8. .02 .08 .32 1.28 x Chessboard of Financial Life .04 .16 .64 .01
9. Chessboard of Financial Life 5.12 20.48 81.92 327.66 .02 .08 .32 1.28 x 2.56 163.84 40.96 10.24
10. 40.96 .02 .08 .32 1.28 x Chessboard of Financial Life 20,971.52 5,242.88 1,310.72 10.7M $ 85M 41,943.04 2.56 163.84 40.96 10.24
11.
12. Rule of 72 (72 ÷ Interest Rate = Yrs) Passbook Savings 3 % 24 Money Market 6 12 U.S. Treasury Bond 7 10 Stock Market 10 7 Potential Interest Years Investment Rate Double This exercise is for illustration purposes only. It does not take into consideration fees, taxes, commissions, etc. and does not represent any specific product or investment.
16. True or False? About 2 / 3 of millionaires work 45-55 hours a week False False False Most millionaires work fewer than 40 hours a week 2
17. True or False? Only 19% of millionaires received any income from a trust fund or estate False False False Most millionaires received financial help from their families - like inheriting a trust fund or estate 3
18. True or False? Wealth builders view such funds as having the same potential for saving as any other money. False False False 4 Gift money, tax refunds, earnings from winnings are found money.”
19. True or False? 28.6% of millionaires have American Express Gold Cards 43% have Sears cards. More millionaires have American Express Gold Cards than Sears Cards. False False False 5
20. True or False? Ford is preferred by 9.4% of millionaires Cadillac is preferred by 8.8% Only 23% of millionaires drive a new car False False False More millionaires drive Cadillacs than Fords 6
21. True or False? Most millionaires work in ordinary jobs including: welding contractors, owners of mobile-home parks & paving contractors False False False Most millionaires work in glamorous jobs, such as sports, entertainment, or high tech 7
22. True or False? Wealth builders always keep 2 to 3 credit cards to allow for a large line of credit for use in emergencies Many keep only one credit card for renting cars, guaranteeing hotel rooms, etc. Most pay off the monthly balance each month False False False 8
23. True or False? The chances of winning the lottery are 1 in 12 million and as high as 1 in 120 million. Many poor people become millionaires by winning the lottery False False False 9
24. True or False? In recent years, the average college graduate earned 66% more than the average high school graduate False False False College graduates earn about 33% more than high school graduates 10
25. True or False? Most millionaires are self employed and consider themselves to be entrepreneurs . Most others are professionals, such as doctors , lawyers and accountants False False False Most millionaires work for large, Fortune 500 Companies 11
26. True or False? Recent studies show that 80% of people who try to earn money as “day traders” lose money False False False People who play the stock market usually beat it and many of them become millionaires. 12
27. True or False? Nearly 95% of millionaires own stocks. Since 1926, stocks have increased 10% at a compounded annual rate of return. False False False If you want to be a millionaire, avoid the risky stock market. 13
28. True or False? Hypothetical example. This example does not take into consideration fees, taxes, commissions, etc. and does not represent any specific product or investment. The earlier you begin saving, the better . Regular saving may make you a millionaire even if your income is modest. True True True If you save $2,000 a year from age 22 to age 65 at 8% interest, your savings will be over $700,000 at age 65. 14
29. True or False? Questions 1-15: Belsky & Gilovich. Why Smart People Make Big Money Mistakes . Simon & Schuster, 1999. Lee & McKenzie. Getting Rich in America . HarperBusiness, 1999. Stanley & Danko. The Millionaire Next Door. Longstreet Press, 1996. Most millionaires are married and stay married. Divorce can be costly. False False False Most millionaires are single 15
35. Does This Make Cents? Why are we so quick to spend gift money we receive? “ Because I got it free . They gave me a gift and I turned it into a thing.” Our minds play a trick. Gift money doesn’t seem as valuable as money we worked for. But ask yourself, if you didn’t have to work for it, why isn’t it easier to save it? But remember . . . Gift money can grow as shown by the Rule of 72. ? ? ?
If we get in good financial shape we’ll get to be money smart. Today our workout will consist of: Some honest talk about money. Next is the good stuff. We’ll get things moving by playing three games: The Chessboard of Life Who Wants to Really Be a Millionaire Does This Make Cents? We’ll then “cool down” and review what we’ve learned. I’ll even provide a few resources to help you stay in shape. Now there is only one rule for you to follow: Have fun -- it’s the best way to learn!
So much to buy and so little money. Does that sound like you? Where does it all go? Maybe its time to take control. By now you are savvy enough to know that a commercial’s cool music or celebrity spokesperson is all geared to get you to BUY. Advertisers know all about you. They spend $2,190 per household. And it’s working if you feel pressure at school to wear what “everybody else” wears. Or have you stopped wearing a perfectly good shirt or shoes because the logo is last year’s hot brand? Look at these statistics. What does it say about us if we have more shopping malls than high schools? How many girls here today admit too that shopping is their favorite thing to do? But boys, you are not off the hook! You seem to care more about clothes and how you look each year. You are increasing your spending on clothes faster than girls!
When you come right down to it, we all save for a reason, to spend! Saving and spending are linked. The secret is having goals. Some goals are very short-term. A new DVD. A night out at the movies with your friends. Or you may have a more expensive purchase in mind - spending money for a a family vacation; or a new bike or digital camera. How many of you are beginning to think about saving for college? Sounds awfully complicated doesn’t it? It is a lot easier to just keep treating yourself to new clothes, movies and music CD’s and never thinking about it, isn’t it.
Well try this idea. Think of saving your money in 5 different envelopes. You label the envelope with your savings target Everyday stuff: You want to have fun. It is nice to have enough money to buy a CD, go to a movie, buy some clothes when you want to. Long-term purchases: You will never be able to buy the new snow board or camera you are dying to have if you don’t plan for it. Emergencies : Face it. We can’t plan for everything!What happens if you lose your jacket, or worse you borrowed a jacket from your best friend and lost it. Giving/Charity: How many of you already give gifts to a favorite charity? College: This is a major expense and may seem overwhelming. But saving in small amounts but over a long time adds up. (I’ll show you how this works in a bit.) After college, this can change to building a retirement fund. But that’s a long way off for you! Now, your new fitness program is to decide how much of your income goes into each envelope - allowance, odd-job money, a paycheck, gift checks from relatives. You must be strong and stick with your plan. If you do you can still have fun and save enough to buy a car!
Okay. It’s time to play our first game: The Chessboard of Financial Life. Are you ready?
Take a look at this chessboard. You see one penny in the upper left hand corner. At the end of row 3, you see an X. You’ll need to decide how you can make the most money. I’m going to give you two options. Take a moment and think about both. I am willing to offer you $10,000 in cold cash to be paid right now. (Show a bundle of play money.) OR You can wait and take the amount of money resulting from the penny in the upper left corner doubled on the next square, and the amount doubled on the next square, and so on until we reach the square with the ‘X’ on it. (Cajole the participants. Encourage them to make a choice right now. If few participants are willing to take your $10,000 offer, ask them to tell you what other, less savvy people might do.)
As we move down the first row, the penny from square 1 has only grown to $1.28. Not much of a gain, is it?! Is anyone willing to take the $10,000 in cash right now rather than wait until the ‘X’ square?
Let’s see…the penny from square 1 has only grown to $327.68 as we go down the second row. Still not much! Any takers for the $10,000 in cash rather than wait until the “X” square?
Now let’s watch how the original penny builds in value as we move down the third row. Wow! For those of you who stayed with the penny choice, you are the real winners. On square 23 you have $41,943.04 , more than 4 times the other option of $10,000. But look at the next row! $10.7 million on square 31!
What we have just experienced is: The magic of compound interest. And it isn’t a trick. While at first glance it doesn’t seem possible, The Chessboard of Life shows how a penny can turn into hundreds, thousands, then millions of dollars. Here is how: (Review rest of terms on the slide.)
How many of you know the Rule of 72? (If anyone raises their hands, ask them to define it.) It is a simple formula used to help determine the number of years it will take to double an original investment. Let’s take a look at how this works: (Refer to slide.)
Just imagine if you started saving a portion -- let’s say 25% -- of your allowance, babysitting money, etc. and what you could have by the time you are an adult? Saving early and often has many benefits. Three factors affect how much your savings will grow: (Refer to slide.)
Divide your group into two teams. There are a total of 15 questions. Remember, the team with the most points wins and will be declared “The Millionaires of Tomorrow.” (Be sure to discuss the correct answers after each question. As you read the answer, stress how each point is a tip on what it takes to become a millionaire.) (Keep a point total on the board or flipchart so that each group can see how it is performing relative to other groups. They will use this information to decide when to go “Millionaire.”)
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(Read slide and you may want to add:.) How many of you run out and spend money you get from relatives for your birthday or other occasions? Any of you save this “found money” instead? Why do you think we call it found money? ANSWER: Because you did not have to work for it.
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(Read slide.) Now let’s see who has the most points. Congratulations to (announce winning team). Give prizes. Prizes: Ideas include Mint bookmarks or Mint CD-ROMS. You can give candy bars but keep in mind some children may not be able to eat them.
Besides having a little fun with this game, we’ve also learned the rules for improving your financial life. (Read rules.)
Our last exercise requires each team to do a little detective work. It’s called Does This Make Cents? We have three financial mysteries that need your help in solving. I’m going to first provide you with a question -- or mystery. You will then have two minutes to come up with an answer -- or solution.
Many professional athletes never finish college. Some go directly into professional sports right after high school. Yet many pros are paid millions of dollars. (Read question. Ask for a solution. Then click through the answer. Emphasize the last point.)
Interest rates change. Yet interest rates on credit card balances remain high relative to other rates, often averaging around 17 percent. (Read question. Ask for solution. Click through correct answer.) Credit cards are convenient for consumers. They are very easy to get. They are also easy to use. Credit card risks are high. Levels of credit card theft and fraud are high. Credit cards are often used to purchase things that are consumed or easily hidden, not to purchase cars or houses that can easily be repossessed. Credit card companies need to be profitable to remain in business; therefore, they charge higher interest rates as compensation for taking these risks. The higher interest rates act as incentives that encourage providers to continue to offer credit card loans. If the government imposed limits on the amount of interest credit card companies could charge, the companies would make it more difficult for individuals to get credit. Such as action would cause a credit shortage. It is important, though, for individuals using credit cards to know the cost of borrowing. In 2002, people aged 18-24 were carrying an average of $849. Do you know how long it could take to pay that off?
Read the slide. Ask your audience to guess how many months it will take to pay off the debt before giving the answer. Ask how many were surprised.
(Read slide.) And emphasize: However, if you do receive money as a gift…remember the Rule of 72 and save part of it. Think about it. Instead of spending that $30 check from your aunt or uncle on two music CD’s what would you have if you saved it for 10 years? Something to think about isn’t it?
Now let’s review the major themes discussed today. (Refer to slide.) Compounding allows your money to grow quickly over time. Most millionaires accumulated their wealth by practicing good money management habits. When there is high demand for a good or service, yet limited supply, the cost of that good or service will be higher. We tend to make better decisions when we consider the value of money all by itself, no matter where it came from or how we got it.
Was that a workout? How many of you feel a little bit more financially fit? Since it takes more than one workout to get into shape, I’ve got a great resource for you to use. The Mint.org is a Web site that is fund to explore and includes various activities similar to what we completed today. And you can go at your own speed and visit whenever you want.
Do you have what it takes to start your own business? Do you know how banks work? What about those savings bonds you have gotten as gifts? Do you understand how those work? [ask the audience] What are starting salaries for occupations? Do you know how to keep a money diary or a checkbook register? You will find these and answers to a lot more at themint.org. It is divided into 5 main sections based on things you can do with money: Earn It. Save It. Spend It. Track It and Invest It. It even has a section for your parents if you think they need to learn more about giving you an allowance.
These are all the things you can learn on themint.org Read slide But it can be fun: The Mint Calculator can help you calculate how long it will take you to save up for a big purchase, so you know set you saving target. If you have never made up a budget, Where Your Paycheck Goes will give you a good start. Pretend you are about to move into your first apartment and see if you can live on your paycheck. Try the Spending Challenge. Here you get to try out having a credit card without getting a real bill if you don’t do so well. Try it with a friend and see if you agree on what to do next. Well, thanks to everyone for your interest and participation. You all did a terrific job…keep up the great work! Be sure to take economics in school and work on managing your money starting today. Who knows? Some of you may become millionaires some day.
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