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Personal Finance Education Overcoming Financial Hurdles

Sponsored by:ACA International –The Association of Credit &Collection Professionals

Material Provided by: The AmericanBankers Association, CBM CreditEducation Foundation, Efunds, Experian,Federal Trade Commission, MinnesotaBankers Association, U.S. Dept of Labor, and the Illinois Student AssistanceCommission

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Why Do We Need Personal Finance Education?

• Nellie Mae reports that the percentage of students with credit cards rose from 67% in 1998 to 78% in 2001.

• The average college student carries a credit card debt of $2,748 (Nellie Mae)

• According to the National Foundation for Credit Counseling, the number of Americans entering debt management programs has risen sharply over the last ten years.

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Five Things Every High School Senior Should Know Before Leaving Home

1. How to Balance a Checkbook

2. How to Read a Credit Report

3. The Difference Between a Credit Card and a

Debit Card

4. Ways to Save Money

5. How to Create a Monthly Budget

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Are You Spending Money Wisely?When you go grocery shopping do you?

a) Create a list and stick to the items on that list?

b) Go down the aisles and grab what you like?

When eating out do you?a) Split an appetizer, order the most reasonable entrée, drink

water and skip dessert? b) Order something from each menu item – drinks, appetizer,

entrée, etc?

When going out on the weekend do you?a) Pick up the tab for your friends?b) Split everything right down the middle?

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Knowing the Basics 101

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Checking Account Tips1. Only write checks you know your

account can cover.

2. Whenever you deposit money or withdraw money, write it down in the check register immediately.

3. Balance your checkbook on a monthly basis.

4. Triple check your work!

5. Report lost or stolen checks immediately!

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ATM Card – Safety Tips• Always keep your ATM card in a

safe place.• Keep your PIN (password) a

secret. • Beware of your surroundings.• Always take your receipt • Count it later. • Take a trusted person with you.

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Debit Cards – Frequently Asked Questions

• What is a Debit Card? Debit cards look like credit cards or ATM cards, but operate like cash or a personal check.

• What is the Difference Between a Debit Card & a Credit Card? Debit means subtracting money from your savings or checking account to pay for products now, while credit cards are essentially borrowing money from a lender to pay for products later.

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In 2001, debit cards accounted for 26 percent of in-store transactions, compared with 21% for credit cards. This marks the first time credit cards have fallen behind debit cards - American Bankers Association.

• Tips on being a responsible debit card user: – If you card is lost, stolen or suspected of being

fraudulently used, report the loss immediately to your bank.

– Hold on to all your debit card receipts. – Keep track of all debit card purchases. – Be aware of additional charges.

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Yes, You Can Save Money! 1. Determine needs vs. wants

2. Brown bag your lunch

3. Use coupons

4. Rent textbooks from the library or purchase used textbooks

5. Participate in free community or school activities

6. Rent movies, instead of going to the theater.

7. Ask about student discounts

8. Take the bus or walk

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Budgeting 101

• An organized way of managing your income and expenses on a monthly basis.

• A key tool in financial management.

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Budgeting Guidelines

• Keep it Flexible

• Keep it Simple

• Be Honest & Realistic

• Keep Accurate Records

• Budget for the Unexpected

• Pay Yourself First

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Creating a Budget

1. Determine Your Monthly Income

2. Determine Your Expenses (living, auto, school, insurance, entertainment, etc.)

3. Add Up Total Monthly Expenses

4. Subtract Monthly Expenses from Income

5. There’s Your Balance

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Credit is a Privilege – Not a Right

• Credit is easy to get, but people often misuse it.– Credit is not extra money

or a monthly bonus. – Essentially, credit is

borrowing money to make purchases with the promise that you will pay it back.

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When Choosing Credit Cards…

• Get all terms and conditions in

writing.

• Understand pre-approved and

low introductory offers

• Check the cards policies on

privacy

• Shop around for the best deal

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Read The Fine Print • All cards have a late fee.

– Some late fees are as high as $35– The average late fee is $29

• Finance charges apply for late payments & exceeding monthly balances.– Most cards have a minimum finance

charge of 50 cents• Some cards have an annual fee,

others do not.– The annual fee is charged to your card

once a year whether you use the card or not.

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The Truth About Credit Cards

• The Annual Percentage Rate (APR) is a yearly measure of the cost of credit.– Some cards have an APR as high as

24%

– The majority of cards have an APR between 18% and 21%

– The average interest rate is 19%

– First time users usually have a higher interest rate.

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The Truth About Credit Cards • You might think that when you make a $1,000

purchase and make the minimum payment ($50), your next bill will have $950 left, but:– If your APR is 18% you are charged a portion of

that per month:

• 18/12 = 1.5%

• Take 1.5% of $950 = $14.25

• You now owe $964.25 instead of $950

• In other words, your original purchase of $1,000 with interest charges turned into $1,014.25 in the first month.

• Therefore, if you devoted $50 to the debt every month, it would take you 24 months to pay it off.

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Credit Card Tips• Keep a record of your credit card’s customer service

number and Web site address in case your card is lost or stolen .

• Create a monthly credit budget and stick to it.• Open and review your bill every month.• Save receipts from all credit card purchases.• Don’t pay your bills late. • Don’t apply for more cards than you can handle. • Pay off your credit card balance every month.

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Credit Reports • Everyone starts life with a good credit

rating.– When you are late with a payment, your

credit rating is negatively affected. – A poor credit rating will affect you for

several years. – You may have trouble in the future

getting:• Car loans• Home loans• Other credit cards• Insurance• Employment

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Credit Reports • A credit report is a factual record regarding an individual’s

credit history. It is primarily used by credit grantors to determine whether or not to grant a person credit.

• Individual credit reports consist of:

– Negative Credit Ratings– Positive Credit Ratings– Personal Information – Previous Credit History Requests– Personal Statements Made to Report

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Frequently Asked Questions

• How can I get a copy of my credit report?– For a small fee (around $9) you can request a copy of

your credit report at anytime. – Under the Fair Credit Reporting Act credit reports are

free under certain circumstances. • Credit reporting agencies can be found in your local yellow

pages, or by contacting the three largest credit bureaus:

– Equifax, Inc: www.equifax.com or (800) 685-1111

– Experian: www.experian.com or (888) 377-3742

– Trans Union Corporation: www.tuc.com or (800) 888-4213

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Frequently Asked Questions• When Should I Request a Copy of My Report?

– Before major purchases such as a home or new car– Before applying for employment – If you feel you are a victim of credit fraud

• What Should I Do If I Find an Error?– Carefully re-examine your report from all three credit

bureaus. If you have trouble understanding the reports contact them for assistance.

– If you find an error call or write the credit bureau(s) to dispute any incorrect information.

– If you continue to disagree, add a personal statement to your report.

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Tips to Reduce Credit FraudIt is estimated that $2-3 billion of the more than $1 trillion U.S.

consumer credit card debt is due to credit card fraud losses – Experian

• Never give your card number to unfamiliar companies or on-line sites without a security feature.

• Don’t leave receipts, statements or other account information lying out for everyone to see.

• Be careful when disposing of mail order catalogs that include a customer number.

• Shred all pre-approved credit card offers.• Sign your card as soon as you receive it. • Limit the number of credit cards you carry• Report a lost or stolen card or billing error

immediately

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How to Recover From a Stolen Wallet • Cancel all credit and bank

cards. • Call the three largest credit

reporting agencies.• File a police report• Make a list of items in your

wallet.

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Five Financial Danger Signs

• Do you pay only the monthly minimum.

• Do you miss payments. • Do you write checks your

account can’t cover. • Do you put everything on

credit • Do you find it hard to save.

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What Can I Do If I Can’t Pay My Bills?

• Realize you have a problem.

• Stop using your credit cards.

• Add up all your debt to determine your current financial situation.

• Contact your creditors.

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Don’t Be Afraid to Scream for Help

• Credit Counseling Services– This non-profit service provides

financial counseling to consumers for free or a small charge.

– They are neither charitable or lending institutions.

– Beware of companies that offer to wipe clean your credit history.

– To locate the service nearest you call (800) 388-2227.

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What To Do If Your Contacted By a Collector?

• Don’t panic

• Don’t get angry

• Work with the collector

• Listen

• Be Honest

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Quiz Your Knowledge Of Personal Finance.

(Multiple choice!)

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Who Said, “The income tax has made more liars out of the American people than golf has?”

• A. Steve Forbes

• B. Benjamin Franklin

• C. Arnold Palmer

• D. Will Rogers

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The most bitter squabbles about money have occurred over -

• A. Failure to record ATM withdrawls

• B. Deciding to do it yourself vs. hiring a professional

• C. Filling out Tax Returns

• D. All of the above

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If you have a $2,000 balance at 18% on a credit card and your minimum payment is 2% of the balance, how long will it take to pay off this debt making the minimum payments?

• A. 3 years

• B. 5 years

• C. 10 years

• D. 31 years

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Same scenario - how much interest will you pay on this credit card?

• A. $360

• B. $400

• C. $2,931

• D. $4,931

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If you have a $50,000 home mortgage at 8% for 30 years and you paid an additional $100 per/ month, how much interest could

you save?

• A. $10,000

• B. $20,500

• C. $44,131

• D. $50,000

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Where To Go For Additional Information?

• ACA International• (952) 926-6547• www.collector.com

• National Foundation for Credit Counseling • (800) 388-2227• www.nfcc.org

• CBM Credit Education Foundation, Inc. • (608) 663-5000• www.cbmfoundation.org