1. It was the worst of times
Money 101
A Tale of two insects
2012
It was the best of time
It was the worst of times

2. They have the same financial situation
Mr Grasshopper & Mr Ant
Each make $4,000 per month income
Taxes take $1,000
Insurance, utilities and other necessities take another $1,000
Rent takes another $1,000
Both owe $25K in college loans from IU (Insect U)

3. College loan of $25K
The lender changes 6%, but does not require payments on it for the first 5 years (though the loan will compound during that time)

4. Compounding Interest
Ant begins paying off the debt on his first paycheck. He pays $500/month towards the loan. In less than 5 years it is paid off. He makes total payments of $28,838 to pay off his loan.
Grasshopper decides that since he can put it off, he will.
Each year of delaying the payment puts Grasshopper further in debt.
Once he starts paying it off in year 5, it takes him over 6 ½ years and $40,979 to pay off his loan.
Ant Owes
Grasshopper owes
After 1 year
$ 19,976.03
$ 26,674.66
After 2 years
$ 15,040.33
$ 28,319.89
After 3 years
$ 9,800.21
$ 30,066.60
After 4 years
$ 4,236.88
$ 31,921.04
After 5 years $
$ 32,887.36
After 6 years
$ 28,748.00
After 7 years
$ 24,353.33
After 8 years
$ 19,687.61
After 9 years
$ 14,734.12
After 10 years
$ ,475.11
After 11 years
$ ,891.73
After 12 years $

5. Compounding interest: The Rich Get Richer
0.15%
2.35%
6.00%
18.00%
28.00%
Yearly
Continuous $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
$ ,242.86 $ $ $ $ $ $ $
$ ,180.59
$ ,644.46 $ $ $ $ $ $ $
$ ,511.16
$ ,175.84 $ $ $ $ $ $ $ $
$ ,934.28
$ ,878.92 $ $ $ $ $ $
$ ,038.12
$ ,475.88
$ ,809.18 $ $ $ $ $
$ ,014.72
$ ,242.86
$ ,169.13
$ ,040.04 $ $ $ $ $ $
$ ,197.37
$ ,487.97
$ ,056.48
$ ,668.63 $ $ $ $ $
$ ,412.90
$ ,781.43
$ ,192.30
$ ,823.47 $ $ $ $ $
$ ,667.22
$ ,132.76
$ ,646.14
$ 11,674.59 $ $ $ $ $ $
$ ,967.33
$ ,553.37
$ ,507.06
$ 15,447.00 $ $ $ $ $
$ ,321.44
$ ,056.94
$ ,889.04
$ 20,438.39 $ $ $ $ $ $
$ ,739.30
$ ,659.82
$ ,937.97
$ 27,042.64

6. Cool Flatscreen TV!
Both Ant and Grasshopper decide they want a flat screen TV. It will cost $
Ant saves $100 from each paycheck and after 10 months he had enough month saved up to buy it.
Grasshopper wanted it that day.
He bought it using the store credit card with 24% interest.
He use the minimum payments of $23/month.
After 2 years he realized he now owned $1011
He then upped his payment to $50/month. After over 2 more years, he had it paid off. Total spent? $1650

7. Cricket did worse
He bought the TV and decided to not make payments for 10 years
Year
Cricket Owed
$999.99 1
$1,323.12 2
$1,750.65 3
$2,316.34 4
$3,064.82 5
$4,055.16 6
$5,365.50 7
$7,099.26 8
$9,393.24 9
$12,428.47 10
$16,444.48

8. Borrowing money Rate of loan is based on risk
APR equals Compounding Interest
Loan types
House loan 2-4% (fixed vs. ARM)
Home Equity loan 3-4%
Car loan – 4+% depending on risk
Credit card 18% - 28% or more
Payday loan % APR -- $19 for $100 for 2 weeks!
Loan Shark % APR
Grasshopper bought a car using his credit card. ‘nuf said.

9. Just charge it! Debit card Gift card Charge card Credit card
Forgotten half-cousin: Layaway
What about minimum payments? See Compounding Interest

10. Debt: It is the American Way!
Credit Rating (Credit Score)
Where does it comes from?
How do you affect it?
What does it affect?
Reducing Debt

11. Kinds of Investments: Return verse Risk
Checking account
Savings account
Certificate of deposit (CD)
U.S. savings bond
Mutual funds
Life insurance
Fixed Income Investments (Bonds, REITs)
Common stocks

12. Savings Interest Rates
Balance
Interest Rate
$0 - $9,999
0.10%
$10,000 - $24,999
0.15%
$25,000 - $49,999
0.25%
$50,000 - $99,999
$100,000 - $249,999
0.30%
$250,000 - $499,999
$500,000 - $999,999
$1,000,000 - $4,999,999
$5,000,000+

13. Certificate of Deposit
CD Specials
$10,000 Minimum Opening Deposit
CD Term
Interest
9-Month
0.25%
13-Month
0.40%
36-Month
0.75%
60-Month
1.25%
120-Month
2.25%

14. US Savings Bond Promised to never lose value
As secure as the US government 
If you hold them to their full term, they often have a much higher return
Series EE %, 3.50% 20-year guarantee (Double money in 20 years)

15. Bonds
Loan money to company for a fixed period of time with an agreed to periodic payment
Pay back principle at the end of term
Value of bond fluctuates based on risk of defaulting and size of payments – decrease in value as risk goes up or interest rates go up.
Active second hand market
Purchased for stability and income over growth

16. Stocks Partial ownership in a company
Ability to vote on company decisions
Sometime dividends
Purchased for growth, not income
Price can be volatile

18. How much the price changed from the previous day

20. Dividends PepsiCo, Inc. (NYSE: PEP) Declared Amount Record Payable
Symbol
Value ($)
52-Wk High
71.89
52-Wk Low
58.5
Dividend Rate
2.06
Yield
3.18
Dividends
Declared
Amount
Record
Payable
Type
11/17/11
$0.515
12/02/11
01/03/12
Regular Cash
07/15/11
09/02/11
09/30/11
05/03/11
06/03/11
06/30/11
02/04/11
$0.48
03/04/11
03/31/11
11/12/10
12/03/10
01/03/11

21. Saving verses Investing
Time frame – retirement/college verses property taxes
Cost of Risk– loan shark in Perry Mason
Past performance is no guarantee of future results.

22. Case Study: 529 Plan (Save for college)
Designed to invest over many years
Tax free returns as long as used for educational expenses
Balance between different kinds of investments changes as student ages
Money Market vs Fixed Income (Bonds) vs Equity (Stocks)
Birth-8 years very aggressive (mostly Equity).
9-11 years. More fixed income and a little money market.
12-17 years. Mostly fixed income and money market
18+ year. Almost all money market

23. Historical returns at different age levels
With the most aggressive account (Ages 0-8) chosing the worst time could lose 60%.
With the least aggressive, the loss would only be 25%. Over the 6 ½ years, both accounts returned 12%. A simple CD at 2.25% would have returned 14%. BUT 2008 was unusual. If the gains of first two years had continued, it would have been 120% and 30% returns.

24. Other case studies Saving to buy Christmas presents in two months
Saving for retirement 30 years in the future
Saving for retirement 5 years in the future
Saving for a vacation in a few years
Retired and living off investments