MAKE A PLAN FOR YOUR DREAM CAR

Q&A WITH FINANCIAL

EXPERTS

A HIGH SCHOOLER SHARES HER STORY

ABOUT INVESTING

presented by

A supplement to

2

YEAR MEDIAN HOUSEHOLD INCOME

PERCENT INCREASE OF INCOME

MSRP AMERICAN SPORTS CAR*

PERCENT INCREASE OF CAR PRICE

PRICE AS PERCENT OF INCOME

2017 $55,775 (2015 data) 12% $25,185 31% 45%

2007 $49,614 36% $19,250 25% 39%

1997 $36,477 48% $15,355 91% 42%

1987 $24,635 50% $8,040 118% 33%

1977 $12,224 99% $3,678 43% 30%

1967 $6,155 N/A $2,567 N/A 42%

Source: Department of Numbers, U.S. Household Income*Based on the best-selling sports cars in the U.S. in 2016. Source: Statista Consumer Market Outlook

TABLE 1

DEAR READERS,Have you ever seen any of these advertising banners?

Buy Now! Limited Time Only! Lowest Prices of the Season! Everything Must Go! Huge Discounts!

Advertising banners such as these urge us to spend our money NOW! They appeal to our emotions. They tell us that there is no time like the present to buy the latest technology, cars, or clothing. The message seems to be if you wait, you might miss out on a tremendous buying opportunity.

Almost every day we are faced with decisions about how and when to use our money. We must decide what we want versus what we need. We must decide between spending and saving. The challenge to make wise financial choices at times seems overwhelming.

But it doesn’t have to be.

This issue of Money Confident Kids® high school magazine provides you with a unique opportunity to learn and practice making smart spending decisions, setting financial goals, and saving and investing that will help guide your financial decisions now and in the future.

AN AMERICAN SPORTS CAR—A HISTORICAL INFLATION TIMELINEOver time, money generally loses value due to inflation and household incomes tend to rise. However, there are times when incomes do not rise as quickly as inflation. Note: The rate of inflation is not consistent.

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TABLE 3

NEW FOREIGN SPORTS CAR 2017 MODEL

USED FOREIGN SPORTS CAR 2010 MODEL

PRICE $19,000 $9,000

DOWN PAYMENT $2,000 $2,000

LOAN AMOUNT 48 mos./4% $17,000 $7,000

MONTHLY PAYMENT $384 $158

TOTAL COST OF CAR (after paying off loan)

$20,432 $9,584

*Based on a $7,000, 48-month loan; interest rate of 4%

TABLE 2

SAMPLE MONTHLY

CAR BUDGET

TOTAL: $385 $158*

$100

$42

$20$15

CAR LOAN PAYMENT

GAS

INSURANCE

REGISTRATION/INSPECTION FEES

MAINTENANCE COSTS

WANT A CAR?MAKE A PLAN...For many teens, the idea of getting a driver’s license and buying a car is an exciting dream. In a 2016 study, Autotrader and Kelley Blue Book found that 92% of Americans under the age of 18 want to own their own car. The study also found that 72% of those young people said they would give up social media for one year to have a car!1 And they are not alone. In 2015, about 17.5 million new cars and trucks were sold in the United States.2

While buying a car may at first seem simple, the high cost of car ownership is often surprising. Making short-term and medium-term savings goals is a helpful first step to car ownership. If your financial goal is to purchase a car within the next few years, make a plan now for how much you will need and how long you will have to save, and then start saving!

A savings account may be the best place for your money until you are ready to make a purchase. Also, ask yourself these questions:

l Why do I want to buy a car? Is it a “want,” a “need,” or a combination of both?

l Which is a better choice, a new car or a used car? Consider insurance costs, car safety reports, car fuel efficiency, and how long you can expect to use the car before it requires major repairs. (A car that

gets 20 miles per gallon [mpg] may cost about $125 more per year than a car that gets 25 mpg. Based on 5,000 miles per year; $2.50/gallon fuel cost.) Check out Table 3 for a sample price comparison of purchasing a new car versus a used car.

l How will I pay for the car and the yearly costs for things such as insurance, inspections, and maintenance? Making a budget may be a helpful way to plan for these expenses.

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1 Fox Business, 92% of Teens Want to Own a Car2 The Wall Street Journal, U.S. Car Sales Set Record in 2015

4

$35,000

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

$01 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

YEAR

Savings are based on an annual interest rate of 2%, compounded daily. Interest rates can vary over time.

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TABLE 4

SAVER 1

SAVER 2

SAVING FOR YOUR LONG-TERM GOAL: Q&A WITH A FINANCIAL EXPERTHigh school students get serious about financial planning for their futures with questions for our financial expert. See below for some practical tips for saving and investing to meet your long-term financial goals.

Q I don’t really understand why I should think about saving and investing for

the future when I’m only in high school. I have a part-time job, but I don’t make a lot of money. Can’t I just wait until I have a full-time job to start saving and investing?

A The sooner you start saving, the better off you’ll be. You’ll be in a much better

position to reach big goals (such as a car), and you’ll start developing good financial habits. When you’re working full time, you’ll also have more bills, so it may even be easier to save now.

Q What are the biggest mistakes high school students make in managing

their money?

A Too many students already have credit-card debt. That’s a bad habit to develop

early in life. A debit card is a convenient alternative payment method that won’t let you build up debt or interest charges.

Q How much money do I need to begin investing in things such as stocks and

bonds?

A It depends. If your employer has a retirement plan such as a 401(k), you

may be able to start investing in it right away. $1,000 is a common minimum investment level for a Roth IRA, which could be a good way to start as a student. A Roth IRA is a type of retirement account where you pay taxes on money going into your account and then all future withdrawals are tax-free.

Q My grandparents are going to give me $3,000 when I graduate from

high school. I plan to go to college and would like to buy a better car to drive to college. Should I spend the money on the car, spend it on stuff for college, or put it into a savings account?

A First, you need to understand how your family will pay for college—have a talk

with your parents if you haven’t already. Then think about needs versus wants—it sounds like you have a functional car already. It’s your decision, but in the future you’ll probably be happier if you save a good chunk of this gift money.

Q Why is investing for long-term goals better than just putting money into my

savings account? I don’t want to lose all my money on bad investments.

A Your savings account is a great way to fund your short-term goals—you

don’t want to lose that money. Long-term investments such as stocks (or funds that own stocks) have tended to grow much faster. If you don’t need to use the money for a while, you may consider long-term investments, assuming you can tolerate the higher risks. These investments can help you ride out the ups and downs of the stock market over a longer period.

COMPOUND INTEREST EXAMPLE: MAKING YOUR MONEY “WORK” FOR YOUWith compound interest, each time your account accrues interest it becomes a part of the principal. And then the greater principal accrues even more interest in the next cycle. The percent of interest and the amount of time your money is accruing interest are the two greatest factors in determining how much your money will grow.

Note: Interest rates vary over time. In 2017, savings account interest rates on average are below 1%.

Table 4 compares two savers of the same age. Each saver began with $100 and saved an additional $100 each month. Saver 1 saved for 20 years. Saver 2 waited 10 years before beginning a savings account and saved for 10 years. Because of the effect of compounding interest over time, Saver 1’s account has grown in value to $29,683—more than twice the $13,417 saved by Saver 2.

5

Excellent Good Fair Poor Bad

750+ 700–749 650–699 600–649 below 600

Credit cards offer a convenient way to make purchases when cash is not readily available. But are credit cards right for you, and how can credit cards affect your financial goals?

RICH PEOPLE GONE

BROKE

WHAT IS A CREDIT SCORE?THE COST OF BORROWING

A credit card is a type of loan. It allows cardholders to borrow money in order to make purchases or receive cash advances with the promise of repayment. Make no mistake: Credit cards are different from debit cards. Credit cards allow cardholders to borrow money, while debit cards can be a safe and convenient way to access money that you already have in a savings or checking account.

Credit cards typically carry interest rates on unpaid balances that are significantly higher than other types of consumer loans. Generally, credit-card issuers will not charge interest if the balance is paid in full each month. This

is called the grace period. However, if the balance is not paid in full, compound interest will be calculated and charged from the original date of the purchase. In other words, the longer you take to pay off your credit-card bill, the more it will cost you.

Many people don’t realize the implications of compound interest on an unpaid balance after the grace period. Just as money can grow quickly in a savings account that offers compound interest, credit-card debt also grows quickly until the balance is paid in full. For example, if you have a credit card with a balance of $500 and pay $25 each month, it will take you two years to pay off the entire balance. Altogether you will have

paid approximately $600! That’s $100 in interest charges alone (based on an interest rate of 18%). This high-interest debt can lead to significant financial struggles. In fact, American households that carry debt have credit-card balances that average about $16,000. Based on the interest rate average of 18.76%, it would take more than 13 years to pay off this debt by paying $275 a month if no new purchases were added to the credit card during that time. And the consequence for not making credit-card payments on time can lead to even higher interest rates!

The good news is that many people use credit cards responsibly. About 62% of Americans carry no credit-card debt at all!

Learning to budget your money and make wise saving and spending decisions are valuable money-management habits to develop while you are in high school. As you get older and take on more financial responsibilities, using credit cards wisely can actually help you reach your financial goals

by increasing your credit score. A credit score is a three-digit number calculated from information in a consumer’s credit report (a history of a consumer’s responsible use of credit). It’s designed to predict your ability to pay debts that you may incur from things such as car loans or paying rent on an apartment. The most frequently used credit score is called a FICO score. Scores can range from 300 to 850.

Credit scores can affect your qualification for loans, the interest rate you pay for loans, how much you pay for insurance, or even whether you can get a job that you want!

Samuel Clemens (aka Mark Twain)

As a famous writer and lecturer, Samuel Clemens was quite wealthy. He had a strong

desire to invest his money in projects and products, such as the Paige Compositor (a mechanical typesetting machine) that he hoped would increase his wealth. However, many of these investments failed. Clemens became deep in debt. He declared personal bankruptcy in 1894, which freed him from paying his creditors. However, after declaring bankruptcy, Clemens overcame his financial troubles and paid back his creditors in full, even though he had no legal obligation to do so.

Terrell Owens

NFL record holder Terrell Owens earned an estimated $70 million throughout his

football career as a wide receiver. By 2012, he had blown through most of his fortune. He was forced to sell several of his high-priced homes for less than market value.

Evelyn Marie Adams

Evelyn Marie Adams considered herself very lucky when she won the lottery

twice, totaling $5.3 million! But she ended up losing a large chunk of her fortune in Atlantic City casinos. In 2012, the New York Post reportedly found her living in a trailer park. She told the newspaper, “I’m broke now... I work two jobs. My advice to anyone [who wins] would be to go to your lawyer and accountant first.”Ph

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HOW LONG WILL IT TAKE TO DOUBLE YOUR MONEY? The Rule of 72 is a quick way to calculate how long an investment will take to double in value, given a fixed annual rate of interest. To find the estimated number of years it will take for an initial investment to double, simply divide 72 by the annual rate of return.

EXAMPLE:Fixed interest rate of 8%

So if your initial investment was $300, after 9 years its value would have increased to approximately $600!

Note: Although the Rule of 72 gives a quick rough estimate for the time to double your money, it gets less precise as rates of return become higher.

UNDERSTANDING HOW MY MONEY CAN GROW

Rachel shares her story of how she began investing in her future when she was only 12 years old.

For my 12th birthday, my grandparents gave me a share of stock in my favorite clothing company. At first I didn’t completely understand what they gave me. I would have much rather gotten the clothes instead. But then they explained that I actually owned a small piece of the company. And even better was the idea that if the company made money, my share of stock would increase in value. That was the beginning of my interest in investing.

What I didn’t know was that my parents were upset with my grandparents for introducing me to investing by having me invest in only one stock. And over the next few years, they decided to help me invest in a wide variety of stocks: some in gaming companies, some in toy companies, and some in food companies. They also helped me invest in something called a mutual fund. I learned that a mutual fund is a collection of stocks and bonds managed by a professional money manager. Over time, I learned that buying stocks in different companies was called diversification. And I learned that diversification was a good thing.

While it was great to see the value of my shares of stocks grow, I also learned that the value of stocks can fall—big time! Unfortunately, my favorite clothing company “fell out of style.” And as a result, the value of my stock quickly fell too. It made a lot of sense why my parents advised me to “diversify my assets,” as they say. Even though the value of my stock in the clothing company fell, my other investments continued to rise.

As time went on, I spent more time learning about how my financial investments worked. I began to set goals to buy my own car and to invest money that I may use some day to travel or even buy a house if I want to.

My uncle suggested an investment strategy called asset allocation; spreading out money into different types of investments. I knew that I could make a lot of money quickly with stocks, but I also learned that I could lose a lot of money as well. So I was introduced to bonds. A bond is an investment with less risk in which an investor loans money to a group such as the federal or local government or even a corporation for a variety of projects and activities. That group borrows the money for a set period of time and then pays back the money to the investor with interest. The chance of losing money in bonds is much less than in stocks. The interest gained through bonds is generally much less than what can be earned through stock investments.

Of course I also keep some of my money in our local bank. I still have the savings account that my mom opened for me when I was in first grade. Recently I bought a new laptop using money from my savings.

I still have a lot to learn about investing, but I feel like I have a great start. And while I no longer own the first stock that my grandparents bought for me, I will always value the lessons I’ve learned about investments that all began with that first wonderful gift.

72 /8 = 9 years

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*Salary data: May 2016 National Occupational Employment and Wage Estimates from the United States Bureau of Labor Statistics.**A master’s degree typically requires the completion of a bachelor’s degree as a prerequisite.Note: Costs for a traditional college education are currently increasing at a rate significantly greater than inflation.†Cost of education is for tuition only and does not include other costs such as books, dorm, or cost of living, etc.

TABLE 6 Earnings and unemployment rates by educational attainment, 2016

Note: Data are for persons age 25 and over. Earnings are for full-time wage and salary workers. Source: U.S. Bureau of Labor Statistics, Current Population Survey

JOB AVERAGE ANNUAL SALARY* REQUIRED EDUCATION AVERAGE COST

OF EDUCATION†

Security Guard $29,730 None 0

Electrician $56,650 Trade school $33,000

Firefighter $50,520 Associate’s degree $45,000

Film/Video Editor $82,190 Certificate or associate’s degree $45,000

Electrical Engineer $98,620 Bachelor’s degree $100,000

Airline Pilot $152,770 Bachelor’s degree $100,000

Computer Programmer $85,180 Bachelor’s degree $100,000

Financial Analyst $103,050 Master’s degree** $30,000–$120,000

Dentist $178,670 Doctoral degree $54,000–$113,000

TABLE 5

Unemployment rate (%)

All workers: 4%

1.6

1.6

2.7

2.4

3.6

4.4

5.2

7.4

Doctoral degree

Professional degree

Bachelor’s degree

Master’s degree

Associate’s degree

Some college, no degree

High school diploma

Less than a high school diploma

Median usual weekly earnings ($)

All workers: $885

1,664

1,745

1,156

1,380

819

756

692

504

THE CONNECTION BETWEEN HIGHER EDUCATION AND SALARIESAccording to a U.S. Bureau of Labor Statistics survey, there is a direct correlation between median weekly earnings and the level of education of adults age 25 and over. While there are always exceptions, a typical person with a doctoral or professional degree earns more than three times as much as someone without a high school diploma. In addition, as Table 6 shows, the unemployment rate for people with advanced degrees is significantly less than for people without degrees. Carefully researching, evaluating, and deciding upon your educational path is an important part of planning for your financial future.

WHAT YOU WANT TO BE (AND HOW TO GET THERE)As you near your high school graduation, you will be faced with many options…college, trade school, military service, or joining the workforce. Whatever path you pursue, you should evaluate the cost of attaining your goals compared to the financial rewards of your ultimate career.

There are many financial considerations that must be taken into account when making higher education and career decisions. One of the considerations is comparing the cost of the required education with the lifelong earning potential of your chosen career. Table 5 compares the salaries of jobs that require differing educational backgrounds with the educational costs associated with each. Setting financial goals for higher education, as well as setting long-term goals for your future, can be an important part of choosing the career that is right for you.

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PROFILE #1 PROFILE #2l You are willing to spend money to have a

good time.

l You have fun when you’re shopping.

l You know saving is important, but you will do it later in life.

l You don’t spend money very often.

l You like to save as much money as possible.

l You enjoy seeing your savings account grow.

PROFILE #3 PROFILE #4l You save some of your money, and you

spend some of your money.

l Most of your saved money is in a savings account.

l You own some shares of stock or would like to own some shares of stock in different types of companies.

l You would rather have shares of stock in one company than a lot of money in a savings account.

l You would rather invest your money than spend it. (You might spend a little.)

l You would sell other stocks in order to buy a lot of stock in a technology company if you thought that company was going to make a lot of money quickly.

Most people love to buy the latest technology, clothes, and wonderful gadgets—such as a 3D Holographic Facetime device! But not everyone is a big spender. Some people are savers and investors. Take this short quiz to discover your Money Personality. Read each of the profiles below. Choose the profile that best describes you. Then discover your Money Personality and get expert advice by reading more about your profile type at the end of the quiz.

PROFILE #1

THE SPENDERIt may be time to create a greater balance between spending and saving. Set a goal of something you really would like to buy later, such as a laptop or new cell phone. Then start small—put a few dollars into a savings account each week until you reach your goal.

PROFILE #2

THE SAVERYou’re off to a good start, but you may want to think more about long-term goals. It may be time to diversify your assets by buying stocks that may grow faster than the rate of inflation.

PROFILE #3

THE PLANNERYou are on track to become a savvy investor. Remember to allocate your assets among the three major asset categories: stocks, bonds, and cash. And always research the possible risks and rewards of each type of investment.

PROFILE #4

THE DAREDEVILYou may want to reassess your love of placing all of your financial resources into a single stock. Stocks always carry risk, and while you may make a lot of money, you also could lose everything. It may be time to diversify your stocks and consider allocating some of your resources to less risky investments, such as bonds.

WHAT EXPERTS HAVE TO SAY ABOUT YOUR MONEY PERSONALITY

WHAT IS YOUR MONEY PERSONALITY?

PERSONALITY QUIZ

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