Student Workbook
There is a difference between being risquĂŠ & being a credit risk.
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Table of Contents Partnership Information................................................................................. 4 You’re Nothing but a Number ........................................................................ 5 Chapter 1: Consumer Reporting Agencies ...................................................... 6 Chapter 2: Credit Scoring 101: The Basics‌and the Advanced ....................... 7 Chapter 3: Who Cares? .................................................................................. 8 Chapter 6: How do I earn a great credit report & great credit score? ............. 9 Chapter 7: Your Rights.................................................................................... 10 Chapter 8: Credit Repair & Credit Clinics ........................................................ 11 Chapter 12: How do lenders use your credit reports and scores? .................. 12 Chapter 13: The 3 Cs: Capacity, Collateral, & Creditworthiness ...................... 13 Chapter 16: The Top 12 Credit Myths ............................................................. 14 Chapter 17: Important Tidbits ........................................................................ 15 Chapter 18: What are you trying to accomplish? ........................................... 16 Financial Literacy 101..................................................................................... 17 Basic Banking and Accounts ........................................................................... 18 Spending Plans and Budgeting ....................................................................... 19 Savings ........................................................................................................... 20 Investments ................................................................................................... 21 Loans.............................................................................................................. 22 Used Car Buying ............................................................................................. 23 Insurance ....................................................................................................... 24 Identity Theft and Security............................................................................. 25 Giving Back..................................................................................................... 26 Student Workbook | 3
K
appa's golden key, fleur-de-lis and coat-of-arms represent friendship rooted in a tradition of high standards.
These standards are as important today as they were in 1870 when Kappa Kappa Gamma was founded by six young women at Monmouth College, Monmouth, Illinois. Since that time, Kappa has grown to 134 collegiate chapters and nearly 300 alumnae associations worldwide. Kappa promotes, through its standards, a broad college experience. Scholarship or intellectual development is our first priority, and the impressive achievements of our members attest to this. In Kappa, scholarship programs provide an atmosphere for academic accomplishment emphasizing that each member attain her personal academic best. Cultural growth is important as well. Kappa Kappa Gamma encourages members to seek opportunities for self-growth in a variety of interests in the chapter, campus, and in the community. Kappa Kappa Gamma also provides leadership opportunities in a mutually supportive environment. Kappa members believe that philanthropy or mutual helpfulness is of significant importance. Awareness of the needs of others is raised by participating in campus philanthropy events, by quiet moments of companionship with nursing home residents or raising dollars for the Kappa Kappa Gamma Foundation. Kappa is proud of its programs of consequence, its high standards and adherence to ethical principles, and of its countless members whose accomplishments have provided a better life for others. Kappa Kappa Gamma at its core is friendship, leadership and scholarship...an opportunity and experience for a lifetime.
Financial Literacy for Life, is not just the tag line for First Command Educational Foundation (FCEF); it’s a way of life. FCEF is passionately committed to ensuring individuals, at all stages of their life, have the knowledge and skills to make an informed, smart decision about their financial wellness. FCEF's educational programming emphasizes personal financial literacy and fiscal responsibility and is delivered in several formats: presentations; seminars, and courses. Why is financial literacy our passion? Consumer debt is growing steadily every year and rose above $2.4 trillion in 2006. At the same time, individual savings is steadily declining and recently reached -.002% and consumer bankruptcies exceeded 1.5 million last year. The average student loan in this country, almost a necessity to attend a four-year institution, sometimes remains on the books with mounting interest for 10 to 20 years. But there’s a bright light on the horizon many states across the nation have passed legislation mandating financial literacy for the High School classroom. Additionally, other states are considering legislation or in the process of implementing similar laws. Community service agencies have come to realize that financial literacy is critical to their clients’ well-being. First Command Educational Foundation addresses this need directly in its mission. We now provide more than 35 different presentations ranging from basic budgeting to investments. We have a cadre of speakers across the nation who are trained and certified. Or, if you or your organization has a specific need in mind, we are able to customize a presentation to address the issues. 4 | Student Workbook
NATIONALLY RECOGNIZED CREDIT EXPERT
You’re Nothing but a Number
Why achieving great credit scores should be on your list of wealth building strategies Brought to you through a partnership with First Command Educational Foundation LEARN HOW TO:
This program has been developed using John Ulzheimer’s book “You’re Nothing but a Number” along with other supplemental information to make credit issues easier to understand. The most relevant chapters have been summarized in this workbook to ensure that the pertinent information is clear and concise. All chapters are covered in the online portion of the program.
BUILD GREAT CREDIT REPORTS
EARN HIGHER CREDIT SCORES
AVOID CREDIT MISTAKES
SAVE HUNDREDS EACH MONTH
DEAL WITH THE BEST LENDERS
MANAGE YOUR CREDIT CARDS
A 16-year FICO and Equifax Credit Industry Insider
John R. Ulzheimer
CHAPTER 1: CONSUMER REPORTING AGENCIES A consumer reporting agency, or credit reporting agency, is any company that collects and shares information about your credit, insurance worthiness, or reputation with another company or person. There are three primary companies that do this: Equifax, Experian, and TransUnion. There is a fourth bureau, Innovis Data Solutions, which has entered the scene to compete with the "big three" although it is still not as widely used. The last company you will need to know about is ChoicePoint. It is not a credit reporting agency; however, ChoicePoint is to insurance what Equifax is to lenders. Insurance companies want to know certain things about you before they will insure you. Specifically, they want to know what kind of loan history you have. ChoicePoint sells your insurance claim history.
WHAT MAKES
UP MY CREDIT REPORT?
Personal identifying information Loan and credit card account information Public record and collection information
WHAT SHOULD
YOU DO TODAY?
It is very important that you periodically get a copy of your credit report to see that the information reported is accurate. The FACT Act is a federal law that allows you retrieve a copy of your credit report once a year for free. You can go to www.annualcreditreport.com or call 1-877-322-8228 to get your free credit report. Innovis doesn’t make it as easy as the “big three.” You have to request your report by mail. The address is: Innovis Consumer Assistance P.O. Box 1358 Columbus, OH 43216-1358 You can get a copy of your ChoicePoint file in their system via the Internet. The website address is www.choicetrust.com.
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CHAPTER 2: CREDIT SCORING 101: THE BASICS...AND
THE
ADVANCED
The Basics: Your credit score is a three-digit number that ranges from somewhere around 300 to 850. You want this score to be as high as possible. The higher your score, the less of a risk you appear to be to a lender or insurance company. A lower score means that a bank or insurance company will take on more risk if they approve your application. The Advanced: Credit scoring is simply a process whereby data or other consumer variables are quantified through research and then implemented into some sort of underwriting process or system. For our purposes we will call the process credit score regression analysis. Throughout credit score regression analysis, the model developers will look for things that the “good” credit risks have in common and things that the “bad” credit risks have in common. What they end up with is a list of predictive credit-related questions (also know as “characteristics”). A credit-scoring model is really just a series of questions that your credit reports have to answer. For every answer given, points are assigned and your score is calculated. For any question/ characteristic to make it into a quality credit-scoring model, the data have to be highly predictive of future credit risk.
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CHAPTER 3: WHO CARES? Your credit reports and credit scores influence: Getting a home loan or any sort of home equity loan Getting a car loan or lease Getting a student loan Getting homeowner’s or auto insurance Getting any sort of credit card, whether it be a bank card, retail store card, or a gas card Getting cellular service Leasing an apartment Possible deposits for public utilities (such as gas, water, or electricity) Getting a savings or checking account and debit card Getting and keeping a job Your insurance premium on your auto or homeowner’s policies Your interest rates on any of these above-listed items How does it work? Imagine your dream house. A pool, lush landscaping, a view of the water... It has a price tag of $250,000. If you wanted to borrow $250,000 for this house, financed over 30 years (which is typical), and you had a credit score of 670 (which is below average), your payment each month would be about $1,884. Your interest rate would be around 7.2%*. Now, if your credit score was 720 (which is considered to be an average score), your interest payment would drop to around 6.5%*, leaving you with a $1,575 monthly payment. That is a 50 point difference in credit score, but it results in a $309 difference in house payment each month. That’s $3,708 extra per year you will pay just for having poor credit. Even worse, over the life of the loan (30 years) you would pay an extra $111,240. Don’t forget, it’s for the exact same house.
* These figures are typical of the rates commonly available in early 2007.
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Chapter 6: How do I earn a great credit report & great credit score? Rule #1: Understand the value of time.
How “old” is my credit? Your credit report’s date of birth is the date your oldest account was opened and the average age is based upon how old each of your accounts is. For example: If you only have two accounts on one of your credit reports and the older of the two was open ten years ago, then your credit report is 10 years old. If the second account was opened five years ago, your credit report’s average age is 7.5 years. The older the dates, the better they are for your credit.
Rule #2: Ask yourself, “Exactly how much is this going to cost me?”
“Revolving utilization” is the portion of your credit limit that you are currently using as a balance. If you have a credit card with a $1000 limit, and you have charged $500, then your revolving utilization on that credit card is 50%. It can be calculated for each individual card or for all of your open credit cards together. However, the optimal percentage is less than 10%. If you can control it and keep it low, your scores will be much better.
Rule #3: Shop till you and your credit scores drop.
Every time you apply for credit, the lender will most likely pull one and possibly all three of your credit reports. This is called a “credit inquiry” and may remain on your credit report for up to 2 years. For every inquiry you have, your credit score may go down.
Rule #4: Evaluate what KIND of credit you have.
Be sure that you’re getting credit for your good credit. There is no rule or law that forces lenders to report your accounts to the credit reporting agencies. If you have nothing but good accounts with respectable balances, then some record of them will likely be on all three of your credit reports. Try to use only good quality debt.
Rule #5: Pay your bills on time!
Not all lenders will report you just because you miss a payment by a few days, but a few may report your account as being late even if you are late by only one day.
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Chapter 7: Your Rights Federal Law Permissible Purpose (who is allowed to have access to your credit reports and why.) A person or company cannot access your credit information except:
→ At your request—If you want to see a copy of your own credit reports, you have the right to get them, and for free in many cases. → In response to a court order— Your credit reports can be subpoenaed by the courts or an by attorney representing you or defending someone you are suing. → For the purpose of determining employment eligibility—When you apply for a job, your prospective employer has the right to pull your credit reports and use them to determine whether you’re a good candidate. → For insurance underwriting— Insurance companies can use your credit reports (and insurance credit scores) to determine whether they want to insure you. → To grant credit, review an account, or collect a debt—This reason alone accounts for hundreds of millions of credit reports being pulled each year. It gives lenders the ability to look at your credit report if you apply for a loan and it also gives them the right to pull your reports periodically while you have an existing account with them. If you stop making your payments, they can pull your credit reports for the purpose of trying to collect debt. → Child support related— Child support agencies can pull credit reports to determine an individual’s ability to pay child support. FACTA (FACT ACT or Fair & Accurate Credit Transactions Act of 2003) FACTA is part of the Fair Credit Reporting Act which gives everyone the right to get a free copy of their credit reports once a year. Dispute Resolution The Fair Credit Reporting Act also sets the rules for when you have a dispute over something on your credit reports. The FCRA says that if we feel something is incomplete or incorrect we can challenge the information. Credit reporting agencies have 30 days from the day they were notified of the dispute to validate whether or not the item is being reported correctly. State Disclosure Rights In addition to the FACTA annual “freebies” you could also be eligible for free credit reports based on where you live. 10 | Student Workbook
CHAPTER 8: CREDIT REPAIR & CREDIT CLINICS Credit repair is the process whereby you or someone acting on your behalf goes to the credit reporting agencies and attempts to get information removed from your credit reports. The goal of credit repair companies is to get negative information removed from your credit reports so that your credit scores will be higher and you will appear to be less of a credit risk. What do credit repair organizations do? Credit repair organizations play what’s referred to as the “30-day game.” They send a letter to the credit reporting agencies, who have 30 days to investigate any item you dispute; if it is not verified within that 30 days, the credit bureaus have to either remove the information or change it in your favor. Credit repair companies will send out letter after letter hoping that eventually the credit reporting agency will not get to the dispute within the 30 days and the negative information will have to be removed or changed. How do credit reporting agencies respond? The credit reporting agencies all have special units that are always on the lookout for credit clinic disputes. Most credit “repair” involves trying to remove negative information that should be there. If your credit file is flagged as being involved with a credit repair organization, you’re going to have a very difficult time getting anything removed from your credit file in the future. The bottom line: If you choose to inundate the credit bureaus with letters disputing accurate information, that’s certainly your choice. But, paying someone to do the exact same thing seems foolish. Their letters aren’t any better than yours would be.
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Chapter 12: How do lenders use your credit reports & scores? Auto Lending Lenders use your credit reports and scores as a way to determine whether you deserve to be approved for an auto loan or lease and according to what terms. Unlike other industries, auto lenders have a very large number of “offers” that they can make to a consumer based on their scores. (See the table for an example.)
John’s Auto Lot Pricing Schedule SCORE
Interest Rate
Down Payment Requirements
Less than 600
21%
20%
600-624
13%
15%
625-649
11.5%
10%
650-674
10.5%
10%
Mortgage Lending 675-699 8% 5% When you apply for a mortgage loan, the lender will 6.5% None most likely buy all three of your credit reports and 700 or Above scores. If you apply with someone else, e.g. a spouse, the lender will also likely pull all three of their reports and scores. It is standard for the lender to use the median of your three scores. So, if your scores are 700, 710, and 720, the lender will use the 710 to determine your credit risk and therefore the loan offer they will make you. Credit Card Issuers Credit cards are similar to auto loans in that your scores are used to determine credit risk and are used to set your interest rate and credit limit. The primary difference between an auto loan and a credit card is that your auto loan will have a fixed number of payments over a fixed number of months, also known as an installment loan. With a credit card, the payment is different each month and the account can be open as long as the creditor and the consumer choose to keep it open. The payment is different because the balance is normally different each month. This is called a revolving account. Account Management and Account Review Creditors are interested in always knowing what kind of credit risk you pose to them over time. They do this by reviewing how you manage your account with them and with your other creditors. These processes are called “account management” and “account review.” A creditor will review all of the details of your existing account with them and with your other creditors, often frequently. If they see that you are running up high balances or missing payments, they have the right to change the terms of your credit card account. Prescreening Almost all credit card issuers acquire new customers, among other ways, by prequalifying large lists consumers and mailing them invitations to become customers. These lists often come from the credit reporting agencies, which sell your information to any lender who has a product they’d like to offer you. If you do not want your name to ever be sold to lenders by the credit bureaus, you can have your data excluded by “opting out” at www.optoutprescreen.com or by calling 1-888-567-8688. It is free, and by opting out you are just prohibiting the credit bureaus from selling your name to lenders and therefore cutting down on the amount of junk mail you receive.
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Chapter 13: The Three Cs: Capacity, Collateral, & Creditworthiness In the credit and insurance worlds, there are several measurements that determine whether you’re going to be approved for a loan, insurance, or some other benefit. While all of these measurements are designed to evaluate different things, the question they really want answered is whether you will be a profitable or a risky customer. If you are not going to be profitable (or don’t have the potential to be), you’re going to be declined or approved with terms so unattractive that they will essentially force you to be profitable.
Creditworthiness —
Whether your credit is “good enough” that a bank or insurance company has determined they will approve you because they think they can make money from you.
Capacity— Your ability to make your payments.
These measurements are commonly referred to as “the three Cs.”
Collateral —
The measurement that focuses on the value of the asset you are trying to buy on credit. Collateral is only used in the installment loan world. An installment loan is a loan that has a fixed payment for a fixed number of months, such as a mortgage.
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Chapter 16: The Top 12 Credit Myths Here you will find some of the top myths about credit and a short explanation of why they are incorrect. # 1: Close credit card accounts if you’re not using them. You want some “well-aged” credit in your record. # 2: Avoid credit after a bankruptcy or some other credit disaster. Whether you’ve had a bankruptcy or some other tough financial situation, lenders want to see that you’ve been “rehabilitated.” # 3: Paying your bills on time is the best way to get a good score. Paying your bills on time is clearly a critical factor, but it only accounts for 35 percent of your overall FICO score. # 4: If you correct errors on a report with one credit reporting agency, it will be picked up and corrected by all three. You have three different reports, and they contain exclusive as opposed to "shared" data. This means that you could actually see different information on all three of them. If you ever have to dispute a mistake on your information, you must contact the company that produced the erroneous report, as the information provided is specific to that company. # 5: All of your credit reports contain identical information. Although information collected by credit bureaus is supposed to be the same, inconsistencies frequently occur. # 6: Your salary or your level of education positively or negatively impacts your score. FICO scores consider a wide range of information on your credit report. However, some of the things they do not consider are your salary, occupation, title, employer, date employed or employment history. #7: A divorce decree will release you from financial responsibility for an account. “Your divorce agreement does not change your obligations to your creditors,” according to Capital One, a major credit card provider, “and you will be held accountable should your spouse fail to make a payment on a bill that he/she agreed to pay in your name.” # 8: If you have bad credit, it’s a lifelong sentence. Seven years is the magic time period for late payments and charge-offs to disappear from your credit history. #9: Check cards or debit cards will help rebuild your credit. A debit card alone cannot help you build or rebuild credit because no credit is actually extended to you. # 10: Opening new credit cards and transferring balances will help your scores because you’re hiding your balances. Regardless of whether you transfer the balances on your cards to new ones or keep them on your current card, you still owe the debt. # 11: Paying or settling a negative account such as a judgment, lien, or charge off will remove that item from your credit reports. This information will usually remain on your credit report for seven years. # 12: You should try to get old, good accounts removed from your credit reports once they have been paid in full or closed. By keeping them open you look better on paper. You look further away from maxing out your existing credit cards. And that translates into a better credit score.
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Chapter 17: Important Tidbits How to establish and reestablish credit. The difference between reestablishing credit and establishing credit for the first time is that when you reestablish credit, you have a past credit history that is going to hinder your efforts. When reestablishing your credit: 1. Use secured credit cards. Secured credit cards usually have very high interest rates and fees, so they aren’t a very good product for consumers who have already established a solid credit history. Shop around and try to find the one with the lowest fees. 2. Make your payments ON TIME! You do not want new late payments to litter your credit reports or it’s going to be more difficult for your credit scores to improve. 3. When you don’t need the secured card any longer, don’t close the account. Remember, having an unused credit limit is always good for your credit scores.
The right and wrong credit. Believe it or not, there is a right type and a wrong type of credit. You can actually open an account with a company, pay it on time, manage it responsibly and still have that account lower your scores simply because of the identity of the lender–specifically finance companies. Finance companies typically charge high interest rates and target high-risk customers. It is possible to “accidentally” sign up for an account with a finance company without realizing it. When you go to a retail store and sign up for the “12 months same as cash” or “no payments for 36 months” you are opening an account with a finance company that has partnered with that store.
Do I even qualify for a score? To be “scoreable” your credit reports must meet three qualifications: 1. Your credit files can’t have any sort of “deceased” indicator on it. If you had a joint account with someone who has passed away, lenders may report the account as belonging to a deceased person, 2. You have to have at least one account that has been opened for at least three to six months*, 3. You have to have at least one account that has been updated in the last three to six months*.
First things first. Obtain all three of your credit reports and do a “credit report diagnostic” to determine where you stand as of right now. Once you’ve determined that all of the information on your credit report is accurate, your next step is to determine what your scores are and how you can improve or maintain them. If you notice anything on your credit report you feel is inaccurate, you have the right to challenge it. *these criteria specific to the FICO credit score.
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Chapter 18: What are you trying to accomplish? There are many “goals” you can have when it comes to credit management.
MANAGING YOUR CREDIT WITH THE GOAL OF… ...IMPROVING A POOR CREDIT SCORE. Step #1 is to identify exactly why the score isn’t higher in the first place.
...MAINTAINING A GOOD CREDIT SCORE. Credit scores that are very good are much more susceptible to downward score movement than lower scores.
...AVOIDING IDENTITY THEFT. One of the ways to avoid identity theft is to limit the amount of new credit that you obtain and pare down the number of credit cards you currently have.
...GETTING OUT OF DEBT. Having almost no debt isn’t necessarily a good thing for your scores. Credit-scoring models like to see that you’ve managed debt responsibly, not that you’ve avoided debt.
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Financial Literacy 101:
Everything Your Mom & Dad Didn’t Teach You (or the stuff you didn’t listen to when they did…)
Table of Contents Basic Banking and Accounts--------------------- 18 Spending Plans and Budgeting ----------------- 19 Savings ----------------------------------------------- 20 Investments ----------------------------------------- 21 Loans ------------------------------------------------- 22 Used Car Buying ----------------------------------- 23 Insurance -------------------------------------------- 24 Identity Theft and Security ---------------------- 25 Giving Back------------------------------------------ 26
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Your money management skills first begin to develop when you open a checking or savings account. Maintaining those accounts is an important part of your personal financial responsibility.
Basic Banking and Accounts
When choosing where you want open an account, you must realize that financial institutions and the services they offer will differ. Here are a few things to consider when you are shopping for a checking or savings account:
Location
Fees
Other Charges
Availability of ATMs Branch Offices Hours of Operation
Monthly Fees (Balance Requirement) Per-Check Fees Balance Inquiry Fees ATM Fees
Overdraft Charges Stop-Payment Fees Certified Check Fees
Interest
Restrictions
Special Features
Rate Earned Minimum Deposit Requirement Compounding Method
Minimum Balance Deposit Insurance Holding Period for Deposited Checks
Direct Deposit Automatic Payments Overdraft Protection Online Banking Discounts or Free Checking
Something very important to also consider is whether the bank you choose is FDIC insured. The FDIC – short for the Federal Deposit Insurance Corporation – is an independent agency of the United States government. The FDIC protects depositors against the loss of their insured deposits if an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government.
Keep track of your account.
Online banking has made keeping track of accounts much simpler; however, a computer is not always readily available. It is best to keep track of your spending as it happens. By keeping up with a transaction register (which your bank can provide for you), you will always be aware of how much money is in your account. Plus, it is a great way to keep track of your spending to create your budget. The transaction register below is an example of how yours should look. Keep track of all deposits, withdrawals, checks, debits, and fees for your checking account. TYPE Debit Ck # 101 Deposit ATM Debit
DATE
DESCRIPTION
5/12 5/12 5/13 5/14 5/14
Opening Balance Wal-Mart Utility Company Pay Check Withdrawal Taco Cabana
TRANSACTION AMOUNT 15 73
DEPOSIT AMOUNT 250
79 25 350
100 4
BALANCE
64
87
250 234 160 511 411 407
21 96 83 83 19
Remember: Review your monthly statement. Notify your bank of any problems as soon as possible. If you don’t have enough money in your account, DON’T write the check or authorize the debit. 18 | Student Workbook
Spending Plans and Budgeting A budget helps get you from one paycheck to the next without running out of money. But that's just the beginning. The fact is, without a budget most people find it impossible to truly live within their means. Only 40 percent of Americans use a budget to plan their spending. But 60 percent of Americans routinely spend more than they can afford in at least one area of their lives. That's no coincidence. A budget helps you reduce your spending in some areas so that you can increase it in others. Usually this means trading short-term comfort for long-term goals. The end goal of a budget isn't to punish you, keep you home on Friday nights, or make you miserable. It's to help keep your dreams and long-term goals at the front of your mind. It's to help you live within—and even below—your means.
This chart shows some rough guidelines for how much of your income should go toward different expenses. If you live in an area where transportation is higher than normal or rent/mortgage are higher, you may need to make adjustments. Also, if you would like to add a section for gifts, or something else, then you'll need to subtract from another area. Expenses include everything you pay for in a time period. Fixed expenses, such as a car payment or rent, do not change from month to month. Flexible expenses may change from month to month, like a utility bill that is higher in the hotter months when you use your air conditioning more.
To create your own budget, you need to : 1. Write down your expenses. First thing you need to do is figure out where your money is going. How much do you spend, and on what? Pull out your old bills (rent, credit cards, receipts, etc.) to get a clearer picture. Don’t forget things like entertainment, clothing and other major expenses, and include some money for savings. Give yourself a few months to fine-tune this to match your exact spending habits. 2. Estimate your monthly income. You know how much you spend, now figure out how much you have. Only include money you know you’ll get every month. Your mom may slip some cash in a care package every now and then, but unless you can count on it, don’t count it. 3. Do the math. If you have more going out than you have coming in, start looking for things to cut. Entertainment bills are an easy place to start —a lot easier than your utilities and rent, anyway. Keep cutting, and then cut some more, until your income beats your expenses. It’s not always easy…but it is simple. Student Workbook | 19
Savings Saving money is an important part of building your financial future. There are many options to choose from when you are looking to save some of your income, and your money has the potential to grow without any effort on your part. Any time you receive income, you should always “pay yourself first.” This means that when you get a paycheck, you put some of the money in a savings account before you pay your bills or make any purchases. This money that you put aside for “savings” can be as much or as little as you want, it just depends on what your financial goals are.
Here are some tips to help you reach your financial goals through saving:
Consider needs versus wants. Think about the items you purchase regularly. These add up. Where can you save? Do you eat out a lot? Can you cut back on daily expenses, such as coffee, candy, or soda? If you receive cash as a gift, save at least part of it. Pay your bills on time. This saves the added expense of late fees, extra finance charges, etc. Use direct deposit or automatic transfer to savings. When you get paid, put a portion in savings through direct deposit or automatic transfer. If you have a checking account, you may sign up to have money moved into your savings account every month. What you do not see, you do not miss! If you get a raise or bonus from your employer, save that extra money, or at least some of it. Avoid debt that does not help build long-term financial security. For example, avoid borrowing money for things that do not provide financial benefits or that do not last as long as the loan. Examples include: a vacation, clothing, and dinners out in restaurants. Examples of debt that helps build long-term financial security include: paying for college education, buying or remodeling a house, or buying a car to get to work. If you have paid off a loan, keep making the monthly payments to yourself. You can save or invest the money for your future goals. Save your change at the end of the day. Take that change and deposit it into the bank every week or month. When you get a tax refund, save it rather than spend it. If your work offers a retirement plan, such as a 401(k) or 403(b) plan that deducts money from your paycheck, join it! Most employers will match up to $.50 on each dollar you contribute. The matched amount is free money! Even—or especially—if retirement is 45 years away, this is an excellent way to save. By starting young, you will be able to save more money than if you wait until you are older to start saving, thanks to the power of compound interest that allows money saved early to grow significantly over a longer period of time.
Making regular payments to yourself, even in small amounts, can add up over time. The amount your money grows depends on the interest earned and the amount of time you leave it in the account. Interest is money that banks or other financial institutions pay you for keeping your money on deposit with them. Interest is expressed as a percentage rate and is calculated based on the amount of money in your account. If you have $1,000 stashed away under your mattress for a year, it will still be $1,000 at the end of the year, providing that it has not been lost or stolen. Your mattress is not paying you interest for keeping your money under it. 20 | Student Workbook
Investments Investing in stocks, bonds, and/or other investment vehicles provides an opportunity for your assets to grow. The key is to put your money to work so that the wealth you already have will make more money for you. It is important to be wellinformed before making an investment. An investment is a long-term savings option that you purchase for future income or financial benefit. Many banks now sell investment products such as mutual funds. • While some investment products are sold at banks, they are not the same as deposit accounts because the money you invest is not federally insured. • When you invest money, there is also a greater risk of losing it than if you put your money in a savings or other deposit account. In fact, there is a possibility that you might lose the entire amount you invest if the investment does not perform well. • Because of the risk, your investment may earn and grow more than a regular savings account. In general, the higher the risk, the higher the expected rate of return on the investment. You make money on investments by selling them for more than you paid for them, or by earning dividends and interest. The money you earn is considered income; therefore, you may have to pay taxes on it. If you are interested in learning more about investment products, talk to: • Your bank • A reputable financial advisor, or • An investment firm When you become employed, ask your employer about any retirement accounts that are offered through your job. Retirement accounts, such as a 401(k), typically require you to be a full-time employee so you may not be eligible until after college or you have a full-time job. Some more popular types of investment products that you can buy include: • Bonds • Stocks • Mutual funds • Retirement investments Most financial advisors recommend that, before you buy any of these investment products, you should have a savings cushion that will allow you to pay your expenses for two to six months. Any money you have saved beyond this amount can be used for investing. Because of this, you will want to wait until you are financially stable before investing. In case of an emergency, sudden illness, or job loss, you always want to be able to support yourself.
A good “rule of thumb” is to invest only what you can afford to lose.
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Loans
At some point in your life, you will need to borrow money. If you decide to purchase a car or a house, you will need to take out a loan. There are several types of loans: Consumer Installment Loans, Home Loans, Debt Consolidation Loans, and one you’re probably very familiar with– Student Loans.
Consumer Installment Loans A consumer installment loan is used to buy personal items for you and your family. It is called an “installment loan” because you pay the same amount each month in installments. An example of this would be an auto loan. You may or may not put down a down payment, but then you finance the remaining balance owed on the car through a loan and make a set payment each month until the loan is repaid.
Home Loans There are three main types of home loans: Home purchase loans are made to buy a house. They are usually called mortgages. Home refinance loans are a process by which an existing home loan (or mortgage) is paid off and replaced with a new loan. Reasons homeowners might want to refinance their home loan include getting a lower interest rate, money for home repairs or improvements, money for other needs, or as a way to consolidate debts. Home equity loans can be used for any reason. The amount that a person can borrow depends on the amount of “equity” they have in the house. Sometimes banks will give the borrower a checkbook to use to borrow money. It looks like a normal check, but in fact it is a loan that the borrower has to start paying back right away. All three loans are based on the value of the home. If the borrower does not pay back the loan on time, the lender can take possession of the home.
Debt Consolidation Loans A consolidation loan is designed to take all or most of your current debt and combine it into a single new loan. It is presumed to have a lower overall interest rate than the combined existing debts. The lower rate and the single payment make consolidation loans appealing. They result in lower overall payments and less interest paid on the loan. Banks and credit unions typically have lower interest rates than credit cards, sometimes much lower. It is therefore relatively easy to get a new loan from a bank or credit union, pay off the credit cards, and save. Consolidation loans also require a change in behavior and a commitment. Success assumes that you will make the payments on the new loan, put the difference in payments into a savings account and refrain from running up new debt.
Student Loans
There are plenty of tools available to finance higher education. No capable student should be denied a college education because of a lack of funds, but figuring out how to pay for it takes a little planning, some learning, and a certain amount of research. An education loan is a form of financial aid that must be repaid with interest. Education loans come in three major categories: student loans (e.g., Stafford and Perkins loans), parent loans (e.g., PLUS loans), and private education loans (also called alternative education loans). Many students rely on federal government loans to finance their educations. These loans have low interest rates and do not require credit checks or collateral.
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Used Car Buying The Federal Trade Commission’s Used Car Rule requires dealers to post a Buyers Guide in every used car they offer for sale. The Buyers Guide gives information on the vehicle, including: whether the vehicle is being sold "as is" or with a warranty; and what percentage of the repair costs a dealer will pay under the warranty; the major mechanical and electrical systems on the car, including some of the major problems you should look out for. Make sure to get all promises in writing; keep the Buyers Guide for reference after the sale, and ask to have the car inspected by an independent mechanic before the purchase. Buying a car from a private individual is different from buying from a dealer. A private sale probably will be "as is"—you’ll have to pay for anything that goes wrong after the sale.
Before You Buy Whether you buy a used car from a dealer or an individual: Examine the car using an inspection checklist — checklists can be found in magazines and books and on Internet sites that deal with used cars.
Test drive the car on different roads and driving conditions.
Ask for the maintenance records from the owner, dealer, or repair shop.
Hire a mechanic to inspect the car.
Don’t go at it alone. Use the expertise of someone you trust with more experience.
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Insurance
Insurance is basically a protective measure against loss. It is a contract binding one party to protect another against a specified loss in return for premiums paid. In the financial planning world, insurance is known as risk protection or risk management. Purchasing insurance to cover the unexpected provides a safeguard against events over which you have no control.
When purchasing insurance, you need to consider the cost and evaluate the benefits to decide what is appropriate for your particular situation. There are many different types of insurance and many different companies that offer insurance.
Health Insurance The major difference between most health plans will be your out-of-pocket expenses. Deductibles, co-pays, and other expenses will vary as will your monthly premiums. Under most circumstances, the higher the premium for the health plan, the lower the deductible and co-pays. It is important to thoroughly review the plans offered to make sure you are getting the coverage you need without paying more than you should. If you cannot access job-based coverage because your employer does not offer it or you are self-employed, you will need to purchase an individual policy.
Automobile Insurance The type of insurance coverage available is highly regulated by each state. Check with your state Department of Insurance to find out what coverage is required in your state. Different types of auto insurance include: · Collision Coverage · Comprehensive Coverage · Liability Coverage · Medical Payments Coverage · Personal Injury Protection (PIP) Coverage · Rental Reimbursement Coverage · Towing and Labor Coverage · Uninsured/Underinsured Motorist (UM/UIM) Coverage Individual insurance rates are affected by several factors: The type and level of coverage needed, your age or length of driving experience, the type of car you drive, where you live, vehicle use, your driving record and insurance history.
Homeowner’s Insurance A homeowner’s insurance policy covers both property and liability. It protects your home, other structures on the same property (tool shed, workshop, etc.), personal property, and personal liability. Most policies cover damage such as fire, lightening, hail, explosions, smoke, theft, and falling objects to both structures and personal property. Homeowner’s insurance will also provide protection from financial liability if someone is injured on the insured’s property. If someone has an accident on your property that results in an injury, you may be considered “at-fault” and therefore responsible for any expenses incurred by that person due to the injury. Liability insurance is the portion of a homeowner’s policy that will pay for expenses if such an incident occurs. These expenses may include, but are not limited to, medical bills, rehabilitative therapy, and lost wages. The liability portion of an insurance policy also covers a legal defense representative as needed.
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Identity Theft and Security Identity theft is officially defined as the deliberate assumption of another person's identity. Thieves use Social Security numbers, driver’s licenses, passports, account information, and other personal details to impersonate their victims. With this data, identity thieves apply for mortgages, buy cars, open new accounts, apply for jobs, join the military, commit crimes, access savings, and enter the United States illegally, all using someone else’s name.
Identity theft is on the rise. In fact, it is considered the fastest growing crime in America. If you think you are a victim of identity theft, it’s crucial to contact your financial institutions and take control of the situation immediately. Step 1: Report – At the very first sign of identity theft you should call the affected credit card company or business to report the crime. You can find the correct contact information on the back of your credit card, on printed statements, online, and by calling 411. Sophisticated identity thieves can work very quickly, so it’s important that you report the situation right away. Your financial companies will change your account numbers, refund the charges, and send you new credit cards. After your call, write down the name of the person you spoke with and make a few notes about the communication, including the person´s extension or relevant contact information.
Step 2: Research – Now that you have stopped the initial crime, take some time to do a little research. You don’t need to become Sherlock Holmes, but try to investigate the basics of your identity theft case. Look at the records of the account that was stolen and see where and when the fraudulent charge was made. Take a minute to check your other accounts for signs of identity theft. If you spot more damages, report them immediately to the creditors. See if you can pinpoint how the thief obtained your information.
Step 3: Notify – After you have stopped any fraudulent use of your accounts, it’s time to contact the credit
bureaus to report the crime. You only need to contact one of the three credit bureaus to have a 90-day fraud alert added to all three of your files. This alert lets businesses know that you may be a victim of identity theft. The credit bureau can also help you investigate the case and will send you a copies of your credit reports so you can look for suspicious changes.
Step 4: Organize – By now you should have a pretty good idea of what happened. At this point you should create a folder with records of your communications and details about your case. Fill out an ID Theft Affidavit using the Federal Trade Commission’s form (www.ftc.gov/bcp/edu/resources/forms/affidavit.pdf) and keep this in your folder. This document can help you close unauthorized accounts and request that the credit bureaus extend your fraud alert for 7 years. You can also file an identity theft complaint with the FTC online. If your crime goes beyond basic credit card fraud, you should file a police report with your local station. Keep a copy of this police report in your folder for future reference.
Step 5: Watch – Even though you have closed your accounts and stopped the initial identity theft attack, there could continue to be some issues with your accounts. Watch your accounts and credit reports closely for signs that the identity thief has used your data again or opened an account in your name. You may want to sign up for a credit monitoring service that will instantly notify you of changes to your credit report. If you spot something suspicious, report it immediately. If you remain careful about your credit, you should be able to catch and stop any continuing identity theft before it causes major harm. Student Workbook | 2 5
Giving Back Charitable organizations, which provide benevolent, educational, philanthropic, and humane services, fulfill a valuable role in society. More than 80% of the money raised by charities comes from individual donations. Giving to charity is a way for us to help the less fortunate by volunteering our resources, even if we cannot volunteer our time. There are many reputable charitable organizations, but you must be aware of possible scams or bogus charities. Most charities are honest, well-run organizations; however, a small number try to take advantage of the goodwill and generous nature of people who want to contribute to worthy causes. A charity is an organization that is tax-exempt under section 501(c)3 of the Internal Revenue Code. To be considered tax-exempt, none of the earnings of the organization may profit any private shareholder or individual. The organization may not participate in any campaign activity for or against a political candidate. Under the exempt purposes set forth in Section 501(c)3, charities can be established for religious, educational, scientific, or literary purposes, or for testing public safety, fostering national or international amateur sports competition, or preventing cruelty to children and animals. An essential part of every Greek organization is its dedication to philanthropy. Every year the Greek community raises thousands of dollars and donates thousands of hours of community service, with the goal of helping those in need. Among those charities sponsored by members of the Panhellenic Council are: The Ronald McDonald House (), Cardiac Care and Research (), Make-A-Wish Foundation (), Service for Sight (), RIF-Reading is Fundamental (), Arrowmont School of Arts and Crafts (), and Breast Cancer Research and Awareness (). There are three basic ways to give to charity: Donate Goods: Some charities need things like clothing, furniture, old cars, household goods, and canned foods. Many of these organizations pick up donations directly from your home, making it convenient to get rid of items you’re not using anyway.
Volunteer Your Time: Many charities need people to volunteer their time to help with the many different services they provide, such as disaster recovery, health care, or fund-raising activities. Some charities need assistance with administrative duties like answering the phones or bookkeeping.
Donate Money: Donating money is usually the easiest way to help charities.
YUR FUNDATIN One of the benefits to being a member of a fraternity or sorority is that each National Chapter has already established a Foundation in the name of the organization. What better way to give back than to give back to the organization that has already given you so much?
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PLANNING FOR THE FUTURE HAS NOTHING TO DO WITH YOUR WEEKEND PLANS.
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