Slides for workshop presentation at conferences for New Jersey educators

1. Financial
Literacy Today
Barbara O’Neill, Ph.D, CFP
Rutgers Cooperative Extension
oneill@aesop.rutgers.edu

2. Workshop Objectives
for Participants
• Learn why financial education is critical to
students and the country
• Learn 12 key topics students need to know
• Learn resources to teach personal finance
• Build confidence to teach personal finance

3. Is There a Problem?
Alan Greenspan, 13th Chairman of
the Federal Reserve, 1987-2006

4. Financial Literacy = KASH
•Knowledge
•Action
•Skills
•How-to-Resources

5. Why Do Students Need To Be
Financially Literate?

6. What Happens When Students are
NOT Financially Literate?

7. Financial Literacy is an
Important Life Skill
• Increases financial resilience
• Promotes savings and financial success
• Prevents costly financial errors and fraud
• Reduces anxiety due to out-of-control finances
• Cushions the impact of recessions
http://www.councilforeconed.org/2013/04/12/the-cost-
of-financial-illiteracy/

8. How Much Do You Know
About Personal Finance?
Take the FINRA National Financial
Capability Study Knowledge Quiz:
http://www.usfinancialcapability.org/quiz.php

9. National Financial Capability
Study Knowledge Quiz
Five financial literacy
quiz questions:
– Interest rate
question
– Inflation question
– Bond price question
– Mortgage question
– Risk question
Number of
correct answers 2009 2012
None 7% 7%
One 11% 12%
Two 17% 19%
Three 24% 23%
Four 27% 25%
Five 15% 14%
Average number
correct 2.99 2.88
http://www.usfinancialcapability.org/quiz.php

10. Health Literacy Quiz
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/08/08/
do-you-understand-health-insurance-most-people-dont/
(Loewenstein et al., Journal of Health Economics)
• Four basic health insurance terms: Deductible,
Coinsurance, Copayment, Out-of-Pocket (OOP) Maximum
• Only 14% of sample got all 4 questions correct
• Worse yet, with a hypothetical example of health insurance
coverage for medical expenses involving a hospital stay,
only 11% could calculate the OOP cost

11. Jump$tart Coalition for
Personal Financial Literacy
• Washington DC-based non-profit
• Promotes financial literacy for students from grades K to 16
(college age)
• NJ Coalition for Financial Education is a state affiliate of
national Jump$tart
• Twelve principles for young adults to become financially
successful and accompanying lesson plans
– http://jumpstart.org/12-principles-calendars.html

12. Twelve [Timeless] Jump$tart
Coalition Principles
• Know your take-home pay
• Pay yourself first
• Start saving young
• Compare interest rates
• Don’t borrow what you can’t
repay
• Budget your money
• Money doubles by “The Rule of
72”
• High returns equals high risks
• Don’t expect something for
nothing
• Map your financial future
• Your credit past is your credit
future
• Stay insured

13. 1. Know Your Take-Home Pay
• Take-Home Pay = Net Pay = Disposable Income
– Amount of income remaining after mandatory deductions
(e.g., taxes, FICA) and withholding
• Discretionary Income
– Money left after paying household expenses
– Include savings for goals as an “expense”
Key Take-Away: Know these numbers before committing
to large expenses

14. 2. Pay Yourself First
• Treat savings as a household “expense”
• Give it the priority of a car loan payment
• Make savings automatic
– Employer retirement savings plans
– Mutual fund and DRIP stock automatic investment plans
– Checking to savings transfers
– Need more ideas? See http://www.americasaves.org/

15. 3. Start Saving Young
Source: TIAA-CREF; assumes an 8% average annual return
Time + Money = Magic!

16. The Two Sides of
Compound Interest
• When you invest,
compound interest is
your friend :-)
• When you pay
interest on credit
cards and loans,
compound interest is
your enemy :-(

17. Source: NEFE High School Financial Planning Program

18. 4. Compare Interest Rates
• Bankrate.com: http://www.bankrate.com/
• Consumer Action: http://www.consumer-action.org/
• Federal Reserve:
http://www.federalreserve.gov/creditcard/survey.html

19. Rule of Three
Credit Card Comparison
• See Personal Finance class assignment
http://rci.rutgers.edu/~boneill/assignments/creditc
ard.html
• Key Criteria:
– Annual fee
– Late fee
– Over-the-limit fee
– Method for computing balance
– Rewards for use
– APR

20. Key Credit Terms
• Finance Charge
– Total dollar amount you pay to use credit
– Includes interest costs and fees, such as service
charges or credit-related insurance premiums
• Annual Percentage Rate (APR)
– Percentage cost of credit on a yearly basis
– Key to comparing costs when shopping for rates
– “Apples to Apples” comparison required by law

21. 5. Don’t Borrow What
You Can’t Repay
Debt stinks! (http://www.itsahabit.com/musiccd.html)
– Ties up future income
– Prevents people from saving
– Costs money (interest and fees)
– Can lead to repossession, foreclosure, bankruptcy
– Causes physical symptoms of stress

22. What is the Worst Credit
Card Trap of All?
• Teaser rates?
• Default rates (penalty APRs)?
• Late fees?
• Over-the-limit fees?
• Minimum payments?

23. The High Cost of Making
Minimum Payments
Data were derived from the Credit Card Smarts calculator, Advantage Publications

24. Warning Signs of
Debt Problems
• Paying only the minimum balance each month
• Trouble even paying the minimum amount due
• Total balance increases every month
• Missing loan payments or paying late
• Getting second or third payment notices
• Borrowing money to pay old debts
• Exceeding the credit limits on credit cards
• Denied credit due to a bad credit report

25. Two Simple Student
Loan Guidelines
• Limit total student loan debt at graduation to < starting
salary for first post-college job
• Example: $35,000/yr income = $35,000 total student loan debt
• Estimate monthly student loan payments at approximately
1% of loan balance
– Example: $30,000 debt = Approx. $300/month payment
Resource: http://www.finaid.org/calculators/loanpayments.phtml

26. 6. Budget Your Money
• Spending Plan Worksheet:
http://njaes.rutgers.edu/money/pdfs/fs421worksheet.pdf
• College Student Spending Plan:
https://www.cicmoney101.org/Calculators/Budget-
Worksheets/Traditional-College-Student.aspx
• High School Student Spending Plan:
https://www.cicmoney101.org/Calculators/Budget-Worksheets/High-
School-Student.aspx
• Positive Cash Flow: Income > Expenses
– Increase income
– Reduce expenses
– Do both

27. Seven Step Spending Plan
(Budgeting) Process
1. Set financial goals and identify required savings
2. Estimate income from all sources
3. Budget an emergency fund and goal savings
4. Budget fixed expenses (include 1/12 occasional expenses)
5. Budget variable expenses
6. Record spending amounts
7. Review spending and saving patterns
 Review financial progress
 Revise goals and budget allocations

28. What are Your Spending
Leaks?

29. Needs vs. Wants
Item Need Want
Food Groceries Eating Out
Transportation Public Transportation Car, Gas, Insurance, etc.
Clothing The Basics Trendy Styles and Brands;
multiples of items (e.g., 50 shoes)

30. 7. Money Doubles By
“The Rule of 72”
• Calculates the number of years it takes for principal to
double
– Number of Years = 72 divided by interest rate
– Example: 72 ÷ 6% = 12 years
• Calculates the interest rate it takes for principal to double
– Interest rate = 72 divided by number of years
– Example: 72 ÷ 10 = 7.2%
http://www.moneychimp.com/features/rule72.htm (calculator)

31. The Rule of 72 in a Picture
Source: Garman/Forgue, PERSONAL FINANCE, Fifth Edition

32. 8. High Returns Equals
High RisksSource:
Garman/Forgue,
PERSONAL
FINANCE, Fifth
Edition

33. Investment Risk Factors

34. 9. Don’t Expect
Something For Nothing
If something sounds too good to be true, it
probably is”
• Phishing scams
• “Pump and dump” scams
• “Free lunch” seminars
• “Guaranteed” returns > other investments
• Exotic sounding deals
• Exclusive, limited-time offers

35. 10. Map Your
Financial Future
• Be a “future-minded” planner
• Set SMART Goals:
http://njaes.rutgers.edu/money/pdfs/goalsettingworksheet.pdf
– Short-Term: Under 3 years
– Medium-Term: 3 to 10 years
– Long-Term: 10 or more years
• Match savings/investments to goals
• “What you think about, you bring about”

36. Net Worth Statement
• A financial statement that reports what an
individual or family owns and owes as of a
specific date
• Also called:
–Balance sheet
–Statement of financial position
Items of Value
(what you own) -
Amounts owed
(what you owe)
Net Worth
(your wealth)
=

37. 11. Your Credit Past is
Your Credit Future
• People with low credit scores pay more to borrow
money (higher APRs)
– FICO score range: 300 (low) to 850 (high)
• Negative information stays on your credit report for
up to 7 years (Chapter 7 bankruptcy- 10 years)
• Credit scores are used in job hiring, car insurance
premiums, apartment rentals

38. Credit Scoring Factors
• Bill payment history, weighted to emphasize past 12
months (35%)
• Proportion of outstanding debt to available credit limits
(30%)
• Length of credit history (15%)
• Number of recent credit inquiries (10%)
• Mix of types of credit used (10%)

39. 12. Stay Insured
• Health insurance: “Age 26 law” (federal), NJ “Dependent
Under 31” law,
http://www.state.nj.us/dobi/division_consumers/du31.html
• Also, COBRA, ACA exchanges: https://www.healthcare.gov
• Life insurance (if a young adult has dependents or private
student loan co-signers)
• Disability insurance
• Renter’s and auto insurance with adequate liability limits
(at least $300,000)

40. Financial Education =
MONEY
• Motivating/Empowering
• Original/Creative
• Necessary
• Enjoyable/Fun
• Yeast-Like (it multiplies!)

41. Resource: Next Gen
Personal Finance (NGPF)

42. Resource: Take Charge Today
https://takechargetoday.arizona.edu/

43. Resource: NEFE HSFPP®
• Six student guide booklets
• Teacher lesson plans and PowerPoints
• Activities and handouts
• Online student practice quizzes and polls
• Performance-based assessments
http://www.hsfpp.org/

44. Resource: Council for
Economic Education
• Financial Fitness for Life:
http://fffl.councilforeconed.org/
• Learning, Earning, and Investing:
http://lei.councilforeconed.org/

45. Resource: Hard Core Financial
Education Boot Camp
• Archived professional development workshop for teachers
• Presentations on credit, insurance, and investing
• Teacher interviews
• Includes videos and PowerPoint slide handouts
http://njaes.rutgers.edu/money/bootcamp/

46. Resource: Rutgers Cooperative
Extension/NJ Department of Education
Financial Education Lesson Plans
• Risks and Benefits of Entrepreneurship (85k PDF)
• Compound Interest: Your Best Friend or Worst Enemy (106k PDF)
• Know the Score: Credit Score Modeling and Impacts (360k PDF)
• The Impact of Inflation (128k PDF)
• Monetary Transaction Tools (572k PDF)
http://njaes.rutgers.edu/money/

47. Call to Action
“This country simply can’t continue to have so
many of its citizens unable to manage their
finances, making serious money mistakes, and
waiting for chance-rather than choice-to
determine their financial future.”
http://www.councilforeconed.org/2013/04/12/the-cost-of-financial-illiteracy/
Barbara O’Neill, Rutgers University

48. Comments? Questions?
Experiences?