FINANCIAL LITERACY FOR THE ELEMENTARY CLASSROOM

In Class Day Two.

Sponsored by:Maryland Council on Economic Education and Towson University College of Business and Economics.

Online Material for Standards Three and Five:Three: Money Management and Spending Plans, Products at Financial Institutions, Developing Financial Goals.Five: Savings Goals, Saving vs. Investing, Achieving Financial Goals.

Questions?

Standard FourManage Credit and Debt

Morning Session

Why Do We Borrow?

Why do people borrow? Insufficient income or savings to cover current

expenses. To make an investment in an large asset (home,

car, business)

What are common things that we borrow for? Homes, home repairs Automobiles Education Vacations Clothes, computers,

Where Can You Get Credit?

Who can you borrow / get credit from? Friends/relatives – borrow directly from or

use as a cosign (avoid whenever possible) Credit union / bank – credit cards, home

equity loans, car loans. store credit card – generally financed

through a bank and use at store only. VISA / MC – financed through a bank (often

not local)

Credit Products and Services Loans from family / store / bank / credit union

often comes with requirements for repayment (loan contract or “note”) These may include:

Interest: Payment in excess of loan amount. Why? Time value of money. How it matters (next slide).

Fees Common for processing paperwork or payments. Flat or variable rates that depend upon loan size.

Sidenote: Who pays interest? Account types that commonly pay interest:

Money market Savings (very small) Certificates of Deposit (CDs) Interest bearing checking accounts

Account types that do NOT commonly pay interest: Mortgage Insurance Basic checking accounts

How does APR / payment matter

Balance APR Minimum monthly payment

Total interest

Time to pay

$4,500 12% 2% $4,196 24y 1mo

$4,500 12% 4% $1,455 10y 4mo

$4,500 18% 2% $12, 431 44y 4mo

$4,500 18% 4% $2,615 12y 2mo

Interest rate matters but so does minimum payment in the total interest paid.Even with slightly higher mandated (2009 law) minimum payments, still takes long time period to pay off debt.

The Credit Card

2009 Credit Card Accountability, Responsibility, and Disclosures Act passed because of past abuses by credit card companies (snowballing finance charges, large penalties and fees).

Credit vs. debit – how different? Stored value cards (these are NOT credit

cards even though have VISA logo). Credit cards considered LOW priority

debt.

Can You Get Credit

Credit is like a good friend. What characteristics do you look for in a good friend?

Creditors do the same thing when considering whether to loan money out. Creditworthiness is generally determined by three things: Character – past behavior as well as education

and training that will sustain income. Capacity – do you have enough excess cash. Capital (collateral) – assets to support the loan.

The boy who cried wolf

Manage Risks and Preserve Wealth

Standard Six

The good, the bad and the ugly.

Insurance – why do you need it? Property – theft, fire, burglary or natural

calamity. Life – demise of policy holder. Auto – accident of a vehicle. Health – injury or ailment. Others (travel, credit, third party,

amusement).

Why? Risk. Generally insure things that are expensive to lose.

Advertising Effects

To convey information to consumers about products or otherwise encourage interest in, or purchase of, a product.

However, some can be purposely misleading (false advertising is a type of fraud).

There are three main types of advertising and many techniques…

Three Types of Advertising

1. Standard (offline) Advertising: made of printing (imprinted resources like flyers, cards, plus direct advertising through postal mail), radio stations and television as well as interactive and personalized advertising by providing products plus samples.

2. Referral Advertising: This is probably the most effective powerful tool – using word of mouth.

3. Internet Advertising: This is actually the newest, and may end up being the most powerful. Includes online marketing, marketing with articles, online community, writing a blog.

Advertising Techniques

Emotional appeal Promotional Advertising (samples) Bandwagon Advertising Facts and Statistics Unfinished Ads Weasel Words Endorsements

Advertising Techniques (more) Complementing the Customer Ideal Family and Ideal Kids Patriotic Advertisements Questioning the Customers Bribe Surrogate Advertising

The Informed Consumer

Advertisers are smart so you want to be an informed consumer - aware of what is inside the product, ask questions and have knowledge about the risks and benefits of the product. Be aware of hidden costs (S&H, taxes, set up

fees, …) “If it sounds too good to be true, it probably is.”

How can you be an informed consumer? What do you need to do?

To be an informed consumer:1. Know who you are dealing with. 2. Protect your personal information. 3. Take your time. Resist any urge to “act now” 4. Read the small print. Get all promises in writing 5. Never pay for a “free” gift. 6. Know the risks

Fraud and Identity Theft

Fraud is a plan to cheat people or get their money dishonestly (forgery, bait and switch, counterfeiting, ponzi schemes, false advertising, false insurance claims, identity theft,…)

Identity theft is a type of fraud that involves using personal information on someone to take advantage of them.

When someone else uses any personal identifying information to commit fraud you have been a victim of identity theft.

Whose information are they stealing and how do they get my information?

Identity Theft Complaints By Age

18 -29

30 - 3940 - 49

50 - 59

60+

Under 18: 3%

28%

25% 21%

13%

10%

Source:Federal Trade Commission

Fraudulent e-mail 1.7% Computer virus/Hacker 2.2%

Taken from Trash 2.6%Computer spyware 5.2%

8.0%

Stolen mail/ Fraudulent address change

8.7% Corrupt employee

11.4%

Friends/relatives

12.9%

Accessed during transaction

28.8%

Lost/Stolen Wallet, Checkbook, Credit Card

Ways Identity Is Stolen

Source: USA Today, January 27, 2005

So, who is stealing your

identity?

32%

Family Member or Relative

24%Complete Stranger Outside the Workplace

18%Friend, Neighbor or In-Home Employee

13%

Someone at a Company

with Access to Your Info

8%

Someone Else4%

Someone at Your Workplace

Source: 2004 Javelin Strategy & Research

Who Misused Your Personal Information?

What Are They Doing With Your Information?

open credit accounts get a driver’s license apply for insurance benefits in your

name get cash advances from your accounts possibly commit another crime in your

name

What can I do?

Secure yourself: protect your personal information (contact information, age, ss number, account numbers.) Put outgoing mail in an actual postal mailbox. If you have to use your

mailbox, NEVER put the flag up. Shred any mail that has account numbers, social security numbers or

“preapproved” credit offers. Be careful with your Social Security number – don’t carry card in your wallet. Write down your account numbers and keep the list in a safe place you can

access it if you need it. Make sure your payment tools such as credit cards, debit cards, checks and

account information are secure. Secure your computer – anti virus and anti spyware software updated NEVER respond to emails asking for sensitive information or click on links in

these emails. Don’t save your password on your computer.

How to Detect Identity Theft

1. Check your credit card and bank account balances electronically and often.

2. Check your credit reports.3. Review your paper statements.4. Know your billing and statement

cycles.5. Watch out for unexpected phone calls.