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Transcript of Financial Education
community career & work personal growth & care
(health, play, spirit) $$ finances $$ but to make it all
work together... Concept #1
money in, money out income & expenses Money in...
...income Money out...
stuff you want
stuff you need
stuff you don't want!
stuff you don't need!
... expenses candy & junk food,
movies & music,
clothes & school trips
(what your parents won't pay for) cell phone
(what your parents stop paying for) to spend money on, that is....
tuition & school books
drivers licence fees
taxes & insurance
late fees & parking tickets
service charges, etc... but spend money on anyways....
too many clothes
stuff you already have but forgot
late fees & parking tickets...
you get the picture... Concept #2
credit cards & savings The math:
integers (+/- numbers)
Do your children understand
the meaning of a negative number?
... because "what you have"
is not always positive! vocabulary... what words do we need to know to make sense of the world of finance? budget interest rates term effective APR amortization period risk/return bank statement mutual funds credit card debit card personal line of credit investments loans GIC's mortgage service charges bank fees bank accounts What do you do when
"what you have"
is not zero? The 'movie' vs the 'picture' The 'movie':
Every day "income-expenses" is different...
some days you earn and don't spend (+),
some days you spend and don't earn (-).
At the end of every day, you move 'what you have'
into your personal financial bucket. The 'picture':
The picture is what your financial bucket looks like at any given moment. You want your financial bucket to have more (+) than (-). + - - + + + + + + +bank accounts
+cash on hand
+value of stuff you own
credit history good debt/bad debt stocks & bonds So how do you know
how your (+) and (-)
are stacking up
day after day? Keep track with a budget... What's a budget? interest
captital gains annuities
TFSA marginal tax rates A budget ...
is basically a plan that uses actual & estimated income & expenses
is usually set up by month for a year
is updated as estimates become actual
comes in a variety of formats
-all the basic arithmetic operations (+, -, x, / )
with integers and decimal numbers
(spreadsheets are good at this!)
-proportional reasoning for making estimates
-algebraic reasoning for determining the relationships between the numbers... especially if using a spreadsheet
-order of operations... especially if using a spreadsheet
Do your children know how to use a spreadsheet? -outstanding bills
-credit card balances
-personal lines of credit
-mortgages - - - - + Quiz Time: 1. Write down 2 things you think will surprise your children when they have to pay for them - either that they have to pay, or how much it costs. Answers will vary but income tax is a big one! 2. What are the official words for ...
(--)'s financial bucket = net worth
(+) = assets
(-) = liabilities 3. What does it mean to have a 'balanced budget'? All the $$ is accounted for so income = expenses.
So if there is a surplus, it goes onto the expense side as 'savings' and if there is a 'deficit', it goes onto the income side as 'borrowed funds'. 4. Approximately how long do you think it would take to pay off a $5000 credit card balance, by making only the minimum payment each month, if the interest rate is 18.5%?
A) 5 years
B) 10 years
C) 20 years
D) 50 years D) 50 years! ... and that's if no more purchases are made with the card! 5. Approximately how long do you think it would take to double your investment if your rate of return, or interest rate, is 9%?
A) 4 years
B) 8 years
C) 11 years
D) 16 years B) 8 years ... have you heard of the "rule of 72"? short term So what's the deal with credit cards? Pros:
-required for many transactions
deposits & reservations
on-board airplane purchases(!)
-opportunity to build a credit profile/history
-can really come in handy in emergencies Cons:
-can be very expensive
(if not used wisely)
-can be used fraudulently by others The Math
percents and compound interest...
but it gets complicated fast!
Do your children understand the power of 'powers' (exponential functions)? Quiz time... Quiz time... Quiz time... Quiz time... income - expenses = what you have
and what about savings? Knowing what to do with money you aren't spending is a little trickier than it used to be. A 'savings account' used to be the obvious answer but now there are things to consider. Consider:
-the interest rate (very low these days)
-the minimum balance needed to earn interest
-any costs associated with the account
So any thoughts on savings should really turn to investing. Concept #3
loans & investments medium & long term good debt bad debt borrowing
to buy a house
to buy RRSP's
to start a business
to go to school Good debt is basically borrowing money that will allow you to make more money. borrowing
to buy food
to pay rent
to buy stuff you don't need
by not paying off your
credit card balance quickly Bad debt is basically borrowing money to live day to day or to buy things you really can't afford. If you use debt this way, you are living beyond your means and need to either earn more or spend less. risk return Investments...variety galore! Investing is easier now than it ever was before... for as little as $25 - $50 per month, you can invest in stocks, bonds, mortgages, treasury bills, the money market, commodities... you name it. Every bank now has mutual funds that invest in these vehicles. ...and it's easy! but a little knowledge can be a dangerous thing... you need to know what you're buying... mutual funds stocks (equity) bonds GIC's RRSP's TFSA's RESP's RRIF's non-registered
accounts what you are actually buying (investing in)? how are those investments packaged? Balance
vs low risk, low return
growth comes from interest income high risk, POTENTIAL for high returns (and losses)
variable, less predictable, growth from dividends and capital gains If you go to a bank to invest, you will be asked several questions in order to determine your tolerance for risk.
They will then find investments to match your 'investor personality'. mortgage consumer loan personal line of credit in-store financing names for loans Rule #1 about credit cards!!
Pay off the whole balance by the due date. If you can't, pay at LEAST the minumum by the due date (to protect your credit rating).
Rule #2 about credit cards!!
If you can't pay off the full balance by the next month or two - go to the bank and get a consumer loan (before you wreck your credit rating.) It's way cheaper. Quiz time... (loans are debt) Time value of money - why it all works whether borrowing or investing $1000 becomes $4,660
in 20 years @ 8% $1000 becomes $10,000
in 30 years @ 8% $1000 becomes $2,160
in 10 years @ 8% motherly advice...
-have kids track spending for a few months... feel free to add to their list
-have them create expense categories that make sense to them... these will evolve over time
-if they have an income, have them create a budget motherly advice...
-allow your kids to get a credit card when they are old enough (18?) but have the credit limit low ($500).
-make sure they pay off the balance in full each month. This allows them to build a credit history and rating - very important to their future borrowing power as well as renting an apartment motherly advice...
-if they have regular income, encourage your kids to 'pay themselves first' by making regular contributions to some kind of investment
-talk to them about savings goals
-once they are working full time, encourage them to contribute to an RRSP.
-you may also like to talk about putting money aside for charity as well. (There always seems to be more money when it's well managed.)