getting money smart

Getting Money Smart

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©The Northwestern Mutual Life Insurance Company - Milwaukee, WI

Today’s Workout

• Financial Fitness = Money Smart

• Three Exercises:– The Chessboard of Life

– Who Wants to Really Be a Millionaire?

– Does This Make Cents?

• “Cool Down” Review

• Tips for Future Workouts

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1. McCann Erickson, 20022. Affluenza, de Graaf, Wann, Naylor, 20013. U.S. Bancorp, Piper Jaffray, 2002

• Advertisers currently spend more than

$230 billion a year ($2,190 per household).1

• We have twice as many shopping malls as high schools.2

• 93% of teenage girls say that shopping is their favorite activity.2

• Year to year increase in teen spending on clothes from 2001 to 2002

was 47% for boys and 8% for girls.3

Swallowing the Bait: How much stuff do you buy that you don’t need?

Getting Money Smart

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Getting Smarter

• Start managing your money instead of manage you!

• The secret to saving is setting some goals.

letting it

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Getting Smarter

• The Five Envelope System• What are your savings goals?

– Everyday Stuff– Long term Purchases– Emergencies– Charity– College

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Chessboard of Financial Life

This exercise is for illustration purposes only. It does not take into consideration fees, taxes, commissions, etc. and does not represent any specific product or investment.

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x


.01

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.02.08

.32 1.28

x


.04.16 .64

.01

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5.1220.48 81.92 327.66.02

.08.32 1.28

x2.56

163.8440.96

10.24

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40.96.02

.08 .32 1.28

x


20,971.525,242.88

1,310.7210.7M

$ 85M

41,943.042.56

163.8440.96

10.24

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Compound Interest

• Compounding multiplying that turns a penny into hundreds, then thousands, then millions.

• Principal the amount originally saved.• Interest paid on the principal.• Compound interest paid on both the principal

and interest already earned - makes the money grow much faster.

The Magic of

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Rule of 72 (72 ÷ Interest Rate = Yrs)

Passbook Savings 3% 24

Money Market 6 12

U.S. Treasury Bond 7 10

Stock Market 10 7

PotentialInterest Years

Investment Rate Double

This exercise is for illustration purposes only. It does not take into consideration fees, taxes, commissions, etc. and does not represent any specific product or investment.

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Factors that affect how much savings grow:

Save Early and Often

• When you begin to save• How much you save• The interest rate or return on

investment

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How To Really Be A

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1

True

True or False?

• 4 of 5 millionaires are college graduates.

• 18% of millionaires have Master’s Degrees.

TrueTrueMost millionaires are college graduates

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About 2/3 of millionaires work 45-55 hoursa week

True or False?2

FalseFalseFalseMost millionaires work fewer than 40 hours a week

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Only 19% of millionaires received any income from a trust fund or estate

True or False?3

FalseFalseFalse

Most millionaires received financial help from their families - like inheriting a trust fund or estate

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Wealth builders view such funds as having the same potential for savingas any other money.

True or False?4

FalseFalseFalse

Gift money, tax refunds, earnings fromwinnings are found money.”

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28.6% of millionaires have American Express Gold Cards

43% have Sears cards.

True or False?5 More millionaires have

American Express Gold Cards than Sears Cards.

FalseFalseFalse

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Ford is preferred by 9.4% of millionaires

Cadillac is preferred by 8.8%Only 23% of millionaires drive a new car

True or False?6

FalseFalseFalse

More millionaires drive Cadillacs than Fords

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Most millionaires work in ordinary jobs including: welding contractors, owners of mobile-home parks & paving contractors

True or False?7

FalseFalseFalse

Most millionaires work in glamorous jobs, such as sports, entertainment, or high tech

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Wealth builders always keep 2 to 3 credit cards to allow for a large line of credit for use in emergencies

Many keep only one credit card for renting cars, guaranteeing hotel rooms, etc.

Most pay off the monthly balance each month

True or False?8

FalseFalseFalse

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The chances of winning the lottery are1 in 12 million and as high as 1 in 120 million.

Many poor people become millionaires by winning the lottery

True or False?9

FalseFalseFalse

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In recent years, the average college graduate earned

66% more than the average high school graduate

True or False?10

FalseFalseFalse

College graduates earn about 33% more than high school graduates

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Most millionaires are self employed and consider themselves to be entrepreneurs.

Most others are professionals, such as doctors, lawyers and accountants

True or False?11

FalseFalseFalseMost millionaires work for large, Fortune 500 Companies

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Recent studies show that 80% of people who try to earn money as “day traders” lose money

True or False?12

FalseFalseFalsePeople who play the stock market usually beat it and many of them become millionaires.

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Nearly 95% of millionaires own stocks.

Since 1926, stocks have increased 10%at a compounded annual rate of return.

True or False?13

FalseFalseFalseIf you want to be a millionaire, avoid the risky stock market.

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Hypothetical example. This example does not take into consideration fees, taxes, commissions, etc. and does not represent any specific product or investment.

The earlier you begin saving, the better.

Regular saving may make you a millionaire even if your income is modest.

True or False?14

TrueTrueTrue

If you save $2,000 a year from age 22 to age 65 at 8% interest, your savings will be over $700,000 at age 65.

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Questions 1-15:Belsky & Gilovich. Why Smart People Make Big Money Mistakes. Simon & Schuster, 1999. Lee & McKenzie. Getting Rich in America. HarperBusiness, 1999.Stanley & Danko. The Millionaire Next Door. Longstreet Press, 1996.

Most millionaires are married and stay married.Divorce can be costly.

True or False?15

FalseFalseFalseMost millionaires are single

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Rules for Improving Your Financial Life

• Get a good education

• Work long, hard, and smart

• Live below your means

• Use credit cards with care

• Regard all income – regardless of its source – as a chance to save

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Solving the mysteries of finance and economics

Does This Make Cents?

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Why does the kid who skipped college earn big bucks playing games while others -- nurses, police officers and teachers -- make far less?

Source: National Council on Economic Education and NBC Nightly News (2001)


• Many derive pleasure from watching pro athletes - high demand.– Will pay a lot for tickets– Own special TV sets for viewing

• Pro skills are rare -- limited supply.• High consumer demand + low supply = high salaries. • But remember: Many of the pro athletes retire with little

or no money.– Failed to learn how to manage their money.

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Why do we have high interest rates with credit cards when other rates are so much lower?

Source: National Council on Economic Education and Myvesta Credit Card Survey, 2002.


• Convenience

• High risk

• Easily consumed goods

• Need to be profitable

• Convenience has a price: In 2002 average credit card debt for people age 18-24 was $849.

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Credit Card IQ

• You have an $849 balance on your credit card.

• You can only afford $35 per month.

• Your card rate is 17%.• It will take 30 months!• And with interest you will

have paid $1,047.59.• And this assumes you stop using the card!

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Does This Make Cents?Why are we so quick to spend gift money we receive?

“Because I got it free. They gave me a gift and I turned it into a thing.”

Our minds play a trick. Gift money doesn’t seem as valuable as money we worked for.

But ask yourself, if you didn’t have to work for it, why isn’t it easier to save it?

But remember . . . Gift money can grow as shown by the Rule of 72.

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Review

• What is the magic of compounding?

• What are some of the characteristics of millionaires?

• How do supply and demand affect salaries, prices?

• How do our minds play tricks on us?

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A Workout Refresher

Consider it your personal trainer...

www.themint.org

TheMint.org

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TheMint.org

• The value of money • The importance of saving• The risk of credit• The ways to stretch a

dollar

• The ways to make money work for you

• The difference between want and need

• The connection between education and earning

• How to track spending and budgeting

getting money smart

Economy & Finance

contractors false false

week false false false

estate false false false

lottery false false

month false false false

money false false false

new car false false

millionaires work45