chapter 3 money management personal finance mrs. rinehart

Chapter 3 Chapter 3 Money ManagementMoney Management

Personal FinancePersonal Finance

Mrs. RinehartMrs. Rinehart

Rinehart’s Recap

Open up your recap from last week. Just add to it at the bottom.

Write about what you got done yesterday.

If you didn’t get finished, keep on working for a few minutes.

Rinehart’s RecapRinehart’s Recap Go to my website and copy and paste these statements into your Go to my website and copy and paste these statements into your

recap.recap.

1 - Money doesn’t buy happiness.1 - Money doesn’t buy happiness. 2 - A fool loses his/her money quickly.2 - A fool loses his/her money quickly. 3 - The more money you make, the more money you spend.3 - The more money you make, the more money you spend. 4 - The best things in life are free.4 - The best things in life are free. 5 - Manage the pennies and the dollars will take care of 5 - Manage the pennies and the dollars will take care of

themselves.themselves. 6 - Never spend your money before you have it.6 - Never spend your money before you have it. 7 - When the going gets tough, the tough go shopping.7 - When the going gets tough, the tough go shopping. 8 - Lack of money is no obstacle to me living my life the 8 - Lack of money is no obstacle to me living my life the

way that I want.way that I want.

Type agree or disagree for each statement.Type agree or disagree for each statement.

MoneytopiaMoneytopia

Play Moneytopia to the best of your Play Moneytopia to the best of your ability. We will play it again at the ability. We will play it again at the end of this unit as well. end of this unit as well.

Link to the game is on my website.Link to the game is on my website.

Rinehart’s RecapRinehart’s Recap

How realistic is the Moneytopia How realistic is the Moneytopia game? Explain. game? Explain.

Savings AccountsSavings Accounts

Why save money? Why save money?

– Saving money is the cornerstone of a strong financial Saving money is the cornerstone of a strong financial game plan. Some of the main reasons to save include: game plan. Some of the main reasons to save include:

To meet a very specific goal (e.g., a summer road trip with To meet a very specific goal (e.g., a summer road trip with friends).friends).

To be ready for the unexpected (e.g., car repair costs).To be ready for the unexpected (e.g., car repair costs). To plan for a future goal (e.g., saving for college or an To plan for a future goal (e.g., saving for college or an

apartment).apartment).

The Truth About Millionaires Quiz When Will You be a Millionaire??

Savings AccountsSavings Accounts A savings account (also known as a deposit A savings account (also known as a deposit

account) is the most basic way to start saving. account) is the most basic way to start saving. Savings accounts are available at most banks and Savings accounts are available at most banks and

credit unions. You make deposits and withdrawals credit unions. You make deposits and withdrawals either by visiting your financial institution or by either by visiting your financial institution or by using an ATM card. using an ATM card.

You can withdraw your money any time you like You can withdraw your money any time you like but the interest rate on most savings accounts but the interest rate on most savings accounts can be low.can be low.

Pros: low risk, high level of liquidity Pros: low risk, high level of liquidity Cons: low interest rateCons: low interest rate

Savings AccountsSavings Accounts How much to save How much to save

– Your students may already be saving, at least Your students may already be saving, at least on a small scale, with a change jar or a savings on a small scale, with a change jar or a savings account. account.

Here are some savings guidelines: Here are some savings guidelines: – Experts suggest saving at least 10% of your Experts suggest saving at least 10% of your

income.income.– If you can’t save a lot, save a little. Saving is If you can’t save a lot, save a little. Saving is

habit forming.habit forming.– Save for emergencies. You should have three Save for emergencies. You should have three

to six months of living expenses saved.to six months of living expenses saved.– Time is On Your Side (Article)


In a savings account, In a savings account, principalprincipal refers to refers to the amount of money you deposit in your the amount of money you deposit in your account to begin saving. account to begin saving.

A A withdrawalwithdrawal is when you take money out is when you take money out of your account, thereby reducing your of your account, thereby reducing your principal.principal.

A A depositdeposit is when you add money to your is when you add money to your account and increase your principal.account and increase your principal.


InterestInterest– InterestInterest is money the bank pays you for is money the bank pays you for

leaving it in your savings account. leaving it in your savings account. – It’s as if you are loaning the bank your It’s as if you are loaning the bank your

money. You give them your money to money. You give them your money to hold. They pay you interest so your hold. They pay you interest so your money grows. money grows.

– They are able to use your money to fund They are able to use your money to fund loans and investments to other people.loans and investments to other people.

Savings AccountsSavings Accounts The The interest rateinterest rate is the percentage amount of your principal is the percentage amount of your principal

that the bank agrees to pay into your account. that the bank agrees to pay into your account. An interest rate is often referred to as an An interest rate is often referred to as an APR, or Annual APR, or Annual

Percentage RatePercentage Rate. . APY, Annual Percentage YieldAPY, Annual Percentage Yield There are two types of interest rates: There are two types of interest rates: fixed ratefixed rate and and

variable ratevariable rate. . – A fixed rate is unchanging, and guarantees the same A fixed rate is unchanging, and guarantees the same

percentage of interest. percentage of interest. – A variable rate can go up and down and is usually determined A variable rate can go up and down and is usually determined

by current economic conditions.by current economic conditions.

There are also two types of interest: There are also two types of interest: simple interestsimple interest and and compound interestcompound interest. Simple interest is a “simple” fee paid to . Simple interest is a “simple” fee paid to you on your principal, expressed as a percentage of the you on your principal, expressed as a percentage of the principal over time.principal over time.

Savings Accounts Savings Accounts

Simple InterestSimple Interest

principal x interest rate x time = interest principal x interest rate x time = interest earnedearned

Example: You open a savings account with Example: You open a savings account with $1,000 at a 5% simple APR. What will you $1,000 at a 5% simple APR. What will you earn in interest in the first year?earn in interest in the first year?

$1,000 x .05 x 1 = $50 interest earned $1,000 x .05 x 1 = $50 interest earned every yearevery year


Compound Interest Video Can be compounded daily, monthly, Can be compounded daily, monthly,

or annually.or annually. Each time your interest compounds, Each time your interest compounds,

it gets added back to your account it gets added back to your account and becomes part of your principal.and becomes part of your principal.

Savings AccountsSavings Accounts How interest compounds How interest compounds Depending on the type of account, interest may compound Depending on the type of account, interest may compound

daily, monthly or annually. For our example, let’s assume daily, monthly or annually. For our example, let’s assume interest is compounded annually. After one year, the interest is compounded annually. After one year, the interest you’ve earned ($50) gets added to the principal for interest you’ve earned ($50) gets added to the principal for year two. year two.

$1,000 x .05 x 1 = $50 interest earned in year one$1,000 x .05 x 1 = $50 interest earned in year one $1,050 x .05 x 1 = $52.50 interest earned in year two$1,050 x .05 x 1 = $52.50 interest earned in year two

For year three, you’ll start with a new principal amount of For year three, you’ll start with a new principal amount of $1,102.50. You can begin to see how both your principal $1,102.50. You can begin to see how both your principal and interest earned keep growing with each year. This is and interest earned keep growing with each year. This is the magic of compound interest.the magic of compound interest.

Compound Interest Calculator


Rule of 72Rule of 72

Want to know how fast your money will Want to know how fast your money will double? The rule of 72 is a fast way to double? The rule of 72 is a fast way to estimate how long it will take you to estimate how long it will take you to double your savings with compound double your savings with compound interest.interest.

72 divided by “interest rate” = number of 72 divided by “interest rate” = number of years needed to double your moneyyears needed to double your money

Savings AccountsSavings Accounts A A money market accountmoney market account combines some of the best features of combines some of the best features of

both savings accounts and checking accounts. both savings accounts and checking accounts.

You earn interest on the principal. You earn interest on the principal. Often the Often the interest rate is higherinterest rate is higher than that of a typical savings than that of a typical savings

account. account. As with a savings account, you As with a savings account, you receive an ATM cardreceive an ATM card and can make and can make

withdrawals and deposits from any ATM in your account network withdrawals and deposits from any ATM in your account network for free. for free.

Can also write checks against the account (limited.)Can also write checks against the account (limited.) Usually require a Usually require a higher initial amounthigher initial amount of of principalprincipal and the account and the account

may charge you fees if the may charge you fees if the account balance goes belowaccount balance goes below a certain a certain level.level.

Pros: better interest rates, high liquidity Pros: better interest rates, high liquidity Cons: requires greater initial deposit, may have limited Cons: requires greater initial deposit, may have limited

transfers/withdrawalstransfers/withdrawals

Savings AccountsSavings Accounts A A CDCD, or , or certificate of depositcertificate of deposit, is a savings option , is a savings option

that is best suited to those who have funds that that is best suited to those who have funds that can remain can remain completely untouched for longer completely untouched for longer periods of timeperiods of time. .

They differ from savings accounts in that they They differ from savings accounts in that they have a specific fixed term (have a specific fixed term (from three months up from three months up to five years or longerto five years or longer) and usually a ) and usually a fixed fixed interest rateinterest rate..

Pros: higher interest rates, often insured by the Pros: higher interest rates, often insured by the government government

Cons: fees charged to you if you need to Cons: fees charged to you if you need to withdraw money before the term endswithdraw money before the term ends


Choose savings, money market, or CD:

If your pet has a medical condition and If your pet has a medical condition and you think you may have some surprise vet you think you may have some surprise vet bills in the next year?bills in the next year?

If you want to buy a plane ticket to If you want to buy a plane ticket to celebrate your grandparents’ 50th celebrate your grandparents’ 50th wedding anniversary in Hawaii in five wedding anniversary in Hawaii in five years? years?

QuizQuiz

Choose savings, money market, or Choose savings, money market, or CD:CD:– If you want to buy a used car sometime If you want to buy a used car sometime

in the next six months?in the next six months?– What if you decided to wait 18 months What if you decided to wait 18 months

to buy the car?to buy the car?– If you want an emergency fund for If you want an emergency fund for

unexpected expenses? unexpected expenses?


Use the Internet to search to find three Use the Internet to search to find three different banks and/or accounts in either the different banks and/or accounts in either the Lakeview area or wherever you plan on living. Lakeview area or wherever you plan on living. – Research their savings accounts, and make a table Research their savings accounts, and make a table

in your notes with these headings. Fill it in with in your notes with these headings. Fill it in with this information. You may add any miscellaneous. this information. You may add any miscellaneous.

Minimum balanceMinimum balance Type of account (savings, money market, CD)Type of account (savings, money market, CD) Interest rateInterest rate FeesFees Special features Special features

Rinehart’s Recap

Open up your recap from last week. Change Friday to Thursday (3/28). Print or email when done. [email protected]

Which type of savings account do you think is best for you and why?

Checking AccountsChecking Accounts

Checking Account terms

Video – ABC News – Choosing checking accounts for college students


Debit CardDebit Card– A debit card (also known as a check card) looks A debit card (also known as a check card) looks

like a credit card but is an alternative payment like a credit card but is an alternative payment method to cash and checks. method to cash and checks.

– When you make a purchase with a debit card, When you make a purchase with a debit card, the funds are immediately withdrawn from the funds are immediately withdrawn from your bank account and transferred into the your bank account and transferred into the account of the store or business where you account of the store or business where you completed the transaction. completed the transaction.

– Because a debit card links directly to your bank Because a debit card links directly to your bank account, you can spend only what you have in account, you can spend only what you have in your account.your account.

Checking Accounts

Debit Cards – Benefits

They allow you to make the same kinds of purchases as you do with credit cards so you don’t need to carry cash.

Most provide the same type of “zero liability” protection as credit cards.

There is no APR or interest rate charged.There are no monthly payments or debt

accrued.Some debit cards offer rewards programs.

No recap this week. Turn on your computers and pull up your notes from last week.

Take the survey (on my website – Survey Monkey – if you didn’t have time before break)


Use the Internet to search to find at Use the Internet to search to find at least two different banks in either the least two different banks in either the Lakeview area or wherever you plan Lakeview area or wherever you plan on living. on living. – Research their checking accounts:Research their checking accounts:

Minimum balanceMinimum balance Interest rateInterest rateFeesFeesSpecial features Special features

Charity (Giving)Charity (Giving)

Why donate money to charity?Why donate money to charity?

Research and choose at least two Research and choose at least two charities you think you may like to charities you think you may like to donate to. Write down their name donate to. Write down their name and contact info in your notes.and contact info in your notes.– Charity Navigator– Just Give

BillsBills

Fixed – bills that are the same Fixed – bills that are the same amount each monthamount each month– Mortage/rent, car payment, car Mortage/rent, car payment, car

insuranceinsurance Flexible – bills that fluctuate each Flexible – bills that fluctuate each

monthmonth– Cell phone, groceries, energy, gasoline, Cell phone, groceries, energy, gasoline,

waterwater

BillsBills

Not paying your bills on time can Not paying your bills on time can affect your credit scoreaffect your credit score

Make a list of all the bills you have or Make a list of all the bills you have or think you will have after graduating.think you will have after graduating.– Use the Internet to find averages for Use the Internet to find averages for

certain bills (rent, electricity, etc.) certain bills (rent, electricity, etc.) – List the name of the bill and the List the name of the bill and the

estimated amountestimated amount

Credit Cards A credit card entitles you to make

purchases based on your promise to pay for these purchases at a later date.

The card issuer grants you a line of credit, which is a promise from the card issuer to you that they will loan you any amount of money up to the credit limit on the account.

You can use that credit to purchase goods, pay bills or obtain cash advances.

Video – Credit Cards for College Students

Credit Cards

New laws from the credit CARD Act of 2009 place strict limitations on issuing cards to consumers under 21.– If you fall in that age group, you have to

have a co-signer or show proof of sufficient income to repay the debt.

Credit Cards Each month, the card issuer sends you an

account statement that lists all of your purchases and the total amount you have purchased using the card that month. The total amount is called your balance.

When you pay the full amount of the balance, the card issuer charges you no interest for this service. If you do not pay the full amount, the balance on your card account becomes a loan to you from the card issuer and you begin paying interest on this loan.

Credit Cards Benefits of credit cards:

– They let you buy items in stores, online, on the phone or through a mail order catalog without using cash.

– They help you to establish credit history if you use them wisely.

– Enable you to purchase airline tickets, reserve hotel rooms and rent cars – all transactions that can be difficult to do using cash.

– Provide “zero liability” protection, which means that if your card is lost or stolen you will not be responsible for unauthorized merchant charges.

– Provide access to cash advances in case of emergency.

– Depending on the credit card company, their rewards program may provide points with each purchase that can be used to receive free airline miles, merchandise or cash back on purchases.

Credit Cards Things to watch for:

– Credit cards make impulse buying easier, which can throw off your budget and increase your level of debt.

– Items charged cost more (cost of item + interest) unless you pay the balance in full each month.

– Late payments may incur fees, increase interest rate and negatively impact your credit rating.

– If you don’t monitor spending carefully, your purchases can push you over the credit limit, resulting in an additional fee. This could also increase your interest rate and lower your credit score.

– While cash advances can be helpful in emergencies, they come with additional fees and the interest rate can be higher than for standard purchases.

Credit CardsCredit Cards

Use the Internet to research at least Use the Internet to research at least two credit cards (from different two credit cards (from different companies.) Type this info in your companies.) Type this info in your notes. notes. – Name of company & card Name of company & card – Interest rate (APR)Interest rate (APR)– Monthly/yearly fees Monthly/yearly fees – Perks? (cash back, point rewards, etc)Perks? (cash back, point rewards, etc)

Credit Cards

Managing your card accounts:– Stick to your budget:

Don’t be tempted to make purchases you can’t afford.

Use credit card cash advances for emergency needs only.

– Follow the “20-10” rule Limit your credit card debt to less than 20% of your

total annual income Less than 10% of your net monthly income should go

toward paying credit card debt. If it is more, reevaluate your spending habits.

Credit Cards

Be a good credit customer:– Paying at least the minimum monthly

payment by or before the due date will keep your credit in good standing.

– Try to pay more than the minimum due or even the entire balance each month to stay out of debt and avoid paying interest.

Credit Cards

Review your monthly statements:– Ensures you don’t spend beyond your

credit limit.– Helps you to stay on budget.– Alerts you if unauthorized or fraudulent

charges appear or if billing errors have been made.

Credit Cards Take advantage of secure online access to both

your credit card and debit card accounts:– Regularly view all account activity and payment history

to spot errors or fraud.– Sign up for automatic credit card payments or set up a

payment ahead of time before it’s due.– View your outstanding credit card balance or checking

account balance (for debit card purchases) before you make a charge.

– Set up alerts to receive an email or cell phone text message if a large purchase is made, if you’ve gone over your credit limit or when a payment is due.

– Some card issuers also enable you to log in to your account from a cell phone that supports secure Internet access.


Credit Card Repayment Calculator

Video – Credit Management and Debt Prevention


Credit Card ID Quiz (The Mint)Credit Card ID Quiz (The Mint)

Payday loans/Cash AdvancesPayday loans/Cash Advances

Find out about these types of loans.Find out about these types of loans.– Ex. Check into Cash Ex. Check into Cash

(http://checkintocash.com/(http://checkintocash.com/), Advance America (advanceamerica.net)

– What do they do?– List advantages and disadvantages – Fees and interest?– What do you need to bring?

Identity TheftIdentity Theft

FTC – What is Identity Theft? video

According to the FTC’s 2012 annual report of complaints, identity theft was the number one complaint category for the 13th consecutive year, with 369,132 complaints.

Protecting Your Identity and Preventing Fraud

Fraud prevention is crucial to managing your credit, debit and prepaid card accounts. Here is some common advice given to credit and debit cardholders to keep their accounts safe:– If your credit or debit card is lost or stolen,

report it immediately to the credit card issuer.

– Also report it to the police and use the police report to dispute any fraudulent charges with creditors.


For such occasions, maintain a list of all your credit and debit card account numbers in a secure location, along with the phone numbers for each card company.

When ordering items online, look for secure websites that have https:// in their web address and utilize Secure Socket Layer (SSL) and certificates to keep your transactions safe from hackers


Guard your account numbers.Guard your account numbers.– Do not give out your account number to Do not give out your account number to

anyone who calls you – share it only anyone who calls you – share it only with those companies you yourself with those companies you yourself contact. The same goes for your Social contact. The same goes for your Social Security number and other personal Security number and other personal information.information.


Guard your account numbers.Guard your account numbers.– Most merchants show only the last Most merchants show only the last

four digits of your card number on four digits of your card number on the bill; if the full number appears, the bill; if the full number appears, cross it out when signing the bill.cross it out when signing the bill.


Guard your account numbers:Guard your account numbers:

– Shred any documents and receipts Shred any documents and receipts where your card number may where your card number may appear.appear.

– Never send your card number or Never send your card number or other personal information through other personal information through email, since this is typically not a email, since this is typically not a secure electronic processsecure electronic process

What can be done if you discover an What can be done if you discover an unauthorized charge on your account?unauthorized charge on your account?

If you reported your card as lost or If you reported your card as lost or stolen, many cards offer “zero stolen, many cards offer “zero liability” protection, meaning you will liability” protection, meaning you will not be responsible for fraudulent not be responsible for fraudulent charges made against your account.charges made against your account.


In many cases, you have up to 60 days to In many cases, you have up to 60 days to report billing errors to the credit card report billing errors to the credit card issuer, but you should do it immediately issuer, but you should do it immediately after you discover the charge so it can be after you discover the charge so it can be resolved as soon as possible. They, in turn, resolved as soon as possible. They, in turn, must respond to your inquiry within 30 must respond to your inquiry within 30 days.days.


If a merchant made an unauthorized If a merchant made an unauthorized charge, the card issuer will act on charge, the card issuer will act on your behalf to dispute the charge your behalf to dispute the charge and have it removed.and have it removed.

Protecting your PINProtecting your PIN

Debit, credit, and in some cases, prepaid Debit, credit, and in some cases, prepaid cards come with a Personal identification cards come with a Personal identification Number (PIN). Number (PIN).

Known only to you, your PIN is a secret Known only to you, your PIN is a secret numeric password you key in during a numeric password you key in during a transaction to authenticate yourself as the transaction to authenticate yourself as the legal owner of the card. Without the correct legal owner of the card. Without the correct PIN, debit cards (and prepaid cards that PIN, debit cards (and prepaid cards that require a PIN) cannot be used, and you may require a PIN) cannot be used, and you may not be able to get a cash advance on your not be able to get a cash advance on your credit card.credit card.

Protecting your PIN

It is important to choose a random It is important to choose a random number that you can remember but number that you can remember but that’s not related to personal that’s not related to personal information, like your birth date or information, like your birth date or address. address.

Never write your PIN on the back of Never write your PIN on the back of the card or keep it in your wallet.the card or keep it in your wallet.

Identity TheftIdentity Theft

ID theft: Rapid Response Tips (video)

Hang up on phone fraud (video)

Job and Business Opportunity Scams Job and Business Opportunity Scams (video) (video)

Online Lineup (game)Online Lineup (game)

Credit ReportsCredit Reports

3 major credit agencies:3 major credit agencies:– TransUnion TransUnion

(http://www.transunion.com/) (http://www.transunion.com/) – Experian (www.experian.com) Experian (www.experian.com) – Equifax Equifax

(http://www.equifax.com/home/en_us) (http://www.equifax.com/home/en_us)

Annual Credit Report.comAnnual Credit Report.com

Real World ProblemReal World Problem

Paul is a recent college graduate who Paul is a recent college graduate who just landed a job and opened a new just landed a job and opened a new bank account. His birthday is January bank account. His birthday is January 1, 1996. He tells everyone that he 1, 1996. He tells everyone that he was the first baby born in 1996. was the first baby born in 1996. Because he can remember his Because he can remember his birthday quite easily, Paul chooses birthday quite easily, Paul chooses 0101 as his pin. 0101 as his pin.

Good idea? Why or why not?Good idea? Why or why not?

Real World ProblemReal World Problem Kate is getting a credit card to pay for a 10-Kate is getting a credit card to pay for a 10-

day vacation to Barcelona. The vacation day vacation to Barcelona. The vacation will cost $1,830. She has good will cost $1,830. She has good creditworthiness but little savings built up, creditworthiness but little savings built up, so she needs the card to essentially finance so she needs the card to essentially finance the whole trip, which she’ll pay back over the whole trip, which she’ll pay back over the next year or two. She chooses a card the next year or two. She chooses a card because it is aligned with her favorite because it is aligned with her favorite airline, and she wants to earn miles on airline, and she wants to earn miles on purchases. The APR is 23.1%. Good idea? purchases. The APR is 23.1%. Good idea? why or why not?why or why not?

Real World ProblemReal World Problem Daniel’s living room furniture is getting Daniel’s living room furniture is getting

old. He spots a nice couch on sale at the old. He spots a nice couch on sale at the department store and discovers they are department store and discovers they are having a 20% off one-day sale. He won’t having a 20% off one-day sale. He won’t get paid for another nine days, so he get paid for another nine days, so he pops over to the bank next door and pops over to the bank next door and takes a $1,200 cash advance to get the takes a $1,200 cash advance to get the sale price on the sofa. His bank will sale price on the sofa. His bank will charge a 4% transaction fee for the cash charge a 4% transaction fee for the cash advance. Good idea? why or why not?advance. Good idea? why or why not?

Real World ProblemReal World Problem Noushi does most of her banking and bill Noushi does most of her banking and bill

paying online. She loves the convenience it paying online. She loves the convenience it offers and the time it saves as well. She offers and the time it saves as well. She recently set up an automatic payment for her recently set up an automatic payment for her credit card bill to pay the minimum amount credit card bill to pay the minimum amount due every month. due every month.

This way, she knows she’ll never miss a This way, she knows she’ll never miss a payment and when life gets busy or when payment and when life gets busy or when she’s traveling, she doesn’t have to worry she’s traveling, she doesn’t have to worry about her credit card bill. about her credit card bill.

Good idea?Good idea?

BudgetsBudgets

Dave Ramsey’s Monthly Flow Cash Dave Ramsey’s Monthly Flow Cash PlanPlan

The Mint – Determining Your BudgetThe Mint – Determining Your Budget

ReferencesReferences

Financial Football DVD, State of Financial Football DVD, State of Michigan, NFL, & Visa Michigan, NFL, & Visa

chapter 3 money management personal finance mrs. rinehart

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