Presentation for high school students

1. What Young Adults
Need to Know
About Money
Barbara O’Neill, Ph.D., CFP®
https://www.moneytalkbmo.com/
Twitter: @moneytalk1

2. Personal Intro
• Worked for
Rutgers Univ.
for 41 years
• CFP® for 35
years
Now a financial
education
entrepreneur
based in Florida

3. #1 Take-Away: The Two
Sides of Compound Interest
• When you invest,
compound interest is
your friend :-)
• When you pay
interest on credit
cards and loans,
compound interest
is your enemy :-(

4. Information Resource:
Jump$tart Coalition for
Personal Financial Literacy
• Washington DC-based non-profit
• Promotes financial literacy for students
from pre-K to college age

5. Jump$tart’s Twelve Principles
of Personal Financial Literacy
• Know your take-home pay
• Pay yourself first
• Start saving young
• Compare interest rates
• Don’t borrow what you
can’t repay
• Budget your money
• Money doubles by “The
Rule of 72”
• High returns equals high
risks
• Don’t expect something
for nothing
• Map your financial future
• Your credit past is your
credit future
• Stay insured

6. 1. Know Your Take-Home Pay
• Take-Home Pay = Net Pay = Disposable
Income
– Amount of income remaining after mandatory
deductions (e.g., taxes) and withholding
• Discretionary Income
– Money left after paying household expenses
– Include savings for goals as an “expense”
• Know these numbers before committing to
large expenses

7. 2. Pay Yourself First
• Treat savings as a household “expense”
• Give it the priority of a car loan payment
• Make savings automatic
– Employer retirement savings plans
– Automatic investment plans
– Checking to savings transfers
– Need more ideas? See
http://www.americasaves.org/

8. 3. Start Saving Young
Source: TIAA-CREF; assumes an 8% average annual return
Time + Money = Magic!

9. 4. Compare Interest Rates
• Bankrate.com: http://www.bankrate.com/
• Consumer Action: http://www.consumer-action.org/
• Federal Reserve:
http://www.federalreserve.gov/creditcard/survey.html

10. “Rule of Three”
Credit Card Comparison
• Key Criteria:
– Annual fee
– Late fee
– Over-the-limit fee
– Rewards for use
– APR and balance calculation method
https://www.slideshare.net/BarbaraONeill/credit-card-
comparison-worksheet

11. 5. Don’t Borrow What You
Can’t Repay
Debt stinks! (http://www.itsahabit.com/musiccd.html)
– Ties up future income
– Prevents people from saving
– Costs money (interest and fees)
– Can lead to repossession, foreclosure, bankruptcy
– Causes physical symptoms of stress

12. The High Cost of Minimum
Payments
Data derived from Credit Card Smarts calculator

13. 6. Budget Your Money
• Spending Plan Worksheet:
http://njaes.rutgers.edu/money/pdfs/fs421worksheet.pdf
• Positive Cash Flow: Income > Expenses
– Increase income
– Reduce expenses
– Do both

14. What are Your Spending Leaks?

15. 7. Money Doubles By
“The Rule of 72”
• Calculates the number of years it takes for principal to
double
– Number of Years = 72 divided by interest rate
– Example: 72 ÷ 6% = 12 years
• Calculates the interest rate it takes for principal to
double
– Interest rate = 72 divided by number of years
– Example: 72 ÷ 10 = 7.2%
http://www.moneychimp.com/features/rule72.htm (calculator)

16. The Rule of 72
Source: Garman/Forgue, PERSONAL
FINANCE, Fifth Edition

17. 8. High Returns Equals High
Risks
Source:
Garman/Forgue,
PERSONAL
FINANCE, Fifth
Edition

18. 9. Don’t Expect Something
For Nothing
If it sounds too good to be
true, it probably is”
• Phishing scams
• “Pump and dump” scams
• “Free lunch” seminars
• “Guaranteed” returns > other investments
• Exotic sounding deals
• Exclusive, limited-time offers

19. 10. Map Your Financial Future
• Be a “future-minded” planner
• Set SMART Goals:
http://njaes.rutgers.edu/money/pdfs/goalsettingworksheet.pdf
– Short-Term: Under 3 years
– Medium-Term: 3 to 10 years
– Long-Term: 10 or more years
• Match savings/investments to goals
• “What you think about, you bring about”

20. 11. Your Credit Past is Your
Credit Future
• People with low credit scores pay more to borrow
money
– FICO score range: 300 (low) to 850 (high)
• Negative information stays on your credit report
for 7 years (bankruptcy- 10 years)
• Credit scores are used in car insurance
premiums and apartment rentals; employers can
get specialized credit reports

21. Credit Scoring Factors
• Bill payment history, weighted to
emphasize past 12 months (35%)
• Proportion of outstanding debt to
available credit limits (30%)
• Length of credit history (15%)
• Number of recent credit inquiries (10%)
• Mix of types of credit used (10%)

22. 12. Stay Insured
• Maintain health insurance:
– Through an employer
– “Age 26 rule” on parents’ insurance
– ACA exchanges: https://www.healthcare.gov
• Life insurance (if dependents or co-signers)
• Disability insurance
• Renter’s and auto insurance with adequate
liability limits (at least $300,000)

23. Closing Messages
• You are a “Millionaire in the Making”
• Time + Money = Magic!
(Compound Interest)
• Compound interest can be your best
friend or your worst enemy

24. Questions? Comments?
Experiences