Gregory Housel Money Smart Month Representative UNDERSTANDING AND INCREASING WEALTH IN LOW AND MODERATE INCOME COMMUNITIES.

Gregory HouselMoney Smart Month Representative

UNDERSTANDING AND INCREASING WEALTH IN LOW AND MODERATE INCOME COMMUNITIES

PEW Video

http://www.pewstates.org/news-room/video-library/economic-mobility-and-the-american-dream-85899378857

http://www.youtube.com/watch?v=fTDhi12rqYc

Dependents

Education (Level and school system)

Income/Employment

Homeownership

Savings

Retirement Contribution

Criminal Records

Factors of Wealth Development

Good Credit

Health/Disability

Marriage

Hope and

Confidence

Comparison

Shopping

Inheritance

Children are in stores and retail venues an average of two to three times per week.

Children ages 4 to 12 shell out an estimated $35.6 billion of their own cash annually, more than 4 times what they did a decade ago.

Why Financial Education For Youth?

Alternative Financing Services = $11 Billion Dollars

=$35.6 Billion Dollars

Young Adults and Bank Accounts

• Young adults are six times more likely to go to college if they open a bank account between the ages of 12 and 15.

A 529 plan is a savings plan for college.

A parent or guardian can set up a 529 plan on his or her own, and it doesn’t need to go through the employer. These state-sponsored savings plans let you build up savings, tax-free, for tuition in any college or university in the country.

529 College Plan

Average Annual Income of a

15-17 year old is

$4,023! Teens Spent Over

$200,000,000,000 Last Year79% Of Teens Employed40% Of Teens Are Saving

Top Categories For Saving: Clothes 57% College 54% Car 38%

United States graduation rate: 75.5%

1.3 million high school student dropouts per year. 2,500 dropouts per day

2008 dropouts will cost $319 billion in their lifetime.

59% of prison system population are High School dropouts

1st Step: Stay In School

Marketable Skill & Militarypayscale.com

Approximately 10% of the population has an associate’s degree and 30% has a bachelor’s degree

2008 college graduation rates for a six-year timeframe:

4 Year Degree: 57.2% Graduation Rate2 Year Degree: 30.5% Graduation Rate

(National Center for Education Statistics)

College Student Graduation Rates

Even having a small amount of savings designated for school can have a positive effect on low- and moderate-income children’s persistence in college through graduation Enrollment Graduation

No college savings 45% 5%

$1 to $499 saved 65% 25%

$500 or more saved 72% 33%

Student Savings Lead To HigherGraduation Rates

Families With Less Than $50,000 Annual Income

The Assets and Education Initiative (AEDI) Research Team University of Kansas School of Social Welfare

Support System A network of personal or professional contacts available to a person or organization for practical or moral support when needed.

In 2010, about 40 percent of full-time and 73 percent of part-time college students ages 16 to 24 were employed.

Who helps low income students that RUN OUT OF MONEY???

Support System, Is It Needed To Build Wealth?

52.4% Asian and Pacific Islander

30.3% White19.8% Black 13.9% Hispanic

29.9% Total

Source: U.S. Census Bureau

College Attainment By Race

Getting a college degree is a ticket to economic mobility!

For those raised at the bottom of the income ladder, nearly one-half of children were stuck there as adults

if they didn't go to college. But only 10% of those with a college degree remained at the bottom.

Some 41% of students who come from families in the lowest income ranks move up to the highest two rungs

if they earned a college degree.(Pew Economic Mobility Project)

More Education = More MoneyEarnings of persons over age 25

2012 Annual Earnings Lifetime

Some High School $24,492 $1,846,728

High School graduate $33,904 $2,556,404

Some College $37,804 $2,850,469

Associate’s degree $40,820 $3,077,879

Bachelor’s degree $55,432 $4,179,643 Master’s

degree $67,600 $5,097,125

Professional Degree $90,220 $6,802,702

*Lifetime defined as 40 years of full-time work with a 3% annual cost-of-living increase of annual earnings.

Statistics reflect 2012 fulltime workers.

(Bureau of Labor Statistics, Current Population Study)

2012 Student Loan Balances

Average debt 2012: $24,218Median debt 2012: $13,662

Source: Federal Reserve Bank of New York Consumer Credit Panel / Equifax

Is a College Education Worth The Debt???

Conceptual Framework

Many times people make bad financial decisions because they do not know enough to make good financial decisions.

75% of the population is 18

years or older and out

of school.(Kansas City Federal Reserve Bank)

Having Money Helps, Having Education Helps More

Bankruptcy records indicate that even though the median winner of a large cash prize could have paid off all of his unsecured debt or increased equity in new or existing assets, he chose not to do either.

(The Ticket to Easy Street? The Financial Consequences of Winning the Lottery)

Nearly one third of multimillion dollar lottery winners become bankrupt in just a few short years after their big win.

(Associated Content)

Money Without A Plan

Asset: A valuable item that is owned

Wealth: What you own minus what you owe

Income: Amount of money received for doing work

Understanding Financial Terms

Job

Understanding What Builds Wealth

Asset

Retirement

Savings

House

Savings

Small Business

Household in 2011

MEDIAN 2011 Family Income

$50,054

Federal poverty level reached 15% in 2011. Almost 46,200,000 lived below the poverty level.

(Census Bureau 2011)

15% of adults lack basic literacy skills.

Approximately 33 million adults

(Census Bureau)

Literacy in the United States

Quantitative literacy is knowledge of and confidence with basic mathematical/analytical concepts and operations required for problem-solving, decision-making, economic productivity and real-world applications; this entails the ability to: competently perform basic computational/arithmetic operations; demonstrate skills at estimating and approximating results; perform basic algebraic and/or logical operations that involve levels of abstraction; demonstrate basic problem-solving skills; and show competence in applied analytical skills.

Quantitative Literacy

22% of adults lack even basic quantitative literacy skills (48,000,000 adults).

33% of adults have only basic quantitative literacy skill levels (72,000,000 adults).

120 million American adults may be vulnerable to predatory lending practices or make seemingly small mistakes with major financial consequences.

(National Center for Education Statistics)

Quantitative Literacy

For Every Dollar Earned, Americans Saved:

1982 11.3 cents1992 7.6 cents2002 4.3 cents2012 3.9 cents

U.S Personal Savings Rate

17,000,000 Unbanked In the United States

43,000,000 Underbanked in the United States

Underbanked and Unbanked Households

54% of African American households are unbanked or underbanked.

44.5% of American Indian/Alaskan households are unbanked or underbanked.

43.3% of Hispanic households are unbanked or underbanked.

10.5% of White households are unbanked or underbanked

(FDIC Economic Inclusion Study)

Total Percentage of Underbanked and Unbanked Households

81.1% use money orders (34,873,000)

30% use check cashing (12,900,000)

16.2% use pay day loans (6,966,000)

15.8% use Pawn Shops (6,794,000)

13.2% use Refund Anticipation Loans(5,676,000)

13% use rent-to-own services (5,590,000)

Alternative Financing Services Utilized by the Underbanked

The number one reason for utilizing AFS products was convenience.

Mobile and Underbanked

  Underbanked U.S. ConsumersHave mobile phone 91% 87%

Have smartphone 57% 44%

Used mobile banking in the 29% 21% past 12 months

Used mobile payments 17% 12%

Pay bills using mobile phone 62% 47%

—Source: Federal Reserve Board Survey: Consumers and Mobile Financial Services, March 2012

Three Companies Reporting Credit Scores:

Equifax Experian TransUnion

Receive a free credit report at:www.annualcreditreport.com

Fair Isaac Corporation (FICO)

A total of 59.5 million Americans have a credit score of 649 or below. Subprime is generally defined as scores 640 or below.

25.5 percent of consumers -- nearly 43.4 million people - now have a credit score of 599 or below.

The typical consumer has access to approximately $19,000 on all credit cards and 1 in 7 are using 80% or more of their credit card limit.

(www.myfico.com and Newsweek)

Credit Reports – FICO Scores

Why Have A Good Credit Score?

Finance a car

Rent an apartment

Get a home mortgage

Set up utility accounts

Obtain employment

Purchase insurance

60,000 car loans study 2006-2010

Credit Rating Loan Default 

600- 640 9%640-670 5%670-700 3%700 – 740 1.5%740 and over .5%

Why do you pay more if you have a lower credit score???

Credit Site to Help You Understand Your Credit

Income: $30,000 to $49,999 Owners' average net worth: $126,500 Renters' average net worth: $10,600

Income: $16,000 to $29,999 Owners' average net worth: $112,600 Renters' average net worth: $4,240

Income: Under $16,000 Owners' average net worth: $73,000 Renters' average net worth: $500

(Federal Reserve’s Survey of Consumer Finances)

Building Assets Through Homeownership

United States Average 201066.9%

White 74.9%Black 45.4%Hispanic 47.5%Asian 58.9%

82.2% Homeownership rate above the median family income and 51.5% below the median family income

(United States Census Bureau 2010)

Homeownership Rates

Before 2008, homeownership accounted for over 70% of the low and moderate income asset.

(NBC)

Homeownership as an Investment

In 2010, White families ages 59-67 had an average net worth of $1.1 million. In contrast, the average African-American wealth was $161,000, while Hispanic wealth was $226,000.

(Urban Institute)

Inheritance

Incarcerated Americans, Barriers to Wealth

Building

65 Million Americans With Criminal Records Face Unprecedented Barriers to Employment!

Retirement – Where’s the Savings?

Who Wants to be a Millionaire?

Less than half of workers (43 percent) report they and/or their spouse have tried to calculate how much money they will need to have saved for a comfortable retirement by the time they retire.

43% of ages 55 or older have less than $25,000 saved for retirement.

An additional 22% have $99,999 or less.(2011 Retirement Confidence Survey)

Retirement

Median family income approximately $50,000 Net income: $35,000

Retire at age 67 with $100,000$18,400 Social Security$11,600 Retirement Distribution$30,000 or 14.3% decrease from working income

You are completely out of retirement money in 9 to 11 years (Rate of return on retirement savings 3-4%)!

Let’s look at the numbers

State lotteries posted more than $53 billion in ticket sales in 2006.

Very low income households earning less than $13,000 spend approximately 9% ($1,000 annually) of their earnings per year on the lottery.

20 percent of lottery players are low income, minority men, with a high school education or less and their dollars are funding 80 percent of the money going into the lottery.

If you start to invest $85 per month at age 18 and you retire at age 67 with a 6.5% investment rate you would have approximately $360,000.

(MSN Money and Carnegie Mellon University)

Lottery Retirement Plan

1/176,000,000

6 Balls Drawing

If you win a $1,000,000 Lottery Annuity:You could take the $500,000 Instant

Cash-30% Federal Tax and 7% state tax

Total Winnings$315,000

Chances of Winning the Lottery!

Other Ways Not To Plan On

Retiring!

CHANCES OF BECOMING A PROFFESSIONAL RAPPER?

1/10,000

69,350,000 (10,000 per day) will reach retirement age in next 19 years or by 2030

74% say they will keep working after they retire (51,319,000).

23% currently work during retirement

(2011 Retirement Confidence Survey)

BABY BOOMERS 1946 -1964

Social Security was not created to supplement an individuals entire living standard.

Pre Retirement Percentage of Social

Income Security Benefits

$15,000 60.4%$25,000 46.6%$35,000 40.7%$50,000 36.2%$100,000

24.2%

Social Security/Retirement

LACK OF HOPE!

INSTANT GRATIFICATION!

NEGATIVE SITUATIONS!(Divorce, illness, negative budget or loss of job)

Why Don’t We Save For Retirement?

Understanding The Millionaire Next Door In 2013 there were 8,900,000 millionaire households in the

United States.

80% accumulated their wealth in one generation 80% are college grads 97% are homeowners95% are married (20-30 years)66% work 45-55 hours per week

THE AVERAGE MILLIONAIRE SAVES 15% OF THEIR INCOME!

Millionaires are not workaholics and enjoy spending time with family and friends.

(Yahoo, The Millionaire Mind and The Millionaire Next Door)

Building Hope - The Millionaire Plan

If a family with a median family income would save 6% per year shopping over a 40

year period, and would reinvest the savings into a matched retirement account earning 6.5% interest, the family would have over

1.2 million dollars. (Calculation includes a 3% annual increase in family income and an initial family income of $50,000)

What Could A Millionaire Plan Look Like?

Over 80% of companies match 401k retirements

GOAL– Contribute $3,000 per year to retirement!

You Contribute $3,000

Company Match (50% of Contribution)$1,500

Total = $4,500

(Tax benefit of $600 if in 20% tax bracket)

Are you in the right job?

Do you have any retirement savings?

Do you own your home?

How long to you plan to work?

If the median income family started giving 15% of their income to a matching 401k retirement plan at age 40 (401K matched 50% of first 5% of total salary), then that person could have over $840,000 when they retire at age 67 (6.5% interest earned).

I’m 40 and haven’t saved anything for retirement?

Retirement Account Annual Withdrawal

Year 3% Interest 3% Inflation2012 $1,000,000 $33,333

2022 $895,944 $44,797

2032 $602,037 $60,203

2041 $78,552 $78,552

In this example, if you retired at age 65 you would run out of your retirement savings at the age of 95.

How Much Will $1,000,000 be Worth in

Retirement???

1. Understand where you spend your money

2. Establish a budget3. Establish a Plan for your future 4. Invest in a 401K or some retirement

savings program5. Access your free credit report at

Annualcreditreport.com6. Analyze Your Job – Income, Matching

401K, Pension, benefits, etc. 7. ASK YOURSELF – Will My Wants Require

Me To Obtain Further Education???

Suggestions To Build

Wealth!

Money Smart Month

APRIL 2014Greg Housel

Money Smart Month Representative

[email protected]