Foundations of Leadership Conference

Lead Out in Personal Finance

Bryan L. Sudweeks, Ph.D., CFAAugust 25, 20091

Abstract

• You are a leader, and others look up to you in all you do and say. Whether you like it or not, you have an influence on what others may do and become. Make leading out in personal finance another one of the important areas in which you lead, by internalizing the principles of finance, living on a budget, understanding and using credit wisely, minimizing debt, and learning to give.

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Leadership

A leader is one who knows the way, goes the way, and shows the way.

Poster in my daughter’s 7th grade classroom

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Objectives

A. Remember the Principles

B. Embrace the “B” Word

C. Tame the “C” Monster

D. Use wisely the “D” Word

E. Learn to Give

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• Elder Richard G. Scott commented:

• Joseph Smith’s inspired statement, “I teach them correct principles, and they govern themselves,” still applies. The Lord uses that pattern with us. . . Your consistent adherence to principle overcomes the alluring yet false life-styles that surround you. Your faithful compliance to correct principles will generate criticism and ridicule from others, yet the results are so eternally worthwhile that they warrant your every sacrifice (Richard G. Scott, “The Power of Correct Principles,” Ensign, May 1993, 32).

• What are those correct principles that are so eternally worthwhile?

A. Remember the Principles

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Principle 1: Ownership

1. Ownership: Everything we have is the Lord’s• The Psalmist wrote:

• The earth is the Lord’s, and the fullness thereof; the world, and they that dwell therein. (Psalms 24:1)

• The Lord is the creator of the earth (Mosiah 2:21), the supplier of our breath (2 Nephi 9:26), the giver of our knowledge (Moses 7:32), the provider of our life (Mosiah 2:22), and the giver all we have and are (Mosiah 2:21).

• Nothing we have is our own—its all God’s.

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Principle 2: Stewardship

2. We are stewards over all that the Lord has, is giving, or will share with us• The Lord through the Prophet Joseph Smith stated:

• It is expedient that I, the Lord, should make every man accountable, as a steward over earthly blessings, which I have made and prepared for my creatures. (D&C 104:13)

• The Lord through the prophet Brigham Young said:

• Thou shalt be diligent in preserving what thou hast, that thou mayest be a wise steward; for it is the free gift of the Lord thy God, and thou art his steward. (D&C 136:27) 7

Principle 3: Agency

3. We were given agency by a loving Father• President Marion G. Romney commented:

• Agency means the freedom and power to choose and act. Next to life itself, it is man’s most precious inheritance. (Ensign, May 1976, p. 120.)

• President David O. McKay:• “Next to the bestowal of life itself, the right to

direct that life is God’s greatest gift to man. … Freedom of choice is more to be treasured than any possession earth can give” (italics added, in Conference Report, Apr. 1950, p. 32; italics added).

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Principle 4: Accountability

4. Accountability: We are accountable for every choice we make• The Lord through the prophet Joseph stated:

• For it is required of the Lord, at the hand of every steward, to render an account of his stewardship, both in time and in eternity. (D&C 72:3)

• Elder Todd Christofferson recently stated:• We control the disposition of our means and

resources, but we account to God for this stewardship over earthly things. (D. Todd Christofferson, “Come to Zion”, Ensign, November 2008. )

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• Elder Neal A. Maxwell stated:• The submission of one’s will is really the only

uniquely personal thing we have to place on God’s altar. The many other things we “give,” brothers and sisters, are actually the things He has already given or loaned to us. However, when you and I finally submit ourselves, by letting our individual wills be swallowed up in God’s will, then we are really giving something to Him! It is the only possession which is truly ours to give! (italics added, “Swallowed Up in the Will of the Father,” Ensign, Nov. 1995, 22.)

What is Really Ours?

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B. Embrace the “B” Word - Budget

• President Spencer W. Kimball said:• Every family should have a budget. Why, we would

not think of going one day without a budget in this Church or our businesses. We have to know approximately what we may receive, and we certainly must know what we are going to spend. And one of the successes of the Church would have to be that the Brethren watch these things very carefully, and we do not spend that which we do not have. (Conference Report, April 1975, pp. 166-167)

• And if the Brethren watch these things very carefully, shouldn’t we? 11

Budgeting (continued)

• What is a Budget?• It’s the single most critical tool in helping you

achieve your personal and financial goals

• It’s the process of making sure your resources are used for the things that matter most—your personal goals

• Budgeting is a star (or tool) to set your sights by, not a stick to beat yourself with.

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Budgeting (continued)

• What is the Budgeting Process?• 1. Know what you want to accomplish• 2. Track your spending• 3. Develop your budget• 4. Implement your budget• 5. Compare it to actual spending, then make

changes where necessary to achieve your goals

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Budgeting (continued)

1. Know what you want—write it down• What do you want to accomplish?

• Do you want to:

• Prepare for a mission?

• Prepare to be a worthy husband or wife?

• Graduate?

• Get a great job?

• Return to your Heavenly Father?

• Determine what you want to do, then write it down. A goal not written is only a wish

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Budgeting (continued)

2. Track your Spending• There are different methods to track spending:

• Checks and credit cards• These leave a paper trail

• Cash• Record spending in a notebook

• Computer programs, i.e., Quicken, Money• These are useful, especially if tied to bank and

credit card companies• The goal is to generate a record of everything you

earn and spend15

Budgeting (continued)

3. Develop a Budget--the better way• What is a Budget?

• It’s a plan for controlling earning and spending

• Its purpose -- To help you spend your money of what is really important to you

• Earnings/scholarships/gifts/grants:

• Determine what you earned last year, and make adjustments for the current year

• Expenses/school costs:

• Identify all fixed (“must have”) and variable (“would be nice to have”) spending

• Look for ways to reduce your variable spending 16

Budgeting: The Old Way

Available for Savings

Personal Goals

Income ExpensesTithing

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Budgeting: The Better Way

Income Expenses

Personal Goals

OtherSavings

Pay the

LordPay

Yourself

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Budgeting: The Better Way (continued)

• Before:• You paid the Lord first, lived on the rest, and

whatever money was left at the end of the month went into savings--your priorities were wrong

• Now:• Pay the Lord first, yourself second, and then live on

the rest--your priorities are now in order

• Now you have twice the chance of achieving your personal goals

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The Better Way (continued)

Elder L. Tom Perry said:

• After paying your tithing of 10 percent to the Lord, you pay yourself a predetermined amount directly into savings. That leaves you a balance of your income to budget for taxes, food, clothing, shelter, transportation, etc. It is amazing to me that so many people work all of their lives for the grocer, the landlord, the power company, the automobile salesman, and the bank, and yet think so little of their own efforts that they pay themselves nothing. (L. Tom Perry, “Becoming Self-Reliant,” Ensign, Nov. 1991, 64.)

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Budgeting (continued)

• 4. Implement your budget• Try the budget for a month

• Record all earning and spending in a spreadsheet

• Sum all days or columns by category

• Note how much you have available in each category at the end of each week

• Adjust the plan as necessary to maintain the plan

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Budgeting (continued)

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Budgeting (continued)

Elder Marvin J. Ashton stated:• Some claim living within a budget takes the fun out

of life and is too restrictive. But those who avoid the inconvenience of a budget must suffer the pains of living outside of it. The Church operates within a budget. Successful business functions within a budget. Families free of crushing debt have a budget. Budget guidelines encourage better performance and management. (italics added, Marvin J. Ashton, “It’s No Fun Being Poor,” Ensign, Sept. 1982, 72.)

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Want help with Budgeting?

• You can download a copy of a budgeting spreadsheet in the “better way” format from the Personal Finance website at:• http://personalfinance.byu.edu.

• Click on Teaching Tools and Teaching Tool 31: Budget spreadsheet (which includes tools to help prepare your Budget and also get out of debt)

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C. Tame the “C” Monster - Credit

• Know about Credit Reports, Credit Scoring, and Credit Cards• 1. Credit reports

• Information collected by credit bureaus from private and public records

• 2. Credit scoring

• A numerical evaluation of your credit based on specific criteria (similar to a grade in a class)

• 3. Credit cards

• Either the single most destructive financial instrument in the history of mankind or a financial tool to help you attain your goals

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1. Credit Reports

• What are credit reports?• Credit reports are privately collected information on

all your existing and available credit

• It includes all your borrowing history, credit card balances and payment history, mortgages, phone payment records and the like

• Like it or not, it is a record of how well you handle credit

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2. Credit Scoring

• What is credit scoring?• It’s a way of grading your ability to pay back loans

• 75% of all mortgage (home loan) applications are sorted on credit scores

• It may help you get the lowest interest rate on many types of consumer loans

• Home, car, and consumer

• It also may reduce the cost of your insurance products

• These are based on your credit score• Know your credit score!!!!!!!! 27

Credit Scoring

• How does credit scoring work?• Lenders base your interest rate on your score

• The higher the score, the lower the rate

• Research by Fico showed (Fico uses a 0-850 range):

$300,000 30-year fixed rate mortgage

• Scores 760+ paid 4.873% Scores 700+ paid 5.095%

• Scores 680+ paid 5.272% Scores 660+ paid 5.486%

• Scores 640+ paid 5.916% Scores 620+ paid 6.462%

• Source: http://www.myfico.com/ 26Jan09

• The above mortgage at the bottom versus the top rate paid $108,523 more in interest over the life of the loan

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3. Credit Cards

• Credit cards• Either the most destructive financial instrument in

the history of mankind or a tool to help you achieve your goals. It depends on you!

• What are the correct uses of credit cards?• Guarantee / Emergency Use• Convenience, float, or timing• Free services

• What are the problems with credit cards?• It is too easy to spend money• It’s easy to lose track of what you spend• Interest costs on credit cards are very high (12-28%) 29

Credit Cards (continued)

• Keys to effective credit card use:• Know your goals

• Spend only on things planned in your budget

• Don’t go into debt

• Use wisdom in your expenditures

• Don’t use credit cards to finance school expenses!!!!

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Too Much Credit (Applications)?

• Getting too much junk mail (i.e., credit card applications)?

• Get rid of it! It also reduces the opportunity for “identity theft.”

• Take your name off the mailing lists of the major credit reporting agencies

• Call 1-888-567-8688 or 1-888-5 OPT OUT or go to www.optoutprescreen.com

• Answer the questions on the phone or online. It only asks your name, phone number, and social security number. 31

D. Use Wisely the “D” Word - Debt

Level of Education  Annual Earnings  Lifetime Earnings Not a HS graduate  $21,314  $852,577High school graduate  30,560 1,222,396Two-year vocational 36,833 1,473,335Associate  38,118  1,524,703 Bachelor’s  49,334  1,973,760 Master’s  57,676 2,307,025 

Doctorate/Professional $71,573  $2,862,914 Source: “Give Yourself the Gift of a Degree: Vocational Education

Worth Almost $1.5 Million Over Working Lifetime," an EPF News Release from the Employment Policy Foundation.: December 19, 2001, Washington, D.C..

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Does Education Pay?

President Gordon B. Hinckley counseled:• You young people, the little decisions that you make can

so affect your lives. Shall I go to school or not? Shall I continue on with my education? That is a big decision for some of you. Our doctrine suggests, although there may be some circumstances that would affect that decision, that the more education you receive the greater will be your opportunity to serve. That is why this Church encourages its young people to get the schooling that will qualify them to take their places in the society in which they will become a part. Make the right decisions. Take a long look. (italics added, Pocatello, Idaho, regional conference, Idaho State University, 4 June 1995). 33

Use Debt Wisely

• What has been the prophet’s counsel on debt?• President James E. Faust stated:

• Over the years the wise counsel of our leaders has been to avoid debt except for the purchase of a home or to pay for an education. I have not heard any of the prophets change this counsel. (“Doing the Best Things in the Worst Times,” Ensign, August 1984, 41)

• How do we minimize debt while at the same time getting an education?

• By using debt wisely and sparingly—using the Priority of Money for Education 34

The Priority of Money for Education

• Is there a priority of money for financing school?• Priority of Money for School

• 1. Free Money

• 2. Family Money

• 3. Employment

• 4. Loans

• 5. Credit Cards

• Remember credit cards are last on the list!

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1. Free Money

• Get free money first--scholarships and grants• This is free money which is not paid back

• If you pay to get a scholarship its a scam!• Grants are need-based--complete the FAFSA

• Pell Grant: approximately $976-$5,350/year• ACG Grant: approximately $750-$1,300/year• SMART Grant approximately $4,000/year • SEOG Grants – not available at BYU

• Scholarships from schools and private sources• You may need a supplemental application• Find out which ones you are eligible for on a

scholarship search engine and apply for each• Armed Forces Scholarships: See recruiting offices

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2. Personal and Family Money

• Use personal savings and help from parents next• If children pay for their education and missions,

they will likely use their resources more wisely, as it’s their money they are spending.

• Start the process of financial self-reliance as soon as you can.

• Do as much as you can to help your children, but don’t do it all

• If parents and grandparents can help, that is wonderful.

• Express appreciation to anyone who helps!37

3. Employment

• Work when possible to offset education expenses• Most colleges offer federal College Work Study.

Some universities, including BYU, provide thousands of student employment opportunities from their own funds.

• Undergraduate students enrolled in 12+ semester hours should work no more than 20 work hours per week. This may cover rent and food expenses.

• Working summers to save for mission and college is also very desirable.

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4. Loans

• Use (all) loans wisely—they are debt• There are five main items to be aware of with loans:

• a. Who pays the interest during school?

• The borrower or the government?

• b. When must you start paying back the loan?

• Immediately or after graduation?

• c. Who takes out the loan?

• You or your parents?

• d. What is the interest rate cap?

• What is the highest rate you may pay?

• e. What are the costs?

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Loans (continued)

• A. Subsidized loans• 1. Subsidized Federal Loans

• Subsidized Stafford Loans: Student loan where the government pays interest while the student is in school and repayment begins after graduation

• 2. Subsidized Private Loans:

• Student loan from private institutions, such as the Woolley Law Loan or the Marriott School of Management Loan where the institution pays interest while the student is in school and repayment begins after graduation

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Loans (continued)

• B. Unsubsidized loans • 1. Unsubsidized Federal Loans

• Unsubsidized Stafford Loans: Student loan where interest accrues immediately and repayment begins after graduation

• 2. PLUS Loans: Parent Loans for Undergraduate Students

• Parent loan where repayment begins 60 days after the loan is given and parent pays interest

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• C. Private Loans (also called Alternative Loans )

• Student loan where repayment begins immediately and interest rates are MUCH higher

• Caution -- these unsubsidized loans are much more expensive than federal unsubsidized loans

• These loans also may have higher up-front fees and may require a cosigner. Read the fine print VERY CAREFULLY BEFORE TAKING OUT THESE LOANS

Loans (continued)

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5. Credit Cards

• These are the most expensive way to borrow• They require you to pay it back immediately

• There is no help in the payment of interest

• The interest rates are extremely high and you are in school

• This is the least advisable way to finance schooling and is usually the result of poor planning!

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E. Learn to Give

• Someone wrote:• We make a living by what we earn, but we make a life by

what we give.• If you can’t learn to give when you are poor, you will

never learn to give when you are rich.

• Now is the time to continue your life-long habit of giving

• Learn to give of what you have—your time, talents, and resources.

• Make giving a part of each and every day• Realize it is not what we have, but what we give, that

makes us rich, with the riches of eternity44

Summary

• A. Remember the Principles of Finance• Ownership: None of this is ours

• Stewardship: We are stewards over all we have been, are, or will be blessed with

• Agency: The privilege to choose is a God-given gift

• Accountability: We will be held accountable for all our choices in life (including our financial choices)

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• B. Embrace the “B” Word – Budget• 1. Know what you want to accomplish

• 2. Track your spending

• 3. Develop your budget

• 4. Implement your budget

• 5. Compare it to actual spending, then make changes where necessary to achieve your goals

• And budget the “better way”

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Summary (continued)

• C. Tame the “C” Monster - Credit• Understand:

• 1. Credit reports

• 2. Credit scoring

• 3. Credit cards

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Summary (continued)

• D. Avoid or use wisely the “D” Word - Education Debt

• 1. Free Money

• 2. Family Money

• 3. Employment

• 4. Loans

• 5. Credit Cards

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Summary (continued)

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Summary (continued)

Leadership

A Leader is one who knows the way, goes the way, and shows the way.

Poster in my daughter’s 7th grade classroom

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Tools to Teach Personal Finance

• The BYU Marriott School Personal Finance Website is a great and free resource

• We have prepared a website of Personal finance information from a gospel perspective to help you to know, go, and show the way. It is at:

http://personalfinance.byu.edu

• It contains a number of beginning, intermediate, and advanced courses, with its purpose is to help students and non-students get their financial houses in order. All information from the website is freely shareable with others without cost.

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BYU Website

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Assignment

• Want something to do before school starts? Go to http://personalfinance.byu.edu, go to: • Courses of Study

• Beginning Courses, and • Beginning Course for College Students.

• Complete that course. You will be very well prepared financially for the monetary challenges in College ahead. Then, later on, go and do the Advance College Course to really prepare yourself for life.

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Thank You

• I leave you with my excitement, my testimony of the gospel, and one of my favorite scriptures, D&C 45:62:

“For verily I say unto you, that great things await you.”

For they truly doAs you lead out in Personal Finance

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