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Money 101 Financial Literacy for Teens

Money 101 Financial Literacy for Teens. Presented by Michael A. Goldberg, BComm, BEd May 2012. Agenda. 1. Selecting & Opening a Bank Account 2. Percentage & Interest Calculation 3. Debt & Credit Cards 4. Budgeting - managing your Income Savings Expenses and budgets more effectively

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Money 101 Financial Literacy for Teens

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  1. Money 101Financial Literacy for Teens Presented by Michael A. Goldberg, BComm, BEd May 2012 Money 101 M.A. Goldberg, May 2012

  2. Agenda 1. Selecting & Opening a Bank Account 2. Percentage & Interest Calculation 3. Debt & Credit Cards 4. Budgeting - managing your • Income • Savings • Expenses and budgets more effectively 5. Saving & Investing Money 101 M.A. Goldberg, May 2012

  3. “FLingo!” Money 101 M.A. Goldberg, May 2012

  4. Opening a Bank Account • Types • Savings • Chequing • Which one’s for Me? Money 101 M.A. Goldberg, May 2012

  5. Opening a Bank AccountTypes Savings vs. Chequing Money 101 M.A. Goldberg, May 2012

  6. Opening a Bank AccountSavings Account What is it? • A safe place to keep your money in a bank, trust company, credit union or caisse populaire • Banks pay interest • Percentage based on the balance of your account. What does Percent mean? Money 101 M.A. Goldberg, May 2012

  7. What does Percent mean? % Per Cent out of/ divided by 100 Money 101 M.A. Goldberg, May 2012

  8. Opening a Bank AccountSavings Account Advantages of savings accounts: • Good for emergencies • Good if you’re not comfortable with investing • Convenient – can use a debit card for deposits (putting-in) or withdrawals (taking-out) • No risk of losing your money • Deposits in Canada are protected by the CDIC (Canadian Deposit Insurance Corporation) • Insures up to $100,000/institution Image Source: (http://www.cdic.ca/Protecting_Your_Deposits.html, October 23, 2010) Money 101 M.A. Goldberg, May 2012

  9. Opening a Bank AccountChequing Account What is it? • Chequing accounts are a safe place to keep money that you plan to use over the next month or so for bill payments and buying things • A chequing account is for money you plan to use soon Money 101 M.A. Goldberg, May 2012

  10. Opening a Bank AccountChequing Account Similar to Savings accounts? • Chequing accounts are a safe - covered by the CDIC Differences? • Used for different reasons (bill payments, etc.) • Pays less interest • Can cost more in fees • Cheques • Transaction charges • Service charges • Minimum balance charges • NSF (non-sufficient funds) charges Money 101 M.A. Goldberg, May 2012

  11. Opening a Bank AccountChequing Account Risks? • Low return (you’ll earn little interest) • High costs (be aware of fees charged) • Bounced cheques (can be costly) Money 101 M.A. Goldberg, May 2012

  12. Which One’s for Me? Depends on the purpose of having an account • Save money? • Pay bills? • Internet banking/access? • Debit card needed? • Whatever you use the bank for, make sure you minimize any charges!!! Money 101 M.A. Goldberg, May 2012

  13. Who can get an account/what’s needed? • Anyone can have an account • If you’re under 18, you need a parent/guardian to help you sign-up • When you get your account, you will need to provide identification Money 101 M.A. Goldberg, May 2012

  14. High Interest Savings Accounts • This should be considered • Lately, some high interest savings accounts are paying 2% interest/year • Examples – President’s Choice Financial, ING Direct, ICICI Money 101 M.A. Goldberg, May 2012

  15. Debts & Credit Cards • Why do People Borrow Money? • Why you should Avoid Borrowing Money • Credit Ratings • Types of Debt • Credit Cards Credit Card Video Money 101 M.A. Goldberg, May 2012

  16. Debts & Credit Cards Why do People Borrow Money? • Large purchases they couldn’t otherwise afford, like… • House • Car • Education (after high school) • Start a business • Emergency • Pay off another debt, but at a lower interest rate Money 101 M.A. Goldberg, May 2012

  17. Debts & Credit Cards Why you should avoid borrowing money (using credit wisely) • It can become a habit • You have to pay interest (takes money away from other things you need) • If misused, it could damage your credit rating Money 101 M.A. Goldberg, May 2012

  18. Debts & Credit Cards Credit Rating • Your ability to repay what you borrow, is scored • Your credit rating will have an effect on how much, or at what rate, you may borrow in the future • If your credit rating’s bad, you may not be able to borrow at all • Once you start borrowing, you should check your credit rating every year (sometimes mistakes are made) Money 101 M.A. Goldberg, May 2012

  19. Debts & Credit Cards Types of Debt • Credit Cards • Overdraft Protection (let’s your chequing account go negative without bouncing checks – a big money maker for banks!) • Loan • Mortgage (used to finance house) • Lease (like a long term rental) Money 101 M.A. Goldberg, May 2012

  20. Debts & Credit Cards Credit Cards • Let you pay for things without money (for now!) • Most are issued by banks (Visa/Mastercard) Charge Cards • Issued by particular stores • Avoid these, as their use is limited to the one store • Charge higher interest rates than regular credit cards Money 101 M.A. Goldberg, May 2012

  21. Debts & Credit Cards Credit Card Tips • Pay credit cards off every month – once you carry a balance, you get charged interest (and it’s expensive debt) • Ask the bank for a better/lower interest rate • Avoid cards with annual fees • Look for rewards associated with the card (travel points, groceries, cash bonuses, etc.) • Shop around – lots of banks will eventually offer you a credit card – find the lowest interest rate • Only own ONE credit card Money 101 M.A. Goldberg, May 2012

  22. Debts & Credit Cards APR • Annual Percentage Rate • The interest rate you’ll pay, which is quoted on an annual basis • Must be quoted/stated when you sign-up for credit • Always try to figure out “What will this cost me per year?” 18%??? Money 101 M.A. Goldberg, May 2012

  23. Managing Money • Income • Expenses • Budgeting Money 101 M.A. Goldberg, May 2012

  24. Managing MoneyIncome & its Sources What is Income? • Basically, its Money you Earn or simply receive What are sources of Income? • Job • Parents! (eg. Allowance, gifts) • Government • Investments • Others? Money 101 M.A. Goldberg, May 2012

  25. Managing MoneyExpenses What are Expenses? • Things you pay for, that have little value once purchased What are some examples of Expenses? • Clothing • Entertainment (eg. movies, video games, music) • Transportation • Food • Haircut • Rent Money 101 M.A. Goldberg, May 2012

  26. Managing MoneyBudget What’s a Budget? • A plan for saving and spending (calculated monthly or yearly) What are the steps involved in creating a budget? • Calculate all income • Calculate all expenses • Find the difference between Income & Expenses to determine if you have a • Budget surplus (positive result) • Budget deficit (negative result) • Balanced Budget Money 101 M.A. Goldberg, May 2012

  27. Managing MoneyBudget Budget Surplus/ = Income – Expenses Deficit Money 101 M.A. Goldberg, May 2012

  28. Managing MoneyBudget Example Imagine that over the last month, your parents gave you a $10.00 allowance per week and you made an extra $10.00 from a late birthday gift from your aunt. These are your sources of Income for the month. You went to the movies one time ($10.00) and bought a new shirt on sale ($23.00). These are your expenses. Calculate all of your Income and Expenses for the month (assuming four weeks in the month) and determine whether you had a budget Surplus or Budget Deficit for the month. Money 101 M.A. Goldberg, May 2012

  29. Managing MoneyExpenses How do you control Expenses? • Make sure you really need the purchase • Comparison shop • Don’t just go into a store and buy something – do some research and ask yourself “Is this the best price?” • Ask “Can you do any better on the price?” • This sometimes gets you a better deal • What’s the worst that can happen? They say “No!” • Avoid going into debt because of the purchase • Ask yourself “Can I afford this?” • Find cheaper ways to play • eg. Rent movies instead of buying (or borrow from the library) • Coupons! Money 101 M.A. Goldberg, May 2012

  30. Managing MoneyBudget What’s next? • Figure out where you can reduce expenses • Do something with the surplus! • What would happen if the end result was a budget deficit? Money 101 M.A. Goldberg, May 2012

  31. Managing MoneyBudget Tips • Keep receipts when making purchases (to get accurate calculations) • Keep it up-to-date – things change over time • Always look for places where you can spend less • If you’re comfortable with computers, use a spreadsheet, or other pre-set budget maker. • Keep it realistic! Sometimes things don’t go as planned, so don’t be too critical. Money 101 M.A. Goldberg, May 2012

  32. Managing MoneyBudget Tips – Cut Spending! • The Latte Factor! Avoid getting into the habit of buying expensive coffees/drinks EVERYDAY!!! (This could save you about $1000/year!) • Bag your lunch instead of buying it • Think of the yearly (annual) expense Money 101 M.A. Goldberg, May 2012

  33. Saving & Investing Money 101 M.A. Goldberg, May 2012

  34. Saving Why Save for the Future? • Rainy Day • To meet certain Goals • Emergency • Retirement Money 101 M.A. Goldberg, May 2012

  35. Saving – The 10% Solution How much should I save? • According to David Chilton, author of The Wealthy Barber, you should save 10-percent of all the money you receive (income) Money 101 M.A. Goldberg, May 2012

  36. With saving, the most important step is to get started. Money 101 M.A. Goldberg, May 2012

  37. Investing Definition? It’s an item of value that you buy to get income or to grow in value. Investing Video Money 101 M.A. Goldberg, May 2012

  38. Investing Types of Investments • GICs (Guaranteed Investment Certificates) • Savings Bonds • Stocks • Mutual Funds • ETFs (Exchange Traded Funds) • Real Estate Money 101 M.A. Goldberg, May 2012

  39. Investing Five Basic Steps of Investing • Set Goals • Determine what kind of investor you are (how much risk can you handle) • Pick a mix of investments (asset mix) • Choose investments • Keep track of your investments Money 101 M.A. Goldberg, May 2012

  40. Investing - The Miracle of Compound Interest • Compounding is simply making interest on interest. Money 101 M.A. Goldberg, May 2012

  41. Investing - Rate of Return Calculation X 100% (New-Old) Old For example, if you have a $100 investment that has turned into $110 after a year, the rate of return is calculated like this: ($110-$100) 100 =10/100 x 100% = .1 x 100% = 10% X 100% Money 101 M.A. Goldberg, May 2012

  42. 72 Interest Rate 72 8 Investing – Rule of 72 This is a simple calculation used to determine how many years it will take your money to double. Example: Your investment earns 8% interest per year. How long will it take to double? Answer:It will take 9 years for your investment to double. Money 101 M.A. Goldberg, May 2012

  43. Investing Tax Shelters • TFSA (Tax-Free Savings Account) • RRSP (Registered Retirement Savings Plan) • RESP (Registered Educational Savings Plan) • RDSP (Registered Disability Savings Plan) Money 101 M.A. Goldberg, May 2012

  44. Resources Chilton, David. The Wealthy Barber. Stoddart: Toronto, 1989. Daily Spending Calculator. Industry Canada. http://www.ic.gc.ca/eic/site/oca-bc.nsf/eng/ca01808.html Investor Education Fund. <getsmarteraboutmoney.ca> Vaz-Oxlade, Gail. Debt Free Forever. Collins: Toronto, 2009. Vaz-Oxlade, Gail. <gailvazoxlade.com/resources/interactive_budget_worksheet.html> (The site includes a link to an Excel/spreadsheet version! Check out the rest of her site.) Money 101 M.A. Goldberg, May 2012

  45. Resources cdic.ca (Canada Deposit Insurance Corporation) getsmarteraboutmoney.ca (Investor Education Fund) http://www.getsmarteraboutmoney.ca/education-programs/Documents/2008_fm_10_creditreport.pdf (Additional information on Credit Reports) Money 101 M.A. Goldberg, May 2012

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