Financial Literacy

An introduction to financial literacy for the almost-college student

What do you know about financial literacy?

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Quiz Time!

This same financial literacy quiz was given to a sample of 500 American adults. The average score was 40%. Can you do better?

1. If you have caused an accident, which type of automobile insurance would cover damage to your own car? a) Term

b) Collision

c) Comprehensive

d) Liability

2. Matt and Eric are young men. Each has a good credit history. They work at the same company and make approximately the same salary. Matt has borrowed $6,000 to take a foreign vacation. Eric has borrowed $6,000 to buy a car. Who is likely to pay the lowest finance charge?

a) Matt will pay less because people who travel overseas are better risks.

b) They will both pay the same because they have almost identical financial backgrounds.

c) Eric will pay less because the car is collateral for the loan.

d) They will both pay the same because the rate is set by law.

3. If you went to college and earned a 4-year degree, how much more money could you expect to earn than if you only had a high school diploma?

a) A little more; about 20% more.

b) A lot more; about 70% more.

c) About 10 times as much.

d) No more; I would make about the same either way.

4. Many savings programs are protected by the Federal government against loss. Which of the following is not?

a) A bond issued by one of the 50 States

b) A U. S. Treasury Bond

c) A U. S. Savings Bond

d) A certificate of deposit at the bank

6. Which of the following instruments is NOT typically associated with spending?

a) Cash

b) Credit card

c) Debit card

d) Certificate of deposit

7. Which of the following credit card users is likely to pay the GREATEST dollar amount in finance charges per year, if they all charge the same amount per year on their cards?

a) Vera, who always pays off her credit card bill in full shortly after she receives it.

b) Jessica, who only pays the minimum amount each month.

c) Megan, who pays at least the minimum amount each month and more, when she has the money.

d) Erin, who generally pays off her credit card in full but, occasionally,will pay the minimum when she is short of cash.

8. Which of the following statements is true?

a) Your bad loan payment record with one bank will not be considered if you apply to another bank for a loan.

b) If you missed a payment more than 2 years ago, it cannot be considered in a loan decision.

c) Banks and other lenders share the credit history of their borrowers with each other and are likely to know of any loan payments that you have missed.

d) People have so many loans it is very unlikely that one bank will know your history with another bank.

9. Doug must borrow $12,000 to complete his college education. Which of the following would NOT be likely to reduce the finance charge rate?

a) If his parents took out an additional mortgage on their house for the loan.

b) If the loan was insured by the Federal Government.

c) If he went to a state college rather than a private college.

d) If his parents cosigned the loan.

10. If you had a savings account at a bank, which of the following would be correct concerning the interest that you would earn on this account?

a) Sales tax may be charged on the interest that you earn.

b) You cannot earn interest until you pass your 18th birthday.

c) Earnings from savings account interest may not be taxed.

d) Income tax may be charged on the interest if your income is high enough.

Answers

1. b 2. c 3. b 4. a 5. a 6. d 7. b 8. c 9. c 10. d

Loans

Loans

Subsidized Federal Loans (Low interest-rate, typically based on need)

Unsubsidized Federal Loans (Not based on need, generally low-interest)

Federal Plus Loans (Awarded based on credit history, typically small amounts)

Federal Perkins Loans (Awarded based on extreme financial need, very low interest)

Private Lenders (Variety of loan packages, high interest-rates, much riskier)

What to look for in loans?

Principal – This is the initial amount you borrow.

Interest Rate- This is the amount of extra money you have to pay per year

Rules – Some loans stipulate that you have to pay if you fall below being a full-time student.

Penalties How long after graduation until you have

to pay back the loans?

Loans

College loan officers have absolutely no incentive to be honest with you. They will tell you anything as long as they get you into their school. These are salespeople!Don’t fall into the trap of easy money, debt is not worth it.

Some facts about finance…

Some facts about finance...

Americans now owe more than $875 billion on student loans, which is more than the total amount that Americans owe on their credit cards

The unemployment rate for college graduates under the age of 25 is over 9%

Some facts about finance...

Starting salaries for college graduates across the United States are down in 2011 by 4%.

According to a recent survey by Twentysomething Inc., a staggering 85 percent of college seniors planned to move back home after graduation last May

Some facts about finance...

Since 1982, the cost of medical care in the United States has gone up over 200% but that is nothing compared to the cost of college tuition which has gone up by more than 400%!!!

Loans

It's important to put your futures into perspective. If you're going to medical school, taking out loans to pay for medical school may not be a bad idea. If you major in something that doesn't tend to pay well, ask yourself if it's worth it to take out the loans in the first place.

Credit Cards

Credit Cards

Use a credit card to build credit history, not to pay for things you can't actually afford

Credit history is necessary for things like: qualifying for apartments, mortgages, auto loans etc.

The trick is to use them as a cash analog, NOT as a substitute.

Credit card interest rates are huge!!!

Some facts about credit cards...

National debt of countries In order of debt:

United States: $10 Trillion United Kingdom: $8 Trillion Germany: $4 Trillion France: $3 Trillion Italy: $2 Trillion

Some facts about credit cards...

Average Household Credit Card Debt is $8,400.00

Credit Score

Your credit score helps you qualify for loans, mortgages etc.

You build credit by paying your bills on time

Your credit score dwindles when you miss payments or do other financially unsound things

Interest Rates

Interest rates can cost a lot more than you realize.

Let's look at a spreadsheet that can calculate interest rates for you.

Budgeting

Budgets are extremely useful in keeping track and planning your spending.

When used in conjunction with credit cards, budgets help you stay within your means!

Lets take a look at a budget

Savings

Commit yourself to putting away a certain amount each month.

If you're saving at least 10%, you're doing way better than most Americans!

But this isn't going to affect me...

Any Questions?