date

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A Primer to Financial Literacy

• Presented by insert your firm name here
• date

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• This presentation is created by PCPS in
  conjunction with the 360 Degrees of Financial
  Literacy initiative.
• It represents the views of the PCPS Financial
  Literacy Task Force and the PCPS Executive
  Committee, and its publication by the AICPA does
  not constitute official endorsement or approval
  of the opinions expressed.
• The presentation is designed to provide accurate
  information in regard to the subject matter
  covered. It is available with the understanding
  that the publisher is not engaged in rendering
  legal, accounting, or other professional
  services.

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Todays Topics

• Financial Success
• Debt Management
• Debt Consolidation
• Credit Fraud Identity Theft
• Buying a Home
• Retirement

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Financial Success
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Three Keys to Financial Success

• Always spend less than you earn
• Avoid splurging
• Invest the rest

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Establish A Plan

• Examine your financial goals
• Identify your current monthly income and expenses
  
• Evaluate your budget
• Monitor your budget by keeping track of actual
  expenses
• Set aside money for periodic unforeseen expenses

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Sample Budget Plan Areas
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Spend Less, Save More

• Reduce discretionary expenses
• Refinance your home mortgage
• Reduce your housing expenses
• Sell one of your cars if you have two
• Access the equity in your home
• Transfer credit card balances from
  higher-interest cards to a low- or no-interest
  card
• Review your insurance needs. Ask about insurance
  discounts or increasing your deductible

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Establishing A Financial Safety Net

• Having a financial safety net in place can ensure
  that you're protected when a financial emergency
  arises
• Set up a cash reserve of three to six months'
  worth of living expenses in your cash reserve

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Where to Keep Your Cash Reserve

• Your cash reserve should be readily available
  when you need it
• Certain fixed-term investment vehicles impose a
  significant penalty for early withdrawals

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Review Your Cash Reserve Periodically

• Your personal and financial circumstances change
  often
• You should review it annually to make sure that
  it fits your current needs

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Debt Management
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Know Whats On Your Credit Report

• Request a copy annually
• [phone], or www.annualcreditreport.com
• Review and update information or correct mistakes
• Voice your concerns if you are turned down for a
  loan or credit card

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Negative Information if true

• Will remain on your credit report
• 7 years from the date it occurred
• Bankruptcy information stays with you for 10
  years
• Notice of a lawsuit or an unpaid judgment stays
  until the statute of limitations runs out

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Credit Traps

• Americas average credit card debt is 8400 per
  household
• Do not fall victim to some of the pitfalls
  associated with credit cards

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Choose Cards Carefully Ask

• What's the interest rate?
• Will you be charged different interest rates for
  purchases, balance transfers, and cash advances?
• What method determines the outstanding balance
  used to calculate the finance charge?
• Is there an annual fee or other fees?
• What's the length of the grace period?

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Paying the Minimum

• Is not a way to reduce your debt
• It will take over seven (7) years to pay off a
  credit card balance that has an interest rate of
  17 paying the minimum payment of 2 each month

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Balance Transfer Cautions

• Low interest rate on new purchases, but a higher
  interest rate on balance transfers
• Low introductory interest rate that applies only
  for a very short period of time
• Balance transfer fees, particularly uncapped
  amounts calculated as a percentage of the balance
  transferred
• Termination fees and retroactive interest charges
  
• Close the account you're leaving

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Negotiating with Creditors

• If you have trouble meeting your financial
  obligations, contact your creditors right away.
  Ask about
• Due date change
• Deferment
• Refinancing

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Beware of Consumer Credit Counseling Agencies
that

• Require payment before services are provided
• Don't tell you what you can legally do yourself,
  for free
• Suggest you don't contact the credit bureau
  yourself
• Recommend you dispute all information, even
  accurate information, on your credit report
• Advise you on how to create a new or alternative
  credit report

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Debt Consolidation
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Ways to Consolidate Your Debts

• Transfer them to a credit card with a lower
  interest rate
• Obtain a home equity loan
• Find loans specifically designed for debt
  consolidation

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Disadvantages of Debt Consolidation

• A home equity loan is secured by a lien on your
  home
• With a consolidation loan you may end up paying
  more total interest even if the rate is lower
• A longer-term loan will take you longer to pay
  off your debt

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Credit Fraud Identity Theft
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Protect Yourself

• Here are some indicators of credit fraud and
  identity theft crimes
• A creditor informs you that it received an
  application in your name
• You've been approved for or denied credit you
  didn't apply for
• You no longer get your credit card statements in
  the mail
• Your credit card statements include purchases or
  cash advances you never made

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Ways to Protect Yourself

• Don't carry credit cards you don't use often
• Be sure to sign your cards, and never sign a
  blank charge slip
• When you use the card, try to keep it within your
  sight
• Save your receipts, and obtain and destroy any
  carbons
• Don't allow a sales clerk to write your credit
  card number on a check "for identification"
• Finally, never give out your account number over
  the telephone unless you initiated the call and
  know the organization to be reputable

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Home Ownership
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Factors to Determine How Much You Can Afford

• Your gross monthly income
• Housing expenses
• Taxes
• Insurance
• Maintenance
• Utilities
• Any long-term debt

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Mortgage Prequalification vs. Preapproval

• Shop around and compare the mortgage rates and
  terms that various lenders offer
• Prequalifying gives you the lender's estimate of
  how much you can borrow
• Preapproval lets you know exactly how much you
  can borrow
• The mortgage you qualify or are approved for is
  not always what you can actually afford

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1st Time Homebuyer Options

• Government mortgage lending program
• Federal Housing Administration (FHA) and the
  Department of Veterans Affairs, formerly known as
  the Veterans Administration (VA)
• The interest rates are set below current rates
  and little or no down payment is required
• Check with local financial institutions
• Rent with option to buy arrangement
• Family gift of funds for a down payment

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Mortgage Prepayment

• Prepaying a mortgage loan reduces the amount of
  interest that is paid
• Clarify the terms of your mortgage loan to
  determine whether there is a prepayment penalty
• Prepaying does not change your monthly obligation
  to your lender
• Be sure you have a cash reserve before you decide
  to prepay

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Mortgage Prepayment Savings Examples

• 100,000 Mortgage at 6 for 30 Years
• 25 more each month 14,000 savings in interest
• 50 more each month 25,000 savings in interest
• 200,000 Mortgage at 6 for 30 Years
• 25 more each month 15,000 savings in interest
• 50 more each month 28,000 savings in interest

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Retirement
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Why Save for Retirement?

• People are living longer
• Social Security is only part of your retirement
  plan

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Determine Your Retirement Income Needs

• 60 to 70 percent of your pre-retirement income
  may be needed to maintain your current standard
  of living in retirement
• Your current expenses are a starting point your
  expenses may change dramatically by the time you
  retire
• Remember to take inflation into account

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Identify Your Sources of Retirement Income

• Your employer may offer a traditional pension
  that will pay you monthly benefits
• Social Security
• Additional sources may include a 401(k) or other
  retirement plan, IRAs, annuities, and other
  investments
• Working during retirement will be another source
  of income

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Invest In Your Retirement

• Start now to invest money toward your retirement
• Take advantage of an IRA, 401(k), or other
  tax-deferred retirement plan
• Funds invested in a tax-deferred account will
  generally grow more rapidly than funds invested
  in a non-tax-deferred account

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Investing for Retirement

• Keep in mind...
• A well-diversified portfolio can balance risk
• The earlier you start, the more you can
  contribute
• By starting early, your investments will have a
  longer period of time to compound
• With a longer time frame, you will have a larger
  choice of investment possibilities

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How Wealth Accumulates

• Start at age 25. Put 2,000 into an IRA yearly
  at a rate of return of 10.

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Use the Right Savings Tools

• Employer-sponsored retirement plans (401(k)
  plans) are powerful savings tools
• Strive to put in the maximum allowed
• Take full advantage if your employer provides a
  company match
• IRAs, like employer-sponsored retirement plans,
  feature tax-deferred growth of earnings
• Taxable investments

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When investing for your retirement ...

• Assess your risk tolerance
• Determine your investing time frame
• Determine the amount of money you can invest
• Choose investments that are appropriate for your
  risk tolerance and time horizon
• Seek professional management, if necessary

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Sample Investment Allocations

• At 40 Years Old
• 80 - stocks
• 20 - bonds cash
• At 50 Years Old
• 60 - stocks
• 40 - bonds cash
• At 60 Years Old
• 40 - stocks
• 60 - bonds cash

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Reallocate Your Assets

• The amount of investment dollars you should keep
  in growth-oriented investments depends on your
  time horizon (how long you have to save) and your
  tolerance for risk
• The longer you have until retirement, the more
  aggressive you can afford to be
• If you are at or near retirement, you may still
  want to keep some of your funds in
  growth-oriented investments
• Rebalance your portfolio now and again

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Delay 65 is Just a Number

• By delaying retirement, you can increase your
  Social Security benefit
• Income from a job may affect the amount of Social
  Security retirement benefit you receive if you
  are under normal retirement age. Once you reach
  normal retirement age, you can earn as much as
  you like
• Delaying retirement allows you to continue to
  build tax-deferred funds in your IRA or
  employer-sponsored retirement plan

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Adjust Your Standard of Living

• Although some expenses, like health care,
  generally increase in retirement, other expenses
  tend to decrease
• Once you are within a few years of retirement,
  you can prepare a realistic budget

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Final Word on Todays Topics

• Financial Success
• Debt Management
• Debt Consolidation
• Credit Fraud Identity Theft
• Buying a Home
• Retirement