Bonus D – Managing Personal Finances
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lecture link D-5
DISCREDIT REPORT
Maybe you’ve never seen your credit report, but dozens of strangers have. Among those who’ve
looked to see how much debt you have and whether you pay your bills on time are banks and mortgage
companies, credit card companies, retailers, insurance companies, maybe even a landlord or prospective
employer. You should add your name to that list.
Your credit report contains information about where you work and live and how you pay your
bills. It also may show whether you’ve been sued or arrested or have filed for bankruptcy. Companies
called consumer reporting agencies (CRAs), or credit bureaus, compile and sell your credit report to busi-
nesses. Because businesses use this information to evaluate your application for credit, insurance, em-
ployment, and other purposes allowed by the Fair Credit Reporting Act (FRCRA), it is important that the
information in your report be complete and accurate.
WHAT’S IN YOUR CREDIT REPORT?
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ANY PUBLIC RECORDS. This section includes any filings of personal bankruptcy or court
1. Is the identifying information correct, including middle initials and Social Security num-
bers?
2. Are the accounts accurate? Check the account numbers, credit limits, and payment rec-
ords.
3. Is the information current? By law, negative information can remain in your file for 7
years; bankruptcies, for 10 years.
4. Are old, closed accounts included? If they’re listed as current accounts, a creditor might
assume you have access to too much credit.
DISPUTING A CREDIT REPORT ERROR
If you wish to dispute an item on your credit report that you feel is wrong, you can do so for free.
When you contact the credit reporting company, it will investigate the dispute and issue you a revised
credit report for free.
1. START A RECORD. Every step of the way, be sure to keep good records of all your
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2. INFORM THE CREDIT REPORTING AGENCY and tell the agency what information
3. INFORM THE BUSINESS THAT sent the erroneous information of your dispute. Let
the creditor know in writing that you are disputing an item it put on your report. Include
obligated to include your letter in any future input to the credit bureaus.
REPAIRING YOUR CREDIT
sponsible credit management consistently over time. Nothing else will work.iii
lecture link D-6
SOCIAL SECURITY AND YOUR RETIREMENT
The headlines have recently been filled with speculation about the future of Social Security. So-
cial Security is not a pension fund with money put aside to pay future benefits. The taxes of current work-
ers are used to pay the Social Security and Medicare benefits of current retirees.
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No matter which scenario occurs, retirees will have to rely more on their own savings, and they
can’t depend on Social Security and Medicare to see them through. There are steps anyone can take now
to secure their future.
SAVE MORE THAN YOU EVER THOUGHT POSSIBLE
you can move in that direction:
RETHINK YOUR SAVINGS. Do a thorough retirement diagnosis of when you will expect to
retire, what your expected sources of retirement income are, and how much you will actual-
ly need when you retire.
FORCE YOURSELF TO ACKNOWLEDGE HOW BIG A RETIREMENT GAP YOU
WILL FACE—with a Social Security benefit that is significantly smaller than promised.
spending less can take you a long way toward closing your retirement gap.
INVEST MORE AGGRESSIVELY
There may be more stock market investors than ever, but few of them invest aggressively enough.
Saving more won’t close the retirement gap if you don’t earn sufficient returns on your money.
FAVOR MUTUAL FUNDS. Most people don’t have the time or expertise to pick individual
stocks. The prudent investment strategy is to pick a number of mutual funds.
DIVERSIFY. Don’t put all your money in one type of fund. Diversify among different types of
stock funds and between stock and bond funds.
will want to work beyond age 65 and most will be physically able to do so.
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lecture link D-7
THE TROUBLE WITH SUING YOUR BROKER
The recent stock market crash left many investors feeling spurned or mislead by those financial
minds they trusted most, namely their stockbrokers. In fact, complaints against brokers have risen 81%
since 2008. Despite the passage of time, investors are still rankled by the nosedive their portfolios have
taken since October 2008, with many even pursuing legal action against the brokers who gave them such
bad advice.
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critical
thinking exercises
Name: ___________________________
Date: ___________________________
critical thinking exercise D-1
PREPARING A PERSONAL BALANCE SHEET
1. Prepare a simple balance sheet for the Norths.
2. The Norths decide to buy a $5,000 motorcycle, using $500 from their savings account as the
down payment and borrowing the rest from the bank. Modify their balance sheet to reflect these
changes. Has their net worth changed?
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1. Prepare a simple balance sheet for the Norths.
ASSETS
Car $ 5,400
Savings Account 700
2. The Norths decide to buy a $5,000 motorcycle, using $500 from their savings account as the
down payment and borrowing the rest from the bank. Modify their balance sheet to reflect these
changes. Has their net worth changed?
ASSETS
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critical thinking exercise D-2
DEVELOPING A SPENDING PLAN
1. Develop a monthly budget (income – expenses) for Pam and determine her surplus or deficit.
2. Her landlord has told Pam that the rent will be raised $50 per month beginning next month. Can
Pam afford the same apartment?
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3. What advice would you give Pam about her finances?
notes on critical thinking exercise D-2
1. Develop a monthly budget (income – expenses) for Pam and determine her surplus or deficit.
INCOME
2. Her landlord has told Pam that the rent will be raised $50 per month beginning next month. Can
Pam afford the same apartment?
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critical thinking exercise D-3
FINDING THE BEST CAR LOAN
1. In your zip code, find the following information for a 30-month car loan.
a. What is the highest interest rate quoted?
b. What is the lowest interest rate quoted?
c. Using the lowest rate quoted, calculate the monthly payment for a $20,000 car loan.
d. What is the total amount you will repay (monthly payments 30 months)?
2. In your zip code, find the following information for a 48-month car loan.
a. What is the highest interest rate quoted?
b. What is the lowest interest rate quoted?
c. Using the lowest rate quoted, calculate the monthly payment for a $20,000 car loan.
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d. What is the total amount you will repay (monthly payments 48 months)?
3. In your zip code, find the following information for a 72-month car loan.
a. What is the highest interest rate quoted?
b. What is the lowest interest rate quoted?
c. Using the lowest rate quoted, calculate the monthly payment for a $20,000 car loan.
d. What is the total amount you will repay (monthly payments 72 months)?
4. Next, explore the cost of car loans in other areas of the country. Choose one of the zip codes be-
low and find information for a 36-month car loan using the lowest interest rate quoted.
New York 10013
Chicago 60601
Los Angeles 90230
New Orleans 70130
a. What is the interest rate for a 36-month loan?
b. What is the monthly payment for a $20,000 36-month loan?
c. Is this less, more, or the same as the rates quoted for your zip code? What do you think are
the reasons for the differences, if any?
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critical thinking exercise D-4
CHOOSING THE RIGHT MORTGAGE LOAN
What would be the monthly mortgage payment for your dream house? It is easier than ever to
1. What would be the monthly mortgage payment for a 30-year fixed-rate loan if the interest rate
is:
a. 5.5%
b. 7.0%
c. 9.5%
2. What would be the monthly mortgage payment for a 15-year fixed-rate loan if the interest rate
is:
a. 5.5%
b. 7.0%
c. 9.5%
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critical thinking exercise D-4 (continued)
3. If you can afford a monthly payment of only $400 or less, what is the most expensive house you
could buy (assuming 30-year fixed-rate loan) at:
a. 5.5%
b. 7.0%
c. 9.5%
4. If your parents offer to lend you another $5,000 for the down payment ($10,000 total) for your
$85,000 dream house, what would be the monthly mortgage payment on a 30-year fixed-rate loan
if the interest rate is:
a. 5.5%
b. 7.0%
c. 9.5%
5. Use the “local rate” function and enter your zip code. In your area, what is the current rate for an
$85,000
a. 30-year fixed-rate loan?
b. 15-year fixed-rate loan?
6. Adjustable rate mortgages (ARMs) offer a low initial rate and then recalculate (“reset”) at inter-
vals to reflect the current market interest rates. Use the “local rate” function on the website and
enter your zip code. This time choose one of the ARM offers. ARM quotes give “caps,” or the
maximum percentage points that can be added to your loan.
a. What is the initial interest rate (annual percentage rate, or APR) for an $85,000 ARM mort-
gage in your zip code?
b. What is the estimated monthly payment?
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c. What is the maximum amount percent interest that can be added to this loan when it resets?
endnotes