credit and bankruptcy

other investment options?

• investing = putting your moneysomewhere you have a chance to makemore money.

• varying degrees of risk.

• why not just keep your cash in a shoeboxunder your bed?

index funds

• Type of mutual fund that tracks theentire stock exchange.• Less risky because risk is spreadout across many stocks.• Maintenance fees = low whichmeans more money for you.

bonds

• What is it?– An IOU from a company or government that

promises to pay you back what you paid +interest after a certain amount of time.

• Companies do it to raise money.

• Stocks = equity, bond owners = creditors.

401(k) and Roth IRA

• Retirement accounts

• “Buckets” for other investments

• Tax benefits

• 401(k) = possible “free money” if youremployer matches.

today’s take away message

• the stock market is one place you caninvest your money.

• index funds are probably the best way toinvest in stocks.

• bonds are relatively secure places to putyour money.

• larger the risk, larger the return.

exit ticket: review quiz

1. To own stock means that…a.) You have an ownership claim.

b.) You are entitled to some of the company’sprofits.

c.) You are investing your money.

d.) All of the above.

2. A company sells stock to…a.) Unload unprofitable assets.

b.) Raise capital.

c.) Only the executives of the company.

d.) Consolidate ownership among a fewpeople.

3. The New York Stock Exchange…a.) is an example of a large auction floor.

b.) is a new phenomenon.

c.) is where people go to open bankaccounts.

d.) is actually located in New Jersey.

4. The higher the risk involved with theinvestment, the _________ the likelyreturn.a.) higher

b.) lower

c.) likely return is unaffected by risk.

5. Which type of investment has thelowest risk?a.) Junk bonds.

b.) Stock.

c.) Bonds.

d.) Day trading.

6. Index funds are….a.) A mutual fund made up of stock fromacross the stock market.b.) A single group of stock from thesame company.c.) Very risky investments.d.) Only bought by very experiencedinvestors.

7. Bonds are…a.) A loan to a government, company, ormunicipality.

b.) Relatively secure investments.

c.) Repaid with interest.

d.) All of the above.

8. 401(k)’s and Roth IRA’s differ fromstocks and bonds in that…a.) They are extremely risky.

b.) They provide very high returns.

c.) Are actually just “buckets” that holdother types of investments.

d.) None of the above.

Consumer Credit &Bankruptcy

Being Responsible with CreditCards and What Might Happen If

You Aren’t

question of the day

objective

• To understand how a credit card worksand how it can be both a useful anddangerous tool.

what is credit?

• the loaning of money.

• when you borrow money from somebodywith the promise of paying them backlater, they are giving you credit.

credit scores• your credit score is a number that

creditors look at when determininginterest rates for loans.

• it says how likely you are to pay back theloan.

• the higher your score, the better interestrates you can get.

• what criteria do you think they look atwhen determining your score?

using a credit card like anintelligent individual

• rule of thumb: the less of a balance youcarry, the better.

• why? paying interest.

• a credit card is not “free money.”

• using it to buy something you can’t affordis a terrible idea.

bankruptcy: starting over?

• a legal procedure to eliminate your debt.

• destroys your credit score for many years.

• discharges most debt.

• chapter 7 & chapter 13.

chapter 7

• commonly known as “liquidation.”• allows filers to give up assets in exchange for

discharge of their debts.• used by people with very little assets or income

and lots of debt.• HOWEVER, won’t eliminate: student loans,

alimony, child support, debts incurred throughfraud, liabilities resulting from drunk driving &criminal fees.

chapter 13

• Also known as “debt adjustment.”

• Allows individuals to temporarily haltforeclosures and collection actions whilethey draft and execute a plan to repaysome or all of their debts over a 3 to 5 yearperiod.

recap

• Credit card companies want you to carry abalance and therefore have to pay interest.

• Careful use of credit cards is important.

• Bankruptcy is a last resort for regainingcontrol over your debt.