scary statistics

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Scary Statistics In 2003, one billion credit cards were in circulation. The average household carried a balance of $7500 on their cards from month to month, and paid 18.3% in interest ($950 a year). In 2001, Americans charged up more than $400 billion on their credit cards. They were charged $50 billion in interest. The average household has seven credit cards and carries a balance of $14,000 By simply having a credit card, a person spends 34% more. Only 2 out of 3 people with credit cards keep them at their limit. If a store offers credit cards, there is a 4-7% mark up on items to cover the fee to the credit agency.

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Scary Statistics. In 2003, one billion credit cards were in circulation. The average household carried a balance of $7500 on their cards from month to month, and paid 18.3% in interest ($950 a year). In 2001, Americans charged up more than $400 billion on their credit cards. - PowerPoint PPT Presentation

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Page 1: Scary Statistics

Scary StatisticsIn 2003, one billion credit cards were in circulation.

The average household carried a balance of $7500 on their cards from month to month, and paid 18.3% in interest ($950 a year).

In 2001, Americans charged up more than $400 billion on their credit cards.They were charged $50 billion in interest.

The average household has seven credit cards and carries a balance of $14,000

By simply having a credit card, a person spends 34% more.Only 2 out of 3 people with credit cards keep them at their

limit.If a store offers credit cards, there is a 4-7% mark up on

items to cover the fee to the credit agency.

Page 2: Scary Statistics

More Scary FactsUtah ranks as the fourth-highest state in

the amount of debt per capita and leads the nation in personal bankruptcy. The average age of the filer in Utah is 27.In 2005, 21,476 people declared bankruptcy

in Utah.Main cause = Credit Card Debt

In Utah, bankruptcies are filed at the rate of one in every 37 homes!

1.1 million Americans filed personal bankruptcy last year137 Americans file every hour of every day

The national average is one in every 73 homes file!

Page 3: Scary Statistics

Firms go out of their way to offer me credit, for which I say, “I am Deeply

Indebted”.

Credit, Debt, and Savings

Circle Juggle

Page 4: Scary Statistics

DebtMoney that you have spent above and beyond

the money that you have available to you. Future money that you have not received yet but

is already spent.Credit and loans fall into this category

Getting Out of DebtPay off balances by the end of each monthDevelop a repayment plan and pay debt off

quickly!Stop getting into more debtSerious analysis of needs vs. wantHave the money before you buy it.

SNL SKIT

Page 5: Scary Statistics

The Facts on CreditThose who are wise never pay interest… they earn it!

Borrow $200.00

Page 6: Scary Statistics

Defining Credit Terms Annual percentage rate (APR): The cost of a loan over a

full year expressed as a percentage. Bankruptcy: Legally getting out of having to repay debts;

admitting and accepting financial failure. Destroys credit rating for seven -11 years;

*Capacity: Ability to fulfill obligations evidenced by diligence at work and prospects of continuing employment or income. Can you repay the Loan?

*Character: The quality of one's reputation or name; financial or economic trustworthiness. Will you repay the loan?

*Collateral: Security on a loan (house, jewelry, car, etc.) What you have in case you do not pay the loan

(*3 C’s Of Credit to determine if you are fit to have a credit card)

Page 7: Scary Statistics

If school performance was used to determine credit

worthiness, how would you do?

M &M’s

Page 8: Scary Statistics

Questions1. Number of times you have missed class this quarter?2. Number of times you have been tardy this quarter?3. How many times you have turned in late assignments

this quarter?4. How many times you have turned in incomplete

assignments this quarter?5. How many times you have not turned in an assignment

at all this quarter?6. How many times you have been asked by the teacher

to change or improve your behavior in class this quarter?

7. How many times you have forgotten to bring the required materials (textbook, pencil, etc.) to class this quarter?

Page 9: Scary Statistics

Total the numbers from your answers!

RESULTS SAY: 4 or Less = Credit Approved! 5 - 7 = Need Cosigner8 or More = Credit Denied!

Page 10: Scary Statistics

Establishing Credit #3 SGHave checking and savings accounts and

manage them responsibly. Make regular deposits into them.

Use layaway plans at storesSave for large down payments on cars and other

purchases.Ask someone to be a cosigner for the loan.Always make payments for bills ON TIME!!!

cell phone, utilities, credit cards, house payment etc.Pay the most amount you can – more than the

minimumThese are reported to the credit agencies

Responsibly buying on credit helps to establish your credit.

Page 11: Scary Statistics

Why is Good Credit Important?Bad Credit vs. Good Credit

Bad Credit$3000 on credit card18% interest rateIf minimum payment

of 2 ½% is only made…

It takes 22 years and $4100 dollars in interest to pay of the debt.

Total: $7100 to borrow $3000

Good Credit$3000 on credit card4% interest rateIf minimum payment

of 2 ½% is only made…

It takes 11 years and $400 in interest to pay off the debt.

Total: $3400 to borrow

$3000

Page 12: Scary Statistics

If you are REJECTED…Obtain a copy of your credit report to

determine what the problem is.If something is incorrect, notify the credit

bureau in writing.Fixing credit problems may take up to six

months.

Page 13: Scary Statistics

Cosigner: Second signer who guarantees to pay for the loan if the first party ( person who obtains the loan) defaults.

Credit: A loan that allows immediate use of products or services in exchange for a promise to pay in the future.

Credit Bureau: A private corporation that is a clearing house for consumer credit information. Collect information on credit practices of individuals.

Credit rating (FICO): Creditor's evaluation of a debtor's willingness and ability to pay debts based on past performance. Ie: how promptly a person pays his/her debts. Ranges from 350 to 850.Paying bills on time builds a good credit rating

Default Failure to repay a loan

Video Credit BIG

Page 14: Scary Statistics

Finance Charge The total dollar amount that it costs a consumer to use credit.

TV Paid with CashTV Paid with Credit Card

Regularly $400.00

On Sale $360.00No InterestTotal Cost

$360

21% A.P.R.18 mo. pmts$26.00 per mo.$68.00 interest Months financed X monthly

payment. Total Cost $468

Page 15: Scary Statistics

The Cost of Credit -Magic of Interest “The magic of compounding interest is truly the 8th wonder

of the world” Albert Einstein Principal(original amount)

Interest (rate)

Yearsto pay

Payment amount

TotalInterest over time Total Cost

$1,000.00 12% 2 $47.07 $129.79 $1,129.79

$1,000.00 21% 2 $51.39 $233.21 $1.233.21

$5,000.00 12% 8 $70.68 $1,785.71 $6,785.71

$5,000.00 21% 30 $87.67 $26,561.28 $31,561.28

$150,000.00 7% 30 $997.00 $209,266.00 $359,266

$150,000.00 7% 15 $1,348.24 $92,683.00 $242,683.00

$350,000.00 7% 30 $2,328.56 $488,279.00 $838,279.00

Page 16: Scary Statistics

Compounding Interest in ActionYou have just bought an iPod, and you paid for it with your shiny new credit card with an 15% interest rate. At a list price of $150, plus sales tax of 10.50, that’s $160.50 , let’s figure out how much your iPod really costs you in the end. Compounding Interest Chart

Month Amount Interest PaidTotal Amount Owed

1 160.50 15% (160.5x.015)+160.5=162.91

2 162.91 15%(162.91x.015)+162.91=165.35

3 165.35 15%(165.35x.015)+165.35=167.83

4 167.83 15%(167.83x.015)+167.83=170.35

To figure out compound interest: 1. Multiply your principal and any

accrued interest (the number in the amount column) by the percentage of interest. In month one it’s .015:

160.50 x.015 = 2.41 160.50+2.41=162.91

2. Add this amount in the total column.

3. Continue. Be certain to start each calculation with the new total.

What was the amount of interest charged the first month? 2.41 Second? 2.44 Third? 2.48 Fourth? 2.52

What would the total cost of the iPod be if you allowed interest to accrue for four months without making payments? 170.35

Page 17: Scary Statistics

Item Purchase

Cash Price

Down

Payment

Interest

Rate

Months

Financed

Monthly

Payment

Total Price Using Credit

Cost of Credit

Appliances

$1,200

$200 10% 12 $88 $1256 $56

Appliances

$1,200

$200 18% 12 $92

Furniture

$3,500

$500 10% 24 $138

Furniture

$3,500

$500 18% 24 $150

months financed x monthly payment = +down payment= (1st box) -cash price = credit cost

FIGURE COST OF CREDIT (What do you notice?)

Page 18: Scary Statistics

Garnishment Your employer pays your creditor before you receive your paycheck.

Interest Price paid for the use of rented or borrowed money.

Principal The original amount of a loan on which interest is based.Groceries on CreditPrinciple = $125.00Interest = $14.00Final Cost = $139.00

Clothing on CreditPrinciple = $350.00Interest = $137.00Final Cost = $487.00

When you make the last payment, will the stereo, clothing, food you purchased be long gone?

Page 19: Scary Statistics

3 Main types of credit:

Sales CreditCredit you receive when you make a

purchase and promise to pay later.Cash Credit

Credit you receive when you borrow cash and promise to pay it back later.

Service CreditCredit given for immediate service one

receives (utilities, dentist, hospital, etc.) that will be payed for later.

Page 20: Scary Statistics

Which Card For Me?1. Different cards have different age

requirements.A. I am under seventeen years old.B. I am seventeen years old and have a co-

signer.C. I am eighteen years old or older.2. I just found a jacket that I really want,

but it is expensive. So I…A. Borrow the money from my parents and

promiseto pay them back.B. Save part of the money and borrow the rest.C. Save all of the money and then buy it.3. Going to school takes up a lot of my

time. So,A. I do not have a job.B. I will baby-sit or do other work when

someone calls me.C. I have an after-school and/or weekend job

with aregular income.

4. When I owe my parents money,

A. I still buy other stuff.B. I try to pay them back quickly but

might buy oneor two small things.C. I save all my money until I can pay

them back.

5. I have been to a bank beforeA. But I have never had my own

banking account.B. And opened my own savings

account, which I still use.C. And opened my own checking

account, which Istill use.

6. In the past when I have spent money,

A. I have never tracked my spending (written down

how much I spent and where I spent it).

B. I have tracked my spending when I was saving for

something in particular.C. I have always tracked my

spending.

Page 21: Scary Statistics

So, which card is best for you? Add up how many times you selected an A answer, B answer, and C answer

You probably like the idea of a credit card but have not had the opportunity to experience managing your own money. Some large credit card companies offer a great pre-paid card that might be perfect for you! It works like this: money is deposited into your account and then you can use your card anywhere your credit card company is accepted. Once you have spent all the money in your account, just add more money to keep shopping. The great thing about this card (aka “smart card”) is that you do not have to be eighteen to get one! If you are sixteen or older you can open your own account. If you are thirteen, fourteen, or fifteen you can still get an account in your name—as long as your parents sign with you. This card will give you the opportunity to start tracking your own money and let you build a history with a major credit card company.

Mostly A’s = Pre-funded Card

Page 22: Scary Statistics

Mostly B’s = Sales Credit (Gasoline or Store Credit Card)

It sounds like you have had some experience managing your own money. Good for you! As long as you are 18 years old or have a co-signer, a great first card for you might be a gasoline or store credit card. These cards are a good way to establish credit. They are usually easier to obtain than a bank credit card. Purchases are limited to the merchant that issues the card. It is a good idea to pay off the charges each month so you don’t get yourself in over your head. Pay the bill on time each month.

Page 23: Scary Statistics

Mostly C's = Bank Credit CardIt appears that you know how to manage your

spending well because you realize the responsibility of earning, saving, and owing money. As long as you are eighteen years old, a bank credit card might be right for you. Bank credit cards are exciting but come with a great deal of responsibility. With a bank credit card you can make purchases without paying for them immediately. Once you get your spending statement, you can make the minimum payment, the entire payment, or anywhere in between. It is important to know that if you do not pay your entire balance, you will pay interest on the money you still owe.

Page 24: Scary Statistics

Cash Credit = Payday Loans

*The borrower requests a loan for a short period of time, usually one to four weeks.*“Payday loan fee” - Up to 360% interest.*If the borrower continues to have a financial problems and cannot pay the loan as promised, the interest keeps building on the debt.

Page 25: Scary Statistics

How much credit can I use?The total amount of credit should not exceed

20% of one years NET income…If your credit card has a 20% interest, you make a

$1,000 purchase, and you choose to only pay the minimum monthly payments the entire time, it will take more than 20 years to pay that card off.

How much can a person borrow for a car if they makes $36,000 p/year net?

Answer: $7200 (net x .20)$7200/12 months= $600 a month!!!

(not including interest)

Page 26: Scary Statistics

Advantages of CreditStimulates the economyHelps us take care of emergenciesAllows us to take advantage of great dealsConvenient – ordering over the phoneEstablishes a credit ratingAdvance notice of sales and cash back on

purchasesEasier to exchange and return itemsDetailed monthly bill

Page 27: Scary Statistics

Disadvantages of CreditIt always costs moneyRisky to spend future incomeEncourages careless buying (Needs vs.

wants)Facilitates over-buying which increases

sacrifice that must be made eventuallyOften increases family conflictMay lead to BankruptcyIncreases the cost of doing business

Page 28: Scary Statistics

Other Options….Try a small loan from a credit unionAsk for pay in advance from your employerConsider a loan from family or friends, (be

sure to have the terms of the loan in writing)Use a credit card cash advanceRequest additional time to pay the bill from

your creditors.Pawn BrokersJust don’t borrow money!!!Or you could…

Page 29: Scary Statistics

Experts recommend that you pay yourself first by having a savings plan.

Savings Video

SAVE FOR IT

Page 30: Scary Statistics

The best time to start saving money was 20years ago, the 2nd best time is today.

Visualize yourself achieving your financial goals to help you save money for what you want to purchase.

Make savings a priority in your budget and never cut it when balancing a budget.

Keeping $500 - $1000 dollars in savings at all times will cover most unexpected expenses.

Trim variable expenses like shopping, food, entertainment, and transportation..

Catch the Money

Page 31: Scary Statistics

Saving Strategies Which money Savings plan will work for you?

Entertainment ClothingGo to matinees instead of

evening showsRent movies and make snacks

at home with friendsShare magazines, books, and

music subscriptions with friends

Check books out of the library instead of buying them

Buy used CD’s and movies instead of new ones

Use coupons and ID discountsWhat else…..

Wait to buy clothes on sale at your favorite stores

Buy clothing that can be washed rather than dry-cleaned

Buy at discount storesShop garage sales

and thrift storesWhat else……

Page 32: Scary Statistics

Food and Beverage TransportationPack your lunch or snacks

instead of buying food out everyday

Share a meal with a friend instead of buying separate meals

Drink water instead of soda at a restaurant

Use couponsJoin loyalty customer clubsWhat else….

Carpool, take a bus, walk ride a bike

Wash your car at home instead of paying for a car wash

Save gas by organizing errands more effectively

Get good grades and have good driving record to reduce the cost of car insurance

What else….

Page 33: Scary Statistics

Phones BankingUse e-mail or instant messages

instead of the phoneCell phone plans that have free

minutes and no roaming charges

Check bills for errorsChoose companies that friends

and family have to call for freeUse the phone during off-peak

hoursKeep a listing of numbers

instead of using 411What else….

Deposit money gifts into a saving account

Have savings automatically drafted from your paycheck

Avoid using ATM’s with surcharges

Have paycheck automatically deposited

Ask bank for free checkingDon’t bounce checksWhat else…

Page 34: Scary Statistics

Moral of the Story…Don’t spend more than you earn!!!

Use credit wisely!!!

Don’t get into debt!!!

SAVE YOUR MONEY

Page 35: Scary Statistics

SMITH FAMILY BUDGET or Compare credit cards profile sheet.

Page 36: Scary Statistics

Referenceshttp://en.wikipedia.org/wiki/Credithttp://www.bankhs.com/teachers/utah_bankru

ptcy.htmlhttp://www.utah.freebankruptcyevaluation.co

m/bankruptcy-statistics.htmlwww.Suzeorman.comUEN Data Base