Financial Planning Factors –

The Nuts & Bolts Beyond Money Presentation for the Retirement Planning Club for Women

September 16, 2009Newton Free Library

Kip Child, Community Affairs Specialistkchild@fdic.gov; 781-794-5636New England Area Office of the Federal Deposit Insurance Corp (FDIC)

What Does The Federal Deposit Insurance Corporation (FDIC) Do?

Insures Deposits on Personal Accounts and IRAs up to … $250,000 until 12/31/13. Thereafter, $100,000. IRAs and certain other retirement accounts will remain at $250,000 indefinitely.

(insures about 8200 banks as of 3/31/09)

Examines Banks for Safety and Soundness (supervises about 5200 banks as of

12/2008) Examines Banks for compliance with consumer laws

including the CRA (Community Reinvestment Act) Facilitates community development partnerships with

financial institutions thru initiatives such as financial education & the Alliance for Economic Inclusion.

www.fdic.gov/edie

MoneySmartcurriculum developed in 2001

Over 750,000 copies distributed Over 2.4 million consumers trained Over 1,600 organizations are

members of the Money Smart Alliance

Two Versions for Adults - One for Adolescents

Self-Paced Tutorial

Instructor-Led

Instructor-Led

5 Ways Communities Benefit From Financially Capable Residents

Increased purchasing power and standard of living. Less dependency on government services Less victimization of residents, requiring less regulation and law enforcement services. More economically and socially integrated community Financially astute electorate

Source: Fed Res H.19 Stat. Release

Consumer Credit Outstanding

$0$100$200$300$400$500$600$700$800$900

$1,000$1,100$1,200$1,300$1,400$1,500$1,600$1,700

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

As of June 30

Bill

ion

s

Revolving

Non-revolving

$966

$917

$1608

$1586

+ another $21.6 billion decrease in July

Fed Res Stats: G19

Credit Cards “Let Me Count The Ways”

Cash cards Smart cards Stored value cards Secured Unsecured Gold Cards, Platinum

Cards, etc. Reward Cards Pre-Approved cards Affinity Cards

H

Item Price

APR Interest Paid

Total of Paymnts

Years to Pay Off

TV $500 18% $208 $708 4.8

Computer $1,000 18% $495 $1,495 7.1

Furniture $2,500 18% $1,355 $3,855 10.0

Pay More $2,500 18% $25 extra $3,233 4.0

Pay More $2,500 18% $50 extra $3,025 2.7 Minimum Payment = Greater of $10 or 4% of Balance

Cost of Making the Minimum Payment

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Changes Coming 7/01/2010 to “Unfair” Credit Card Practices Cannot use the two-cycle billing method to calculate interest Consumer must receive a reasonable amount of time to make payments (bills must be mailed 21 days in advance) Cannot apply monthly payments to unfairly maximize interest charges (pro-rata). Must pay high APRs first. Cannot increase the rate on an existing card balance w/o

45 days notice (does not include intro or teaser rates). Universal Default eliminated. Any penalty rate increase must be based solely on activity on the subject card. Prohibits over-the-limit fee unless consumer opts-in (allows creditor to put the transaction through).

36 Month Auto Loan

FICO® score APR [?] Monthly payment

720-850 6.059% $761

690-719 7.625% $779

660-689 8.608% $790

620-659 10.997% $818

590-619 14.306% $858

500-589 15.203% $869

Identifying Levels of Subprime

A B C D Predatory

FICO CreditScore

High 700’s <720-650 <670-550 550-400 Bad CreditLow IncomeMinority/ImmigrantElderly

Lates,Collections, Bankruptcy

0 1-3 2-4, CO, Collect

Multiple “Bad Credit OK”

“No verification”

Fees Known @ Appl

More, Higher

Borders on Excessive

AMAP “No Fees” “No Problem” “Free”

Rates Standard

Published

+1-5 points 5+ ? “It will only cost you $ per week”

APR Disclosed Disclosed Maybe

(subject to T&C)

Not Mentioned

Predatory LendingOccurs when companies offer loan products, using deceptive and exploitive: Marketing tactics. Collection practices. Loan terms.

Although a loan might be very expensive,

that does not mean it is predatory.

9. If you are approved for this RAL, the total Bank One fees, including the Bonu$ Direct Account processing fee, the Bank One RAL fee, which is a FINANCE CHARGE, and any other fees which you have authorized us to deduct will be deducted from your loan amount. You prepay all fees, including the FINANCE CHARGE. The chart below shows the FINANCE CHARGE, and calculates the corresponding ANNUAL PERCENTAGE RATE under the Truth-In-Lending Act, based upon an assumption of a 10 day repayment period. This chart does not include other fees you authorize Bank One to deduct from the amount of the RAL.

Loan Amount (Amount Financed): $615.00BONU$ Direct Account Fee: $16.00RAL Fee (Finance Charge): $28.95Estimated Repayment Period (Days): 10

Corresponding APR: 180.305%

WWW.ANNUALCREDITREPORT.COM877-322-8228

Effective for all New England states beginning September 1, 2005 Entitled to one report free each year, from each of the 3 major bureaus Use the above web site to order one credit report every 4 months from one of the major bureaus and you will have a rolling record of most of your credit activity (for example – Experian in January, TransUnion in May, Equifax in September) Effective way to monitor for Identity Theft

No Interest

5% Daily Compounding

Year 1 $1,825

Year 5 $ 9,125

Year 10 $ 18,250

Year 30 $ 54,750

$ 1,871

$ 10,366

$ 23,677

$ 127,077

PPay Yourself FirstSaving $5 a Day

H

National Rate of Saving

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Years

Savi

ng R

ate

5.2%

The Glue

Improving financial understanding gives people the knowledge, skills and the tools to make wise financial decisions, and acquire, build and retain assets

More important now than ever, because of Increased Complexity of products of Aggressive Marketing of products Your future will depend a lot on your level of financial knowledge

More Glue

Want to Protect Your savings and investments? Help others become more knowledgeable. EITC/VITA Program, here and 345 Walnut St Boys & Girls Clubs, Watertown St YMCA, 276 Church St Newton Senior Center, 345 Walnut St