A supplement to

A supplement to

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MAKE A PLAN FOR YOUR DREAM CAR

Q&A WITH FINANCIAL

EXPERTS A HIGH SCHOOLER SHARES HER STORY ABOUT INVESTING

DEAR READERS,

Have you ever seen any of these advertising banners?

Buy Now! Limited Time Only! Lowest Prices of the Season! Everything Must Go! Huge Discounts!

Advertising banners such as these urge us to spend our money NOW! They appeal to our emotions. They tell us that there is no time like the present to buy the latest technology, cars, or clothing. The message seems to be if you wait, you might miss out on a tremendous buying opportunity.

Almost every day we are faced with decisions about how and when to use our money. We must decide what we want versus what we need. We must decide between spending and saving. The challenge to make wise financial choices at times seems overwhelming.

But it doesn't have to be.

This issue of Money Confident Kids? high school magazine provides you with a unique opportunity to learn and practice making smart spending decisions, setting financial goals, and saving and investing that will help guide your financial decisions now and in the future.

TABLE 1

AN AMERICAN SPORTS CAR--A HISTORICAL INFLATION TIMELINE

Over time, money generally loses value due to inflation and household incomes tend to rise. However, there are times when incomes do not rise as quickly as inflation. Note: The rate of inflation is not consistent.

Photo on cover: ? Blend Images/Getty Images ; Photo this page ? Jitalia17/iStock.

YEAR

MEDIAN

PERCENT

HOUSEHOLD INCOME INCREASE OF INCOME

MSRP AMERICAN SPORTS CAR*

PERCENT INCREASE

PRICE AS

OF CAR PRICE PERCENT OF INCOME

2017 $55,775 (2015 data)

12%

$25,185

31%

45%

2007

$49,614

36%

$19,250

25%

39%

1997

$36,477

48%

$15,355

91%

42%

1987

$24,635

50%

$8,040

118%

33%

1977

$12,224

99%

$3,678

43%

30%

1967

$6,155

N/A

$2,567

N/A

42%

Source: Department of Numbers, U.S. Household Income *Based on the best-selling sports cars in the U.S. in 2016. Source: Statista Consumer Market Outlook

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WANT A CAR?

MAKE A PLAN...

For many teens, the idea of getting a driver's license and buying a car is an exciting dream. In a 2016 study, Autotrader and Kelley Blue Book found that 92% of Americans under the age of 18 want to own their own car. The study also found that 72% of those young people said they would give up social media for one year to have a car!1 And they are not alone. In 2015, about 17.5 million new cars and trucks were sold in the United States.2

While buying a car may at first seem simple, the high cost of car ownership is often surprising. Making short-term and medium-term savings goals is a helpful first step to car ownership. If your financial goal is to purchase a car within the next few years, make a plan now for how much you will need and how long you will have to save, and then start saving!

A savings account may be the best place for your money until you are ready to make a purchase. Also, ask yourself these questions:

l Why do I want to buy a car? Is it a "want," a "need," or a combination of both?

l Which is a better choice, a new car or a used car? Consider insurance costs, car safety reports, car fuel efficiency, and how long you can expect to use the car before it requires major repairs. (A car that

TABLE 3

PRICE

DOWN PAYMENT

LOAN AMOUNT 48 mos./4%

MONTHLY PAYMENT

TOTAL COST OF CAR (after paying off loan)

NEW FOREIGN SPORTS CAR 2017 MODEL

$19,000 $2,000

$17,000

$384

$20,432

USED FOREIGN SPORTS CAR 2010 MODEL

$9,000 $2,000

$7,000

$158

$9,584

gets 20 miles per gallon [mpg] may cost about $125 more per year than a car that gets 25 mpg. Based on 5,000 miles per year; $2.50/gallon fuel cost.) Check out Table 3 for a sample price comparison of purchasing a new car versus a used car.

l How will I pay for the car and the yearly costs for things such as insurance, inspections, and maintenance? Making a budget may be a helpful way to plan for these expenses.

1 Fox Business, 92% of Teens Want to Own a Car 2 The Wall Street Journal, U.S. Car Sales Set Record in 2015

Photo: ? iPandastudio/iStock.

$20 $15 $42

TOTAL:

$385

$100

TABLE 2

SAMPLE MONTHLY

CAR BUDGET

CAR LOAN

$158* PAYMENT

INSURANCE

GAS

REGISTRATION/ INSPECTION FEES

MAINTENANCE COSTS

*Based on a $7,000, 48-month loan; interest rate of 4%

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SAVING FOR YOUR LONG-TERM GOAL:

Q&A WITH A FINANCIAL EXPERT

High school students get serious about financial planning for their futures with questions for our financial expert. See below for some practical tips for saving and investing to meet your long-term financial goals.

Q I don't really understand why I should think about saving and investing for the future when I'm only in high school. I have a part-time job, but I don't make a lot of money. Can't I just wait until I have a full-time job to start saving and investing?

A The sooner you start saving, the better off you'll be. You'll be in a much better position to reach big goals (such as a car), and you'll start developing good financial habits. When you're working full time, you'll also have more bills, so it may even be easier to save now.

Q What are the biggest mistakes high school students make in managing their money?

A Too many students already have creditcard debt. That's a bad habit to develop early in life. A debit card is a convenient alternative payment method that won't let you build up debt or interest charges.

Q How much money do I need to begin investing in things such as stocks and bonds?

A It depends. If your employer has a retirement plan such as a 401(k), you may be able to start investing in it right away. $1,000 is a common minimum investment level for a Roth IRA, which could be a good way to start as a student. A Roth IRA is a type of retirement account where you pay taxes on money going into your account and then all future withdrawals are tax-free.

Q My grandparents are going to give me $3,000 when I graduate from high school. I plan to go to college and would like to buy a better car to drive to college. Should I spend the money on the car, spend it on stuff for college, or put it into a savings account?

A First, you need to understand how your family will pay for college--have a talk with your parents if you haven't already. Then think about needs versus wants--it sounds like you have a functional car already. It's your decision, but in the future you'll probably be happier if you save a good chunk of this gift money.

Q Why is investing for long-term goals better than just putting money into my savings account? I don't want to lose all my money on bad investments.

A Your savings account is a great way to fund your short-term goals--you don't want to lose that money. Long-term investments such as stocks (or funds that own stocks) have tended to grow much faster. If you don't need to use the money for a while, you may consider long-term investments, assuming you can tolerate the higher risks. These investments can help you ride out the ups and downs of the stock market over a longer period.

COMPOUND INTEREST EXAMPLE: MAKING YOUR MONEY "WORK" FOR YOU

With compound interest, each time your account accrues interest it becomes a part of the principal. And then the greater principal accrues even more interest in the next cycle. The percent of interest and the amount of time your money is accruing interest are the two greatest factors in determining how much your money will grow.

Note: Interest rates vary over time. In 2017, savings account interest rates on average are below 1%.

Table 4 compares two savers of the same age. Each saver began with $100 and saved an additional $100 each month. Saver 1 saved for 20 years. Saver 2 waited 10 years before beginning a savings account and saved for 10 years. Because of the effect of compounding interest over time, Saver 1's account has grown in value to $29,683--more than twice the $13,417 saved by Saver 2.

DOLLARS

$35,000

TABLE 4

$30,000

$25,000

$20,000 $15,000

SAVER 1

$10,000 $5,000

SAVER 2

$0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 YEAR

Savings are based on an annual interest rate of 2%, compounded daily. Interest rates can vary over time.

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Photos, clockwise from left: ? MartinPrescott/iStock; ? welcome-to-carol-world/iStock; ? Rulles/iStock; ? kilukilu/iStock.

WHAT IS A CREDIT SCORE? THE COST OF BORROWING

Credit cards offer a convenient way to make purchases when cash is not readily available. But are credit cards right for you, and how can credit cards affect your financial goals?

A credit card is a type of loan. It allows cardholders to borrow money in order to make purchases or receive cash advances with the promise of repayment. Make no mistake: Credit cards are different from debit cards. Credit cards allow cardholders to borrow money, while debit cards can be a safe and convenient way to access money that you already have in a savings or checking account.

paid approximately $600! That's $100 in interest charges alone (based on an interest rate of 18%). This high-interest debt can lead to significant financial struggles. In fact, American households that carry debt have credit-card balances that average about $16,000. Based on the interest rate average of 18.76%, it would take more than 13 years to pay off this debt by paying $275 a month if no new purchases were added to the credit card during that time. And the consequence for not making credit-card payments on time can lead to even higher interest rates!

The good news is that many people use credit cards responsibly. About 62% of Americans carry no credit-card debt at all!

Credit cards typically carry interest rates on unpaid balances that are significantly higher than other types of consumer loans. Generally, credit-card issuers will not charge interest if the balance is paid in full each month. This is called the grace period. However, if the balance is not paid in full, compound interest will be calculated and charged from the original date of the purchase. In other words, the longer you take to pay off your credit-card bill, the more it will cost you.

Many people don't realize the implications of compound interest on an unpaid balance after the grace period. Just as money can grow quickly in a savings account that offers compound interest, credit-card debt also grows quickly until the balance is paid in full. For example, if you have a credit card with a balance of $500 and pay $25 each month, it will take you two years to pay off the entire balance. Altogether you will have

Learning to budget your money and make wise saving and spending decisions are valuable money-management habits to develop while you are in high school. As you get older and take on more financial responsibilities, using credit cards wisely can actually help you reach your financial goals by increasing your credit score. A credit score is a three-digit number calculated from information in a consumer's credit report (a history of a consumer's responsible use of credit). It's designed to predict your ability to pay debts that you may incur from things such as car loans or paying rent on an apartment. The most frequently used credit score is called a FICO score. Scores can range from 300 to 850.

Excellent Good

Fair

Poor

750+ 700?749 650?699 600?649

Bad

below 600

Credit scores can affect your qualification for loans, the interest rate you pay for loans, how much you pay for insurance, or even whether you can get a job that you want!

RICH

PEOPLE GONE

BROKE

Samuel Clemens (aka Mark Twain)

As a famous writer and lecturer, Samuel Clemens was quite wealthy. He had a strong desire to invest his money in projects and products, such as the Paige Compositor (a mechanical typesetting machine) that he hoped would increase his wealth. However, many of these investments failed. Clemens became deep in debt. He declared personal bankruptcy in 1894, which freed him from paying his creditors. However, after declaring bankruptcy, Clemens overcame his financial troubles and paid back his creditors in full, even though he had no legal obligation to do so.

Terrell Owens

NFL record holder Terrell Owens earned an estimated $70 million throughout his football career as a wide receiver. By 2012, he had blown through most of his fortune. He was forced to sell several of his high-priced homes for less than market value.

Evelyn Marie Adams

Evelyn Marie Adams considered herself very lucky when she won the lottery twice, totaling $5.3 million! But she ended up losing a large chunk of her fortune in Atlantic City casinos. In 2012, the New York Post reportedly found her living in a trailer park. She told the newspaper, "I'm broke now... I work two jobs. My advice to anyone [who wins] would be to go to your lawyer and accountant first."

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