Adviser Professional Development Webinar:
Financial Literacy
April 16, 2015
Sponsored by: Bank of America
Hosted by the: College Advising Corps Guest Speakers
• Wynne Lum • Connie Montaña • Rose Ann Djelmane Be er Money Habits™
Be er Money Habits™ overview
A resource that provides free objec ve, easy to understand financial educa on to help empower consumers to be informed and prepared to make financial choices • Partnership with educa on innovator Khan Academy • Content addressing cri cal financial topics for consumers • Engaging online learning experience at Be erMoneyHabits.com • Free resource for everyone, including you, your cons tuents, family and friends And now… • New content (ongoing) addressing key topics to our audiences • New Be erMoneyHabits.com site with enhanced user experience • Robust paid/earned/owned media campaign to get the word out
2 Our goal was to create a best in-class learning experience that is different from financial educa on sites today
From To
• A passive user experience • Personalized content experience by segment • Video centric approach and user journey • One size fits all • Guided experience plus “find it fast” pathways • Expanded content formats beyond video (i.e. tools, infographics, lis cles, ar cles, etc.) • Opportuni es for more frequent and deeper engagement (i.e. interac ve video, quizzes) • Point and rewards system as mo va on to keep going
3 BMH 2.0 offers a more ac ve learning experience encouraging ongoing engagement, with a best-in-class mobile-first design
4 5
Points, badges and progress add a layer of gamifica on to mo vate the person to stay engaged
Points are awarded for site- wide content consump on, comple on of goals or topics (subjects) and high-value engagement tasks such as ra ng/sharing content or providing feedback
Badges are awarded based on points accumulated and they reflect overall site rank/status
Progress can be monitored throughout the site and on the dashboard
7 How to use Be er Money Habits
• Self guided - Individuals visit the site and view the videos on their own me • Group viewing - Counselors, teachers and volunteers set up viewing sessions § Provided wi-fi and computers are available • Supplement lessons to enhance financial educa on lessons - Financial educa on presenters cite specific videos that will reinforce lessons • Suggest videos aligned to life events - Now is a good me to discuss taxes - Be careful about spending too much for Easter • Distribute informa onal flyer How to prepare a budget and stick to it Agenda
Having control over your money is important, both for your financial well-being and for your peace of mind. In this presentation, you'll learn about preparing a budget to help you better manage your money and achieve your financial goals.
• Why it’s important to have a budget • Setting financial goals • Making a plan • The steps involved in preparing a realistic budget • Finding ways to save money • Additional information & resources
2 Why it’s important to have a budget
A budget is a spending and savings plan, consisting of one simple equation:
Total monthly income
3 Why it’s important to have a budget
A budget is a spending and savings plan, consisting of one simple equation:
Total Total monthly monthly income expenses
4 Why it’s important to have a budget
A budget is a spending and savings plan, consisting of one simple equation:
Total Total Amount monthly monthly over/ income expenses under
5 Why it’s important to have a budget
A budget is a spending and savings plan, consisting of one simple equation:
Total Total Amount monthly monthly over/ income expenses under
• Having a budget can help you: - Control your finances - Reduce expenses - Save money - Pay down debt - Determine your debt-to-income ratio
6 Setting financial goals
• Before looking at any numbers, ask yourself, “Why do I want to create a budget?” • Get everyone in your household involved and ask for support • Set goals and categorize them as short, medium, or long-term
Short-term (within 2 years) Payoff a credit card
7 Setting financial goals
• Before looking at any numbers, ask yourself, “Why do I want to create a budget?” • Get everyone in your household involved and ask for support • Set goals and categorize them as short, medium, or long-term
Short-term Medium-term (within 2 years) (within 5 years) Payoff a credit card Grow your savings
8 Setting financial goals
• Before looking at any numbers, ask yourself, “Why do I want to create a budget?” • Get everyone in your household involved and ask for support • Set goals and categorize them as short, medium, or long-term
Short-term Medium-term Long-term (within 2 years) (within 5 years) (More than 5 years) Payoff a credit card Grow your savings Save for a down payment on a house
9 Making a plan
• Prepare a budget that is realistic and flexible • Create a plan that fits your lifestyle and financial goals
General recommended budget percentages
Category Percentage of income Housing 27% Food 21% Personal debt 14% Transportation 8% Savings 7% Utilities 6% Insurance 6% Clothing 4% Personal care 3% Health 3% Misc Items 1%
Source: Alexis Holloway. “How do you feel about your savings plan?” Blogging for Change. Money Management International. April 16, 2010.
10 The steps involved in preparing a realistic budget Step 1: Determine your income
Look at what money you have coming in: • Gather information on all household income that is received on a regular basis • Do not include income that is not reliable or that may be irregular
What income should I include? • Employment • Social Security • Retirement • Rental • Alimony or child support • Unemployment benefits
12 Step 1: Determine your income
Look at what money you have coming in: • Gather information on all household income that is received on a regular basis • Do not include income that is not reliable or that may be irregular
What income should I include? What income should I leave out? • Employment • Income not received on a regular • Social Security basis • Retirement • Discretionary bonus that is not • Rental guaranteed • Alimony or child support • Legal settlements that are not • Unemployment benefits finalized • Alimony or child support that is not received on a regular basis
13 Step 2: Determine your fixed expenses
Fixed expenses generally stay the same each month and may not be easy to adjust.
Fixed expenses • Mortgage or rent payment • Car payment • Student loan payment • Insurance • Property taxes and homeowners insurance (if applicable)
14 Step 3: Determine your variable expenses
Variable expenses can change on a daily, weekly, monthly, or annual basis and have the most flexibility for adjustment • Also includes optional expenses: things that you want versus what you need
Variable expenses • Groceries • Credit cards • Gasoline • Utilities • Entertainment • Cable television • Personal care items
15 Step 4: Prioritize
• Identify expenses that could be eliminated or reduced • Set goals as to how extra cash will be used, such as to pay off debt or to save money • Pay yourself first — save!
16 Step 4: Prioritize
• Identify expenses that could be eliminated or reduced • Set goals as to how extra cash will be used, such as to pay off debt or to save money • Pay yourself first — save!
17 Step 5: Follow your spending
• Follow your daily, weekly and monthly spending with a system that works best for you, such as a daily spending diary:
• Determine your debt-to-income ratio (how much you owe vs. what you earn) to get an idea of how much of your income goes toward paying existing debt • Use your housing-to-income ratio to find out how much house you can comfortably afford by estimating your monthly mortgage payment
18 Step 6: Keep track of and stick to your budget
• Develop a budget system that works for you and will help you stick to your budget
• Your budget system should help you: - Track your spending so you know where your money is going - Plan for the following month’s expenses - Pay your bills on time
• Consider: - Online tools such as My Portfolio, Bank of America’s online tool for budgeting and tracking - Smart phone or tablet applications - Traditional systems such as the Envelope system
Readjust your budget when you have unexpected expenses
19 Finding ways to save money Food
• Prepare more home-cooked meals • Bring your lunch to school and work • Bring a shopping list to the grocery store • Shop during sales • Use coupons • Buy generic or store brands
21 Transportation
• Comparison shop for gas • Use public transportation • Carpool to work or school to save on total commuter cost, including monthly parking fees • Buy a used car instead of a new one • Shop competitive insurance offers • Keep up with regular car maintenance
22 Utilities
• Weather-proof your home • Adjust thermostat settings • Turn things off • Use energy efficient appliances and light fixtures • Monitor utility bills for fluctuations • Shop competitive service providers • Reduce service features • Avoid late fees
23 Personal care
• Explore exercise options for the better deal - Example: exercise group versus gym membership • Use at-home cosmetic or skin-care products instead of paying for salon care • Read clothing labels to determine what can be washed at home instead of dry cleaned
24 Health
• Keep fit and eat a healthy diet to help avoid costly medical expenses • Visit your doctor and dentist annually for preventative care • Understand your insurance deductible and copayment arrangements • Visit “in-network” doctors to lower healthcare costs • Look into flexible spending health care accounts offered through your employer
25 Additional information and resources Tips for paying off debt
• Prioritize debt you want to pay off first • Pay more than the monthly minimum Reallocate extra money and adjust your budget • Use unexpected income to pay down debt - Bonuses, cash gifts, tax returns • Consider using a snowball debt re-education method - Pay off debts with low balances first
27 Keys to success
• Establish a budget that is realistic and fits your goals and lifestyle • Track and monitor your progress • Control your use of credit cards • Carry your written savings goals with you as a reminder • Shop around to get the best deal on big-ticket items, such as cars and appliances Make revisions and adjustments when necessary • Look into online tools and resources • Keep your plan and goals top-of-mind • Stay motivated — don’t give up when unexpected setbacks occur
28 Resources
• To find out more about home financing, prequalify for a mortgage loan* or talk to a Bank of America loan expert: - Home Loan Guide at bankofamerica.com/homeloaneducation
• For additional online financial education: - Better Money Habits at bettermoneyhabits.com - FDIC Money Smart: Learn more about budgeting, saving and investing - Visit: fdic.gov Home Consumer Protection Financial Education & Literacy Money Smart - A Financial Education Program
• Find a Nonprofit Housing Counseling Agency at HUD.gov; on the site select “Resources,” then select “HUD Approved Housing Counseling Agencies”
• Have more questions about what you learned today? Email us at: [email protected]
* Prequalification is neither preapproval nor a commitment to lend; you must submit additional information for review and approval.
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Understanding and managing your credit Overview
Understanding how credit works and how it affects your chances of getting approved for a loan is important. In this presentation, you’ll learn helpful ways to manage, rebuild and maintain good credit.
Topics covered: 1. What is credit? 2. Understanding your credit report 3. Understanding your credit score 4. Checking your credit report and credit score 5. The importance of credit 6. Maintaining good credit 7. Resources
2 What is credit? What is credit?
• Credit is the act of borrowing money or obtaining a service before payment with the promise to pay in the future
• Two types of credit: traditional and non-traditional
Traditional credit Non-traditional credit When you borrow money from When you make periodic payments a financial institution and your on a regular basis to parties other repayment history is reported than normal credit grantors that to the major credit reporting agencies. do not usually report to the credit reporting agencies.
4 Four types of credit accounts
Revolving Credit • Most credit cards
5 Four types of credit accounts
Revolving Credit Installment Credit • Most credit cards • Mortgage • Car loan
6 Four types of credit accounts
Revolving Credit Installment Credit • Most credit cards • Mortgage • Car loan
Charge Cards • Traditional American Express®
7 Four types of credit accounts
Revolving Credit Installment Credit • Most credit cards • Mortgage • Car loan
Charge Cards Service Credit • Traditional • Rent American Express® • Utilities • Insurance • Cell phone
8 Understanding your credit report Understanding your credit report
Your credit report is like your financial report card, showing both good and bad grades. There is detailed information about your traditional credit history, and how many credit accounts you have.
What’s in your credit report?
Identifying Information • Name, birth date, Social Security number, address, employment history
10 Understanding your credit report
Your credit report is like your financial report card, showing both good and bad grades. There is detailed information about your traditional credit history, and how many credit accounts you have.
What’s in your credit report?
Identifying Information Trade Lines • Name, birth date, Social • Credit limits, current Security number, address, balances, payment history employment history • Dates when accounts were opened, loan terms
11 Understanding your credit report
Your credit report is like your financial report card, showing both good and bad grades. There is detailed information about your traditional credit history, and how many credit accounts you have.
What’s in your credit report?
Identifying Information Trade Lines • Name, birth date, Social • Credit limits, current Security number, address, balances, payment history employment history • Dates when accounts were opened, loan terms
Credit Inquires • Who’s been looking at your credit file • Includes voluntary and involuntary inquires
12 Understanding your credit report
Your credit report is like your financial report card, showing both good and bad grades. There is detailed information about your traditional credit history, and how many credit accounts you have.
What’s in your credit report?
Identifying Information Trade Lines • Name, birth date, Social • Credit limits, current Security number, address, balances, payment history employment history • Dates when accounts were opened, loan terms
Credit Inquires Public Information • Who’s been looking at • Liens, judgments your credit file • Includes voluntary and involuntary inquires
13 Understanding your credit score Understanding your credit score
• A credit score is a number assigned by credit reporting companies based on information available on your credit report • Many lenders use the FICO® Score which ranges from 300 to 850
What is a good FICO® credit score?
Below average 650
300
15 Understanding your credit score
• A credit score is a number assigned by credit reporting companies based on information available on your credit report • Many lenders use the FICO® Score which ranges from 300 to 850
What is a good FICO® credit score?
Average 720 Below average 650
300
16 Understanding your credit score
• A credit score is a number assigned by credit reporting companies based on information available on your credit report • Many lenders use the FICO® Score which ranges from 300 to 850
What is a good FICO® credit score?
Good
Average 780 720 Below average 650
300
17 Understanding your credit score
• A credit score is a number assigned by credit reporting companies based on information available on your credit report • Many lenders use the FICO® Score which ranges from 300 to 850
What is a good FICO® credit score? Excellent Good 850 Average 780 720 Below average 650
300
18 Understanding your credit score
How your FICO® score breaks down:
Payment history 15% 35% 10% 10%
30%
Source: www.myFICO.com
19 Understanding your credit score
How your FICO® score breaks down:
Payment history 15% 35% 10% 10%
30%
Amounts owed
Source: www.myFICO.com
20 Understanding your credit score
How your FICO® score breaks down:
Length of credit history Payment history 15% 35% 10% 10%
30%
Amounts owed
Source: www.myFICO.com
21 Understanding your credit score
How your FICO® score breaks down:
Length of credit history Payment history 15% New credit 35% 10%
30% 10%
Amounts owed
Source: www.myFICO.com
22 Understanding your credit score
How your FICO® score breaks down:
Length of credit history Payment history 15% New credit 35% 10%
10% Types of credit 30%
Amounts owed
Source: www.myFICO.com
23 Checking your credit report and credit score Checking your credit report and credit score
• You can request a free credit report once a year from each of the three major credit reporting agencies; additional charges apply when requesting actual credit score
• Three ways to order your free credit report - Online: visit www.annualcreditreport.com - By phone: Call 1.877.322.8228 - By mail: Credit Report Request P.O. Box 105281 Atlanta, GA 30348-5281
• The three major credit reporting agencies: - TransUnion® — www.transunion.com or 1.800.888.4213 - Experian® — www.experian.com or 1.888.397.3742 - Equifax® — www.equifax.com or 1.800.685.1111
25 Correcting errors on your report or reporting identity theft
Filing a dispute Identity theft • You have the right to have errors • Report identity theft if you discover corrected for free, file a dispute if illegal use of your personal information you find an error or any inaccuracies • Contact the creditor immediately to • Work with the credit reporting agency start an investigation and creditor to correct mistakes • Consult with your creditor to freeze • Credit reporting agencies have 30 days or close the account to respond to a dispute • Place a fraud alert on your credit report • File a police report • Contact the Federal Trade Commission website and download the ID Theft Report - www.ftc.gov - 1.877.382.4357
26 Importance of credit Importance of credit
Good credit is necessary for making major purchases, increasing convenience, obtaining services, saving money and increasing your marketability
28 Who’s looking at your credit
Lenders
Lenders use credit to evaluate your ability to pay debt and determine interest rates
29 Who’s looking at your credit
Insurance Lenders providers
Lenders use credit Insurance providers to evaluate your use credit to ability to pay debt evaluate risk and determine and determine interest rates premiums
30 Who’s looking at your credit
Insurance Service Lenders providers providers
Lenders use credit Insurance providers Service providers to evaluate your use credit to use credit to ability to pay debt evaluate risk evaluate your and determine and determine ability to pay interest rates premiums service costs
31 Who’s looking at your credit
Insurance Service Lenders Employers providers providers
Lenders use credit Insurance providers Service providers Employers evaluate to evaluate your use credit to use credit to credit during ability to pay debt evaluate risk evaluate your background checks and determine and determine ability to pay and may use it interest rates premiums service costs to determine employment eligibility
32 Credit requirements when applying for a mortgage loan1
• Your credit score must be based on: - 24 months of credit history - At least three total open or closed trade lines with 12 month history - One to three open trade lines
• Non-traditional forms of credit may be obtained to create a credit file without a traditional credit history or to supplement a traditional credit file that has less than three trade lines
• Non-traditional credit requirements: - 12-month credit history with at least four different credit sources - At least one source of non-traditional credit must be housing related - Borrowers may need to complete a homebuyer education course
1 This information is subject to change and requirements may differ with other lenders.
33 Maintaining good credit Good credit, poor credit, no credit
Good credit history
A record of paying what you owe in a timely manner and using credit responsibly
Poor credit history
A record of not paying bills on time and allowing debt to build up
No credit history
No official record of borrowing money or using a credit card, so a lending institution is unable to evaluate your repayment history
35 Maintaining good credit – DOs
• Pay bills on time • Reduce the amount of debt, stay below 25% utilization • Establish a household budget • Apply for new credit only when really needed • Keep old accounts open • Have a sensible mix of credit types • Order your credit report at least once per year • Review your report and correct any errors or inaccuracies • Check your monthly account statements to verify transactions • Report suspected fraud or identify theft • If you are denied credit, understand the reason(s) why • When rate shopping for a large purchase do so in a 2-3 week window
36 Maintaining good credit – DON’Ts
• Don’t apply for unnecessary credit • Don’t max-out credit cards • Don’t cosign on a loan unless you are willing and able to make payments on the loan yourself
Protect yourself against identify theft • Don’t carry extra credit cards, your birth certificate, passport or Social Security number with you unless necessary • Don’t throw away documents such as preapproved credit card offers before shredding • Don’t print your Social Security number on your checks and only give it when absolutely necessary
37 Managing your credit utilization
• Credit utilization is a ratio of your outstanding credit balances to your credit limits • Credit scores evaluate both individual credit card utilization as well as your overall credit utilization
Calculating your credit utilization ratio:
$100 $800 100 12.5%
Current balance Credit limit Multiply by 100 to Credit utilization get a percentage
38 Credit information and estimated time reported
Estimated amount of time Type of credit information it can be reported As long as it continues to be reported to the Positive information — such as timely payments credit reporting agencies Open lines with balance greater than $0, 3 years if no updates received within 3 years Late payments of 30 days or more 7 years from the date delinquency is reported Credit and collection accounts 7 years from the date of the last entry Court records 7 years from the date filed Chapter 13 bankruptcy 7 years from the date filed 10 years from the date filed, even if eventually Chapter 7 and 11 bankruptcies dismissed or discharged Public record – unpaid liens 15 years 7 years from the original delinquency date, Negative credit information — such as late except for bankruptcies and other exclusions payments and delinquent accounts noted above
*Information provided by the three credit reporting agencies. Note: Some judgments can be renewed and therefore may remain on your credit report for a longer period of time than noted in this chart.
39 Resources Resources
• FICO® – myFICO.com
• National Foundation for Credit Counseling – nfcc.org or 1.800.388.2227
• Federal Trade Commission (FTC) – ftc.gov - Opt-out of pre-approved credit offers – 1.888.5.OPTOUT (567.8688)
• Find a Nonprofit Housing Counseling Agency at HUD.gov; on the site select “Resources,” then select “HUD Approved Housing Counseling Agencies”
• Have more questions about what you learned today? Email us at - [email protected]
41 Educational resources
• To find out more about the home loans process, prequalify for a mortgage loan or talk to a Bank of America loan expert: - Home Loan Guide at bankofamerica.com/homeloaneducation
• For additional online financial education: - Better Money Habits at bettermoneyhabits.com
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