Financial Literacy Understanding Your Money and Economic Future.

Financial Literacy

Understanding Your Money and Economic Future

Financial Literacy

+The number one rule of understanding your money is to start saving early, and try not to spend more than you have saved!

Step One: Getting a job http://www.bls.gov/opub/cwc/cm20081022ar01p1.htm

#1- Make sure you fill out applications neatly and accurately.

#2- Make sure there are no mistakes on your resume (you should have one).

#3- Dress professionally for interviews.

#4- Ask questions about the job

Important Forms To Know

W-4 Form- A form you complete upon being hired that confirms your personal information (name, social-security number, address) and directs the number of allowances or deductions that should be withheld from your income taxes. Taxes withheld on earnings include federal, state, and social security taxes.

W-2 Form- Is a form you receive each year before tax day (April 15th) from each employer, identifying all the income of different types it paid you through the year and identifies what tax withholdings (FICA, insurance, State taxes, etc) it made on your behalf. The W-2 is sent to you AND the tax authorities (IRS), so when you file your return the computer can match that what you say you made, and what you say was paid on your behalf, is what the employer reported and paid over for you.

Important Forms To Know

1040 Form- The standard IRS form that you would use to file your annual income tax return in order to declare the number of deductions and exemptions to the IRS

Audit- When the Internal Revenue Service (IRS) decides to verify a person has reported and paid the correct amount on their taxes and has not cheated the system

Income

-Gross Pay- The total amount of money you earn before taxes and deductions are taken out

-Net pay- The total amount of money you keep from your earnings after taxes are taken out

For ExampleGross Pay =$3,424.26Taxes:

-Federal Taxes ($199.26)-State Income Taxes ($209.62)-Social Security/Medicaid ($206.04)-Medicare ($48.19)

Total Taxes: $663.11Deductions:

-Health insurance ($47.23)-Dental insurance ($53.85)-Pension Program ($114.40)-Retirement Savings ($165.00)-Union Dues ($31.68)

Total Deductions: $412.16Net Pay= $2,348.99

Budget

+Budget- Your plan for saving and spending the income you make-Discretionary Income- money you have to spend on standard living expenses (such as rent or mortgage, utilities, insurance, medical, transportation, and food) to maintain a certain standard of living (money spent on needs)

-Disposable Income- Money left over to spend on variable expenses (money spent on wants)

-Pay Yourself First- The concept of setting aside your money for savings first before you spend it

Banking:Basic Banking: Banks provide financial guidance, savings accounts, and other services to consumers. Check to make sure your bank is a member bank of The Federal Deposit Insurance Corporation (FDIC). These banks have their customer’s deposits protected and insured by the federal government by up to $100,000.

-Savings account- Personalized accounts maintained by banks for consumers that pay interest on the amount of money stored in the account

Ways to get money out of a savings account:-Go to the bank for face to face transactions -Use an ATM (automated teller machine) via your debit card-Write a check (Checks are an order for transfer of money out your account into another person’s or store’s account) When a check bounces that means there are not enough funds in an account to cover the transfer amount on the check (debit cards serve the same function, only using digital transfers)

Other types of bank services:

- 401(k) Plan- allows a worker to save for retirement by having part of their monthly income deducted from their pay check and put directly into a high-yield savings account

-Certificates of Deposit (CD) – An untouchable timed deposit of often three months, six months, or one to five years. CDs have a fixed interest rate that is usually higher then a savings account.

Getting a loan:

Banks loan money out to consumers at a price. Always check the annual percentage rate or APR (interest rate) that the bank will charge you for the loan.

Credit Cards

-Why get a Credit Card?

1- Allows you to buy something today that you can pay for later

2- Helps you build credit

3- Safer than carrying around cash

Credit Card Tipshttp://www.cnn.com/video

/#/video/bestoftv/2009/05/20/ac.credit.legislation.cnn?iref=videosearch#1- Always pay your bills on time (Credit Card interest rates on unpaid balances are generally anywhere from 18%-22% of the balance)#2- Open only 1or 2 credit card accounts#3- Check the APR (interest rate) attached to the card#4- Read all the fine print on your credit card applicationhttp://www.ftc.gov/bcp/menus/consumer/credit/rights.shtmExamples of additional fees:-Some Credit Cards, like American Express expects the user to pay the full balance of the credit card each month -Some Credit Cards force you to pay annual fees just for owning the credit card-Some Credit Cards increase your APR every time you miss a payment

Credit Cards

Credit Score- a numeric value that is applied to your credit history by a credit reporting agency or lending institution.

Scores are based on several factors.

The higher the score you have the more likely you are to get a loan at a good APR, the lower the score you have reduces the change of getting a good loan, or a loan at all. You can check your credit score for free, once a year, with one of the three major credit reporting agencies: Experian, Equifax, or TransUnion.

Auto InsuranceAuto Insurance: Maryland law requires that each motor vehicle owner obtain insurance coverage on a motor vehicle before it is registered.

Coverage Provisions -spell out what the insurance company will do under the definitions and conditions of the insurance policy.

Deductible-the amount of money you must pay before the insurance company's own coverage plan begins.

In practical terms: insurance companies include a deductible in their policies to avoid paying out benefits on relatively small claims. A typical auto insurance policy, for example, may carry a $500 deductible.

For Example: When driving home from school, you fail to brake in time and run into a car at a stop sign. There is an estimated $1,200 in damages to the car you hit. In order for your insurance company to cover the damages, you need to pay them your deductible. So, as a result of your accident, you pay $500 and your insurance company covers the rest, $700.

Mandatory Coverage

-Liability Coverage: This mandatory coverage pays for damages to another person or their property that result from an accident where you are at fault. This protects a person from personal debt from a lawsuit as a result of the damages. Liability coverage is often split into two types of coverage

-Bodily Injury (BI): When another person sustains injuries or dies as a result of an accident for which you are at fault, BI coverage pays that person damages up to the policy maximum. UnderMaryland law, the minimum bodily injury coverage each driver must have is $20,000 per person per accident and $40,000 total per accident.

-Property Damage (PD): Property damage coverage pays, up to the policy limits, for damages to another person’s car or property, such as fences, mailboxes, buildings, utility poles, signs or trees, that are the result of an accident where you are at fault. Maryland law requires that each driver have, at minimum, property damage coverage in the amount of $15,000 per accident.

Mandatory Coverage-Uninsured Motorist Coverage (UM): This mandatory coverage pays you and the occupants of your vehicle for bodily injuries or property damage arising out of an accident involving an uninsured vehicle, or a hit-and-run vehicle. It will also protect you in the event that you are a pedestrian struck by an uninsured motor vehicle. Maryland law requires, at minimum, uninsured motorist coverage of $20,000 per person per accident and $40,000 total per accident for bodily injury and $15,000 per accident for property damage.

-Personal Injury Protection (PIP): Provides coverage for the payment of necessary medical expenses and a portion of lost income resulting from an automobile accident, regardless of fault, up to a minimum coverage of $2,500 per person.

Other Coverage Options:Other Coverage Options: There are other types of coverages, including collision and comprehensive coverage, which while not legally required, you may wish to consider purchasing. If you have an auto loan, your lender may require you to carry comprehensive and/or collision coverages in order to protect the lender’s financial interest in your vehicle.

People purchase additional insurance because the benefits of more auto insurance are great then the costs of having to pay for an accident.

Collision Coverage: Pays for repairs to your vehicle or, in the event of a total loss, will pay you the fair market value of your vehicle prior to the accident, when the vehicle is in a collision or overturns. Collision coverage is available regardless of who caused the accident, but is subject to a deductible.

• Comprehensive Coverage: Pays for damage to your car resulting from causes other than an accident, such as fire, theft, a storm, vandalism, glass breakage not resulting from an accident or where the operator strikes an animal. This coverage is also subject to a deductible.

Protection of Consumers+Protection of Consumers: There are many federal agencies out there to protect the American Consumer (the FDA, FCC, FTC, etc..). But always remember ‘Caveat emptor’ (buyer beware) when making a purchase

-Lemon Laws- Federal and state laws that provide a protection for purchasers of cars that fail to meet standards of quality and performance.The Better Business Bureau (BBB)-is not a government agency, but a private business franchise whose goal is to foster a fair and effective marketplace, so that buyers and sellers can trust each other during transactions.

BBBs gather and report information on business reliability, alert the public to frauds against consumers and businesses, provide information on ethical business practices, and act as mutually trusted intermediaries between consumers and businesses to resolve disputes. BBBs work in regions. The Greater Maryland BBB services consumers in HoCo and all throughout Maryland

BBB Scam Warning:The Pitch: Learn How I Make $67,000 a Year Being a Stay-at-Home Mom! There are many ads on Facebook that advertise ways to make easy money from home. Similar to the acai berry ads, the ads link to blogs that were supposedly created by people who made money through a work-at-home program. One such blog written by a “Sarah Roberts” claims that she added “$67,000 a year to my family’s income working 10 hours a week (that’s over $128 an hour!)” by creating Web sites that host Google ads. Another, "www.jasongetsrich.com", is ostensibly written by the newly married Jason who makes “around $5,500 to $7,000 a month from Google.”

The Fine Print: The blogs direct readers to Web sites for programs such as Internet Money Machine and Easy Google Cash where they can sign up for a seven-day trial access to information on how to make money from home. While the free trial supposedly only costs $1.95-$2.95, the individual will be charged $69.90 every month if they don’t cancel seven days from signing up. The fine print also states that the company does not give refunds.

BBB Warns: Use extreme caution when signing up for a work-at-home job or money-making opportunity online. In 2008 alone, BBB received more than 3,500 complaints from people who signed up for offers to learn how to work from home but were ultimately disappointed. Job hunters should also be aware that while some work-at-home opportunities have the word “Google” in their name and use Google’s logo on their Web sites, they are not actually affiliated with Google.

Bankruptcy+Filing for Bankruptcy: When you owe money to creditors, filing for bankruptcy establishes an orderly process to provide protection to you and fair treatment to your creditors.

When a person files for bankruptcy, their assets are turned over to the courts and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.

Bankruptcy can give you a fresh financial start on life, but it comes with costs.

For example, once a person files for bankruptcy their credit and assets (everything of value that is owned by a person) are frozen for a period of seven years.

Identity Theft Identity Theft- When someone uses your personal information to open up new lines of credit or make charges to your existing accounts

Since 2002, about 10 million people a year have been victims of identity theft

38-48% of victims find out about the identity theft within 3 months of it starting 9-18% of victims take 4 years or longer to discover that they are victims of identity theft

The average number of hours victims spend repairing the damage caused by identity theft is 330 hours. 26-32% of victims spend a period of 4 to 6 months dealing with their case and 11-23% report dealing with their case for 7 months to a year.

Tips to avoid Identity Theft

Never give out your social security number unnecessarily Don’t give your personal information to anyone over the phone unless you know you’re making the call to the companyDestroy or safely secure papers including your personal informationSave your receipts to compare with billing statementsReport any questionable charges promptlyCheck your credit score to track any drastic or unforeseen changes

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