Georgia Council on Economic Education

Georgia Council on Economic Education
Investor Education Financial Fitness for Life and LELAND GUSTAFSON CENTER FOR ECONOMIC EDUCATION UNIVERSITY OF WEST GEORGIA Georgia Council on Economic Education w w w . g c e e . o r g 1

Economic and Financial Literacy is Important
Citizens must understand basic economics to: Fully participate in our nation’s market economy. Understand policy issues and cast informed votes in federal and state elections. Citizens must understand personal finance to: Plan for retirement. Make saving and investing choices. Purchase insurance. Buy a home.

Why is K-12 financial education so important?
More than ever there is a need for our citizens to have at least a basic knowledge of economics and financial management. If people cannot make well-informed and sound personal finance decisions, how are they to make well-informed and sound public policy decisions? Georgia Council on Economic Education w w w . g e e e . o r g

Why is K-12 financial education so important
Americans have approximately $1 trillion in revolving credit card debt. - half make the minimum monthly payment. Nationally, those under 25 are the fastest- growing age group filing for personal bankruptcy. Georgia Council on Economic Education w w w . g c e e . o r g

Why Invest? Time is on your side. Stock prices rise over time.
Beat inflation. Overtime, investments in stock have good returns.

Why Invest? You can earn income. Owning stock is like a job.
Rewards last a lifetime. Investing provides good assets Stocks, bonds, mutual funds

Why Invest? Own corporate America-it’s not greed.
Investing helps companies to grow and provide more jobs and income. Investing helps create new goods and services for consumers.

But, It’s Scary Out There

Why Worry? I have all the money I’ll ever need…
As long as I die at 4:00 p.m. today. Henny Youngman

The Problem of Economic and Financial Literacy…
Georgia Council on Economic Education w w w . g c e e . o r g

Do You Need a Reason to Save for Retirement

Saving is a very fine thing. Especially when your parents do it for you. --Sir Winston Churchill Georgia Council on Economic Education w w w . g c e e . o r g

About 8 of 10 Americans are comfortable with the level of financial planning they are currently doing. Source: Federal Reserve Bank, St. Louis Georgia Council on Economic Education w w w . g c e e . o r g

34% have not begun to prepare for retirement. 23% save nothing for long term goals. 25% do not know how much they are saving. Georgia Council on Economic Education w w w . g c e e . o r g

On average, Americans expect to retire at age 61 and live to 83. Georgia Council on Economic Education w w w . g c e e . o r g

Overall levels of economic understanding are low. (Average score of out of 40 in recent national test.) -Jump$tart Coalition Georgia Council on Economic Education w w w . g c e e . o r g

Personal Bankruptcy Filings, 2009
State Rate (# of households in state per bankruptcy) % Change (over 2008) 1 – Nevada 35.2 61% 2 – Tennessee 48.5 15% 3 – Georgia 50.3 22% 4 – Alabama 56.7 20% 5 – Indiana 57.2 6 – Utah 62.0 57% 7 – Michigan 62.5 26% 8 – California 66.0 59% 9 – Ohio 70.5 10 – Illinois 71.9 32% Georgia Council on Economic Education w w w . g c e e . o r g

Foreclosure Rates are Way Up
Georgia is 6th in the Nation Georgia Council on Economic Education w w w . g c e e . o r g

what are your Questions ?

Source: Federal Reserve Bank, St. Louis
Credit Card Use in Atlanta Average Atlanta – 3 open credit cards (down from 4 in 2007), but total balance on cards is higher Across 20 metro areas – Atlanta is #1 with avg balance at $6,753 In 2007 it was $7,114 Credit Scores in Georgia below the national average Source: Federal Reserve Bank, St. Louis Georgia Council on Economic Education w w w . g c e e . o r g

High School Students and Credit Cards
Credit card companies have been marketing aggressively to young people. 11.1 % of teens have a credit card. (JA, 2005)

College Students and Credit Cards (Sallie Mae, 2009)
College students report having an average of 4.6 credit cards. Half have four or more. Seniors graduate with more than $4,100 in credit card debt, up from $2,900 in 2004. Only 17% said they regularly paid off all the cards each month. The remaining 82% carried balances and incurred finance charges each month. 84% said they need more education on financial management topics.

College Students and Loan Debt
30% of college students with loans drop out without a degree Members of the class of 2011 graduated with an average of $26,600 in student loan debt One-third of parents are more comfortable talking with their kids about smoking, drugs, and bullying than about money Bankrate.com, 2014

Unbanked Households (Federal Reserve Bank of Chicago)
About 10 million households are unbanked. Over 57% of unbanked households are minority households.

What Does It Mean to be “Unbanked?”

Where Do the Unbanked Go For Financial Services? Georgia Council on Economic Education w w w . g c e e . o r g

But when students have personal finance instruction they are…
More likely to display positive financial behaviors and dispositions More likely to save Less likely to max out their credit cards More likely to pay off credit cards in full each month Less likely to make late credit card payments Less likely to be compulsive buyers Bankrate.com, 2014

So What Can We Do About All of This?
Option #1

Option #2

what are your Questions ?

What is $200 per Month Worth
ANNUAL RATE OF RETURN ON INVESTMENTS YRS 3.00% 6.00% 8.00% 10.00% 12.00% 16.00% 5 12,962 14,024 14,793 7,808 16,497 18,450 10 28,018 32,940 36,833 41,310 46,468 59,294 15 45,508 58,455 69,669 83,585 100,915 149,716 20 65,825 92,870 118,589 153,139 199,830 349,892 25 89,425 139,292 191,473 267,578 379,527 793,044 30 116,839 201,908 300,059 455,865 705,983 1,774,095 35 148,684 286,367 461,835 765,655 1,299,054 3,945,954 40 185,675 400,290 702,856 1,275,356 2,376,484 8,754,030 45 228,645 553,955 1,061,941 2,113,971 4,333,848 19,398,181 If you are 25 years of age and wait 5 more years before you start to save( at 10%), by age 65 you will have (1,275, ,655) = $509,710 less accumulated wealth. Not saving $12,000 (2400 x 5) during the next 5 years (age ) You are giving up $509,710 at retirement. Georgia Council on Economic Education w w w . g c e e . o r g

S&P 500 Annual Returns Since 1954 (includes reinvestment of dividends)
2013 32.10% 1993 10.17% 1973 -15.03% 2012 15.88% 1992 7.60% 1972 19.15% 2011 2.07% 1991 30.95% 1971 14.54% 2010 14.32% 1990 -3.42% 1970 3.60% 2009 27.11% 1989 32.00% 1969 -8.63% 2008 -37.22% 1988 16.64% 1968 11.03% 2007 5.46% 1987 5.69% 1967 24.45% 2006 15.74% 1986 19.06% 1966 -10.36% 2005 4.79% 1985 32.24% 1965 12.45% 2004 10.82% 1984 5.96% 1964 16.59% 2003 28.72% 1983 23.13% 1963 23.04% 2002 -22.27% 1982 21.22% 1962 -9.20% 2001 -11.98% 1981 -5.33% 1961 28.51% 2000 -9.11% 1980 32.76% 1960 -0.74% 1999 21.11% 1979 18.69% 1959 11.59% 1998 28.73% 1978 6.41% 1958 43.40% 1997 33.67% 1977 -7.78% 1957 -9.30% 1996 23.06% 1976 24.20% 1956 6.38% 1995 38.02% 1975 38.46% 1955 28.22% 1994 1.19% 1974 -26.95% 1954 55.99% Georgia Council on Economic Education w w w . g c e e . o r g

STOCK MARKET RETURNS (CAGR) S&P 500
Compounded Annual Growth Rate S&P 500 Number of Years Invested Ending 40 35 30 20 10 5 2013 10.99% 11.98% 11.11% 9.18% 7.29% 17.82% 2012 9.77% 11.29% 10.85% 8.19% 7.01% 1.53% 2011 9.85% 10.57% 11.02% 7.79% 2.82% -0.36% 2010 10.16% 11.19% 10.74% 9.14% 1.31% 2.17% 2009 9.89% 11.80% 8.23% -0.99% 0.41% 2008 8.99% 10.04% 11.04% 8.43% -1.47% -2.31% 2007 10.55% 11.00% 13.01% 11.84% 5.87% 12.78% 2006 11.01% 11.39% 12.50% 11.86% 8.41% 6.10% 2005 10.31% 11.35% 12.77% 12.01% 9.08% 0.45% 2004 10.50% 11.32% 13.82% 13.32% 12.12% -2.37% 2003 10.64% 10.71% 12.25% 13.07% -0.62% 2002 10.52% 10.24% 12.82% 9.39% 2001 10.95% 11.73% 12.29% 15.35% 10.76% 2000 12.00% 11.79% 13.28% 15.78% 17.59% 18.44%

Amount Invested Per Month
INVESTING IN THE STOCK MARKET - SINCE 1914 ie,. Buying the 500 largest U.S. companies (S&P 500) Amount Invested Per Month Ended 40 Years/Mo 100 250 500 40 Year Best 1989 12.56% 1,418,343 3,545,857 7,091,714 Worst 1968 8.83% 448,739 1,121,847 2,243,695 MED 10.77% 807,797 2,019,493 4,038,986 Bank 3.00% 92,837 232,094 464,187 30 30 Year 2004 13.82% 533,105 1,332,763 2,665,527 1946 7.50% 135,670 339,174 678,349 10.76% 268,310 670,774 1,341,548 58,419 146,048 292,097 20 20 Year 1999 17.99% 234,001 585,003 1,170,007 1948 3.09% 33,226 83,066 166,132 10.93% 86,524 216,311 432,622 32,912 82,281 164,561 10 10 Year 1958 20.07% 38,409 96,023 192,046 2008 -1.47% 11,154 27,886 55,772 9.95% 20,594 51,486 102,972 14,009 35,023 70,045 10.27% is the CAGR since (99 years) Compounded Annual Growth Rate

How to Really Be a Millionaire

The Millionaire Game Most millionaires are college graduates. True: 4 of 5 millionaires are college graduates. 2. A majority of millionaires work fewer than hours a week. False: About 2/3 of millionaires work 45 to 55 hours a week. 3. More than half of all millionaires never received money from a trust fund or estate. True: Only 19 % of millionaires received any income or wealth of any kind from a trust fund or an estate. Georgia Council on Economic Education w w w . g c e e . o r g

The Millionaire Game More millionaires have American Express Gold Cards than Sears Cards. False: Only 28.6 % on millionaires have Amex Gold Cards while 43% have Sears credit cards. More millionaires drives Fords than Cadillacs. True: Ford is preferred by 9.4% and Cadillac by 8.8 %. Georgia Council on Economic Education w w w . g c e e . o r g

The Millionaire Game 6. Most millionaires work in glamorous jobs such as sports, entertainment, or high tech. False: A majority of millionaires are in ordinary industries and jobs. 7. Most millionaires work for big Fortune 500 companies. False: About 3 out of 4 millionaires are self employed and consider themselves to be entrepreneurs. Most of the others are professionals, such as doctors, accountants and lawyers. Georgia Council on Economic Education w w w . g c e e . o r g

The Millionaire Game 8. Many poor people become millionaires by winning the lottery. False: Very few people get rich the easy way. If you play the lottery, the chances of winning are about 1 in 278 million. The average person who plays the lottery every day would have to live about 761,000 years to win once. You have a 1 in 66,000 chance of being struck by lightning IN FLORIDA A pregnant woman has a 1 in 705, 000 chance of have quadruplets Georgia Council on Economic Education w w w . g c e e . o r g

The Millionaire Game 9. College graduates earn about 65% more than high school graduates. True: recently the average college grad earned 66% more than the average high school grad. Folks with professional degrees earned 150% more than the HS grad. 10. If an 18 year old H.S. graduate spends as much as a H.S. dropout until both are 67 years old, but the HS graduate invests the difference in his or her earnings at 8% annual interest, the high school graduate would have $5,500,000. True: This is a dramatic illustration the value of a high school education and investing early and over a long period. The difference in earnings is $8k a year at age 18 and assumes a 1.5% increase in income per year. Georgia Council on Economic Education w w w . g c e e . o r g

The Millionaire Game 11. Day traders usually beat the stock market and many become millionaires. False: Recent studies show that about 80% of day traders lose money. 12. If you want to be a millionaire avoid the risky stock market. False: Long term, the S&P 500 index has increased at more than 10 % annually which exceeds any other investment. Georgia Council on Economic Education w w w . g c e e . o r g

The Millionaire Game 13. At age 18, you decide not to smoke and save $1.50 a day……..At age 67, your savings are worth almost $300,000. True: the power of compound interest. Small and steady investments make a big difference over time. 14. If you save $2000 per year from age 22 to age 65 at 8% annual interest, your savings will be over $700,000 at age 65. True: Because of compound interest, the earlier you begin saving the better. Regular saving will make you a millionaire even if your salary is modest. Georgia Council on Economic Education w w w . g c e e . o r g

The Millionaire Game 15. Single people are more often millionaires than married people. False: Most millionaires are married and stay married. Financially speaking, divorce is something you want to avoid. Georgia Council on Economic Education w w w . g c e e . o r g

Rules for Improving Your Financial Life
Get a good education Work long, hard, and smart Learn money-management skills Live below your means Buy a home (you can afford) Save early and often Invest in common stocks for the long term (diversify) Gather information before making decisions Get married and stay married Georgia Council on Economic Education w w w . g c e e . o r g

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The Basics Stock- An ownership share, or shares of ownership, in a corporation. Georgia Council on Economic Education w w w . g c e e . o r g

Can You Buy Stock in or Georgia Council on Economic Education w w w . g c e e . o r g

The Different Markets New York Stock Exchange The oldest stock exchange in the United States, founded in 1792 and stocks are still traded on the floor. Traditionally for large corporations with large volumes of shares. Georgia Council on Economic Education w w w . g c e e . o r g

NASDAQ An electronic marketplace enabling buyers and sellers to get together via computer to trade stocks. Traditionally high-tech firms that are very active. Created in 1971. Georgia Council on Economic Education w w w . g c e e . o r g

American Stock Exchange (AMEX) Located in New York, handles about 10% of all securities exchange. Has mostly small-cap stocks, exchange-traded funds and derivatives. Georgia Council on Economic Education w w w . g c e e . o r g

National Rules $100,000 to Invest for 10 Weeks NYSE AMEX NASDAQ Must Purchase Minimum of 10 Shares Minimum Share Price of $3 4 pm Closing Price (not real-time) Georgia Council on Economic Education w w w . g c e e . o r g

Georgia 3x3x3 Rules Purchase a stock before end of third week Must purchase at least three stocks Must hold three stocks for 3 weeks Georgia Council on Economic Education w w w . g c e e . o r g

National Rules Hardest thing to do? Get teams to spend the $100,000! .75% Interest Earned on Unspent Cash 1% Transaction Fee (all transactions) 7% Interest Charged on Margin Loans Georgia Council on Economic Education w w w . g c e e . o r g

Teaching “Stuff” Student- “What stock should I buy?” Me- “If I knew the answer to that I would not be in this classroom with you. I would be living here and paying someone to count my money.” Georgia Council on Economic Education w w w . g c e e . o r g

Teaching “Stuff” $7.00 per team fee No fee if you are a Title 1 school No fee for any school in Atlanta City, Decatur City, Fulton County, DeKalb County Teams of 3-5 students (suggested) Georgia Council on Economic Education w w w . g c e e . o r g

Teaching “Stuff” Teams of 3-5 (recommend friends) Do not liquidate portfolio on the last day Rankings posted weekly Grading activities, not profit/loss Awards by region and state – luncheon for all winners in May Georgia Council on Economic Education w w w . g c e e . o r g

Winning Team Highest Portfolio Value (total Equity) Regional Winners – school districts Carroll Co. - Carrollton City – Independent Students get T-Shirts Go to Atlanta (underground) winners lunch State Winner Team Trophy Teacher gets week in NYC Georgia Council on Economic Education w w w . g c e e . o r g

Invest for 10 Weeks October 6 to December 12 Real World never invest for just 10 weeks Strategy to win the game Buy low cost & highly volatile stocks Not a strategy for retirement or LT investing Georgia Council on Economic Education w w w . g c e e . o r g

How to Win Select stock kids are familiar with; NIKE Buy at $100/share 1000 shares with $100,000 Price rises to $102/share Account increases by $2,000 Select stock with a lot of volatility; XYZ Buy at $10/share 10,000 shares with with 100,000 Price rises to $12/share Account increases by $20,000 Georgia Council on Economic Education w w w . g c e e . o r g

SMG Buy ↑ Sell [Long position] Short Sell ↓ Short Cover [Short position] Georgia Council on Economic Education w w w . g c e e . o r g

Your friend loans you this- Georgia Council on Economic Education w w w . g c e e . o r g

You immediately turn around and sell the thing for $ (the $ goes in your pocket) Georgia Council on Economic Education w w w . g c e e . o r g

What do you owe your friend at this point? Georgia Council on Economic Education w w w . g c e e . o r g

You expect leather briefcases to be on clearance sale at Macy’s for $150.00 Georgia Council on Economic Education w w w . g c e e . o r g

When they go on sale, you buy your friend a new briefcase for $ She gets her briefcase back and you just made $50.00! Georgia Council on Economic Education w w w . g c e e . o r g

Your broker loans you this- Georgia Council on Economic Education w w w . g c e e . o r g

You immediately turn around and sell it for $40.00/shr x 100 shrs or $4,000 (the $4,000 goes in your pocket) Georgia Council on Economic Education w w w . g c e e . o r g

What do you owe your broker at this point? Georgia Council on Economic Education w w w . g c e e . o r g

You expect the CDC to announce that Coke causes cancer… …so you wait. Georgia Council on Economic Education w w w . g c e e . o r g

Instead, the CDC announces that Coke cures cancer! What happens to the price of Coke stock? Maybe goes up to $200/shr Georgia Council on Economic Education w w w . g c e e . o r g

The Risk of Short Selling?
If the price of the stock goes up before you return the stock to your broker, you will loose money. (must buy back at $200/shr Therefore lose $160/shr (For 100sh that’s a $16,000 loss) Georgia Council on Economic Education w w w . g c e e . o r g

Buy on Margin Initial Margin is 67% Margin = Portfolio Value (PV) – Loan (L) Margin/PV = margin as a % of PV >= 67% Eg ,000 pv PV – L >= .67 100,000 loan PV 100,000 margin L <= .33 PV PV = Stock + Cash Georgia Council on Economic Education w w w . g c e e . o r g

Margin Call If your collateral (portfolio value) decreases your broker (lender) may want more collateral (will make you sell stock) Game Maintenance Margin (MMR) is 30% ie., Margin = (PV – L) > = .30 PV or LOAN <=.70PV This requires a minimum PV > 1.43 (Loan) If you fall be low the MMR you get a Margin Call Must then (within 3 weeks) sell stock Georgia Council on Economic Education w w w . g c e e . o r g

What are Your Questions?

To Login into the SMG: or gcee.org Georgia Council on Economic Education w w w . g c e e . o r g

SIA_2_A207 •••••• Georgia Council on Economic Education w w w . g c e e . o r g

Add number of classes Add number of teams within classes

For Teachers (gcee.org)
Teacher Support Center FAQ – need 1 computer in room View Teacher Classroom Experience Grading Tip - Photo of each Team - - rank on wall by P.V. If Something Goes Wrong Call Barbara Futrell or Georgia Council on Economic Education w w w . g c e e . o r g

How to Find Good Stocks Screening For Stocks
1. This site lists the largest 10 holdings of an untra small cap mutual fund that has had an average return of 26 % per year for 5 years ending in Feb. 2014 2. This site lists the top % price gainers from the day before. Also, in the left column you can also select the top % price loosers from the day before. A good list to find potential 100 % gainers over the next ten weeks 3. This site allows you to set criteria for stock you want Price, P/E, Max Market Cap, etc

magicformulainvesting.com westga.edu/~lvg/SMGPP2014.ppt Georgia Council on Economic Education w w w . g c e e . o r g

Questions? Georgia Council on Economic Education w w w . g c e e . o r g

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