How to Graduate Successfully and Prosper Financially Preparing Future Faculty March 21, 2014

Contact Rebecca Smith, Ph.D. Director, Extension Center for Economic Education and Financial Literacy

Extension Center for Economic Education and Financial Literacy 3

Agenda The Case for Financial Literacy Resources Introduction to Maroon Money Management Evaluation

Connect With Us Please follow MMM Twitter #CreditForCredit – What did you like most about this workshop? – What topic would you like to learn more about?

Getting Good Judgment Good judgment comes from experience, and experience well, that comes from poor judgment. Confederate Army General Simon Bolivar Buckner

Cash Course

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Free once per year and after denial of credit –

Government Credit Education free-credit-reports selected_facets=category_exact:credit-reporting

How to Graduate Successfully and Prosper Financially 1Az05Jo

For Most, College is a Good Investment! Benefits Higher job satisfaction Healthier lifestyles Contribute more to society More prosperous children Higher pay Lower unemployment Costs Public funding is declining Cost of higher education is increasing More students and parents are taking out loans Delinquency rates are rising

Financial Return on Higher Education

Student Debt Loan Load is Rising Source:

How to Graduate Successfully and Prosper Financially

Objective of MMM What? A campus-wide initiative to increase personal finance literacy and practices of MSU students Why? To empower participants to add more value to their lives, so that they can achieve their dreams and live their lives more fully How? Provide new perspectives, knowledge, experiences, and resources

MMM Opportunities Participate in MMM programming Programming for your organizations MMM Peer Mentors

MMM Session Topic F2F Monday 12:30 Student Support Services Montgomery Hall Webinar Wed. 3:30 p.m. Know Thyself & Your SuccessFeb. 3Feb. 5 To Buy or Not to Buy? Decision-Making & Cutting Expenses Feb. 17Feb. 19 Saving & BudgetingFeb. 24Feb. 26 Student LoansMar. 3Mar. 5 Credit CardsMar. 17Mar. 19 TaxesMar. 31April 2 Making Your Major ProfitableApril 14 April 16 Investing and ProtectingApril 28April 30 Register at

Worth Your Time Treasurer Lynn Fitch Roundtable Wed., March 26 at 2:00pm in 310 Lloyd Ricks Watson April 8 Open House 11:00am-2:00 pm Dawg House“Life After College” Mississippi Saves MS Savers Club Meets every 4 th Wednesday at noon in Bost 409 Bring your lunch!

Success, Anxiety, and Failure You be the One to Define Your Success Alain de Botton - Alain de Botton – Job snobbery – judging the worth of people based on what they do Begins from idea that we can be anything Envy from perceived equality; spirit of equality with existence of deep inequality “We can be anything” and “anything is possible” leads to low self-esteem – Meritocracy – position achieved in life is merited and deserved “Unfortunates” (victim of fate) vs. “Losers” (self-caused outcome) It is wrong to judge anyone by their position in life – Fear failure because we fear the judgment and ridicule of others Tragedy (learning) vs. Failure (ridicule) – Self-worship – there is nothing greater than us to believe in – Success and failure Idea of success = money, renown in field Can’t be successful (excellent) at everything – To be successful (excellent) in one facet, means can’t be successful in other facets – Have your OWN IDEA of SUCCESS – you get to define it because you are the one that must live with it; make it your own ch?v=-dMoK48QGL8

Hiring Managers’ Assessment of Recent Grad Candidates Vs. Students’ Self-Assessment (% Responding Very Prepared or Completely Prepared) Bridge That Gap: Analyzing the Student Skills Index; 27% difference 25% difference 22% difference

Relieving Stress Time management strategies and division (reduction) of responsibilities have been shown to reduce stress Relaxation techniques, physical activity, exercise, and other enjoyable (!) activities also serve as effective stress relievers

Remember the Big Picture Make healthy choices when they are available and most of the time in general. Focus on what to eat, not what NOT TO EAT. Remember that you don’t have to eat perfectly all the time. Allow fun foods.

Maximize the Return on Investment in Your College Major

How to Graduate Successfully and Prosper Financially

Improving Decision-Making 42

Are you waiting for a future you? Is there an important change or task that you are putting off, hoping that a future you with more willpower will show up? – All the time? Often?Sometimes?Rarely? Do you optimistically overcommit yourself to responsibilities, only to find yourself overwhelmed by impossible demands? All the time? Often?Sometimes?Rarely? Do you talk yourself out of something today, telling yourself that you’ll feel more like it tomorrow? All the time? Often?Sometimes?Rarely? How does this affect your choices today? What are strategies that can help you become the future self you want to become? 43

Use A Spending Diary Date Item Amount Look back to see what the most common categories were in your spending and how much you spent in each category.

Plugging Spending Leaks Leave your debit/credit card at home Attend free campus concerts and plays Use your bike or public transportation Carry a refillable water bottle instead of purchasing soft drinks or coffee drinks Limit the number of songs, ringtones, etc., you download Avoid buying sodas and snacks out of vending machines Kick a costly habit (cigarettes, lattes) Use the library Use the Internet for comparison shopping

How Much is Your Daily Brew Costing You? 46

Cutting Expenses—MSU Account Due FROM Student Personal Payments Monthly eBills Balance due on the 9 th HOLDs & Fees Due TO Student MoneyMate Refund Leave on Account – Federal Aid recipient: it is critical that you clear your account at the END of each aid year (end of SUMMER term)

Where Did All the Money Go? Saving Budgeting

Why is it important to start saving early? Because TIME is your best friend !!!

What a Difference a Few Years Make Jorge’s IRA Olivia’s IRA Interest rate 9% Years contributions were made 9 years (age 22 to age 31)34 years (age 31-65) Amount contributed $1,000 per year For 9 years = $9,000 $1,000 per year For 34 years = $34,000 Value of IRA at age 65 $13,021 at age 31; this lump sum then compounds: At age 65 equals: $243,863 At age 65 equals: $196,982

“Compound Interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t …pays it.” -Albert Einstein

Pay Yourself First Save at least 10% of your gross income Use payroll deduction—never miss it! Never touch retirement funds

Emergency Savings Account 3-6 months living expenses – Begin with a goal of $500 – Then at least $1,000 – Then one month living expenses – One year living expenses for retirees

Creating a Budget A budget will let you tell your money where to go, instead of wondering where it went! 1.Identify your sources of income 2.Identify your expenses 3.Setting goals 4.Monitor 5.Make adjustments

Stick to Your Budget! Expenditure Guidelines 57

Live Beneath Your Means Stop spending when you reach your budget limits – Groceries – Gasoline – Eating out – Personal allowance – Gifts or office contributions

What type of account should I open? Easy Accessibility Access with Penalties Cash Savings Money Market CD’s Brokerage Account Qualified Retirement Plans IRA Accounts 59

Borrower Consequences No additional financial aid Reduced credit score – Takes years to repair Pay higher interest rates or inability to get credit in the future Wages, Social Security benefits garnished Tax refunds withheld Lottery winnings withheld Professional license withheld Legal action – borrowers are liable for original balance, accrued interest, court fees, collection fees Virtually impossible to discharge student loans through bankruptcy 61

Debt “Rules of Thumb” Total Debt rule – Maximum total consumer debt should be no more than 20% of income – Monthly debt re-payments should not exceed 10% of monthly income. Student Loan Debt Total student loan debt should be less than starting annual salary after graduation 62

Student Loan Best Practices Calculate repayment amounts BEFORE you borrow Financial Aid Shopping Sheet –

Student Loan Best Practices Take out the minimum! The less you borrow, the less you have to repay – Find scholarships Use loans only for educational expenses, not food, clothes, gas You don’t have to take out the whole student loan refund check out of your student account Graduate! 64

Student Loan Best Practices Consider paying as you go – Principle – Interest 65

Loan Forgiveness: For a borrower who is not in default and who makes 120 monthly payments on the loan after Oct. 1, 2007, under certain repayment plans, while the borrower is employed full-time in a public service job. You may NOT apply for forgiveness after you have made all of the required 120 qualifying monthly payments.

Loan Consolidation Some loans are eligible – One payment – Potential for lower interest rates – Fixed interest rates – Potential for loan forgiveness – Potential for extending the payment period 69

Higher Interest Costs of Consolidation Undergrad borrow max $31,000 – Additional $7,422 for Extended – Additional $3,131 for Graduated

Higher Interest Costs of Consolidation Grad borrow max $138,500 – Additional $102,727 for Extended – Additional $86,298 for Graduated

Biggest Mistakes Affecting Credit Not using a credit card wisely Being disorganized about paying bills Paying the minimum amount on your credit cards

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

How much car can you afford? 1/3 annual income maximum Payment 15% of monthly take-home pay d.tab_link..* d.tab_link..* edmunds.com calculators

Never get upside-down in a car! 20/4/10 rule of thumb for buying a car Pay at least 20% down Finance for no more than four years, Payment should be less than 10% income The first part of this rule prevents you from owing more than the car is worth, and the last two parts prevent you from buying more car than you can afford

Credit Card Strategies Limit use to one card Define “emergency use” Understand credit terms Pay more than the minimum Credit Card Balance Interest Rate (%) Charged Monthly Payment Months to Pay Off Balance Years to Pay Off Balance Total Cost (Balance + Interest) $2,00018% $40 minimum 907.5$3,608 $2,00018%$ $3,004 $2,00018%$ $2,211

Credit Reports 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 Annualcreditreport.com – Get one free credit report from each agency each year – Do not use any others

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 Scores range from National Average = 678

Scoring Don’t focus on the credit score number – Focus on the factor that is lowering your score – Scores change over time as you pay off debt, etc. Most common scoring system is Fair Isaac Corporation (FICO) – Payment history: 35% – Total amount owed: 30% – Length of credit history: 15% – New credit: 10% – Types of credit: 10%

Improving Your Score Pay credit card off before due date Make multiple payments in a month Ask for a “good-will” deletion Pay for removal of a late payment om/finance/video/credi t-debt/steps-improve- credit-score.aspx om/finance/video/credi t-debt/steps-improve- credit-score.aspx e/video/credit-debt/steps- improve-credit-score.aspx e/video/credit-debt/steps- improve-credit-score.aspx

Saving from Having a Better Score

Example of the Cost of Lower Credit Score

Avoid Predatory Loans 85

Debt Repayment Decisions Low balance method High interest method Most important method Percentage method Pro-rate & Negotiate New plan method Debt consolidation Professional credit counseling

Which One Should I Pay Off First? Low balance method High interest method Most important method Percentage method

Create a Debt Payment Plan CreditSourceAPROweMOPaymentOverdue Card #1 Mortgage Car note

How to Graduate Successfully and Prosper Financially

Taxes 90

Gross v. Net Gross Pay – Amount you make before deductions on your paycheck Deductions include – Taxes, insurance, retirement, and optional items Net Pay – Amount you make after deductions Net Pay is usually 60-70% of Gross Pay 91

A “Kinder, Gentler” IRS axes/hows/mod01/sim_mod01_04.jsp Withholding-Calculator aspx

Lowering Your Tax Bill Defer income to when you retire and are in a lower income tax bracket by using a retirement account like a 401(k) Take advantage of any “voluntary deduction” programs your employer allows – Acts as a shelter for income in the form of health care, child care, or retirement 93

How to Graduate Successfully and Prosper Financially

Investing, Insurance, & Identity Protection Younger Strategy Older Strategy CDs Money Market Savings Account Mutual Funds US Treasury Bonds Corporate Bonds Real Estate Stocks

Can you retire? If you have 20 times your annual income or needs saved, then you should be able to retire

Insurance for College Students Health and Renter’s Insurance are a good ideas for college students Life Insurance is not

Insurance Information m/ 98

Connect With Us Please follow MMM Twitter #CreditForCredit – What did you like most about this workshop? – What topic would you like to learn more about? 1Az05Jo

Sources Duke University Financial Aid Office Bobbie Shaffet, MSU Extension Service Alex Washington, MSU Office of Student Financial Aid