Title: Why is Financial Education/Literacy Important?
1Why is Financial Education/Literacy Important?
Financial Empowerment
- Presented By
- Patrice B. Duncan, EVP
-
- Anthony Harris, AVP
- DE, The Power Group
2What is Financial Empowerment?
- Empowerment itself is the process of increasing
the capacity of individuals or groups to make
choices and to transform those choices into
desired actions. - Financial empowerment therefore is the transfer
of personal money power (financial independence)
to an individual. - It is a process of moving from financial
instability to a position of financial stability
through investment.
3What is Financial Literacy?
- Financial literacy is the knowledge about
personal finance that enables people to
confidently manage their financial lives. - When it comes to managing your budget, paying
bills, and knowing the right financial services
for you, KNOWLEDGE IS POWER!
4Case Study Emily Karen
- Emily and Karen are friends who borrow about the
same amount of money over their lifetimes - Each gets 20,000 in private student loans to
help pay for college.
5Case Study Emily Karen
- During college they get their first credit cards,
and each carry an 8,000 balance, on average,
over the years. - They buy new cars after graduation and replace
them every seven years until they buy their last
vehicles at age 70.
6Case Study Emily Karen
- Each buys her first home with a 300,000 mortgage
at age 30 and then moves up to a larger house
with a 400,000 mortgage after turning 40. - Each takes out a 50,000 home-improvement loan to
remodel the second house.
7Case Study Emily Karen
- Emily has a FICO Score of 750, which is
considered good to excellent. - Emily maintains her good credit scores by always
paying her bills on time, applying for credit
sparingly and never maxing out her credit cards. -
- Lenders respond by increasing her credit limits
and giving her more offers of credit, allowing
her to spread her balances across several cards
and further protect her scores.
8Case Study Emily Karen
- Karen has a 650 FICO score, which is considered
fair to average, even poor depending on the
lender. - Karen, on the other hand, doesn't always pay on
time and sometimes maxes out her cards, which
makes lenders reluctant to extend more credit. - She tends to carry larger balances on fewer cards
than Emily, which further hurts her scores, and
Karen has less ability to negotiate lower
interest rates.
9Case Study Private student loans An 8,000
difference
- Federal student loans don't take credit scores
into account, but private student loans do, and
the penalty for worse credit is significant.
Interest rates vary by lender, but someone with a
750 score can expect rates that are around 5 to 6
percentage points cheaper than someone with a 650
score, said Mark Kantrowitz of FinAid.
10Case Study Emily KarenPrivate Student Loans
- 8,000 difference
- Interest Rate - 7.25
- Monthly Payment - 234
- Total interest paid (10 yrs)
- 8,176
- Interest Rate - 13.25
- Monthly Payment - 302
- Total interest paid (10 yrs)
- 16,189
- Karen's Penalty 8,013
11Case StudyCredit Cards 60 more a month
- Credit card issuers have tightened their lending
standards in the past couple of years, which
means higher rates and stricter standards for
just about everyone. - Whereas a 720 credit score used to get you the
best rates and terms from many issuers, some now
require 750. Even getting a card can be tough if
your scores are below 675, according to Curtis
Arnold of CardRatings.com. A few years ago, even
those with "subprime" scores in the low 600s had
a slew of offers.
12Case Study Emily KarenCredit Cards- 60
difference per mth.
- Interest Rate - 10.99
- Annual Interest- 880
- Lifetime interest 44,000
- Interest Rate 19.99
- Annual Interest- 1,600
- Lifetime interest 80,000
- Karen's Penalty 36,000
13Case Study Auto loans 5,400 more per car
- A few years ago, Karen would have paid about 3
percentage points more for a 60-month new-car
loan. Today, that penalty is more than twice as
high, according to myFICO.com, which tracks rates
for auto and mortgage loans based on FICO credit
scores. The difference significantly inflates the
interest costs for every 25,000 vehicle she
finances over a lifetime.
14Case Study Emily Karen Auto loans 5,400
more per car
- Interest Rate - 5.78
- Monthly Payment - 481
- Interest cost per car 3,843
- Lifetime interest paid -30,768
- Interest Rate 13.24
- Monthly Payment - 572
- Interest cost per car 9,310
- Lifetime interest paid 74,480
- Karens Penalty 43,712
15The Role of Financial Education
- Financial education plays a significant role in
our society by empowering people with required
knowledge and skills to make accurate consumer
decisions, follow appropriate financial
practices, and achieve economic well being.
16The Role of Financial Education
- However, some financial education programs
narrowly focus only on changing people's
financial knowledge and make the assumption that
this leads automatically to changes in financial
behavior.
17The Role of Financial Education
- This assumption may work at times however,
changing financial behavior (not just increasing
financial knowledge) is essential for a person to
reach financial goals and achieve financial well
being.
18Major Topics of Financial Education
- Financial education is a very broad subject and
typical topics covered include - Budgeting
- Cash-flow management
- Credit
- Banking
- Savings and Investments.
19Major Topics of Financial Education
- Other topics of discussion can encompass
- Goal Setting
- Wise Consumer Practices
- Consumer Laws Rights
- Retirement Planning
- Life Death Insurance
20Major Topics of Financial Education
- While the importance of some topics may change
over time, other topics, such as - Decision-making
- Cash-flow management
- Savings
- Credit, debt, housing, and planning for the
future will always represent the core topic areas
of financial education.
21Educational Settings
- Financial education is very similar to other
educational programs. It takes place in formal,
non-formal, and informal educational settings. - Formal settings include credit courses offered in
high school and colleges.
22Educational Settings
- Non-formal settings include financial education
training workshops and counseling programs
provided by various organizations and individuals
outside of formal educational institutions. i.e.
non-profits
23Educational Settings
- Informal financial education comes from everyday
interactions with people and mass media, i.e.
news, work, internet, family etc.
24Key Elements
- Before the financial educator begins the program
evaluation process, it is important to review the
education program to make sure that it has all
the key elements to function successfully.
25Key Elements Preparation
- Must haves..
- Identified target participant group
- Identified financial education needs
- Program objectives designed to meet identified
needs - Educational materials and lesson plans chosen to
achieve learning objectives
26Key Elements Preparation
- Delivery method chosen to facilitate participant
access to educational materials, i.e. lecture,
internet, group, individual etc. - Inclusion of evaluation plan and data-collecting
instruments
27Key Elements Preparation
- Trained and/or certified financial educator(s) to
facilitate learning, i.e. NeighborWorks, HUD,
etc. - Program monitoring plan to utilize evaluation
data for building stronger programs and funding
strategies
28Target Audiences
- Target audiences of financial education are very
diverse. Participants' ages, levels of education,
socio-economic backgrounds, and learning needs
can vary greatly. For example, the ages of
potential audiences can range from youth to older
adult.
29Target Audiences
- The levels of education can range from elementary
school to graduate school. - This variation underscores the educational
diversity of potential audiences of financial
education programs.
30Target Audiences
- Additionally, the need determines how to
carefully select educational materials, delivery
methods, and the evaluation approach based on the
needs of each audience to achieve desired
results.
31Methods of Financial Education Delivery
- Various methods are used to deliver financial
education programs. These methods can be
classified under three main categories - Individual Methods
- Group Methods
- Mass Methods
32Methods of Financial Education Delivery
- Individual Methods
- One-on-one counseling
- Telephone advising
- Computer/Internet Learning
33Methods of Financial Education Delivery
- Group Methods
- Seminars/presentations
- Training workshops
- Workshop series
- Credit courses offered through formal educational
institutions
34Methods of Financial Education Delivery
- Mass Methods
- Web-based programs
- Interactive CD programs
- TV programs
- Newsletters/papers
- Radio programs
35Evaluation Tools
- Evaluation is a key component of Financial
Education Programs. There are many different
types of evaluation tools depending on the object
being evaluated and the purpose of the
evaluation. Perhaps the most important basic
distinction in evaluation types is that between
formative and summative evaluation.
36Evaluation Tools
- Formative evaluations strengthen or improve the
object being evaluated -- they help form it by
examining the delivery of the program or
technology, the quality of its implementation,
and the assessment of the organizational context,
personnel, procedures, inputs, and so on.
37Evaluation Tools
- Summative evaluations, in contrast, examine the
effects or outcomes of some object -- they
summarize it by describing what happens
subsequent to delivery of the program or
technology assessing whether the object can be
said to have caused the outcome
38Evaluation Tools
- Determining the overall impact of the causal
factor beyond only the immediate target outcomes
and, estimating the relative costs associated
with the object.
39Evaluation Tools
- Formative evaluation includes several evaluation
types - Needs assessment determines who needs the
program, how great the need is, and what might
work to meet the need - Evaluability assessment determines whether an
evaluation is feasible and how stakeholders can
help shape its usefulness
40Evaluation Tools
- Formative evaluation includes several evaluation
types - Structured conceptualization helps stakeholders
define the program or technology, the target
population, and the possible outcomes - Implementation evaluation monitors the fidelity
of the program or technology delivery
41Evaluation Tools
- Formative evaluation includes several evaluation
types - Process evaluation investigates the process of
delivering the program or technology, including
alternative delivery procedures
42Financial Education Resources Curriculums
- FDIC Money Smart
- Freddie Mac Credit Smart
- NEFE National Endowment for Financial Education
- Federal Reserve Bank Guide to Financial
Literacy Resources - Jumptart Financial Literacy
43Sample Presentation
- Goal Setting
- Budgeting
- Credit
44Five Rules to Goal Setting
- Rule 1 Set Goals that Motivate You
-
- Making sure it is something that's important to
you and there is value in achieving it.
45Five Rules to Goal Setting
- Rule 2 Set SMART Goals
- -Specific -Measurable -Attainable -Relevant
-Time Bound
46Five Rules to Goal Setting
- Rule 3 Set Goals in Writing
- Put them on your walls, desk, computer monitor,
bathroom mirror or refrigerator as a constant
reminder. -
47Five Rules to Goal Setting
- Rule 4 Make an Action Plan
-
- Write out the individual steps, and then cross
each one off as you complete it.
48Five Rules to Goal Setting
- Rule 5 Stick With It!
-
- Remember to review your goals continuously.
49How to Budget
- Getting started with making a plan for your money
- Planning how to spend your money
- Developing a spending plan to meet your goals
- Making your spending plan
- The importance of saving
- Getting help
50Why Do You Need a Spending Plan?
- To prepare for large expenses
- To encourage savings
- To prepare for surprise expenses
- To identify wasteful spending
- To accomplish goals
51Rate Your Spending Habits
- What would be hardest?
- Is a house worth giving these things up?
- Are you ready to do this now?
- Are there other things you want to do first?
- What things would be easiest to change?
52The Steps in Establishing a Spending Plan
- Determine your monthly net income
- Calculate your monthly expenses
- Subtract your regular expenses from your income
53Keeping Track of Spending
- Save all receipts
- Use a small notebook
54Setting Family Goals
- Talk about goals as a family
- Be specific
- Write down all family members goals and rank
them in order of importance - Agree on your top goals
- Figure out how much it will cost to reach your
goals
55Wants vs. Needs
- Needs items you must have for basic survival
- Wants things you desire but can live without
56Money Management Tips
- Plan according to current income
- Plan ahead for six months
- Include spending money for all
- Keep record keeping simple
57Money Management Tips
- Set money aside for maintenance
- Pay yourself first at least 10 of take-home pay
- Get consensus from entire family
58Reviewing the Plan
- Is our spending plan working?
- Are all family members able to follow it?
- Which costs always seem to be over the planned
amount? - Are we getting closer to reaching our goals?
59Ways to Make Money Management Easier
- Consider consolidating credit card accounts
- Consider selling a car
- Check your interest rates
- Stick to the plan
60Importance of Saving
1,504.09 in 2 years
2/ day
2 interest
Try to save 10 of your income on a monthly basis!
61Types of Savings Accounts
- Regular savings account
- Club account
- Certificate of deposit (CD)
- Money market account
- Matched savings account
62Tips for Savers
- Pay yourself first
- Open a savings account far away from home and
work - Save change at end of day
- Bank your surprises
63Saving 1 a Day
No Interest 5 Daily Compounding
Year 1 365 374
Year 5 1,825 2,073
Year 10 3,650 4,735
Year 30 10,950 25,415
64Key Points
- The value of credit
- Different types of loans
- What a credit report is and how it is used
- How to read a credit report
- How to start restoring credit
- How to recognize credit restoration scams
- Available credit resources
65Key Points
- The characteristics of a credit card
- The costs of using a credit card
- The potential problems with credit card use
66Importance of Credit
- Can be useful in times of emergencies
- Is sometimes more convenient than cash
- Allows you to make large purchases
67Types of Credit
68Collateral Items
- Automobiles
- Homes
- Savings and investment accounts
69Consumer Installment Loans
- Automobile
- Computer
- Furniture
- College tuition
70Credit Cards
- Ongoing ability to borrow money for
- Household
- Family
- Personal expenses
71Home Loans
- Home purchase loans
- Home refinance loans
- Home equity loans
72Fees
- Annual maintenance fees
- Service charges
- Late fees
73Cost of Credit
- Amount financed 5,000
- APR 12
- Finance charge 675.31
- Total of payments 5,675.31
74Be careful of
- Rent-to-own services
- Payday loans
75Four Cs of Credit
- Capacity
- Capital
- Collateral
- (Character the 4th C)
76Credit Reporting Agencies
- Equifax www.equifax.com (800) 685-1111
- Experian www.experian.com (888) EXPERIAN
(397-3742) - Trans Union www.transunion.com (800) 916-8800
- For a merged report
- True Credit (merged) www.truecredit.com
77Tips to Manage Your Credit
- If possible, pay off your entire bill each month
- Pay on time to avoid late fees and protect your
credit - Always check your monthly statement to verify
transactions
78Tips to Manage Your Credit
- Ignore offers creditors may send you to reduce
or skip payments - Think about the cost difference if you
purchase your item with cash versus credit
79What is in a Credit Report?
- Identifying information
- Credit history
- Public record information
- Inquiries
80Credit Scoring
- Payment history 35
- Outstanding debt 30
- Credit history 15
- Types of credit 10
- Credit inquiries 10
81Credit Agencies Credit Score
- Experian Fair Issac
-
- Trans Union Empirica
-
- Equifax Beacon
82FICO Credit Scoring
- The higher the score the better
- Most consumers score between 300 and 850
- www.myfico.com
83FICO Credit Scoring
- 660 easy to obtain credit at a low interest
rate - 620-660 may need additional documentation to
get a good rate - lt620 may prevent the borrower from getting
best rates
84Definitions
- Tax Lien - a claim against a property filed by
the taxing authority for unpaid taxes - Judgment - a court order placing a lien on a
debtors property as security for a debt owed to
a creditor
85Definitions
- Collection account - a past due account that has
been referred to a specialist to collect part or
all of the debt - Bankruptcy - a legal proceeding that can legally
release a person from repaying debts that a
person cannot pay back
86Bankruptcies
- Chapter 13 - the debtor keeps all of his/her
property and makes regular payments on the debts
after filing for bankruptcy - Chapter 7 - the debtor gives up all nonexempt
property and keeps exempt property (property that
state law determines is needed for support of the
debtor and his/her dependents)
87Negative Credit Report Information
Type of negative information Maximum time on credit report
General Civil Judgments 7 years from the date filed
Tax Liens 7 years from the date paid Indefinite if not paid
Chapter 13 Bankruptcy- dismissed or discharged 7 years
All other Bankruptcies 10 years
88When is your Credit Report free?
- You have been recently denied credit
- You have been recently denied employment or
insurance - You suspect someone has been fraudulently using
your account
89When is your Credit Report free?
- You are unemployed and intend to apply for
employment within 60 days - You receive public welfare assistance
- You live in certain states
90Identity Theft
- Contact the fraud department of the three major
credit reporting agencies - Contact your creditors
- File a report at your local police station
91Identity Theft Resources
- www.consumer.gov/idtheft or 1-877-IDTHEFT
(438-4338) - www.fraud.org or 1-800-876-7060
92What are ways to Build a Credit History?
- Apply for a small loan at a bank or credit union
where you have checking or savings accounts - Apply for credit with a local store
- Make a large down payment on a purchase and
negotiate credit payments for the balance
93What are ways to Build a Credit History?
- Ask a friend or relative with an established
credit history to be a co-signer for you - Pay your bills on time
- Establish nontraditional credit through regular
rent and utility payments
94To Rehabilitate Your Own Credit
- Start by contacting credit reporting agencies to
get copies of your credit report - If there are errors, request an investigation
- Contact lenders to renegotiate payment plans
- Visit a credit counseling agency
95Tips for Credit Counseling
- Interview several credit counseling agencies
before signing a contract - Check with your state attorney general, local
consumer protection agency and the Better
Business Bureau for complaints - Ask for information from the agency about itself
and its services - Ask questions about services and fees
96True Statements about Credit Rehabilitation
- No one can have accurate information removed from
your credit report - If you have bad credit, it can take years to
repair your credit legitimately - No one can create a new identity for you
- You can order your credit report yourself and
dispute any errors on your own
97Credit Card Terms
- Annual percentage rate- the rate of interest you
are charged plus fees, expressed as a yearly rate - Fees- charges for annual usage, late payments or
balances that over-the-limit
98Credit Card Terms
- Grace period - the number of days you have to pay
your balance before a creditor starts charging
interest - Balance computation method - how your interest is
calculated
99Interest Rate
- Fixed - the interest rate will not change
- Variable - the interest rate can increase or
decrease
100Shopping for a Credit Card
- Decide how much you will use your card
- Start small
- Understand the terms
- Be aware that introductory rates will change
- Avoid application fees
- Understand fixed and variable rates
101Cost of making Minimum Payments
Item Price APR Interest Paid How much you really pay for the item Total years to pay off
TV 500 18 439 939 8
Computer 1,000 18 1,899 2,899 19
Furniture 2,500 18 8,781 11,281 34
102Benefit of Making Higher Payments
Original Balance APR Monthly Payments Total Number of Payments Total Years to Pay off Total of Payments
2,500 18 Minimum payment 404 34 8,781
2,500 18 50 94 8 4,698
2,500 18 100 32 3 3,163
103Finance Charge Calculation
- APR is 18
- Daily periodic rate is 0.0493 (18 divided by
365 days) - Multiply the average daily balance (200) by the
daily periodic rate - Equals .10 per day (for each day you have the
200 balance) - Finance charge is .10 x 30 days or 3.00
104Tips for using Credit Cards
- Pay your bills on time
- Keep your receipts
- Protect your credit card and account numbers
- Keep a record of your account numbers
- Carry only the credit cards you think you will
use - Pay off the total balance each month
- Read the fine print
105Correcting Credit Card Problems
- Pay off credit card and higher interest rate
loans first - Pay for future purchases using check or cash
- See a reputable credit counselor
106Contact Us
- DE, A Financial Education and Training
Institute, Inc. - 4532 Jonesboro Road
- 2nd floor
- Forest Park, GA 30297
- 1-877-790-1831 toll
- (770) 961-6900 office
- (770) 961-8900 fax
- info_at_depower.org email
- www.depower.org website