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Gregory Housel Money Smart Month Representative

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

2 PEW Video

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

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6 Why Financial Education For Youth?
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.

7 Refund Anticipation Loans
Pay Day Loans Rent To Own Check Cashing Refund Anticipation Loans Money Orders Pawn Shops Alternative Financing Services = $11 Billion Dollars 4 to 12 Year Old Spending =$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.

9 529 College Plan A 529 plan is a savings plan for college. A parent or guardian can set up a 529 plan on his or her own, and it doesn’t 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.

10 Average Annual Income of a 15-17 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: Clothes 57% College 54% Car 38%

11 1st Step: Stay In School 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

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15 Marketable Skill & Military payscale.com

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17 College Student Graduation Rates
Approximately 10% of the population has an associate’s degree and 30% has a bachelor’s 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)

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19 Student Savings Lead To Higher
Student Savings Lead To Higher Graduation Rates Families With Less Than $50,000 Annual Income Even having a small amount of savings designated for school can have a positive effect on low- and moderate-income children’s persistence in college through graduation Enrollment Graduation No college savings 45% 5% $1 to $499 saved 65% 25% $500 or more saved 72% 33% The Assets and Education Initiative (AEDI) Research Team University of Kansas School of Social Welfare

20 Support System, Is It Needed To Build Wealth?
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???

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

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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 25 2012 Annual Earnings Lifetime Some High School $24,492 $1,846,728 High School graduate $33,904 $2,556,404 Some College $37,804 $2,850,469 Associate’s degree $40,820 $3,077,879 Bachelor’s degree $55,432 $4,179,643 Master’s degree $67,600 $5,097,125 Professional Degree $90, $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 Is a College Education Worth The Debt???
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

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

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

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

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

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

37 Quantitative Literacy
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.

38 Quantitative Literacy
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)

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

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

41 Total Percentage of Underbanked and Unbanked Households
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)

42 Alternative Financing Services Utilized by the Underbanked
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) The number one reason for utilizing AFS products was convenience.

43 Mobile and Underbanked
  Underbanked U.S. Consumers Have mobile phone 91% 87% Have smartphone 57% 44% Used mobile banking in the 29% 21% past 12 months Used mobile payments 17% 12% Pay bills using mobile phone 62% 47% —Source: Federal Reserve Board Survey: Consumers and Mobile Financial Services, March 2012

44 Fair Isaac Corporation (FICO)
Three Companies Reporting Credit Scores: Equifax Experian TransUnion Receive a free credit report at: You have three credit reports and scores from three separate companies. An individual can obtain a free credit report from each credit reporting agency once every 12 months for free.

45 Credit Reports – FICO Scores
A total of 59.5 million Americans have a credit score of 649 or below. Subprime is generally defined as scores 640 or below. 25.5 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)

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 These purchases will be affected by a positive or a negative credit score.

47 Why do you pay more if you have a lower credit score???
60,000 car loans study Credit Rating Loan Default  % % % 700 – % 740 and over .5% Give an understanding to the students of how their credit rating is directly related to a loan default rate and that is why individuals with low credit scores may pay more for having bad credit. Give examples of how they may pay more such as in purchasing insurance or having a higher interest rate for loans.

48 Credit Site to Help You Understand Your Credit
Direct students to this site for them to learn more about their credit report.

49 Building Assets Through Homeownership
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 Reserve’s Survey of Consumer Finances)

50 Homeownership Rates United States Average 2010 66.9% White 74.9%
Black % Hispanic % Asian % 82.2% Homeownership rate above the median family income and 51.5% below the median family income (United States Census Bureau 2010)

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

52 Inheritance 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)

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

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55 Retirement – Where’s the Savings?

56 Who Wants to be a Millionaire?

57 Retirement 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)

58 Let’s look at the numbers
Median family income approximately $50,000 Net income: $35,000 Retire at age 67 with $100,000 $18,400 Social Security $11,600 Retirement 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%)!

59 Lottery Retirement Plan
State lotteries posted more than $53 billion in ticket sales in 2006. 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)

60 Chances of Winning the Lottery!
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

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

62 BABY BOOMERS 69,350,000 (10,000 per day) will reach retirement age in next 19 years or by 2030 74% say they will keep working after they retire (51,319,000). 23% currently work during retirement (2011 Retirement Confidence Survey)

63 Social Security/Retirement
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, %

64 Why Don’t We Save For Retirement?
LACK OF HOPE! INSTANT GRATIFICATION! NEGATIVE SITUATIONS! (Divorce, illness, negative budget or loss of job)

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 I’m 40 and haven’t saved anything for retirement?
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).

69 How Much Will $1,000,000 be Worth in Retirement???
Retirement Account Annual Withdrawal Year 3% Interest 3% Inflation 2012 $1,000,000 $33,333 2022 $895,944 $44,797 2032 $602,037 $60,203 2041 $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.

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

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


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