Young Money

YOUNG MONEY
A Teen’s Guide to Avoiding Financial Hangovers
YOUNG MONEY
A Teen's Guide to Avoiding Financial Hangovers
Publication date: January 2010

Author: Nils Goldschmidt
Please visit us at www.prudentkids.com
Copyright © 2010 by Nils Goldschmidt
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Table of Contents
Introduction ............................................................. 4
Chapter 1: Employment............................................. 6
1. Creating a Resume ........................................ 7
2. Creating a Cover Letter .................................15
3. Where to Find a Job ......................................26
4. Interviewing Skills ........................................34
5. Hiring Requirements .....................................46
Chapter 2: Investments............................................55
1. Stock Market Basics......................................55
2. Stock Market Risks .......................................68
3. Avoiding Scams ...........................................76
4. Saving for College ........................................84
5. Saving for Retirement ...................................95
Chapter 3: Banking ................................................ 103
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1. Credit Cards and Debit Cards ....................... 103
2. Student Loans and Scholarships ................... 112
3. Checking and Savings Accounts ................... 121
4. Checkbooks ............................................... 133
5. Interest Rates and Debt .............................. 141
Chapter 4: Prudence .............................................. 152
1. Setting Goals ............................................. 152
2. Balancing a Budget..................................... 159
3. Saving for a Car ......................................... 167
4. Importance of College Education .................. 175
5. Credit Scores and Debt-to-Income ............... 184
Common Financial Terms ........................................ 194
Conclusion ............................................................ 198
About the Author ................................................... 199
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Introduction
It’s all about economics…
Today, financial literacy is an essential life skill. There is no better

way to understand or make sense of what is happening in the
world unless we fully accept the fact that at the bottom of
everything, but everything, is the economics of it.
In fact, true freedom is linked to financial literacy. It is the

birthright and consequently the duty of every person to know
what financial management is all about. Knowledge is power and
the more we know, the more information we have on what
financial management is, the better equipped we are to deal with
our own finances, which in turn, help us lead a fulfilling life.
Money is an illusion, and the understanding of it is quite
fascinating. Most of our financial disasters have been caused by
ignorance of basic routine money matters. In this book, we intend
to deal with these basics, and move on in a manner that will
enable the reader to take great pride in managing his finances.
Therefore, what we are trying to say is that it is imperative for
every student to learn financial management as he works towards
becoming a productive member of society. He learns to handle
his finances so that he is at an advantage. He learns to monitor
his financial resources and use them effectively for the well-being
and economic security of himself, his family, and his business. To
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become financially literate means to learn the difference between

want and need and the concept behind making a budget, and to
chalk out a savings plan and buy a home. The student needs to
know about loans, how to get them from banks, and what the
most convenient method of repayment is, rather than think about
financially crippling solutions like going to a moneylender, or
other sources of credit. It is possible to become a wise investor
and take stock of one’s assets. It is absolutely possible to make
money work for you, increase the economic stability of your
family, create better consumer habits, and eventually increase
your stake in the wealth of the community.
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Chapter 1: Employment
We live in a world which has a large number of goods and

goodies that would make our lives exciting, interesting and
fulfilling. We also live in a very competitive world where there are
thousands of applicants for the same job. Pitted against this is
our own value system, abilities, likes and dislikes. So, while
money is important for everyone, how each one sees it is
different. Consider this: five teenagers, Mary, Jenny, Nick, Brad,
and Tanya, were offered a job during the school vacation. It was
a janitor’s job which would pay $10 an hour. Mary declined
outright saying it was a job that was beneath her dignity, Jenny
agreed to take it up but on certain conditions, Nick decided to
accept it because he wanted a new music system, Brad wanted to
take it because he was saving money to go to college, and Tanya
decided that it was an interesting proposition, something which
she could learn, and which would get her some money in the
process. If we were to sum this up, we would arrive at a
conclusion that money was important, and dignity was important
too. Many people take up jobs that they don’t like, because they
are aiming for and working towards a situation that they want;
their only requirement is that it should be a decent set-up. Money
is seen as a paycheck, a learning experience, and the honoring of
a commitment made to oneself. Ideally, a small part should be
put away as savings. Since teenagers love taking up the
challenge of working, if they can discipline themselves to put
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away just a small fraction, that soon builds up to a tidy amount.

The advantage of this is that it allows for financial freedom to get
and do the things you want, without having to take a loan.
Financial freedom also instills a sense of confidence. Every work
experience counts, especially when students want to take up a
job after graduating. A well-written resume documents all of a
student’s achievements.
1. Creating a Resume
An organization gets thousands of applications. It is the cover

letter and resume that first create interest in the candidate. This
is also what gets him the interview. Thus, the resume should:
 Create a good impression – you are showing your

communication skills, so whatever you write should be
direct, concise and easy to follow.
 Introduce you – the resume is telling the selector who you

are, and why you should be considered for the job. Write
about the skills and experiences that you have acquired
during your years in school. You need to also mention any
work experience or internship that you have done.
Remember that you are seeking to impress, consequently
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what you write should be succinctly put in a few sentences,

and should be to the point. If you are a hard worker, with an
eye for detail, put this down in an unobtrusive manner.
Never lie, and never oversell yourself.
 Describe what you have learned and done in school –

highlight any courses or projects that you have done which
you think might be relevant to this job. Give an outline of
your educational qualifications. In case you have many
qualifications, you need to mention only the relevant ones,
and segue it so that it reads seamlessly. If you have special
language skills, these should be specified. Remember you
are trying to catch the busy eye of the selector.
 List all that you have accomplished – if, for instance, you
were awarded a scholarship because of your high academic
grades, while working full time. It could be recognition for
work done, or validation for participating in an event of
social awareness. Naturally, these must be relevant to the
position you are applying for. You could also mention your
achievements on the sports field, or if you were a member
of a society or hobby club. In case you have superior
Information Technology skills, it would be worthwhile to
mention it and back it up with copies of your work, affixed to
your resume. If you have facts and figures, include these, as
it removes abstractness.
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 List your work experience in case you have held other jobs –
this list should be in reverse chronological order, starting
with your most recent position. Focus on the responsibilities
that you have held, and any promotion that you might have
got. Any commendation that you might have earned in the
line of duty should be mentioned here as well. If you held a
position which involved financial or budgetary
responsibilities, these should be stated. In case you are
working in an unknown company, it would be good to give a
brief description of the company.
Though references are not required at this point, it would be good

to check with your counselor, if the particular company that you
are applying to would like to see references.
Some tips to remember are:
 Keep your resume for a day or so before sending it, just in

case you think of something that can be added, or
something that needs to be re-done.
 Draft and re-draft as many times as is needed. You need to

be called for the interview!
 Usually, personal information like age, family status, marital

status, religion, race, political affiliation and a photograph
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are not required. However, there is no harm in finding out

about this before including them in the resume.
 You could send a copy of your resume to the HR

department, and also to a ranking officer in the organization
(you’ll have to do some information-finding here). This is as
a back-up in case the HR disqualifies you on a technicality.
 Think about how best you can write your achievements,

highlighting but not bragging about your achievements, and
minimizing, but not hiding, your weaknesses.
The technical aspect:
 Keep the layout simple. Use only one or maybe two fonts.
Sans-serif is good for headers and the serif fonts are good
when you list details. Other fonts that are highly acceptable
are Times New Roman and Arial. Remember this is a formal
business communication. It is best to use one font and two
sizes (but not in bold) for emphasis. The font size should be
10 or 12 points. The margin should be 1 inch.
 Keep enough space between lines so that it is easy to read.

The employer must be able to find the information he is
looking for.
 Try not to use color, unless you absolutely feel you must.
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 Ensure that the each entry is formatted the same way.
 Never use charts, tables, graphs or pictures in the resume.

If you feel that this is necessary and will add weight, then
send it as an addendum, or as a link to your web page.
 In case you are applying for a position as a Web Designer or

Graphic Artist, it would be best to create an elaborate and
distinctive Web resume and mention the URL in the resume.
 Do not use either an all-capitals style or italics.
 Use commonly used names as section headings such as

Education, Technical Skills, Language Skills and Work
Experience, to name a few.
 Do not use abbreviations.
The format of the resume should have:
 Your name, address, phone number and email address. This

should be at the top center or top left-justified.
 The objective, i.e., the position that you are applying for.
This could be adapted to the position advertised.
 If you have any specific skills, especially those associated

with your career, they are mentioned here.
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 The next is the section on education. Here the schools and

universities attended should be mentioned along with the
degrees received, the major, and the grade point average.
 Work experience comes next. The most recent positions are

mentioned first, and the rest in reverse chronological order.
In case you do not have any work experience, then your
project experience and internships are stated here.
 Your accomplishments are mentioned last. In this section,

areas you have excelled in, leadership positions you have
held, as well as honors and awards received, are listed.
One important point to keep in mind is that since employers

frequently use the Internet to search for suitable people for their
organization, they use certain keywords. When you are looking
for a job, it is best to use these keywords so that you catch the
attention of a prospective employer.
Some words and criteria specific to the technology industry:
 Job titles – these would be Software Engineer, Quality

Assurance Analyst, Developer, Programmer, and Project
Manager to name some common titles.
 Skills and Responsibilities – these would include application

programming, system administration, budget planning,
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technical writing, drafting, team lead, architect, manager,

technical support, and web development.
 Computer buzz – HTML, C#, TCP/IP, UNIX, XML, Linux, SQL,

LAN, Microsoft Project, .NET, CAD, Operating System,
Design, OYO, C++ and Java, to include some general
terminology.
 The educational qualifications would include – BS

Engineering, MACS, Microsoft Certified Professional, Masters
Degree, PhD, MBA, and MCSD.
General keywords used include: ability to… (Delegate and

supervise etc), detail-oriented, problem solving, team leader,
lead, communication skills, results-oriented, and analytical ability,
are a few examples.
A resume cannot be written in a hurry. After writing it, read and

re-read it, to see that you have included everything. Thoroughly
proofread the resume. Take a print-out, so that you see how it
looks in case the employer wants a hard copy. Make the
necessary adjustments, so that the resume looks classy. Ensure
that all your supporting material is affixed and easily accessible.
Always remember that when it comes to hiring, selectors are
rather conservative.
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It would be wise to know why resumes are sometimes rejected.

There are 3 main reasons for this:
 Poor first impression – first impressions matter! Your resume

needs to catch the attention of the selector in the first 20 to
30 seconds. A brief abstract of your capabilities and your
major achievements would be good.
 Poor visual layout – the employer is looking for some special

information that will attract him. Space the lines so that all
the headings, sections, important points are all visible
clearly. Use a word processor and good quality A 4 paper.
 Very long resume – terse, concise, to the point, are words

that stress the importance of writing a resume.
An example of a resume is:
Robert Thomas
2501 Essex Drive, Evansville, Indiana, PA, 19522
Bobby_54@yahoo.com Tel (724)357-7000
PROFILE:
A student of Economics, who is eager to find a position as a
Trainee Accounts Assistant, reliable, trustworthy and hard-
working, worked for a bank during the summer and has a good
understanding of banking procedures and what is expected of a
banker. Can work on his own, and also as a part of a team. Can
competently deal with administrative work.
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ACHIEVEMENTS:
Work for Habitat for Humanity of Monroe County
EDUCATION:
Bachelor of Economics, Indiana University, Bloomington, IN;
Minors: Mathematics and Geography; Current GPA: 3.0/4.0
Subjects studied: Art History, Communication and Culture,
Computer studies, French and History
EXPERIENCE:
 Worked as an intern in the Keybank National Association,
Lebanon, IN.
 Handled all incoming calls when deputed in the Home Loan
Options department
 Typed reports regarding loans
 Worked in the local community centre: organized games for
the old peoples’ get together, and helped arrange treks for
the youth group
COMPUTER SKILLS:
Microsoft Windows Vista (Word, Excel, PowerPoint Access)
INTERESTS:
Theatre, hiking, trekking, music and reading
2. Creating a Cover Letter
It takes 7 seconds to make that first impression! Therefore, your

only chance in trying to get a toe-hold in any job in this
extremely competitive world is a well-written cover letter.
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A cover letter should:
 Be specific. You are clear in your mind about the position

you are applying for. Before writing the cover letter, jot
down your strengths and weaknesses. See what is
applicable, and how you can tailor your cover letter to
include all the criteria.
 State the basics. Give your contact details clearly: your full
name, address, telephone numbers, and email address.
Make sure that there are no spelling errors.
 Be informed. Find out who to address. This can be done

through your own research. You can call the main office and
ask the receptionist for the full name and designation of the
person who will be doing the recruiting. In your cover letter,
then, address the person by name, using the formal title
Mr., Mrs., or Ms.
 Give the details. State clearly which position you are

applying for, and where you read/heard about this job offer.
Employees always like to know where you learned about the
job. In case an employee of the company told you about this
opening, be sure to mention it, since some companies have
a system of employee referrals.
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 Make a personal connection. No matter how many

companies you are sending your resume to, ensure that
each letter is a personal one.
 Show your interest. Find out about the company’s mission

and history and what its achievements are. This clearly
indicates to the selector that you are interested in the
company and are keen on a position in it.
 Address the requirements of the company. Do this in a

manner that shows your worth, your skills and your abilities,
as something you could put at the company’s disposal. You
have their criteria; match your abilities and qualifications
with them. For instance, if you are applying for a position in
sales, highlight your experiences where you have been
successful as a sales person. Likewise, if you are looking for
a position in a bank, what you need to show is your success
as an intern in a bank.
 Display your strengths. Show that you are goal-oriented. If

you have leadership qualities or team building skills, you can
briefly touch upon it in your cover letter. Imagine you are
the employer. That would give you an idea of who you would
like to employ. In fact, employers very often use the PEP
formula: Profitability -Efficiency- Productivity. Employers can
hardly resist candidates who show that they can make
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money for the company, or can make the organization more

productive.
 Be inclusive. Make sure that you mention all the summer

jobs and internships that you have held. Remember that this
will show the employer that you are capable of holding a job
and taking responsibilities, and have actually worked in a
company. Of course, if your work experience has been in an
area which is related to the position that you are applying
for, it will add weight to your resume.
 Express your desire to meet the employer.
 Be perfectly written. After writing the cover letter, keep it

overnight. This is so that in case you remember anything
that would add weight, you could include it before sending it
off. Your letter should be neat and attractive. Ensure there
are no spelling errors or typographical mistakes. Make
certain that there are no grammatical errors and that the
syntax and punctuation are correct. Request the college
career office to go through your cover letter and resume
making sure that they are correct. Even if you are sending
the cover letter by email, make sure that the letter is
perfectly written and formatted.
 Use action words. These convey a feeling of capability and

responsibility Some action words are – accomplished,
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acquired, assessed, balanced, communicated, computed,

customized, designed, diversified, enabled, expressed,
innovated, justified, marketed, negotiated, qualified,
restored, structured, selected, transformed, upgraded, and
validated.
 Save a copy on your computer or in hard copy in a filing

cabinet. This is so that you will know what you have written
for which organization.
A very important point to remember while drafting a cover letter

is your accomplishments. If these are concrete and measurable,
so much the better. Employers today want to know if you are
proactive, if you are a mover and shaker, whether you can show
initiative, and responsibility, and how you can contribute to the
organization. Try to make each job or activity that you
participated in seem as if it was an accomplishment. Here are
some prompts that you can use to list your accomplishments:
 What special thing did you do to distinguish yourself?
 What kind of initiatives did you take?
 Did you ever walk the extra mile without looking at the
watch?
 Did you win any in-house awards?
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 Did you get any promotion?
 What are you most proud of in your work?
 Have you got any letters of appreciation from either clients

or employers?
 What kind of problem did you encounter? How did you solve
it? This is the SAR technique – a Situation of problem arises
in a job, what is the Action you took, and what the Result
was.
Many things go into writing a cover letter: educational

qualifications, work experience, internships, personal qualities,
value system and beliefs. If you want to earn money and become
financially independent, then you need to set your sights high and
ensure that you get to it. According to experts, a cover letter is a
document that introduces you, and generates interest in the
employer reading it. This leads to a perusal of your resume. If the
cover letter and the resume are interesting, then you get called
for an interview. In marketing jargon, this is known as the AIDA
marketing approach: A – Attention. You are trying to get the
attention of the selector; I – Interest. Your cover letter has
generated interest in you; D – Desire. The selector’s interest in
your cover letter and resume has now turned into the desire to
have you on board the company; A – Action. The selector calls
you for the interview.
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Some tips on what you should absolutely not do:
 Never do a cut & paste affair of either your cover letter or

your resume. Never write a standard cover letter with gaps
in it, of which you make copies, and fill in when you send it
to a prospective employer. Employers immediately see
through such letters.
 Never go overboard when talking about your strengths. Just

a well-aimed and well-written hint is what we are looking
for.
 Completely avoid using flowery language. No one has the

time to wade through that. Just be brief and direct, and use
a few cogent sentences to make your point.
 Never lie about your accomplishments even though you

know there are hundreds of competitors. An employer would
rather have an employee with the right attitude rather than
with a bagful of accomplishments and the wrong attitude.
 Sometimes an employer does not insist on a cover letter.

Write one anyway, because it does make a big difference.
 Do not make the cover letter detailed and elaborate. That

should be in the resume. There should be enough
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information to generate interest in the resume, which would

have the details.
 Do not send an email cover letter as an attachment. It

should be in the body of the email.
The format of the cover letter should have:
 Your name and address, including your telephone number

and email address
 The contact information of the employer
 The correct, formal salutation
 The body of the letter, in 2 or 3 short succinctly written

paragraphs
 Complimentary end of the letter
 Signature – handwritten if the cover letter and resume are

being mailed, or typed clearly if being emailed
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A sample cover letter:
Tanya Evans
1155 Alta Vista St, Jacksonville, FL 32205
(904) 378-9939
Mr. R. C. Jones
YUM! Design & Advertising
538 Virginia Dr.
Orlando, FL 32803
December 10, 2009
Dear Mr. Jones,
My artistic and extrovert nature and my recently completed

undergraduate course at the University of Tampa, where I
majored in Advertising and Public Relations make me a strong
candidate for an assistant’s post in the creative department of
your organization. My minor subjects were: advertising,
mathematics, communication and French. While at University, I
participated in many advertising campaigns for environmental
awareness and a greener world. My schooling was in Miami,
Tampa and Jacksonville, and during the summer vacations, I
worked in various capacities in advertising agencies.
I have the maturity to take up a project and see it through to the

end. I am also a team player.
I will be in Orlando at the end of December and would very much

like to meet you. If I may, please could I call your office and see
if it is possible to arrange a meeting with you.
Thank you for your time, and consideration.
Yours sincerely,
Tanya Evans
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In case you have held the same job during the summers
over the years, then you would be in a strong position to
apply for a job. In that case, your cover letter would read
like this:
Tanya Evans
1155 Alta Vista St, Jacksonville, FL 32205
(904) 378-9939
Mr. R. C. Jones
YUM! Design & Advertising
538 Virginia Dr.
Orlando, FL 32803
December 19, 2009
Dear Mr. Jones,
I have a proven track record working with the Dalton Advertising

Agency in Jacksonville, Florida in their creative division. I feel I
will be able to do justice to the post you have advertised for
creative artists.
You have said that you are looking for someone who has good
communication skills, analytical skills, and can work in a team.
During the course of my summer jobs, I have held various
positions of responsibility. I have been active in planning and
executing many environmental awareness campaigns.
I have a great passion for learning and growing and never

hesitate to take on new challenges. I believe I can contribute to
your organization and would be grateful if you would give me a
chance to meet with you. If I may, I would like to call next week
and see if you can give me some of your time.
Thank you for your consideration.
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Yours sincerely,
Tanya Evans
Kinds of cover letters:
1. Resume cover letters – these are traditional cover letters

written in response to jobs that have been advertised. They
are customized for the specific position you are looking at.
2. Prospecting letters – these are letters to find out if there are

any suitable openings for a person with your skills and
abilities. When you write a prospecting letter, make sure
that you know the organization’s mission and what they are
about. This adds weight to your letter. When the employer
realizes that you took the trouble to find out about the
organization, he will be well-disposed towards you. You can
also include your resume along with your cover letter.
3. Networking letters – these are letters written to career

advisors or those you know and who will help you with job
prospects. You could write a referral letter to a contact who
you feel would be in a position to refer you to a placement,
or a job opportunity. You could possibly get a letter of
introduction from a mutual contact for a person in authority
in the organization, or a prospective employer. General
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networking letters could be sent to all your contacts for

information about job openings. You could enclose a copy of
your resume with these letters.
3. Where to Find a Job
The statistics set out in December 2009 by the U.S. Bureau of

Labor Statistics, were quite frightening. The number of
unemployed persons was at 15.3 million, and the rate of
unemployment stood at 10%. There were 6.1 million people who
were long-term unemployed i.e., they were jobless for 27 weeks
or more. 9.2 million people were working part time for economic
reasons. 2.5 million people were marginally attached to the labor
force i.e., they wanted and were available for work and had
searched for a job opening in the last 12 months. Among these
were 929,000 discouraged workers i.e., those who were not
looking for work because they thought that there was nothing for
them. The remaining 1.6 million persons had not searched for
work because of family responsibilities or school attendance.
As we go through these statistics we realize that preparation to

join the work force starts early in life. The strong sense of
independence, individuality, and responsibility towards self and
family needs to be translated into work and holding a job. We
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need to realize that we might not always get what we want at the
first go, but that should only serve to motivate us towards getting
the job of our choice. If we realize that we can make a success
out of any situation, and are willing to try new avenues, we will
be on winning street right away. A step forward would be to know
exactly where you want to work and what you are looking for,
including the job title.
There are many ways of looking for a suitable placement. The

point to remember is that it is a hard steep climb and we have to
believe in the words: Never Give Up. There are many
opportunities that open up as you go on the journey of finding a
job. Never pass these up.
1. Newspapers. The classifieds offer a wide range of

placements. Often, some jobs that feature in newspapers do
not find a place on the Internet. So, it is always a good idea
to go through the papers. There might be surprises for you!
The Business section of the newspaper will give you
information on which companies are expanding, which
organizations are getting grants, and which companies are
promoting people. These are good places to send your
resume to. In fact, if you can go to these companies and
personally hand in your resume, it helps. For one thing, you
might get to meet personnel in the Human Resource
Department, or you might make friends in the organization
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that would be able to tell you if and when there is likely to

be an opening.
2. The yellow pages. This is also a good source to find jobs.

Since the yellow pages give a listing of the various
companies locally as well as in other places, this is a good
place to start your search. One technique is to target those
companies whose products you like. Research them and find
out all you can about them, their hiring procedures, and
likely job openings. Once you have this information,
introduce yourself to various people in the company as being
a customer who likes their products. Slowly but surely start
your networking.
3. This way, chances are that even before they are advertised,
you will get to know if there are likely to be any vacancies.
4. Employment agencies. These agencies have a large

database and it is one sure way of getting jobs in other
states. Sometimes they offer a temporary placement, but
these can lead to permanent appointments at a later date.
Employment agencies accept applications online, which
make it an effective method of getting a job. In fact, in case
you are keen on a particular location, you could go there,
and look around, and even get a local post box number. This
would indicate your seriousness in relocating to that
particular place.
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5. The Federal Government. There are many job openings in

the Federal Government. Government jobs offer competitive
pay scales with excellent perks and benefits. They have
good retirement programs as well. Certain posts carry
relocation assistance. The best thing about applying for a
position in the government is that there is no discrimination
in the hiring procedure. You can log into USAjobs.gov to find
out if there are job openings in the Federal Government.
6. Jobs Fair. This is a wonderful place to network. Companies

send their representatives and this gives a chance to those
looking for jobs to meet them and talk to them. The big
advantage is that since many companies are represented at
a fair, job seekers get a chance to find out about all of them
on one day and in one location. You get a chance of directly
meeting with potential employers, and so there is every
chance of your resume reaching the right people. Of course,
campus placements are like mini job fairs, and these are
open only to students of that particular college/university.
A job fair is actually a win-win situation for both employers and

future employees. Employers have a pool of likely candidates who
fit all their criteria. They thus get a good database. For students
looking for jobs this is a good opportunity to directly meet with
company personnel. Graduates get an idea of the job market and
other students can try to get placements, internships, or vacation
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work. Tips to remember: since you are going to meet potential

employers and network, it is imperative that you are well-
informed and knowledgeable about the companies whose
representatives you intend to meet. Be prepared about what you
are going to say or ask, so that you can have meaningful
discussions with the representatives, and ensure that you speak
well. It is also a good idea to dress conservatively. Remember,
first impressions are important. Do not walk in a group, as you
might miss out on an important contact because the
representative or potential employer might not have been able to
single you out. Also, someone who is more talkative might have
attracted their attention! There are always Careers Service staff
available who are able to give you the right guidance in case you
are stuck.
1. Online Job Search Sites. Since the advent of the Internet,

the world has shrunk. It is much easier to get information on
various companies and organizations that you are interested
in. It is also possible to find out if there are employment
opportunities in these organizations. Online job search sites
like Job Bank, JOBCONSULTANCY, Monster, job-hunt,
HotJobs, and CareerBuilder are some sites that you could
register with. Other sites include Craigslist, Hound,
AbyZNewsLinks, AdQuest3DClassifieds, NewsDirectory, Dice,
LinkUp, Jobofmine, and Oodle among others. Yahoo Hot Jobs
is a very well known search engine for jobs. Some search
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engines include Indeed, Workhound, Recruit, SimplyHired,

Flipdog, and Jobster. There is a new generation of
employment websites known as the Pay For Performance
(PFP). Here, a membership fee is taken from job seekers.
Websites that belong to this category are TheLadders, and
IvyExec. In these websites, job listings are screened, and
jobs are hand-picked for the members. RiseSmart and
JobConcierge are websites that search and apply for
positions that jobseekers registered with them are looking
for.
2. Others. Skype is a wonderful networking tool and helps you

to connect with other Skype users around the world. Instant
Messaging is another networking system which will help you
to get instant information about any placements that might
be available. LinkedIn helps you to be in the circuit.
Facebook is very good for professional networking. Other
places where you can post your profile are VisualCV and
JobFox.
A good point to remember: when job hunting, go for jobs that are
not advertised. A little known fact is that employers post job
placements on their websites. In fact, there are supposed to be
10 times more jobs posted on employer’s websites than on job
boards. There are many companies and organizations that have
job vacancies on their websites.
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Thus, when you look for a placement what you need to do is:
 Have a clear idea of what you want to do. Keep back-up

plans ready.
 Use all the means that you have available to narrow down
your search to jobs that match what you are looking for, as
well as the place where you want to work.
 Create your profile on the relevant sites. Remember that a

strong positive personal brand will attract employers,
recruiters and contacts.
 Network. In case you are at a loss how to begin, just start

with a question. For instance: ‘I’d really love to work in
advertising because I am fascinated with what the media
can do. I have three years experience working for the school
newsletter and magazine. Would you know anyone I can
contact in the local advertising agency? Or anywhere close
by?’ Ask members of your church or other social groups this
question. You might just get some good ideas! In case
someone has given you a reference, rehearse a short
speech, and then call the concerned person: ‘Good morning
Mr. Smith. My name is Sophia Blackwood. Mr. Jones gave
me your number and told me you would be the right person
to help me. I have some doubts and questions about
working in advertising that I would like to clarify with you, if
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I may. When would be the right time to call you?’ and then
take it on from there. Keep a file in which you store all the
notes you make during calls, at meetings, as well as any
business cards that you get.
 Use job search gadgets, tools and widgets to help you in

your search.
 Research companies that you are interested in. You can get
detailed information on the Internet. Use it to your
advantage.
 Use advice from a recruiter and work with him so that you
get the hang of researching and applying for jobs.
 Take time to write your cover letter and resume. By linking

your qualifications to the criteria that a company is looking
for, you will attract the attention of the recruiters.
Remember, it is not easy to land a job. It is only a positive, never

say die attitude that gets you where you want to go. It is a
challenge, and like all challenges can be very exciting. It is
certainly very rewarding.
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4. Interviewing Skills
Imagine you have found the job that you want to apply for. It
could be something that you have always wanted, or which
comes closest to what you are looking for, or is one which can be
used as a stepping stone to a better placement. You have sent in
your resume with the cover letter. The day you have been looking
forward to arrives: you have been called for the interview. Now
you are facing a real challenge.
 The very first requisite is a strong belief in yourself. You

know it is a fiercely competitive world. There are thousands
of applicants for the same job. You know how much you
want this job; you have your reasons for it. You are also
aware of the fact that anything can happen and you might
not get the job. Never, no matter what, must you lose faith
in yourself and your abilities. You have to believe that there
will be other chances. You must know that there are many
forces at work, and maybe this was just not your time to get
this particular job. Believe in yourself, learn from the
experience and move on.
 The next most important requisite is having the right

attitude. It is only a positive attitude that will get you
through an interview. Whether it is your first interview or
your hundredth, it is your positivity that will help you face
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an employer or an interview panel. Every experience is a

learning one, and with a positive attitude, anything is
possible.
 Next is your preparedness. Here again, no matter how

many interviews you attend, each one must be viewed in a
fresh light, and you have to prepare thoroughly for each
one. Some questions you can ask yourself are whether you
know all about the company that you are applying to: what
their mission is; what their products are; whether their
targets were met; what their recent achievements are; what
they are known for; whether they are an international
brand; a little about their history; who founded the company
or the organization; the place where the company is located,
the local facts and figures; their work force; if anyone in the
organization is a prominent leader; who the members of the
Board are; any awards that the company may have
received. Research and try to get as much information as
possible about the company or organization. Be aware of
their rival companies as well. You must also brush up on
your general knowledge and awareness of the world,
especially since we live in an interdependent world; have an
idea of local, national and international politics, local,
national and international world issues; refresh your
knowledge of your own subject of specialization and courses
of study done; find out about new developments in your
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special field. In case you have interests and hobbies, and

have mentioned them in your resume, make sure you know
all about them, and have the latest news and information
regarding them. Be well informed of your own options too.
Brainstorm with close friends so that your perceptual sweep
is increased. You will need to show that you have breadth of
vision and knowledge.
 Dressing for the interview is the next most important thing.

There is a rule of thumb for this: when in doubt, dress
conservatively. You can never go wrong with that.
Alternatively, you can ask someone you know in the
company to call and ask someone in their HR department
what would be the most suitable way to dress. Never wear
flashy clothes. Instead go in for a subdued but smart look.
There are little things like: always wear socks, both men and
ladies; ladies could check the length of their skirts; trousers
should be of the correct length and fit; shirts and jackets
need to be a correct fit; the tie you choose to wear should
not be too flashy; shoes should be well-polished, and hair
neatly combed. Ensure that you present a well-groomed
picture.
Remember, going through an interview is a skill. You need mental

agility and mental alertness. One thing which you should
consider, and which will help you greatly, is to request your
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friends to ask you all kinds of questions, including surprise ones.

Something like a mock interview. If you have access to a career
counselor, or an advisor, you should request them to conduct a
mock interview for you. This is just so that you can have practice
in answering in a calm and composed manner. There are two
rather important points to remember here: the first is that if you
do not know something, be upfront about it, instead of trying to
give excuses and getting entangled in your explanations, and the
second is that should you be taken by surprise, take a deep
breath, focus, and then give your reply. Communication is of the
essence. Listen carefully before you answer, and always answer
questions clearly, precisely, and in a forthright manner. If you do
not understand the question, request that it be repeated, and
only when you are sure, must you reply. This will win you
respect. The interviewers will realize that you take time to
deliberate before answering and are not answering just for the
sake of saying something. Remember, any nuance in your voice
can be detected immediately. You have to keep your wits about
you at all times in an interview. This is not easy, but it can be
done. Focus, don’t let your mind run away, and concentrate just
on the HERE & NOW.
Remember to be polite and courteous at all times, no matter how

the interview goes. If you have any questions, you should ask
them, so that you are also clear about what you are getting
yourself in for. After the interview is over, thank the interview
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panel. This is very important, especially if the interview has not

gone the way you would have wanted it to. A pleasant, calm, and
courteous thank you leaves a good last impression.
The interview format includes:
 Small talk - During the first few moments the interviewer or

members of the interview panel may engage in small talk.
These would be wide ranging topics like the weather, sports,
some sensational current news, the latest books and writers,
music, and even traffic conditions. This is ostensibly to break
the ice and put you at your ease. However, how you handle
this kind of conversation, whether you participate actively
and knowledgeably, your attitude, manners and even your
vocabulary are all actually being evaluated. Sometimes
these general conversations might seem too informal. What
the interviewer is gauging, though, is whether you can
participate in such general conversation without losing the
sense of formality that the occasion demands, and without
losing your focus. Even when you are asked questions that
may seem unimportant, the way you handle them is being
evaluated.
 Questions about the organization – This is what comes next

usually. Assuming that you have already done your
homework thoroughly, and know all about the job
requirements, as well as the company, you should be able to
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answer this section well. In fact, if you need any specific

information, you could ask for it at this point.
 Questions on your qualifications – There may be features in

your background that come across as being negative. For
example, you do not have high grades in a particular
examination, or you do not have too many extracurricular
activities, or significantly, you have no work experience.
Deal with all these in a positive way, such that you can
convince your interviewer that though these are seemingly
negative, they can be turned to positive advantages. This is
the time when you will be asked questions about your main
subject or what you majored in. Your answers will show
whether you are a motivated and goal-driven person or not.
It will also give an indication as to whether you are keeping
in touch with your subject and all that is happening in that
field of study.
 Red Herrings – These unusual questions or statements are

totally unconnected with what is being talked about. The
interviewer suddenly springs one of these just to see what
your reaction is, how quickly you can recover your natural
poise, and give an answer that is most suitable. This tests
your response under pressure.
 Questions on your competencies – You might have to

demonstrate your skills and abilities. Specific examples from
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your previous experiences might need to be given. The

interviewer wants to know how you tackled a particular
issue. He might have a series of questions on it; the answers
you give will enable him to make up his mind if you are the
right person for the job. Thus, you will be expected to state
the problem, describe in brief clear steps what you did to
solve the issue, and analyze the result. Use the SAR
technique: S-stating the problem, A-what action you took,
and R-what the result was. In effect, you are demonstrating
that you have decision-making skills, are knowledgeable,
and have poise. It also shows that you can be a team
player, are flexible when required to be so, and have good
communication skills.
Sometimes, the interview has a third level, often called the final
round. By this time, it is clear that the employer is interested in
you, and knows quite a bit about you. Go over all the questions
that were asked in the previous rounds. Dissect and analyze
them. Recall all that you said and how you said it. Remember,
your answers have to be consistent. This is also a test, because if
you are not consistent, you will be conveying the impression that
you don’t really care, and have not thought sufficiently about
your responses.
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Remember that the evaluators are assessing you on the following

points:
 Attitude
 Mental alertness
 Ability to infer, analyze, and draw conclusions
 Intellectual depth
 Communication skills
 Ability to make a judgment
 Common sense
 Problem-solving capacity
 Dependability and responsibility
 Response under pressure
 Flexibility and adaptability
 Honesty and integrity
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Some questions are:
 Imagine you are in a situation where you have to adjust to

changes over which you have no control. How will you
handle this situation?
 Give an example of some important goal that you set for

yourself and were successful in achieving. How did you go
about this?
 Give two examples of your willingness to work tirelessly. (If

you have worked before in summer jobs, or internships, you
could mention examples from there, and if you haven’t, then
you can take examples from your college/university
experiences).
 What kind of impact did you have in your last place of work?
(This is in case you have held a previous position).
 How would you handle a competitive work situation?
 You are given a certain amount of data. How would you

analyze it, make your inferences, arrive at a conclusion, and
advise the company?
 Give a concrete example of how you would handle an angry

customer, especially when you realize that he is in the right.
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 If you knew you were in the wrong, would you keep quiet, or
would you tell your boss? And if you decide to tell your boss,
how would you go about that?
 What is required to build and maintain good business

relationships?
 Are you a big-picture person or a detail-oriented person?
 How would you prepare a speech and a presentation?
 Should your immediate boss disagree with you, how would

you deal with it, especially if you knew that he was in the
wrong and you were in the right?
 How would you establish a rapport with a difficult customer?
 Do you have the confidence of those who work with you?

How did you go about gaining their confidence?
 How do you make decisions?
 Are you a micro manager or a macro manager?
 If you were to train new recruits, what kind of a program

would you design?
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 Imagine a situation where you have been promoted to a

managerial position. How do you handle your subordinates?
 Give an example of how you have gone beyond your call of

duty to get a job done properly.
 You have been chosen to be a member of a team, but the

work assigned to you is, to your mind, rather unimportant.
How would you handle yourself and the job assigned to you?
 Can you keep confidential information confidential?
 In case your integrity is challenged, how will you go about

proving yourself?
 You have a new idea you would like implemented. How

would you stimulate the others in your department or team
to go with you on it?
 Imagine your department hit a rough spot. How would you

motivate your colleagues to overcome it?
 Describe a challenging negotiation you were involved in.

What were the end results for both parties? (in case you
have worked before)
 You have a long-awaited party that you want to go to. But,

your work for the day is not over, and you have to put in
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extra time if you want to honor the deadline. What would be

your choice? How would you feel about it?
 Describe a project that you were involved in right from

conception to execution to completion.
 Give us an instance of one politically complex situation you

have worked in, OR, if you were put into a politically
complex situation, how would you handle it.
 How do you decide on priorities while making your daily to-

do list?
 You have to fill in two appraisal forms. In one, you are

appraising yourself, and in the other, you have been asked
to appraise a colleague. How would you go about these?
 Give us two examples when you have learned something

from situations you have been in.
 Tell us how you keep up with the changes constantly taking

place in the industry.
 Is career growth important for you? What are you doing

about it?
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5. Hiring Requirements
A rather unfortunate and unhappy fact is that up to 40% of

resumes contain information that is either false or has been
tweaked.
Before offering a position to a prospective candidate, there are

certain hiring requirements that employers follow.
Background check: This is done for all workers: current and

potential, especially now when security and safety are high
priority issues. In fact for some jobs, the federal government and
state governments make screening and background checks
mandatory. The reasons for doing a background check are:
 Negligent hiring – in case an employee has hurt a co-

worker, the employer is liable. This can result in a lawsuit
which will be a drain on the company’s finances, and worse
will ruin both the career of the hiring official as well as the
reputation of the company.
 Current events – the current world situation is something

that has made it necessary to check the background of the
potential employee.
 Child abuse and child abductions – this has been in the news
so much of late, that laws are being enacted in every state,
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to check the background of those who work with children.

Thus, people who apply for jobs with children, including
volunteer sports coaches and scout troop leaders, are
especially liable for background checks and screening.
 Terrorism – terrorists have cast a long shadow over

potential and current employees. All current and potential
employees have to go through an identification verification
examination.
 Corporate honchos – post corporate scandals of 2002, all

heads of companies, executives, officers and directors also
have to go through a scrutinizing process.
 Federal and state laws – while certain jobs require criminal

background checks, there are some jobs that require
extensive investigation before employees get security
clearance.
A background check is not a comfortable situation. Incidents that

a background check may reveal, when taken out of context, may
seem wrong. Further, there might be some information which has
been supplied by questionable sources, or by people who want to
harm the candidate. It is an interesting fact that a survey
conducted by Vault.com found that 44% of employers used social
networking sites to get information on prospective employees,
and 39% of employers had used these sites to get information on
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current employees. A background check involves checking driving

records, social security number, credit records, criminal records,
character references, property ownership, military records, drug
test records, personal references and from past employers,
among other records.
Blogs: Some employers, who are keen to find out the personal
opinions of the candidates they have shortlisted, actually ask
candidates if they write blogs. They feel that reading a
candidate’s blog offers a window into his mind and heart;
consequently, they can understand what makes the person tick,
what his thoughts are, whether he wants to make a difference,
and whether he responds to current issues or is complacent about
how things are in the world.
Other than these, there are some more hiring requirements:
 Get an EIN. As soon as an employee is hired, he has to be

given an Employer Identification Number or EIN. To get this,
IRS Form SS-4 has to be filed. This form is available on the
IRS website, www.irs.gov. The EIN is to be used on tax
returns and other documents that are submitted to the
Internal Revenue Service (IRS).
 Register with the state labor department. The company has

to pay state unemployment compensation taxes when
employees are recruited. These go into the unemployment
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compensation fund and offers short-term relief to those who

have lost their job. The website
http://workforcesecurity.doleta.gov gives a list of state
unemployment insurance tax agencies.
 Workers’ compensation insurance. Employers have to get

the workers’ compensation insurance to cover workers who
might be injured when on duty. Except for small employers,
all employers have to get this insurance for their employees.
Lisa Guerin and Amy DelPo (Nolo) have compiled all possible
information on workers’ compensation laws in The Manager’s
Legal Handbook.
 Set up a system for withholding taxes. A certain amount of

money is held back from every employee: to deposit with
the IRS, make Social Security and Medicare tax payments,
and for state tax. For more information check these
websites: www.irs.gov and www.taxadmin.org/fta/link.
 Each employee has to fill out an IRS Form W-4, Withholding

Allowance Certificate. On this W-4 form, employees fill out
how many allowances they are claiming. This impact on the
amount of tax that has to be deducted from their pay. The
employees have to fill in the W-4 every year, especially if
they are changing their allowances. The form is available at
www.irs.gov.
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 Form I-9 has to be filed. This is the Employment Eligibility

Verification for each new employee, and is a U.S. Citizenship
and Immigration Services requirement. This is to verify that
the employee is eligible to work in the U.S. This form has to
be kept in the organization for 3 years. In case the USCIS
comes on an inspection, it should be made available to
them. This form is available at www.uscis.gov. This form
does not go into the employee’s dossier.
 Each new employee has to be reported to the state’s new

hire reporting agency. Information on each employee has to
be given to the state’s new hire reporting agency. This is in
case there are parents who owe child support. The State
New Hire Reporting page at the Administration for Children
& Families website, gives you the details of the state’s new
hire reporting agency. The Administration for Children &
Families website is www.acf.hhs.gov.
 Post notices giving information on the rights of workers. In

fact, if you go to the Department of Labor website at
www.dol.gov/elaws/prosers.htm, you will get the
information on the federal posters that have to be displayed.
The DOL’s Poster Advisor advises the employers on which
posters are to be displayed. Check with the state
department of labor as well on which posters are to be
displayed.
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 IRS Form 940. This has to be filed each year. This is

available on www.irs.gov. This is a yearly federal
unemployment tax that the company has to pay. It is
applicable when you paid wages of $1,500 or more in any
quarter or when an employee worked for you for 20 or more
weeks in the year.
 Form W-5. Any eligible employee who has a qualifying child,

can get an advance earned income credit or EIC payment
with her pay during the year.
 Safety measures. Every employer has to comply with the

Occupational Safety and Health Act or OSHA requirements.
This requires the employer to provide a workplace that is
free of hazards. Additionally, the employer is required to
ensure that the employees are trained to do their jobs
safely. Government administrators have to be notified if
there are any serious accidents in the workplace. Detailed
safety records have to be kept. More information is available
at www.osha.gov.
 Employee handbook – this is not mandatory, but is an

excellent concept. All the employee policies are spelt out
clearly. The employee is expected to sign the written
employment contract, with the understanding that otherwise
employment might not be considered. Create Your Own
Employee Handbook: A Legal & Practical Guide by Lisa
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Guerin and Amy DelPo (Nolo) is an excellent resource for

employers who want to make an employee handbook.
 Personnel files – each employee should have his own

dossier. All his documents go into this file: job application,
employment offer, IRS Form W-4, performance appraisals,
and all forms pertaining to employee benefits. I-9 forms of
all employees should be in a separate file. All medical
records of all employees should also be in a separate file.
These, the I-9 forms and medical record, should be kept in a
confidential locker. The Employer’s Legal Handbook by Fred
Steingold (Nolo) gives a lot of information on how to store
and maintain personnel records. It also includes state-by-
state rules about employee access to their files.
 Employee benefits – if you give your employee good

benefits, you will have willing and loyal workers. Benefit
programs include health insurance, or a 401(k) plan, a very
popular retirement plan.
Thus:
 If the employer analyzes the resume , screens the

prospective employee, and has more than one round of
interviews, he can ensure that he is hiring the kind of
employee he wants; someone who will contribute positively
to the company.
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 The employer should give a clearly worked out,

unambiguous job description to the employee. Explain the
company’s policies, as well as the employee’s responsibilities
and duties. This way, the employee will know clearly what
your expectations of him are.
 Allow a second chance for mistakes made. Remember that

the employee is as much a human being as you are. All
human beings make mistakes, but if an employee knows he
has a second chance; it is your company that will benefit, by
his good will towards you and his loyalty to the company.
Instead of firing an employee for a first-time offense,
document it, give the necessary reprimand or take the
appropriate disciplinary action, and file it in the employee’s
dossier.
Hiring requirements also come with a built-in procedure that must

be followed while firing an employee.
 Ensure that you have valid, documented reasons for firing

an employee
 Be direct, but not judgmental. Be careful of your choice of

words and tone of voice
 Never lie about the reason
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 Be firm with your decision
 Be compassionate
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Chapter 2: Investments
1. Stock Market Basics
First, a little bit about stock markets. A very simplistic way of

putting this would be to say that a stock market is an organized
market. Here, brokers meet for the buying and selling of stocks
and shares. A stock is actually a slice of a company or an
organization. For example, if you own more than 50% stock, then
you own the company. To understand how stock markets work,
we need to know its components:
 Stock Exchanges – these are the main institutions or

organizations that host the stock market. It is here that
stocks, bonds, commodities, and options and futures are
traded, just like in a market place. There are specific hours,
on days when the exchange is open for business, for trading.
During this time, buyers and sellers come together and
trade. Naturally, there are rules and regulations that have to
be observed by both companies and brokers, who take part
in the trading process. The stock exchanges that you might
have heard about are the NASDAQ (National Association of
Securities and Dealers Automated Quotation), the American
Stock Exchange, the NYSE (New York Stock Exchange), the
National Stock Exchange, the LSE (London Stock Exchange),
the Euronext, the Frankfurt Stock Exchange, the Hong Kong
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Stock Exchange, the Bombay Stock Exchange and the Tokyo

Stock Exchange. They do the following:
 List share prices for companies
 List the bidding or asking price of shares
 Allow for quick electronic transfers of shares between

people
 Companies – these are what make the stock market work.

For this, though, they have to meet and fulfill strict financial
requirements. When this is accomplished, they are listed on
the stock exchange as a Public Listed Company or PLC. It is
only after this that people can trade shares. There are some
small companies that do not meet the financial requirements
necessary to become a PLC. These are, therefore, not listed
on the stock exchange. Their shares are sold Over-The-
Counter or OTC. Trading these shares is a very risky
business.
To clarify the meaning of shares and stocks: Stock is the

capital that a company raises by issuing and selling shares,
and a share is one unit of stock. In the stock market,
though, these terms are used interchangeably, and mean
the same thing. For instance, you can say you have shares
in Dell, or, you have stock in Dell.
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Public Listed Companies issue shares to raise money or

capital in order to plan for future projects.
 Brokers – these are the middle men. They know the very
latest buying and selling prices of stocks from the stock
exchange, and give this information to those who want to
buy stocks. If these people want to buy these stocks, the
broker buys it on their behalf. Thus they mediate between
the stock exchange and the stock buyer. It is a legal
prerequisite that those who want to buy or sell stocks,
should open a brokerage account. This is done in a
brokerage firm, whose business concentrates on and
specializes in trading shares/stocks.
 Traders – these are the people who buy and sell shares, or
trade stock as it is known in stock market parlance. There
are buyers who sit at home and trade on their PCs, and
there are multimillion dollar investment funds that trade!
That is the range of people who use the stock market.
 Indexes – the stock market index measures the performance

of the stock market. For instance, if most people are selling
shares in companies listed with the Dow Jones 30, then the
index points down. Likewise, if many people are buying
shares in the Dow Jones 30, the index points up. The
indexes you need to know about are:
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 The FTSE 100 – the Financial Times Stock Exchange is

an index of the top 100 companies in the UK. These
100 companies are measured according to how they
capitalize the market i.e., the number of shares they
have bought multiplied by the share price. The
companies that are in the FTSE 100 represent 80% of
the London Stock Exchange. How these companies do
is an indicator of the UK market. For instance, if the
FTSE 100 is up by 1%, you should buy shares, but if it
is down by 1%, you should not buy shares.
 The FTSE 250 – this is an index of the top 250

companies, next to or besides the FTSE 100. These are
also measured by market capitalization. However,
because of their smaller market capitalization, as
compared with the FTSE 100, they are more volatile.
This means that they can show bigger profits as well as
bigger losses. Consequently, there is a certain amount
of risk involved here. The FTSE 100 and the FTSE 250
make up the FTSE 350 index.
 The Dow Jones Industrial Average or the DJIA or the

DJ30 – this index lists the top 30 industrial companies
in the US. They represent 20% of all stocks in the US
market. This gives an accurate picture of the direction
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of the industrial stocks. Some of the stocks include

Wal-Mart, McDonalds, and Walt Disney.
 The S&P 500 – the Standard & Poor 500 lists 500 of the
blue chip stocks in the US. Very simply put, blue chip
stocks are stocks in well-established companies which
have stable earnings and not too many liabilities. They
pay regular dividends, no matter how the business is
doing. (Interestingly, this is a term taken from casinos
where blue chips are the most valued among all the
colors!) From the way the S&P 500 moves, blue chip
traders can learn about the overall performance of
these important companies.
 The NASDAQ 100 – this is the index given by the

NASDAQ stock exchange. This gives a list of the 100
most capitalized stocks in the exchange. These stocks
are technology-based such as Microsoft, Yahoo and
Apple. These stocks are more volatile than others.
A little bit about shares – a company has assets and liabilities.

The assets are the property of the company. Shares are issued by
companies to plan for future projects that they want to
undertake. How many shares a company has, and what kind of
shares these are indicate the wealth of the company. When a
company is set up, it draws up a constitution. One of the main
points decided on is how much share capital the company is going
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to have. A Memorandum of Association is drawn up, by the

founders of the company, which states how much this share
capital or authorized capital is going to be. The founders decide
how many shares they want. The money paid for these shares
remains in the company. The rest of the shares are then divided
into fixed price shares, and can be issued. This is known as
issued capital. When a share is issued to a shareholder, he gets a
certificate which lists him as a registered shareholder. If you buy
shares in a company, you get rights as well as liabilities. This
means that you have the right to the dividends, the right to vote,
and/or the right to take part in the distribution of the assets in
case the company winds up. Where liabilities are concerned, you
might have to share in contributing to the company’s capital.
These rights and obligations are all laid down in the articles of
association and in shareholder agreements. A company can have
different kinds of shares. These shares have their own conditions
and rights. There are four main types of shares:
 Ordinary shares – these are the common, standard shares.

The dividends earned are flexible and are adjusted according
to the profits the company makes. Thus, while on the one
hand they give large financial gains, they also carry the
highest risk. These shares are entitled to full voting rights.
 Preferred shares – these shares carry fixed dividends, and

companies have to pay preferred shareholders their
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dividends before dividends are paid to other shareholders.

Since these shares have fixed dividends, they do not benefit
in the event of the company making profits. At the same
time, when the company is in trouble, they get paid their
dues before the other shareholders. Further, if the company
is wound up, people holding preferred shares get paid at par
value or the nominal value of the shares before the other
shareholders are paid theirs. These shares do not have
voting rights. They have other rights, though, and two
common rights that shareholders have are: the right to
convert their shares to shares which belong to another class.
These are called convertible shares; they may have a pre-
emptive right or the right of first refusal, which protects the
existing shares. You can take up a proportional part (pro
rata) of new shares that have been issued.
 Cumulative preferred shares – here, in case a dividend

cannot be paid one year, it is carried forward. However,
dividends have to be paid to those who hold these
cumulative preferred shares, despite the earning power of
the company.
 Redeemable shares – these shares are bound by an

agreement whereby the company can buy back the shares
at a fixed date in the future. No company can issue only
redeemable shares.
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An example of how shares work – Imagine a company, Company

A. It has 100 shares it can issue. Thomas buys all 100 shares.
Since he now owns more than half the company, i.e., more than
51%, he can take all important decisions regarding the company.
He issues 40 shares, thus selling 40% of his company. Though he
owns only 60% shares, it is still more than half, and so he still
gets to make important decisions regarding the company. But, he
will get only 60% of the profits when the dividends are paid. The
obvious question here would be why Mr. Thomas has done this.
When he put up 40% of the company for sale, he got a lump sum
of money. With this money he could expand his business, or buy
shares in another company, or buy the house of his dreams!
Another example – Company B has put up its shares on the

market. Mr. Stevens buy 20 shares at $10 for each share. He has
thus spent $200 on his shares. The company grows and therefore
the profits also grow. Demand for shares grows. The price of each
share is now $15. Mr. Stevens sells all his shares for the going
rate of $15 per share. He gets $300 for his shares, thus making a
profit of $100!
Though risky, the stock market does get the adrenalin flowing.
The reasons for buying shares would be: for financial returns;
beat recession; improve lifestyle; and, for tax advantages.
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A glossary of terms used in the stock market is:
Ask Price – the price at which you buy a share
Bear Market – when there is a more than 20% declining trend in

the market, over a period of time
Bull Market – when there is a more than 20% rising trend in the
market over a period of time
Bid Price – the price at which you sell a share
Day Trading – when traders buy and sell stocks the same day
Dividend – the payment that the shareholder gets from the profit
the company he has invested in makes
Dividend Yield – when the company pays a percentage of the

current stock price as dividend
Doji – when a stock opens and closes at the same price, the stock
chart pattern is called the doji. It might sometimes represent a
reversal
Earnings per share or EPS – the earnings of a company do not tell

you anything about the number of shares the company has. If the
company has more shares, the earnings are also divided into
more parts. For example, imagine there are 2 companies –
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Company A and Company B. Both earn $100. Company A has 10

shares outstanding, so each shareholder gets $10. Company B,
though, has 50 shares outstanding. So, each shareholder gets $2.
Thus, to get the correct picture, you need to know both the
earnings of the company as well as the outstanding shares. The
EPS is therefore calculated by dividing the net earnings by the
outstanding shares.
Equities – another word for stocks and shares
Exchange Traded Fund or ETF – these are stocks that reflect the
indexes. For instance, if the S&P 500 went down by 1%, the ETF
would also go down by 1%.
Flat Fee – the fee charged by a broker for buying and selling
stock
Fundamental Analysis – this is important for anyone who wants to

buy shares. Fundamental analysis is the study of the company’s
balance sheet. It is a study of the company’s profit and loss
statements.
Futures – a Futures market deals with contracts. A contract is an

agreement by two parties to either buy or sell a stock or a
commodity, in a particular quantity on a particular date.
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Indicator – a mathematical formula which helps traders decide

whether to buy or sell a stock.
Industry – the stock market is divided into several industries.

Each stock is designated an industry. This enables market
analysts to decide how each industry is doing.
Limit Order – this is a trade order. It sets the limit for maximum
price you are willing to pay to buy the share, as well as the
minimum price you are willing to sell the share for.
Liquidity – this refers to the speed at which you buy or sell a

share. Thus it is linked to the volume of business done. Low
volume means poor liquidity. This becomes a problem when you
want to sell a stock that is dropping in value, and there is no one
to by it.
MACD – the Moving Averages Convergence Divergence is a

popular indicator.
Market Capitalization – this gives the value of a company, and

can be obtained by the formula: share price multiplied by the
number of shares issued.
Market Order – this is an order used to inform the exchange

when a trader wants o either acquire or give up a share at the
current price.
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Volatility – this is a measurement of the change in price, over a

certain period of time. High volatility means higher losses and
profits.
Yield – this is a return on investments, and is expressed as a

percentage of the stock price.
Wall Street – this is the street in New York, USA, where the New
York Stock Exchange is located.
Some Stock Market Trivia
 Wall Street was first laid out in 1685 behind a 12 foot high
wooden stockade to protect the Dutch settlers from the
British and Native American attacks.
 The very first stock exchange in the US, founded in 1790,

was the Philadelphia Stock Exchange.
 It was on 17 May 1792 that the stock market began. 24

stock brokers and merchants signed the Buttonwood
Agreement. (Buttonwood is the local name for the Sycamore
tree).
 In 1967, Muriel Siebert was the first woman to have a seat

on the NYSE.
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 In 1970, Joseph L. Searles III was the first African-American

on the exchange.
 On July 27, 1971, Merrill Lynch & Co. Inc., became the first
member organization on the NYSE.
 The NASDAQ was the first electronic stock exchange. It

concentrated on OTC stocks.
 The highest price of each stock on the NASDAQ is Google.
 On January 4, 2001, the volume on the NYSE broke 2 billion.
 Did you know that parrots can play the stock market better
than most persons? 10 people and one 5 year-old parrot
called Ddalgi took part in a 6-week contest. Each started
with $60 million in cyber money, and traded $10 million
worth of stocks. Ddalgi used its beak and randomly chose
balls which represented 30 blue chip companies. Ddalgi
came 3rd with her investment return at 13.7%. Only 2
people outperformed Ddalgi!
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2. Stock Market Risks
The market is a volatile monster, and like all monsters,

understanding it, learning its ways, and finally getting a grip over
it is an exciting challenge, fraught with risk. The upside is that
you can make a lot of money with a conservative approach.
Because playing the market is so risky, investors have to have a

certain investment profile. Certain considerations which include
age, size of the investment portfolio, financial assets, financial
circumstances, time frame, tax returns, attitude towards
fluctuation in prices, and risk tolerance have to be taken into
account while planning an investment strategy, so that you can
meet your investment goals. A major consideration is your return
requirement, i.e., whether you need an income now, or in the
future.
Preparation for investing involves a fundamental analysis of the

companies that you want to invest in. This would help in
understanding what risks there might be, and you would be in a
better position to work out how to minimize those risks. You
should also know as much as possible about the various
investment options available.
Where do the risks lie? They lie in:
 Corporate bankruptcies
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 Stock market crashes
 Devaluation of currency
 Inflation
 Changes in interest rates
 Changes in the tax code
To learn more about stock market risks:
Imagine you have stocks/shares in Levis. Levis is a multinational.

What all would you need do know? You will certainly need to
know how it is doing on the fundamentals. You will also need to
know what the condition of the economies of the world is. The
strength of the dollar has to be taken into consideration –
whether it is strong or weak, whether it is rising or falling. And,
importantly, you will need to know how the US stock market is
doing. The various kinds of risks you are likely to encounter are:
 Systemic or market risk – the stock market is the system,

and sometimes there are bound to be downs in it. This is
beyond your control, and you just have to accept it, and ride
it through. In some extreme cases, a crisis in the stock
market can have very far-reaching consequences as it
happened when there was the Wall Street Crash in 1929.
Other instances are:
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 1987 – Black Monday
 1997 – Asian Financial Crisis
 2008 – Credit Crisis
In these cases, all prices fall. As traders say: ”a rising tide

floats all boats” when the stock market is booming.
Likewise, a retreating tide may cause equal damage, when
the stock market falls.
 Inflation risk – this also to a degree is not in our control. The

rising price of goods and services is called inflation risk or
purchasing-power risk.
 Unsystematic risk – this is a risk that is inherent in the

stock. When you invest in a particular company, you are, in
effect, accepting the intrinsic risks in their stocks. Some of
the risks that influence the way a company performs in the
market are:
 Unexpected low earnings
 Scandals
 Lawsuits
 Employee strikes
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 Outdated technological systems
These are but few of the risks in a long list. Other risks that
affect the stock market are Internet whisperings, bird or
H1N1 influenza, power grid failure, and more importantly in
our day, the risk posed by terrorists. All companies are
susceptible to these risks, no matter how the predictions
are. And, any of them can cause the value of the shares to
fall.
 Credit/default risk – this is when a company defaults on

payment of its debts, or, is seen to be a credit risk. The
reasons could be a poor reputation, or fraud or poor
performance, or simply bad book-keeping. It may not be too
frequent, but there are companies that become insolvent,
and cannot repay their debts either to the banks from whom
they have taken loans, or to those who have bought
company bonds, or to those from whom they have taken
credit. This means the company is facing a cash crunch,
which, in turn, results in loss of efficiency and productivity.
Stock holders are not directly hit by this, but when the
public knows that a company is insolvent, the ramifications
are such that the share prices of the company fall. Falls in
share prices directly affect the investor.
 Exchange-rate risk – investors can buy shares or make

investments in currencies other than their own. Here the
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investor will need to follow the value of the share market, as

well as the value of the currencies. Just like share prices
fluctuate, currency prices fluctuate too and the exchange
rate between the foreign currency and the native currency
either rises or falls. If you ignore the performance of the
investment, when the rate of the foreign currency goes up,
your investment makes a profit, you get gains in the native
currency, because the exchange rate is favorable. But, the
reverse is also true i.e., when the rate of the foreign
currency goes down, your investments suffer, and you make
losses in the native currency because the exchange rate is
not favorable. For instance, Fred, who is in the US, buys
shares worth 20 pounds in a British company. The exchange
rate is 1 pound = $1.5. Fred therefore paid $30 ($1.5 x 20).
Imagine a situation when you ignore the performance of the
investment. In case the dollar becomes weak i.e., 1 pound
= $1.6. The value of Fred’s shares is now $32. However, if
the dollar becomes strong, i.e., 1 pound = $1.2, the value of
Fred’s shares is worth $24.
In case the investment has made gains, the exchange rate

can offset these gains. For example, Fred in the US buys
shares worth 20 pounds in a British company. The exchange
rate at this time was 1 pound = $1.5. So, Fred paid $30
($1.5 x 20 pounds). After a while, share prices go up by
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20% i.e., the value of Fred’s shares go up from 20 pounds

to 24 pounds. He has thus made a profit of 4 pounds.
At this time, though, the US dollar becomes strong, and

therefore, its value vis-á vis the British pound comes down,
which means that one pound is now worth $1.2 (and not
$1.5). The value of Fred’s shares in US currency therefore
drops and his shares are worth only $28.8 ($1.2 x 24). So,
even though Fred has gained 20% in share value in another
currency, if he exchanges that value into his native currency
i.e., the dollar, he makes a loss.
The exchange rate affects companies as well. If a company

in the US exports goods from another country, and the
dollar is weak as compared to that currency, the goods are
more affordable.
 Interest-rate risk – decisions about interest rates are taken

by central banks such as the Bank of England, the European
Central Bank, and the U.S. Federal Reserve. These decisions
have far-reaching influences on both global and local
economies. If the interest rate is increased, companies find
it difficult to borrow money for expansion of their
businesses. Consequently, share prices fall. Likewise, when
the central banks cut interest rates, companies find it easy
to borrow money for expansion, and share prices rise, as
also the returns.
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 Political risk – this refers to the political climate of the

country where the company operates from, or has branches
in. If the political climate is conducive to growth of business,
the company will do well, share prices will be high, and
returns too will be high. If the political climate is not good,
one of the risks is that companies can become nationalized.
In this event, shareholders lose most, if not all their
investments. Other political risks are increase in corporate
taxes, or more financial demands/burdens that would lower
profit margins. These would hurt shareholders.
Unemployment, global unrest, and elections are also political
risks that directly or indirectly affect the performance of
companies.
Some methods by which you could manage the risk and maybe
even counter it are:
 Have hedge funds – these are investments made to offset

any adverse changes that might happen in some of your
stocks. This means that you protect one investment by
making another. By hedging, you won’t make money, but
you can reduce your losses.
 Diversification – this is when you buy a little of different

kinds of stocks. Thus, if one stock goes down, another might
be up, thereby making up for some of your loss. For
instance, it is a good idea to buy some shares in the
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telecommunications, technology, and biomedical sectors. It

is also good to look at some companies dealing in consumer
goods.
 Avoid all hot stocks – while some people may get very
wealthy, after the initial excitement dies down, these stocks
start sliding, and along with them, your returns also go
down. An example of this is the dot-com bubble that
happened in the 1990s. Unless you are prepared to
constantly monitor these stocks, it is risky to go in for them.
 Invest in some safety stocks – these stocks do not fluctuate

a lot and have a slow but steady rate of growth.
 Keep in touch with what is happening on Wall Street, watch

reports on stocks, check the websites of the companies you
have invested in, and learn as much as you can about
various stock options.
 Have the discipline and patience to ride out market

fluctuations.
 Before you buy a stock, decide how much you are ready to
lose.
 Check if you can sell your stock promptly.
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 Decide on how much you are ready to spend on buying

stocks.
3. Avoiding Scams
A scam is basically a falsehood. It happens when unscrupulous

people con gullible and unsuspecting people into investing their
money into companies that do not exist. A scammer may try to
get in touch with you personally, with an offer that is hard to
refuse, or he may get your postal address and bombard you with
literature offering the most enticing stock options, until you give
in and call him. Sometimes a group of people get together and
work out strategies by which they trap people into parting with
their money. Other ways in which these scammers try to get in
touch are by email and text messages on the cell phone. Not only
are they very persuasive, but sometimes even use emotional
means to make you feel petty if you don’t invest in the schemes
they offer. They claim your investments will go towards helping
the underprivileged. Or, they might play on your financial
insecurities, or your desire to succeed in this ‘exciting’ game of
the stock market. Scammers skim over details, but paint this
overall glossy picture and rave about the products or services of
the company they represent. In a few cases, the scammer
harasses the person so much that the person might do a foolish
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thing by agreeing just to get the scammer off his back. In case
you fall into their trap, they rush you without explaining what is
involved, or what is mentioned in the fine print. In fact, they give
you no information at all. Instead, what they do is to create a
sense of urgency saying that the scheme is open only for a
limited number of people and for a certain period of time only.
They tell you they will handle everything for you, and that you
needn’t worry your head over it. They know that if they give you
time to think, you might do your own research and find out that
there is no such company or organization in reality. Sometimes,
people who do this kind of thing are insiders of the company, or
they may be promoters who are paid to do this, with the promise
that they stand to gain huge financial returns.
To give you an idea of scams, here are some top stock market
scams that ruined many people:
 The Dot Com Boom 1.0 – brokerage firms (organizations

that act on behalf of the trader for a fee), upgraded and
pushed the dot com stocks, all the while knowing that these
were dud stocks, and yet charging huge fees for
underwriting companies. The government did not give the
SEC (Securities and Exchange Commission) resources to
investigate. The people meanwhile got completely taken up
by all the hype on the television and in the newspapers.
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 Enron – this was listed as one of the top 10 companies. They

resorted to the totally unethical practice of fudging their
accounts; while they hid their debts, they showed huge
earnings. The stock price fell from $90 a share to a few
pennies a share.
 WorldCom – they registered operating expenses as

investments, thereby exaggerating their profits. In fact, the
profit they posted in 2001 of $1.3 billion was actually
completely false, thus making shares drop in value from $60
a share to a few pennies a share. Not only did people lose
their life savings, but many lost their jobs as well.
 Centennial Technologies – this company was built like a

stack of cards on forged documents. They claimed they were
selling PC memory cards, while in reality, they were shipping
baskets of fruits to their clients and faking sales invoices.
They were actually trading at $55 on the NYSE.
 Tyco – Tyco was very popular on Wall Street, until it was

found out that the company officer Dennis Kozlowski, CFO
Mark Swartz and CLO Mark Belnick, had stolen millions of
dollars from the company by issuing loans and stock sales to
themselves. Since these were unauthorized, the public took
a long time getting wise to what was happening, but
meanwhile lost most of their savings.
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It is imperative, therefore, that you need to know how to avoid a

scam.
 The most important sign that all is not above board is when
you are being hurriedly taken over facts and figures. The
instant you feel rushed or pressured, opt out. Even if the
person selling the scheme to you expresses urgency and
says the offer is open only for a few days, or that it is an
once-in-a-lifetime offer for you to make a lot of money,
either reject it outright, or say that you do not take rushed
decisions.
 Do not deal with companies that you are not familiar with,
especially if you cannot get any information about them on
the Internet. It is very easy for companies to make tall
claims about their products, or the kind of contracts they
have, or even about their financial health. Make sure that
you check to see if all their claims have any substance. Also,
see if you can find out about the Founders or the Board, and
any newspaper reports connected with either them or the
company that has contacted you. This has to be done even
before you think about talking finances or investments.
 Should someone come to your home uninvited, or contact

you over the mail, or by fax, or through the post, when you
are not expecting any such thing, be warned.
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 Be very skeptical of anyone who offers you tips on stocks,

especially the hot stocks. Ask yourself why this stranger has
chosen you to give these tips to, and what his interest might
be in your buying these stocks.
 Never give information about yourself to strangers, and

never post any information about yourself on the Internet,
especially about your bank account, or your credit cards.
 Always ask for written material, especially if the scheme

involves charities, so that you can do your own background
check.
 If a company is raising capital for the first time through

shares and securities, it issues a prospectus, or disclosure
document. These have to be filed with the SEC. The
prospectus gives you all the information you need about the
company, including the risks involved. Based on this, you do
your own research, so that you can make an informed
decision. In fact, any company that wants to trade its shares
has to be registered with the SEC. In case you need
information on companies that do not trade publicly, you
need to know where it is incorporated. For all information on
a company, the best website to visit is the KnowX service.
 It is important to know where the company trades. Small

companies cannot meet all the requirements of the well-
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known stock markets or stock exchanges. They usually trade

in the OTC market. These are very risky and lend
themselves to manipulation by scammers.
 There are scammers who use official-looking stationery to

write on. The letters might even be marked urgent.
Immediately trash these letters.
 Always read the fine print no matter how tedious.
 In case you cannot understand the offer, or you feel

confused, refrain from entertaining it.
 Ask yourself if the scheme is too good to be true.

Remember, in life good things don’t come easy or cheap, so
this is probably a fraud. A rule of thumb is that any scheme
which offers more than a 2% return above other established
similar products is thought to be a high return. This means
high risk. Go forward cautiously in case you decide to look
into it.
 Keep all records and all transactions in writing. Periodically,

statements are sent to you by the company/companies, in
which you have shares, or by investment funds, or by your
superannuation fund. Try and get the original statements. In
case you do not have the time, appoint a trustworthy person
to handle these statements. These statements, however,
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should not go to your portfolio adviser. An instance to

strengthen this statement is about a financial planner and
tax agent in Newcastle, Mr. Forsythe. He planned financial
investments mainly for elderly people who wanted to invest
their savings and superannuation money, to help them in
their retired life. At first, Mr. Forsythe invested wisely and
well. Later, he sold his clients the idea that if he could have
all their investment statements, then it would be easier to
do their tax work. Some of the clients agreed to this, and
accordingly, Mr. Forsythe got the companies to send him the
clients’ investment statements directly. However, now that
he had access to their investment statements, Mr. Forsythe
made withdrawals from their investment accounts by forging
their signatures, and without his clients having a clue about
what he was doing. Though Mr. Forsythe was caught, the
damage that he did was something the clients had to bear.
That is why it is very important to keep the originals, and if
any statements are required for tax purposes, only copies
should be given.
 Some scammers try to sell the idea of your investing in

certain funds in order to evade tax. Never go in for this, as
there are only two results if you engage in this: you will
either go to jail, or you will be swindled.
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 When checking out a company, check all details, from their

products and services, to their profits and losses. Get as
much information as you can about a company, past and
present, before you even consider them as being companies
you would want to invest in. Some companies launch new
products, and then withdraw some of them. This is a clear
indication that they are playing the numbers game.
Information about the various companies can be obtained
from sites like the: www.capitalvector.com, www.list-
company.com, www.forbes.com, www.plunkettresearch.com
to name a few.
 An example of how an Internet scam works is the classic

“pump and dump” scheme. In this scheme, scammers create
a company website which highlights very favorable press
releases about it. Also to impress readers, the website
details some new product, service or innovation. It also talks
about its sound financial health. Newsletters to people
suddenly advertise this hot stock. Messages to this effect
appear in chat rooms, and in other popular public places,
and you are urged to buy the stock before the price goes up,
or sell before the price goes down. The media takes this up
and builds up the frenzy with advertisements and analyses,
and all kinds of hype. Unthinkingly and without checking,
people rush to buy shares in this company. This creates a
high demand, and the price of the stock goes up (known as
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pump). It is at this time, that the scammers sell their shares

(known as dump), and stop the hyping process. It is not
long before the price of the stock nosedives, and the
investors lose all their money. Scammers and fraudsters use
this technique with less known companies. Since there is not
too much information about these companies, it is easy for
these unethical scammers to manipulate the stock of these
companies. So, whenever you see an attractive offer on the
Internet, assume it is a scam, unless you can, through your
own research and investigation, prove otherwise. In fact, if
you want to use the Internet to invest, make sure you visit
www.sec.gov/investor/online/pump.htm. You will get a great
deal of information that you can use in your decision-making
process.
4. Saving for College
Going to college is a major milestone in the life of a student. You

and your family need to start planning for this even before you
get to high school. College is an expensive proposition, and you
need to be able to plan your finances in such a way that you can
go through college without money worries and get your degree.
There are organizations which offer financial aid for college
education. Here is a short quiz to see if you are aware of these.
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State whether True or False: (answers are at the end of this

segment)
Q1. The 529 is a state-sponsored college savings plan.
Q2. The difference between what you have to pay now for a 4-
year college education and what you will have to pay 18 years
hence is about $30,000.
Q3. The Hope credit and the lifetime learning credit will help pay
for college education.
Q4. Stocks are a good option to consider while saving for college
education.
Q5. It makes sense to put a lot of money in the child’s name,

because children’s income is taxed at a lower rate.
Q6. If I take part in a qualified tuition program, it will affect my

eligibility for federal financial aid.
Q7. Academic and financial scholarships pay half the cost of

college tuition.
Q8. The money put aside for one sibling in the UGMA or UTMA
can be transferred to another sibling.
Q9. You can repay your college loan even after you graduate.
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Q10. The PLUS or Parent Loans for Undergraduate Students is a

non-need based loan.
You are in high school, and you decide that a particular subject
interests you so deeply, that you would like to major in it. Or, you
are yet undecided about what you want to study, but know
clearly that you want to go to college. In the first instance, you
need to get as much information about the various colleges that
offer a program that would include the subject you want to major
in. In the second instance, you need to gather information about
the various college programs, so that you can decide which one
you are attracted by. However, whatever the reason, one very
important consideration is the fee structure. Therefore, it would
be wise to have a number of options, and discuss these options
both with your parents or guardians and your counselor. As far as
savings go, there are some options that you could explore
seriously.
 Start a savings budget – if we look at the current annual

cost which includes tuition, fees, room, board and books, the
cost of studying at a public college is $16,000, a private
college is $37,000 and an Ivy-League college is $47,000.
Assuming a 6% annual increase in college costs and 6%
annual investment return, you would need to start a saving
plan which would result in your saving per month $1224 for
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a Public college, $2831 for a Private college and $3596 for

an Ivy-League college when your child is 16 years old.
 Get professional assistance – it is important to have an

experienced tax and/or legal advisor who will give you the
right advice and guidance about all tax and investment
matters.
 529 plans – this is a state-sponsored college savings plan.

Since it involves investments, it is important for you to know
and weigh the various options, and see which one works
best for you. Under this plan, when you deposit money in a
state-sponsored account, either in your state or in another
state, the money is managed by an investment company.
The program manager invests this money in a variety of
stocks, mutual funds, cumulative deposits, and bonds. He
manages this portfolio in such a way that when it is time for
your child to go to college, your money is invested in
accounts that are low-risk and liquid (investments that are
easily accessible). These investments give you the best
returns taking into consideration the time available i.e., until
such time as you need the funds. Further, when you use this
program, you can use the full value of your account in any
accredited college in the country, as well as maybe some
foreign institutions. You will need to know which fees come
under this plan. This is because there are some differences
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that you will need to consider when you calculate the fee.
For instance, the plan in one state may charge an annual fee
which is a percentage of the money invested. So, if you have
invested $3000, and the percentage charged is 5%, you will
pay $150 as annual fee. Another state may charge a 15%
fee. Here you will be paying $450 for the same $3000 that
you have invested. When you begin investing, you have to
periodically review and monitor your investments. 529 plans
allow contributions that are large, without your having to
pay gift tax. Further, the account holder controls the
investment even if the beneficiary turns 18. A big benefit of
529 plans is that earnings and withdrawals are tax-free.
Even if you have a 529 plan, you are eligible for financial
aid, because savings are considered the parent’s assets and
only 5.6% or less is used to calculate the EFC or Expected
Family Contribution. Naturally, you have to pay an account
manager’s fee. What you have to consider seriously, though,
is your risk tolerance. It is only when you have all the
investment plans, and all information pertaining to college
fees, that you should take an informed decision. Some
information you could use here is that more than 270
private schools (ranging from Ripon College, Wisconsin,
which is a small liberal arts college, to the University of
Chicago), have a plan called the Independent 529 Plan. This
is a prepaid tuition contract, and can be availed of in any of
the member schools. In case your child does not qualify for
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any of these schools, the parents get a full refund with

interest.
 Scholarships – ask your school guidance counselor to help

you get as many scholarships as you can so that you can
supplement the amount your parents are putting in. There
are many scholarships available; you have to be persistent
in your efforts to get them.
 Try low-cost colleges – going to community colleges is very

affordable. If you do your first two years there, then you can
get a transfer to the college of your choice. Future
employers will only see the college you graduated from. You
need to find out about the various subject options these
colleges offer, and what their rules are regarding transfer of
credits.
 Spend fewer years in college – this is done by taking more

subjects in your Advanced Placement course. For instance, if
you take six subjects in your AP course, and do well, you
can join in the sophomore year. Thus, you spend 3 years in
college (as opposed to 4 years), and save on one year’s
fees. Another test that is popular is the College Level
Examination Program (CLEP). If you pass the CLEP, you can
apply for a course you need and not have to enroll in a class
(of the core curriculum) you actually don’t need.
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 Shop around for loans – work towards getting as much

information as you can about the loans that are available
before taking a decision about which one you are eventually
going to take. Find out interest rates, and payback benefits.
There are other loans such as the federal Pell Grants for low-
income families, and the Federal Supplemental Educational
Opportunity Grant. Loans are of two kinds: need-based
which are of help to families who cannot afford college
expenses, such as the Perkins and the Stafford which are
federally funded, and non-need based when families do not
have ready cash, but have liquid assets, like the PLUS or the
Parent Loans for Undergraduate Students, which is made to
parents.
 Pre-paid tuition plans – this is for parents who decide on

which college they want their child to go to, and put that
money into savings, which will mature when the child is
ready for college.
 Special Accounts – the Uniform Gifts to Minor Act (UGMA),

along with the Uniform Transfers to Minor Act (UTMA), are
custodial accounts. Each parent is allowed to put in up to
$10,000 into this account each year. It is tax-free. The
guardian/parent manages this account until the child is 18
years old, and then it is handed over to the child. The one
thing you have to be careful is the tax that this attracts. It is
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better to get the help of a professional tax advisor in case

you go in for these special accounts.
 The Coverdell Education Savings Account – this used to be

known as the Education IRA.
Guardians/parents/grandparents can put $2000 into this
account every year. The interest is tax free as long as the
money is being used for the child’s college expenses.
Guardians/parents/grandparents can contribute to this fund
as well as in any suitable 529 plans.
 Bonds – different kinds of savings bonds issued by the

federal government are a good way to save for college
education for your child. Bonds cost as little as $50 and you
can buy them online from www.publicdebt.treas.gov. The
interest rate is adjusted twice a year. These bonds can be
cashed after 6 months of buying/receiving them.
 Stocks and mutual funds – since tuition fees are always on

the rise, it is better to build up a large stocks portfolio. As
the child nears college age, these can be changed into bonds
and cash. Mutual funds are another way of saving money.
Choose mutual funds that have 3 to 5 year track records.
You can even opt for the company to make automatic
monthly withdrawals from your bank account. One rule of
thumb you can use is: if your child is 8 years old or younger,
60% to 95% of your money should be in stocks. When your
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child is between 9 to 13 years old, new investments should

be made in stocks and bonds, in a 50:50 allotment. When
the child turns 14 years old, convert your equities into short-
term bonds. This is for 4 years, so that when the child is
ready for college, you will be able to get ready cash. If your
bonds are worth more than $10,000, you can buy short-
term Treasury notes directly from the U.S. Treasury. It
would be advisable to get a professional to manage your
account, but always keep a close watch on the market and
how your investments are doing.
Some strategies you can use to get maximum aid are:
 Save money in the name of the parent, not the child.
 Pay off all debts such as credit card debts and any loans that
you have including the car loan (if you have taken one).
 Increase the contribution to your retirement fund.
 Reduce the amount of ready cash that you have.
Remember that besides the college fees and tuition fees, other
expenses include room and board, books, equipment, and
transportation.
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Some tips on repayment are:
 Always pay regularly and on time
 Find out about alternate forms of repayment
 Since the federal government gives relief for taxpayers who

have student loans, take advantage of tax breaks
 Consolidate all your loans
 In case you cannot pay back on time, find out how you can
defer payment.
 If you are repaying the student loan after you graduate, and
are using an automatic debit plan, you get a .25% decrease
in the interest rate.
Some websites that you can check out for financial planning for
college education are:
 www.ed.gov/offices/OSFAP/DirectLoan
 www.ed.gov/prog_info/SFA/StudentGuide/
 www.finaid.org
 www.collegesavings.org
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 www.collegeboard.com
 www.savingforcollege.com
 In case you want to learn more about the Independent 529

Plan, call 888-718-7878
Saving for college is a challenge, but it is both possible and

necessary. According to the U.S. Census Bureau, the average
male college graduate earned 58% more than the average male
who only graduated high school or had a General Education
Development (GED) Certificate. Likewise, among women, college
graduates earned 78% more than those who had only done High
School.
Answers:
A1 – T
A2 – F – according to research, the increase from now till 2027 is

$50,000 for a Public college and $200,000 for a Private College.
A3 – T – the Lifetime Learning Credit is a non-refundable tax

credit. You can cut your taxes by $2000, regardless of how many
children are studying in college at any single point of time. This
amount goes up to $4000 if your child is studying in a Midwestern
University. However, there is a dollar limit per family, so large
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families might not be able to get as much per child. The Hope
Credit allows a tax cut of up to $1,800 per year per child for fees
paid for the first 2 years.
A4 – T
A5 – F
A6 – T
A7 – F – Scholarships will, at best, pay part of the fees.
A8 – F
A9 – T
A10 – T
5. Saving for Retirement
Though retirement seems very far away when you are young, it is
imperative that you prioritize this issue with a certain sense of
urgency. Some questions that you could ask yourself are:
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Q1. How do I see my retirement?
Q2. How much am I earning today?
Q3. When am I going to retire?
Q4. How much social security will I get?
Q5. Am I due for any pension benefits?
It is important to envision how you would want your retired life to

be. This naturally leads to the next step of taking a long hard look
at what you are earning today, and what you have as savings, if
at all. Ideally, saving and investment of saving should become an
integral part of adult working life. Ideally, too, you should have a
good (not extravagant) lifestyle which you will be able to
maintain later, when you are not earning. Learning how much
social security you are entitled to is as important as knowing if
you are entitled to any pension benefits, if at all. One rule of
thumb is: after taking into consideration all factors, make an
estimate of what you will need to live comfortably during
retirement. For instance, if you have worked out that you will
need $40,000 a year, then according to the rule of thumb, you
will need 25 times that amount i.e., $1,000,000 for a comfortable
retired life. Should you be entitled to Social Security of $15,000 a
year, and a pension of $5000 a year, then you will need to work
towards having $20,000 multiplied by 25 i.e., $500,000, by the
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time you retire. However, a retirement plan is very personal and

it depends on how you want to spend your retired life. Even so, it
is important that you save towards that day so that you can live
in dignity. There are three broad categories for saving:
 Putting back some money every month so that you have a

comfortable nest egg
 Investing in stocks, bonds, and mutual funds
 Pensions
 Retirement plans
Investing in stocks is good, provided you have the right kind of

investment profile. This is not only in terms of how you are going
to invest, but about what you risk tolerance is. The recent
economic meltdown cleaned out the savings of many hundreds of
individuals. It is very hard to recover from something like this.
So, if you are thinking of stocks, then it would be best not to wait
until you retire and then put all your money into stocks, but to
invest in stocks when you are still leading an active working life,
and have the time and mental strength to deal with financial
downturns. Stocks do have the potential to offer great returns,
which you could judiciously put into other funds, mainly into
Bonds. Bonds might have a lower growth rate, but they are less
risky than stocks. A good plan would be to, early on in your
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career, invest in stocks, and as the years go by, increase savings

in Bonds, and decrease that in stocks.
There are many different kinds of funds available in mutual funds.

They range from those funds that are actively managed, to those
that are indexed. Actively managed funds are those where
investments are in bonds and stocks in a way that you hope will
give you the maximum returns. Index funds are not managed
actively. Consequently, they are cheaper and the stocks and
bonds change with the way the market performs. You can use
mutual funds to diversify your portfolio. A varied portfolio is what
you need to look at early in your career. Mid-career, you need to
start reducing risks, and not have too many high-growth-but-
high-risk investments. This is ideally around 10 to 15 years
before the age at which you are to retire. When you retire, then,
you will need to look at ways of preserving your wealth, and
protecting it from inflation. It would be wise to consult with a
financial expert before going in for this so that you will know
exactly how to manage the fund. Managing the retirement fund is
itself very challenging. A broad rule here is that you should not
withdraw more than 4% per year of your savings.
How pensions work is that when you retire, your accumulated

pension is used to buy an annuity, which pays a certain sum of
money periodically. You can take some of the pension in cash,
and use the remainder to buy the annuity. Further, you can shop
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around and see which annuity scheme suits you best. The kinds
of annuities are:
 Flat-rate annuity – here the amount of money in your

pension fund remains the same for the whole period of
duration of the annuity. The downside is that when there is
inflation, the value of the pension falls.
 Indexed annuity – here the pension rises when there is

inflation, so its buying power remains constant. The
downside is that the initial rate is lower than the flat-rate.
Some annuities, offer the widow a reduced payment after the

partner, whose annuity it is, passes away.
Some companies and organizations offer their employees a good

deal. They contribute either the same amount as the employee
does to the employee’s pension fund, or in some cases, they
might contribute more. Therefore, on retirement, the employee
has his pension with which he can buy an annuity, or, regardless
of the amount that has built up in the pension fund, the employee
is given the final salary plan. According to this plan, the actual
pension is based on the final salary and the length of his term in
office. Very often, the company pension is index-linked so that it
rises when there is inflation. Though the final salary plan is better
and more humane, it is slowly being phased out by many
corporate houses. The returns on pension funds are re-invested
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or compounded i.e., if you save $328.50 every month at 5% per

annum, after 40 years, your retirement fund would be $500,000.
If you delay your savings plan, then you will have to put back
much more every month depending on how many months you
have left for retirement. Governments also offer tax incentives if
you save your pension in certain designated pension funds. These
funds cannot be withdrawn till the person reaches a certain age.
Reverse Mortgages are another way of ensuring a certain amount

of income for life, added to the happiness of staying in their own
home.
There are some exciting retirement plans that are available and
need to be thought of as viable saving-for-retirement options.
The Roth IRA is one such plan. The Roth IRA was named after the
late Senator William V. Roth Jr., is an Individual Retirement
Account. The most important benefit is that it is a tax-free growth
plan. There is no employer contribution in this scheme, and you
can contribute up to $5000 a year. If you are over 50 years of
age, you can contribute $6000. In fact, if you have a 401k plan,
then after completing your contribution to that, you could put
your remaining money into the IRA, till you reach the limit. Some
facts you need to know about the Roth IRA are that this plan is
especially good for those who cannot avail of the 401k. Roth IRA
also helps those who can save more than the amount matched by
the employer. It is possible to open a Roth IRA in nay bank or
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brokerage house. You can either do it online or in person. All you

need while filling in the forms are you Social Security numbers,
and addresses of anyone you would like to name as your
beneficiary. The amount of money you contribute depends on the
income that you earn, which is essentially your wage and in case
you have any earning from self-employment. It does not include
either interest or dividends. In case you are married, your
combined contribution will depend on your combined earned
income. Each contribution to the Roth IRA is for a specific
calendar year. You can contribute to the Roth IRA for a specific
period before filing your tax returns. For instance, you can make
your Roth IRA contribution from January 2009 to April 2010.
Further, you need not make the $5000 contribution in one go.
You can split it up into small amounts. The only thing you would
have to remember is that it should not be more than $5000. This
money grows free of tax. If you withdraw money from the Roth
IRA after you retire, you do not have to pay tax. This is also the
best way of passing wealth to your children.
The 401k plan – this retirement investment plan is called 401k,

because it refers to Section 401, paragraph k of the Internal
Revenue Service tax code, which states that employers can offer
tax-deferred plans to employees so that they can save for
retirement. According to this plan, you are not taxed on the
money that you put into this account until you withdraw it. This,
therefore, allows your money to grow. The limit for this
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investment plan is $16,500 a year. If you are over 50 years old,

your contribution is higher, and can go up to $20,500. Employers
also make contributions. In fact, most employers choose to
contribute a certain percentage of the employee contribution. The
money that is thus saved can be invested as well. However, first,
both employer and employee have to fulfill the requirements set
by the IRS. Though there are no deadlines, the sooner you enroll
in this plan, the sooner you begin your tax-deferred saving. You
can invest aggressively when you begin this saving, but as you
come closer to the age of retirement, you should move away
from stocks, to more conservative methods of investment.
Planning for a dignified retirement has to start young.
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Chapter 3: Banking
1. Credit Cards and Debit Cards
It is not always convenient to pay cash and carrying cash around

is downright risky. It is, or should be only for these reasons that
credit cards should be used. Otherwise, remember, getting into
debt is the easiest thing in the world, and getting out of it is the
most difficult. Though it is important for you to build up a good
credit rating with your bank, so that when you need money in an
emergency, you will not be refused credit, it is important to honor
credit re-payment deadlines. A credit card, which helps you to
buy goods and services, is a thin plastic card, 3&1/8 inches long
by 2&1/8 inches broad. It contains your identification, such as
your picture, or your signature. There are sets of numbers on the
credit card. It’s good to know what some of them mean. For
instance:
 The first digit tells you what network system your card
belongs to –
 3 stands for travel and entertainment cards such as the

Diners Club or American Express
 4 denotes Visa
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 5 is for MasterCard
 6 stands for Discover Card
 Further,
 American Express cards start with 37 (Diners Club with

38). The 3rd and 4th digits are type and currency, digits
5 – 11 give the account number, digits 12 – 14 are the
card number in the account and the 15 th digit is a check
digit.
 In Visa cards, digits 2 – 6 are the bank number, 7 – 12

or 7 – 15 are the account number, and either digit 13
or 16 is the check digit.
 MasterCard credit cards have the bank number first

based on an internal plan. After the bank number is the
account number and digit 16 is the check digit.
 There is a magnetic stripe, the Electronic Data Capture

(EDC) magstripe at the back of the card, which has
information that can be read only by the bank. When the
cashier swipes your card, the EDC software at the POS
(Point of Sale), dials a certain telephone number to call an
acquirer or an organization that collects requests for
authentication of the credit card. Checks are made for the
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Merchant ID, whether the card is valid, what the expiration

date is, the credit limit, and the card usage. If you are using
an Internet attachment, or withdrawing money from an ATM
(Automated Teller Machine), then you will have to use a PIN
(Personal Identification Number) which is given to you at the
time of issue of your credit card.
 There are other cards which are even more secure than
credit cards. These are the Smart Cards and are capable of
many kinds of transactions.
Remember, the credit card that you have been issued by your
bank is linked to one of these international network systems, and
is therefore valid in any merchant establishment that accepts this
network system.
A bit of interesting history – credit cards were first used in the

U.S in the 1920s. These were issued by hotel chains and oil
companies. The first universal credit card that could be used in
stores and for various businesses was issued in 1950, by the
Diners Club, Inc. The Bank of America, California, launched the
BankAmericard, which was the first national bank plan, in 1959.
In 1976 it was renamed Visa. Other banks followed suit, and
credit cards are now used to pay for a large number of services.
1984 saw Smart cards coming into use in France.
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Credit cards are issued by banks, which have mutually beneficial

arrangements with a large number of merchant establishments
such as shops, hotels, travel agents, or wherever a money
transaction is made. It is a way the bank offers loans for a price.
When an individual wants a credit card, the bank checks out his
age, educational qualifications, financial rating and credit
worthiness and issues a card with a limit on it. There is an annual
fee for the card. Suppose, then, John gets a credit card with a
limit of $1,000.00, he can use the card until it reaches this limit.
When he buys goods, he swipes his card on the POS (or what is
commonly known as the swipe machine). This swipe machine is
connected to a central computer which belongs to that particular
network system, which in turn is connected to all the banks that
it is linked with. The system checks with your particular bank if
you have enough credit to make this purchase. It takes a few
seconds to accept or reject this transaction. If approved, John will
have to sign the charge slip. The merchant verifies the signature
against his signature on the card. The charge slip is then sent to
the merchant’s bank which settles the bill, and collects the money
from John’s bank. The transaction is then settled with John’s
personal account. Fascinating!! However, after this limit is
reached, John will not be able to use his credit card, until some of
the money spent is repaid. Each month John is sent a bill. This
bill reflects all the transactions that have been made. John can
choose to clear the whole amount or a part of it, or the minimum
amount required by the bank. Should John decide to pay only a
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part, or the minimum amount, the bank charges a finance charge

or interest for the money that is still due for payment. (John
would have been told about the interest the bank charges when
the bank issues him the card). This finance charge is quite high.
Another factor John needs to keep in mind is to clear his dues
within the time limit, otherwise he will be charged late fees. This
is precisely where the danger lies. If John does not clear his dues
regularly, he might end up paying far, far more than he spent in
the first place. However, if John regularly honors his payment
schedule, then after a while, the bank might even offer to
increase the credit limit. For the bank it is a win-win situation.
They charge the merchant establishments for the service, and
interest from the customer who fails to pay on time or clears only
part dues.
Credit cards come in handy if used properly. If you discipline

yourself to use only that amount that you have in your account,
you cannot go wrong with a credit card. Credit cards are used in
lieu of money and as far as you can help it, you must try not to
go over the limit and importantly, that you clear all dues regularly
and within the time limit.
When you are 18 years old, you can apply for a Student Credit
Card. Very carefully read the fine print where the different
charges are mentioned, and understand what they mean. The
only and most important word of caution is that you need to be
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certain that you will be able to repay the dues within the time
limit. This is the only way you can acquire and protect a good
credit rating, which will stand you in good stead when you want
to take loans in future. You could check out creditcards.com,
chase.com, and credit-card-outlet.com for more information on
Student Credit Cards.
Debit cards are a viable alternative to credit cards. These are also
electronic plastic cards. They are sometimes called electronic
checks. Debit cards are linked directly to the person’s bank
account. Thus, should you use your debit card to make a
payment in a store, or at an ATM, your bank account will
immediately reflect this transaction.
It is interesting to note that 20 years ago, approximately 19

million people used the debit card. It is estimated that in 2016,
34 million people will use this card.
There are different kinds of debit cards:
 Online card – this requires electronic authorization, and you

will need to use your PIN. This makes your transaction is
secure.
 Prepaid card – this card is used when you have to make

recurring payments. This is also very useful for those who
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travel outside the U.S., since it allows all payments to be

made instantly and without any fee.
 Offline card – this is used like a credit card. It may have a

daily limit, and/or a maximum limit. These transactions take
a couple of days to be reflected in the account.
 Electronic Purse Card – this is the Smart Card based system.

The amount of money you can spend is mentioned on the
card chip.
 Debit Cards for telephone, mail and Internet transactions
The best thing about debit cards is that they help in financial
discipline. You can spend only what you have in your account,
consequently, you learn to prioritize and make choices when
spending. You can use debit cards to buy things online and also
to make payments online. Another good thing about debit cards
is that the finance charges or interest rates are not too high. The
fee on card transactions is also not very high. There are some
disadvantages of a debit card:
 They are not as secure as credit cards
 Some transactions like renting a car in a foreign country

cannot be done with a debit card
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 Since you can only use the funds you have, a debit card
cannot be used in situations when you might urgently need
more money than you have in your account.
Banks that offer debit cards are the Bank of America, Citibank,
American Express, Deutsche Bank, Capital One, Standard
Chartered, Chase, and HSBC.
If you want to compare credit and debit cards:
 Banks offer both credit and debit cards
 Both cards have rewards such as cash back on purchases

made, or accumulation of points which can be redeemed at a
later point
 Both can be used, with the special PIN number they have, to
make online payments. Both can also be used to withdraw
money from an ATM (subject, of course, to cash limits)
 While you can get things on credit, to be paid later, or even

an overdraft, in an emergency, with a credit card, you do
not have these options with a debit card.
 Debit card holders never fall into debt, and do not have
monthly bills to pay, whereas credit card holders have a
monthly bill, and if they don’t pay their full bills, they are
charged high interest on the money that has to be paid.
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 People who have a bad credit history are eligible for debit
cards.
There is one big danger where credit cards are concerned. It is

identity theft. However, if you are careful, you can prevent this
from happening. Some points to remember are:
 Don’t give any personal information about yourself to

anyone.
 Any credit card offers that you get should be torn to shreds
or burned.
 Before trashing any paper that might have your particulars

on it, shred it.
 Never carry your passport, birth certificate or social security

card in your wallet. In fact it is a good idea to photocopy all
your important documents and cards.
 Review your credit report every year to see that all is in

order.
 Ensure that you get your monthly credit card statement.

Read it carefully to see if what you are charged for matches
what you actually bought.
 Do not give any personal information on the phone.
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 Never post any bills or documents that might have any

personal details on them. Take them personally to where
you have to deposit them.
 Any slips that you get from the ATM or your charge slips or
your deposit slips, should be shredded. Never leave them
either near the ATM or in your trash bin.
 If there is any discrepancy, immediately contact the bank.
 If you are denied credit, immediately call the bank and find
out what has happened.
2. Student Loans and Scholarships
It is absolutely imperative for you to go to college. If for nothing

else, a college degree will brighten your prospects of getting a
good job, and consequently a good life style.
College education is not inexpensive, but it is possible to get

loans and fund your higher education. Think long-term here. Most
students get financial aid. Remember that while financial aid may
not depend fully on your high school grades, once you start
getting the aid, you will have to maintain a standard where your
grades are concerned. Further, aid is given to the deserving, and
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is not based on ethnicity. Of course, for federal aid, you will need
to be a U.S. citizen. In some cases, you might belong to the
status of eligible non-citizen.
Thus, you first need to talk to your school counselor. Find out,
too, if the college you have set your heart on has a financial aid
office. You can talk to the people there. There are many sources
that you can tap. When doing your calculation, you must keep in
mind that there are 6 basic costs that you need to take into
consideration: tuition and fees, room and board, books and
supplies, laboratory expenses, personal expenses, and finally,
travel.
The first source you need to check out is the U.S. Department of
Education. There is more than $100 billion set aside per year to
be given as work-study assistance, grants and low-interest loans.
For this, you will need to fill out the Free Application for Federal
Student Aid or the FAFSA. In order to fill this in, you could take
an online tutorial Completing the FAFSA. The FAFSA website is
very helpful, and you could even call the Federal Student Aid
Information Centre at 1-800-4-FED-AID. There is another way of
filling in this all-important document. It is called the
FAFSA4Caster. You can try this out when you are in the junior
year of high school. This will give you a clear idea of how much
aid you are likely to get, it will help you to start planning your
financial requirements and it will help you to fill in the FAFSA
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easily. The aid that you are likely to get will depend on your
Expected Family Contribution or the EFC. The factors that are
taken into consideration are the family’s income, assets and also
the size of the family, and the age of your parents. Once all the
information is compiled, you get an EFC number. This determines
how much aid you are eligible for. When you fill in the FAFSA, you
must apply for your PIN. With the PIN you can fill in your FAFSA
online, and make corrections where you need to. You can also
change the name of the college that you wish to apply to. This
PIN will help you access personal information in the U.S.
Education Department system.
The Federal Family Education Loan Program or the FFELP is the

largest source of federal financial aid for college education. This is
a public-private partnership created by the Congress, and offers
low-cost loans to deserving students. When you apply for the
FFELP, based on your FAFSA, the college that you plan to go to
work out a financial aid package, this will include a combination
of grants, work-study programs, scholarships, and loans. Once
the student accepts this package, the financial aid office chooses
a lender. This lender is willing to loan the money needed, because
there is a guarantor. Thus, the college, the lender, the guarantor,
and the Department of Education, U.S. Government, work
together to see to it that the student gets the loan. 6 months
after the student graduates, repayment of the loan starts. The
various repayment options are: equal monthly installments, rising
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payment options over the specified term, payments linked to the

current income, and extended repayment. In case there are
financial problems and the loan cannot be paid as per the
schedule, the borrower can ask for the loan payment to be
deferred or reduced.
The kinds of loans offered are:
 Stafford loans – these loans are the largest component of

the FFELP. Unsubsidized loans are available for all students,
with no financial requirements specified. The student,
though, will have to pay all the interest that accumulates,
since interest is charged from the time the student gets the
loan. Subsidized Stafford loans are also available for
students who need financial help. The interest on these
loans is paid by the federal government for as long as the
student is in college. The interest is also paid for a 6-month
grace period after the student has left college, and during
certain periods of loan deferment. The student will only be
charged interest when he starts repaying the loan. In case
you decide to take your degree online, and the college that
you are applying to for this is a member of the FFELP, you
will be able to use the Stafford loan. The interest charged for
both subsidized and unsubsidized loans is 6.8%, up to 2013.
The time frame for the repayment of this loan is 10 years.
You can, on certain conditions, extend this time frame. The
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plans available for repayment are the Standard Repayment,

Graduated Repayment, Income-Sensitive Repayment, and
the Extended Repayment.
 PLUS loans – the federal PLUS loan is for parents who are
financing their child’s education. This is a non-need based
loan. The parent will have to pass a credit check to see if he
is credit worthy. This is a low-interest loan, the interest
being fixed at 8.5%. No collateral is required. If you opt for
a monthly debit plan directly from your bank account, you
are entitled to a .25% concession on your interest rate. The
interest may attract tax. The Graduate PLUS or GradPLUS
loan is a low, fixed-interest loan. The GradPLUS loan allows
students to pay for all their college needs. The interest rate
is 8.5%, and repayment can be deferred for as long as you
are in college. Interest, is charged from the time you start
taking the loan until you repay the loan in full. No co-
signatory is required, unless you do not have enough funds
in your bank account. The interest is tax deductible. The
student will have to go through a credit check to see if he is
credit worthy. If your college is a member of the FFELP, you
might be able to take your degree online.
 Graduate Private Student loans – this helps bridge the gap

between the federal financial aid and the actual costs of
studying in college. You can defer repayment while you are
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in college and for a 6-month grace period after you

graduate. In case you go in for an automatic debit plan from
your bank account, your interest rate is lowered by .25%.
While you do not need a co-signatory, it might help you to
get your loan easily if you have one. You might be able to
lower the interest rate a little more as well. If you are going
to do a professional course of study such as law, dentistry,
medicine, MBA, or any other special program, GradPLUS
loans are available. Check out GradLoans.com. You can also
use this loan for an online degree. There are 3 methods of
repayment of this loan: Full Deferral, Interest Only, and
Immediate Repayment.
 Federal Consolidation loans – all the federal education loans

can be consolidated into one loan with one monthly
repayment. Further, depending on the outstanding loan
balance, they can extend the period of repayment.
 Pell Grant Eligibility – the criteria for eligibility are that you
should have completed your FAFSA, and you should be
enrolled in an undergraduate course of study. This loan is
not for those who have chosen a professional course of
study.
 Private Student loans – these loans also cover costs that are
not covered by federal financial aid. It is non-need based.
You do not need a co-signatory, but it helps in helping you
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to get approval for your loan and lowers the rate of interest
as well.
Loans are like a contract. You borrow money and repay it, with
interest, within a time frame. Federal aid is given through Direct
aid, the William D. Ford Federal Direct Loan Program, and the
FFELP. Some financial institutions and banks offer private loans,
after doing a credit check. These might have different rates of
interest. Information on federal loans is available in Federal Aid
First, which is an online document from the U.S. Department of
Education.
Scholarships, unlike loans, do not have to be repaid. However,

they usually do not pay for the full education. A viable financial
program would include scholarships and loans to see you through
college. The first thing you need to do here too is to apply for the
FAFSA. Scholarships that are sponsored by colleges might have
certain criteria that you will have to fulfill such as:
 You belong to the same home state
 You have a certain grade point average
 You have opted for a particular major
 You have a special talent
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Some companies offer scholarships to the children of their

employees. Churches and civic organizations also offer
scholarships to eligible students.
StudentScholarshipSearch.com gives a lot of information to

students and parents about the kinds of scholarships that are
available. The studentaid2.ed.gov website would give you options
of various scholarships. The Robert C. Byrd Honors Scholarship
Program allows for State education agencies to give scholarships
to graduating high school seniors. Each state has its own
program, and you can find out more about these from the
Education Resource Organizations Directory. If you contact the
financial aid office of the college that you have chosen to go to,
you will definitely get more information on the scholarships that
are available.
Some special scholarship programs are: The Jackie Robinson

Foundation’s Scholarship Program. The Jackie Robinson
Foundation gives scholarships to minority high school students
who have shown a potential for leadership. The Jay Kennedy
Scholarship, in memory of the late King Features editor, is for the
best college cartoonist, and the NARM scholarship, instituted by
the Music Business Association is for those with high academic
achievement to their credit. These scholarships are need-based.
The Teacher Education Assistance for College and Higher

Education (TEACH) Grant Program is a wonderful grant that offers
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grants to students who decide to teach in either a public or

private elementary or secondary school specifically for children of
low-income families. (You will learn of these schools from
www.tcli.ed.gov). If you apply for this grant, you will need to
teach high-need subjects for 4 academic years within a time limit
of 8 calendar years after you complete your education. (The list
of high-need subjects will be discussed with you before you opt
for this grant). If, however, you change your mind, then this
grant will be changed into an unsubsidized Stafford Loan, and you
will have to repay the loan to the U.S. Department of Education.
The main requirements for this grant are the FAFSA, U.S.
Citizenship/eligible non-citizen, GPA of at least 3.25, and
willingness to sign the contract.
Remember, if you start working on your financial requirements

for higher studies in your final year in high school, you will see
that there are many options available for scholarships and loans.
Use the financial aid and scholarship wizards that are available on
the Federal Student Aid Website. Short-list the colleges that
attract you. Check with your State Education Agency if you can
get assistance from the State. Try and find a college near home,
since most colleges offer low tuition fees for residents of that
particular state. Start with a community college and then take a
transfer. Aid also comes from scholarships from state
governments, schools, employers, individuals, private companies,
nonprofits, religious groups, and professional organizations. You
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just need to find the right combination of scholarships and loans

that will see you through college.
3. Checking and Savings Accounts
Going to college is altogether a growing up experience. It is not

easy to manage money, and yet it is of the greatest importance
to know how to handle your finances. A word of caution - when
you have to decide on which bank to bank with, be careful to find
out all you can about the banking procedures of each bank. Do
not take their advertisements at face value. There may be fine
print which may pose difficulties for you at a later stage. Find out
all you can, do a comparative study, and then take an informed
decision. This would be your first major adult decision!
Checking and savings accounts are, basically, transactional

accounts which you are likely to use often.
Checking accounts are Demand Deposit Accounts. You can draw

money from this account either by a withdrawal form, or by
writing a check. To open a checking account, you need your
Social Security number, and an official photo ID. If you have a
valid driver’s license, that will do as well. Non-U.S. citizens will
have to show documentation to prove that their status in the
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country is legal. In case your photo ID does not have your

address, you will need some proof of residence like a utility bill
or, if you are living in rented rooms, then a copy of your lease.
You will also need to show proof that you are a student. Banks
offer special rates for students, and may also reduce the initial
deposit. Otherwise, a checking account is opened with an initial
deposit of $100. Since one of the methods of withdrawing money
from this account is by checks, it is important to know how to
write a check. The first thing you must remember is that though
it looks simple, you cannot afford to make a mistake, and so it
must never be done in a hurry. Write the date and the name of
the person/organization clearly in the space provided. The
amount of money has to be written both in words and numbers.
Write, legibly, the purpose of the check, and sign the check
exactly as printed on the check book. Enter the details in the
ledger that is provided with the check book. This is important,
because you need to keep a grip on your finances at all times.
When opening a checking account, see if the bank offers these
facilities:
 No minimum balance is required
 Free ATM/check book
 Free use of the bank’s specific ATM
 Free online checking of accounts
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 Free online payment of bills
 Free direct deposit
Some banks pay interest for money kept in checking accounts.

The fees are higher in these banks. Some banks offer free
checking, i.e., they do not charge a fee, but they require a higher
minimum balance in your account. They might also put a
restriction on the number of withdrawals you can make. In case
you are required to maintain a minimum balance, and your
balance falls below this, the bank will charge a fee.
If you have a debit card, you can make payments with it, which is
better than writing out a check. You can also use your debit card
in an ATM. Here again, you need to find out if there are any
hidden charges. What is extremely important is that you should
have enough flexibility to operate your account. Be careful that
you do not spend more than what you have in your account. You
could end up paying overdraft fees, or worse, the check might
bounce (return unpaid). Check if your bank offers any overdraft
protection. You will also need to know when your deposits will
become available. Find out if there are any special policies that
govern bank dealings.
Opening a savings account is quite simple. You will need to fill out
a form where you have to give your full name, Social Security
Number and address. You will also need to give your specimen
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signature, which is something you will have to remember, since

your signature on all bank-related documents will have to be the
same. One big benefit of having a savings account is the interest
the bank gives. It is also an account where you have limited
access to the funds in it. Further, an automatic transfer can be
set up from the checking account to the savings account. This
transfer actually works both ways, and should your checking
account show a very low balance, you can transfer money from
your savings account to your checking account. Ideally, since
student checking accounts offer either a very low rate of interest
or sometimes no interest at all, the money should be kept in your
student savings account. Every month, then, you could transfer
money to your checking account to pay your bills. This is made
easier if you have your checking and savings account linked
online. Many banks, though, allow only one or two transfers a
month. In fact, if you make more than the permitted number of
withdrawals, the bank will charge a fee with each withdrawal.
When you decide to open a savings account, it would be good to

find out if you need to have a minimum balance in your account.
Some banks require a higher minimum balance in your savings
account, for which they pay a higher interest. However, some
banks pay a very high rate of interest only during the initial
period. You also need to find out whether you will get a free ATM
card, whether you will be charged a fee for use of the bank’s
specific ATM, and whether you can access your account online.
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A simple basic savings account requires only a low minimum

balance. You can access your account at any time, and be linked
to other online banking accounts as well as your checking
account. The only drawback is that you get only very little
interest.
A money market account is a short-term savings account. You

will have to maintain a certain minimum balance in this account.
These have higher interest rates, but there might be a monthly
maintenance fee.
A Certificate of Deposit or CD is also a short-terms savings

account. Certificates of Deposit are a kind of savings account
where you are required to leave your money for a certain length
of time. They pay the highest interest rate. However, if you
withdraw your money before the term is over, you have to pay
quite a heavy penalty.
A savings account that students might want to explore is the

money market fund. This is done in collaboration with a mutual
fund company, or some other financial institution. The interest
rates are higher, plus, the student gets a feel of the real market
place of stocks and shares.
You can withdraw money from a savings account, but there are
limits on how many times you can withdraw money. Though it is
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seldom enforced, banks do need notice from the customer before

he withdraws money from his savings account.
Banks generally like their customers to save money in their

savings account and use the checking accounts to withdraw
money from. They advise students to use their savings and
money market accounts to build up funds. What you should aim
for here is to have enough money in this account to cover all
expenses for 3 to 6 months. These can be used in an emergency.
Remember, money is safer in the bank than either in your home
or in a dorm. You have the added advantage of convenience, and
even of making a little extra money.
You can access the checking and savings accounts both in your
bank, and an ATM. You can also check your balance, make or
accept money transfers, and pay your bills either online or by the
telephone. These services are usually free of charge. But you
need to verify this, as some banks charge a fee for online banking
or telephone services. You can use the ATM to withdraw money
as well.
Some big banks offer the best savings accounts. They do not
require any minimum balance and offer very convenient facilities.
Some of these accounts are the ING Direct Orange Savings
Account, the HSBC Online Savings Account, and the Emigrant
Direct American Dream Savings Account.
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The Federal Deposit Insurance Corporation insures the money in

all your savings accounts, and checking accounts, up to $100,000
per depositor per bank/financial institution. Thus, in an unlikely
event, should the bank fail, the depositor does not lose his
money.
See if you can answer these questions:
Q1. Why is the bank the safest place to keep your money in?
a. They pay interest on your accounts
b. Bank deposits are insured by the federal government
c. Bank employees do not have criminal records
Q2. The best way to find out about interest rates is by:
a. Calling all the banks in your area
b. Checking bank advertisements
c. Comparing rates on the Internet
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Q3. If you withdraw your money from a CD before the maturity

date, you will have to:
a. Pay the bank a penalty
b. Pay the IRS a penalty
c. Pay both bank and IRS a penalty
Q4. How often do most banks review and revise their interest
rates on checking and savings accounts?
a. Weekly
b. Monthly
c. Quarterly
Q5. If you want to earn a guaranteed interest on your money for

5 years, you should:
a. Take out a mortgage
b. Put your money in a CD
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c. Have a deposit of $100,000
Q6. The way to find out which account offers the best interest
rate is to review the account’s:
a. Annual percentage yield
b. Annual fee
c. Interest rate
Q7. The longer the money is kept in a CD, the higher the interest
rate is.
a. True
b. False
Q8. One way in which you cannot get a checking account is:
a. When you keep a high minimum balance
b. When you deposit money directly into your account
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c. When the only bank services you use are its tellers
Q9. If you open a checking account with a financial institution like

the credit union, you expect:
a. Lower account fees and lower rates on loans taken
b. Higher account fees and lower rates on loans taken
c. Lower account fees and higher rates on loans taken
Q10. Money market mutual funds are more risky than ordinary
savings accounts because:
a. They invest in the stock market
b. They are not insured by the federal government
c. Anyone can access your account, if they have your Social

Security number
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Q11. A BALANCE is?
a. A pair of scales
b. Cash
c. Money that is deposited in your bank account
Q12. What is a CHECK REGISTER?
a. A ledger
b. A personal record of your checking account
c. A display of money spent
Q13. What is a SAVINGS ACCOUNT?
a. Money saved
b. A bank account
c. A safe way to store and grow your money
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Q14. What is a WITHDRAWAL?
a. When you draw money from your account
b. A going away
c. Neither of the above
Q15. What is INTEREST RATE?
a. The price a borrower pays for the use of borrowed money
b. The money quotient
c. A part of an investment
Answers:
A1 - Bank deposits are insured by the federal government
A2 - Compare rates on the Internet
A3 - Pay the bank a penalty
A4 – Quarterly
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A5 - Put your money in a CD
A6 - Annual percentage yield
A7 - True
A8 - When the only bank services you use are its tellers
A9 - Lower account fees and lower rates on loans taken
A10 - They are not insured by the federal government
A11 - Money that is deposited in your bank account
A12 - A personal record of your checking account
A13 - A safe way to store and grow your money
A14 - When you draw money from your account
A15 - The price a borrower pays for the use of borrowed money
4. Checkbooks
A checkbook is a book with detachable blank checks issued by a

bank to those who have a checking account. Checks are used in
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lieu of cash. It is an important life skill to know how to manage

your finances. Checks are one way of making you aware of how
much you have in your checking account, how much you have
spent and the balance that is left in your account. You slowly
become familiar with banking terms like credit and debit. You also
learn to record all your financial transactions. Financial discipline
means that you cannot spend more than the deposit you have in
your account.
The first thing you have to realize is that you have to write your
check clearly and legibly, if you want it to be honored. All the
figures have to be written carefully, so that there is no confusion
about the amount that you have written on the check. The name
of the person or organization that the check favors has to be
written clearly, and correctly. There is no room for spelling errors,
canceling or overwriting on checks. The date has to be correct as
well. Importantly, your signature has to match the specimen
signature that the bank has.
Before you begin any venture, like going to college, it is

important for you to work out your budget. You know how much
your education is going to cost, you are aware of the scholarships
and loans that you have received and taken. With all the
information that you have, you will need to work out your budget.
Then, you open your checking account in a particular bank that
you feel suits your specific needs. The bank gives you a
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checkbook and a ledger, and this launches you into the adult
world. You learn to live within the budget you have created, and
to maintain your balance. You learn not to stretch yourself too
thin, and completely and totally avoid deficit spending. There will
be many temptations with credit cards, loans, and very attractive
lines of credit. If you can resist this, you will be able to stay
within your budget. If, for some careless reason you write a
check for more than what you have in the bank, it is known as
passing a bad check. Not only will the check bounce because the
bank will not honor it, but the bank will slap a penalty on you. In
the event of the bank giving you an overdraft, you can be sure
that the bank will charge you for this service. If you use someone
else’s checkbook, it is known as forgery, and can attract serious
punishment. Be careful not to leave your checkbook lying around.
Further, if you have an ATM card, make sure that you keep it
safely. This is because someone might steal your ATM card and
use it to take money from your account.
Balancing your checkbook helps you keep a close watch on your

account. Checking your account online is a simple way of knowing
if your balance matches your checkbook calculations, or if there is
some foul play. In fact, along with a checkbook, the bank gives
you a check register. This is to keep a check on any mistakes that
either you, or the bank might have made, prevent an identity
theft, and avoid writing a check that might bounce (a bad check).
In case your bank has offered you the privilege of drawing an
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overdraft, you will need to see that it is cleared as soon as

possible, so that you do not have to pay the overdraft fee that
the bank charges. Go through your check register as often as
possible. Every financial transaction you make must be
meticulously entered. Whether you are writing out a check, or
using your debit card, enter it in the register. All your ATM
transactions should be entered. In case the bank charges an ATM
fee, this should be added as well. In case you have made online
payments, these should be entered, and since all online
payments send a confirmation code, this code should be entered
next to the payee. Insist that your bank send you monthly
statements. These are checked against your check register to see
if all the entries tally. You will find some entries in the monthly
statements that you do not have such as interest earned, direct
deposits made, if any, and bank fees. There are some
transactions for which you get receipts. These have to be entered
carefully, with the proper dates, if there is to be no confusion in
your accounting. You can make your own check register on
Microsoft Excel (use a PDA). You could use a spreadsheet, or a
package like Quicken. You can get different kinds of templates for
check registers on the Internet. You can also print out your own
check register in the size you want and in a way that is
convenient for you. The main columns that you will need are:
 Date
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 Check Number
 Description (who the check is being paid to/for, or the

payee)
 Payment/Debit (-) for fees, payments made, and

withdrawals
 Payment/Credit (+) for deposits made and interest earned
 Balance
 One column for ticking off the entries that have been
verified
Finance managers strongly advise keeping not only the

checkbook registers, but also all the corresponding bank
statements for at least 1 year. They can be kept in your
PERSONAL folder. The advantages are:
 Budgetary discipline
 All financial records are ship-shape
 Good financial management
Balancing a checkbook is something you must know how to do:
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 Write down all transactions
 Find out your current balance. You can get this information
from –
 Your bank either by visiting it in person, or by

telephoning
 The ATM
 Your bank statement
You can mention this figure on the top of the page as a Balance
Forward entry. There might be some checks or electronic debits
that have not been cleared by the time you check your account.
You will need to check your balance now and then to see if these
have been entered. Read the bank statement carefully, and
incorporate any transactions that you might have missed out on.
 Regularly recalculate the balance.
 Subtract the expenses/payments/withdrawals/transfers

made/check amounts from the total balance.
 Add all interest earned/deposits/credit/transfer to the

total.
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 Write out the new balance in the column on the

extreme right.
 When your bank statement comes in, reconcile your

checkbook i.e.:
 Compare the statement with your check register, and

tick off the transactions that tally.
 Add the interest, and subtract the bank fees.
 The transactions mentioned in the bank statement

should match the transactions in your check register,
excluding the transactions that have not been cleared
(outstanding checks, and outstanding deposits), and
therefore do not appear in the statement.
 Make corrections if necessary. Double check all your entries

and calculations. Make a note of the transactions that have
not yet appeared, and tick them off when they feature in
your statement. If you think that the bank has made an
error, or you are confused about something, or you see that
there is some payment made or amount of money
withdrawn which you did not do, immediately contact the
bank. Speed of action can help errors to be rectified, and
frauds due to identity theft to be detected.
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 Once you have finished reconciling and balancing your check

register, write the final balance and draw a double line under
it. This will tell you that this is the amount of balance that
has been taken forward. You make your calculations from
this point on, the next time.
Other methods you can use are the Checkbook, QuickBank

Checkbook, and PocketMoney. Checkbook totally replaces your
paper checkbook. It is a very user-friendly and convenient way of
managing your daily finances. The QuickBank Checkbook
balances all your accounts on the iPhone and exports them to
your specific finance application which might be Microsoft Excel,
Microsoft Money, or Quicken. PocketMoney keeps track of all the
money you spend, and maintains meticulous records. There are
many features, besides the usual ones that you could use to
manage your finances. These applications are all password-
protected, so there is totally privacy and security.
Ideally, since we are becoming more and more conscious of

creating a green world, you would do well to go in for the
electronic method of keeping a close watch on your finances
rather than use paper checks and check registers.
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5. Interest Rates and Debt
Managing money involves learning about interest and interest

rates. If you understand interest rates, you will be able to save a
lot of money. When you keep money in your savings account, the
bank uses this money to lend to organizations or people who
need a loan. For this loan, the bank charges interest, and a part
of this interest is given to you. Therefore, when you decide to
open a savings account, you first need to shop around to see
which bank offers you the best rate of interest. If you are
judicious about your money, you will see that the money in your
savings account grows with the interest added to it. The other
side of the coin is that, in the event of your wanting a loan from a
bank, the bank will give you the loan, but they will charge you
interest on the loan, so that at the end of the time specified, you
will have to pay back not only the money that you borrowed, but
also the interest on it. Thus, while on the one hand you would
want a high rate of interest on the money saved, you would want
a low rate of interest on a loan.
To understand interest rates, let us begin with the amount of

money saved/borrowed. This amount of money is called the
principal. Interest is paid on the principal. There are two kinds of
interest rates:
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Simple Interest – this is a percentage of the principal over the

period of one year. For instance, if you have $100 in your savings
account, and the bank offers 10% interest per annum, it means
that at the end of 1 year, your interest is $10, and your balance
stands at $110. (Likewise, if you borrow $100, at 10% per
annum, you will have to pay back $110). This is also known as
nominal interest rate. Real interest rate measures the purchasing
power takes inflation into account. So, if the inflation is 10% in
the year, then the value of the $110 in your savings account, at
the end of the year buys you what $100 did one year back. The
realized real interest rate, therefore, is zero. So, if
i (r) = real interest rate, and
i (n) = nominal interest rate
then, the realized real interest rate is calculated by the formula -
i (r) = i (n) – p
P is the actual inflation over the 1 year in consideration.
If you want to calculate the expected real interest before it is

made, you can do so with the formula:
i (r) = i (n) – p (e)
p (e) is the expected inflation over the next 1 year.
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Compound Interest – this is a kind of interest which can either

make you rich, or it can bankrupt you. To put it simply, it is a
chain of simple interests. This is for when you earn interest, as
well as pay interest, and it works like this: you have $100 in your
savings account; interest offered by the bank is 10% per annum,
so at the end of 1 year, you have a balance of $110. You don’t
touch this money. The rate of interest stands at 10% per annum.
But, now the interest is being calculated on $110. So, at the end
of the second year, you have $121 in your account. The next
year, the interest will be calculated on $121, and so on. So,
slowly, you see your money grow. If you owe money and are
paying compound interest, then this is the way the amount of
money that you have to pay increases, till it becomes an
unmanageable amount. It is a good idea to start saving money
right from the beginning. Once it becomes a habit, you will see
your finances becoming sounder and sounder. Even if you have
your savings account linked to your checking account, you can
always put aside a certain amount of money which you build up,
and use the remaining amount. This would involve financial
discipline which will stand you in good stead as you grow older.
A car loan is generally a simple interest loan. Credit cards though

are compound interest loans. Some credit card companies charge
monthly rent. For instance, if the monthly interest is 2%, it might
not look as if it is too much. This is deceptive, because, in effect,
the Annual Percentage Rate that you end up paying is 27%. This
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includes not only the interest, but also other charges. You need to
be savvy about this, and find out all these seemingly little details
before going in for a loan. Some credit cards calculate compound
interest daily. Can you imagine the way your interest is building
up? You are paying a high rent for the money that you have
taken on loan. Add to this the changing value of money due to
inflation, and you have a huge problem…
Interest rates are determined by five main components:
 The risk-free rate which is the rate of the U.S. Government

T-bill
 The DRP or the default risk premium
 The IP or the inflation premium
 The MRP or the maturity risk premium
 LP or the liquidity premium
The interest rates that credit cards use add all these premiums.
That is why they are so high. The U.S. Government Treasury bill,
on the other hand, offers a much lower rate of interest than a
credit card.
What students have to realize is that once they sign the

promissory note agreeing to pay back the loan, they have also
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agreed to pay the rate of interest, or the rate margin, that is

mentioned in the contract. While some loans have a fixed rate,
most private student loans have variable interest rates i.e., a
margin is added to the base rate. There are options available, and
you can study them to see which suits your financial situation the
best. However, whichever option you choose, it is important to
understand what the rate of interest is, and how the repayment
plans has been worked out. Interest has a way of accruing, so be
very careful and understand where you are at. Instead of
stretching out the period of a loan, it is better to pay a higher
amount every month. Even if this amount is only a little, it adds
up and you do manage to save money over the time span of the
loan. The Department of Education’s Direct Loan Program is your
best bet for consolidating your federal student loans. There are
also schemes which lower the rate of interest if you agree to have
the money automatically debited every month from your account.
It won’t do you a bit of harm if you learn to handle your finances.

In fact, it can be quite an exciting challenge. A loan means you
have to pay the principal amount and the interest. So, if you take
a loan, cut all unnecessary expenditure, pare down your lifestyle,
and start repaying your loan as soon as you can. Take on a
second job, live at home, or take in a roommate as ways of
paying back the loan. Further, don’t buy a new car, or any car at
all, re-do your wardrobe, take vacations, or eat out till you have
your finances under control. There are many people who wrongly
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think that since their principal is a manageable amount,

repayment is easy. Nothing could be farther from the truth. It is
the interest that accrues and which eventually becomes an
amount that has only one result – bankruptcy.
It is a good idea to discuss the question of taxes that interest in

savings accounts might attract, and ways of investing in other
portfolios to minimize the amount of tax to be paid, with finance
professional.
Since borrowing money involves an element of debt, it is

important to know and understand what exactly a debt is. The
simplest meaning of debt is something which is due. When
someone or some financial institution lends you money, they are
the creditor, and you are the debtor. This money is lent to you on
the condition that it is paid back with interest. That is the price
you have to pay for taking a loan, or crudely put, being in debt.
Before the loan is given, the creditor and the debtor have to
agree on the terms of the debt i.e., the loan agreement in which
details like what the rate of interest is, what is the length of time
over which the debt is to be paid, and what the monthly
installments are to be, or what is the length of time after which
the full debt (principal + interest) will be paid in full. If you don’t
want to end up being totally stressed out because of the debt,
work out a reasonable loan repayment schedule and stick to it no
matter what, no matter how many other sacrifices you might
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have to make. For one thing, this instills sound financial

discipline, and you realize the seriousness of taking a loan or
being in debt. Of course, as students you will need to take loans,
for the simple reason college education is worth every cent of
loan you take. It is like making a long term investment. Getting a
college education will enable you to get better and superior jobs.
The opportunities that a college education opens up are mind-
blowing. And so, you will be able to repay all your debts. The only
thing required is presence of mind and will power to stay within
the money borrowed and to repay it, in full, when you have to.
Of course, debts play an important role in business. Taking loans

to expand is an integral part of any business venture. Accounts
payable are a form of debt. These are short-term in nature.
Bonds and individual loans are examples of accounts payable,
which are basically loans which one individual takes from another.
Debentures, which are another kind of debt, are issued by
governments and private companies. Treasure Bonds and
Treasury Bills are debentures. These are called low-risk debts. A
term you would need to know is Debt Security which is the
assurance that the person who has taken the loan gives the
investor that the loan will be repaid in full with interest on a
specific date.
Bank Overdraft is a term you might come up against. This means

that you have withdrawn more money than was deposited in your
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account. Consequently, you end up with a negative balance in

your account, and are said to be overdrawn. Your bank might
offer you an overdraft protection plan, so that you have an
authorized overdraft margin. If you overdraw, but remain within
the authorized overdraft, the bank will charge interest at the rate
agreed upon. If, however, you exceed this authorized overdraft
then the bank will not only charge bank fees, but will also charge
a higher rate of interest. Your debt, thus, increases.
Sometimes, banks offer Term Loans. This is for those people who
borrow money from banks in order to acquire long-term assets
such as a car, real estate, some project, creation of
infrastructure, or some consumer durable, to name some long-
term assets. Here, a fixed amount of money is to be paid in
installments that have been decided at the time of taking the
loan.
Debts owed by governments and corporate houses are rated by

rating agencies such as Moody’s, Fitch Ratings Inc., A.M. Best,
and Standard & Poor’s for their credit worthiness i.e., whether
they honor their debts or not. Accordingly they are given a credit
rating.
Likewise, it is important for you to repay your debts on time so

that you are considered credit worthy by your bank or the
financial institution from whom you have taken a loan. This is so
that if, in the future, you need to take a loan, the bank will not
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hesitate to give you one. A bad debt is a loan that cannot be paid
either partially or fully by the debtor. The debtor is then said to
default on his debt.
Something about debts that you should know about – Household

debts is those which households notch up. National or Public
debts is the debt which government institutions hold. Businesses
have business debts, and the financial sector i.e., debt owed by
one financial institution to another, has financial debts. The
various types of debts are computed to give us the Debt: GDP
ratio. This helps us to understand the kind of debt a country has.
For instance, in the U.S., the consumer debt is higher than the
public debts, while it is just the opposite in the eastern European
countries. Private and public agents have their own systems of
accounting in debt repayment. All economic problems either for
countries or individuals are because of an excess of debt
accumulation. You borrow money, or get into debt, thinking that
there will be financial gains in the future. Sometimes these don’t
happen because of inflation or because of reverses in the stock
market. When countries take debts which cannot be honored
because of inflation or the bursting of stock market bubbles, then
the country makes certain corrections. What happen then are
deflation and a credit crunch. Deflation means that there is a
general decrease in the price of goods and services, and credit
crunch means that there is a reduction in the availability of loans.
Thus, there would be less investment, resulting in reduced
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business activity. The consequences of this are a reduction in

employment, or an increase in unemployment. Thus, deflation
which is, in effect, a decrease in the supply of money and credit,
is the cause of recession and economic depression.
Here are some FAQs you might find useful:
 What are the warning signs that I am in debt? You know

that you are in debt when: you are spending more than you
have/earn; you have exceeded your credit limit; you are not
paying the minimum amount required; you have fallen
behind on the repayment schedule.
 You could go in for debt consolidation.

www.debtconsolidationcare.com has counselors who will
help you understand your debt and help you resolve your
debt crisis. Through debt consolidation, you will be able to
repay your debt in 4 to 6 years. The debt consolidation
company works out a reasonable monthly repayment plan.
Your interest rates are cut, you can have the late fees and
over-limit charges reduced or even eliminated, and you can
even save money.
 Other options by which you can pay your debts are:
 Debt Settlement – in this process, you take the help of

settlement companies, which negotiate with your
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creditors and reduce your balance by 40% to 60%. This

will prevent harassment and legal action by your
creditors.
 Debt Management – here the counseling agency

negotiates with the creditors and works out a viable
repayment plan. When creditors see that you are in
earnest, they may cut down interest rates and even
reduce or waive off late fees.
 Consolidation Loans – this is a personal loan that helps

you to consolidate your dues into one monthly
payment. You then pay back the personal loan in small
monthly installments that have been agreed upon. To
avail of this loan, your credit rating has to be good.
 Self-repayment plan – this is by far the best way. You

assess your financial situation, make a budget which
includes monthly repayment of loans, and stick to it.
You might need to alter your lifestyle, but then it would
be well worth the effort.
It would be wise to remember that while credit cards and loans

offer you the freedom to get the things you want, if not honored,
the very freedom they offered becomes punitive.
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Chapter 4: Prudence
1. Setting Goals
As you grow older, questions about life come into your mind. The
main questions are about yourself and the meaning of life in your
own special context. Where am I headed? Where is this education
taking me? What is the use of my schooling? What am I working
towards? You also begin to realize the uselessness of taking part
in mindless activities, that you are getting bored with everyday
life, that there are not enough challenges to stimulate your mind.
There are times too when you start wondering if this is all there is
to life, and what you are going to do with yourself as you grow
older, and move from grade to grade. Should you go to college,
or opt out of it, become questions that loom large. Either way,
you start to think of your options and whether you like them or
not, and you are forced to face up to the fact that you will have
to do something with your life. To add to all these questions is
peer pressure and the consequences of either going along with
the crowd (against your better judgment) or setting your mind
against peer pressure (allowing yourself to do your own thinking).
It is crucial that you work towards doing what you actually
believe in.
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The only thing that will help you out of all this growing-up
confusion is to have a focus. You need to stop whatever you are
doing, or wherever you are, and take a look at yourself. Once you
do this, you slowly start getting focused on your present state.
Gradually, you start looking at what you have in hand, and your
options, not only in terms of your school life and education, but
also as a person. And, you will want to know how to go ahead.
This is when you start, unconsciously at first, then consciously,
making a road map. This road map, or setting of goals, is what is
going to bring meaning to your life, because it is from here that
the journey towards adulthood starts. These goals are not goals-
for-life, nor are they fool-proof, but they create the focus, and
give direction to your life. Suddenly you find you have a purpose
that you are working for/towards. Remember to keep your focus
and work towards your goals requires tremendous hard work,
patience and perseverance.
Of course you will make mistakes, but then you need to make
mistakes in order to learn where you went wrong, so that you can
fine tune your thinking and your methods. You must never let the
fall-outs of a mistake cause you to deviate from your road or
depress you. It is a learning experience and if your do not learn,
how will you grow and go forward anyway? You also need a
positive and optimistic attitude. No one got anywhere on an easy
road. All the roadblocks you come across will help you hone your
thinking and reasoning skills; they will help your focus to become
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clearer. Along the way you will have to change your goals, refine
them, change course, work out a new route, struggle and strive
to stay afloat, but you will learn to believe in yourself, and you
will, when you look back, see that everything was worth it. When
you set goals, you learn to take control of your life. You realize
your potential and your capabilities, and you learn to accept
them. You learn to find ways and means of making the most of
your chances. You also find, when you work towards your goals
and set newer and newer ones along the way, that your own
value system becomes clear. You also learn to make yourself
happy as you pursue your goals. In fact, you will see that the
more drive and passion there is in the pursuit of your goals,
problems fall off along the way, and you become stronger and
stronger. The beautiful thing about goals is that even if you got
the idea from someone - a family member, your school counselor,
a teacher, friends, or someone you look up to - once you decide
on it, it becomes your own. From now on, you will need to make
decisions regarding that goal, and see where it is taking you.
Naturally, having goals means also having a timeline for the

realization of those goals. Deciding on goals and maybe even
working out a road map might get you there eventually, but if
you fix a timeline, then you leave yourself enough time for
moving forward, and for trying out something new. As you work
towards your lifetime goals, you see that the task is huge. The
best way to grapple with this is to break it up into short-term
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goals and long-term goals. The time span for short-term goals
should be ideally 30 days, or a month, and the time span for
long-term goals should be not more than a couple of years. Next,
you should prioritize what would come under the category of
short-term goals, and what the long-term goals would be.
Further, your lists will have to be re-made in order of priority.
This will help you learn how to prioritize, and listing your goals in
order of priorities is directly dependent on your value system,
your dreams and your hopes. You have most important goals,
medium importance goals, and least but essential goals. This is
for both short-term and long-term goals. It is when you are
working on this that you learn to create a balance in your life.
You cannot exclude any aspect of your life. For instance, if you
are planning to be an academic, you also need to give importance
to your body, by exercising, or going on treks, or camping, or
playing your favorite game. You might even incorporate this into
your road map, so that you grow and progress in this area as
well! You would be adding another facet to your life…or, if you
want to become an economist, you could pursue your interest in
the arts and maybe do as well in this field too. This flexibility and
creativity will keep you in good stead throughout your life. The
idea is to challenge yourself and push yourself to your outer
limits, push yourself out of your comfort zone as it were.
One important point that will help while setting your goals is to
define your goals clearly. Ask yourself lots of questions. Sit with
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friends and family and brainstorm. Vagueness is as exhausting as

confusion. For instance, if you have not as yet decided on your
career, but know which subjects excite you, along with talking
about and discussing this issue, find out all you can about
colleges and universities both at home and abroad, where you
would find the best academic program to support this interest.
Clarity is of the essence. Gnaw at your problem, keeping the goal
in mind and you will get your answer. All the while, remember
that though it is very tempting, do not procrastinate. It is easier
to make a correction than to have never started. Review your
goals. Put them up for you to see every morning when you wake
up and last thing before you sleep. Assess what progress you
have made, and what the next logical step is to be. It is easy to
blame destiny, but that is the easy way. With goals, you are
investing in your own future and creating your own destiny. The
beautiful thing is that your goals will attract all kinds of
information and opportunities that are related, as is borne out in
‘The Secret’.
As you go about setting goals, creating the road map, and, most
importantly, working towards your goals, questions of
achievement and success are bound to crop up. It would be wise
never to judge your progress by conventional yardsticks of
success and failure. If you are working to make a dream come
true, or are working towards the achievement of a goal, you need
to measure your achievement only against what you had planned
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or wanted to do. Every time you achieve some small step, you
would do well to recognize that and celebrate that success. In
other words, you have to enjoy working towards the goals that
you have set for yourself. The only things you need are the
passion to work towards your goals, and the motivation to keep
at it. Everything else will fall into place. Do not expect the
motivation to come from external sources, you have to motivate
yourself.
You can derive motivation from reading about people who have
started from nothing and made it big, only by dreaming big.
There are hundreds of people out there, recognized and
unrecognized who have ‘made’ it. Take Fred Smith. He attended
Yale University Business School, and while there wrote a paper on
the concept of overnight delivery of packages. He was given a C
minus for his paper. He did not let this get him down, but was
determined to show that his plan could and would work. So, he
put whatever money he had into starting Federal Express. On his
first day he wanted to deliver 167 packages. He managed to
deliver 7, five of which were to his own address. He kept on
persevering, and today FedEx is the most sought after delivery
company in the country, known for its timely delivery and
integrity. You need goals so that you can work towards them.
Think Bill Gates, or Steve Jobs, or Colonel Sanders, or Thomas
Edison. For sheer perseverance in sticking to his goal for
becoming a leader in the United Stated Government, think of
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Abraham Lincoln. How many so-called failures he had; how many

setbacks; but he learned from his mistakes, persevered towards
his goal, and finally became the President! Don’t allow any
circumstances justify why you cannot reach your goals. Morris
Goodman was in a plane crash that all but destroyed his body.
Though he was in a coma, he fought his way to consciousness, so
great was his will to live. After 3 months, he walked out of the
hospital on crutches. He was just not ready to give up. Today he
is a motivational speaker. Greg Mortenson’s is a fantastic story.
In gratitude to the people who nursed him back to health after an
unsuccessful climbing expedition, he was determined to build
schools for the girls in the remote areas of Pakistan and
Afghanistan. And he did.
There are many kinds of goals. You might want to become a

better person; you might want to cultivate good communication
skills; you might want to achieve your sales target; you might
object to getting sub-standard bread, and decide to market your
own home-made brand; you might want to trek to the highest
peak in the Himalayas; you might want to be a good parent; or
you might want to work with the underprivileged children and
people of the world. Whatever your dream, set your goals and
work towards them not accepting any setback or defeat. You will
see that the insights you get when you get up from a fall help you
to get to the next higher step. This will also teach you the
priceless value of flexibility.
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So, when setting goals, some basics that you need to keep in
mind are:
 What skills do I need to achieve my goals?
 What do I need to learn? And how best can I go about

getting the knowledge I need?
 If I should need it, where can I get help? Or should I

collaborate with a trusted and like-minded person?
 What tools and resources will I need for each of my goals?
 How will I cope with setbacks and failures?
 Am I being realistic about my potential, my abilities, my

vulnerabilities, and my failure-tolerance levels?
 Do I have it in me to be flexible? How can I cultivate this?
 Am I giving every small goal my best shot?
2. Balancing a Budget
There is a story of three freshmen who were sitting on the college

steps during the lunch hour. One girl took out her lunch packet. It
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was full of goodies. The second girl had her usual lunch of salad,
and the third girl who was sitting a little distance from these girls,
didn’t have anything. She put on a brave front of not being
hungry, even though she was absolutely ravenous. All three girls
were in the same class, and had the same income. So, why the
differences? The first two girls managed their money according to
a budget. They had set aside a certain amount of money for food.
Within this, they could juggle around. The first girl knew that if
she indulged in goodies, she had the money to offset this with an
ordinary meal the next day. The second girl stuck to her usual
lunch money. And the third girl had spent her lunch money on
her rather high phone bill. She would thus have to, in all
probability, either skip a meal or find something to do to increase
her income.
This brings us to the whole question of budgeting and financial

discipline. Very ideally, this financial discipline should start early
in life. Right from childhood, parents can inculcate monetary
discipline in their children. Children are usually quite fascinated
by a piggy bank. If money earned doing chores or from gifts can
be saved in this piggy bank, you would be teaching your child an
invaluable lesson. You then encourage your child to save his
money for a certain length of time mutually decided on. After this
time, the money can be used to buy something the child likes.
The child learns many lessons in this way: to save money, and
better, to save money for something he wants, to go into a store
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and get whatever it was he was saving for. As the child grows,
this slowly becomes a habit, and then it is infinitely easier for him
to manage his finances when he is away from home and in the
first year of college. Naturally, college is a huge financial venture,
but it is an eminently do-able venture, for the simple reason that
the long-term benefits are tremendous. It is always a good idea
to know of the finances that are available, what will have to be
borrowed, terms of borrowing, and expenditures involved in the
first year of college life, before going to college. Ideally, all this
should be done in the last two years of high school, certainly in
the final year of high school. Of course, there are kids who start
saving for college quite early. When you scout around for colleges
that offer the academic program that you want, you need to also
find out from the financial aid office, what the financial layout is
likely to be. Finally, you will need to work out a budget.
Remember, a budget is a plan. It is a record of your income and
your expenses. It gives you a clear picture of what you have, and
what you can spend, as well as what you can and should save.
The importance of saving cannot be stressed enough. It is
absolutely imperative that you start saving for the future as soon
as you possibly can. Broadly speaking, there are two kinds of
savings: short-term savings and long-term savings. Short-term
savings are for use in the immediate and near future, whereas
long-term savings are for the future. It would be judicious to start
planning the retirement savings at this point too. Financial
experts suggest keeping aside the first 1/3 of the income for
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long-term savings, which you could deposit in a savings account

and not touch at all. This way, with compound interest, the
money will build up to a tidy amount, even after taxes. The
second 1/3 could be for short-term savings looking at the next
one year, and the final 1/3 should be kept for spending in the
present.
A sample basic budget for a student:
Monthly Income:
Allowance - $20
Job (mowing the lawn) - $10
Job (cafeteria dishes) - $10
Birthday gift - $15
Total Income - $55
Monthly Expense:
Savings account - $15
Movies - $10
Books - $10
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Saving for a music system - $20
Total Spent - $55
It is best to budget broadly for the year, and then break it up. For
example, whatever your annual income is going to be, divide it by
12, and you will have the amount of money that is available
every month. A word of caution: when calculating your annual
income, be very sure that this is the total amount you are going
to get. The income could come from your parents, federal
financial aid/loans/grants/scholarships. Do not include any
assumptions of money that might be forthcoming, for example
any summer job, or part-time job that you are trying for. If you
do happen to come by this money, you could put it into your
savings, and then decide what you want to do with it. The next
thing you need to do is to list your essential expenditures. This is
after setting aside a certain amount as savings, and would
include college fees, tuition, food, books, travel, and utility bills.
Then would be money spent on clothes and entertainment, which
would come under the category or non-essentials. Total all your
expenditures and subtract it from your income. If you get a
positive answer, your budget is all right, but if you get a negative
result, then it means that your expenditure heads will need to be
prioritized and cut down, or you may need to look for a second
part-time job.
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It would also be wise to budget a little more for the first month,
since you need to settle in well. Find out about medical insurance
and any additional fee the college might be charging for the
courses you have chosen. Use a spreadsheet or a notebook and
maintain all accounts meticulously. It is difficult, and it is tedious,
but it is well worth the effort. Maintain a file for all receipts and
bank statements.
After you start college, and armed with this budget, you get into
college life. You will know where to make adjustments in your
budget only after the first month is over. Remember:
 You cannot default on your tuition and rent
 You cannot default on your utility bills, though you can make
adjustment in your lifestyle to lower your bills
 You have to get the books you need
 You have to save
 If you have taken any credit cards, you must not default on
your repayment plan
Keep in mind that all loans have to be paid back. If you get into
the habit of saving, you will be able to honor all your loans when
the time comes, free of stress. If you have expensive habits, it
would be a good idea to examine them, and if you can do without
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them, all the better, but if you cannot do without these habits,
then it would be a good idea to put them on hold until you start
earning. When you are completely debt-free, you can integrate
non-essential-but-would-make-life-interesting expenses. Always
remember that your expenses should never be more than your
income. A good rule for spending would be to spend only on what
is absolutely essential. This way you will not only learn to
prioritize, you will learn to value what you are getting, and since
you have spent time thinking about this, you will get the best,
thus adding value.
You will need to review your budget at the end of every month,
so that you can make the necessary adjustments for the coming
month.
Budgeting helps you realize your goals. Getting a college

education is the first and most important goal. However, there
are other dreams that you might have. Naturally, working to
realize these would mean identifying and creating short-term
goals (that would ultimately lead to the main goal), and the road
map to achieving these goals. The expenses you might need to
incur would have to be factored into your budget. This would
enable you to plan how you could increase your income without
eating into any of the other absolute and necessary expenditures.
Making a budget need not be either a frightening proposition or a
negative one. Look on it as a challenge which enables you to do
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all the things that you want to do. Use a budget as you would a
tool. It helps you check your financial health, tells you where you
are spending your money, and where you need to cut down, or
where you need to increase. It tells you about yourself, in a way,
about where your priorities lie, your habits, and your ability to
make adjustments where and whenever necessary. You also learn
how to get the most out of your budget, so that you still do all
the things you love to do while working towards a larger goal.
Emergencies happen in everyone’s life, but, keeping a budget
helps you handle an emergency, or an unanticipated expense.
Very, very importantly, a budget keeps you out of debt and
leaves you totally stress-free. When you see that you are
controlling your money, and it is not the other way around, you
will be able to move into a responsible adult life seamlessly, and
with no money worries. A budget is not a static thing. It has to
keep changing, but it keeps you on course.
To sum up, the features of a good budget are:
 You work out the various categories where you will

need/spend money to suit yourself
 You learn to make accurate income projections
 As your needs grow, you have areas where you can fit them
in without causing major changes
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 It is easily accessible so that you can review your

transactions regularly.
 Cash has a tendency to flow. If you get into the habit of

writing down all your expenditures, you will have better
control over your cash flow
 It helps you make realistic goals. Budgeting is not only

about tracking money
 It will identify your spending pattern
 It makes savings an integral part of your life
 It helps in motivating you
Remember, that while money in itself is not important, monetary

discipline is, for the simple reason it affords you the freedom that
you want.
3. Saving for a Car
A car is a wonderful thing to have. There are huge benefits of

having your own car, most importantly, you can go from one
place to another in comfort and without wasting too much time.
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The question is whether it is necessary, especially when you are a

freshman. Agreed, the campus is large and a car would transport
you very quickly, but there are other issues as well. For instance,
there is the major question of parking. At many colleges, you
have to pay for parking, and if preference is given to the senior
students, then it means you have to park in another place. This
would mean that you have to go to where your car is parked, and
then get back to wherever it was that you wanted to go. Likewise,
at the end of the day you would have to park your car and get
back to your hall of residence. What about the safety of your car,
if you are not parking it on campus? Even on campus, there is the
question of vandalism. Other issues include loaning your car to
friends and facing any consequences that might arise. There are
issues of car insurance, servicing your car, car maintenance, and
paying for gasoline. You would have to factor all this into your
budget. With rising cost of tuition, and the loans/grants that you
would need to finance your college education, would it be wise to
add another head to your budget? You would be increasing the
amount of debt that you have to repay. However, unless a car is
indispensable and crucial to your academic program, it would
feature under the non-essential expenditures. The question is
how much of your income you are willing to spend on it.
Many colleges offer local transport. In fact it is factored into the

tuition. Other viable alternatives are cycling (using a bicycle),
biking (on a motorcycle), or walking. By cycling and walking you
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would also be making a personal statement that you are a person

who is conscious of the environment, and are willing to do your
bit to protect the environment.
However, if you do need a car, and are thinking of buying a new

one, then let us see what expenses are involved. You will need to
ensure that your driving license is up-to-date. Next is the
registration of your car. All the necessary and appropriate fees
and taxes will need to be paid. Remember, buying a car is only
one part. There are a lot of bureaucratic requirements that have
to be met. In case you are going in for a used car, then ensure
that the ownership is changed. Car insurance, though expensive,
is something that has to be done. Importantly, the law requires
it. Plus it is a protective measure in case you are in an accident.
Your license, registration and insurance papers and vehicle permit
must be always kept in the glove compartment. Remember to
renew them whenever it is time to do so. Consequently it has to
be factored into your budget. Annual expenses that you will incur
would include: fuel, motor oil and other fluids that are required,
insurance, maintenance and repairs, and replacement of parts.
Naturally, these expenses go up as the years go by. There are a
few precautions you would need to keep in mind when buying a
car, especially a used one: check on how much mileage it gets;
get your car serviced regularly; have the oil changed regularly;
wash, clean and wax the car; see to it that there are no scratches
or dents, and if you happen to get some, get it attended to right
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away; rotate and replace worn tires; check the air pressure
regularly; if you are in an area where the winter is severe, get an
undercoating done so that your car is not damaged by the road
salt. The advantage of a used car is that insurance and taxes will
be cheaper. You will need to check on any replaced parts to see
that they are in good condition. A car is a serious investment, so
before making the decision to get a car, new or used, it would be
wise to get as much information as possible about the various
expenses involved. Discuss all the pros and cons with a trusted
person before taking the final decision. You could also explore the
possibility of converting your car to an electric car. You will also
need to factor all this into our budget to see if it is a viable option
at all. If, however, it is a necessity, then you will need to modify
your budget to accommodate these expenses.
An example of what is involved:
 If annual insurance is $2400, your monthly dues are - $200
 Monthly fuel bill - $60
 Replacing of tires annually @ $160 per tire - $640
 Wheel alignment
 Change of oil twice a year
 One repair at least
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Break these down to monthly payments, and add it to your car

loan, and then see if it fits your budget. If it doesn’t then either
shelve the idea, or go in for a cheaper car.
A bit about car insurance: Car insurance is imperative because

you might be in an accident, either caused by you or by another
driver. The insurance pays for the damage caused to the other
person as well as to you, in terms of damage to property, or the
cost involved in repairing the vehicles. It also pays medical
expenses for the injuries that the people involved might have
sustained. All expenses are also paid if you have been hit by an
uninsured or underinsured person. Legal fees, if any, are borne
by the insurance as well. In case you want to lower your
premiums, you will have to pay an out-of-pocket amount at the
beginning, before your installments start. Every state requires
drivers of cars to have insurance. If, however, car insurance is
not required by any state, you will have to show that you have
assets enough to cover any damages that might occur. Car
insurance rates are lower for 4-door cars as opposed to 2-door
cars. Insurance rates also depend on where you live, the local
population and how many miles you drive in a year.
If you are old enough to have a license, it is assumed that you

are responsible enough to drive. But it is for you to ask yourself,
honestly, if you are a responsible driver.
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Do you:
 follow traffic rules
 observe the traffic lights, and not jump lights no matter

what your friends tell you
 keep to speed limits when there is no camera or a policeman

around
 slow down at pedestrian crossings
 drive thoughtfully or offensively
 feel tempted to take part in drag races
 wear your seat belt, and insist on all your passengers

wearing theirs, since their safety is ultimately your
responsibility
 talk on your cell phone
 maintain the specified distance from the car in front of you
 give in to the temptation of speeding
 know the blind spots in your car
 signal before changing lanes
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 drive after drinking, and do you also prevent others from

driving when they are drunk
There are some loan companies that offer students car loans to
buy new cars. The whole process seems very easy, but remember
that there is a huge catch: you have to honor your monthly
repayment scheme. If you have a good credit rating, getting a
loan is not so difficult. If you have a bad or poor credit rating,
paying your monthly installments regularly to the auto loan
company can change your bad credit rating to a good one. As
regards the interest you pay on your loan, a person with good
credit rating pays the least amount of interest, those who have
no credit, pay higher interest, and those students who have a
poor or bad credit rating pay the highest interest on the car loan
taken. If you get a car in the $25,000 range, you don’t need a co-
signatory. Finally, the financial institution that you get your car
loan from will decide which dealer you can go to for your car.
Usually dealers help you find the model that you are looking for,
or if you want a used car, they help with that as well.
Experts advise that if you cannot pay back a car loan in 48

months, you should not go in for that car. You should also be able
to give a down payment of 20%. You should never be in a
position where you owe more than the worth of your car.
Remember that since you are looking for dependability and
safety, when you get a used car, insist on an AutoCheck Vehicle
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History Report on the car, Vehicle Identification Number or the

VIN, and importantly, get a trusted mechanic inspect the car
thoroughly.
You must know that it would be completely inadvisable to use

your student loan to buy a car. That is for tuition, room and
board. You can use this to get other school or lab supplies that
are required. Your student loans are for your education, your
studies and for nothing else. No matter how great the temptation,
DO NOT uses the student loans to buy your car, or anything that
is not directly connected with your studies.
In case you want to buy a new car, the models that have been
suggested are: Honda Civic, Chevrolet Aveo, Pontiac G3, Toyota
Yaris, Volkswagen Rabbit, Dodge Caliber, Toyota Matrix, Pontiac
Vibe, Honda Fit, Scion xB, Mitsubishi Lancer, Mazda 3, Nissan
Altima, and the Pontiac G5. If you are thinking of a used car, the
cars that are recommended are: Honda Accord, Toyota Camry,
Ford Focus, Hyundai Elantra, Hyundai Tucson, Ford Crown
Victoria, Honda Civic DX, Acura Integra, Toyota Corolla and the
Mercury Grand Marquis.
Some hard facts that are good to know:
 Some car salespeople will try to cheat you
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 Lenders will not approve of car loans for cars that are more
than 5 years old
 Lenders will also need to know that you have a regular

monthly income of $1600.
 Insurance rates for teens is very high, often in the $5000

range
 Insurance rates for single men under 25 years of age is high
 You have huge car repair and maintenance bills
 You have to honor your monthly repayment scheme
Deciding to buy a car is an adult decision, and has to be taken in

that spirit. It would be better to wait till you are sure of yourself
and your budget, before buying your car.
4. Importance of College Education
The importance of education cannot be stressed enough. If we

look at bald statistics, according to the U.S. Census Bureau, the
average annual income for people who had not graduated from
high school was $18,734; those with only a high school diploma
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was $27,915; those who had a bachelor’s degree was $51,206;

and those who had a master’s degree or doctorate earned on an
average $74,602, or more. Those who had only high school
diplomas were more likely to be unemployed, or the first to be
laid off, as compared with those who had a college degree.
According to the College Board, the difference in the earning
potential of a high school graduate and a college graduate was
more than $1 million. Statistics also project that 75% of all
employees will need some kind of academic certification, and
professions for which the basic educational qualification is a
bachelor’s degree are likely to increase. Often it is seen that a
college degree is essential for certain professions, and more so if
one wants to go ahead in the profession of his choice. In case you
are the adventurous type, it is better to have at least a bachelor’s
degree, because you would have many more options to choose
from, more opportunities, and it is a kind of investment for future
positions as well. Many people who want to do a mid-career
transition to another job find that having a college degree gives
them an edge. The economics of your situation is a major
decisive factor in going to college: your increasing interests might
require more finances which would be possible only with a higher
paying job; divorce or death may leave you with commitments for
which you will need to earn a certain amount of money if you are
to live in dignity; you may have been in the army, and are now
looking for a civilian posting; you might have taken time off to
raise a family; you may be a single parent; there might be some
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long-cherished dream which you are now in a position to fulfill.

We are living in times of great technological advancements. The
downside is that this is also the time when we are seeing the
economy of the world going through a bad phase, bringing
unemployment in its wake. Aware adults are using this time to
upgrade their skills and advance their academic qualifications. In
fact, statistics show that the number of adult or non-traditional
students in the age group 25 to 69 has gone up in recent years.
The beautiful thing about education in the U.S is that you can
always go back to school, and today, this is eminently possible.
Increasingly, universities and colleges are helping potential
students design their academic programs keeping in mind their
own specific problems and situations. They offer child-care on
campus, flexi-courses with classes scheduled for one night a
week, or an accelerated format for some courses. There is the
possibility of working towards your degree online or through
correspondence courses. The Distance Education and Training
Council or DETC, shows that there are about 4 million students
enrolled in the distance learning programs of study.
While there are practical reasons why you would want a college
education, there are other reasons as well. One very important
one is the excitement that learning affords, education for the
sheer pleasure of knowledge acquisition. There are very fine
minds in the academic world, and there are many students who
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cherish the time working with and learning from these very
erudite people.
Of course going to college is expensive, but there are so many

financial options available that there is really no excuse not to go
to college. You might have to sacrifice your pleasures a little as
you learn to live within a budget and honor your loan repayment
schedule. But this is a life skill that would only stand you in good
stead all your life. Importantly, going to college will enhance your
life in more ways than one. The world is becoming increasingly
competitive too. This is a natural sequence to all the information
that is available at your fingertips. Jobs today want people who
are well-informed not only about their area of specialization, but
about everything in general. The increasing interdependence of
countries around the world means that you have to literally have
the whole world in your perceptual sweep, in your mind.
Something that happens across the world directly or indirectly
affects the smallest decision that you take. It is only education
that will help you to get a grasp of this mind-blowing
phenomenon. You cannot live an isolated or insular life anymore,
in any part of the world. Gone too are the days when a person
never left the bounds of his county or state, or even country. The
Internet, advances in communication and travel have connected
the world as never before. For sheer experience you might want
to visit or work in a part of the world hitherto undreamt of. Think
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of what this will do to your mind, your thinking and your quality
of life!
There are instances of people who have made it big without going
to college. However, let us not forget, that these people had also
made it their business to learn and know all about the job that
they had immersed themselves in. Further, it didn’t stop there.
After making it big, they stretched their minds to include the
whole world in their orbit. Those who made it big without going to
college, put themselves through as much or more mental rigor as
a college going student would who valued academic excellence.
Learning is a mental challenge, and an exciting challenge at that.
Whether you get yourself educated formally or informally, the
process is the same. It is only knowledge that will make you
stand out. When there are thousands applying for the same job,
how is the selection made? If you have a college education, and
have done well academically, you WILL stand out. Another
obvious advantage is that when in college you interact with many
different kinds of people, and people with very different interests.
The network you build up stands you in good stead when you
start working.
From time immemorial, people have wanted to learn. There is no

such thing as an empty mind. There is no such thing as a
vacuum. It is therefore a good idea to fill your mind with things
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that would be useful to you and would help you lead a fulfilled
life.
Remember, deciding to embark on a higher education program

teaches you a lot of skills, the main being financial management.
Then, starting on the program, going through it and significantly,
finishing it, helps you create and build strategies that help you in
life, the most important strategy being the setting of goals and
working to achieve them. It is only in college that you will be
exposed to a wide variety of subjects. Often, after school, you are
not sure of what you want to do; or, you have so many interests,
but nothing that is clearly defined; or, you are very clear about
what you want to do. In the last case, you will obviously work
towards and go to a professional college. The first two instances
are where a comprehensive college education will help. When you
are exposed to a variety of subjects, the world opens out, as it
were. You can then pursue what it is that you like, enjoy and
have an aptitude for. The wonderful thing about going to college
is that there are professionals who help you at every step,
advising you, testing you so that you know what your capabilities
are, or where your proficiency lies. You learn to find solutions and
alternatives. One of the biggest advantages of going to college is
that you learn how to take setbacks/adversity/disappointments in
your stride.
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What you must think about is why you are going to college. Is it
because everyone in your family went to college, or because the
society you move in requires you to have a college education? If
these are the reasons, you might not be motivated to make the
best use of your years in college. You need to decide on going to
college only for yourself. There are many instances of students
who come from backgrounds where no one has been to school or
completed school, let alone gone to college, and yet have done
brilliantly academically. One reads of students who have not had
the means to go to college, but their passion for learning has
motivated them to accept and overcome all financial challenges
and still come out on top. The worst thing that can happen to a
young person is to drift. It might sound romantic, but since there
is no foundation or basis for drifting, after a while, it can result in
something as unromantic as a spent life. Education teaches you
to plan for a meaningful life. Find out where your own personal
ambitions lie, and educate yourself to achieve them. Going to
college would help you to increase your knowledge, express
yourself clearly and coherently, improve your understanding not
only of the specific subject that you have chosen, but of the world
at large, and gives you many choices and options for meaningful
employment. If you have opted for a professional course of study,
no more is the basic degree enough. Every profession is hugely
competitive, and with the wealth of information available,
professionals need to be at the top of their profession, and the
ordinary man is more demanding of the professionals as well.
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For instance, a doctor cannot be satisfied with just his bachelor’s

degree in Medicine, for the simple reason, if nothing else, his
patients today are knowledgeable, and will want to know about
their medical condition, they have questions that will need to be
answered, and they will want the best treatment available. This
doctor will want to send his children to a school where he will
want to know all about the qualification of the teachers and what
kind of education his children are likely to get. Everything and
everyone is linked and everyone wants only the best. Some of the
fastest growing jobs in the U.S today are Home Health Aides,
Network Systems & Data Communications Analysts, Physician
Assistants, Computer Software Engineers, Dental Hygienists,
Physical Therapists, Forensic Science Technicians, Medical
Scientists and Occupational Therapists. Very crudely put, you
need to out-qualify the other person if you want a good-paying
job. Today, outsourcing is a world-wide phenomenon. While it is
good for the country that has been chosen for doing the
outsourced work, what is happening is that the country that is
outsourcing its work is becoming more and more specialized and
skilled. To take part in this increasingly competitive job market,
you need to qualify yourself accordingly.
A word of caution would not be out of place here. Cashing in on

this growing need for academic qualification are dubious and
unethical people, who promise an academic qualification. There
are self-styled ‘colleges’ that promise degrees for a fee with little
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or no work involved; there are places better known as phantom

institutions which give you fake degrees and diplomas in any
subject, again, for a fee. While the government is doing all it can
to identify these places and close them down, employers are
setting higher and higher standards for jobs in their companies.
Thus, a college transcript has become an important document in
the job market.
When making a decision about going to college, you will need to

factor in some details such as:
 Which college offers the program I want, for general

education, as well as specialized, professional education
 What kind of degree do I want considering there are so

many options such as a career diploma, an associate’s
degree, a bachelor’s degree, a post-graduate degree,
continued education credits, or a specialized degree?
 Should I take up a part-time academic course, should I

enroll for distance learning, do my studies online, or should I
be a full-time student? (Remember that while online learning
is good, if you can possibly help it, it would be better to
attend a traditional college, for the numerous advantages
that an online education cannot possibly give you).
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 What jobs am I looking at? What are my options? What are

my career prospects?
 Is the degree program that I have chosen accredited? (This

is important, so that you are not cheated by a scam).
 The finances involved, and what aid is available.
5. Credit Scores and Debt-to-Income
Credit Scores - Your credit card generates a credit report which is

worked out by 3 major credit bureaus: Experian, TransUnion and
Equifax. Based on the information and statistical analysis
contained in this report, you, (each credit card holder) are given
a 3-digit number, called credit score. This number shows whether
you are credit worthy or not. Credit bureaus have their own
methods of calculating credit scores, based on the Fair Isaac
scoring system. Experian has the PLUS score based on the
Experian/Fair Isaac RISK system, Equifax has ScorePower based
on the BEACON system, and TransUnion has credit score based
on the classic FICO Risk score system. They also have the
VantageScore. You can get a free credit report from these credit
bureaus at Annualcreditreport.com, and for a fee, you can get
your credit score. In case you dispute an item on the credit
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report, under the Fair Credit Reporting Act (FCRA), credit bureaus
get 45 days to conduct an investigation. Lenders would use this
score to see whether you paid your loan installments on time, or
whether you paid the loan back at all.
Credit scores range from 300 to 850.
 35% of the score is based on your payment history (whether

you pay your bills promptly)
 30% on outstanding debt (how much do you owe, and how

many of your credit cards are at their limit)
 15% on the length of time you have had credit (the longer
you have a good credit record, the better)
 10% on new credit (opening new credit accounts negatively

impact your score
 10% on the types of credit you have currently (different

kinds of credit accounts include installment loans and
revolving credit accounts).
 Further, if you have allowed lenders to look at your score,

(called hard inquiries), you negatively influence your score.
This is as opposed to your looking at your own scores,
(known as soft inquiries). Soft inquiries do not affect your
scores
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If your credit score decreases, you become what is known as a

credit risk. This means that though lenders will give you a loan,
they will charge a higher rate of interest, which means that your
monthly installments will go up. If, however, you have a high
credit score, lenders will lower the interest rate. Something you
should know is that the rate of interest can change if there is a
drop in your score, because of some default in a loan repayment.
Credit scores are used by insurance agencies to predict how likely
you are to file claims. Their theory is that those with lower scores
are more likely to file claims than those with higher scores.
There are ways in which you can improve your score:
 Review your credit report regularly. This will enable you to

make the necessary corrections
 Keep your old credit accounts. You can use them to prove
that you honor your debts
 Ensure you have a reasonable balance, about 30% of your

available credit, at least, instead of using the credit card to
its limit
 Pay all your bills on time
 Do not let anyone make inquiries on your credit report (hard

inquiries). The more inquiries, the lower the score. If you
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are shopping for a good deal on a loan, do it within a short

span of time, so that it counts only as one inquiry
 Do not open too many new credit accounts
Here is a short quiz: (Answers are at the end of this segment)
Q1. A credit score is:
a) A 3-digit number
b) An alphabetical score
c) An alpha-numerical score
Q2. A credit score helps a lender see:
a) How much money you owe
b) How much your income is?
c) If you are a good financial risk
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Q3. The main kind of credit score is called FICO because:
a) It stands for Finance, Income, Credit, Outgo
b) It was created by Fair Isaac and Company
c) It stands for Financial Company
Q4. Credit scores range from:
a) 0 – 100
b) 100 – 1000
c) 300 – 850
Q5. The most important factor in your credit score is:
a) That you pay your bills regularly and on time
b) That you are in debt
c) That you have had credit for a long time
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Q6. You can improve your credit score by:
a) Closing credit accounts that you are not using
b) Regularly reviewing your report and getting the errors

corrected
c) Refusing to buy things on credit
Q7. Your credit scores are important because they determine:
a) Your interest rate
b) Whether you are eligible for a loan
c) Both a and b
Q8. Insurers use the credit scores to determine the insurance

rates they give because:
a) Good credit scores means a good driving record
b) Lower credit scores means higher insurance claims
c) Good finances means good health
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Q9. You need to keep your old credit accounts active, if you have
a sound history. This is so that:
a) You never know when you will need money
b) The higher your limit the higher your score
c) The length of a sound credit history raises your score
Q10. Hard inquiries (inquiries from lenders) affect your credit

scores. They:
a) Lower your scores
b) Raise your scores
c) Have no effect on your scores
Debt to income ratio, or DTI, is the percentage of your gross

income that goes towards paying your debts. There are 2 kinds of
DTIs:
 The front ratio – this denotes the percentage of your income

that is used for housing such as rent (for tenants), and the
PITI or the mortgage principal and interest, mortgage
insurance premium, hazard insurance premium, property
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taxes, and homeowner’s association dues, whichever is

applicable.
 The back ratio – is the percentage of income that is used to

pay all the debts, loans, credit card payments, student loan
payments, child support expenses, alimony dues and legal
fees, whichever is applicable.
To calculate your monthly income, first take your salary. Next, if

there are any bonuses, calculate how much you will get per
month (even if your bonus is given yearly). Then comes your
additional income from a second job; dividends on your
investments; interest earned on your savings; alimony (if you
entitled to it); any other commissions or tips. Add these to get
your gross monthly income.
Subtract your debt payments from your gross (total) monthly

income. This is your debt-income ratio. For instance, if your debt
payments add up to $2000 per month and your total monthly
income is $8,000, then your debt to income ratio is 25% i.e.
2000 ÷
8000 x 100 or 2000 divided by 8000 and multiplied by 100 to

give you the percentage. The lower this number, the better it is
for you. In other words, the less debt you have in proportion to
your income, the stronger you will be financially, and the more
leeway you will have to do the things you want. Ideally, the debt-
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to-income ratio should not be more than 36%. This is considered

a good debt to income ratio and if you can achieve this, it will add
to your credit scores. Further, it will be easy for you to get loans
at a lower rate of interest when you require them. It is a
challenge to maintain this percentage, and while it is certainly a
difficult task, it is definitely capable of being done. In case you
find that your debt to income ratio is too high, two ways in which
you can bring it down are:
 Increasing your income
 Cutting back on your expenses
The best thing to do is to make a budget and remember at all

times what your current financial standing is.
Answers:
A1 – a
A2 – c
A3 – b
A4 – c
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A5 – a
A6 – b
A7 – c
A8 – b
A9 – c
A10 – a
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Common Financial Terms
1. Annual Percentage Rate, APR – rate of interest charged for a

loan and includes interest, transaction fees and service fees.
Check out APRs on credit cards, Car loans, and student
loans.
2. Appreciate – something that grows in value, and used in

connection with investments and collectibles.
3. Asset – anything that you own, such as property, house,

savings, bonds, stocks, or jewelry.
4. Balance – money that you have to pay back; or money that

is left in your account; or accounting for all transactions that
you made.
5. Bankruptcy – this means you are so deeply in debt, that you

have to sell off all that you have to pay your creditors.
6. Blue Chip Stock – stock owned by major corporate houses.
7. Bonds – money that you lend to the government or to a

corporation at a certain rate of interest, for a certain length
of time.
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8. Budget – a plan to help you see how you are spending your
money, to control your spending, and to encourage you to
save.
9. Charge – to borrow money so that you can buy something.

In case you do not pay off your debt, you will have to pay an
interest on what is owed.
10. Checking Account and Savings Account – these are

transactional accounts.
11. Draft Account – this is a checking account with a credit

union.
12. Credit – a loan that helps you buy things now and pay later
13. Credit Limit – the highest amount you can charge on your
credit card. This ceiling is set by the card company
depending on your ability to pay back regularly and in full.
14. Credit History – a record of your borrowing and repayment.

This information is available to credit card companies,
financial institutions and other lenders.
15. Credit Rating – a score that a credit agency assigns to you,

and depends on how responsibly you handle your credit,
both in terms of borrowing, and repayment.
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16. Deposit – the money that you put into your checking,
savings or investment accounts.
17. Dividend – the money that a company pays to the

stockholders from its profits depending on how much stock
the stockholder has. In a credit union, dividend is the
interest paid on your share account or savings.
18. Earned Income – the wages that you earn for work done
19. Finance Charge – the fee that you have to pay when you do
not honor a complete monthly repayment
20. Fixed Expenses – these are expenses that you have every
month such as transport, tuition, or rent
21. Interest – the amount of money that a borrower pays to a

lender, and interest rate is the price that is paid for
borrowing the money, and is expressed as APR
22. Opportunity Cost – the second best option that is given up

when you make a choice
23. Penny Stock – very low-priced stock, consequently very

risky stock
24. Return – the amount of money that you get from a fund or
your savings account. It is expressed as a percentage
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25. Unearned Income – money that you have not worked for,
such as interest from your investments, or your savings
account
26. Variable Expenses – expenses that change from month to

month, such as entertainment.
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Conclusion
Learning to manage money cannot be done in isolation, nor is

there some specific time of life when you learn this skill.
Managing money is something that you need to start very early in
life, for the simple reason that it teaches you a lot about money,
which clears your mind, necessitates a certain amount of
responsibility, and allows you to live life stress-free. Very
importantly, you learn to differentiate between what you want
and what you need. There are always loads of things you will
want. Consumerism is based on this fact and ruthlessly uses
man’s desire for goodies to their advantage. It is not that you
should not have goodies, but you need to learn to prioritize so
that you earn your goodies. This has wonderful results – you
learn to appreciate what you get, and you learn to use your
wealth judiciously. A simple rule to go by is that when you want
something, wait to see how badly you want it. If you hesitate, or
if counter arguments for wanting that particular thing come into
your mind, it simply means that you do not need it at this point in
time, it is not so important that you have to have it right now.
Thus, you learn to prioritize your spending, learn to save for what
you need, learn to use your credit cards wisely, and learn how to
invest and protect your money.
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About the Author
Nils Goldschmidt is an entrepreneur interested in fostering

financial literacy and prudency among our nation’s youth. He is
also the founder of Prudent Kids – www.prudentkids.com – an
organization that offers financial seminars to members of society
in their formative years. Nils holds a Bachelor’s degree in Hotel
Administration and a Master’s degree in Business Administration
with a concentration in Entrepreneurship; both from the
University of Nevada, Las Vegas. He has lived in various countries
and is fluent in both English and Spanish. Prior to dedicating
himself to educating our nation’s youth, Nils served both as a
consultant and a manager for various multi-national corporations.
Nils considers financial education as his passion and is very
excited at the opportunity to guide our community towards
financial success from an early age.
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www.prudentkids.com
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YOUNG MONEY

A Teen’s Guide to Avoiding Financial Hangovers

Publication date: January 2010

1. Creating a Resume ........................................ 7

2. Creating a Cover Letter .................................15

3. Where to Find a Job ......................................26

4. Interviewing Skills ........................................34

5. Hiring Requirements .....................................46

1. Stock Market Basics......................................55

2. Stock Market Risks .......................................68

3. Avoiding Scams ...........................................76

4. Saving for College ........................................84

5. Saving for Retirement ...................................95

Chapter 3: Banking ................................................ 103

1. Credit Cards and Debit Cards ....................... 103

2. Student Loans and Scholarships ................... 112

3. Checking and Savings Accounts ................... 121

4. Checkbooks ............................................... 133

5. Interest Rates and Debt .............................. 141

Chapter 4: Prudence .............................................. 152

1. Setting Goals ............................................. 152

2. Balancing a Budget..................................... 159

3. Saving for a Car ......................................... 167

4. Importance of College Education .................. 175

5. Credit Scores and Debt-to-Income ............... 184

Common Financial Terms ........................................ 194

Conclusion ............................................................ 198

About the Author ................................................... 199

It’s all about economics…

Today, financial literacy is an essential life skill. There is no better

In fact, true freedom is linked to financial literacy. It is the

become financially literate means to learn the difference between

We live in a world which has a large number of goods and

away just a small fraction, that soon builds up to a tidy amount.

An organization gets thousands of applications. It is the cover

 Create a good impression – you are showing your

 Introduce you – the resume is telling the selector who you

what you write should be succinctly put in a few sentences,

 Describe what you have learned and done in school –

Though references are not required at this point, it would be good

Some tips to remember are:

 Keep your resume for a day or so before sending it, just in

 Draft and re-draft as many times as is needed. You need to

 Usually, personal information like age, family status, marital

are not required. However, there is no harm in finding out

 You could send a copy of your resume to the HR

 Think about how best you can write your achievements,

The technical aspect:

 Keep enough space between lines so that it is easy to read.

 Ensure that the each entry is formatted the same way.

 Never use charts, tables, graphs or pictures in the resume.

 In case you are applying for a position as a Web Designer or

 Do not use either an all-capitals style or italics.

 Use commonly used names as section headings such as

 Do not use abbreviations.

The format of the resume should have:

 Your name, address, phone number and email address. This

 If you have any specific skills, especially those associated

 The next is the section on education. Here the schools and

 Work experience comes next. The most recent positions are

 Your accomplishments are mentioned last. In this section,

One important point to keep in mind is that since employers

Some words and criteria specific to the technology industry:

 Job titles – these would be Software Engineer, Quality