Personal Financial Education

Presented By:Nick Brooks

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Personal Financial Education- Overview -

• Financial Institutions– What is a financial institution?– Banks vs. Credit Unions– Benefits of Using a Financial Institution

• Types of Accounts– Checking Accounts– Savings Accounts– Fees– Interest

• Building a budget– Where do I start?– Fixed vs. Variable vs. Periodic Expenses– Planning for Large Purchases

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Personal Financial Education- Overview -

• Credit and Lending– Types of Loans– Credit Discussion– Responsible Use of Credit

• Buying a home– Different Types of Mortgages– Expectations/Lender Requirements– Common Issues to Consider

• How to Protect Yourself from Fraud– Keeping Your Personal Information Personal– Best Practices Regarding Information Security– Different Types of Current Fraud Schemes

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Personal Financial Education- Overview -

• Basic Investing– Start Early and Pay Yourself First – Two Primary Ways to Invest Your Money– Income Investments vs. Growth Investments– High Risk vs. Low Risk

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Financial Institutions

• What is a financial institution?– Private (shareholder-owned) or public (government-owned)

organizations that, broadly speaking, act as a channel between savers and borrowers of funds (suppliers and consumers of capital).

– Two main types of financial institutions are:(1) Depository banks and credit unions which pay interest on deposits from the interest earned on the loans(2) Non-depository insurance companies and mutual funds(unit trusts) which collect funds by selling their policies or shares (units) to the public and provide returns in the form periodic benefits and profit payouts.

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Financial Institutions• Traditional Bank

– Accepts deposits from customers– Utilizes these deposits to make loans in the

community

• Credit Union– Non-profit entity in which “members” pool their money

to offer loans and services to other members– Services are similar to what a bank may offer– Typically have to qualify for membership

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Financial Institutions

• Benefits of Using a Financial Institution vs. Your Mattress– Security– Financial record keeping– Easy access to all funds

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Types of Bank Accounts

• Checking Accounts– Unlimited Withdrawals– Checkbook– Visa Debit Card– Non-interest bearing (Most of the time)

• Interest is money the bank pays you for keeping money in an account – what a deal!

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Types of Bank Accounts• Checking Accounts

– Fees• Visa Debit Card Fee ($10.00 per year)• Non-FirstBank ATM Fees ($2.00 per transaction)• Overdraft Fees ($34 per item)

– If you spend more money than is in your account, you will overdraw it.

– Easy to avoid, just balance your checkbook in order to know exactly how much money is in your account.

– Overdraft protection

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Types of Bank Accounts

• Checking Accounts– Balancing Your Account

• Keeping good records at all times• Entering all transactions into a check register• Consistently balancing your account will help you

know exactly how much money you have in your account at all times!

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Types of Bank Accounts• Savings Accounts

– Limited Withdrawals• No checks or debit cards

– Specified Terms • Time Savings Accounts, sometimes referred to as CDs or

Certificates of Deposit.• The term is the amount of time you are required to keep the

account open with a minimum balance.• Terms can be 91-days, up to five years.• The higher the term, the greater the interest rate.• Penalties for withdrawing funds before the end of the term.

– Interest-bearing• Interest rates depend on the type and term of

the savings account.• Earn money on your money!

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Types of Bank Accounts

• Savings Accounts– Types of Savings Accounts

• Regular Savings– No withdrawal penalty– No specified term– $100 minimum balance– Typically the lowest interest rate among savings

accounts– Interest rate can change weekly or on the

first business day of the month

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Types of Bank Accounts

• Savings Accounts– Types of Savings Accounts

• Money Market Savings– Higher interest rate than Regular Savings– Still has no specified term– $1,000 minimum balance– Allowed to write some checks (up to 6 per statement)– Interest rate can change weekly or on the

first business day of the month

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Types of Bank Accounts

• Savings Accounts– Types of Savings Accounts

• Time Savings Accounts– Terms range from 91 days to 2 years– Earn more interest than Regular and Money Market Savings– $100 minimum balance– Make deposits at any time into the account– Interest rate can change during term of the account

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Types of Bank Accounts

• Savings Accounts– Types of Savings Accounts

• Time Deposit Accounts– Terms range from 91 days to 5 years– $500 minimum balance– Earns more interest than Time Savings Accounts– Interest rate fixed for the term of the account– Only one deposit allowed at account opening.

Additional deposits allowed during renewalgrace period.

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Types of Bank Accounts

• Savings Accounts– Types of Savings Accounts

• Premier Time Account– Terms range from 91 days to 5 years– $10,000 minimum balance– Highest interest rates of all savings accounts– Interest rate fixed for the term of the account– Only one deposit allowed at account opening.

Additional deposits allowed during renewalgrace period.

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Building a Budget• Where Do I Start?

– Identify total monthly income from all sources– Determine monthly savings goal (pay yourself

first)– Identify all monthly fixed expenses– Estimate all monthly variable expenses– Determine if savings/expenses are covered

by monthly income– Stick to Your Goals!

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Building a Budget• Fixed Expenses

– Expenses that are the same amount each time they are paid:• Rent/Home Mortgage• Car Payment

• Variable Expenses– Expenses that change each time they are paid:

• Groceries• Utility Bills

• Periodic Expenses– Expenses not due every month (can be fixed or variable)

• Car Insurance• Home Repairs

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Building a Budget

• Planning for a Large Purchase– Save money up front– Borrow money ahead of time– Avoid buying “big ticket” items that do not fit

your budget

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Credit and Lending• What is Credit?

• Credit is your reputation for financial responsibility– Your ability to borrow is based on the lender’s belief that

you will repay your debt

• Credit is a source of revenue for financial institutions (lending)

– Fees paid to lender– Interest paid to lender

• Credit is not more money, it is “tomorrow’s” money– Lets you spend future income so you can enjoy certain

benefits now

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Credit and Lending• What is Credit?

• Credit Score– Is a measure of your financial responsibility

» Making payments on time, available credit, credit history, mix of credit, number of credit applications (tradelines)

» Usually between 300-899» 300 – 600: Bad » 600 – 700: Decent» 700 – 800: Good» 800 – 899: Excellent

– Can impact your ability to obtain credit and even future employment!

– Can also impact your cost of credit» Interest rates, etc.

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Credit and Lending

• Types of Loans– Revolving Credit

• Variable interest rates• No set “term” for repayment• Credit Cards

– Typically have higher interest rates (10% – 20% and above!)– Rates are variable and may adjust on a monthly basis– No term

» Provided you make required minimum monthly payments, you can pay off the balance at any time

– Can have benefits» Airline Miles» Cash Back on purchases

– Can also get out of control!

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Credit and Lending• Types of Loans

– Revolving Credit• Cash Reserves/Overdraft Protection

– $20 annual fee– Similar to credit cards in interest rate and term– Attached to your checking account– Used in the event your checking account balance

reaches zero and items continue to post to the account– Sort of like a spare tire!

» You never know when you’ll need it,but it’s nice to know it’s there!

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Credit and Lending• Types of Loans

– Installment Loans• Typically have fixed interest rates• Fixed payments and repayment terms• Auto Loans

– Used to purchase new or used vehicles– Available from banks as well as car dealerships– Lower interest rates than credit cards because they are secured

credits» If you fail to pay back the loan, the bank is able to repossess

or take back the vehicle– Typically have fixed interest rates

» The rates do not change over the term of the loan– Terms are typically between one and five years

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Credit and Lending

• Types of Loans– Installment Loans

• Mortgage Loans– Used to purchase a home– Typically have lower interest rates than most other loans,

also because they are secured– Terms are typically between 15 and 30 years– Interest rate can be either fixed or adjustable

» Adjustable rates tend to be lower, whilefixed rates tend to be higher

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Credit and Lending

• Shopping For Credit– Finance Charge

• Cost of borrowing from the bank– Includes total amount of interest plus finance charges

• Annual Percentage Rate– The cost of borrowing stated as an annual interest rate

» Banks are required to disclose this rate to promote truth in lending and provide an apples-to-apples comparison of loans

• Down Payment Required– Amount depends on the type of loan– Reduces lender’s risk

• Payment Amount• Collateral Required

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Credit and Lending• Responsible Use of Credit

– Make your payments on time!– Late payments can affect your credit history and

credit rating• Low credit ratings or poor credit history can result in:

– Higher interest rates

– Inability to obtain credit or loans

– Credit can help or hurt• Can help by making certain purchases possible without cash

(homes, vehicles, etc.)• Can hurt if you borrow more than you can afford!

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Buying a Home

• Different Types of Mortgages– Fixed Rate Mortgage

• Interest rate fixed for the entire term of the loan• Rates typically higher due to long term fixed rate

– Variable Rate Mortgage• Interest rate fixed for an initial period of time (i.e.

five or seven years)• Rates lower due to short term fixed rate

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Buying a Home• Lender Requirements

– Financial Information• Complete application• 30 days of pay stubs• 2 years of personal and business tax returns• Most recent bank/brokerage statements

– Down Payment (typically 20%)• Loan programs are available to borrowers with less than 20% down

– Private Mortgage Insurance • Down payment assistance available through municipalities or

employers– Debt service ability

• What is a back ratio?• Consistent and stable income (typically 2 years)

– Required reserves

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Buying a Home• Common Issues to Consider

– What condition is the home in?• Will significant repairs have to be done and can you afford

them?

– Payment Shock• Is your mortgage payment significantly more than your

current rent payment?

– Neighborhood and School Options• Are neighboring homes and lawns in good shape?• Are local schools highly rated?

– Property Taxes, Insurance and HOA dues

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How to Protect Yourself From Fraud

• Keeping Your Personal Information Personal/Best Practices– Make sure to not carry account numbers and

ID together• A lost wallet can cause significant headaches!

– Do not share personal information with others– Shred all documents upon disposal– Change passwords every 90 days

• Be creative!

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How to Protect Yourself From Fraud

• Different Fraud Schemes– Identity Theft

• Fraudster obtains multiple pieces of personal information and uses them to commit financial fraud.

– Internet Purchase Fraud• Fraudster purchases an item and sends more money than what is

needed and asks seller to wire back extra.– Sweetheart Scams

• Fraudster uses an online dating site to lurein victims, gains their trust and then talks theminto providing money.

– Phishing• Fraudster attempts to acquire usernames, passwords,

and/or credit card details through email by masqueradingas a trustworthy entity such as a bank, social networkingsite, or credit card company.

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QUESTIONS!