Personal financial literacy

1. Personal financial literacy Why should people make a plan for how to get and spend money? What strategies can be used to do this most effectively?

2. 2.6.1 – The Financially Responsible Individaul

3. Have a Plan Budget – a persons financial plan for how they spend their money, however that may be. A budget includes all of the income and expenses for a person, usually for a month. It includes -all income -housing -electricity -cars -”entertainment” -savings

4. Variable Costs: Charges/costs that will change depending on how much of something is used. - Food: eating more or buying more expensive foods will cost more. - Travel: Driving more will require more gas, meaning more money. - Entertainment: Choosing to go out to eat, to movies, buy video games, etc. Everything costs money. The more stuff you want to buy, the more money you will need. -Fixed Cost – something that doesn’t change each month (such as rent, or car payments) Budgets

5. Your debt is the money you owe to creditors. People build debt by taking loans for homes, cars, education, starting a new business, etc. People also build debt when making purchases with credit cards. Buying on credit is like taking a small loan. Every loan will include interest. Banks and credit card companies charge interest on loans in order to make money. Different kinds of loans have higher interest rates, especially credit cards. The higher the interest rate, the more money you end up paying back. Debt

6. Saving Money! -Saving money may be one of the hardest things people do. -Savings can be used for many things, such as making a major purchase, retirement, vacation, or for emergencies. -Generally, you should set aside atleast 10% of your income each month to save.

7. Savings -Why should people save??? -Investing – saving for retirement and major purchases shows an investment in yourself -CD’s – long term savings for any time from 6 months to several years. These pay out higher interest rates, but force you to pay penalties if you withdraw your money early.

8. Be aware of your financial obligations -Be as aware as possible of all of your bills. -”unexpected bills” can really mess up your budget. Being aware can prevent you from accruing more bills, such as late fees on your credit card, or having to pay a service fee to get electricity turned back on. -Writing out your budget can help you remember all of the various bills you have to pay so you can spend your money wisely and avoid problems.

9. Be ready for emergencies. -Remember, we call them “emergencies” or “unexpected” for a reason – no one plans or budgets to have a problem. -Emergencies or unexpected bills could include – -injuries -mechanical breakdowns -storm damage -fires Two ways to handle emergencies 1) Credit – using credit cards or getting loans from the bank, or even having a friend “spot” you is credit. 2) Savings – the easiest and most reliable way – having money saved up that you can now use for this emergency.

10. Planning for Retirement -It’s VERY hard to plan for retirement when you’re young. Many people have big plans for retirement, and plan to travel the world, but one must have the money for this! Three “basic” ways -Social Security – US government pays money to people over an age (currently 62.5 years is the eligibility) providing they have paid into it while they were working (which all working Americans are required to do.) -Pensions – these are being phased out, but were paid by your previous employer as a “thanks” for all your years of service. -Private Investments – these are more common as most people now know social security won’t be enough, so they invest in their own retirement plans. 401K’s and IRA’s are most common.

11. Theme 2 Concept 6 Part 3

12. There are many different ways of holding your money. 1. You can keep all of your money as cash in your piggy bank at home. - Why do you think this is risky? 2. You can keep your money in a checking account at a bank. At any time you can write a check, use your debit card, or withdraw cash. - Interest:A percentage increase on the total amount of an account or debt. You can be paid interest by the bank for holding your money there. - Why would a bank choose not to offer interest on checking accounts? Types of Accounts

13. Managing a Checking Account: Along with keeping a budget, one must make sure to keep up with their checking account! -Checking accounts are designed as a primary place to deposit money and withdraw money from. -Usually, these are used to withdraw cash as needed, to place money to pay bills, but usually not where you want to save money at. Many accounts have a service fee.

14. Banking -Types of Banks -Banks – general banks like BB&T, PNC, SunTrust, etc. Designed to make money on deposits, loans, and other fees -Savings Banks -Credit Unions – usually provided for a group of people, such as state employees, but are not made for big profits

15. Banking -Banking Services -Deposits – putting money in the bank in any kind of account -Checking Accounts – designed as a general purpose fund to pay bills, deposit earnings, and buy wants and needs - Savings Accounts – designed to place money in to save for short or long term, such as Christmas money or a major purchase, or long term for things like retirement

16. How a Bank makes Money!!! -Banks don’t just keep your money safe somewhere for you. -Banks actually loan out most of the money deposited there, keeping a small amount to handle withdrawals and day to day expenses of the bank. -Banks charge interest on the loans they make with your money, which is where the majority of their money will come from, but some money is made with charging service fees to customers -Banks go bankrupt usually not because of people not depositing money, but because they loaned out money to people who couldn’t pay it back.

17. -Loans – lend money to buy things we want or need, such as homes, cars, vacations, or to start businesses -Interest – banks pay an interest rate on things such as CD’s (Certificate of Deposit), savings accounts, mutual fund accounts, and other types of savings accounts -Collateral – banks can make loans to people if they have something valuable to back up the loan, such as a home, a car, valuable jewelry, etc.

18. In theory, managing a bank account is simple, and requires three basic things: • keep enough money in the account • do not write checks or use a debit card for money that isn’t actually in your account • don’t make any math errors! Whenever you don’t do this, the bank can charge “overdraft fees” and “service fees.” Writing bad checks can even be a criminal offense! These bounced checks can also lead to more of those unexpected bills we were talking about earlier!

19. Banking -Government and Banking -Federal Reserve – regulates interest rates and the amount of currency available -FDIC – Federal Deposits Insurance Company, insures all bank deposits up to $250,000. Should the bank fail, the government will guarantee individuals their money

20. Investing -Stocks -Wall Street – many people invest in corporations by buying stock. They do this to collect dividends or believe the value of the stock will increase -stocks are given a risk rating. Higher risk may involve more earnings but more losses as well. -Mutual Funds – type of investment where many people pool money together and have someone buy stocks for them -Bonds – investment in the U.S. Government

21. Theme 2 Concept 6 Part 4

22. Credit -Credit Rating – your credit score (as seen on TV commercials, etc.) determines how likely you are to pay off debt on time and in full. It is determined by your payment history on previously held debt, or payment on current bills -Interest Rates – the interest rate on your credit cards or various loans. The better your credit score, the lower the rate you can get.

23. -Loans – the interest rate, length of time, and the amount of money that will be loaned to you is determined by your credit score. -Collateral – something valuable that you own that is put up for a loan. If you do not repay, the creditor may take possession of the collateral (pawn shops work on this idea as well) -Principal – principal is the amount of money loaned to you, and the amount of money left on the loan. The interest charges are not part of the Principal of the loan

24. Credit -Credit Cards – credit for general use, usually with a high interest rate if not paid off monthly -Bankruptcy – when one is financially unable to pay off their debt, they file bankruptcy. Courts help determine how you will go about paying off your debt.

25. Credit Score Management -If you’re generally financially responsible, your score will go up. If not, it will usually go down. -Nearly EVERY bill you can think of can be tied back to your credit score.

26. Ways to keep good credit scores: -Pay all bills on time. -Pay more than the minimum payment on credit cards – paying more of the balance is better. -Do not have too many credit cards or loans at one time. -Don’t “live” on your credit. -”Old” credit is better than new credit – older the account, the better it looks to creditors.

27. Benefits of a Good Credit Score -Most people will need credit at some point in their lives. -Home mortgages are VERY dependent on credit, as usually these loans will be made for much of your working life, with some of them being as long as 30 years now. -Car loans are long term as well, usually lasting 4-5 years. Credit score determines if you need a co-signer or not!

28. Theme 2 Concept 6 Part 6 Purchasing a Home

29. The American Dream -For the last 100 years, part of the “American Dream” has been to own your own home. -Home ownership has been associated with lowering crime, higher property value, better communities, and better places to raise children. However, owning a home is not easy.

30. Mortgage A mortgage is a common term for the loan made specifically for purchasing a home. Mortgage values usually exceed $100,000. Getting a mortgage is much harder than getting an average loan due to: -the cost involved -the length of the loan

31. Getting a Mortgage -The process is much more extensive for reasons already mentioned. Questions will be asked, such as -How long have you been at your current job? -How much $$ do you make? -How many kids do you have? -How much do you owe on your cars, credit cars, and other loans? -How many credit cards do you have? -Have you ever filed bankruptcy?

32. Parts of a Mortgage -Principal – the actual amount paid for the house. -Interest – this is the charge for loaning the money given by the bank. -Property Taxes – All taxes that have to be paid on the house anyway are factored into the mortgage payments made on the house.

33. Parts of a Mortgage -PMI (Private Mortgage Insurance) – this is an insurance against your mortgage taken out by the bank incase you can’t pay. -PMI may include things such as if any member of the household dies while the mortgage is being paid, then the mortgage is forgiven and the insurance company pays it off. -Could also be stretched to include should you become disabled while paying your mortgage. However, the more insurance you take out, the more you pay.

34. Parts of a Mortgage Homeowners Insurance – this is required on any home that has a mortgage, and is recommended that you have it anyway. -Homeowners insurance covers damage that could happen to your house due to earthquakes, fires, floods, and other “Acts of God” or “natural disasters.” -The homeowners insurance is usually factored into the mortgage payment.

35. Homeowners Association Fees These fees depend on the neighborhood and could even pay for services provided in your neighborhood. This could include yard clean up, building and maintaining a sidewalk, even mowing the lawn or trimming bush’s. Most homes in rural areas don’t have these fees, but major urban areas do. Homeowners associations are designed to protect the value of the homes in the area by keeping them all maintained.

36. Realtor’s A realtor is a licensed and professional person who manages buying and selling homes. They work with the person selling the home (whether it be the former owner or the person who just built it) and try to connect them with a buyer who is interested in the home. -Realtor’s negotiation all the things just discussed and handle the paperwork involved, usually for a commission (or a percentage) of whatever the home sells for.

37. Closing This is the last meeting where you sign all of the paperwork, agree to the terms of all the things mentioned in these notes, and officially buy your home. Tax Benefits To encourage people to buy homes, you can deduct interest and other parts of a home payment from your taxes and save some money. This is a varation of SUBSIDIZING.

38. Being a Member of a Community -If you live in a neighborhood or subdivision, you have an obligation to keep your home maintained and be responsible. -This could include keeping your lawn mowed, keeping your house painted and presentable, keeping mold, plants, and other things from taking over your lawn and home (these things could spread to neighbors as well), and in neighborhoods with a homeowners association, this things could be required.

39. Consumer Protection How can citizens take steps to protect themselves financially? How does the government try to protect citizens?

40. Insurance

41. Insurance:A practice by which a company provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment. Insurance Agent: Person who sells and manages insurance policies Claim: A demand made by the insured, or the insured's beneficiary, for payment of the benefits as provided by the policy. Deductible: Amount of money that the insured pays before the insurance kicks in. Insurance Definitions

42. Health Insurance: Provides money for medical care; including doctor and hospital visits, prescription drugs, rehabilitation, etc. Life Insurance: Pays money to a beneficiary (often a family member) upon the death of the insured. - Life Insurance is designed to help families pay for death expenses (funerals, etc.) and other expenses after the loss of income previously provided by the deceased. Types Insurance

43. Automotive Insurance: Provides money in the event of a car accident. Pays for medical expenses of anyone injured in a crash, and may pay for repairs. In NC, all licensed drivers must have insurance that covers at least $30,000 for a single person’s injuries, $60,000 for multiple persons’ injuries, and $25,000 for property damage. Homeowner/Renter Insurance: Provides money for personal property and structural damage in the event of damage or theft. Kidnap and Ransom Insurance – provides money to rescue you incase this happens. Usually, you would get this insurance if you are going into a dangerous part of the world. You can also get pet insurance, supplemental insurance, crop insurance, supplemental health insurance (like AFLAC) Types Insurance

44. The government and consumer protection

45. The national and state governments provide many services to protect consumers from unsafe and fraudulent business practices. The Federal Trade Commission (FTC) is the main government agency tasked with regulating businesses in order to protect consumers. The FTC was created in 1914 to prevent businesses from limiting competition. Since then, the FTC has expanded its role to also directly protecting consumers by prosecuting businesses for unfair or deceptive practices. Consumer Protection

46. The FTC’s Bureau of Consumer Protection provides information and other resources specifically to consumers. The FTC-BCP assists consumers with identity theft issues, getting credit and loans, equal opportunities in jobs and education, and many others. If a violation is reported, the BCP will work with consumers to prosecute offenders and get a resolution for victims. Consumer Protection

47. Consumer Product Safety Commission (CPSC): Tasked with creating and enforcing policies for safe products other than food, pharmaceuticals, alcohol, and guns. The CPSC can issue a recall (all products returned and removed from store shelves) for products deemed to be unsafe for consumers. The Food and Drug Administration (FDA): Provides regulations for food, pharmaceuticals, and cosmetics. The FDA also funds testing of new drugs before they are allowed to be sold. Consumer Protection

48. Federal Communications Commission (FCC): determines content that can be shown/aired on TV and radio. Prevents businesses from intentionally lying in advertisements. Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF): Specifically in charge of regulating the sale and safety of these products. NC Department of Justice: State agency in charge of protecting consumers and regulating businesses in NC. Consumer Protection