Financial Literacy 101

Edson Natareno
Diana Melgar
Anthony James
Jose Martinez
Vanessa Martinez
Miguel Ortega

Introduction to Budgeting
Golden Rule: Spend less than youre making!
>How to Budget
>How it helps
>Long & Short Term Goals

Making a Budget
>Figure out Income (job salary, allowances)
>List Fixed Expenses (rent, bills,insurance)
>List Variable Expenses (clothing, food,
entertainment)
> Savings (3 months of fixed expenses)
>Investments

How It Helps/Why Budget?

>helps you buy the things you want
>keep track of your money/where its going
>stay organized and plan for the future
>achieve long and short term goals

SHORT & LONG TERM GOALS

>Short term goals- a goal that's not far or hard
to achieve
Ex. Buying a video game
>Long terms goal- Goals that will take time
and planning in order to achieve.
Ex. Buying a house in 5 years

Budgeting Review
Golden Rule: Spend less than youre making!
>How to Budget
>How it helps
>Long & Short Term Goals

Introduction to Credit
What is Credit?
You are able to borrow a specified amount of money over a
specified period of time.

Definitions
Credit Card: a plastic card that has assigned account number,
allows you to purchase goods or services and you are able to
receive credit
Credit Risk: the risk that a borrower may not repay a loan on time
or at all
Interest Rate: the cost of using the money provided by a loan,
credit card, or line of credit
Annual Percentage Rate (APR): how much you must pay to get a
loan on a yearly basis
Credit Limit: the maximum amount of money a credit card holder
is allowed to borrow using the credit card

Reasons for Having a Good Credit

lowers your interest rates

speeds up credit approvals
approval for apartments
better credit cards, car loans, and mortgage offers

What makes up your credit score?

payment history - 35%

how much you owe - 30%
length of credit card history -15%
new credit - 10%
other factors - 10%

What are the ranges?

General Range: 300-850
Above 700
low risk to lenders
good financial health
Below 600
high risk to lenders
higher interest rates
get declined

Credit Score Activity

Angela just turned 18 and has a starting
credit score of 750. In a couple months,
Angela has a new score of 395.
Does she have a good or bad score?
Why?
What did she do to lower it?
How can she raise her score?
How can good credit affect her in
college?

Penalties for Bad Credit

Bad credit will damage your life in many ways...

Prevents you from buying a home

High interest rates when buying car
Longer time to be approved for loan
Less money from loans you receive

Specific actions/ Ways to boost your score

pay off accounts

pay on time (6 months)
pay overdue payments
open accounts only when you need them
check your credit report

Introduction to Debt
> Good vs. Bad Debt
> Getting out of debt
> Bankruptcy

Good Debt
Good debt is investment debt that creates
value
> Mortgages
> School loans
> Car Loans

Bad Debt
If youre going to buy something that doesnt
build up your equity, and you cant afford to
pay cash then you cant afford it.
>Things you cant afford to pay at the end of
the month.
>Things that go down in value

Getting out of Debt/Avoiding Debt

>Pay off your highest-rate loan or credit card
>Watch where you borrow money (interest
rates)
>Expect the unexpected (3 months saving)

Bankruptcy
Last resort
Bankruptcy #1- give up all assets to pay off
debt. 10 years on credit score
Bankruptcy #2- given a 3-5 year payment
plan to pay off debts. 7 years on credit
score

Introduction to Investments
>Investing
Stocks
Mutual Funds (less risk)
Bonds

Investing
What is INVESTING?

Putting your money in stocks, bonds, or mutual funds that usually

make you money (dividend).
Lending someone money and charge interest

How much money would you have by retirement?

http://www.bankrate.com/calculators/retirement/traditional-ira-plancalculator.aspx

Stocks
Purchasing a stock -- buying a share of a company
Increases your equity
How do you earn money?
Value of the stock goes up, you can sell it
Dividend/ Companys profits
Capital Gain: the money you make from the stock you
bought

Mutual Funds
Buy 4 Apple stocks or buy 4 different company
stocks? Why?

Bonds
Lending the government, city or a company
money and them paying you back with
interest some time later.
Less on average than stocks
Doesnt go down in value

Investing Review
Your money turning into more money
Investing
Stocks
Mutual Funds
Bonds

End of Financial Literacy

101