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Personal Finance James B. Wilcox RESOURCES PROVIDED BY:

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1 Personal Finance James B. Wilcox RESOURCES PROVIDED BY:

2 Who Earns More Money?

3 Who Earns More? Round 1 Bartender (Nevada) Taxi Driver (New York)

4 Bartender or Taxi Driver?

5 Who Earns More? Bartender (Nevada) $20,430 Taxi Driver (New York)

6 Job Duties Bartender: Mixes and serves alcoholic and nonalcoholic drinks to patrons of bar, following standard recipes: Mixes ingredients, such as liquor, soda, water, sugar, and bitters, to prepare cocktails and other drinks. Serves wine and draught or bottled beer. Collects money for drinks served. Orders or requisitions liquors and supplies. Arranges bottles and glasses to make attractive display. May slice and pit fruit for garnishing drinks. May prepare appetizers, such as pickles, cheese, and cold meats. May tend service bar and be designated Service Bartender. Taxi Driver: Drives taxicab to transport passengers for fee: Picks up passengers in response to radio or telephone relayed request for service. Collects fee recorded on taximeter based on mileage or time factor and records transaction on log. Reports by radio or telephone to TAXICAB STARTER on completion of trip. May drive limousine or custom-built sedan to pick up and discharge airport passengers arriving or leaving on scheduled flights and be Designated Chauffeur, Airport Limousine.

7 Job Requirements Bartender -Bartending school -32 hours of training -Many states require bartenders to be certified in Serve Safe Alcohol program. -May require other certification. Taxi Driver -Regular automobile driver’s license -May need a taxi driver license, aka “hack” license -May require 80 hours of classroom instruction

8 Who Earns More? Round 2 Miner (West Virginia) Taxi Driver (New York)

9 Miner or Taxi Driver? Miner Taxi Driver

10 Who Earns More? Miner (West Virginia) $30,680 Taxi Driver (New York)

11 Miner Job Duties Mines ore, coal, or rock in underground mine, performing any combination of following tasks in areas where high production equipment is limited by economic factors or natural formations: Cuts channel under working face to facilitate blasting, using pick, or by operating cutting machine. Operates mounted or unmounted power drill to bore blasting holes in working face. Charges and shoots (sets off) explosives or air charges to blast down materials. Shovels shattered materials into mine cars or onto conveyor. Installs timbering, roof bolts, or cribs, to support walls and roof. Lays track to accommodate mine cars or track-mounted equipment. May mine rock in coal mine at contract price per ton or footage of advance and be designated Rock Contractor (mine & quarry). May mine ore, coal, or rock, using pick and shovel, and be designated Miner, Pick (mine & quarry). When digging passageways between rooms, may be designated Entry Miner (mine & quarry). May do development work, such as opening up new passageways, air vents, auxiliary tunnels, rooms, and shafts to facilitate mining, and be designated Drift Miner (mine & quarry); Raise Miner (mine & quarry); Shaft Sinker (mine & quarry); Stope Miner (mine & quarry); Tunnel Miner (mine & quarry).

12 Who Earns More? Round 3 Miner (West Virginia) $30,680 Police Officer
(New Mexico)

13 Miner or Police Officer?

14 Who Earns More? Miner (West Virginia) $30,680 Police Officer
(New Mexico) $36,120

15 Police Officer Duties Patrols assigned beat on foot, on motorcycle, in patrol car, or on horseback to control traffic, prevent crime or disturbance of peace, and arrest violators: Familiarizes self with beat and with persons living in area. Notes suspicious persons and establishments and reports to superior officer. Reports hazards. Disperses unruly crowds at public gatherings. Renders first aid at accidents, and investigates causes and results of accident. Directs and reroutes traffic around fire or other disruption. Inspects public establishments requiring licenses to ensure compliance with rules and regulations. Warns or arrests persons violating animal ordinances. Issues tickets to traffic violators. Registers at police call boxes at specified interval or time. Writes and files daily activity report with superior officer. May drive patrol wagon or police ambulance. May notify public works department of location of abandoned vehicles to tow away. May accompany parking meter personnel to protect money collected. May be designated according to assigned duty as Airport Safety And Security Officer; Dance-Hall Inspector Traffic Police Officer; or according to equipment used as Ambulance Driver; Motorcycle Police Officer; Mounted Police Officer. May be designated: Emergency-Detail Driver; Patrol Driver; Pool-Hall Inspector; Radio Police Officer; Show Inspector.

16 Police Officer Job Requirements
Must be able to pass a pre-employment physical and drug screen. Must be a US Citizen. Must have a valid New Mexico driver’s license or be able to obtain one. Must be able to pass a pre-employment physical and drug screen.Education: High School Diploma or G.E.D. equivalent. Experience:Prior Law Enforcement preferred (Up to one or more years of experience). Knowledge:Requires work level knowledge, skills, and abilities related to a broad range of either complex or technical functions or apprentice level knowledge of a single function area or work specialization. Certificates/Licenses:Must complete the State Accredited Basic Academy within first year. Recertification:Will certify under Certified Officer when recertification requirements are needed. Use of Tools/Equipment:Vehicle, baton, chemical sprays, handgun, shotgun, radar, computers, radio, handcuffs, breathalyzer, first aid equipment, telephone, tasers and AED machines.

17 Who Earns More? Round 4 Truck Driver – OTR (Indiana) Police Officer
(New Mexico) $36,120

18 Truck Driver or Police Officer?

19 Who Earns More? Truck Driver – OTR (Indiana) $36,940 Police Officer
(New Mexico) $36,120

20 Truck Driver Job Duties
Drives truck with capacity of more than 3 tons, to transport materials to and from specified destinations: Drives truck to destination, applying knowledge of commercial driving regulations and area roads. Prepares receipts for load picked up. Collects payment for goods delivered and for delivery charges. May maintain truck log, according to state and federal regulations. May maintain telephone or radio contact with supervisor to receive delivery instructions. May load and unload truck. May inspect truck equipment and supplies, such as tires, lights, brakes, gas, oil, and water. May perform emergency roadside repairs, such as changing tires, installing light bulbs, tire chains, and spark plugs. May position blocks and tie rope around items to secure cargo during transit.

21 Truck Driver Job Requirements
-Commercial Driver’s license (CDL) (Federal Law) -U.S. DOT regulations: 21 years old, pass physical once a year, at least 20/40 eyesight (with glasses), good hearing, cannot be colorblind, have epilepsy, have diabetes, or high blood pressure, cannot take controlled substances, no felony charges, DUIs, and speak and read English well enough to read road signs

22 Who Earns More? Round 5 Truck Driver (Indiana) $36,940
Electrical Repairer (Kansas)

23 Truck Driver or Electrical Repairer?

24 Electrical Repairer Job Duties
Installs and repairs electrical systems, apparatus, and electrical and electronic components of industrial machinery and equipment, following electrical code, manuals, schematic diagrams, blueprints, and other specifications, using handtools, power tools, and electrical and electronic test equipment: Installs power supply wiring and conduit for newly installed machines and equipment, such as robots, conveyors, and programmable controllers, following electrical code and blueprints, using handtools and voltage tester. Connects power supply wires to machines and equipment, and connects cables and wires between machines and equipment, following manuals, schematic diagrams, and blueprints, using handtools and test equipment. Diagnoses malfunctioning apparatus, such as transformers, motors, and lighting fixtures, using test equipment, and replaces damaged or broken wires and cables, using handtools. Tests malfunctioning machinery, using test equipment, and discusses malfunction with other maintenance workers,

25 Electrical Repairer Job Requirements
-Knowledge of electrical equipment necessary. -May require degree from vocational technical school (1 to 2 years of training). -Good eyesight, color perception. -May need to be certified.

26 Who Earns More? Truck Driver (Indiana) $36,940 Electrical Repairer
(Kansas) $57,930

27 Who Earns More? Round 6 Funeral Director (Florida) Electrical Repairer
(Kansas) $57,930

28 Funeral Director or Electrical Repairer?

29 Who Earns More? Funeral Director (Florida) $48,440 Electrical Repairer
(Kansas) $57,930

30 Funeral Home Job Duties
Undertaker. Arranges and directs funeral services: Coordinates activities of workers to remove body to mortuary for embalming. Interviews family or other authorized person to arrange details, such as preparation of obituary notice, selection of urn or casket, determination of location and time of cremation or burial, selection of pallbearers, procurement of official for religious rites, and transportation of mourners. Plans placement of casket in parlor or chapel and adjusts lights, fixtures, and floral displays. Directs pallbearers in placement and removal of casket from hearse. Closes casket and leads funeral cortege to church or burial site. Directs preparations and shipment of body for out-of-state burial. May prepare body for interment.

31 Funeral Home Director Job Requirements
-Must be licensed: 21 years old, 2 years of formal education including mortuary science, serve one year apprenticeship, pass qualifying exam. To embalm requires its own license. -College programs in Mortuary Science include: anatomy, pathology, restorative art, business management, grief counseling, business law, and ethics

32 Who Earns More? Round 7 Faller (Washington) Electrical Repairer
(Kansas) $57,930

33 Faller or Electrical Repairer?

34 Who Earns More? Faller (Washington) $64,110 Electrical repairer
(Kansas) $57,930

35 Job Duties Fells timber trees, applying knowledge of tree characteristics and cutting techniques to Control direction of fall and minimize tree damage: Appraises tree for characteristics,such as twists, rot, and heavy limb growth, and gauges amount and direction of lean, using ax as plumb bob. Determines position, direction, and depth of cuts to be made and placement of wedges or jacks. Clears brush and debris from work area and escape route,and cuts saplings and other trees from falling path, using ax and chain saw. Scores cutting lines with ax, saws undercut along scored lines with chain saw, and knocks slabs from cuts with ax. Saws back-cuts, leaving sufficient sound wood to control direction of fall. Inserts jack or drives wedges behind saw to prevent binding of saw and start tree falling. Stops saw engine as tree tips, pulls cutting bar from cut, and runs to predetermined location to avoid injury from falling limbs and flying debris. May work on piecework basis and be designated Busheler (logging). May cut trees into log lengths [BUCKER (logging)]. Fallers of small timber (generally under 18 inches in diameter) are classified as FALLER (logging) II.

36 Faller Job Requirements
-Generally, there are no educational requirements for forest worker jobs. -On-the-job training from the logging company -State logging or forestry associations provide training sessions for fallers, lead to certification. -Generally advance from occupations involving primarily manual labor to those involving the operation of expensive, sometimes complicated logging equipment.

37 Who Earns More? Round 8 Faller (Washington) $64,110 Sales Engineer

38 Faller or Sales Engineer?

39 Who Earns More? Faller (Washington) $64,110 Sales Engineer (Illinois)

40 Sales Engineer Job Duties
Sells electronic products and systems and provides technical services to clients, performing other duties

41 Sales Engineer Job Requirements
-A bachelor’s degree in engineering is typically required. -A business, chemistry, or other science degree may be acceptable. -May have work experience in an engineering specialty. -May need training in sales.

42 Who Earns More? Round 9 Fashion Designer (New York) Sales Engineer
(Illinois) $73,120

43 Fashion Designer or Sales Engineer?

44 Who Earns More? Fashion Designer (New York) $73,390 Sales Engineer
(Illinois) $73,120

45 Fashion Designer Job Duties
Designs men's, women's, and children's clothing and accessories: Analyzes fashion trends and predictions, confers with sales and management executives, compares leather, fabrics, and other apparel materials, and integrates findings with personal interests, tastes, and knowledge of design to create new designs for clothing, shoes, handbags, and other accessories. Sketches rough and detailed drawings of apparel and writes specifications describing factors, such as color scheme, construction, and type of material to be used. Confers with and coordinates activities of workers who draw and cut patterns and construct garments to fabricate sample garment. Examines sample garment on and off model and modifies design as necessary to achieve desired effect. May draw pattern for sample, using sewing equipment. May arrange for showing of sample garments at sales meetings or fashion shows. May attend fashion and fabric shows to observe new fashions and materials. May be identified according to specific group designed for, such as men, women, or children or areas of specialization, such as sportswear, coats, dresses, suits, lingerie, or swimwear. May design custom garments for clients and be designated Custom Garment Designer (retail trade). May conduct research and design authentic period, country, or social class costumes to be worn by film, television, concert, stage, and other performers and be designated Costume Designer. May design, fabricate, repair, and sell leather articles and be designated Leather Crafter (leather prod.). May design, copy, or modify clothing accessories and be designated according to article designed as Handbag Designer (leather prod.); Hat Designer (hat & cap); or Shoe Designer (boot & shoe).

46 Fashion Designer Job Requirements
-2 year or 4 year degree -knowledgeable about fabrics, textiles, ornamentation, fashion trends, eye for color and detail, sketching ability, good portfolio. -Coursework may include: anatomy, mathematics, CAD, textiles, pattern making, sewing and tailoring and fashion history.

47 Who Earns More? Round 10 Fashion Designer (New York) $73,390
Psychiatrist (Mississippi)

48 Fashion Designer or Psychiatrist?

49 Who Earns More? Fashion Designer (New York) $73,390 Psychiatrist
(Mississippi) $136,610

50 Psychiatrist Job Duties
Diagnoses and treats patients with mental, emotional, and behavioral disorders: Organizes data concerning patient's family, medical history, and onset of symptoms obtained from patient, relatives, and other sources, such as nurse, and social worker. Examines patient to determine general physical condition, following standard medical procedures. Orders laboratory and other special diagnostic tests and evaluates data obtained. Determines nature and extent of mental disorder, and formulates treatment program. Treats or directs treatment of patient, utilizing variety of psychotherapeutic methods and medications.

51 Psychiatrist Job Requirements
-4 year undergraduate degree -4 years of medical school -3-8 years of internship and residency -Must be licensed – pass exam -May be board certified -Course work includes: anatomy, physics, biology, mathematics, organic chemistry, pathology, pharmacology, medical ethics

52 Who Earns More? Round 11 Secretary of State Hillary Clinton
Psychiatrist (Mississippi) $136,610

53 Secretary of State or Psychiatrist?

54 Who Earns More? Secretary of State Hillary Clinton $186,600
Psychiatrist (Mississippi) $136,610

55 Secretary of State Job Duties
The Secretary of State is responsible for the overall direction, coordination, and supervision of U.S. foreign relations and for the interdepartmental activities of the U.S. Government abroad. The Secretary is the first-ranking member of the Cabinet, is a member of the National Security Council, and is in charge of the operations of the Department, including the Foreign Service.

56 Secretary of State Job Requirements
-Nominated by the President -Confirmed or rejected by the United States Senate by a majority vote.

57 Who Earns More? Round 12 Secretary of State Hillary Clinton $186,600
Anesthesiologist (Kentucky)

58 Secretary of State or Anesthesiologist

59 Who Earns More? Secretary of State Hillary Clinton $186,600
Anesthesiologist (Kentucky) $197,000

60 Anesthesiologist Job Duties
Administers anesthetics to render patients insensible to pain during surgical, obstetrical, and other medical procedures: Examines patient to determine degree of surgical risk, and type of anesthetic and sedation to administer, and discusses findings with medical practitioner concerned with case. Positions patient on operating table and administers local, intravenous, spinal, caudal, or other anesthetic according to prescribed medical standards. Institutes remedial measures to counteract adverse reactions or complications. Records type and amount of anesthetic and sedation administered and condition of patient before, during, and after anesthesia. May instruct medical students and other personnel in characteristics and methods of administering various types of anesthetics, signs and symptoms of reactions and complications, and emergency measures to employ.

61 Anesthesiologist Job Requirements
-4 year undergraduate degree -4 years of medical school -3-8 years of internship and residency -Must be licensed – pass exam -May be board certified -Course work includes: anatomy, physics, biology, mathematics, organic chemistry, pathology, pharmacology, medical ethics

62 Hillary Clinton B.A. Wellesley College J.D. Yale Law School
Professor – School of Law at the University of Arkansas Lawyer – Rose Lawfirm First lady of Arkansas First lady of the United States United States Senator (New York) Secretary of State

63 Who Earns More: Bonus Round
LeBron James ProBasketball player Angelina Jolie Actress

64 LeBron James or Angelina Jolie?

65 Who Earns More: Bonus Round
LeBron James Pro Basketball player $27,000,000 Angelina Jolie Actress $27,000,000

66 LeBron James High School -Attended St. Vincent – St. Mary High School, Akron, Ohio -”Mr. Basketball” Ohio 3 times -USA Today All-USA First Team -Gatorade National Boys’ Basketball Player of the year NBA Basketball -First overall pick in the NBA draft by the Cleveland Cavaliers -All Rookie First Team time NBA All-Star ( ) -3 time first team All-NBA (2006, 2008, 2009) NBA MVP

67 Angelina Jolie -Father is actor Jon Voight, Mother was actress Marcheline Betrand. -Studied at the Lee Strasberg Theatre Institute at 11. -Began modeling at 16. -Won Oscar for Best Supporting Actress in Girl, Interruputed -Won 3 Golden Globes, 2 SAG awards -Goodwill Ambassador for the U.N. High Commissioner for Refugees (UNHCR)

68 S D How do these incomes relate to Supply and Demand?

69 Why Don’t People Save? Lesson 15

70 The Risky Behavior Mystery
People usually know what is good for them, but they often act as if they don’t know. Some people: Drive too fast. Fail to take medications. Go surfing! Why would people do things that don’t seem to be in their interest?

71 Lesson 15 Visual 1 Why Don’t People Do What They Should Do?
Question Number of Yes Responses How many of you know that smoking is unhealthy? How many of you know people--even people your age--who smoke? How many of you know that eating foods that are high in transfats, such as packaged cookies, margarine and peanut butter, isn’t healthy? How many of you know people who eat foods that are high in transfats? How many of you know that regular exercise provides many health benefits? How many of you know people who don’t exercise regularly?

72 Perhaps the answer lies in identifying the costs and benefits.
Costs: All the things that have to be given up when a choice is made. Benefits: Gains or favorable outcomes that make people more satisfied when a choice is made.

73 An analogy Saving is like smoking, diet and exercise.

74 What are the benefits of a eating a healthy diet and exercising regularly?
Feel better Look better Reduce your risk of heart disease Reduce your risk of cancer Boost your life expectancy

75 Do the benefits of diet and exercise occur now or in the future?
Although people may start to feel better right away, most of the benefits occur in the future.

76 If people choose a healthful diet and exercise regularly, are they guaranteed these benefits?
No. Some people may still get heart disease or cancer, no matter what they eat or how well they exercise. Also, a person engaged in a diet-and-exercise program could die prematurely from any number of causes other than heart disease or cancer.

77 Possibilities include:
What are the costs of choosing a healthful diet and exercising regularly? Possibilities include: Giving up food that tastes really good. Paying dues for membership at a fitness club. Spending time on exercise that you could spend in other ways--napping, reading, gardening, watching television, playing video games.

78 Saving Saving is income not spent on consumption or taxes.
Most people know that starting to save money at an early age and saving regularly are good habits that lead to financial well being. Yet many people fail to save early and regularly. Why?

79 What are the benefits of saving?
Ability to attain your goals for the future. A feeling of security and satisfaction.

80 What are the costs of saving?
Things you could obtain now if you weren’t saving.

81 When do the benefits of saving occur?
In the future.

82 When do the costs of saving occur?
In the present. Psychology – cookie experiment Instant vs. Delayed gratification

83 Cookie Experiment “Training in self-control has been useful in helping children interact more effectively with their peers and perform higher quality schoolwork. These children also report higher self-esteem” Longer self-imposed delay of gratification durations in childhood have been linked to later social, cognitive, and academic competence. Children with longer delay of gratification durations at age four were found better able to plan, think ahead, use reason, and cope with stress in adolescence, and they had higher SAT scores in high school.

84 The Costs and Benefits of Saving
The costs of saving are immediate and certain. People have to give up things they could buy now. The benefits of saving occur in the future and are uncertain. Events might prevent people from reaping the benefits of saving.

85 Opportunity Cost and Incentives
Considering the opportunity cost of spending might change how people analyze the costs and benefits of saving. Setting goals is an important factor related to saving. Goals act as incentives to save. Interest provides another incentive to save.

86 Opportunity Cost and Incentives
What are some things for which you would like to save?

87 Short-Term Savings Goals Medium-Term Savings Goals
Setting Savings Goals Short-Term Savings Goals (One year or less) Medium-Term Savings Goals (One to five years) Long-Term Savings Goals (Over five years)

88 Review What is saving? How is failing to save like failing to eat right and exercise? What are incentives to save? What are short-term, medium-term and long-term saving goals?

89 Credit Cards

90 Legal Disclaimer The information contained in this presentation is provided for informational and educational purposes only, and should not be construed as financial or legal advice on any matter. The University of Southern Mississippi, Mississippi Council on Economic Education, Southern Miss Center for Economic and Entrepreneurship Education disclaim all liability in respect to actions taken or not taken based on any or all the content presented here. Before acting on any information or material obtained through this presentation, we strongly recommend you to seek advice from a personal financial advisor or professional legal counsel, as appropriate. 90

91 Sound Advice 1. Charge only what you KNOW you can afford to repay
2.You pay more when you use your credit card and keep a revolving balance b/c you pay interest on your outstanding balance 3. Pay your credit card bill in full each month. If you can’t pay in full, ALWAYS pay more than the minimum monthly payment 4. Don’t spend over your credit limit and wind up paying special fees

92 Sound Advice 5. Pay your bills on time
If not you will have late fees, higher APR, lower credit score 6. Learn how to protect your credit rating, it is your “financial report card” 7. Never use one credit card to pay another (i.e., take out a cash advance on one card to pay another 8. Only have one credit card

93 Definition of Credit Credit is a system of doing business where you promise to pay at a later date for goods and services received today Credit cards function as a loan Using a credit cards means that you are borrowing money from the issuer The charges are unsecured loans that must be repaid

94 Card Types Credit Card A credit card allows you make purchases for which you are billed later. Most allow you to carry a balance from one billing cycle to the next with interest. Typically include a minimum payment each billing period. A Charge Card is a special type of Credit Card The balance on a charge card account is payable in full when the statement is received. The balance cannot be rolled over from one billing to the next. Debit Cards are not Credit Cards. Debt cards allow payment and purchase to happen simultaneously.

95 It’s a Fact The U.S. has the lowest personal savings rate of any major industrialized nation. 40% of Americans say they live beyond their means Current debt-to-income ratio is 135% Americans have record credit-card debt $874 billion in U.S. credit card debt as of Nov 2009 Source: The US has recently seen an over 50% increase in bankruptcies among people under age 25 Fastest growing age range for bankruptcies

96 College Student Credit Card Statistics
Over 75% of college students admit to having made mistakes with their money when they arrived on campus Biggest mistakes were overspending on food, entertainment, and credit card purchases. University Administrators state that they loose more students due to credit card debt than they do to academic failure Drop-Out Rates Academic Failure – 6% Debt / Financial Pressure – 8.5%

97 Budgeting We can all benefit from having a clear understanding of financial needs/wants and spending habits. Create a realistic budget gives a personal plan for spending a saving money, gives a sense of comfort and guidance Take the time to use the guide on page 2

98 College Student Credit Card Statistics
Credit Card Availability Over 92% of college students have a credit card by their sophomore year Only 55% pay off their balance monthly. The average balance for college students is $885. Over 21% of undergrads owed $3,000–$7,000 on credit cards The average student has 2.8 credit cards. Recent Sallie Mae Survey: Over 50% of college students surveyed accumulated $5,000+ in credit card debt while in school Over 33% of college students surveyed accumulated $10,000+ in credit card debt while in school

99 How Does this Happen? College Students are a Privileged Class
College students are able to obtain credit cards without a prior credit history, employment, or a parent’s co-signature. Credit card companies are betting on the student’s future earnings potential.

100 Why You Should Use Credit Cards?
Creates Opportunities Imposes self-discipline Proper use helps establish a good credit rating Beneficial for a future house or car purchase Free line of credit if you pay your balance monthly Convenience and Security Accepted across United States and abroad Often required to hold a reservation Emergency buying power Additional form of identification Record of purchases on bill statement Discussion Topic: What other reasons can the students come up with for having a credit card, or ask them for their ideas before presenting the ones on the slide.

101 Handout 4.2

102 A Schumer Box The Schumer Box was introduced by Senator Chuck Schumer to make it easier to compare credit card offers.

103 A Schumer Box 19.99%

104 Annual Fees An issuer may charge an annual fee for the privilege of using their card. There are many without such a fee If your current card has one and you are a good customer, your issuer will likely waive it if you ask them

105 Interest Rates Every credit card has at least 4 different interest rates depending on the types of transactions Purchase Balance transfer Cash advance Default

106 A Schumer Box 19.99%

107 A Schumer Box

108 A Schumer Box 19.99%

109 APR Annual Percentage Rate APRs can be fixed or variable
The monthly interest on unpaid credit card balances The higher the APR, the more money is paid in interest Look for a card with a low APR! APRs can be fixed or variable Variable APR is based on a published index, like the “prime rate” plus a few percentage points Can change without written notice Fixed APRs can be changed with 15 days written notice

110 U.S. Prime Rate

111 Grace Period Grace period No grace Period
If the balance is not paid off each month, interest is applied to new purchases when they are made If the balance is paid off monthly, a grace period is allowed before interest is charged = Free Credit No grace Period Regardless of the previous month’s balance, interest is applied to new purchases as they are made

112 A Schumer Box 19.99%

113 Balance Calculation Methods
“Average Daily Balance” You pay interest on the average balance owed during the billing cycle Creditor figures the balance in your account on each day and then adds together these amounts and divides by the number of days in the billing cycle See the handout and answer the questions

114 Example Assume that you received this credit card with a credit limit of $2,000. Assume that you bought a LG 32” LCD HDTV/DVD Combo at Best Buy as shown below for $1,049 (Ignore sales tax and $49 HDMI cables). How long will it take to pay off at the minimum payment of $35 per month? Time = Months Time = 3.49 Years What was the total amount paid? Total = $1,465.36 TV = $1,049.00 Interest = $ (39.69%) Any late payments would add $ in interest. 1 Year Warranty 114

115 Balance Calculation Methods
“Adjusted Balance” You pay interest on the opening balance after subtracting the payment or returns “Previous Balance Method” Interest is only paid on the previous (opening) balance, regardless of payments made during the month. “Two-cycle Average Daily Balance” The interest is paid on the current balance as well as the previous month’s balance, this leads to double finance charges A zero-balance must be held for two months in order to avoid charges This method should be avoided by consumers!

116 Cash Advances Cash advances are cash loans one can get with a credit card Expensive—only use in a true emergency Usually requires an up front fee plus 3% of the advance or a minimum fee Higher APR No grace period Don’t always get to pay it off entirely if you have revolving credit

117 Convenience Checks Pre-printed checks linked to a credit card account that are mailed to one’s home Act like cash advances Shred them before you put them in the trash!

118 Default Rates A default rate has a high APR
Most issuers apply a default rate if one: Makes a late payment Misses a payment Exceeds a credit limit Bounces a payment check Some default rates escalate according to the number of payments missed

119 Balance Transfers Issuers try to get new customers by offering low introductory rates to individuals who transfer their balance from another card to theirs Find out.. Is there a fee? How long does the “teaser rate” apply? What is the APR that will replace the teaser rate? Does the teaser rate apply to both the transferred balance and new purchases? Choose a balance transfer offer only when there is no fee, has a long-term APR that applies to both the transferred balance and new purchases

120 Late Fees If a payment is received after the due date, a late fee will be added to your bill Fees often escalate depending on the amount of the outstanding balance Typically range from $15 to $39 Negatively affects your credit rating b/c the late payment is reported to the three major credit reporting agencies After one or two late payments

121 Over-Credit Limit Fees
Issuers will allow an individual to spend over their credit limit but a fee will be assessed every month until the balance is brought below the credit limit $29 to $39 or a tiered fee depending on the balance Default APR may be applied and it might be reported to the credit agencies

122 Bounced Check Fees If the check you write to pay off your credit card bounces, you will likely pay a fee of $29 to $39 Default APR maybe applied and credit reporting agencies advised

123 Currency Conversion Fees
3% to convert currency on foreign purchases

124 Pay by Phone Fee Some issuers charge $10-$15 to make a payment by phone

125 How to Wisely Choose and Responsibly Use a Credit Card

126 Knowing is Half the Battle!
Understanding how credit cards work will help you use them effectively. Credit cards can either be Short-term high interest loan (“Revolvers”), or Short-term interest-free loans (Convenience Users) “Revolvers” Keep a balance on their account and pay interest on all their purchases Low APR is most important Convenience Users Pay balances off in full each month Long grace period is most important Most cost effective

127 Pay More than the MMP! Assuming discontinued use of the card, a MMP based on 1% of the outstanding balance plus accrued monthly interest or payment of $20 whichever is greater, and timely payments How long and what is the payoff for the following? $1000 debt, 18% APR, MMP $1000 debt, 18% APR, MMP + $10

128 Look for… A low APR No annual fee
A long grace period (at least 20 days) Average Daily Balance Method Low Penalty Fees

129 Using a Credit Card Properly
Limit yourself to only one card until you know you can trust your manage it properly Student loans should be used for tuition, not credit cards Wants do not equal needs “Can I do without this purchase?” Credit cards do not change our socioeconomic status Buy only what you can afford to repay each month Always pay off the entire balance….on time If you cannot pay the entire balance in a month, stop using the card until it is paid off Make sure you pay more than the minimum balance Pay more than the MMP asap, don’t wait for the due date Manage a credit card account like a checking account Avoid cash advances, convenience checks, and going over your limit Don’t skip payments…even if your bank says you can Keep a low credit limit…even if your bank says you can have more Record all expenses and keep receipts Check credit statement for errors Notify issuers of change of address

130 Handling Disputes Two Types of Disputes:
In the case of any unauthorized use: Liability Limited to $50 Notify Bank ASAP – Phone and Written Notice In the case of a billing error… Notify Bank Within 60 Days Include Form on Back of Bank Statement and a Letter Letter and Form must include Name and Account Number Dollar Amount Involved Reason for Dispute Any Other Clarifying Information

131 Credit Card Safety Tips
Secure Your Cards Sign card with Signature and “Please See ID” Do not leave cards lying around Do not give out account number unless making purchase with a reputable source Report Lost or Stolen Cards Promptly Keep a list of account numbers and bank phone numbers in a safe place separate from cards Close unused accounts by phone, then in writing, and then cut up the card Note: Closing a card may hurt your credit score

132 Always a Solution If you have an overwhelming debt, it is better to deal with the problem rather than deny it Do not skip a payment Pay down higher APRs first Stop using the card Call the issuer and tell them the problem If they offer a more manageable payment plan, get it in writing Increase your monthly income and reduce monthly expenses Contact the National Foundation for Credit Counseling or to enter a debt consolidation program

133 Credit Reports and Credit Scores

134 Credit Reports Can be obtained for free
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 Equifax, Experian, and Trans-Union Can be obtained for free Once per year and after denial of credit or

135 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 Most common scoring system is Fair Isaac Corporation (FICO) Scores range from National Average = 678 Payment history: 35% Total amount owed: 30% Length of credit history: 15% New credit: 10% Types of credit: 10%

136 FICO Scores by Age Group

137 Your Credit Reflects You

138 The Impact of Credit Scores

139 Consequences of Irresponsible Credit Card Use

140 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

141 Make Good Choices! Students should clearly understand that while credit cards are a great financial tool, they are also a big responsibility, which require maturity, consistency and sound financial management skills so that they can enjoy the benefits of credit while avoiding the pitfalls.

142 Identity Theft

143 Identity Theft Occurs when an impostor steals personal information such as a social security card, driver’s license, bank account or credit card number in order to impersonate someone else The information is then used to obtain credit, merchandize, and services using the victim’s identity

144 Signs A credit card or statement for an account that was not requested
A missing statement Unauthorized change of address Unauthorized changes on the credit card statement Denied credit for no apparent reason Debt collectors call and write regarding purchases you did not initiate

145 Avoiding Identity Theft and Other Financial Trouble
Guard your Social Security Number and other personal information Shred old documents and credit card offers Do not carry unnecessary documents/cards Do not mail payments from home Monitor your Credit Report Remove your name from the marketing lists of the three major credit reporting agencies Subscribe to a credit monitoring service Avoid business with or loans to friends / family Never cosign a loan for anyone

146 Avoiding Identity Theft and Other Financial Trouble
Become familiar with the billing cycles and when statements should arrive in the mail Don’t leave mail in the mailbox and use the Post Office for outgoing mail Use creative passwords—avoid the last 4 digits of your SSN or your mom’s maiden name Only make on-line purchases if the website is secure and protected by an encryption system Place virus protection software on your computer

147 If you are a victim of identity theft
Contact the three major credit-reporting agencies and ask them to place a “fraud alert” on your file Order a free credit report from each of the agencies and review the reports Contact the fraud departments for creditors Close the accounts and follow up in writing File a police report and ask for a hard copy Federal Trade Commission maintains an identity theft clearinghouse that provides information for victims 877-IDTHEFT or

148 Auto Insurance: Coverage Types

149 Time to Pick a Car and Get on the Road
Closest to the MSRP (Manufacturer’s Suggested Retail Price) Without going over – wins!

150 2005 Honda Civic LX Automatic Transmission Dual Zone Air Conditioner
Keyless Entry Auto Lock Brakes

151 The MSRP is $16,975

152 2005 Mitsubishi Spyder GT Automatic, 4-Spd w/Overdrive & Sportronic
V6, 3.0 Liter Leather Interior

153 The MSRP is $28,944

154 2005 Hummer H2 SUV 7-Spoke Aluminum Automatic, 4-Spd HD
Leather Surfaced Heated Bucket Seats V8, 6.0 Liter Engine

155 The MSRP is $53,280

156 Are You Ready to Drive? Ask yourself… Do I have a license?
Is my car registered? Am I covered by auto insurance?

157 Why do I need auto insurance
It’s the law! There are risks you can’t afford to take What happens if… You’re involved in a crash that causes property damage? You hurt yourself or someone else? Your car is damaged when you’re not driving it? (by weather, vandalism or a hit-and-run) Your car is stolen? Your car breaks down and needs to be towed?

158 What is the likelihood you will be in an automobile accident?
Automobile Insurance: The Basics What is the likelihood you will be in an automobile accident? There are more than 12 million motor vehicle accidents annually The typical driver will have a near automobile accident one or two times per month The typical driver will be in a collision of some type on average of every 6 years Crashes are the leading cause of death for ages 3-33

159 Automobile Insurance: The Basics
Even a minor accident can result in thousands of dollars in damages Damage to your car Damage to other cars involved Medical Bills Lost wages Pain and suffering Prosecution Legal Fees Fines

160 Automobile Insurance: The Basics
If you are in an accident how do you pay for it? Bank Account? Parents? Rich Uncle? Best Friend? Insurance?

161 Automobile Insurance: The Basics
What is Automobile Insurance? An auto insurance policy is a contract between you and an insurance company. You pay a premium, and in exchange, the insurance company promises to pay for specific car-related financial losses during the term of the policy.

162 Are you a risk to the insurance company?
Automobile Insurance: The Basics Are you a risk to the insurance company? To keep premiums as low as possible to the insured, a screening process is completed before an insurance contract is completed

163 What is the insurance company looking for?
Automobile Insurance: The Basics What is the insurance company looking for? Some vehicles, and some drivers, carry more risk than others Low risks will be charged a lower premium High risks will be charged a higher premium

164 What determines your premium?
Automobile Insurance: The Basics What determines your premium? Age Gender Vehicle Type Driving Record Geographic Location

165 Types of Automobile Insurance Coverages
Three Questions What are third-party coverages? What are first-party injury coverages? 3. What are first-party property coverages?

166 Types of Automobile Insurance Coverages
What are third-party coverages? Bodily Injury Liability People costs (medical expenses, lost wages, pain and suffering) Property Damage Liability Things (other cars and property) Both are types of coverage required by law in most states

167 Types of Automobile Insurance Coverages
What are first-party injury coverages? Medical Payments (MedPay) Covers medical and funeral expenses resulting from accidents with your vehicle Personal Injury Protection (PIP) Extends MedPay to include lost wages Uninsured Motorists Covers expenses if the at fault driver does not have coverage Underinsured Motorists Covers expenses when the at fault driver does not have enough coverage

168 Types of Automobile Insurance Coverages
What are first-party property coverages? Comprehensive Compensates you for physical damage to your car, including theft, vandalism, natural disasters Collision Pays for damage to your vehicle in case of collision Both Coverages require you to pay a deductible

169 What is a Deductible? This is the amount per accident that you pay out of pocket before insurance starts to pay Common deductible amounts are usually $250, $500, and $1000 The higher the deductible amount you pay the lower your premiums are

170 Automobile Insurance: The Policy
A common mistake when shopping for automobile insurance is looking only at the price between two policies Policies differ from policy to policy and company to company

171 Automobile Insurance: The Policy
Five parts to an insurance policy Declarations Coverages Exclusions Conditions Definitions

172 Coverage Parts/Insuring Agreement
Outlines the coverage options and coverage limits purchased In short, what your insurance company promises to provide in return for your payment, based on the coverages and coverage limits selected

173 Exclusions Details what is not covered by the policy Examples:
Intentional damage to your own vehicle Damages caused while vehicle is used as a delivery vehicle

174 Conditions Define the insured’s and the insurer’s duties that, under the terms of the policy, must be fulfilled Includes: premium payment obligations steps to filing a claim procedures for resolving a claim

175 Explains specific terms used throughout the policy
Definitions Explains specific terms used throughout the policy Examples: “You” or “Your” refers to the “Named Insured” “We” or “Us” or “Our” refers to the insurance company “Family Member” refers to a resident of your household

176 Automobile Insurance: Accidents
Chances are even if you are never in an accident you will witness one What should you do if you are involved in an accident?

177 Automobile Insurance: Accidents
Chances are even if you are never in an accident you will witness one What should you do if you are involved in an accident?

178 Steps to take after an accident
Help anyone who is injured You have an ethical and legal responsibility Notify the police Prevent further accidents Protect the accident scene Record information Exchange information with the parties involved Take note of time, location, weather, and road conditions

179 Filing a Claim It is important that the accident is reported promptly to the insurance agent or company The policy will guide the insured on the correct steps to take to report the claim The company will guide the insured through the process

180 Filing a Claim When you are liable for an accident
The insurance company covers the loss up to the policy limits Your insurer represents you if you are sued Your insurer has the right to settle any legal action without your permission Your premium may rise Insurer has the right to cancel your policy If the losses exceed the policy provisions, the insured is responsible to cover the excess

181 What can you do to reduce risk and lower premiums?
Automobile Insurance: The Basics What can you do to reduce risk and lower premiums? Use your seatbelt Observe Speed Limits Know your own limits Concentrate on driving Be Patient Don’t Drink and Drive Get good grades

182 Automobile Insurance: Accidents
Chances are even if you are never in an accident you will witness one What should you do if you are involved in an accident?

183 Steps to take after an accident
Help anyone who is injured You have an ethical and legal responsibility Notify the police Prevent further accidents Protect the accident scene Record information Exchange information with the parties involved Take note of time, location, weather, and road conditions

184 Filing a Claim It is important that the accident is reported promptly to the insurance agent or company The policy will guide the insured on the correct steps to take to report the claim The company will guide the insured through the process

185 Filing a Claim When you are liable for an accident
The insurance company covers the loss up to the policy limits Your insurer represents you if you are sued Your insurer has the right to settle any legal action without your permission Your premium may rise Insurer has the right to cancel your policy If the losses exceed the policy provisions, the insured is responsible to cover the excess

186 Building Wealth for the Long Term
Lesson 12

187 Lesson 12 Visual 1 Three Rules for Building Wealth
Start early. Give money time to grow. Buy and hold. Keep your money invested. Diversify. Don’t put all your eggs in one basket.

188 Lesson 12 Visual 2 Charlayne Becomes a Millionaire-- Accidentally

189 Lesson 12 Visual 2 (continued) Charlayne Becomes a Millionaire-- Accidentally

190 Lesson 12 Visual 3 Charlayne Becomes a Millionaire-- Accidentally

191 Lesson 12 Visual 4 The Magic of Compounding
When you save, you earn interest. When you take the interest out and spend it, it stops growing. But if you leave the interest in your account so it can grow, you start to earn interest on the interest you earned previously. Interest on interest is money you didn’t work for. It is money your money makes for you! Over time, interest on interest can increase your total savings greatly.

192 Lesson 12 Visual 5 Marcus’s Mistake

193 Lesson 12 Visual 6 Marcus’s Mistake

194 Lesson 12 Visual 7 Buy and Hold
In order to leave money in savings or investments, you have to do these things: Spend less than you receive. How? Earn more by improving your formal education or job skills. Spend less by using a budget to keep track of where your money is going. Become connected to financial institutions. Open and maintain accounts at mainstream financial institutions--banks, credit unions and brokerages.

195 Lesson 12 Visual 7(continued) Buy and Hold
Manage your credit responsibility. How? Limit the number of credit cards you have. Limit your purchases to what you can pay off each month. Apply for loans when you are confident that your current income (in the case of college loans, future income) will allow you to repay the loan.

196 Lesson 12 Visual 8 The Stock-Market Roller Coaster
If you buy and sell on the ups and downs, you may lose money. But if you buy and hold on for the long term, the ups are greater than the downs.

197 Lesson 12 Visual 9 Don’t Put All Your Eggs in One Basket
If you put all your money in one stock, a disaster befalling that stock will hit you hard--as if you had put all your eggs in one basket and then dropped the basket. With your money spread out across variety of assets (stocks, bonds and cash, for example), you’re not hurt as badly when any one asset does poorly.

198 Lesson 12 Visual 10 Forms of Saving and Investing: Some Benefits and Costs
Savings accounts: provide a small but steady return. Certificates of deposit: very safe, but instant access carries a penalty. Bonds: lending money to a corporation or government, with a promise of higher returns than those offered by bank savings accounts and CDs. Stocks: part ownership in a company, offering higher risks and, potentially, higher returns than some other investments. Real estate: the risks and benefits of being a landlord.

199 Lesson 12 Visual 11 Investment Situations
You have $5,000 to invest. No other information is available. You have $4,000 that you’ll need six months from now. You inherited $10,000 from your great-aunt; she has suggested that you save it for use in your old age. You are just starting a career and can save $50 per month for retirement. A new baby arrives, and Mom and Dad plan to save $100 a month for the child’s college education.

200 Lesson 12 Visual 12 The Pyramid of Risks and Reward
Highest Risk--Highest Potential Return or Loss Lowest Risk--Lowest Potential Return or Loss

201 Lesson 12 Visual 13 Mutual Funds
A mutual fund pools investors’ money. The fund puts its investors’ money into the markets on their behalf. In effect, investors own small amounts of many different assets. Mutual funds enable investors to avoid the risk that comes from owning any one asset. In other words, mutual funds make it easy to diversify.


203 Personal Finance James B. Wilcox RESOURCES PROVIDED BY:

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