Financial Literacy 101

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Financial Literacy 101

• Todd Jorns
• www.flip4u.org

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Whats Happening Today

• Familiarize you with various financial
  terminology and principles.
• Inform you of the difference between saving
  versus investing.
• Inspire you to become investors.
• Challenge you to share this knowledge with family
  and friends.

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Waiver

• I am not a certified financial planner or
  accountant.
• All information I share with you are things I
  have researched and practice myself.
• I have a passion to share my financial knowledge
  with anyone who will listen.
• My goal is to help others get on the path towards
  F3 (future financial freedom).

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Quiz

• Have you heard of these financial terms?
• Savings Account
• Checking Account
• CDs
• Stocks Mutual Funds
• Interest, Dividends Capital Gains
• Compound Interest
• Rule of 72
• Debt

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Questions

• Does anyone have a savings account?
• Does anyone earn money?
• Does anyone know if they earn interest?
• Does anyone know the current balance of their
  savings account?

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Investing versus Saving

• How to Have a Net Worth of 1 Million at Age 55
• Interest Rates and Their Effect on Your
  Investments
• The Magic of Compound Interest
• Rule of 72 Lump Sum Investment

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How to Have a Net Worth of 1 Million at Age 55
Bloomberg Personal, September 1994
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Interest Rates and Their Effect on Your
Investments
10,000 Lump Sum
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Interest Rates and Their Effect on Your
Investments
100 Per Month
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The Magic of Compound Interest

• Jimmie
• Opens IRA at 12 interest at age 22.
• Invests 2,000/year for 6 years 12,000.
• After 43 years IRA is worth 1,348,440.
• Joel
• Spends 2,000/yr on himself for six years.
• Opens IRA at 12 at age 28.
• Invests 2,000/yr for 37 years 74,000.
• After 43 years, IRA is worth 1,363,780.
• Difference of 15,340 (start early!).

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The Magic of Compound Interest
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Rule of 72

• The rule of 72 says if you take the interest rate
  you are receiving and divide it into 72, it will
  give you the number of years it will take for
  your investment to double.
• Example, 72 divided by 4 (interest rate at a
  bank) 18 years for your money to double.
• Another example, 72 2 36 years.

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Rule of 72
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Give Your Money a Job!

• You worked hard for your money, so why not let
  your money work hard for you!
• Savings Account (lt1) ok job (short term).
• CDs, Money Markets, Bonds (2-5) better job
  (medium term).
• Stocks, Mutual Funds (4-10) even better job
  (long term).
• Mixture of all three types priceless!

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Debt the Good, Bad Ugly

• House Loan (Mortgage)
• Auto Loan (Car or Truck)
• Personal Loan
• Credit Card

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House Loan (Mortgage)

• Mortgages are usually good debt because equity in
  the house is built up over time.
• Only borrow what you can reasonably afford to pay
  back each month.
• The shorter the term (15yr vs. 30yr) the less
  interest you pay over time.
• Shop around for lowest interest rate.

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Auto Loan

• Auto loans are considered not so good debt
  because the value of the car goes down over time.
• The shorter the term (36 mo vs. 60 mo) the less
  interest you pay over time.
• Shop around for lowest interest rate.
• Better to buy a used car or save up and pay cash
  for your vehicles.

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Personal Loan

• Personal loans are considered bad debt because
  you pay interest with no return.
• Only borrow if it is a true emergency.
• Shop around for lowest interest rate.
• Pay back the loan ASAP.
• Better to create your own emergency fund and
  borrow from and repay yourself.

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Credit Card Debt

• Credit Card debt is ugly debt because you pay
  enormously high interest rates.
• Interest rates can range from 0 - 30
• Credit card debt is one of the leading causes of
  personal bankruptcy.
• Dont carry balance over each month.
• Better to only charge what you can easily pay
  back each month.

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Credit Card Debt

• How long to pay off credit card?
• 5,000 balance
• 10 interest rate
• 100 monthly payment

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Credit Card Debt

• How long to pay off credit card?
• 5,000 balance
• 10 interest rate
• 100 monthly payment
• Almost 5.5 years to pay off the debt.
• 1,495 of interest
• 5,000 principle
• 6,495 total money paid Ugly!

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Credit Card Debt

• How long to pay off credit card?
• 5,000 balance
• 20 interest rate
• 100 monthly payment

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Credit Card Debt

• How long to pay off credit card?
• 5,000 balance
• 20 interest rate
• 100 monthly payment
• Over 9 years to pay off the debt.
• 5,840 of interest
• 5,000 principle
• 10,840 total money paid Uglier!

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Resources

• Retirement Options
• Retirement Contributions
• Web Resources
• Whats Most Important

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Retirement Options/Vehicles

• 401(k) (corporations)
• 403(b) (not-for-profits-education/hospitals)
• 457(b) (government)
• Roth IRA
• IRA
• Annuities
• U.S. Savings Bonds
• CDs
• Savings Accounts
• Others

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Retirement Contributions
Catch-up contributions Workers age 50 and above
are permitted to contribute an additional 1,000
to their IRAs and 5,500 to their 403b and 457b
plans in 2009.
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Web Resources for Kids

• http//www.younginvestor.com/
• http//www.strongkids.com/
• http//www.youngbiz.com/
• http//www.kidsmoney.org/
• http//www.marketwatch.com/pf/started/GettingStart
  ed_KidsMoney.asp

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Other Web Resources

• www.fool.com/
• www.morningstar.com/
• www.bankrate.com/
• www.savingforcollege.com/
• www.collegesavings.org/
• www.flip4u.org

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Whats Most Important

• Its not how much you make, but how much you
  keep!
• Its not how much you earn, but how much you
  dont burn!
• Pay yourself first (saving investing)
• Invest 50 of your annual raise in you
• Work smart, Invest hard, Retire peacefully

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Questions
tjorns_at_gmail.com www.flip4u.org