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Personal Finance 101

Personal Finance 101. Dr. Rita Littrell Bessie B. Moore Center for Economic Education. What can you do with money?. Spend it Save it Invest it Share it. Cosby Show Economics Lesson. http://www.youtube.com/watch?v=nFY0HBkUm8o. Spending. Make good decisions Use a budget

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Personal Finance 101

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  1. Personal Finance 101 Dr. Rita Littrell Bessie B. Moore Center for Economic Education

  2. What can you do with money? • Spend it • Save it • Invest it • Share it

  3. Cosby Show Economics Lesson http://www.youtube.com/watch?v=nFY0HBkUm8o

  4. Spending • Make good decisions • Use a budget • Research products • Compare prices • Consider the opportunity cost • Keep receipts & warranties • Return faulty items • Use credit wisely

  5. Consumer Credit A loan – spending money you have not earned Two types: • Closed End Credit -- Ex: Auto Loans, Mortgage Loans • Open End Credit -- Ex: Credit Cards • Interest is the cost of credit

  6. Credit Cards • Make Sure You Know All The Terms and Conditions • Beware of “Store Credit Cards” & Their High Interest Rates • Avoid Getting Too Many Credit Cards • Beware of the Minimum Monthly Payment Trap • Home Equity Line of Credit

  7. Building Your Credit Rating • Credit Bureaus – Collect Credit Information About You • Three Main Credit Bureaus in U.S. • Equifax • Experian • TransUnion • Your Credit (FICO) Score

  8. Building Your FICO Score • Fair Isaac Company credit score • FICO scores: • Are your credit rating • Range from 300 – 850, higher is better • Most lenders base approval on FICO • Higher scores result in lower interest rates Free Credit Report: https://www.annualcreditreport.com/cra/index.jsp

  9. FICO Scores Based On FICO scores are based on your rating in: • Payment history – 35% • Amount owed – 30% • Length of credit history – 15% • New credit – 10% • Types of credit used – 10% • http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

  10. How a Good FICO Score Can Help Fico Help Center

  11. Credit Counseling Services • If You Are Having A Problem Paying A Bill, You Can… 1. Contact the Creditor 2. Contact A Nonprofit Financial 3. Counseling Program • Credit Counseling of Arkansas

  12. Credit Counseling of Arkansas • CCOA Is a Local NonProfit Org. 1. Provides Educational Services 2. Debt Counseling Services 3. Supported By Contributions From Banks, Merchants, etc. 4. Service May Be Free or There May Be a Small Charge • Beware of Predatory Counseling Organizations

  13. Saving • Consuming less than you earn. • Ways to save: • Saving Account • Certificate of Deposit • Savings Bond • Rainy day or to invest

  14. Sharing Contributions of philanthropic organizations • Walton Family Foundation • Wal-Mart Foundation • Winthrop Rockefeller Foundation • Winthrop Rockefeller Trust • Walton Family Charitable Support Foundation • Charles A. Frueauff Foundation, • Arkansas Community Foundation • Ross Foundation • Harvey and Bernice Jones Center for Families • Murphy Foundation • Windgate Charitable Foundation

  15. Arkansas Philanthropy • Between 1997 & 2004, AR ranked among top 7 states in individual charitable contributions while being among the five least wealthy • National or International nonprofits groups • Heifer International – LR – eliminate starvation by enabling low-income people to feed themselves on a sustained basis • Potluck Food Rescue for Arkansas – redirects otherwise wasted food to low-income Arkansans • AR Foodbank Network & AR Rice Depot – work to relieve hunger and malnutrition

  16. Investing Options for Investing • Open a Savings Account • Invest in the Stock Market • Buy Bonds • Invest in a Mutual Fund First step is to determine short and long term financial goals.

  17. Fundamentals of Investing 1. How Much Money Do You Want to Accumulate? 2. How Long Will It Take? 3. How Much Risk Are You Willing to Assume? • Are Your Goals Reasonable? • Are You Willing to Make the Necessary Sacrifices? • What Are the Consequences If You Don’t Reach Your Goals?

  18. Before Investing Get Your Financial House In Order • Make Sure You Have Adequate Insurance • Start an Emergency Fund • Balance Your Budget

  19. Use These Options 1. Employer Sponsored Retirement Plans 2. Employer Savings Plans 3. Gifts, Inheritances or Windfalls Save – Even If It Is a Small Amount! (www.dinkytown.net)

  20. Stocks • Ownership in a company • Buy Stock for: 1. Dividends 2. Price Appreciation • Level of Risk

  21. Mutual Funds • Stocks in several companies • Professionally managed • Wide variety of funds • Less risk due to diversification • But You Can Lose Money Too!!

  22. Bonds – a loan • Corporate Bonds – not insured by Federal Government • US Government Bonds – Treasury Bills, Bonds & Notes (terms vary) • Municipal Bonds – issued by state and local governments – Fed tax exemptions & that state • Bureau of Public Debt - US Dept of Treasury • For ratings – Moody’s Investor Service -Standard and Poor’s Corp

  23. Financial Institutions Use financial institutions to: • protect your money • help you manage your money – checks, debit cards • savings, checking and other accounts • to help your money work for you • for financial advice

  24. Stock Market • New York Stock Exchange (NYSE) • American Stock Exchange (AMEX) • Nasdaq (Nat’l Assn of Securities Dealers Automated Quotation) List of up and coming companies from Fast Company!

  25. Influences on the Market • War • Emotions • Politics • Economy • Natural Disasters

  26. What influences the price of a stock • Conditions in the Industry • Changes in Technology • Competition • Health of the Company • Supply and Demand

  27. The Arkansas 20

  28. Reading a Stock Table

  29. What Does it Mean?

  30. Reading a Mutual Fund Table

  31. Understanding the Mutual Fund Table

  32. Reading a Bond Table

  33. Understanding the Bond Table

  34. Three Rules for Building Wealth • Start early. • Give money time to grow. • Buy and hold. • Keep you money invested. • Diversify. • Don’t put your eggs in one basket.

  35. Use the Magic of Compounding Compound Interest Calculator

  36. Buy & Hold • Spend less than you receive. • Earn more by improving your formal education or job skills. • Spend less by using a budget to keep track of where your money is going. • Become connected to financial institutions? • Open and maintain accounts at mainstream financial institutions. • Manage your credit responsibly? • Limit the number of credit cards you have. • Limit the number of purchases to what you can pay off each monthly. • Apply for loans only when you are confident you can repay with your current income.

  37. Stock-Market Roller Coaster If you hold long enough, the ups are greater than the downs.

  38. Diversify Don’t put all your eggs in one basket!

  39. Costs & Benefits of Saving & Investing • Saving accounts: provide small but steady return • Certificates of deposit: very safe, but instant access is penalized • Bonds: lending money to a corporation or government, with a promise of higher returns than those offered by bank savings accounts and CDs • Stocks: part ownership in a company, offering higher risks and potentially higher returns than some other investments • Real estate: the risks and benefits of being a landlord

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