1. Becoming a Millionaire:
Saving and Investing
Welcome to “Becoming a Millionaire: Saving and Investing” sponsored by the Peer Financial Counseling Program from (insert your school’s sponsor(s)). My name is (counselor’s name). The purpose of this program is to help you to gain skills in managing your income and expenses effectively. This will help you make the most of the money you have for college, and develop good habits for your years after school.
Please feel free to ask questions as we go through the presentation.
Becoming a millionaire is not easy, but it’s still possible for those of us who can’t play basketball like LeBron James, or sing like Britney Spears to achieve wealth. Through disciplined saving and investment, you can become one of America’s millionaires.

2. Starting a Savings Plan
“Getting rich is not a function of investing a lot of money; it is a result of investing regularly for long periods of time.”
Many of us have heard the adage “a penny saved is a penny earned.” So we know the value of saving money. However, many of us delay getting started because we feel like we don’t have the income. Yet, the simple truth is that the earlier you start the more you can accumulate. Getting rich is not a function of investing a lot of money; it is a result of investing regularly for long periods of time. So getting started as soon as possible is key. If you don’t have much income from which to save, remember this: one of the reasons you are in college is to build good habits, so at this stage the amounts are not as important as the action.
One important reason to save is to have an emergency fund – money you can use to pay for unexpected expenses. If you have an emergency fund, you won’t have to use credit or tap your savings for your important goals when something unexpected comes up. How much should you have? Some experts recommend 3 to 6 months of living costs. Dave Ramsey, a noted radio personality, says start with $1,000. Once you have that, work toward 3 to 6 months of living costs.
Source:Garman & Forgue (2003), Personal Finance Seventh Edition. Houghton Mifflin pg. 18

3. Start As Soon As Possible …
Annual Interest Rate
Age Investment Started 20 30 40 50 3%
$185,440
$129,924
$72,919
$37,198 6%
$425,487
$222,870
$109,729
$46,552
10%
$1,437,810
$542,049
$196,694
$63,545
If you are a young man or woman just starting your college career, you have a fantastic advantage in building wealth …TIME! Don’t waste this valuable advantage. Starting now to build the habits that will help you reach your financial goals will serve you well in the long run. Let’s say that you plan to start saving $20 a month once you graduate from college and to save that amount for 10 years. At 6% you’d have $1,969 more money if you started today instead of waiting 4 years!
It’s a mathematical fact that saving and investing early and often can result in a net worth of over one million dollars. If we assume that you save $2000 and put this amount into investments that earn 9% or 10% at the end of each year starting at age 20, you would have over $1.4 million by the time you reach age 65. If you put it in at the beginning of each year you would have over $1.5 million. Even if your investments only earn 3% you’d have $185,440. If you can’t save $2000 a year but you could save $1,000 at 10%, you’d have $718,905!
Suggested Activity: The Value of Starting Early
… And Become A Millionaire!
Assuming: $2000 annual contribution accumulated to age 65; used Future Value of Annuity Formula to compute

4. Time IS On Your Side!
The miracle of compound interest: Interest earning interest
Example: 5% = $105
With compound interest, in Time 2: 5% = $110.25
Compound interest means that your interest earns interest. Let’s say you have $100. At 5%, you’ve earned $5 in interest. In the second period, your original $100 earns another 5% in interest, but so does the interest you earned in the first period. So, instead of earning $5 again in the second time period, you earn $5.25!
Think of compound interest like a snowball rolling down hill. Without your adding any more snow, that snowball just keeps getting bigger. The steeper the hill (or the higher the interest rate), the faster your snowball (or savings) grows. The longer that snowball has to roll (or the longer you leave your savings in adding interest), the more both grow!

5. Find Money to Save WATCH THE DAILY LEAKS!!
Save $5 a day (lunch, soda, snacks, etc)
5 X 7 = $35 a week
35 X 4 = $140 a month
140 X 12= $1680 a year!!!
A LITTLE ADDS UP!!!
While $2000 a year may sound like a lot to save, it is probably easier than you think. You can save $1680 a year by just concentrating each day on stopping daily leaks from your wallet or purse. Just saving $5 dollars a day by making your lunch, avoiding buying those extra cokes, beers, snacks, or cigarettes can save most of the $2000 by itself. A little adds up!
Speaker: Get the group involved by taking 2-3 minutes to ask the audience about daily leaks (Activity: Plug the Leaks in Your Financial Ship).
What do you think are some of your daily leaks? (Wait for someone to answer or call on someone)
In the past, students have said that their small leaks include things such as buying magazines or newspapers, paying to park closer to the classroom instead of walking, eating fast food, and buying bottled water or cokes from the vending machines between classes.
Think about ways to “plug” your daily leaks. Does anyone have a suggestion for any of the mentioned leaks?

6. Save Regularly! Do it now Pay yourself first
Use simple and creative ways to save
Make saving a part of every spending decision
Use a goal statement to plan
You should save at least 10% of your take home pay first - along with saving for emergencies and seasonal expenses. If you don’t have income from a job so don’t have take-home pay, save at least 10% of the money you do have – gifts from your parents, relatives, etc.
You can also find simple and creative ways to save money. Some examples are:
- put all your change in a jar (good for seasonal expenses or to purchase special items)
- set up automatic withdrawal with your bank to move money from checking to savings
build the habit of never spending $1 dollar bills. Think how much you would have now if you had every $1 dollar bill that ever passed your way.  
once you’ve paid something off (a loan from your parents or a bill you owe), keep paying – but now pay yourself! Just put that same amount aside for your future.
Keeping in mind the goals you are saving for may help provide the continuous motivation you’ll need to save regularly. A goal statement which is a written declaration of your financial goals can help you do this. To reach these goals you may have to increase income, decrease expenses, or use a combination of the both. To learn how to do this, ask me about Module 1 in the Peer Financial Counseling Program.

7. Your Major Savings Goals
Down payment on a house
Down payment on a car
Education
Travel
Take a second to think about your major financial goals. Do you want to be able to make a down payment on a car or house? What about paying for graduate school? Maybe you want to travel to another country - even spend a semester abroad! Or, maybe it’s something more immediate – like going on a big spring break trip.
The difference between a wish and a goal is that with a goal you have a specific dollar amount and a time frame in mind – a plan. So your goal to save for a down payment for a car starts with getting some idea of what car you want, how much it costs, and when you plan to buy it. So, if you want to buy a $20,000 car in two years and you want to pay $2,000 down, you’ll need to save $83.33 a month for the next 24 months – less if you earn interest on your savings. You’ll also need a plan to make the monthly payments after you buy the car. Now, that’s a goal and a plan to reach it!
Let’s take a look at which savings or investment products may help you best achieve those goals. But before you do, see how you would answer the 10 questions in the What’s Your Savings IQ quiz (HO#1).

8. Types of Investments Savings/Share Accounts
Low interest earning account
Low risk
Easily accessible
First step in investing
Helps develop pattern of investing
Online Savings/Share Accounts
While disciplined savings is an important part of reaching your financial goals it’s the investment part of your plans that will help you earn a good return on your money. The difference in the return is a major distinction between mere savings and investing.
Savings and share accounts are useful savings vehicles for short-term goals. Your emergency fund should be here too. These accounts are low risk, are easily accessible and help develop a pattern of investing for the first time investor. However, along with the low risk comes a low return for these type of accounts and often fees. You’ll find savings/share accounts at local banks, savings and loans, and credit unions. Interest from savings/share accounts is taxable.
Note to presenter: You can find current interest rates at In May 2010, the highest Annual Percentage Yield (APY) on a checking account paying interest was approximately 1.3%.
Online savings and share accounts offer higher interest rates and are also FDIC (Federal Deposit Insurance Corporation) insured. Bankrate.com lets you to search for the most competitive online saving rates. The one drawback to putting your money into an online savings account is the transaction time and ease of access. It may take a little longer for your funds to be available for withdrawal and you may not have access to ATM withdrawals; however, this may be a good vehicle for short-term savings that provides higher rates of return. In May 2010, the APY on online savings accounts was about 1.35%.

9. Types of Investments Money Market Deposit Accounts Money Market Funds
Higher interest rate than savings
Easily accessible, but limited transactions
Low risk
Generally require a minimum balance
Banks and credit unions offer
Interest is taxable
Money Market Funds
Offered by brokerages & mutual fund families
Not FDIC insured
Easily accessible
Money market deposit accounts are another way of saving with a bank or credit union. These accounts require a minimum balance which can be as low as $1,000 or $2,000. The interest rates are higher than savings accounts. In May 2010, the average APY for a money market account was 1.30% (source: Bankrate.com). Money market accounts offer liquidity through general withdrawals at the bank, and many accounts allow for check writing or ATM transactions. However, the account is generally limited to a smaller number of transactions versus a regular savings account. Also, there are fees associated with dropping below the minimum account balance.
A money market deposit account at a bank or credit union is different from a money market mutual fund. We’ll talk about mutual funds later but they are sold by brokerages and mutual fund companies. They are NOT FDIC insured so you could lose all of your money.
By the way, there are lots of terms related to saving and investing that you may not know. We have a handout (HO#3) that is helpful.

10. Types of Investments Certificates of Deposit
Higher interest than savings accounts
Must leave money in for fixed time
The longer you leave it in the higher the interest rate
Available at banks and credit unions and insured
Interest is taxable
Another way of saving/investing is with a certificate of deposit (CD). A CD is a savings instrument for a specific amount of time, as short as 7 days to as long as 60 or more months, from a depository institution like a bank or a credit union. A CD pays a higher interest rate than a savings account, but you must leave the money in for the duration of the CD, known as the maturity date. CDs have a maturity date and if you take the money out before that date, you don’t earn as much interest. Owners of CD’s also benefit from the added protection of federal deposit insurance. The longer you leave your money in a CD the higher the interest rate you can earn.
Interest from certificates of deposit is taxable. In May 2010 interest rates on CD’s ranged from about .43% on a six-month CD to just over 2.14% on a 5 year CD (Source:
Before you show the next slide, ask “How did you answer Question 2 on the Savings IQ quiz?” Note to Presenter: Answers are in HO#2 “Answers to What’s Your Savings IQ.”

11. Types of Investments Bonds Loan to a corporation or government
Earns higher interest than CDs but return
may be lower than for stocks
Government bonds less risky than corporate bonds
Can buy from employers, banks, and brokerages
The minimum may be more than you have
Returns are taxable
Can buy U.S. savings bonds online –
Bonds are another investment vehicle. You can invest in corporate bonds, U.S. government bonds, or municipal bonds. All three entities offer these investments to the public to raise money for themselves. When you invest in bonds, you are actually loaning money to them, and they pay you interest on your loan. Bonds pay higher interest than CDs but the returns are not as high as for stocks, generally speaking. Government bonds, whether federal or municipal, are usually less risky than corporate bonds. The U.S. government is obligated to pay back its debts, whereas if a corporation fails, it may not be able to pay back its bonds.
You owe income tax on interest from all bonds except those that are tax-exempt – usually those sold by a unit of government.
Note to presenter: If you want more information about bonds, stocks, and mutual funds, check the Web Resources in Handout #5. A good place to start is
The correct answer to Question 2 is TRUE.
Before you show the next slide, ask, “How did you answer question 1 on the savings quiz?” and “How did you answer question 4?”

12. Types of Investments Corporate bonds Government bonds
Investment grade bonds vs. “junk” bonds
Range in maturity dates
Government bonds
Treasury bills (t-bills): 4, 13, and 26 week maturity
Treasury notes: 2 to 10 years maturity
Treasury bonds: 30 year maturity
Municipal bonds and other bonds
Corporate bonds generally result in higher interest rates than government bonds because they are more risky. Corporate bonds are rated according to the company’s credit worthiness. There are several bond rating agencies, such as Standard & Poor’s and Moody’s, that provide information about the creditworthiness of different companies offering bonds to the public. In general, the higher the risk, the higher the return as seen in the extreme case of high yielding junk bonds that have low bond ratings. Corporate bonds may range in maturity dates from a week to several years.
Government bonds are a safer investment, and thus pay lower interest rates. There are many types of government bonds. Three popular federal bonds are treasury bills (t-bills), treasury notes, and treasury bonds. T-bills are shorter investments. When you buy a T-bill you pay a lower price than the face value and when you hold it to maturity you receive the full face value, with the difference being your earned interest. Treasury notes and treasury bonds are longer in duration and pay semi-annual interest on the bonds. Treasury notes and treasury bonds also are sold in increments of $1,000.
Other government bonds include municipal bonds as well as bonds issued by other federal agencies. Again, these are investments offered to the public in order to raise money for themselves.
It is important that you determine what tax consequences are associated with each bond before you choose the best bond investment.
Source: Money 101 Lesson 7: Investing in Bonds

13. Types of Investments Stocks Buying a part of a publicly traded company
As profits increase value of stock increases
Highest potential rate of return
Highest risk
No limit on how long you have to invest or how much you could lose
Pay taxes on dividends and gains from appreciation
Available from stock brokers and online brokerages
While bonds are ways for companies to borrow from you, stocks are ways you can actually own shares of a business corporation. You are buying a part of a publicly traded company, and as profits increase the value of the stock increases. Investing in stocks can pay the highest rate of return, but also has the highest risk of all of the investment vehicles discussed so far. There is no minimum length of time you have to own a stock – you can sell it right after you buy it. Stocks are available from stock brokers and online brokerage houses.
You pay taxes on the dividends (a return of company profits) paid by stocks as well on capital gains – the difference between the value of the stock when you sold it and when you bought it.
The correct answer to Question 1 is TRUE.
The correct answer to Question 4 is FALSE. The value of a stock could go to zero!
Before you show the next slide ask, “How did you answer Question 9 on the Savings IQ quiz?”

14. Types of Investments Mutual Funds
Investment companies pool money from lots of individuals to invest in stocks and bonds
Easy way to invest in a variety of stocks and bonds -- diversify
Depending on the type of fund, risk and rate of return vary
Can begin investing with relatively small amounts
Can purchase from mutual fund companies, brokerages, and online
A mutual fund is an investment company that raises money by selling shares to the public and then investing that money in a diversified portfolio of investments. When you own shares of a mutual fund, you actually own minute parts of all of the investments of that company. So, it’s a easy way to invest in a variety of stocks and bonds.
There are many different types of mutual funds. Some mutual funds have an income objective – the primary focus is earning a high level of current interest. Others have a balanced objective; these funds have both stocks and bonds to achieve a balanced flow of current income and, in the long-term, an increase in the value of the investments. Some funds have both a growth and an income objective, investing in companies expected to show average or better growth with steady or rising dividends. Finally, some mutual funds have a long-term growth objective, seeking growth in the value of the securities in the portfolio rather than income.
Each mutual fund company typically offers a variety of different funds with different levels of risk and return to match almost any consumer goal.
You pay income tax on returns from mutual funds except those that are invested in tax-exempt bonds.
Every mutual fund charges a fee to manage the portfolio. Look for no-load mutual funds which have lower fees.
The correct answer to Question 9 is TRUE. Ask “How did you answer Question 7 on the Savings IQ quiz?” The correct answer is FALSE. Although many mutual funds are low-risk, NO investment offers a guaranteed return.

15. Criteria for Selecting Savings/Investment Products
Yield
Safety
Liquidity
Risk Tolerance
Time Horizon
How can you tell if an investment is right for you? Here are some ways to compare the different investments you may consider:
Yield - rate of financial return you earn – look for the average annual return. If it’s a taxable investment, what’s the after-tax return? The after tax return is equal to the Return*(1 – the taxpayer’s marginal tax rate).
Safety - the dollars you invest will remain intact.
Ex: $1000 in - $ earnings out (you do not lose any principal)
Liquidity - the ease with which your investment can be converted to cash without loss.
Ex: Funds in a regular savings account would be available at all times as opposed to a 6 month certificate of deposit
Risk Tolerance - how secure you feel with the risk of your investment decreasing in value
Ex: Fluctuation of stocks
Time Horizon - how long you are going to be able to leave the money invested
Ask “How did you answer Question 10 on the Savings IQ quiz?” The correct answer is TRUE. You can afford to take more risk if you won’t need the money in your investment in the near term.
Before you show the next slide, ask “How did you answer Question 3 on the Savings IQ quiz?”

16. Average Annual Investment Return*
Savings Accounts 2%
Certificates of Deposit (1 yr) 4.5%
Long - Term Bonds %
Large Cap Stocks %
Mutual Funds %
Small Cap Stocks %
Inflation %
Fees or penalties can reduce these returns. For example, most mutual funds have “loads” or fees. Often these are sale charges or commissions – typically 5.5% to 8.5% paid at the time of purchase. So-called “no-load” funds may have a “service fee” of .25% or less.
What rate of return you expect depends in part on whether you’re willing to accept the risk that you’ll lose some or all of your principal. The higher the interest rate, the greater that risk. Most investors manage risk by diversifying their portfolio – having several different types of investments with different expected returns – and systematically investing an equal amount of money at regular intervals regardless of the price of the investment. This is called “dollar cost averaging.” The rate of return relative to the inflation rate is important – if the rate is lower than the inflation rate, your money loses buying power.
The correct answer to Question 3 is FALSE. Stocks, and specifically small cap stocks, have earned the higher returns. A small cap stock just means a smaller company in terms of its market value – a “small” company is one with $300 million to $1 billion in assets.
Ask “How did you answer Question 6 on the Savings IQ quiz?” The correct answer is FALSE. What interest rate is Carlos likely paying on his credit card? It’s probably higher than anything he can earn on an investment so he should pay that off before investing.
Ask “How did you answer Question 8 on the Savings IQ quiz?” The correct answer is FALSE. Although stocks and stock mutual funds can be risky investments, Bob has a long time and they tend to earn a higher return than other investments.
*The rates for mutual funds were not updated for Sources: Financial Trend Forecaster ( data.com) and the Ibbotson Yearbook.

17. Time It Takes to Double Money
The “Rule of 72” 72
time =
rate
yield
years
Formula 72
7.2 years =
10%
7.2% 10
Example
The Rule of 72 is a simple way to figure out how long it takes to double principal using compound interest. You simply divide the interest rate the money will earn into the number 72. So, at 10% it takes 7.2 years to double your investment.
You can also use the Rule of 72 to figure out what interest rate you need to earn to double your money in a certain number of years. So, if you want to double your money in 10 years, you need to earn 7.2%.

18. Time It Takes to Double Money
Savings Account earning 2%
72/2% = 36 years
Certificate of Deposit earning 4%
72/4% = 18 years
Government Bonds earning 5.3%
72/5.3% = years
The Rule of 72 is a good way to make investment comparisons considering the investment yield and the time horizon. Here are some other examples of the use of the Rule of 72. As you can see, the investment that would take the longest time to double your money in this example is a savings account earning 2% at 36 years…

19. Time It Takes to Double Money
Common Stock earning 11.2%
72/11.2% = 6.43 years
Mutual Funds earning 9.14%
72/9.14% = 7.88 years
…while the investment that would take the shortest time to double your money in is common stock earning 11.2% at 6.43 years.

20. Personal Retirement Plans
Individual Retirement Account (IRA)
An IRA is not a type of investment. It’s a part of the tax code to encourage saving.
You make annual contributions that are tax deductible.
You set up the account and decide where to invest the money.
The maximum contribution if you’re younger than 50 is $5,000 (or your earnings – whichever is less) in 2010.
You have until April 15, 2011 to make your contributions for the 2010 tax year.
You can make annual tax-deductible contributions to an IRA. You have to be a working taxpayer to make tax-deductible contributions to a traditional IRA.
You decide where to invest the money – in a CD, mutual fund, stock, bond, etc. You don’t have to put the full amount in all at once – you can add it over time. And, you don’t have to choose a different investment each year – you can keep adding to an existing mutual fund, for example.
You have until April 15, 2011 to open an IRA for the 2010 tax year.
You pay taxes on the earnings when you take it out. If you take the money out before you are age 59 ½, you also pay a penalty.
The Motley Fool website ( is a good source of information about IRAs.
Consider using HO#4 IRA Basics as a handout.

21. Roth IRA You set up the account and decide where to invest the money.
The maximum contribution for anyone younger than 50 is $5,000 (or your earnings – whichever is less) in 2010.
You have until April 15, 2011 to make your contributions for the 2010 tax year.
Many of the rules for a Roth IRA are the same as for a traditional IRA. You decide where to invest the money and you must have earnings. You have until April 15, 2011 to make your contributions for the 2010 tax year.
This is still an incentive to save for retirement so you pay penalties if you take the money out before age 59 ½.

22. Roth IRA
A non-deductible IRA but the funds in the account grow tax-free.
Plus you can withdraw funds (after five years) tax-free and penalty-free for other reasons – first-time homebuyer expenses or educational expenses
A Roth IRA is important in different ways. You don’t get an income tax deduction in the year you make a contribution but the money in the IRA and the returns on that money grow tax-free. That means you won’t pay taxes on the money when you take it out.
Plus you can take out money early without penalty if you’ve had the IRA for at least 5 years. If you take the money out to buy a home for the first time or for educational expenses you don’t have to pay tax penalties for taking the money out early.
Before you show the next slide, ask “How did you answer Question 5 on the Savings IQ quiz?”

23. Diversify Have a variety of investments, not just one type Stock Bond
Mutual fund CD
Diversification is the process of reducing risk by spreading your investment funds among several investment vehicles to reduce risk. How much you diversify depends on how much money and time you have to invest. For example, if you have under $500 you can use different investments for different purposes:
savings accounts which are good for emergencies,
savings bonds which are a long-term commitment for your money,
mutual funds which are better for the long term,
and stocks which can be a gamble short term.
If you have over $500 to invest you can use:
certificates of deposit which are another long-term commitment, some money market accounts that provide easy access to your money, mutual funds, savings bonds, and stocks.
You can diversify by buying a single mutual fund if that fund includes a variety of different investments.
Remember that having more different types of investments means more to keep track of and more time spent managing your investments.
There are lots of online resources related to investing – check out the ones listed in Handout #5 (Web Resources) for starters.
The correct answer to Question 5 is TRUE.

24. Getting Started Go to a financial institution Go online
Use a financial planner, a full service broker or a discount broker
Join an investment club
How you start depends on the investment types you choose. If you choose a financial instrument you can buy through a bank or credit union (a CD, for example), you just visit the financial institution to get started. If you want to open an IRA, they can help you with that too.
There are lots of opportunities today to invest online. You can buy U.S. savings bonds online. All of the mutual funds have websites and you can buy shares online. Vanguard, Fidelity, and T Rowe Price are three large mutual funds that let you start with relatively small deposits and have low fees. All can help you to open an IRA. Firsttrade.com offers thousands of mutual funds and is a place to start if you have limited funds to invest.
If you want advice and are willing to pay for it, you can use a financial planner or a broker. A financial planner does much more than help you just buy or sell investments. A planner can help you think about your financial goals and the best way to achieve them. Some financial planners charge a fixed fee, others charge by the hour, and some make money by buying or selling investments for you.
Or, you can use a full service broker such as Merrill Lynch. A discount broker charges less, but doesn’t offer as many services. There also are online brokers. One way to check out online brokers before you invest is to visit They provide links to different ratings of online brokers.
The members of an investment club are usually people who have something in common. They pool their money and make group decisions about which investments to buy and sell.

25. For individual help contact:
The Peer Financial Counseling Program
(insert web address, phone number, and )
If you ever need one on one assistance, you should contact the Peer Financial Counseling Program. They will help you get out of financial trouble. (Insert your school’s web site and info.)
Note to presenter: Now would a good time to recruit new counselors. You could say: “If you would be interested in becoming a counselor, please feel free to contact us.”
Don’t forget to ask participants to complete and return the evaluations (HO #6)!

26. Special Thanks to...
Special thanks to the organizations involved in bringing this module to you.