Save $.50 a day in loose change. $ 15
Cut soda consumption by 1 liter per week. $ 6
At work, substitute one coffee for one cappuccino. $ 40
Bring lunch to work (save about $5 per day). $100
Eat out two fewer times each month. $ 30
Purchase two fewer lottery tickets a week ($1.00). $ 8
Cut cigarette consumption by 2 packs a week. $ 24
Buy grocery store brands. $ 10
Eliminate premium cable channels. $ 20
Use fewer phone features. $ 10
Borrow, rather than buy, one book per month. $ 15
Comparison shop for gas (save est. $0.25 per gallon). $ 4
Maintain checking account minimum to avoid fees. $ 7
Pay credit card bill on time to avoid late fee. $ 25
Pay off $1,000 of credit card debt, reducing interest. $ 15
Total $329
• Discuss this example with your students and ask them if they agree with these ways to save money each month. Is it worth it to them? (By the way, if a 22-year-old person invested the $324 each month for 40 years at 8% interest, he or she would have $1,138,627 by age 62!)
• In small groups, ask students to identify other monthly expenditures they make that could be eliminated. Compute how much they would save each month. How much would they save in a year? Share group information with the rest of the class.
Save on a Regular Basis: It is important that students not only live within their means, but that they also begin to save regularly. Stress that the amount is not as important as being consistent. Over time, even small contributions will add up. For example, if only $50 were invested each month at 5% for 40 years, a person will accumulate $76,619! ($24,000 in principal and $52,619 in interest.)
Using an interest rate calculator, have students figure out what would accumulate if they invested certain monthly amounts over various periods of time and various interest rates. To access calculators from the Bankrate.com main page (www.bankrate.com), click on Calculators in the top tool bar. Scroll down the page and under Most Popular click on Compound Interest Calculator. A similar calculator can also be accessed by going to www.kidseconposters.com and clicking on Interest Posters.
Examples:
Monthly Investment Amount
Amount Saved Return (%) Years Accumulated
$25 3% 40 $23,209
$25 6% 40 $50,036
$100 8% 25 $95,737
$200 10% 30 $455,865
Reduce High Cost Debt: One of the best things many people can do to improve their financial situation is to reduce high-cost debt, especially credit card debt. For example, if a student had a $3,000 credit card balance at 19.8% interest, and paid the required minimum of 2% of the balance or $20, whichever is greater, it would take over 32 years to pay off the loan! And the person would pay more than $9,000 in interest charges!
Of course, credit cards can be very helpful if used with care. Discuss the benefits of using a credit card responsibly:
• Safer than carrying large amounts of cash
• Useful in emergencies
• Convenient for travel, purchasing over the Internet, etc.
• A “free loan” if the balance is paid off monthly
• Benefits often attached to purchases (e.g. frequent flyer miles)
Take Advantage of Special Savings Plans: Traditional Individual Retirement Accounts (IRAs) and 401(k) plans offer special advantages. Both allow an individual to shelter savings and any investment gains from these savings from federal income taxation until the funds are withdrawn, usually after retirement. Furthermore, many companies that offer 401(k) plans also match employee contributions. For example, a company might match 50 cents for every employee contribution of $1.00, making this a better vehicle for retirement than the IRA option, which has no matching employer contribution. (Note: For the newer Roth IRAs, one makes after-tax contributions. The principal and any accrued earnings are therefore withdrawn tax free, usually upon retirement.)
Build a Balanced Investment Portfolio: In general, it is best to reduce risk by building a “diversified” portfolio containing a variety of investments. Thus, if one particular investment loses most or all of its value, the investor does not lose everything. For more details on this aspect of saving, see the Teacher Guide information for the Financial Pyramid poster.
Buy a Home and Pay Off the Mortgage Before You Retire: Paying off a home mortgage before an individual retires reduces financial pressures that can occur after retirement when income is usually less. A home is also an asset that can be borrowed on in case of emergencies or, if necessary, that can be changed into cash.
