# Presentation: 742247

## Presented by:

Name
Family Financial Education Specialist
University of Missouri Extension
Website: http://extension.missouri.edu/hes/
Phone:
E-mail:

**Presented by:**
- Name
- Family Financial Education Specialist
- University of Missouri Extension
- Website: _[http://extension.missouri.edu/hes/](http://extension.missouri.edu/hes/)_
- Phone:
- E-mail:

**Notes:**
Welcome.  My name is _____ and I am a Family Financial Education Specialist with University of Missouri Extension.  We are here today to talk about financial management as part of the new requirements for bankruptcy discharge.  

Money is an important resource or tool we use to make our way in the world and help ourselves and our families to reach our goals in life.  Just like any tool, it’s important to learn how to use money properly to ensure you and your family will be financially safe and secure – now and tomorrow.  

We all know that making money takes time and effort.  Taking the time and effort to learn how to best manage your finances is a great way to help ensure you and your family can reach your goals.  Bankruptcy provides an opportunity to make a fresh start with your finances. Many of your previous debts have been erased or reduced. 

During this class, we’ll talk about ways you can plan for spending and saving, set financial goals, manage credit wisely, purchase insurance, and avoid frauds. You’ll also learn about available resources to assist you as you rebuild your financial life.

## 
Goals and Decisions
Managing Financial Resources
Managing Credit
Managing Risk
Consumer Information

**Goals and Decisions**
- Managing Financial Resources
- Managing Credit
- Managing Risk
- Consumer Information

**Financial $uccess**

**Notes:**
These are the topics that will be covered in today’s class:
Goals and Decisions
Managing Financial Resources
Managing Credit
Managing Risk
Consumer Information

These areas of financial education were written into the 2005 bankruptcy law (Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) as topics every filer should know about before having their bankruptcy discharged.

The intent of this course is to reaffirm or increase your financial knowledge and skills in order to help you meet your present and future financial goals.

## What Matters Most?

- Family Well-being
- (Primary Objective)

- Use of
- Limited Resources

- Trade Offs

- VALUES

- Needs Vs.
- Wants

- GOALS

**Notes:**
Recall, money is a resource or tool – and it’s used differently by each person – because of what matters most.  Money is just one resource available to live a fulfilling and successful life. We also have many other tools or resources to use – time, energy, talents, personal relationships, and other resources we have within ourselves, from our family and friends, and within our community.

We can all easily identify lots of things we would like to have; but, because resources are limited for all people (some more than others) – we ALL have to make choices.

So, how do you decide what matters most?  In general, the primary objective in life for most people is individual or family well-being.  People want to be the happiest they can be given the environment and resources they have available to them.  All pursuits in life require some type of resources – whether it be financial resources to buy things or human resources to make things.  

Some people have more resources than others, but everyone has limited resources.  Because people have limited resources and unlimited wants – choices or “trade-offs” have to be made.  By choosing to do one thing, you must give up the opportunity to do something else – every time you make a choice you are essentially trading one thing for another. When you are considering whether to do something, ask yourself what you would have to give up to make that happen.  

How does a person make this kind of decision?  When deciding if the trade-off is worth it, many people rely on their personal set of beliefs.  Personal values help people distinguish what is really important and necessary to them from what is not as essential or required for their continued well-being and security.  This is how your own personal values define your needs (absolute necessities) and your wants (optional things you would like to have).  Think of some examples of what might be a “need” for you and “want” for you.  Are these the same for everyone?  Your needs and wants help you to define the goals you have for your family.

In order to establish priorities (needs/wants), it is important to analyze each goal in terms of its contribution to family well-being.  Goals are like stating specific plans you have toward reaching family well-being.  Making wise decisions or plans will help you use your limited resources most effectively.

## Decision Making Process

- Why must I decide?
- Making** WISE **decisions** **
**W**hat is the decision?
**  ****I**nform yourself
**S**elect the “best” alternative
**E**valuate the outcome

**Notes:**
Because there are limited resources within families, trade-offs will need to be made. How does a family decide?  Good decisions will reflect your personal values and priorities.

Here is a strategy for making WISE decisions.

First, ask yourself what the central decision is that you need to make.  
Next, inform yourself by gathering information you need to understand the situation.
Weigh the different alternatives and select the one that makes the most sense in terms of what you are trying to achieve.
Evaluate the outcome and consider whether you have actually selected the best alternative.  If not, adjust.

## Activity

**How Do I Decide?**

**Notes:**
Activity:  How do I decide?

## Setting SMART Financial Goals

- Short-Term Goals	=	Within next 6 months
- Mid-Term Goals	=	Within next 2 years
- Long-Term Goals	=	More than 2 years from now

**T**ime Limited

**R**elevant

**S**pecific

**M**easurable

**A**ttainable

**Setting ****S****M****A****R****T**** Financial Goals**

**Notes:**
Making WISE decisions is an important part of planning for the future, which in turn will help your family reach your important goals more quickly. 

The best goals are SMART goals: specific, measurable, attainable, relevant and time limited. For example, an “unsmart” goal would be to say:   I want a car.

A smart goal would be to say:  I would like to save money to purchase a used (attainable), 4-door (relevant, because you have kids) Honda Civic (specific) with less than 50,000 miles (measurable) within the next two years (time limited).

Families have short-term goals (within next 6 months), mid-term goals (within next 2 years) and long-term goals (more than two years).

Examples of things people might want to do in the short term (<6 months) include paying bills, buying clothing, repairing a car, or taking a child to a doctor.  

Examples of things people might want to do in the intermediate term (within 2 years) include a taking family trip, starting an emergency fund, finding a different place to live, buying a piece of furniture, etc.  

Examples of things people might want to do in the long-term (more than two years) include buying a house, changing jobs, buying a new car, saving for retirement, or going back to school.

All long-term goals are made up of intermediate and short-term goals.  In order to achieve long-term goals, you have to start doing things now.

## Activity

**What My Family Wants to Accomplish**
**Setting Financial Goals**
- Short-term
- Mid-term
- Long-term

**Notes:**
Activity:  What my Family Wants to Accomplish and Setting Financial Goals

Financial goals start with dreams or desires of what you and your family want to accomplish.  Start by completing the “What my family wants to accomplish” activity.

Then, look at all of the things you want to accomplish and decide what kinds of things you will need to purchase to achieve these accomplishments – these are your financial goals. Once you have identified your financial goals, separate these goals into two categories:  high priority and low priority – use your definition of wants and needs to help you decide.

Look at the order of priority. How hard are you willing to work and save to achieve a particular goal? Would you work extra hours, for example? How realistic is a goal when compared with other goals? Reorganize their priority if necessary. Put those that are unrealistic or not as urgent back into your wish list. Maybe later you can turn them into reality too.

Now make these financial goals SMART and calculate how much you will have to save (and for how long) to reach your goals.

We'll come back to these financial goals when we put together a spending plan.

## 
Goals and Decisions
Managing Financial Resources
Managing Credit
Managing Risk
Consumer Information

- Goals and Decisions
**Managing Financial Resources**
- Managing Credit
- Managing Risk
- Consumer Information

**Financial $uccess**

**Notes:**
Once financial goals have been decided we need to identify financial resources available and look at ways of managing our financial resources to achieve these goals.  Then we can begin to develop a spending plan to help us reach our goals.

## Identifying Financial Resources 

**Income **- money from earnings or other sources
**Savings **- money from past income
**Credit ****-** money from future anticipated income
- borrowed from future income at a price (interest rate)

**Notes:**
To meet the goals you just made in the previous activity, you will most likely need financial resources. Family financial resources are available to families across time.  There are three main sources of resources available to families today:  Income, Savings, and Credit.

In the present, we earn income from working or have access to unearned income sources such as alimony, child support, public benefits – or we can have money available to us today from savings (past income) or credit (borrowing against future income).

Gross income is what you make before taxes and deductions are taken out of your pay.  Net income is what is left once taxes and deductions are taken out.

Income is a flow over time.  Net worth is an accounting of all your financial resources at one point in time. 

Income not used today will be available for consumption in the future.  It is known as savings, and it may pay interest and/or dividends depending on the investment type. 

Some people choose to borrow from their future anticipated income at a price.  This is known as credit.  If you choose to use credit, you should have a good idea of your future income, monitor your credit history, and be aware of the different types of credit available and the costs associated with each of them – and we have an entire section of this program devoted to credit.

Family Financial Resources include income, savings, and credit.  We need to assess our resources and make an appropriate spending plan to effectively use our resources to reach our goals.

## Net Worth:Your Financial Snapshot

**Net Worth:****Your Financial Snapshot**

**Net Worth = Assets – Liabilities**
- Add up value of what you own (assets)
- Add up value of what you owe (liabilities)
- Subtract liabilities from assets
-    **Aim – positive net worth**
-    Review net worth regularly

**Notes:**
Let's take a look at current financial resources. This is important because financial resources affect not only your ability to reach your goals, but your ability to protect those goals from potential financial crises. These are also the resources you will draw on to meet various life events. 

Calculate your net worth. This isn't as difficult as it might sound. Your net worth is simply the total value of what you own (assets) minus what you owe (liabilities). It's a snapshot of your financial health.
First, add up the approximate value of all your assets. This includes personal possessions, vehicles, home, checking and savings accounts, and the cash value (not the death benefits) of any life insurance policies you may have. Include the current value of investments, such as stocks, real estate, certificates of deposit, retirement accounts, IRAs, and the current value of any pensions you have.
Now add up your liabilities: the remaining mortgage on your home, credit card debt, auto loans, student loans, income taxes due, taxes due on the profits of your investments, if you cashed them in, and any other outstanding bills. 
Subtract your liabilities from your assets. Do you have more assets than liabilities? Or the other way around?
Your aim is to create a positive net worth, and you want it to grow each year. Your net worth is part of what you will draw on to pay for financial goals and your retirement. A strong net worth also will help you through financial crises.
Identify other financial resources. You may have other financial resources that aren't included in your net worth but that can help you through tough times. These include the death benefits of your life insurance policies, Social Security survivors benefits, health care coverage, disability, insurance, liability insurance, and auto and home insurance. Although you may have to pay for some of these resources, they offer financial protection in case of illness, accidents, or other catastrophes.

Please refer to the net worth worksheet in your student book.  This is an activity you can do on your own after this class.

Review your net worth regularly. Recalculate your net worth on a regular basis (monthly, quarterly, bi-annually as a way to monitor your financial health.  Each time you prepare a net worth statement, compare it to the previous one to monitor your progress toward reaching your financial goals.  But what about in between these periodic snapshots?  How do we move toward our goals and monitor our progress?  To do this we have to create a spending plan that takes into account inflows (income) and outflows (expenses) over time.  Let’s take a look at how to create a spending plan.

## How to Make a Spending Plan

**How to Make a Spending Plan**

**Determine Income**
**Estimate Expenses**
- Fixed, flexible, occasional
- Saving, include saving for your goals and emergencies!
**Balance the plan**
- Income-Expenses=0
**Follow plan **and **keep track **of progress
**Make adjustments** as necessary
- Reduce expenses
- Increase income

**Notes:**
CONTINUE USING THE VICKIE CASE STUDY TO ILLUSTRATE THESE POINTS.

There are blank forms in your handbook to help you develop your net worth, income and expense statement and your spending plan.

## Determine Income

- Money for use today comes from several sources
- Paycheck
- Public assistance
- Social security
- Relatives
- Sale of goods
- Alimony or child support
- Investments or savings
- Credit

**Notes:**
In the present we earn income from working or have access to other income sources such as alimony, child support, or public benefits. We can also choose to use money from past income (savings) or borrow again our future income (credit).

Gross income is the total income received before taxes, social security, medical deductions, etc. are subtracted.  Net income is what is left over after all those things are deducted – so net income is what you actually have to spend on the rest of the things you and your family want and need. 

If you are paid more or less than once a month, you need to find out what your average monthly income is so that you have the same amount to plan for each month.  The months you make more than average, put more in savings.  The months you make less than average, you will have to draw out of  your savings.

## Estimate Expenses

**Fixed expenses**are the same each month.
**Flexible expenses**change each month.
**Occasional expenses**occur 1-3 times a year.

**Notes:**
Expenses are what we spend our money on.  There are three major types of expenses.  Fixed expenses such as rent, car payments, child support, etc. must be paid every month at a certain time and cannot be altered.  Flexible (or variable) expenses include things that vary in cost from month to month.  We have more control over what we spend on these expenses.  For example, how much we spend on food, clothing, entertainment, etc. are the expenses that are the easiest for us to change. Occasional (or periodic) expenses are those that occur just a few times a year, such as taxes. Sometimes we are not prepared to pay them because we forgot to plan for them.

## Activity

**Developing a Spending Plan**
**Financial $uccess depends on:**
- knowing where you are now,
- knowing where youwant to be, and
- having a specific planfor getting there.

**Notes:**
How Much Money Is Coming In?  Figure out how much money you have coming in from all sources: paycheck, relatives, pension, unemployment, welfare, refunds, insurance, rent, and investments. Gross income is the total income you receive before taxes, social security, medical deductions, etc., come out. Net income is what is left over after all those things are deducted. If you are paid more or less than once a month, you need to find out what your average monthly income is so that you have the same amount to plan with each month. Look at past tax returns to find your annual income. Divide this total figure by 12 for an average monthly figure. If your income varies from year to year, look at a few years’ tax returns to determine an average annual income. 
What Are You Spending Now?  Figure out how much are you spending now, and on what. Collect recent receipts and keep track of your spending for one to three months (preferably three months). Keeping track of spending can be done in a variety of ways: keeping a notebook handy to write down what is spent each day, writing checks for everything and recording them in the check register, using the Expense Tracker forms supplied in this course or keeping all receipts and jotting down the purchases. This will help you understand where your money goes. There are three major types of expenses. Fixed expenses, flexible expenses, and occasional expenses. People generally underestimate their spending by hundreds of dollars each month because they forget about those expenses that do not occur regularly. You can answer the questions: Do your dollars buy what the family wants most? Are you spending more than you have or more than you planned to? Are you spending too much on basic needs such as food, clothing, shelter and transportation? Do you have too many debt payments? 
Setting Up a Plan for Spending.  Once you know how much money is coming in and where you have been spending it, develop a realistic spending plan. Using your records, determine what you think can realistically be spent on food, clothing, entertainment and other categories contained in the Spending Plan. Some expenses will remain the same because they are fixed or reasonable; other expenses will probably need to change for you to fund your goals. Remember: Resources are limited, so prioritize your spending. You may need to reduce spending in some areas or postpone some goals in order to apply the money toward your most important goals. If you find you are spending more than you make, think about how you can cut back on your spending. A spending plan should not be a straightjacket; it should include saving money for goals, emergencies and mad money.
Evaluating the Plan.  After your spending plan is in place for a while, you should evaluate it to see if your plan is working or if you need to make changes. The spending plan allows you to compare the amount you are spending for each item in your plan with what you planned to spend. If you are spending more than you planned for a few months in a row, see if you can somehow cut back on these expenses. If cutting back isn’t a realistic option, add some money to this category. You will have to cut back in another area of your spending plan. Spending plans must be realistic in order to be successful. 
Using Direct Deposits and Automatic Payments.  Using direct deposit and having bills paid automatically keeps money out of your hands and increases the likelihood that you will achieve your financial goals. You can have money directed into savings just like paying any other bill. Another bonus is that it reduces time spent on writing checks and record keeping, so you can spend more time planning your financial goals.
Using Non-Financial Resources.  We all have limited resources, so it is important to make your money stretch as far as possible. One way to do this is by looking for ways to meet your needs and wants that do not cost money. Take a look at what non-financial resources you have available to you instead of using cash. For example, what free or low-cost public services are available to you for entertainment and recreation? Parks, zoos, museums, public pools and sporting events, free concerts and shows are some examples. What else can you think of? Do you have something you do well that you could trade for someone else’s services? For example, do you have a sewing machine and know how to sew? Or do you have tools and carpentry skills and can make an even trade with someone else who has plumbing skills? How about working together with friends and neighbors to save money? A few ideas for bartering include: food cooperatives, baby-sitting cooperatives, plant exchanges, painting parties, etc. 
Finding Ways to Save.  Finally, another way to help chart a successful financial course is to find ways to cut back and save for financial goals. The most important concept in saving is to pay yourself first– right off the top of each paycheck. If you finish paying off a loan or credit card, instead of buying something else, pay the installments to yourself to help achieve your goals. Other saving ideas include putting aside the money you save on sales and from coupons. Bag your lunch and save the money you would have spent buying it; break or reduce a habit such as drinking coffee or soda, smoking cigarettes, drinking alcohol or buying candy. Try having a nothing week once a month or every other month: only do things that are free and spend the week eating at home. Then save the money you normally would have spent for that week, don’t spend it on something else.

## Record Keeping

- What records to keep
- Where to keep records
- How long to keep records

**Notes:**
Refer to Managing Family Records resource

## 
Goals and Decisions
Managing Financial Resources
Managing Credit
Managing Risk
Consumer Information

- Goals and Decisions
- Managing Financial Resources
**Managing Credit**
- Managing Risk
- Consumer Information

- Financial $uccess

## What is Credit?

- Using your future income in the present.

**Types of Credit**
- Installment Credit
- Service Credit
- Revolving Credit
- Credit cards

**Notes:**
An easy way to think about credit is that it is using your future income now (using resources you expect to get before you have them).

Another way to think about it is:  credit is when a person receives goods, services or property without having to pay immediately, or by using someone else’s money for the purchase. But, the money has to be paid back eventually, with interest. So this tool should be used with great care. 

Credit comes in various forms.  You may already be using credit without knowing it.  For example, you are using credit if you get a phone or utility bill.  The company is letting you use their service based on your promise to pay them.  The basic types of credit are:

Installment credit may be described as buying on time, financing through the store or the easy payment plan. The borrower takes the goods home in exchange for a promise to pay later. Cars, major appliances, and furniture are often purchased this way. You usually sign a contract, make a down payment, and agree to pay the balance with a specified number of equal payments called installments. The finance charges are included in the payments. The item you purchase may be used as security for the loan. Installment credit is usually secured credit (meaning it is backed up with collateral). Collateral is something of value that you own, that you agree to let the bank keep or take the collateral or property if you do not pay your loan.

Service credit is monthly payments for utilities such as telephone, gas, electricity, and water. You often have to pay a deposit, and you may pay a late charge if your payment is not on time. 

Revolving credit allows you to pay all or part of the balance and you can use credit up to a specified limit. 

Credit cards are an example of revolving credit.  They are issued by individual retail stores, banks, or businesses. Using a credit card can be the equivalent of an interest-free loan--if you pay for the use of it in full at the end of each month. Most major credit cards are revolving credit.  You use the card, you pay the balance due (or, at the very least, the minimum payment), and you can continue to use the card.  Interest will be added to the amount you do not pay.  Most credit cards have a limit or maximum amount you can charge and charge a fee (e.g., $35) if you exceed it.  Similar fees are also charged if payments are late.

## Sources of Credit

- Banks, S&L, credit unions
- Credit cards, department stores
- Mortgage companies
- Utilities
- Rent-to-own stores
- Refund anticipation loan (RAL)
- Title loans, payday loan companies
- Pawn shops

**Notes:**
Credit can come from a variety of sources.  However, lenders generally fall into two categories:  prime and sub-prime. 

Prime lenders loan money (extend credit) to people with better credit histories at lower interest rates.  These loans are most often found at “mainstream” financial institutions.

Sub-prime lenders extend credit to people with blemished credit histories at higher interest rates.  They are often “non-mainstream” lenders.  

People with a credit score of lower than 620 (discussed later in this section) usually do not qualify for prime loans.

We have listed the sources of credit on the slide in a general continuum from prime to subprime lenders.

Supplemental handout in the student handbook:  Sub-Prime Lenders – Quick Facts

## Costs of Credit

- Annual percentage rate (APR)
- Annual fees
- Late fees
- Over-the-limit fees
- Transaction fees
- Penalty APRs

**Notes:**
Credit is not free.  Lenders make money by charging interest and fees when loaning people money.  

The basic cost of credit is the Annual Percentage Rate or APR.  The APR is what a lender charges for using credit. The lower the APR, the less you pay.  For example, an APR of 4% means you are paying less interest than if the APR was 12%.

Some credit card companies charge an annual fee for the privilege of using their credit card.  Fees can run up to $100.  If you want a credit card, find a company that offers a card at a low or no fee.  

Lenders can also add additional costs into their credit agreement. These could include fees if you make payments late (late fees) or go over your credit limit (over-the-limit fees). They may add penalties if you miss more than one payment or are even a day late in paying.

There are also transaction fees, such as those charged for cash advances and balance transfers.

Some creditors also charge high penalty APRs exceeding 20% if you are late with a payment, even with another creditor!
Make sure you consider your anticipated future income stream before seeking credit – including the costs (interest and fees).

## Costs of Credit

- Based on minimum payment of 4% of the original balance, with no new debt added

**Example: Credit Card**

**Notes:**
Each credit card company has their own minimum payment requirements, so the examples above will vary depending on your credit card’s terms.  The important point is that the larger the balance due and the higher the interest rate, the longer it will take to pay off the debt.  

The above examples assume that no new debt is added to the existing balance and no miscellaneous fees are charged.

Making more than the minimum payment will reduce the overall cost of credit and the time it takes to pay it off. Consider using credit cards only as a convenient method of payment.  As you can see, bringing future resources into the present using the credit card is comparatively costly.

## Activity

**Shop for Credit**

**Notes:**
Activity:  Shop for Credit.  Work through the handout to help participants choose the best car loan for the situation.  The “rule of 3” is shown in this example.  This is simply a general guideline to use when shopping for credit, insurance, or other items.  It is recommended to get three quotes to compare and find the best deal.  Briefly discuss this guideline.

Supplemental Handouts: 10 Ways to Reduce Your Cost of Using Credit; How Time and Interest Rate Affect the Cost of Credit; Comparing Finance Charges; Shop for Credit – Your Credit Card; Shop for Credit – Your Loan

## Danger Signs

- Paying bills late
- Fees and penalties on bills
- Creditors calling
- Checks bouncing
- Juggling payments
- High debt-to-income ratio

**Notes:**
Credit can be a useful financial tool.  Yet people often get into problems with credit.  Watch for the following danger signs:

  Are you paying your bills after the due date?  If this happens on a regular basis, you may be headed for credit problems.

  Are you paying fees and penalties on your loans and credit cards?  When these costs start to appear, it is a warning that problems are occurring.

  Creditors may start calling you at home to remind you to pay your debt.  Do not ignore these calls.  If you are past due on your bills, ask your creditors to work with you on a repayment plan.

  Are your checks bouncing because you don’t have money in your account to cover them?  Returned checks can cost a great deal because a fee is charged by the bank and the company or person you wrote the check to.  

  Are you “juggling” payments, paying credit card A one month and credit card B the next?

  If consumer debt payments are 15% to 20% or more of take-home pay, your debt-to-income ratio is another indication that you are overextended and need to scale back your debt.

## Appropriate Use of Credit

**It may be appropriate to use credit:**
- when you pay balances in fulland make payments on time
- when you have a financial emergency
- for convenience or safetyof a credit card
- for additional security fora purchase
- when cash is not appropriate(such as with on-line purchases)

**Notes:**
There are times when a credit card or loan may be more appropriate to use than cash or a check. 

If you pay your credit card balance each month and meet your loan payments, you are establishing a good credit record.

At times when you face a financial emergency, using a credit card may be the only way to solve the situation.  For example, if your car breaks down and your car is towed to a repair shop.  The store informs you that the bill is $400.  You do not have that kind of cash with you, so you charge it on your credit card.

When you travel, you may not want to carry large amounts of cash with you.  Traveler’s checks may not be convenient for you to use.  Credit cards allow you to purchase what you need without having to carry cash or worry about inconvenience.

Credit cards offer some security for your purchases.  For instance, if you were to have car repairs done, and then find out they were not done correctly; you have some power on your side if you used credit to pay for the repairs. You can refuse to pay the bill until the repairs are done correctly. If you use a credit card, you can have the credit card company withhold payment until the repairs have been done to your satisfaction. The same holds true of a product purchased on credit that is not satisfactory.

It may not be possible to pay for some items in cash or check.  This may be the case when shopping for items on-line.

## Alternatives to Credit

- Rethink your goals
- Pay cash
- Save for emergencies and goals
- Use a debit card
- Postpone or do without

**Notes:**
Credit is a responsibility and it may not be right for you.  You must decide for yourself if your anticipated future income stream can support the use of credit.  
If credit isn’t a good option for you there are alternatives to the use of credit:
  Rethink your goals...can they be tweaked or financed in a different way?
  Pay cash for purchases.  This way you ensure that you can afford what you purchase.
  Save money for emergencies or to make a purchase and/or buy new rather than used.  
  Use a debit card instead of a credit card.  A debit card is tied to your bank account.
  Postpone or do without  - to help you prioritize your choices.

For major purchases, you may find that credit is the only way to go.  For example, few people can save enough to pay cash to buy a home.  You’ll need a mortgage to buy your home or possibly a business loan to start your business.  Only borrow what you can pay back with your anticipated future income stream, with interest and associated fees.

Activity:  When to Use Credit.  Go through the handout together.  Look at the scenario and discuss what would be the best option.  Review the questions to ask yourself before using credit.

## Activity

**When to Use Credit**

**Notes:**
Activity:  When to Use Credit.  Go through the handout together.  Look at the scenario and discuss what would be the best option.  Review the questions to ask yourself before using credit.

## What is a Credit Report?

**Your financial management report card:**
- Financial information
- Personal information
- Bankruptcy filings

## Who Uses my Credit Report?

- Potential employers
- Rental landlords
- Lenders
- Insurance agencies
- Credit card companies
- Retailers

## Who Provides Credit Reports?

**3 major credit reporting bureaus are:**
- Equifax
- Trans Union
- Experian

**Can I see a copy of my credit report?**
- One free annual report per person from each credit reporting bureau

## What if There is a Mistakeon my Credit Report?

**What if There is a Mistake****on my Credit Report?**

- Contact the credit bureau
- Contact the creditor directly
- Write a 100 wordstatement
- Beware of “creditrepair” scams

## Your Credit Score (FICO)

## Why FICO Scores Matter

- Myfico.com scores 300 - 850
- How your credit score affects your interest rate / cost ofyour mortgage loan:  30 year, $85,000 mortgage loan _FICO® Score_ 	_Int. Rate _	_Payment_	_Interest Paid_ 720 - 850		6.221%	$522		$102,833 700 - 719 		6.346%	$529		$105,324	 675 - 699		6.882%	$559		$116,163 620*- 674		8.029%	$625		$140,151 560 - 619		8.752%	$669		$155,774 500 - 559		9.332%	$704		$168,559
- Source: _[www.myfico.com](http://www.myfico.com/)_
- * Indicates the cut off point between prime/sub-prime loans

**Notes:**
You should order your credit report each year to check that the information is accurate and be able to dispute any errors.
Credit scores help lenders evaluate you for credit worthiness or credit risk.  This is an example of the scores that the credit reporting agencies use, called the FICO score.  You can request your FICO score when you order your credit report.  While credit reports are free once each year, credit scores must be purchased for $7-$15.  Some lenders have their own method of scoring credit requests. Each lender decides what score a customer must have in order to be given credit.   
Prime lenders generally will not loan money to purchase a home to people with scores lower than 620; however this may be influenced by your relationship with the financial institution.  

If your credit score falls below a 620, in order to borrow money to purchase a home, or refinance, you may need to seek out a sub-prime lender and you will pay more in interest to get a loan.
 The higher your credit score, the lower the rate of interest you will pay to borrow money.  The lower your score, the more money you will have to pay in interest in order to borrow money.  In this example,  the difference between having a 700 credit score and a 500 credit score is $61,000 in  extra interest paid to borrow the same amount of money.  At times, it may make sense to put off a purchase in order to work on improving your credit score so you pay less for the loan.

Visit  www.fico.com to learn more about how credit scores work.

If your FICO score is lower than 620, your credit options are limited.  Sup-prime lenders will actually target you for financial products and services that are quite costly.  Predatory lenders are those that charge excessive fees and interest rates to take into account the risks that they are assuming.  

## Rebuilding Your Credit

- Check your credit report regularly
- Pay bills on time
- Set up a financial plan
- Apply for a secured credit card
- Have someone co-sign a loan
- If one lender turns you down, try another

**Notes:**
How does bankruptcy affect my credit rating? 
Issuers of credit (like banks and credit card companies) are free to consider the fact of a bankruptcy filing in deciding whether to extend credit. Credit reports may list bankruptcy filings for up to 10 years. Some issuers of credit may decide to extend credit regardless of a bankruptcy. Others may be willing to extend credit only after a number of years have passed, or until the bankruptcy filing is no longer on the credit report. After bankruptcy, it may be difficult to rent an apartment.
Lately, some creditors have been offering credit to bankruptcy debtors more freely than other people in financial difficulty because the debtor cannot file another bankruptcy for many years to come. In that sense, the debtor is a good credit risk. For the most part though, for obvious reasons, it is best for bankruptcy debtors to avoid credit as much as possible after bankruptcy. There are several things you can do to rebuild your credit.  Keep in mind that it takes time to do so.  Try some of the following and over time, your credit can improve:

Checking your credit report on a regular basis can help you catch mistakes early.  If you have made regular payments and they do not appear in your credit report, ask the credit bureau how you can get this information included.

If you are not able to pay a bill on time, contact your creditors and explain the situation.  Set up a payment plan to get the debt taken care of.  When you do pay on time, ask creditors to report that information to the credit bureau.

Having a financial plan can help you plan for unexpected needs or emergencies before they happen.

Secured credit cards are available from banks and credit unions and usually require a deposit of $200 to $500.  They have a low credit limit, usually equal to the deposit.  However, avoid secured cards that have an application fee, solicit your application by mail, have an annual percentage rate over 20%, or require that you use your auto or home as collateral.

Seek a co-signer to help you obtain credit you could not get otherwise.  

Each lender has different lending policies.  A different lender may be able to give you the credit or loan you need.

Supplemental Handouts:  How Do You Establish Credit; Rebuild Your Credit

## Credit and Bankruptcy

- Following bankruptcy, pay more for a loan
- Automobile loans may be available
- You could face an APR = 20% or 22%, compared to 7%, prior to bankruptcy.
- Monthly payments for a $25,000 car, for 4 years would be
- $760.76, at 20% (Total = $36,516.48)
- $598.66, at   7% (Total = $28,735.68)

**Notes:**
Consider the example of the interest paid on the car from Financial Fitness.

Those going through bankruptcy may be able to get credit, but they are going to be charged more for it - in some cases 20 - 25% and what that looks like.  People that have declared bankruptcy are still able to get credit.  What they don't seem to realize is how much getting that credit is costing them. 

## How Can I Protect my Credit?

- Keep personal information safe
- Shred or destroy receipts, applications and documents
- Report stolen cards immediately

**Notes:**
In recent years, credit fraud and identity theft have become large problems. To protect yourself from someone opening an account in your name or from using your account illegally, keep your credit card numbers and personal information in a safe place.  

Shred or destroy receipts before throwing them away.  Shred all pre-approved applications and any documents that have personal information. 

Report stolen cards to the issuer and the credit bureaus as soon as you are aware they are missing. If you have reason to be concerned about people illegally using your personal information, ask the credit bureaus to contact you before any new account is opened in your name.

All an identity thief needs is your name, social security number, birth date, and address to open an account in your name. 

Supplemental Handout:  Protecting Yourself Against Identity Theft

## Truth in Lending 
Fair Credit Reporting 
Fair and Accurate Credit Transactions Act
Equal Credit Opportunity
Fair Debt Collection Practices 
Fair Credit Billing

- Fair Credit Reporting
- Fair and Accurate Credit Transactions Act
- Equal Credit Opportunity
- Fair Debt Collection Practices
- Fair Credit Billing

**Consumer Credit Laws**

**Notes:**
There are a number of laws to protect you when using credit. 

The Truth in Lending legislation requires that borrowers are provided information needed to directly compare and evaluate competing credit offers.  It requires that the finance charges be stated as an annual percentage rate and a total dollar amount..  It also requires lenders to identify any finance charge for paying the loan off early.  If the loan has collateral, it requires a description of the property pledged as security.

The Fair Credit Reporting Act is a federal law that allows Americans to see what is contained in their credit files and to dispute inaccurate information and is designed to help ensure that  CRA’s furnish correct and complete information to businesses to use when evaluating your application. Under this act you have a right to receive a copy of your credit report and know the name of any one who has received your credit report in the last year.

The Fair and Accurate Credit Transactions Act (FACTA)- Federal law, passed in 2003, that allows every American to receive one free credit report annually from each of the three major credit reporting agencies.

The Equal Credit Opportunity Act prohibits credit discrimination on the basis of sex, race marital status, religion, national origin, age or receipt of public assistance.  If you are denied credit, you have a right to know why.

The Fair Debt Collection Practices Act applies to personal, family, and household debts.  Under this act, debt collectors may contact you only between 8 am and 9 pm. They may not contact you at work if they know your employer disapproves, nor can they harass you.

The Fair Credit Billing Act- Federal law regarding credit billing errors.  A key provision is allowing consumers to refuse to pay for shoddy merchandise and to dispute the charge.

Refer participants to Credit and Your Consumer Rights (available as .pdf handout from FTC) and Consumer Handbook to Credit Protection Laws (may order for $1.00/copy) – hyperlinks provided above.

## 
Goals and Decisions
Managing Financial Resources
Managing Credit
Managing Risk
Consumer Information

- Goals and Decisions
- Managing Financial Resources
- Managing Credit
**Managing Risk**
- Consumer Information

- Financial $uccess

## What is at Risk?

- What is at risk?
- The possibility of financial loss from events we do not anticipate
- Risk is everywhere

## How to Manage Risk

- Methods of handling risk
**Avoid** (e.g., do not participate)
**Reduce** (e.g., use precautions)

**Notes:**
There are four principal ways to manage risk. 
Avoid, Reduce, Retain, and Transfer

The first two are:

Avoid – You can “avoid” activities that expose you to risk. For example, to avoid the risk of a car breakdown, don’t own or drive a car. To avoid the risk of tornados, don’t live in states with high risks of tornados. To avoid the risk of dying from skydiving, don’t attempt skydiving and avoid places where people land from skydiving. Not all risks can be avoided. (death?)

2. Reduce – Many risks can be reduced in severity and/or frequency. Research has suggested that seat belts help reduce the severity of injury in car accidents. By keeping your car well maintained, you can reduce the frequency and severity of costly breakdowns. By paying attention to the food you eat and making healthy choices, you can “reduce” the risk of future health problems. Tying your shoelaces before you walk will reduce the chance of falling down and breaking your neck.

## How to Manage Risk

**Transfer**(e.g., buy insurance)
**Retain**(e.g., establish emergency fund)

**Notes:**

The remaining two ways to manage risk are:

3. Transfer – If you’ve ever bought a product with a warranty, you have “transferred” the risk of product failure to the retailer or manufacturer. Someone other than the owner will have to pay to have the product repaired or replaced. Often, warranties are included in the price of the product. However, most insurance is sold separate from the product. For example, homeowners insurance and auto insurance are bought separate from the person who sold you the car or house. 

 4. Retain – Some risks are too expensive to be transferred, reduced, or avoided. These risks are often “retained” by the person with the risk. Retailers often try to sell extended warranties that cover appliances after the original manufacturer’s warranty has expired. In most cases, the consumer is better off retaining the risk and replacing the broken item with their own funds. Often, skydiving is not covered by life insurance policies and so skydivers “retain” the risk of death. Note that not all risks can be retained; Missouri law requires that car drivers have minimal liability coverage on their vehicles. 

## Common Insurance Policy Terms

**Policy** = contract
**Coverage** = what insurancepays for
**Term** = length of contract
**Premium** = cost of contract
**Deductible** = what you pay before insurance company pays
**Claim** = request for payment

**Notes:**
Understanding the basic words associated with insurance is important.
Your insurance policy is a contract.  A written policy will be sent to you by the insurance company. The policy spells out what is and is not covered so read it carefully.

Coverage is what an insurance policy will pay for.  Coverage can include all or part of losses due to fire, theft, injury, or storms.  Coverage generally excludes damage due to floods, wars, or terrorism.  If you have a situation in which your insurance will pay, you will file a claim or make a request for payment to the insurance company. Claims can be accepted or denied.  Too many claims will make you a higher risk and may lead to cancellation of your coverage.

The term is the length of time that an insurance policy contract is good.  Most insurance policies are sold on a yearly basis.  However, you may pay monthly or quarterly.

The premium is the cost of the contract or policy and refers to the amount you pay.  If you pay $100 a month, you say that “your premium is $100 a month.” This is the fee you pay to transfer the risk to another person.

Most insurance policies require that the person who is insured pays a part of each claim.  The deductible is the amount you’ll pay before the insurance company pays.  The higher the deductible (e.g., $1,000 versus $250), the lower the premium.  By choosing a higher deductible amount, you are indicating that you are willing to assume more risk; you are retaining more of the risk, so the insurance company is willing to lower the cost of the risk it is assuming.

An insurance claim is a request for payment made by you or by someone else on your insurance. The insurance company will normally investigate the claim by requesting information, such as police reports in car accidents or they may send out an insurance adjuster who will determine the amount of your loss and the amount you will be paid as compensation.

Please refer to the insurance supplement section of your student book for a glossary of Insurance Terms.  

## How Insurance Works:Term Life Insurance

**How Insurance Works:****Term Life Insurance**

- Application
- Private history
- Demographics
- Underwriting
- Company tries to match the probability of paying out with the premium
- Policy delivery
- Pay the premiums to continue coverage

**Notes:**
For an example of how insurance works, lets examine term life insurance. 

Term Life insurance is meant to protect dependents from your death and the resulting lack of income or household labor until you have no dependents. For example, in a two earner household with children, if one parent dies, the life insurance will make up for the income that the deceased spouse would have earned in the future. If life insurance was not in place, then the family would have to reduce its spending to rely on one income.

First, you fill out an application asking you various questions about your past health history, your family’s health history, and other important information that the company will use to determine what premium to charge you. 

It is very important to answer all questions truthfully to the best of your knowledge. In some cases, if the company determines that you did not accurately present yourself, the company can retroactively change your rates and charge you back premiums. Or if the company is paying a claim, it can deduct the extra cost of premium from any payouts it makes. 

After you submit an application, the underwriting department will review it and determine if the company is willing to accept the specific risk you are trying to transfer. If the company determines you are insurable, it will then assign a premium to you depending on the likelihood that it will have to payout on a claim. 

If the company decides you are insurable, they will issue you a policy. This policy is the contract between you and the insurance company. Don’t just file the policy away after you receive it. Make sure to review the policy and confirm it covers the risks that you intended to cover when you submitted the application. If the policy is different, you will want to reconcile any difference with the company before you have to file a claim. Attempting to resolve any discrepancies after you file a claim may be extremely difficult and leave you exposed to a risk that you thought was transferred.

After you receive your policy, be sure to make any premium payments necessary to continue coverage. Not paying premiums may invalidate the policy or cause the company to withhold the past due premiums with any claim payouts.

## Term Life Insurance...continued

- 2 possibilities
- The term of the policy ends; no dependents to take care of.
- Death, life insurance pays out the face value to take care of the dependents.

**Notes:**
The term life insurance story can end two ways:

1. The term of the insurance ends when you have no dependents to take care of and you didn’t die during the term of the insurance. You have no dependents to care for, so the life insurance is not needed.

 Many people feel slighted when their insurance ends without making a claim; however, the insurance company held the risk that there would be a claim. Your premium payments ensured that the insurance company would take care of your dependents if you died. While you may not have died, the insurance company used part of your premiums to compensate the families that did experience a death.

2. You die during the term of the life insurance. The insurance company pays out the death benefit to take care of your dependents.

## Activity

**Life’s Big Gamble**

**Notes:**
ACTIVITY: Life’s Big Gamble  (15 Minutes)
Divide the class into groups of three or four.  Have them turn to Life’s Big Gamble in the student book. 
The risks and dollar costs of insuring various assets are listed under each type of insurance on the Life’s Big Gamble game board.  For example, the premium for Life Insurance is $300/year.  The loss is equal to $100,000. The risk each player may die is less than 1 in 12.  In order to have this occur, the player must roll two 12’s in a row, a 1 in 1,296 chance. 
Have participants weigh the benefits and costs of each insurance coverage and circle their choices.  They may spend up to $2,600 on insurance. 
Ask participants to look at the form, Adding Up Insurance.  In the example, the player chose to buy renters insurance, health insurance and auto insurance for a yearly cost of $1,950.  On the first roll, the dice totaled 7.  This means he has a loss related to auto insurance (roll=5-12), health insurance, (roll=2-12), and disability insurance (roll=6-12).  His losses from  events that are insured include: $250 automobile  deductible and a $20 co-pay for health insurance.  His losses from uninsured events equal $7,444 for disability and dental costs. His total dollar costs for unexpected events this year is $9,664. 
Have the participants roll the dice two to three times to simulate 2-3 years of their lives.  Total the dollar costs they spend to cover the unexpected events in their lives for each year.-  These costs will include the premiums, deductibles, co pays and uninsured losses.  Uninsured players will suffer losses each time they roll the dice. 
Have participants discuss the cost of the insurance choices they made. 

## Types of Risk & Insurance

**Types of Risk & Insurance**

- Loss of Property
- Auto Insurance
- Homeowners/Renters Insurance
- Loss of Health
- Health Insurance
- Loss of Income
- Life Insurance
- Disability Income Insurance
- Liability
- Auto Insurance
- Homeowners/Renters Insurance
- Living too Long
- Retirement Savings
- Annuities

**Notes:**
The risks that everyone face are:
The loss of property
The loss of health
The loss of Income
Personal Liability
Living too long
The most common types of insurance that families purchase are: Auto, Life, Health, Homeowners/renters, and disability insurance, although they need to save money for their retirement and, possibly, purchase an annuity produce when they retire to assure that there are sufficient funds to take them to their grave.

Basic auto insurance covers the liability and property costs of an accident.
Life insurance is generally used to protect dependents who rely on the insured for support.
Basic health insurance covers the catastrophic costs of major medical expenses.
Homeowners/renters insurance covers your personal property in case of theft or accident.
Disability insurance protects the insured from suffering a major decline in income due to a disability.

For more information on these specific types of insurance, please see the following pages in the appendix of the student guide.

Auto Insurance Basics
Life Insurance Basics
Health Insurance Basics
Home Insurance Basics
Disability Insurance Basics

## Types of Insurance

**Types of Insurance**

- Other
- Flood
- Travel/AD&D
- Long term care/disability
- Burial

**Notes:**
Other types of insurance that are less common include, flood, travel, Long term care, burial, deposit insurance from FDIC/FSLIC, and private mortgage insurance. Evaluate your unique circumstances to determine if you need these less common types of insurance. 

## Generally Unnecessary Insurance

- Credit insurance (e.g., life, disability, unemployment)
- Life insurance on the lives of children
- Dread disease (e.g., cancer insurance)
- “Double Indemnity” insurance riders
- Hospital indemnity policies
- Flight insurance
- Car rental collision-damage waivers

**Notes:**
You want to spend your insurance dollars to protect against risks that could devastate your assets (e.g., house fire) and/or claim future income for years to come (e.g., a court judgement for liability).  

Coverage also needs to be broad enough to cover any number of financial risks (e.g., any medical condition and not just cancer).

This slide lists types of insurance policies that are generally unnecessary, either because 
  The risk of financial loss is small (e.g., life insurance on the lives of children) or 
  Coverage is very limited (e.g., cancer insurance, flight insurance, hospital indemnity policies, and double indemnity riders) or 
  Coverage should be provided by a broader type of policy (e.g., a term life policy instead of credit life insurance and existing auto insurance instead of purchasing additional collision-damage waivers).

## Shopping For Insurance

- Decide coverage you need
- Decide risk you want to retain
- Get three quotes for each type of insurance
- Try several different marketing channels
- Agents
- Mail order
- Online
- Insurance Broker

**Notes:**
When you start shopping for insurance, decide what type of coverage you need.

  Do you have dependents, such as a spouse and/or children, and need life insurance?  
  Do you rent or own your home?  
  What would it cost you to replace your furniture, car, or clothing if there was a fire?
  Are you covered for the loss of income due to disability as a result of an illness or accident?

Decide what financial risks you are willing to assume.  You certainly don’t want to risk losing your investment in your home so be sure to insure it for the necessary cost to rebuild it.

Shop around at various insurance companies.  Get at least 3 quotes (remember “The Rule of Three”)  for coverage and compare policy features and costs.  Check the rates for various levels of coverage and deductibles so you can determine the most cost-effective policy for your needs.

When you shop for insurance, be sure to consider many companies and many channels: Agents, mail order, online, and insurance brokers. Some companies without agents can offer better deals, but you may find that having a policy from a company with a nearby agent is worth the extra cost.

Please refer to your student book for insurance internets resources and comparison sheets to help you shop for insurance and other consumer items.

## 
Goals and Decisions
Managing Financial Resources
Managing Credit
Managing Risk
Consumer Information

- Goals and Decisions
- Managing Financial Resources
- Managing Credit
- Managing Risk
**Consumer Information**

**Financial $uccess**

## Consumer Information

**Opt out numbers:**
- Pre-approved credit card offers
- 1-888-5OPTOUT (1-888-567-8688)
- No call list
- 1-866-662-2551
- _[http://www.ago.state.mo.us/nocalllaw/nocalllaw.htm](http://www.ago.state.mo.us/nocalllaw/nocalllaw.htm)_
**ID Theft Clearinghouse**
- 1-877-438-4338
- _[www.consumer.gov/idtheft](http://www.consumer.gov/idtheft)_

**Notes:**
Credit bureaus offer a toll-free number that allows you to opt out of having pre-approved credit offers sent to you for two years.

The No Call List allows Missourians to reduce unwanted telemarketing calls made to their homes.  It is managed by the Attorney General's Office. There is no cost to get on the list. 

The ID Theft Clearinghouse is a one-stop national resource to learn about the crime of identity theft.  It is through the Federal Trade Commission. 

## Consumer Information

**MU Extension**
- _[http://extension.missouri.edu/](http://extension.missouri.edu/)__ _
**Federal Citizen Information Center (FCIC)**
- _[http://www.pueblo.gsa.gov/](http://www.pueblo.gsa.gov/)_
- 888-8 PUEBLO (888-878-3256)
**Missouri Attorney General’s Office**
- _[http://www.ago.state.mo.us/consumers.htm](http://www.ago.state.mo.us/consumers.htm)_
- Consumer Protection Hotline 800-392-8222
**National Fraud Information Center**
- _[http://www.fraud.org/](http://www.fraud.org/)_
- 800-876-7060

**Notes:**
University of Missouri Extension provides research-based information on a variety of topics.

FCIC provides the answers to questions about the Federal Government and everyday consumer issues whether citizens write, call or log on. FCIC manages a toll-free national contact center with specially trained staff to answer questions in English and Spanish about all aspects of the Federal government. 
The Missouri Attorney General protects consumers' rights by promoting a free, fair, open and honest marketplace. The Consumer Protection Division aggressively enforces Missouri's consumer protection laws, while educating and advocating for Missouri consumers.

If you become a victim of fraud, it’s important to register your complaint with the National Fraud Information Center.  There is an on-line form or you can call them at the number above between 9 and 5 eastern time.

## Creating Financial $uccess

- Make **SMART** goals and **WISE** decisions
- Every small step makes a difference
- Pay yourself first for goals and emergencies
- Consider future income before seeking credit
- Follow “The Rule of Three”
- Recognize your own personal needs and wants
- Buy insurance for large financial risks
- Develop a workable spending plan
- Start now on the road to financial success!

**Notes:**
This slide summarizes the key concepts that were covered during the class (review).

Ask participants: are there any questions on anything that was covered?

Encourage participants to come up with a list of things they plan to do with the information they learned in this course.  Examples may be:
Write down their financial goals (done in class will probably need to be revisited)
Calculate their net worth statement (within the next week) as a bench mark to start tracking progress to reaching their financial goals
Check credit report within the next month
Make your spending plan within the next two weeks
Record income and expenses (with tracker or spending plan) over the next few months
Revisit and revise (as necessary) your spending plan
Continue learning about financial management – devote time each week to keeping abreast of your financial situation.  Check MissouriFamilies.org for additional resources regarding money matters.

Collect evaluation forms.

Distribute continuing education certificates.