Monthly Archives: December 2014

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Activity: What is Your Investing Risk Profile?

This is a fun/engaging and short online activity to help students understand their risk profile which is so critical to their investing success.  How often do we see investors with stock heavy portfolios during a bull market, only to see them sell at the first signs of a correction and not get back into the market?  The answer:  too often.  Why?  Investor misjudge their tolerance for risk.  Unfortunately, risk profile surveys often can’t capture your disposition during a stressful market event.

That’s why I like this Balloon Test so much, as it forces students to make decisions and live with the consequences.  In this case, the number of times the students pump the balloon is a measure of their tolerance for risk, as each pump could lead to the balloon exploding.

Activity:

  1. Students go to Balloon Test website.
  2. Follow instructions and play game.
  3. Write down their score and compare with others on the Risk vs. Reward chart.
  4. Play game again and write down their score.  Did their score improve?
  5. Ask them to answer whether they feel this game is accurate representation of their tolerance for risk.

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Check out NGPF’s Investing Basics lesson

By |December 19th, 2014|Activity, Behavioral Finance, Investing|

Fun With Calculators: The Tyranny of Credit Card Interest Rates

Scenario:  You buy a $1,000 laptop before you head off to college and charge it to your new credit card.  When the first bill comes in the mail you hone in on the Minimum Payment (see NGPF’s lesson on Reading a Credit Card Statement) and pay 2% of your balance or $20 per month.  Your APR (annual percentage rate) on the card is 19% (a typical rate for a new cardholder).

Using this calculator and the Tables tab on the right hand side:

  1. How many months (and years) would it take for the student to pay off their credit card balance?
  2. How much would the student pay in interest for this purchase?
  3. If the student doubles their monthly payment to $40,
    1. How many months (and years) would it take for the student to pay off their credit card balance?
    2. How much would the student pay in interest for this purchase?
  4. What is the relationship between minimum payment amount and interest paid?  In other words, what impact did doubling the monthly payment have on interest paid and time to payoff the bill?

Hint:  Just as compound interest can help you when you are on the savings end, it really hurts you when you are a borrower (especially

By |December 19th, 2014|Activity, Credit Cards|

New Feature: Debit Card “Round Up”

For most people, savings is extremely difficult.  My number one savings tip is to try and make it as automatic as possible, such as by splitting the direct deposit for your paycheck between your checking and savings account.  Now some banks are getting into the game with a new feature to automate savings by rounding up all of your debit card transactions to the nearest dollar (or two) and putting that “digital change” into your savings account.  Ask your students if they think this is a feature that they would sign up for.

Here is a description from Mid-USA Credit Union:

When a debit card purchase is made, the transaction is rounded up to the nearest dollar, and the increased amount is then transferred to the savings account selected by you. This transfer account is selected when you open a checking account or anytime in the future. These “round up” funds that are deposited come from your checking account to which the debit card is attached. The round-up adjustment (1 per day for all purchases made that day) will take place on end of day processing and will be withdrawn from your checking account.

Here’s a happy customer:

By |December 19th, 2014|Checking Accounts, Debit Cards, New Products, Savings|

Question of the Day: What is Your Financial Resolution?

As the New Year approaches, you might want to challenge your students to make financial resolutions.  The key with resolutions is to develop a strategy to accomplish them since most of us aren’t able to keep them beyond January.

In case you were wondering what the leading financial resolutions are (from A Wealth of Common Sense), check out this chart below:

FinancialResolution

Paying Off Student Debt: Two Approaches

For college seniors who need to start thinking about debt repayment, here are two approaches to consider:

  • Fast-forward way to pay off your student loans (USA Today):

The University of North Carolina at Chapel Hill alum found a full-time job in New York City, but an entry-level salary coupled with sky-high rent wasn’t making it easy to pay off his debt. So he set an aggressive budgeting strategy to combat his loans.  “I would always pay double the minimum,” he says. “Doing that wasn’t always easy. It’s a lot of being thrifty—not buying a lot for myself, not going out for drinks or buying lunch with people … and taking meager vacations.”

Williams freelanced on the side and used bonuses to increase his monthly payments.  “As tempting as it was to play with that extra money, I threw all of it at my loans,” he says.  Williams, now a public relations and social media manager at Alterna Professional Haircare, found himself debt-free three years later. It’s an enviable position.

  • Don’t pay off your student loans so quickly; use the savings to invest in the stock market (CNN Money):

One important concept that I came across was Opportunity Cost

By |December 19th, 2014|Budgeting, Current Events, Student Loans|

A Little Bit of Trivia: Who Has the Best 401(k) Plan?

Not who you would expect.  Brightscope, the experts in rating 401(k) plans put out a top 30 list each year.  What are the Brightscope ratings based on?

“The BrightScope Rating was developed by BrightScope, Inc. with the help of leading academics and independent 401k fiduciaries. By analyzing more than 200 individual data points, the BrightScope Rating algorithm calculates a single numerical value for each 401k plan. The data points examined cover broad categories such as total plan cost, company generosity and investment menu quality.”

So, they care about three main factors:  plan cost (think fees), company match and the quality of the investment choices offered.

So, who’s #1 on their list (drumroll please)?

The NFL Player Second Career Savings Plan.

By |December 18th, 2014|Investing, Question of the Day|

PSA Idea: Know Your Debt!

Posted about this Brookings study recently that showed too many college students with loans don’t realize that they have debt.  From Time:

The data reveals that students are generally clueless about the costs of higher education and how they’re paying for it. Nearly half of students underestimated their debt loads by at least $1,000, with 25% of students underestimating their debt by $5,000 or more.

Why this cluelessness?  They offer a few hypotheses:

There are a lot of reasons students may not fully understand their student loan debt: Students may be confused about the different kinds of loans (like federal or private), their parents may have taken charge of figuring out their education expenses, they’re simply not keeping track of their finances, or they really don’t understand the fact that borrowed money must be repaid. There’s not really a good excuse, considering the students had to sign paperwork saying they’ll repay the loan as agreed.

With that as a backdrop, how about asking your students to develop a 30-60 second Public Service Announcement (PSA) to convince students to understand their student debt?  Send me the best PSA from your class and I will post them on the blog.

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Check out

By |December 18th, 2014|Activity, Advertising, Behavioral Finance, Lesson Idea, Student Loans|

Chart of the Week: Why You Should Invest When You Are Young?

From Business Insider:

CompoundInterest

One way to set up this problem BEFORE showing the chart is to ask your students the following:

I will profile three people who made different decisions about saving for retirement.  Tell me who had the largest “nest egg” when they were 65:

  • Susan remembered the mantra “Save for retirement when you are young” and developed that habit.  From the ages of 25-35, she invested $5,000 per year and then watched her investments grow.  So, over the ten years she invested $50,000.
  • Bill was a steady saver, however, he didn’t get started until he was 35.  For 30 years, he invested $5,000 per year for a total investment of $150,000.
  • Chris was a steady saver too, but started investing when he was young too.  He invested $5,000 per year between the ages of 25 and 65.  His total investment was $200,000.

Assuming each of them averaged a 7% annual return, who had the largest “nest egg” when she/he was 65 years old?

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Answer:  Chris (the blue line)

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Then show the students the chart and ask them what surprises them.

Key takeaways

  • Susan invested 1/3 the amount of Bill ($50,000 vs. $150,000) and still had a larger account