MAKING GOOD FINANCIAL DECISIONS Credit Cards vs. Saving and Investing

Credit Cards  When managed properly, credit cards offer  convenience  the ability to build a good credit history  When used irresponsibly, credit cards can cause  excessive debt  a poor credit history  long-term financial liability

Credit Card Costs and Terms  Annual fees- yearly fee charged by the financial institutions to use their card  Annual Percentage Rate (APR)- your interest or % fee each month  Penalty Rates- raises to your interest rate if you make late payments or exceed your credit limit  Minimum Monthly Payment- smallest payment you can make and still be in good standing; also the most expensive way to pay your credit card bill

Credit Card Do’s and Don’ts Do  Pay your bills on time  Limit yourself to one credit card  Pay your bill as soon as you receive your statement  Pay your bill in full each month (at least more than the minimum monthly payment)  Check monthly statements Don’t  Don’t use your card for major purchases (school, car, etc.)  Don’t skip payments  Don’t’ use one credit card to pay another

Go the route of saving and investing Instead of Credit Cards….

Saving  Saving means to set aside income for a time so you can use it later Why should you save?  To make major purchases (car, house, etc.)  In case of emergencies  Save for luxuries (like vacation)  Your money can earn interest- payment people receive when they lend money or allow someone else to use their money

Simple Interest  If I put $100 in a savings account that earns 5 % interest a month, how much money will I have after 2 months, assuming I do not take any out?  $110 How to solve: Interest=PrincipalxRatexTime A = P x i x N

Simple Interest You Try…  If I put $250 in a savings account that earns 4 % interest a month, how much money will I have after 6 months, assuming I do not take any out?  $310 How to solve: Interest=PrincipalxRatexTime A = P x i x N

Compound Interest How to solve: Interest (A)Principal (P)Rate (r)Time (n) A = P(1 + r)^n

Compound Interest You Try…  If I put $250 in a savings account that earns 4 % interest a month, how much money will I have after 6 months, assuming I do not take any out?  $316.33

Bank and Savings Options

Checking & Savings Accounts How does it work? Open checking/savings account at the bank, the bank loans your money to other people  Principal- amount you initially deposit  Things to keep in mind-  Location  Fees  Other charges: overdraft, stop-payment  Interest  Restrictions: minimum balance, holding periods Good Because: Easy to access, can withdraw $$ at any time Not so great because: Earns very little interest!

Money Market Account  How does it work?  Similar to checking account- allows you to write checks, usually for larger amounts Good Because: Can withdraw $$ at any time, slightly higher interest rate than savings account Not so great because: Still earns not very high interest rate

Certificates of Deposit (CDs) How does it work?  A kind of time deposit- you agree to deposit a sum of money for a certain amount of time and you get a guaranteed interest rate Good Because: Interest rate is usually high & its guaranteed. Not so great because: Less flexibility to access your money. Usually have to wait 1 year to access.

Stock  Stock- buying partial ownership in a company  Return- Profit earned by the investor  Dividend- payment to shareholders that occurs at regular intervals or periods Good Because: Can get a really large profit Not so great because: Risky!

Bonds  Bond- lending money to a company or the government  Does not make you part owner! Good Because: Government bonds are very safe Not so great because: Interest rates can change with the economy

Mutual Funds  Mutual Funds- pools of money from many people invested in a selection of stocks chosen by financial experts Good Because: Less risky because it spreads your investment among several stocks Not so great because: You may not earn as much on your return