Money 101: Getting Started

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Money 101 Getting Started

• Julie D. Judy
• Extension Educator
• Family Consumer Sciences Montgomery County
  Office
• UNIV 100
• College of Agriculture and Natural Resources
• Presented by University of Maryland Cooperative
  Extension

Maryland Cooperative Extension Programs are open
to all citizens without regard to race, color,
gender, disability, religion, age or national
origin.
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Trends in College Campuses

• Growing college student debt
• Rising college costs
• Financial aid has not kept pace with rising costs
• Increase in financially independent students
• Lack of financial literacy
• Dramatic growth in credit card usage

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What Are the Facts?

• 76 of undergraduates possess at least one credit
  card
• Average credit card balance 2,169
• 23 students 3,000 in credit card debt
• Average undergraduate student carries four credit
  cards
• Average college graduate has more than 20,000 in
  debt
• 15 is owed to credit card companies
• Source Nellie Mae

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Consequences of Student Debt Problems

• Young adults (18-24) now have the second highest
  rate of bankruptcy (GAO, 2001)
• Debt is linked to dropping out of college,
  physical and emotional health problems, family
  conflict, bankruptcy, job rejections, loan
  denials, inability to rent apartments,
  professional school rejection, and even suicide
  (Manning, 2001)
• Debt problems are associated with high levels of
  anxiety (Nellie Mae, 2005)
• Affects personal and professional choices about
  graduates jobs, where they live, and whether
  they can buy a home or start a family (Smith,
  2006)

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Closer to HomeUniversity of Maryland College Park

• Total In-State Costs 17,530
• In-State Costs, After Aid 12,808
• Total Out-of-State Costs 30,969
• Out-of-State Costs, After Aid 26,247
• Average Debt at Graduation 14,076
• Source Kiplinger Website

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Todays Topics

• Credit
• Purpose Cost of Credit
• Building Good Credit
• Credit Report
• Credit Score
• Effects of Bad Credit
• Credit Tips
• Identity Theft
• Financial Record Organization

• Budgeting
• Why Have a Budget?
• Monthly Spending Plan
• Spending Diary

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Futures Contracts Collectibles
Aggressive Growth, Junk Bonds, Stocks and Mutual
Funds
Real Estate
High Quality Corporate Stocks, Bonds and Mutual
Funds
Life Insurance Investments Government
Securities
Insured Savings, Savings Bonds, Money Market
Funds, Certificates of Deposits
Goals Emergency Fund
Budget Financial Records
Credit Record
Life Disability
Health Property Liability
Financial Plan
Insurance
Financial Foundation
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Emergency Fund
Goals
Budget
Life
Health
Credit Record
Financial Plan
Insurance
Property
Financial Statements
Financial Records
Disability
Liability
Financial Foundation
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Spending Plan or Budget

• A spending plan or budget forces you to think
  about
• What is important (needs versus wants)
• What you want to own in the future
• How you want to live and what it will take to get
  you there
• Where youre spending your money
• How you could improve your spending habits to
  help you reach your financial goals

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Spending Plan (Budget) Process

• Estimate available income
• 2. Define major expenses
• 3. Set spending levels
• 4. Develop spending plan
• 5. Monitor and control expenditures
• 6. Review periodically

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Spending Diary

• How do I create a spending diary?
• For at least one month, write down EVERY purchase
  you make in a planner or notebook keep receipts
• Every purchase means every penny of every
  purchase - - - includes the vending machines,
  fast food, entertainment, coffee, etc.
• Use specific categories like Groceries and
  Eating Out instead of a general category
  (Food)
• Keep a check card/ATM/debit card registry
• Total amounts you spend in each category
• Use this spending diary to create a functional
  budget or spending plan, based on averages spent
  in each category

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Important Reminder

• Use 70 of take-home pay for living expenses
• Use 20 to repay debt
• Save 10 for you and your future

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Money Traps Can Catch You!

• Eating out
• Cigarettes
• Vending machines
• Soda, beer, wine, alcohol, coffee

• Video/DVD rentals
• Personal care products
• ATM withdrawals
• Others??

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Types of Cards

• ATM Card (requires a PIN)
• Allows you to access your funds from a checking
  or savings account at an ATM machine
• Debit Card (requires a PIN)
• Allows you to access your funds immediately
• Electronically linked to a checking or savings
  account
• Check Card
• Enables you to withdraw your money from a
  checking account
• May be used as an ATM or debit card (with PIN)
• Credit Card (does not require a PIN)
• Issued by a bank or business authorizing you to
  buy goods/services on credit. You borrow their
  money and pay it back with interest.

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Automatic Teller Machine (ATM) CARDS

• Available 24 hours a day
• Dont trust ATM account balances!
• Memorize your Personal Identification Number
  (PIN)
• Keep receipts track in checkbook!
• Remember to subtract ATM fees!
• Handle carefully

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ATM/Debit Card Laws and Limitations

• Report Lost or Stolen Cards!
• If Reported within 2 Business Days
• Maximum Liability - 50
• If Reported w/in 3-60 Business Days
• Maximum Liability - 500
• If Not Reported for Over 60 Business Days
• Maximum Liability - Unlimited

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Credit

• General Credit Information
• Being granted credit is a privilege, not a right
• Using credit promising to repay a debt a
  contractual relationship
• Different forms of credit include
• Credit Cards
• Car Loans
• Home Mortgages
• Personal Loans

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Pros Cons of Credit

• ADVANTAGES
• Emergencies
• Identification
• Convenience
• Reservations for traveling

• DISADVANTAGES
• Loss of financial flexibility
• High interest
• Temptation to overspend
• Additional fees
• Privacy and identity theft

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Building Good Credit

• Most college students are considered credit
  ghosts (i.e., someone with no credit history)
• What are some sources of credit that can be used
  to build a credit history?
• Credit Cards (e.g., gas company, bank credit
  card, department store)
• Personal Loans
• It is important to use credit wisely!

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Whats the Cost to You for Using Credit?

• Interest Rates
• Annual percentage rate (APR) will vary
• Monthly Payments
• Original principal borrowed (purchases)
• interest (finance charge) Monthly payment
• Interpersonal Costs
• Time/emotions

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Cost of Credit

• Example
• Credit card balance 2,500
• Annual Percentage Rate (APR) 18
• You make a minimum payment of the greater of
• 2 of the balance OR
• 15.00 minimum each month

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Cost of Creditcontinued
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Consequences of Minimum Payments

• If you pay only the minimum, it will take you
  approximately 29 years to pay off the original
  2,500 debt!
• You will have paid a total of 8397 (5897 in
  interest)!
• If you pay the minimum plus 100 per month, it
  will take only 2 years to pay off the original
  2,500 debt!
• You will have paid a total of 2951 (451 in
  interest)

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Effects of Bad Credit

• Pay higher interest rates (APR)
• May not be eligible for sales promotions
• May have lower maximum credit limit
• Money spent on debt, including interest charges,
  will not be available for future needs or wants
• Could impact your ability to rent an apartment,
  qualify for a mortgage or auto loan, secure
  employment, etc.
• Bad credit stays with you (negative entries
  remain on your credit report for 7 years)

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General Credit Tips

• Borrowing
• Borrow only student loans that are needed, not
  the entire amount for which you are eligible
• Live like a student when you are a student avoid
  living like a professional until you have a
  full-time position in your field
• Use credit only as a last resort, unless you have
  a detailed plan (that you will follow) to help
  yourself build credit

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What Do Credit Bureaus Do?

• Collect data
• Personal information
• Employment history
• Credit Use and Repayment history

• Provide information to
• Creditors
• Employers
• Insurers
• Landlords

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Credit Bureaus

• 3 Major Credit Bureaus
• Equifax
• Experian
• Transunion

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Credit Reports

• Credit Reports Include
• Payment history of credit cards and loans
• Bills in collection
• Bankruptcies
• Inquiries about your creditworthiness
• Free Reports (1 annually from each major credit
  bureau)
• www.annualcreditreport.com

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Credit Reports

• Other ways to obtain credit report
• If you have been denied credit, insurance or
  employment within the last 60 days
• If you have reason to believe your report
  contains inaccurate information, due to fraud
• Example if you received a bill or late notice
  for a purchase that you did not make or for an
  account that you did not open

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Start Here
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Correcting a Credit Report

• Contact company that reported the error
• Ask company to correct error, in writing, with
  each credit bureau
• Photocopy pertinent documents
• Write credit bureau, explain error and enclose
  documentation
• Send certified mail with return receipt

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What Is A Credit Score?
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Credit Score Ranges

• 780-850 Low Risk
• 740-780 Medium Low Risk
• 690-740 Medium Risk
• 620-690 Medium High Risk
• 620 and Below High Risk or Sub-Prime

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Identity Theft is the fastest growing type of
crime today.
Are You A Target?
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How Does It Happen?
Thieves Steal

• Wallets and purses
• Mail
• bank cards
• bank statements
• new checks
• checks owed to you
• pre-approved credit offers
• phone bills
• Trash

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How Does It Happen?

• Thieves also use practices such as
• Pretexting
• Phishing
• Skimming

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Preventing Identity Theft

• Dont give out personal information over the
  phone, by mail or on-line unless you know who
  you are dealing with or you initiated the contact

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Preventing Identity Theft

• Keep personal information in a safe place
• Try to use other forms of identification besides
  your Social Security number
• Order a copy of your credit report yearly and
  check for accuracy

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Preventing Identity Theft

• Put passwords on your credit cards, bank and
  phone accounts
• Make passwords random
• Carry only credit cards, checks and papers you
  will need

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Preventing Identity Theft

• Pay attention to billing cycles. Follow up with
  creditors if bills dont arrive on time
• Guard your mail from theft both
  outgoing and incoming

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Preventing Identity Theft

• Tear up or shred personal information before
  putting it in the trash
• Dont have a cross-cut shredder? Buy one or ask
  for one as a holiday or birthday gift.

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What to Do if Youre a Victim

• Place a fraud alert on your credit report
• Close accounts that have been tampered with or
  opened fraudulently
• File a report with your local police
• File a complaint with the Federal Trade Commission

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Why Keep Records?

• Tax preparation
• In case of crisis
• For proof of payment
• For proof of ownership
• For protection
• Its the sensible thing to do

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Options for Keeping Records

• Best way? One that works for you
• Simple handwritten records
• Computer software programs, e.g.
• MS Money
• Quicken / Quicken Deluxe
• Kiplingers Your Family Records Organizer
• Other software

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Where to keep records?

• In Your Wallet
• drivers license
• personal identification
• health insurance card
• name of doctor and person to call in case of
  accident
• card showing medical problems
• credit cards (minimum )
• membership cards

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Where to keep records?

• Where you live (e.g., dorm room, apartment, with
  parents)
• Personal papers,
  Family Records
• Property Records
• Financial Records
• Consider using a file box or accordion file

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Where to keep records?

• In a Safe Deposit Box or Home Safe
• title and bill of sale
• certificates birth, death,
  marriage, divorce, etc.
• contracts, notes and debts
• personal property inventory
• list of records in home file
• list of insurance policy names
• and numbers
• government or court recorded
  documents
• copy of will
• leases and deeds

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THANK YOU!Please turn in your evaluation form!
Maryland Cooperative Extension Programs are open
to all citizens without regard to race, color,
gender, disability, religion, age or national
origin.