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Bonus Chapter D - Managing Personal Finances
D-16
PPT D-15
Saving and Managing Credit
• Contrarian Approach -- Buying stock whenever
everyone else is selling or vice versa.
• Credit cards serve useful purposes and are
important to own but must be used discriminately.
SAVING and MANAGING CREDIT
D-15
LO D-2
• Not all credit cards are
equal. Check sites like
CardRatings.com or
CreditCards.com to find a fit.
Bonus Chapter D - Managing Personal Finances
D-17
CHASES.
c. It is easier to write one check at the end of
the month than to carry cash.
d. Credit cards are SAFER than cash—you can
cancel a stolen credit card.
2. Credit is expensive.
a. 50% of college students have four or more
cards and only 17% regularly pay off their
balance.
b. The financial charges on CREDIT CARDS
are 12 to 26% annually.
c. If you do use a credit card, PAY THE BAL-
ANCE IN FULL each month during the peri-
od when no interest is charged.
3. Choose a card that pays you cash back or gives
you purchase credits or frequent flier miles.
a. The value of these givebacks can be from 1
to 6%.
b. Some cards charge an annual fee whereas
others do not.
4. The DANGERS OF CREDIT CARDS are:
a. It is easy to buy goods and services you
normally would not buy.
b. You can pile up more than you can repay.
c. If you have trouble sticking to a budget, it
may be better NOT TO HAVE A CREDIT
CARD AT ALL.
Bonus Chapter D - Managing Personal Finances
D-18
lecture enhancer D-3
KNOW YOUR CREDIT SCORE
Your credit score determines the interest rate you are charged
for credit. This lecture enhancer gives some practical tips for
improving our score. (See the complete lecture enhancer on
page D.52 of this manual.)
PPT D-16
Credit Cards and Debt
• 50% of college students have four or more credit
cards.
• Only 17% report paying off their balance each
month.
CREDIT CARDS and DEBT
D-16
LO D-2
• If you feel managing a
credit card would be
too difficult, try a debit
card.
PPT D-17
Credit Card Act of 2009
• Created new consumer credit card protections
and went into effect in February 2010.
• New law allows card issuers to increase interest
rates for only a limited number of reasons.
CREDIT CARD ACT of 2009
D-17
LO D-2
• People must be over 21
or have an adult
cosigner to get a credit
card.
lecture enhancer D-4
AMERICA’S GROWING CREDIT
CARD AVERSION
As new credit card regulations come into effect, more and
more Americans are still turning away from plastic. (See the
complete lecture enhancer on page D.53 of this manual.)
Bonus Chapter D - Managing Personal Finances
D-19
d. Credit cards can be convenient, but they can
also be a FINANCIAL DISASTER if you
have little financial restraint.
e. We have seen recently that hacking can be
an issue too.
5. For some people it may be better to have a debit
card.
6. DEBIT CARDS are like credit cards, but they
won’t let you spend more than a certain amount.
7. A recent credit card act created new protections
for consumers.
a. Card issuers can raise rates only for a lim-
ited number of reasons.
b. You must be 21 or have an adult cosign to
get a credit card.
learning objective 3
Explain how buying the appropriate insurance can protect your financial base.
III. PROTECTING YOUR FINANCIAL BASE: BUY-
ING INSURANCE
A. BUYING LIFE INSURANCE
1. The death of one spouse can mean a sudden
drop in income for the survivor.
2. To PROVIDE PROTECTION from the loss of a
spouse or business partner, you should buy life
insurance.
3. TERM INSURANCE is pure insurance protec-
tion for a given number of years.
Bonus Chapter D - Managing Personal Finances
D-20
PPT D-18
Clean Credit
CLEAN CREDIT
Steps to Keep a Good Credit Score
Source: Money Magazine, money.cnn.com, accessed November 2014. D-18
PhotoCredit:RobertScoble
LO D-2
1. Always pay your bills on time!
2. Keep small balances on
multiple cards.
3. Don’t shift balances.
4. Don’t apply for too many cards
at once.
5. Don’t file for personal
bankruptcy.
PPT D-19
What’s Your Score?
WHAT’s YOUR SCORE?
How You Might Rate on a Credit Score
D-19
Range Rating
760 to 850 Excellent
700 to 759 Great
660 to 690 Fair
620 to 659 Poor
619 and under Very Poor
LO D-2
critical thinking
exercise D-3
FINDING THE BEST CAR LOAN
This exercise asks students to use online financial sites to find
the latest interest rates for car loans and calculate the monthly
payment. (See the complete exercise on page D.64 of this
manual.)
lecture enhancer D-5
DISCREDIT REPORT
Maybe you’ve never seen your credit report, but dozens of
strangers have. (See the complete lecture enhancer on page
D.54 of this manual.)
test
prep
PPT D-20
Test Prep
TEST PREP
D-20
• What are the six steps you can take to control
your finances?
• What steps should a person follow to build
capital?
• Why is real estate a good investment?
Bonus Chapter D - Managing Personal Finances
D-21
a. Term insurance costs less the younger you
buy it.
b. You can use a financial formula to figure out
how much insurance you need at different
points in your life.
c. MULTIYEAR LEVEL-PREMIUM INSUR-
ANCE guarantees that you’ll pay the same
premium for the life of the policy.
4. WHOLE LIFE INSURANCE combines pure in-
surance and savings.
a. It places part of the premium in savings and
the other part toward pure insurance.
b. This type may be right for people who have
trouble saving.
c. A UNIVERSAL LIFE POLICY lets you
choose how to divide the premium between
insurance and investment.
5. VARIABLE LIFE INSURANCE is whole life in-
surance that invests the cash value of the policy
in stocks or higher-yielding securities; it is vul-
nerable to stock market dips.
6. An ANNUITY is a contract to make regular pay-
ments to a person for life or for a fixed period.
a. With an annuity you are guaranteed to have
an income until you die.
b. FIXED ANNUITIES are investments that pay
the policyholder a specified interest rate.
c. VARIABLE ANNUITIES provide investment
Bonus Chapter D - Managing Personal Finances
D-22
PPT D-21
Insuring Your Life
INSURING YOUR LIFE
D-21
LO D-3
• Term Insurance -- A pure insurance protection for a
given number of years that typically costs less the
younger you buy it.
• Whole Life Insurance -- Combines pure insurance
with savings, so you buy both insurance and a
savings plan.
• Variable Life Insurance -- A form of whole life
insurance that invests the cash value of the policy in
stocks or other high-yielding securities.
TEXT FIGURE D.4
Why Buy Term Insurance?
This text figure shows the reasons for purchasing term insur-
ance.
PPT D-22
Purchasing Annuities
PURCHASING ANNUITIES
D-22
LO D-3
• Annuity -- A contract to make
regular payments to a person for
life or for a fixed period; an
annuity guarantees an income
until you die.
• Two types of annuities:
1. Fixed annuities
2. Variable annuities
Bonus Chapter D - Managing Personal Finances
D-23
choices identical to mutual funds; they are
becoming more popular.
d. Variable annuities are riskier; be careful
choosing the insurer.
7. Before buying any insurance, it is wise to consult
an independent financial adviser.
B. HEALTH INSURANCE
1. Individuals need to consider protecting them-
selves from losses due to health problems.
a. Many have health insurance coverage
through their employer.
b. If not, you can buy insurance throught the
government’s heath insurance marketplace.
2. You should also have DISABILITY INSUR-
ANCE because the chances of becoming
disabled at an early age are higher than your
chances of dying from an accident.
3. DISABILITY INSURANCE is insurance that
pays part of the cost of a long-term sickness or
an accident.
C. HOMEOWNER’S OR RENTER’S INSURANCE
1. APARTMENT INSURANCE or HOMEOWN-
ER’S INSURANCE covers loss of your posses-
sions.
2. It is best to get guaranteed REPLACEMENT IN-
SURANCE, which means the insurance compa-
ny will give you whatever it costs to buy things
new.
Bonus Chapter D - Managing Personal Finances
D-24
lecture enhancer D-6
SOCIAL SECURITY AND YOUR
RETIREMENT
Back in the 1980s there were five active workers paying So-
cial Security taxes for each retiree. Today it’s 3.2 workers and
dropping. (See the complete lecture enhancer on page D.56 of
this manual.)
PPT D-23
Other Insurance Protection
OTHER INSURANCE
PROTECTION
D-23
LO D-3
• Disability Insurance -- Insurance that pays part of
the cost of a long-term sickness or an accident.
• Homeowner’s or renter’s insurance covers the
cost of things you own if they are destroyed.
• Umbrella Policy -- Combining all your insurance
(life, health, homeowner
’
s, auto) from one company
is less costly.
Bonus Chapter D - Managing Personal Finances
D-25
3. Another option is to buy insurance that covers
only the DEPRECIATED COST of the items.
4. You need to buy a RIDER to your insurance pol-
icy to cover expensive items such as jewelry or
silver.
D. OTHER INSURANCE
1. Most states require that drivers have automobile
insurance.
2. Be sure to insure against losses from uninsured
motorists.
3. A large deductible ($500 or so) will keep the
premiums lower.
4. An UMBRELLA POLICY is a broadly based in-
surance policy that saves you money because
you buy all your insurance from one company.
learning objective 4
Outline a strategy for retiring with enough money to last a lifetime.
IV. PLANNING YOUR RETIREMENT
A. Successful financial planning requires long-range
planning, including retirement.
B. SOCIAL SECURITY
1. SOCIAL SECURITY is the term used to de-
scribe the Old-Age, Survivors, and Disability In-
surance program established by the Social Se-
curity Act of 1935.
2. By the time students retire, there will be huge
changes in the Social Security system.
Bonus Chapter D - Managing Personal Finances
D-26
PPT D-24
Where Healthcare Money Goes
WHERE HEALTHCARE
MONEY GOES
Source: U.S. Department of Health and Human Services. D-24
Where Amount
Hospital care 31%
Physicians 21%
Medicines 10%
Administration 7%
Nursing homes6%
Other 25%
LO D-3
PPT D-25
What to Know about Health Sav-
ings Accounts
WHAT to KNOW ABOUT
HEALTH SAVINGS ACCOUNTS
Source: Money Magazine, money.cnn.com, accessed November 2014. D-25
LO D-3
1. Your employer is likely to
offer HSA options.
2. The plans can be costly but
withdrawal for medical bills is
tax-free.
3. They’re not for everyone.
4. HSA accounts can double as
retirement accounts.
PPT D-26
Social Security
SOCIAL SECURITY
D-26
LO D-4
• Social Security -- The Old-Age, Survivors, and
Disability Insurance Program established by the
Social Security Act of 1935.
• Social Security benefits are paid through social
security taxes paid by workers currently earning
wages in the market.
• The Social Security fund is expected to be hard
pressed because of the growing number of older
adults.
Bonus Chapter D - Managing Personal Finances
D-27
3. The number of people RETIRING AND LIVING
LONGER is increasing while the number of
workers paying into the fund is declining.
4. As a result, expect cuts in benefits, later retire-
ment age, or higher Social Security taxes.
5. Don’t count on Social Security to provide you
with all your funds for retirement—SAVE
FUNDS NOW.
C. INDIVIDUAL RETIREMENT ACCOUNTS (IRAs)
1. An INDIVIDUAL RETIREMENT ACCOUNT
(IRA) is a tax-deferred investment plan that en-
ables you (and your spouse, if you are married)
to save part of your income for retirement.
a. A TRADITIONAL IRA allows people who
qualify to deduct from their reported income
the money they put into an account.
b. TAX-DEFERRED CONTRIBUTIONS are re-
tirement account deposits for which you pay
no current taxes, but the earnings gained
are taxed as regular income when they are
withdrawn at retirement.
c. A traditional IRA is a good deal for an inves-
tor because the INVESTED MONEY IS NOT
TAXED.
2. The earlier you start saving the better, because
your money has the chance to double and dou-
ble again.
a. Saving $5,500 in an IRA at 10% interest will
Bonus Chapter D - Managing Personal Finances
D-28
PPT D-27
Individual Retirement Accounts
INDIVIDUAL
RETIREMENT ACCOUNTS
D-27
LO D-4
• Individual Retirement Accounts (IRAs) -- Tax-
deferred investment plans that enable a person to
save part of their income for retirement.
• Tax-Deferred Contributions -- Contributions in
which you pay no current taxes, but earnings gained
in the IRA are taxed as income after withdrawal.
Bonus Chapter D - Managing Personal Finances
D-29
yield $1.6 million in 35 years.
b. The actual rate of return depends on the
type of investments you choose and can
vary widely over time.
3. The earlier you start, the faster you will accumu-
late retirement funds.
4. A ROTH IRA is an IRA where you don’t get up-
front deductions on your taxes as you would with
a traditional IRA, but the earnings grow tax-free
and are also tax-free when they are withdrawn.
a. Traditional IRAs offer tax savings WHEN
THEY ARE DEPOSITED.
b. Roth IRAs offer tax savings WHEN THEY
ARE WITHDRAWN.
5. Both types of IRAs have advantages and disad-
vantages.
b. In general, a Roth IRA is best for younger
workers.
6. You cannot take the money out of an IRA until
you are 59½ YEARS OLD without paying a 10%
penalty and paying taxes on the income.
a. You cannot tap the fund for impulse pur-
chases.
b. However, you can now take out some funds
for an EDUCATION or a FIRST HOUSE.
7. A wide range of investment choices are availa-
ble.
Bonus Chapter D - Managing Personal Finances
D-30
