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(e). Savings account at a bank or credit union: Advantages:

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1 (e). Savings account at a bank or credit union: Advantages:
p.12 , Req. 6: Pretend you have $1,000 to save/invest, and help prepare yourself for the future. Explain to your merit badge counselor the advantages or disadvantages of saving or investing for each of the following: (e). Savings account at a bank or credit union: Advantages: They pay us _________ Very ____ risk of loss (insured by _____ or _____) interest low FDIC NCUA Disadvantages: The interest they pay ____ as much as I’d like. isn’t

2 They pay us ______ (usually ______ rate than savings) interest higher
p. 12, Requirement 6 (d) Certificate of Deposit (CD) at a Bank or Credit Union Advantages: They pay us ______ (usually ______ rate than savings) Very _____ risk of loss:(insured by _____ or ______) interest higher low FDIC NCUA Disadvantages: Timing risk: I may need my money _____ the CD matures. before

3 Advantages: Disadvantages:
p. 12, Req. (6a) Common Stocks. Advantages: If I invest in a company that is very profitable and if the stock market does well, I could ____ ____ of money, earn lots The value of the stock could ___ ___ and I could get _________. go up dividends Disadvantages: Compared to bank or cu savings, the risk of loss is ______. higher If the company I invested in loses money, I probably ___ _____ lose money If the stock market in general goes down, I probably ____ _____ lose money Timing risk: If I buy when the price is high and sell when it is low, I ____ ______. lose money

4 p. 12 Req. (6b) Mutual Funds (invest in stocks of _________ companies)
different Advantages: Compared to stock in a particular company, the risk of loss is supposed to be _____ lower (but some have lost $ in scandals) The return on the investment is often ______ than at a bank. higher If the stocks in the fund do well, I am likely to earn ____ _____ more money Disadvantages: Compared to bank or cu savings, the risk of loss is ______. higher If the stocks in the fund do poorly, I am likely to ____ ______ lose money If the fund mgr blows it or takes off, I ____ lose If the stock market in general goes down, I probably ____ ________ lose money

5 Invest vs. Save A particular mutual fund’s performance vs
Invest vs. Save A particular mutual fund’s performance vs. 5% savings avg.

6 p. 12 Req. (6c) Life Insurance
Advantages: Life insurance pays money to my ___________ when I die. beneficiaries Some policies invest part of the premium so people don’t have to ___ to get some money. die Disadvantages: The insurance portion costs ______. money The investment portion is not _______ by the US Government insured

7 p. 13 Req. 7 Explain to your merit badge counselor the following:
Explain what a loan is: money things A loan is ________ or ________ owned by someone who allows another person to _____ ___ use it

8 p. 13 Req. 7(a) Explain what interest is:
Interest is the amount of money paid to a lender in ________ of what was borrowed. excess principal The amount earned as _____ passes. time

9 1. The APR is the ________ ____ established by the U.S. Government
p. 13 Req. 7(a) Explain how the Annual Percentage Rate (APR) measures the true cost of a loan. 1. The APR is the ________ ____ established by the U.S. Government standard rate (just as _____ is for highway speed) MPH 2. So we can _______ the cost of borrowing. compare 3. It includes ______ and _____ interest fees 4. It is expressed as a _______ rate. yearly

10 APR? 10 10 10 120 520 520 If you borrow $100, and pay back $110:
p. 13 Req. 7(a) Explain how the Annual Percentage Rate (APR) measures the true cost of a loan. If you borrow $100, and pay back $110: What is the cost? $____ 10 10 What is the percentage rate? ____ % APR? 10 What is the APR if you pay back $110 one year later? _____% APR 120 What is the APR if you pay back $110 one month later? _____% APR 520 What is the APR if you pay back $110 one week later? _____% APR 520 What is the cost if you pay $10 interest each week for a year? $_____

11 p. 13 Req. 7(b) Explain the different ways to borrow money:
I might be able to borrow from a relative for ____. free I can borrow from myself for very ___ ____. low cost I can borrow from bank or credit un at a ______ ___. higher cost I can borrow by charging things using a _____ ____. credit card I can borrow by ________ a ________. (usually higher) financing purchase If I am really stupid: I can borrow from ultra high-cost lenders at outrageous interest ____. rates

12 BEST BORROWING TIPS: unnecessary increase early don’t buy anything 13%
Avoid _____________ borrowing! increase 2. Only borrow for things that _________ in value. early 3. Pay off loans ______. don’t buy 4. If you don’t have the money, _____ ____ _________. anything 5. When you do borrow, always pay less than _______ APR. 13%

13 Promissory Note with Security Interest
TOO EASY LOAN COMPANY Promissory Note with Security Interest Security: Olds Ciera Annual Percentage Rate The cost of your credit as a yearly rate. 300% Finance Charge The dollar amount the credit will cost you. $4,442.80 Amount Financed The amount of credit provided to you or on your behalf. $ Total of Payments The amount you will have paid after you have made all payments as scheduled. $6,442.80 25% per month Payment Schedule: 12 Payments of $ Beginning 2/4/99 and on the 4th of each month thereafter until final payment is made on January 4, 2000. Default Charge: If the payment is late 10 days, you will be charged 5% of the payment amount. This is an example of an actual loan made in Utah (the name of the lender was changed, but the data is taken from an actual loan). Notice the APR (300%). Moron Math Quiz: Which is higher, the unlucky 13% mentioned earlier or 300%? It doesn’t take complicated math to realize, this rate is extremely high! Notice this loan is secured by a 1996 Oldsmobile, which was worth about $10,000 at this loan was made. If this borrower had missed a payment, the lender would have repossessed the car. He shouldn’t lose all of his $8000 of equity, but I would not trust such a company with disposing of my collateral in a “commercially reasonable manner”. Utah law doesn’t have an interest rate ceiling, but we do have an “unconscionability provision”. Since the law doesn’t define “unconscionable”, a judge must decide. If this borrower takes this lender to court, the judge would very likely rule this loan unconscionable, and most of the interest paid would be refunded. However, very few borrowers who use this type of loan have the know-how or desire to take legal action. Another problem we are facing with this type of lender is that many of them, when asked the cost of their loans speak of a monthly rate rather than the Annual Percentage Rate (APR), the standard of comparison set by the Fed. Why? Because 25% doesn’t sound as bad as 300%.

14 TV $400.00 cash Suppose you see a 27” T.V. you want to buy. The cost of a particular model I priced, was $ If you are one of the smart ones who has saved up some money, you pay cash (or check) and you can watch your favorite programs.

15 TV $400.00 Credit Card $26.00 per mo. 18% A.P.R. 18 mo. pmts
$59.00 interest Total Cost $459 Back to the $400 T.V. purchase: suppose you pay the $400, and charge it on your credit card. If your rate is 18%, and you determine that you can pay $26 per month, it will take 18 months to pay it off. Total interest, $59. The $59 won’t ruin you financially, but if you pay 18% on all your purchases, the cost over time mounts up. Also, how many of us would go buy a $400 TV if we saw or heard an advertisement stating that it was on sale for $459? Very few of us, yet people do just that by using their credit card and spreading out the payments over 18 months. Assuming the same tax bracket & hourly wage as in the previous example, your earnings cost is about 7 hours of work. Some people like to work more than play, so for them, it may not matter.

16 TV $400.00 Finance Company 36% A.P.R. 18 mo. Pmts. $29.00 per mo.
$ int. Total Cost $523 If you go to one of the many small loan companies who offer 36% APR loans, and get an 18 month loan to buy the T.V., you pay and extra $123, or ~15 hours of work, assuming the same details.

17 TV $400.00 Rent-to-Own (196% APR) $860.00 $70.00 mo. pmt (int.)
18 months Total Cost $1260 (196% APR) $860.00 (int.) I called one of the rent-to-own places and asked them if they had a 27” TV. They said they had one left. I asked how much to rent-to-own it. They said $70.00 per month. Micro Math Quiz: What would be a reasonable length of time for me to pay to own it? (They would already have built-in a profit at the $400 price, so what might be a fair charge to spread the purchase over time?) Most people divide the 400 by 70 and say 6 months or 7 months including some “financing” costs. I asked the rent-to-own representative how long before I’d own it. He said 18 months. If 6 or 7 months is “fair” what is 18 months? (Triple fare?) Rent-to-own programs are exempt from consumer credit laws in Utah, so even if Utah had an interest rate ceiling, it probably wouldn’t apply to this type of transaction. If you ask the rent-to-own people, they say “we don’t charge interest”, but the effective interest charged over 18 months is $860, with an effective APR of 196% (the APR is not disclosed in a rent-to-own contract - since it is technically not a loan). If you stop making payments, they just take the T.V. back and rent it to someone else (or sell it)

18 TV $400.00 Too Easy Loan (Bad Credit OK)
300% A.P.R. Car Title Pawn If 18 months $ payments $1,433 interest Total Cost $1833 The lenders who advertise that they make loans to people no matter what their credit rating, charge high to astronomical rates. If you were to buy the same T.V. using a car title pawn at the 300% rate, you’d pay $ What kind of T.V. could you buy for $1800? Do you want to blow your next 5 weeks of salary so you can buy the T.V. from these guys?

19 TV $ Payday Loan 10% x 52 =520% The lenders who advertise that they make loans to people no matter what their credit rating, charge high to astronomical rates. If you were to buy the same T.V. using a car title pawn at the 300% rate, you’d pay $ What kind of T.V. could you buy for $1800? Do you want to blow your next 5 weeks of salary so you can buy the T.V. from these guys?

20 TV $400.00 Payday Loan 10% per week 520% APR $174 payments
$2,725 interest 18 months (12 weeks max) Total Cost $3125 The lenders who advertise that they make loans to people no matter what their credit rating, charge high to astronomical rates. If you were to buy the same T.V. using a car title pawn at the 300% rate, you’d pay $ What kind of T.V. could you buy for $1800? Do you want to blow your next 5 weeks of salary so you can buy the T.V. from these guys?

21 p.13 Req. 7(c) Explain the differences between:
A Credit Card A Debit Card A Charge Card

22 Credit Cards: Our Friends?
Or Our Foes?

23 is used to make purchases using the ____ ____ _________ money.
p.13 Req. 7(c) A CREDIT CARD is used to make purchases using the ____ ____ _________ money. credit card company’s It may be paid off ____ _____ (without interest -most cards), each month or it may be paid ____ ____ (plus interest charges) over time Advantages: One way to start building a good ______ ______ for free (if you pay it off each month—on time!) credit rating convenient! Very ___________

24 A CREDIT CARD Pitfalls: don’t have Costs: interest higher
p.13 Req. 7(c) A CREDIT CARD Pitfalls: Too easy to spend money, especially if its money I _____ _____ don’t have Costs: If I don’t payoff each month, I pay ________ Nearly always at a rate _______ than I want to pay. interest higher

25 Pitfalls: Too easy to spend money, especially money you _____ _____
p Req. 7(c) A CHARGE CARD is a type of credit card, where a person is using the company’s money, but no periodic interest rate is charged, and the person is usually required to pay the balance ____ ______ each month. Pitfalls: Too easy to spend money, especially money you _____ _____ don’t have. Costs: ______ fees. annual

26 p.14 req. #7 (c) cont’d A DEBIT CARD checking Advantages: your own
Is one way to withdraw money from a person’s ______________ account. checking Advantages: Using _____ ______ money, so if you don’t have it, you don’t spend it. your own

27 p.14 Debit Card req. #7 (c) cont’d
Pitfalls: If somebody else uses your debit card, or a mistake is made, your money may be gone when you _____ _. need it Some places (like gas stations & motels) place a _____ on your acct. hold

28 Causing returned item ____
p req. #7 (c) cont’d Costs: If you don’t have enough money in your checking account to cover the withdrawal, your transaction(s) may _______ (get returned – unpaid). bounce fees Causing returned item ____

29 p.14 req. 7(c) Costs of debit cards (checking accounts)
If you don’t have a backup plan, like an overdraft ____ __ _____ (an empty loan), line of credit you’ll probably get ________ _____ fees. returned item Some checking accounts have monthly ____ fees

30 p. 14 So, the differences between: Requirement 7(c).
Charge Card Debit Card Credit Card Money from your checking account. Borrowed money. No interest charge (Reg. Z 226.2(15)) Must pay off each month. Borrowed money May pay off each month (no int) or pay over time (high interest).

31 p. 13 Explain the advantages & disadvantages: requirement 7(c).
Charge Card Debit Card Credit Card Using your own money Your money gone… Borrowing money Too easy to spend money Builds your credit rating Very convenient Protections

32 A person who only pays the minimum stays in debt a ____ ____ time.
p. 14 Req. 7(c) Explain why it is unwise to make only the minimum payment on your credit card. A person who only pays the minimum stays in debt a ____ ____ time. very long And pays ___ and ____ of interest. lots lots At typical terms, it would take about _____ years to pay off a $5,000 balance. 34

33 Simplified Credit Card Statement
Last Month’s Balance Payments received (128.42) Interest Auto Repair Center Joe’s Gas & Goodies Babe’s Apparel Store Ending balance Required (min) Payment Due 20.00 If you pay the entire balance by the due date, you pay no interest (most credit cards). The statement shows the new purchases, the ending balance, and the minimum required payment. You may pay the entire balance, the minimum required payment, or anything in between. If you pay anything less than the entire balance, you pay interest. *

34 if used poorly, financial ruin!
Credit Card Summary: If used well, a great tool, if used poorly, financial ruin!

35 Credit Reports or Credit Records:
p. 14 Explain Credit Reports Requirement 7(d). Credit Reports or Credit Records: A credit report is a report of a person’s credit ______ history And it usually includes a credit _____ or credit _____ rating score Credit reports show what ______ and _____ _____ a person has had. loans credit cards And if he has made his payments ___ _____ on time If he was late, it shows how late he was and how _____ _____ he was late. many times

36 Explain Credit Reports (History)
Bill S. Preston Score 380 Creditor Limit Bal Comments Department Store >30, 3>60 Credit Card >30,3>60,1>90 Dumpy Bikes Collection agency Fast Car Lot Repossession Credit Card as agreed Home Mortgage current Overdraft Line of Cr as agreed Here is a simplified fictitious credit report: The better-rate lenders pay close attention to negatives. They do not like to see that someone has been late greater than 30 days more than once or twice, especially not 5 times. They do not like to make loans to people who have been late greater than 60 days even once. They especially don’t like to see that an applicant has been more than 90 days late at all. They don’t like to see that any accounts were turned over for collection or that a vehicle was repossessed. Any of the negatives shown on this slide could disqualify a borrower from obtaining a loan from many lenders. A combination of more than one of the negatives is highly likely to cause the more reasonable rate lenders to reject an application. What they do want to see is a current account, and/or accounts paid as agreed. A good way for young people to establish credit is set up an overdraft protection line of credit in conjunction with their checking account. And don’t use it as a loan, just a safety net to avoid returned checks (more discussion on this topic in later slides). Something a lot of lenders are starting to pay attention to is if your credit cards are bumping their limits. What good is a credit card with a limit of $5000 and a balance of $4999? It is just a liability, not a valuable tool. And the fact that it is up to the limit, often suggest that the applicant is having financial difficulties.

37 history rating score bad rating score late fees higher rate bad low
p. 14 Req. 7(d) Explain how your personal responsibility can affect your credit record: If I pay my bills on time, I will have a good credit ______. history And if I don’t borrow too much, I’ll have a good credit ______ or _______ rating score If I am irresponsible, and pay my bills late: I’ll have a ____ credit history & ______ or ______ bad rating score late fees I will also be required to pay ____ ____, and next time I borrow I’ll pay interest at a ______ ____. higher rate bad If I have too much debt, I’ll have a ___ credit rating, or a ____ credit score low

38 Is it possible YES! To have a good credit history while having
A bad credit score? ______ YES!

39 p. 14 Req. 7(e). Describe ways to reduce or eliminate debt:
***Pay ____ ________ (more $ than required). extra principal

40 Example of Paying Extra Principal
Bal Rate Term Pmt Total Int Pd (If simple interest) 10, % 60 mo , ,346 Savings 179 10, % 57 mo , ,167 10, % 47 mo ,582 2, Most mortgage companies will accept extra principal payments. A borrower who consistently pays as little as $10 extra each month on a $150,000, 30 year loan can reduce his/her term by 1 year, thereby avoiding paying interest of $8,520. If the person can pay enough to reduce the term to 15 years the savings is $116,820. Most lenders also charge a lower interest rate if the initial term of the loan is 15 years. 10, % mo , , ,277

41 p. 14 Req. 7(e). Describe ways to reduce or eliminate debt:
***Pay ____ ________ (more $ than required). extra principal ***Pay off highest rate debt _____ first Then, when it is paid off, add what you were paying on that debt to the amount you were paying on your next _______ ____ debt. highest rate

42 Example: of paying highest rate debts first.
After 1 year New New New Bal. Pmt. Term 77, 8, 4, 6, Existing Balance Payment Rate Remaining Obligations (p & i) Term (yrs.) 1st Mort , % yrs. Auto Loan , % yrs. Trailer , % yrs. Credit Card , % yrs. Doctor % yrs. Dentist , % yrs. Totals 102,

43 Reduce or eliminate debt quicker, by paying highest rate debts first.
After .8 year (1.8 yrs total) New New New Bal. Pmt. Term 76, 6, 2, 5, Existing Balance Payment Rate Remaining Obligations (p & i) Term (yrs.) 1st Mort , % yrs. Auto Loan , % yrs. Trailer , % yrs. Credit Card , % yrs. Doctor % yrs. Dentist , % yrs. Totals 102,

44 Reduce or eliminate debt quicker, by paying highest rate debts first.
After 1.8 more (3.7 yrs tot) New New New Bal. Pmt. Term 73, 1, 2, Existing Balance Payment Rate Remaining Obligations (p & i) Term 1st Mort , % yrs. Auto Loan 10, % yrs. Trailer , % yrs. Credit Card 6, % yrs. Doctor % yrs. Dentist , % yrs. Totals 102,

45 Reduce or eliminate debt quicker, by paying highest rate debts first.
After .7 more (4.4 years tot) New New New Bal. Pmt. Term 72,760 1, Out of debt in 10.6 yrs. Existing Balance Payment Rate Remaining Obligations (p & i) Term 1st Mort , % yrs. Auto Loan 10, % yrs. Trailer , % yrs. Credit Card 6, % yrs. Doctor % yrs. Dentist , % yrs. Totals 102,

46 p. 14 Req. 7(e). Describe ways to reduce or eliminate debt:
***Pay ____ ________ (more $ than required). extra principal ***Pay off highest rate debt _____ first Then, when it is paid off, add what you were paying on that debt to the amount you were paying on your next _______ ____ debt. highest rate ***Pay _____ often than required (if allowed). more ***Bi-weekly payments can be an easy way to make extra principal payments

47 p.14 Req 7d. Describe ways to eliminate Debt.
Most loans: Monthly payments

48 Some Loans: Bi-Weekly Payments: (every other week)
By paying ½ payment every other week…

49 13 full payments Some: Bi-Weekly Payments: (every other week)
By paying ½ payment every other week: 13 full payments

50 p. 15, Req 8(a) Write a "to do" list of tasks or activities, such as homework assignments, chores, and personal projects, that must be done in the coming week. List these in order of importance to you. TO DO LIST. Things that must be done in the coming week (in order of importance): 1 ________________ ________________ 2 ________________ ________________ 3 ________________ ________________ 4 ________________ ________________ 5 ________________ ________________ 6 ________________ ________________ 7 ________________ ________________ 8 ________________ ________________ 9 ________________ ________________ Eat Sleep School Church Scouts BB Date Shower

51 p.15, Req. 8(b) & (c). Make a 7-day calendar or schedule…
Day 1 Day of the week __________ Date________ Scheduled Activity Actual Times 12: PM 6: AM 1: PM 7: AM 2: PM 8: AM 3: PM 9: AM 4: PM 10: AM 5: PM 11: AM 6: PM 7: PM 8: PM 9: PM 10: PM

52 p.19, Req. 8(d) Review your “to do” list… Discuss it with your merit badge counselor.

53 c. Describe your project ________________
p. 19, Req. 9. Prepare a written project or plan… could include a camping trip… Define the project ___________________ What is your goal? ___________________ b. Develop a timeline… Start Finish c. Describe your project ________________

54 p.19 Req. #9(d) & (e) Develop a list of resources… If necessary develop a budget.
(e) budget (d) Develop a list Identify how these resources Already Est. cost if you of Resources needed: will help you achieve the goal have it don't already have it ______________ ____________________ ______ ______________ Discuss your completed project plan with your mb counselor.

55 p. 20, Req. 10. Do the following: Choose a career you might want to enter… Research the limitations…

56 p. 20, Req. 10. Do the following: Choose a career you might want to enter… Research the limitations, qualifications. Career:_______________________________ Bank Examiner (b) Research the limitations of your anticipated career: Limitations Where you learned about it Qualifications _______________ _______________________ ______________ old Pay average MB Class Instructor College Degree Sometimes boring “ “ “ Banking Experience Sometimes conflicts “ “ “ Communicate

57 Personal Management Merit Badge
More things to finish. When you’ve completed ALL the requirements, contact your scoutmaster and/or merit badge counselor. Take the handout with you. Discuss the things and be excellent to each other! $ Lots of effort , but totally worth it!


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