smart Month APRIL 2014 Greg Housel Money Smart Month Representative


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