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Introduction to Maroon Money Management. Preparing Future Faculty March 21, 2014. How to Graduate Successfully and Prosper Financially. Contact. Rebecca Smith, Ph.D. Director, Extension Center for Economic Education and Financial Literacy [email protected]. - PowerPoint PPT Presentation
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Introduction to Maroon Money Management
How to Graduate Successfully and Prosper Financially
Preparing Future Faculty March 21, 2014
ContactRebecca Smith, Ph.D.
Director, Extension Center for Economic Education and
Financial [email protected]
3
Extension Center for Economic
Education and Financial Literacy
Agenda
• The Case for Financial Literacy• Resources• Introduction to Maroon Money Management• Evaluation
Connect With Us
[email protected] Please follow MMM Twitter account: @MSStateMoney#CreditForCredit– What did you like most about this workshop?– What topic would you like to learn more about?
Why Do We Want to Improve Our Financial Standing?
Getting Good Judgment
Good judgment comes from experience, and experience well, that comes from poor judgment. Confederate Army General Simon Bolivar Buckner
Resources
http://www.cashcourse.org/prep
Cash Course
http://www.360financialliteracy.org/
http://www.youtube.com/watch?v=rK6WLHNYjwM
Is mint.com safe?
Pros The site is protected with the
same level of security as your financial institutions
No personal identifying information connected to your account other than your email address
You may not transfer money to or from your accounts through mint.com
Consᵪ You must give them your bank
account login ID and password
ᵪ Anytime you enter or access personal information on-line there is a risk
“Should You Trust Mint.com?” by Jennifer Saranow Schultz, The New York Times
www.annualcreditreport.com
• Free once per year and after denial of credit– 877-322-8228
Government Credit Educationhttp://www.consumer.ftc.gov/articles/0155-free-credit-reports
http://www.consumerfinance.gov/askcfpb/search?selected_facets=category_exact:credit-reporting
Introduction to Maroon Money Management
How to Graduate Successfully and Prosper Financially
http://www.youtube.com/watch?v=EM_p1Az05Jo
The Power of Higher Education
For Most, College is a Good Investment!
Benefits• Higher job satisfaction• Healthier lifestyles• Contribute more to society • More prosperous children• Higher pay• Lower unemployment
Costs• Public funding is declining• Cost of higher education is
increasing• More students and parents
are taking out loans• Delinquency rates are rising
Financial Return on Higher Education
Rising Student Debt Loads
Student Debt Loan Load is Rising
Source: http://www.newyorkfed.org/studentloandebt/
Introduction to Maroon Money Management
How to Graduate Successfully and Prosper Financially
Objective of MMMWhat?• A campus-wide initiative to increase personal finance literacy
and practices of MSU studentsWhy?• To empower participants to add more value to their lives, so
that they can achieve their dreams and live their lives more fully
How?• Provide new perspectives, knowledge, experiences, and
resources• http://www.moneymanagement.msstate.edu/
MMM Opportunities
• Participate in MMM programming• Programming for your organizations• MMM Peer Mentors
MMM Session Topic F2F Monday 12:30 Student Support Services
Montgomery Hall
Webinar Wed. 3:30 p.m.http://msues.adobeconnect.com/beckys/
Know Thyself & Your Success Feb. 3 Feb. 5
To Buy or Not to Buy? Decision-Making & Cutting Expenses
Feb. 17 Feb. 19
Saving & Budgeting Feb. 24 Feb. 26
Student Loans Mar. 3 Mar. 5
Credit Cards Mar. 17 Mar. 19
Taxes Mar. 31 April 2
Making Your Major Profitable April 14 April 16
Investing and Protecting April 28 April 30
Register at [email protected]
Worth Your TimeTreasurer Lynn Fitch Roundtable• Wed., March 26 at 2:00pm in 310 Lloyd Ricks Watson
April 8 Open House 11:00am-2:00 pm • Dawg House “Life After College”
Mississippi Saves• www.mississippisaves.org
MS Savers Club• Meets every 4th Wednesday at noon in Bost 409• Bring your lunch!
Graduate Healthy and Wealthy
Success, Anxiety, and Failure You be the One to Define Your Success
• Alain de Botton - – Job snobbery – judging the worth of people based on what they do
• Begins from idea that we can be anything• Envy from perceived equality; spirit of equality with existence of deep inequality• “We can be anything” and “anything is possible” leads to low self-esteem
– Meritocracy – position achieved in life is merited and deserved• “Unfortunates” (victim of fate) vs. “Losers” (self-caused outcome)• It is wrong to judge anyone by their position in life
– Fear failure because we fear the judgment and ridicule of others• Tragedy (learning) vs. Failure (ridicule)
– Self-worship – there is nothing greater than us to believe in
– Success and failure• Idea of success = money, renown in field• Can’t be successful (excellent) at everything
– To be successful (excellent) in one facet, means can’t be successful in other facets
– Have your OWN IDEA of SUCCESS – you get to define it because you are the one that must live with it; make it your own
http://www.youtube.com/watch?v=-dMoK48QGL8
Hiring Managers’ Assessment of Recent Grad Candidates Vs. Students’ Self-Assessment
(% Responding Very Prepared or Completely Prepared)
Creating budget or financial goal
Managing a meeting
Making a decision without having all the facts
Public speaking (e.g. giving a presentation)
Managing a project by identifying key steps, resources & timelines
Incorporating information to develop strategic insights
Writing to communicate ideas or explain information clearly
Prioritizing work
Writing to summarize results, convey information, etc.
Organization
Developing slide presentations in concise, compelling way
0% 10% 20% 30% 40% 50% 60% 70% 80%
52%
49%
47%
54%
67%
63%
71%
77%
70%
79%
75%
30%
34%
37%
43%
46%
46%
49%
50%
51%
54%
60%
Hiring Managers Students
Bridge That Gap: Analyzing the Student Skills Index; www.chegg.com/pulse
27% difference
25% difference
22% difference
22% difference
Relieving Stress• Time management
strategies and division (reduction) of responsibilities have been shown to reduce stress
• Relaxation techniques, physical activity, exercise, and other enjoyable (!) activities also serve as effective stress relievers
Remember the Big Picture
• Make healthy choices when they are available and most of the time in general.
• Focus on what to eat, not what NOT TO EAT.• Remember that you don’t have to eat perfectly all
the time.• Allow fun foods.
Making Your Major Profitable
40
Maximize the Return on Investment in Your College Major
http://www.bls.gov/ooh/ http://www.gradsense.org/gradsense
Successful Decisions and Cutting Costs
How to Graduate Successfully and Prosper Financially
42
Improving Decision-Making
43
Are you waiting for a future you?• Is there an important change or task that you are putting off, hoping that a future
you with more willpower will show up?– All the time? Often? Sometimes? Rarely?
• Do you optimistically overcommit yourself to responsibilities, only to find yourself overwhelmed by impossible demands?• All the time? Often? Sometimes? Rarely?
• Do you talk yourself out of something today, telling yourself that you’ll feel more like it tomorrow?• All the time? Often? Sometimes? Rarely?
• How does this affect your choices today?• What are strategies that can help you become the future self you want to
become?
Use A Spending Diary
• Date• Item• Amount
Look back to see what the most common categories were in your spending and how much you spent in each category.
Plugging Spending Leaks• Leave your debit/credit card at home• Attend free campus concerts and plays• Use your bike or public transportation• Carry a refillable water bottle instead of purchasing soft
drinks or coffee drinks• Limit the number of songs, ringtones, etc., you download • Avoid buying sodas and snacks out of vending machines• Kick a costly habit (cigarettes, lattes)• Use the library• Use the Internet for comparison shopping
46
How Much is Your Daily Brew Costing You?
Cutting Expenses—MSU Account
Due FROM Student• Personal Payments• Monthly eBills• Balance due on the 9th
• HOLDs & Fees
Due TO Student• MoneyMate• Refund• Leave on Account – Federal Aid recipient: it
is critical that you clear your account at the END of each aid year (end of SUMMER term)
Successful Saving and Budgeting
Where Did All the Money Go?
• Saving• Budgeting
The Power of Saving While Young
Why is it important to start saving early?
Because TIME is your best friend !!!
http://www.bankrate.com/calculators.aspx
What a Difference a Few Years Make Jorge’s IRA Olivia’s IRA
Interest rate 9% 9%
Years contributions were made
9 years (age 22 to age 31) 34 years (age 31-65)
Amount contributed $1,000 per year For 9 years = $9,000
$1,000 per year For 34 years = $34,000
Value of IRA at age 65 $13,021 at age 31; this lump sum then compounds: At age 65 equals: $243,863
At age 65 equals: $196,982
“Compound Interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t …pays it.”
-Albert Einstein
25 - 35 35 - 65$0
$50,000
$100,000
$150,000
$200,000
$250,000
EarningsInvest
Compound Interest
Pay Yourself First
• Save at least 10% of your gross income• Use payroll deduction—never miss it!• Never touch retirement funds
Emergency Savings Account
• 3-6 months living expenses– Begin with a goal of $500– Then at least $1,000– Then one month living expenses– One year living expenses for retirees
Creating a BudgetA budget will let you tell your money where to go, instead of wondering where it went!1. Identify your sources of income2. Identify your expenses3. Setting goals4. Monitor 5. Make adjustments
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Stick to Your Budget!Expenditure Guidelines
30%
18%10%14%
7%10% 11%
Housing 30%Transportation 18%Debt 10%Food 14%Household 7%Savings 10%Everything else 11%
Source: Department of Labor, Bureau of Statistics
Live Beneath Your Means
• Stop spending when you reach your budget limits – Groceries– Gasoline– Eating out– Personal allowance– Gifts or office contributions
59
What type of account should I open?
Easy Accessibility
Access with Penalties
Cash
Savings
Money Market
CD’s
Brokerage Account
Qualified Retirement Plans
IRA Accounts
Successfully Paying Off Student Loans
61
Borrower Consequences• No additional financial aid• Reduced credit score
– Takes years to repair• Pay higher interest rates or inability to get credit in the future• Wages, Social Security benefits garnished• Tax refunds withheld• Lottery winnings withheld• Professional license withheld• Legal action
– borrowers are liable for original balance, accrued interest, court fees, collection fees
• Virtually impossible to discharge student loans through bankruptcy
62
Debt “Rules of Thumb”
Total Debt• 20-10 rule
– Maximum total consumer debt should be no more than 20% of income
– Monthly debt re-payments should not exceed 10% of monthly income.
Student Loan Debt• Total student loan debt
should be less than starting annual salary after graduation
Student Loan Best Practices
• Calculate repayment amounts BEFORE you borrow
• Financial Aid Shopping Sheet– http://collegecost.ed.gov/shopping_sheet.pdf
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Student Loan Best Practices
Take out the minimum!• The less you borrow, the
less you have to repay– Find scholarships http://www.fastweb.com/
• Use loans only for educational expenses, not food, clothes, gas
• You don’t have to take out the whole student loan refund check out of your student account
• Graduate!
65
Student Loan Best Practices
• Consider paying as you go– Principle – Interest
Loan Forgiveness:
• For a borrower who is not in default and who makes 120 monthly payments on the loan after Oct. 1, 2007, under certain repayment plans, while the borrower is employed full-time in a public service job.
• You may NOT apply for forgiveness after you have made all of the required 120 qualifying monthly payments.
69
Loan Consolidation
• Some loans are eligible– One payment– Potential for lower
interest rates– Fixed interest rates– Potential for loan
forgiveness– Potential for extending
the payment period• https://studentloans.gov
Higher Interest Costs of Consolidation
Undergrad borrow max $31,000– Additional $7,422 for Extended – Additional $3,131 for Graduated
Higher Interest Costs of Consolidation
Grad borrow max $138,500– Additional $102,727 for Extended – Additional $86,298 for Graduated
The Power of Good Credit
Biggest Mistakes Affecting Credit
• Not using a credit card wisely• Being disorganized about paying bills• Paying the minimum amount on your credit
cards
Irresponsible Credit Card Usage Leads to…• Denial of credit• High APR b/c of the higher risk• Universal Default Clause– Allows an issuer to increase an individual’s APR if they fail to
make a payment to another lender• Difficulty renting an apartment• Denied employment• Denied financial aid• Higher automobile insurance premiums• High security deposits, e.g., Cell phone, gas, electronic
How much car can you afford?• 1/3 annual income maximum
• Payment 15% of monthly take-home pay
http://www.edmunds.com/apps/calc/CalculatorController?pmtcalAction=affordability&tid=edmunds..calculators.basic_loan_tab.afford.tab_link..* edmunds.com calculators
Never get upside-down in a car!
20/4/10 rule of thumb for buying a car• Pay at least 20% down• Finance for no more than four years, • Payment should be less than 10% income The first part of this rule prevents you from owing
more than the car is worth, and the last two parts prevent you from buying more car than you can afford
Credit Card Strategies• Limit use to one card• Define “emergency use”• Understand credit terms• Pay more than the minimum
Credit Card Balance
Interest Rate (%) Charged
Monthly Payment
Months to Pay Off Balance
Years to Pay Off Balance
Total Cost (Balance + Interest)
$2,000 18% $40 minimum 90 7.5 $3,608
$2,000 18% $50 60 5.0 $3,004
$2,000 18% $150 15 1.3 $2,211
Credit Reports • Financial report card reflecting the extent of an individual’s
credit and payment history– Negative information can stay on for 7 years while bankruptcies
remain for 10 years– Lenders buy the reports to determine whether they will grant an
individual credit and at what rate• Three U.S. Credit Reporting Agencies
• Annualcreditreport.com – Get one free credit report from each agency each year– Do not use any others
Credit Scores• Numeric value obtained
from a credit report– Defines you by a single
number– Quick Screening
Mechanism for Lenders• Low Credit Score = No
Credit or High Interest Rates
– Many employers check credit reports
• Scores range from 300-850• National Average = 678
ScoringDon’t focus on the credit score number– Focus on the factor that is lowering your score– Scores change over time as you pay off debt, etc.
Most common scoring system is Fair Isaac Corporation (FICO)– Payment history: 35% – Total amount owed: 30%– Length of credit history: 15%– New credit: 10%– Types of credit: 10%
Improving Your Score
• Pay credit card off before due date
• Make multiple payments in a month
• Ask for a “good-will” deletion
• Pay for removal of a late payment
• http://www.bankrate.com/finance/video/credit-debt/steps-improve-credit-score.aspx
• http://www.bankrate.com/finance/video/credit-debt/steps-improve-credit-score.aspx
Example of the Cost of Lower Credit Score
85
Avoid Predatory Loans
Debt Repayment Decisions• Low balance method• High interest method• Most important method• Percentage method• Pro-rate & Negotiate• New plan method• Debt consolidation• Professional credit counseling
Which One Should I Pay Off First?Low balance methodHigh interest methodMost important methodPercentage method
Create a Debt Payment Plan
Credit Source APR Owe MO Payment Overdue
Card #1
Mortgage
Car note
Taxes
How to Graduate Successfully and Prosper Financially
90
Taxes
91
Gross v. Net
• Gross Pay– Amount you make before deductions on your
paycheck• Deductions include– Taxes, insurance, retirement, and optional items
• Net Pay– Amount you make after deductions
• Net Pay is usually 60-70% of Gross Pay
92
A “Kinder, Gentler” IRShttp://apps.irs.gov/app/understandingTaxes/hows/mod01/sim_mod01_04.jsp
http://www.irs.gov/Individuals/IRS-Withholding-Calculator
http://www.cashcourse.org/working-earning/wages-benefits/making-sense-of-the-w-4.aspx
93
Lowering Your Tax Bill
• Defer income to when you retire and are in a lower income tax bracket by using a retirement account like a 401(k)
• Take advantage of any “voluntary deduction” programs your employer allows– Acts as a shelter for income in the form of health
care, child care, or retirement
Investing Insuring
Identity Protection
How to Graduate Successfully and Prosper Financially
Investing, Insurance, & Identity Protection
Younger Strategy
Older Strategy
CDsMoney Market
Savings Account
Mutual FundsUS Treasury Bonds
Corporate BondsReal Estate
Stocks
Lower
Risk
Highe
r Ris
k
Can you retire?
• If you have 20 times your annual income or needs saved, then you should be able to retire
http://www.choosetosave.org/ballpark/
Insurance for College Students
• Health and Renter’s Insurance are a good ideas for college students
• Life Insurance is not
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Insurance Information
http://www.iii.org/ http://www.insurancejournal.com/
Connect With Us
[email protected] Please follow MMM Twitter account: @MSStateMoney#CreditForCredit– What did you like most about this workshop?– What topic would you like to learn more about?
http://www.youtube.com/watch?v=EM_p1Az05Jo
Sources• Duke University Financial Aid Office• Bobbie Shaffet, MSU Extension Service• Alex Washington, MSU Office of Student Financial Aid
