Personal Finance Fundamentals

Disclaimer: The views expressed are those of the presenters and do not necessarily
reflect those of the Federal Reserve Bank of Dallas or the Federal Reserve System.
TEKS
(18) Personal financial literacy. The student understands the role of individuals in
financial markets. The student is expected to:
(E) identify the types of loans available to consumers;
(F) explain the responsibilities and obligations of borrowing money; and
(G) develop strategies to become a low-risk borrower by improving one's personal credit score.
(19) Personal financial literacy. The student applies critical-thinking skills to analyze
the costs and benefits of personal financial decisions. The student is expected to:
(A) examine ways to avoid and eliminate credit card debt;
(B) evaluate the costs and benefits of declaring personal bankruptcy;
(20) Personal financial literacy. The student understands how to provide for basic
needs while living within a budget. The student is expected to:
(A) evaluate the costs and benefits of renting a home;
(B) evaluate the costs and benefits of buying a home; and
(C) assess the financial aspects of making the transition from renting to home ownership.
 3 M’s
• Moving On and Moving Out
– Mindset

– Money

– Management
 Would you like to be a millionaire?
• I know the secret….
– High School Graduate $1,486,000
– College Graduate $2,557,000

– Spend less than you make!

– Income is not the key…saving is.

 Wealth
• Most of us define wealth as the dollar value of
the assets that we own. To determine our
wealth we add up all that we own and
subtract all that we owe – that equals our net
worth.
• Simply put:
– Own – Owe = Wealth
 Budgeting
• Budgeting (controlling your spending) will
allow you to increase your wealth.

• 3 M’s of budgeting
 Mindset (First M)
• A budget will not tell you what to do, you
choose what to do.

• Stop saying “ I can’t afford” , say “I choose to.”

• Be creative with alternatives.

What type of spender are you ?
• Everyone stand.
• Sit down when I call out something you can’t
give up:
– Candy
– Cookie
– Soda
– Bottled water
Sit down when you can’t give it up
• Starbucks
• Going out with your friends once a week
• Buying lunch vs. bringing lunch
• Seeing the latest movies
• Getting your nails done
• Getting your hair done once a week
Sit down when you can’t give it up.
• Cable television
• Latest video games
• Cell phone
What type of spender are you?
• A’s - impulsive, leave the cash and debit card
at home
• B’s -you have more discipline but may have to
find alternatives for some of the things you
like to do
• C’s – you are probably all ready on your way to
good savings habits.
Why is it hard to discipline our spending?

• Just do it! (Mentality)

• Advertising
• Keeping up appearances
• It isn’t fun!
 Money
• Do the math: How much is coming in and how
much is going out.
• Don’t forget those monthly or annual
expenses – holidays, special events, prom.
• Include money for savings.

• Remember – Life happens!

 Management (2nd M)
• Set aside time each week to go over your plan.
• Make adjustments.
• You won’t be perfect, don’t give up.
• Find a partner to work with you.

• Without a plan, you just plan to fail.

Budgeting tips
• Pay yourself first.

• Be honest with yourself.

• Don’t give up.

• Other people don’t budget and they are fine.

Really?
Savings
• Difficult to do.
• Allows us to set money aside for emergencies.
• Allows you to have the freedom to make
choices.
Bank accounts
Do Your Research

• Banks accounts are insured for up to

$250,000.

• Bank account features vary from bank to bank.

Types of accounts
• Checking
• Savings
• Money Market
• CD
Risk & return
• Generally, the greater the risk the greater the
rate of return. What does that mean?

– If investors are less certain that they will get

their investment back they will ask for a
higher interest rate to compensate them for
the uncertainty (risk) that they are taking.
Be Comfortable with Your Investments.

• Each of us has a different risk tolerance

• All purchases of stocks and bonds carry risk.

 TYPES of RISK
• Risk of Default

• Risk of capital loss

• Risk of inflation

• Risk of liquidity
How much risk can you afford?
• Financial goals

• Time horizon

• Financial risk tolerance

Stocks, bonds, mutual funds
• Each of these items is a way to invest the money
that you have earned.
• Stocks = you become one of the owners of a
corporation. You can receive dividends, vote for
the board of directors, and sell your stock.
• Bonds = you make a loan to a company or
government entity. They agree to pay you back
over time at a set rate of interest.
• Mutual Funds = a bundle of these assets used to
diversify risk
 Credit
Money
Cards

Credit cards represent a loan. The card (or the number)

is simply a way to access a line of credit.

On the other hand, a debit card is a way to spend

checkable deposits, just like a paper check.
Credit Cards

Advantages Disadvantages

• Pre-approved loan • Requires discipline

• Widely accepted from borrower
• Some consumer • Can have high fees
protection and interest
• Can establish credit • Identity theft
history
Credit Cards
• Credit card is a pre-approved loan
• You will pay interest each month if you don’t
pay it off in full
• Credit card companies are highly regulated
about marketing to those under 21
• If you spent $1500 when you were 18 on a
credit card with 18% interest rate and paid the
minimum amount it would take until you were
26 to pay off the balance.
Debit Cards
Advantages Disadvantages

• Widely accepted • Requires

• Some consumer recordkeeping
protection • Can have fees and
• Ease of use penalties
• Identity theft
• May lead to higher
spending
Debit cards
• A debit card gives you electronic access to
your account.
• If you are overdrawn you will be charged a
fee.

• Consumers who shop with debit cards tend to

spend about 30% more than those shopping
with cash.
Using credit wisely
• Credit can allow an individual to have the use
of a product or service now rather than
waiting for the future. When might this be a
good decision?
– Education
– Housing
– Transportation
– Necessities
 Identity theft
• Don’t give out information unless you
contacted them.
• Protect your information at school
• Don’t text your information to others –you
don’t know where there phone may be
• Never carry your social security card
• Order a credit report each year and check it
annualcreditreport.com
Your financial future
• Think about your goals and dreams
• Determine wants vs. needs
• Make a plan
• Implement your plan
• Evaluate – weekly, monthly, yearly
• Make adjustments
• Stay informed about your options
• A great financial future awaits you !
Questions ?