Financial Literacy In 63 Minutes

Summary

Highlights

• Tina took KH Academy's 109-page financial literacy course and summarized it in 63 minutes! 
• Learn the 50/30/20 budgeting rule to manage your money wisely 
• Discover how to set SMART financial goals that are specific, measurable, achievable, realistic, and time-bound 
• Find out how to improve your credit score and why it's crucial for financial health 
• Explore investment options and the magic of compound interest 

Key Takeaways

• Understand the basics of budgeting and the 50/30/20 rule for managing expenses 
• Learn about different types of loans and how to manage debt effectively 
• Get insights into saving for both short-term and long-term goals 
• Discover the significance of credit scores and how they impact your financial future 
• Explore the importance of insurance in managing financial risks 

Overview

Chapters

• 00:00 - 00:30: Introduction to Financial Literacy The chapter introduces the KH Academy's financial literacy course, described as highly comprehensive and based on 10-15 years of accumulated knowledge. The course took weeks to complete and spans 109 pages of material. It aims to cover the foundational aspects of personal finance. The speaker commits to providing a summarized version to save the listener substantial time, sharing key insights and helpful notes from the course.
• 00:30 - 01:42: Course Structure and Overview The chapter provides an overview of the course structure, emphasizing its comprehensive nature aimed at achieving financial literacy. It begins by detailing the total of 16 course units. Unit one serves as the introduction, while unit two focuses on budgeting and saving, including creating a budget and determining savings amounts. Unit three addresses setting financial goals, incorporating discussions on SMART goals, money personality, and net worth calculations.
• 01:42 - 03:42: Budgeting and Saving The chapter provides insights into financial aspects such as loans, debt, and bankruptcy, highlighting how loans function and the implications of debt, including scenarios involving bankruptcy.
• 09:06 - 15:00: Understanding Credit Chapter "Understanding Credit" provides insights into evaluating the value of opportunities and making informed decisions between various financial offers. It covers the essentials of banking, exploring the different types of banks and bank accounts. Additionally, it offers a brief overview of interest rates and inflation.
• 23:00 - 28:30: Loans and Debt This chapter introduces the concept of budgeting, emphasizing its role in managing finances effectively. A budget helps to track the amount of money available, expenditure requirements, savings, and achieving financial goals. It serves as a strategic plan for incoming funds and their allocation, aiding in making informed financial decisions and avoiding issues such as overspending and debt. An example of a basic monthly budget sheet, likely provided by Con Academy, is mentioned as a tool for practical learning.
• 30:00 - 38:00: Insurance Basics The chapter 'Insurance Basics' introduces financial management strategies, focusing on the importance of tracking income and budgeting. It highlights a popular budgeting rule, the 50/30/20 rule, where 50% of income is allocated to needs (e.g., groceries, rent, transportation), 30% to wants (non-essential activities), and the remaining 20% to savings or investments. This rule is suggested as a simple way to manage personal finances effectively without needing complex tools like fancy spreadsheets.
• 40:00 - 51:00: Investments and Retirement The chapter discusses the allocation of income into different proportions, including 20% for savings. This savings could be for various purposes such as creating an emergency fund, which is essential for medical or personal emergencies, big purchases like buying a house or a car, or for investments and retirement. The chapter provides an example of a budget worksheet, emphasizing the importance of calculating income based on after-tax dollars, as this reflects the actual money available for saving and expenditure.
• 64:30 - 75:30: Scams and Frauds In the chapter titled 'Scams and Frauds,' the transcript discusses the budgeting scenario in relation to the 50/30/20 rule. The current spending is broken down into needs, wants, and savings categories. Needs account for $1,780, which is 59% of the income—exceeding the target of 50%. Wants total $795, equating to 27% of income, while savings are at $425, just 14.17% when the goal is 20%. The discussion identifies the necessity to reduce spending on needs to increase savings and adhere more closely to the 50/30/20 guideline.
• 75:30 - 83:00: Careers, Education, and Employment The chapter focuses on budgeting strategies related to careers, education, and employment. It encourages reviewing personal expenses to find ways to reduce spending on essential needs to increase savings. Suggestions include downsizing housing to reduce rent, though acknowledging some changes can be challenging. The exercise involves critically assessing a budget sheet to identify potential areas for financial efficiency, encouraging proactive financial management.
• 83:00 - 92:00: Taxes Overview The chapter discusses strategies to manage utility expenses, including cell phone and home internet bills. It suggests actively engaging with service providers to negotiate better plans or deals in order to stay within budget, as companies usually prefer to retain customers and may offer certain concessions.
• 92:00 - 118:00: Banking and Accounts The chapter discusses strategies for customers to reduce expenses in various areas. Some payments, like car payments and insurance, are more challenging to reduce, but groceries offer more flexibility. By comparing prices at different stores and taking advantage of discounts, customers can save money. Understanding per unit pricing can aid in making cost-effective purchasing decisions, such as buying laundry detergent by evaluating the price per ounce, pound, or item.
• 118:00 - 125:30: Car Buying and Housing Decisions This chapter discusses strategies for making cost-effective decisions when purchasing big-ticket items like cars and houses. By becoming aware of the per unit pricing, consumers can make informed decisions that could lead to significant financial savings. It emphasizes the impact of small, incremental savings in everyday expenses, like laundry detergents, and how these savings can accumulate over time, providing additional funds for larger financial goals such as buying a car or a home.
• 125:30 - 133:00: Conclusion and Course Wrap-up In the conclusion and course wrap-up chapter, the focus is on the importance of saving money effectively. The chapter reiterates the application of the 50/30/20 financial rule as a flexible starting point for budgeting. It emphasizes the need to audit your spending in relation to your after-tax income to align with this rule. The chapter then highlights three primary reasons for saving: first, to establish an emergency fund, underscoring its importance. Further details on these reasons were not provided.

Financial Literacy In 63 Minutes Transcription

• 00:00 - 00:30 I took KH Academy's financial literacy course for you so here's the cliffnotes version to save you at least 2530 hours this course took me weeks to get through like here are my notes it is 109 pages long it is the most comprehensive personal finance financial literacy course I have ever taken and probably because it is an accumulation of the past 10 15 years of knowledge it literally covers the foundations of everything but it is not enough for you just to listen to me talk so I've also included little ments throughout the
• 00:30 - 01:00 video as well since it's such a long course so if you can answer all of these questions you can consider yourself to be financially literate by the end of this video now without further Ado let's get started let's first talk about the structure of this course there are 16 units in total unit one is just an introduction unit two is on budgeting and saving how do you create a budget how much you should be saving how to save unit three is financial goals how do you set financial goals what is a smart goal and how does that relate to your money personality and how to calculate your net worth then we are
• 01:00 - 01:30 going into loans how do loans work how does debt work what happens if you filed for bankruptcy unit six is on insurance unfortunately lots of things can go wrong in life and there are lots of types of insurances to try to deal with that unit seven is on investment and retirement how much do you need to retire and how do you invest then we're moving on to scams and frauds there are many trickeries in life that you should be aware of people trying to steal your money then taxes no need to say more unit 11 is employment how do you calculate whether whether an employment
• 01:30 - 02:00 opportunity is worth it or not how do you choose between different offers unit 12 is banking all the different types of Banks and the different types of bank accounts this also includes a crash course on interest rates and inflation Unit 13 is car buying apparently car buying is also the place of one of the most trickeries that people will do on you to trap you into very bad situations then there's houses when is it worth it to rent versus buy how do and finally unit 15 and Unit 16 is on teacher resources and additional resources ready
• 02:00 - 02:30 all right let's go into budgeting first off what is a budget a budget is a plan that helps you manage your money it shows you how much money you have how much money you need to spend on things and how much money you can save or use for other goals having a budget can help you make smart decisions with your money and avoid problems like overspending debt or running out of money in essence you can think of a budget as a plan for money that's going to be coming in and what you're going to be doing with it I'm going to put on screen now a very simple budget sheet that Con Academy provides this is a monthly budget and
• 02:30 - 03:00 people can have like super fancy spreadsheets and things like that uh again this is a very simple one but they all work essentially the same you want to keep track of your income in some fashion whether that be in paychecks or side incomes then you want to decide what you're going to be doing with this money a very popular rule that people like to follow is the 50 30 20 rule which means that you want to allocate 50% of the money you earn into needs this will be like groceries rent Transportation costs 30% into wants things that are nice to have but not necessary things like going going out to
• 03:00 - 03:30 eat watching movies and finally 20% into savings this would include saving for an emergency fund in case you have any medical emergencies or personal emergencies like getting laid off or if you just want to help someone it also includes saving monies for bigger purchases like maybe you want to own a house or a car or you could be saving money for investment for retirement here's an example of a budget worksheet for example the money that you're bringing in amounts through $3,000 also make sure that when you're calculating the amount of income you're looking at after tax dollars since that's the amount of money that you actually get to
• 03:30 - 04:00 spend the needs over here adds up to $1,780 which is 59% of our income and this is actually higher than our Target goal of 50% of income the wants total to $795 which is 27% of income and savings totals to $425 which is 14.17% of income even though our Target is at 20% so in this scenario if we want to follow the 503020 rule it looks like that we need to decrease our needs a little bit in order to bump up our savings as a little
• 04:00 - 04:30 exercise if you look at this budget sheet what do you think this person can do in order to decrease the amount of money they're spending on needs to boost their savings write in the comments okay so now let's think through this together looking into this needs category um all these things are definitely actually necessary but there are some things that you can potentially do in order to decrease the cost um rent is going to be something that you can consider downsizing into a smaller apartment but that's something that's probably a little harder to change you might have
• 04:30 - 05:00 to wait until your lease is over now let look at utilities cell phone and home internet so you definitely need to do these things but what you can actually do is actually try calling them up and just being like hey like I'm really looking to stick into my budget right now like this is outside of my budget what can we do in order for me to decrease the amount that I'm using on the side of utilities they may have like certain plans for you where they can give you certain suggestions for this and for things like cell phone and home internet they may have better deals for you cuz they would rather retain you as
• 05:00 - 05:30 a customer than you potentially leaving to go to a competitors sometimes all you have to do is ask car payments and insurance probably harder to decrease as well um but also for groceries you can potentially decrease the groceries by looking at different stores around you seeing if you can buy things at different stores and buying things when there's discounts there's a concept called per unit pricing that can be really helpful when you're considering what it is that you want to buy it's basically telling you how much you're paying per ounce per pound or per item like say you're buying laundry detergent
• 05:30 - 06:00 pods how much are you paying per pod or per cycle of laundry there are so many different types of laundry detergents available when you look at a grocery store so if you're not like super picky about it if you look at the per unit pricing that can help you determine which of these items is actually the cheapest per usage it may not seem like a big difference just a few cents difference but if it's something that you use as a staple it can actually add up to hundreds of dollars of savings so by implementing some of these decreases in cost for your need section you can take that money and put that that into
• 06:00 - 06:30 savings to achieve our 503020 rule this rule is not a hard and fast Rule and you can adjust it based upon your living situation and things like that but it is a really good place to get started and for you to go through your bank account and audit how much you're actually spending on each of these categories in relationship to your income after tax income now let's talk specifically about why it's so important to save money and what you should be doing with your savings saving money is very good for three primary reasons the first one is so that you can save up for an emergency fund it's generally recommended that you
• 06:30 - 07:00 maintain 3 to 6 months of an emergency fund 3 to 6 months meaning the amount of money that you need in order to survive that amount of time going back to that previous example if we've managed to balance our fund so that our needs is $1,500 per month then at the very minimum you should have $4,500 saved and the reason you want to do this is because life happens happens you might get laid off you might have a medical emergency somebody that you're very close with your friend or your family might have a medical emergency there's a lot of that can happen in life and you want to make sure
• 07:00 - 07:30 that you have the amount of money to cover your basic necessities for at least 3 to 6 months in order for you to get yourself on your feed again that is the first thing you should be saving for and you should not be touching this money until you really really need it now after you save your emergency fund you can think about the two other types of savings the first one is for bigger purchases like a car or maybe a house and the second one for Investments and saving longterm for retirement these categories are not necessarily completely separate either like for example if you want to buy house that
• 07:30 - 08:00 can also be something that you consider to be an investment that you're saving for long term a pro tip is that you can actually create a separate savings account for each of the things that you're saving for like if you want to save for a laptop a car and a yacht you know you really want a yacht um you can actually create a separate savings account in your bank account you can usually do this for free with a savings goal for each of these accounts and when your paycheck comes in you can actually automatically redirect that money um by how much money it is that you're putting into each of these different savings
• 08:00 - 08:30 accounts but speaking of savings accounts and we'll actually talk more about different types of bank accounts later as well but it's useful to know that there are different types of saving accounts you should consider things like the initial deposit requirements any access restrictions how often it is that you can take money out any overdraft fees if you're not maintaining a certain amount of money and also interest rates interest rates in this context is kind of like the bank giving a reward for you trusting them in holding on to your money so most savings accounts will give you a certain amount of interest it's usually not that much be like single
• 08:30 - 09:00 digits like 2 3% so if you put in $100 and interest rate is 3% then they will actually give you $3 in interest now you have $13 without having to do anything which is pretty magical we're not going to talk about inflation yet now let's talk about credit since this course is based on the US system there might be like a different scoring system um in the country that you're in but at least in the US and Canada credit scores are between 300 and 850 if you're in the high 700s to the 800 range that's considered a really good score and you
• 09:00 - 09:30 can get approval for most loans that you need and lower interest rates if you're between 600 and 700 that's considered decent it's not great but it's also not bad so you may be paying a little bit higher interest rates and if you're below 600 that's considered pretty bad and you might just straight out be not approved for loans uh or you just need to pay a really high interest rate so what exactly is a credit score a credit score is a measure of How likely you are to pay for things on time this will include how long you've had credit accounts for like credit cards or
• 09:30 - 10:00 student loans how much money you owe whether you make your payments on time if you've ever filed for bankruptcy there are all different factors that go into calculating the score so it's actually like quite complex how it is that they actually do it but overall it's supposed to represent how trustworthy you are to lend money to so say you might have a bad credit score what can you do in order to improve your credit score luckily there are ways and I'll go through them in a descending order of importance so the first thing is that you need to pay your bills on time your payment history represents 35% of your credit score so if you have any loans or credit card debts you should be
• 10:00 - 10:30 paying that on time the second is credit utilization so this is something that I do know but when I first learned about it I was actually really surprised by this accounts for 30% of your credit score and it means the fraction of your credit usage for example if you have a credit card limit of $10,000 it's actually best to spend as little of it as possible like say if you spend like $100 only then you have a credit utilization of 1% which is really good that is not to say that you shouldn't have credit cards though you still want credit cards because you want to show a
• 10:30 - 11:00 history of having credit but you want to show a history of not using that much of it I know it's sort of weird but that's how they calculate it and speaking of credit history that accounts for 15% of your credit score the longer the history of data they have on you of good you know money habits um then the more confidence people would have on your ability of paying back the loans that you take and finally the two last categories account for about 10% each the first one is the type of credit it's generally good to have a mix of different types of credit like between
• 11:00 - 11:30 credit cards maybe like a mortgage loans whatever like I don't think you should go and like get more debt and like do that intentionally um but you know that's just if you do it kind of looks better for you although it's only like 10% and the last one is new cards so there's this concept called an inquiry and there's like hard inquiry and soft inquiry basically like every time that you open up a new credit card it would be a hard inquiry so the lender would be um doing a hard inquiry to check your credit report and every time that they
• 11:30 - 12:00 do that kind of inquiry it actually hurts your credit score on the other hand you have something called a soft inquiry this would be something just like checking your credit score or if you're trying to like you know rent a house they might do like a soft inquiry on your credit score this kind of checking does not impact your credit score and is okay so generally speaking try not to get like several different new credit cards all at the same time try to like space it out a little bit now another thing that is interesting about credit scores is what doesn't count towards your credit CR score um
• 12:00 - 12:30 and the big one that is very interesting is that income has nothing to do with your credit score it doesn't matter how much money that you make it's only about your ability of handling the money that you have in relation to making payments for things not the size of the payments that you're making things like employment has nothing to do with it as well although if you have an employment you'll probably be more likely to actually be able to pay back your payments so don't be an ostrich if you don't already know your credit score go check it out using something like Credit Karma or your bank or whatever and if you have a pretty bad credit score then make a plan and follow these steps to
• 12:30 - 13:00 improve it there's a lot of free resources out there like YouTube videos that can teach you how to build up your credit and just generally speaking this course is about foundational things so if you want to like dive deeper into any of this it's best to actually look at Specialized courses where like videos and resources about these topics now before I move on to the next unit I want to make a note about credit cards credit cards are one of those things that are such a double-edged sword depending on how you use it on one hand um it's actually good to have a credit card because it can help you build credit and it's also super conven vent plus a lot
• 13:00 - 13:30 of them come with really good rewards and cash backs especially in the US I've lived in different places and all of them usually have some sort of rewards for your credit cards but in the US some of them are like insane some people use credit card points to have like entire vacations paid for but if you are not responsible with your money and you cannot use your credit card responsibly what could potentially happen is a massive amount of credit card debt because it's so easy to use and you just swipe it and it's on credit like you don't even have to have money in your bank account it's so easy to spend
• 13:30 - 14:00 that money a lot of people end up overspending it realizing like I don't actually have that money to pay back my credit card and that's when you realize that crazy interest rate starts kicking in like let's look at this credit card for example this is called a Schumer's box where by law um people who are trying to get you to sign up for a credit card they have to show this to you when things are going good and you're making back your payments on time every single month you know everything is great you're getting your cash back your rewards all these good things but when you start missing payments and start accumulating debt this is one the scary thing like annual percentage rate
• 14:00 - 14:30 APR starts kicking in so say if you have like $100 and your APR is like 20 and you're potentially paying up to 28.99% of the debt that you owe just on interest alone so if you already can't pay back your initial amount of money and you have so much interest building up on that as well and it's very quickly that you're digging yourself a very deep hole of credit card debt unfortunately I actually know quite a few people who have found themselves in that situation extremely quickly other things on this shumer box include like apri for transfers getting cash advances that's
• 14:30 - 15:00 even worse just just don't do it if you're taking cash that you already don't have and getting from a credit card just bad idea don't do it yeah there's like penalties it also shows a grace period so this is the amount of time that you have in this case 28 days before you need to start paying back um the amount that you have on your credit card so that's why you should always be paying back the full amount when you have a credit card so you don't have to pay any of these interest rates while also being able to benefit from building out your credit and also all of the perks and like rewards and things like
• 15:00 - 15:30 that this course also goes through a lot of different types of credit cards and how it is that you can compare credit cards so if this is something that you're interested in I actually recommend that you check out this unit from the course by the way all Con Academy courses are free which is amazing long story short credit cards are great if you're responsible and you can actually pay things back if you don't just don't do it or look into specific special credit cards for people who are trying to build up their credit now let's do a money personality quiz this is going to be really helpful for determining your financial goals I'm going to put on screen now and please pause the screen if you want to do this
• 15:30 - 16:00 quiz and answer each of these five questions A B C or D so for each of these questions give yourself the following points for each answer so when you answer a to something give yourself one point if you answer B give yourself Four Points C give yourself five points and D give yourself two points now if your range is between five to n points then your personality is a spender type this means that you're someone who enjoys spending money you're kind of like a Livin a moment kind of person may have trouble saving and planning for the future future and you might struggle
• 16:00 - 16:30 with debt or impulse buying if you have between 10 to 14 points then you're called a balancer this means that you're pretty good at managing your money and making good decisions but you're also prone to indecision and stress so you may be missing out some good opportunities because you're being very cautious if you have between 15 and 19 points you're considered a sa this means you're excellent at saving money and reaching your financial goals but it also means that you may be too Frugal and too rigid you may be neglecting some of your own wants and needs just in order to save save more and you may have
• 16:30 - 17:00 trouble sharing your money with other people and finally if you're from 20 to 25 points you're considered an investor you are Savvy and you're strategic with your money and you really seek to grow your wealth and to have a positive impact generally you're very adventurous and you're willing to take risk but sometimes you may be a little too optimistic and ignore some of your basic needs let me know in the comments what you got so for me I got 12 points which makes me a balancer my strengths are that I maintain a balance between saving spending and investing so it says the
• 17:00 - 17:30 characteristics are you're good at managing your money and making smart decisions but you may also be prone to stress or indecision you may miss out on some opportunities or experiences because of your cautiousness that actually fits me really really well I feel like I got so scared of certain like scams that people T me about and warn me about to the point where I just kind of like assume everything might be a scam so I'm definitely like a pretty overly cautious kind of person and definitely I get like stressed where indecisive so I just end up like not
• 17:30 - 18:00 probably taking advantage of many opportunities that I have and I also put on screen now the tips for the different money personalities for me I already know my strength is being able to balance between these things and challenges is to cons it's hard to stay consistently in the middle so specific tips would include traing yourself occasionally to enjoy your money staying open to new money making opportunities seeking advice but trusting your instincts and celebrating your financial successes so obviously this is not like all encompassing but I think it's useful to take some of these tips and start incorporating them into your financial
• 18:00 - 18:30 goals which is what we're going to talk about next the course recommends that you use smart goals I might have heard of that acronym before it stands for specific measurable achievable realistic and time Bound for example a not smart goal is I want to be rich like what does that even mean right on the other hand a smart goal would be something like by the time I am 30 years old I want to put down a down payment for $100,000 to buy a house it's specific because you want to buy a house it's measurable because it's $100,000 it's achievable in the
• 18:30 - 19:00 sense that it is not impossible to do and it's realistic well it could be realistic depending on your life situation but assuming that you have a job that can allow you to do that and you have like you know 5 years until you're 30 um it's something that you can reasonably do and it's time bound because it's by the time that you're 30 years old when you set these kind of goals you can actually start making plans to achieve them so when we're setting these financial goals we also want to think about them in terms of short-term goals medium-term goals and long-term goals short-term goals are goals that are going to be less than a year long this would include things like
• 19:00 - 19:30 saving up for an emergency fund buying a new phone buying a new laptop or paying off a small debt a smart short-term goal would be something like I want to save up $2,000 to buy myself a new laptop in 3 months the general strategy for short-term goals is simply to take that out of your income as part of your budget and then save that into a bank account or like a piggy bank or money jar if you prefer a medium-term goal is something that is between a year to 5 years long this would incl include things like buying a car saving up for
• 19:30 - 20:00 college buying a house a smart medium-term goal could be like the example we used before like I want to have $100,000 down payment to be able to buy a house by the time I turn 30 for example in terms of strategy in addition to just having that as part of your budget and you're saving that money you might also want to consider some low-risk Investments since that money is probably going to be locked up for at least like a year or to 5 years this could be something just like a high yield savings account or maybe something with a fixed term interest rate we'll talk more about investment vehicle things later in a video and finally nonm
• 20:00 - 20:30 girls goals that will probably take you 5 years and more to achieve this will include things like saving for retirement leaving a legacy depending on your age and financial situation buying a house could maybe be more of a long-term goal as well a smart long-term goal could be something like I want to be semi-retired in 10 years so I want to have saved up around $5 million in the next 10 years so that I can work part-time and be able to travel wherever I want uh this is when you should also really consider investing that money to grow your wealth in things like stocks
• 20:30 - 21:00 and bonds most countries also have specific retirement accounts that can give you tax benefits as well which we will also talk about later in the video now after you create your smart goals then you want to come up with a financial plan to achieve them and there are four different components for a financial plan the first one is a budget and this is there's a lot of spreadsheets out there there's a lot of different apps you can use in order to determine how much money is coming in and what's the plan to achieving your financial goals then you need a savings plan which is specific to what it is that you're saving for how much money
• 21:00 - 21:30 you want to be saving for all of your different goals this will help you prioritize your goals allocate your income and build up your savings third is a debt repayment plan if you have debt this is something that is really important you want to be looking at all of the debt that you currently have and come up with a plan in order to repay these and you should absolutely be prioritizing this there are a lot of really great free resources out there that can help you come up with a debt repayment plan so look it up and fourth is an investment plan this is a plan for how much money you want to be investing
• 21:30 - 22:00 from your savings remember your savings is divided into subcategories about your different financial goals right but you want to specifically also have a plan for your investment side of things this is where you determine where it is that you want to be investing your money in order to achieve longer term goals like retirement again there are a lot of really great resources out there that can help you come up with an investment plan as well just ask chpt or look it up on Google even though the course doesn't go into a lot of detail about each of these plans I think it is really helpful to know this framework that you need to realize that you need to set financial
• 22:00 - 22:30 goals um how to set financial goals and these are the components that you need in order to achieve your financial goals okay so final part of this unit is calculating your net worth probably heard about this term a lot people's net worths so net worth is very simply just assets minus liabilities for example for assets you could have a $500,000 house a $50,000 car it's a really expensive car um jewelry that's worth like $5,000 and your total amount of assets is $555,000 now on your liabilities you could have a $400,000 mortgage on your
• 22:30 - 23:00 $500,000 house $40,000 in car loans which is also a lot of loans $115,000 of credit card debt and $50,000 of student loans and that works out to be $55,000 so assets minus liabilities $555,000 minus $55,000 that means your net worth is $50,000 this may not seem like a lot but believe it or not a lot of people actually have negative net worth which honestly is okay when you're younger uh because you know you're going to school and and accumulating debt from that probably but as you get older you do
• 23:00 - 23:30 want that number to start becoming positive so if you don't know your net worth should calculate that all right so let's now do our first little assessment I will put on screen now these questions feel free to answer them in your head but even better actually write it down and put it in the comments this will help you retain this information now let's move on to loans and debt when I didn't really know that much about loans whenever I hear that word I kind of have like this adverse reaction to it and I think the reason is because growing up I heard so many stories of people taking
• 23:30 - 24:00 out loans and then just you know having like a lot of issues and going bankrupt and things in life so it's almost like I just view the idea of loans and debt as something that's just like bad like I should stay away from that but after a little bit of unlearning I realized that the idea of loans and debt is not actually a bad thing it's really just about how you use it unfortunately the stories that we hear is often of people who use it poorly or you may have a completely different reaction to when you hear the word loan so whatever it is um I think it is really helpful to
• 24:00 - 24:30 really understand how loans work so I'm going to spend a little bit more time on this section but let's first Define loan so when we say that we're taking out a loan we're using credit what we mean is that we're borrowing money from somebody else that could be like a friend family or third party institutions like a bank the agreement is that they lend you the money and you will pay that back to them in the future probably with some money added on top as well in the form of Interest or fees as the cost of borrowing that money interest is generally a percentage that is based upon how much money that you're borrowing which you're going to be
• 24:30 - 25:00 paying back through a period of time for example you borrow $100 and you're paying back $110 in one year that means the interest rate is 10% fees are another cost and there could be like a variety of different kinds of fees associated with borrowing that money loans can be extremely useful if you need to purchase something which you don't have the money or you don't necessarily want to spend the money on right now this could be things like buying a house going to college investing in education or in case God forbid there's an emergency uh that you need to do with but not all loans are created equal there are different terms
• 25:00 - 25:30 and requirements and the biggest difference between them is generally in the interest rate some loans have higher interest rates and some loans have lower interest rates is if you think about it from a lender's perspective they will probably charge you a higher interest rate for something that has more risk towards them we'll go back to this and talk about the different types of loans in just a bit but first I want to talk about how to get a loan so this course is very us Centric so I'm going to try to generalize these terminologies and Concepts in a way that everybody body can understand but if you want to have
• 25:30 - 26:00 like more specific terms if you are based in the US I actually really encourage you to go through this section of the course which I will link below so when you want to get a loan and you go to a bank for example and you're like I would like to have a loan please generally they will ask you for a variety of information to determine how risky it is to loan something to you in other words How likely are you to actually pay back that money they will consider things like your income level your job history how long have you had a job for do you tend to switch your jobs a lot what's your credit score your debt to income ratio which is how much debt
• 26:00 - 26:30 you have in relation to the income that you're bringing in the higher the debt to income ratio the more risky it is for some types of loans they would also consider something called a collateral which is something of value in which if you decide to like not pay back that money for some reason the bank can take back to repay that loan for example if you can't repay your house loan then the bank gets to take your house okay so let's now go back to the type of loans that are available the first type is called an installment credit this is when you borrow generally a pretty large sum of money and you need to pay that money back by installments usually on a
• 26:30 - 27:00 monthly basis for example if you buy a car or you buy a house then you're paying back a certain amount of fixed money every single month the second type is a revolving credit and the best example of this is your credit card your credit card has a limit in terms of how much money you could borrow up to but you can borrow different amounts and as long as you pay back some of that money you can keep borrowing up to that amount for example if your credit card has a limit of $1,000 you could buy something for $50 and you still have $995 left that you can borrow until you pay some
• 27:00 - 27:30 of it back as you can see a revolving credit can get pretty risky and dangerous pretty quickly one of the worst possible loans you can get which is a revolving credit loan is payday loans you're basically taking out credit on the payment that you haven't even received yet and you can do this like over and over again but I'm not just saying that revolving credits are bad there's really pros and cons for both installment based and revolving credit revolving credit even though it can be risky and costly it is very convenient and when you smartly like if you actually pay back your credit cards on time you take advantage of lots of rewards and you can use it to improve
• 27:30 - 28:00 your credit scores over time installment credit on the other hand is a lot less risky and that's actually also why it has a much lower interest rate in comparison to revolving credit but it can also be rigid and limiting if youve ever heard someone say that they had to refinance their mortgage um if because their mortgage is in installments so they have to like physically go and change the way that they're financing it and then go through this entire process of doing that while potentially also incurring fees along the way and if you really need money fast you also can't really use installment credit because it takes such a long process to actually
• 28:00 - 28:30 get it revolving credit will be much easier to do I've been using interest rate a few times out the interest rate when it comes to loans is generally described as an APR annual percentage rate it's the total interest and fees in a year divided by an average balance owed and you'll see this number everywhere it is like a standardized way for you to be able to compare between different loans that you're taking and just for reference here are some different types of loans and their aprs expressed as a range as you can see something like payday loans is freaking crazy at 300% to 800% and this is you
• 28:30 - 29:00 know of course based upon the United States so long story short loans are not necessarily A Bad Thing and debt is not necessarily a bad thing either the course explains that there really is a concept of good debt versus bad debt a good debt is taking out a loan as an investment for the future this could be things like starting a business investing in a home considering that you actually do the research properly these are all things that are meant to increase your quality of life and bring you more wealth in the future and you should be able to pay back that loan easily bad debt is also unfortunately definitely thing as well and these are the horror stories that you generally
• 29:00 - 29:30 hear of like people taking out payday loans personal lines of credit drowning and credit card debt bad debt is anything that is weakening your financial stability when you spend money that you don't have on something that isn't actually going to bring you more wealth in the future let me know in the comments what's your relationship with like loans and debt do you kind of have like a negative connotation towards it out of like fear um is it something that you're just like oh whatever and then you have like maybe issues with spending and potentially are in debt because of Reckless spending or do you feel like you're able to use credit and loans and
• 29:30 - 30:00 debt responsibly I really want to know where you stand okay so before I end this unit I do want to touch on the fact that if you do happen to have a lot of debt it is something that you should definitely be prioritizing over everything else right now the course briefly talks about two different approaches called the high rate approach and The Snowball Effect I'm not going to go into too much detail about this right now but I really recommend that you check it out and then also just there's a lot of free resources out there that can help you come up with a debt repayment plan now let's talk about insurance so I actually didn't know that
• 30:00 - 30:30 much about insurance before taking this course and my first initial reaction is that wow I did not realize that so many bad things could possibly happen and there are so many different types of insurances that could cover the so many bad things that are happening but in all honesty though I'm really glad that I did this section because it's just not a topic that I would naturally you know look up by myself cuz I don't want to think about bad things happening you know like most people don't but the truth is that bad things are happening all the time even if you're just minding
• 30:30 - 31:00 your own business you could potentially get laid off you could have a medical issue occur you could have some issue happen with any of your family and friends God forbid you could die so it is actually important to mitigate those risk there are two approaches that you can manage Financial Risk the first one is just to avoid risk and the second is to transfer risk to someone else in the case of a car accident you can try to avoid this risk by driving safely and not texting and driving or drinking and driving you can also save up some money so you can your car relatively quickly in case something happens and you
• 31:00 - 31:30 wouldn't have the risk of not having a car to drive in addition to this you can also transfer some of that risk to somebody else by purchasing liability insurance from an insurance company in this way if you get into a car accident and it's your fault you instead of having to pay for damage that you've done because you have insurance that insurance will cover that amount so you see the key to managing Financial Risk involves both avoiding risk and potentially transferring that risk to someone else by purchasing insurance so hopefully that makes sense in terms of where Insurance fits in and why it can be useful now the course itself goes
• 31:30 - 32:00 through a lot of different types of insurances that you can have with the most common ones being medical insurance especially if you're in the US I learned this the hard way when I broke my foot and I did not have insurance property insurance in case you own a property or even if you're leasing a property car insurance there's life insurance in case you die I'm not going to go into too much detail about all the different types of insurances but definitely if you're interested do some of your own research but before I end this section I do want to Define some of the key terminologies that is used in the Insurance world the key participants include the insured which is the policy
• 32:00 - 32:30 holder it's you if you're buying it for yourself it's somebody else if you're buying it for somebody else the insurer the company providing the coverage so the insurance company the agent so there's usually a third party that helps you purchase that policy and the underwriter the people who assess the risk and set what the premiums are the premium means the payment that is needed to keep the coverage active so how much money you have to be paying to have that insurance sometimes there's deductibles which is the amount that you need to pay out of pocket before an insurance kicks like say for example your deductible is
• 32:30 - 33:00 like $11,000 um in one year that means that anything that happens within that year you go to a doctor you do all these things if it's up to $1,000 you need to pay that out of pocket but the insurance will kick in after you've spent $1,000 of your own money there's also something called co-pay so sometimes when you visit a specialist office you have to pay a certain amount in addition to the insurance paying the rest of the amount so if your co-pay is like $20 to see a dermatologist so you paid $20 and your insurance will cover the rest of the visit there's often also a policy limit
• 33:00 - 33:30 which is the maximum the insurer will pay for the claim your home insurance could have a policy limit of $400,000 when it comes to fire damage a claim is a formal request for coverage so if something happens you put in a claim for coverage and finally the benefit is the payment that insurer will pay to cover whatever it is that the claim is it's best to use insurance as a backup it's not something that you should be like oh it's cuz I have insurance I can just do whatever I want now and it's definitely not something that you should be thinking like oh I can make money from my insurance it's for reducing Financial
• 33:30 - 34:00 impact and the best time to think about getting insurance is when you don't actually need that insurance yet which is always the little tricky part you want to be getting your insurance before you get sick before your house burns down before you die let's talk about um Investments and retirement now there are two friends called Miguel and Jasmine Miguel and Jasmine both started working at widget cor at the same time and during the onboarding they were asked to sign a lot of different forms a lot of them with health insurance forms because they're from the US so there's health insurance dental insurance and
• 34:00 - 34:30 retirement so Miguel decides to save $25 per month to put inside his retirement fund but Jasmine just goes like eh future Jasmine problem so Miguel kept on contributing $25 to his retirement account per month while Jasmine contributed zero now 10 years has passed and really Miguel has mostly forgotten about the $25 that he's been contributing because it's just been directly being taken out of his paycheck but Jasmine at this point goes like hm I should probably think about retirement so she starts contributing as well but since she's has more disposable income
• 34:30 - 35:00 now she's decided to put in $50 per month so double the amount Miguel puts in then another 30 years passes lots of things happen and finally Miguel and Jasmine also decide that they are going to retire now let's take a look at their retirement accounts guess who has more money well if you guess Jasmine you are incorrect that would be Miguel Miguel has $168,000 while Jasmine only has $147,000 so even though Miguel only contributed $25 and never increased his
• 35:00 - 35:30 contribution Miguel contributed $25 for 40 years while Jasmine contributed $ for the first 10 years and then $50 for the next 30 Years so even though Jasmine contributed twice the amount of that Miguel did and for 30 years she still ended up with less and that is thanks to what is considered the eighth wonder of the world compound interest so even though Miguel was contributing less money his money was working for him all of those 10 years and it kept on compounding on top of each other so even though Miguel contributed less overall
• 35:30 - 36:00 that first 10 years really started adding up and before he even knew it he had increased his nest egg significantly this is the reason why people keep saying that you should invest early even if it's just a few dollars that number will keep adding on to itself the general idea is that the earlier it is that you start saving the better it is remember the 20% we talked about in the budgeting section the 20% were you're allocating into savings let's now talk about more in detail what you should be doing with those savings so first let's
• 36:00 - 36:30 make a distinction between saving and investing these are two terms that get confused a lot I mean even on our budget sheet which is called the entire things savings right but they're actually different saving means storing your money safely having easy access to it and having very low risk potentially hopefully growing it a little bit over time as well but mostly just not losing money is called saving and these savings are useful for your emergency fund in case there's emergencies and also for short-term goals remember those smart goals we talked about the short-term smart goles now technically you can save
• 36:30 - 37:00 your money by just stuffing it under your mattress and hiding it in your closet but it's generally not that great because it is not convenient to you somebody could just steal all of it there's a lot of Cashers just lying around it gets very very confusing and you have absolutely zero growth on that money assuming you don't lose it yourself people generally save their money by putting in a bank in a bank account it can be like a regular bank account or there are types of special savings accounts where if you put a certain amount of money for a certain period of time you're able to have higher interest rates for it in the US
• 37:00 - 37:30 this is called a certificate of deposit it's called other things in other places but the concept should be in your country as well on the other hand investing is the idea of putting money with the intention for the money to grow over time this is when you put money into assets like stocks or bonds or mutual funds by investing you're accepting higher risk with the hope of potentially having more Returns the money itself is generally less liquid like you can't take it out um as quickly as you could from your SA savings account and it's usually useful for
• 37:30 - 38:00 medium to longer term goals so I'm going to talk more specifically about investments in just a bit but first i'm going to quickly walk through this framework for how to think about your savings and Investments which I think is really helpful so number one is that you need to create a budget so you're tracking your income and you're taking that 20% that you're going to be using for savings and investment then the first goal is a savings goal and that is to establish an emergency fund you want to save at least 3 to 6 months of your living expenses in a bank account and don't touch it unless you actually have an emergency step three is to set clear
• 38:00 - 38:30 Financial smart goals for the short-term medium-term and the longterm and you want to decide whether saving or investing is the best way to achieve them remember for short-term goals generally there are saving goals while for medium and long-term goals you can have portions of investment goals now specifically for investment step number four is to diversify your Investments don't put your money into one type of investment Instead try to spread them out across different types of assets to reduce your risk and step number five is to review and to adjust check your
• 38:30 - 39:00 progress regularly and adjust it as needed in order to make sure you're achieving your financial goals I think this five-step framework is super helpful because there's just like so many things that you're supposed to be doing um but you know it's basically telling you that these are your list of priorities that you should be doing so if you don't know what to do start with that okay let's now talk about Investments specifically there is a relationship between risk and reward generally the greater the risk of an investment the greater the potential reward is as well but also the PO potential for loss a simple way of categorizing different types of
• 39:00 - 39:30 Investments because there are so many different types of Investments is into three major categories the first one is a low risk and a low return category these are things like money markets treasury bills and bonds I'm not going to go into too much detail about what exactly these types of Investments are and the course itself also doesn't go into too much detail about it but if you're interested definitely look up these specific terms but when we say low risk low return these are things that you will not get that much interest rate for but these are just things that if you invest in they're very safe investment so the likelihood of you losing your money is extremely low but
• 39:30 - 40:00 the amount of money that you get from interest rate is also quite low the second type is moderate risk and moderate return these are things like mutual funds and index funds and the third type is high risk and high return these are things that are risky and volatile things like single stocks cryptocurrencies and commodities so to just kind of give you idea for what these return percentages are looking like I'm sure many of you have heard about this suggestion people just tell you like oh if you have like money set decide for investment just invest in the S&P 500 the S&P 500 is a stock market
• 40:00 - 40:30 index that tracks the largest 500 us companies This falls into the category of moderate risk and moderate return and historically the S&P 500 have been returning around 10% annually and adjusted for inflation that's around 6 to 7% just to give you an idea of what these numbers are looking like in any case the general philosophy of investing is that you need to understand the amount of risk that you're taking and the potential reward or loss that you could be taking as well and that you should always try to diversify your assets do not keep your
• 40:30 - 41:00 eggs in one basket let me know if you actually want me to do a speedrun of an investment course specifically I'll be down for that as well but just a word of caution because I have made this mistake before like several years ago I got really interested in investment and that in itself is like not a problem but what was a problem was that I was very interested in investing without actually covering the foundations first which is in budgeting and saving I thought that was like boring but in reality that's like trying to build a house while having like a shitty foundation so if
• 41:00 - 41:30 you're interested in investing you definitely should get your budgeting and your saving and debt repayments if you have any in order first okay let's actually go back to Miguel and Jasmine and talk about retirement so we saw from the life of Miguel and Jasmine the magic of compound interest which is especially relevant when it comes to investing for retirement because we're looking at 10 20 30 even 40 years that people have before they retire so you have all that time to take advantage of compound interest there are actually special retirement accounts in most countries specifically to allow you to invest for
• 41:30 - 42:00 retirement in the US the ones that they usually talk about is the 401K the IRA and the Roth IRA the 41k is an employer sponsored account which is set up by your employer so both you and your employer can contribute towards it some employers would actually do 401K matching like for example when I was working at meta they did 7% 401K matching up to like a certain limit which is really really good so it's essentially like free money that the employer is putting into your retirement account IRAs are considered individual ual account so you're basically operating that by yourself and of course
• 42:00 - 42:30 there's Social Security which is a government program funded by payroll taxes that generally is going to be like really really small amount and who knows if you can actually depend on that by the time you actually retire wouldn't really count on that one anyways I'm not going to go into too much more detail about these like very us specific things but you can check out the details about these accounts I think the cour does a pretty good job of covering them and I'll put the link in that for that unit below for everybody else and this is me included because I'm not American there's huge gen some version of this um for your home country as well you can go
• 42:30 - 43:00 to chat PT or whatever your favorite AI is and just ask like what is the equivalent of a 401k we're just like what are the retirement accounts available in my country all right time for our next little assessment I'm going to put on screen now some of these questions that covered the past couple of units remember if you can answer these questions that means you actually have retained that information now let's go on to scams and frauds okay so I'm going to spare you the massive list of different scams and frauds that are going on but I'm just going to leave you with two general wisdoms when it comes
• 43:00 - 43:30 to scams and frauds the first one is that if it's too good to be true then it's too good to be true in Chinese we actually have a saying that's called that's a phrase that my mom likes to use a lot as well but basically it's just saying that the guy does not have like these saring is is like this food that drops for free like you know no such thing as a free lunch right if it sounds too good to be true then it's too good to be true if someone goes like oh you know if you invest in this thing then I'm give you 50% return yeah no they're not going to do that or a
• 43:30 - 44:00 Nigerian prince is going to like you know give you the certain amount of money if you wire that amount back that's not going to happen either and I actually did notice with the rise of AI these scams have gotten a lot more intelligent so even though like you know Nigerian prince sounds so ridiculous there are like very very like good scams these days so just generally speaking if you see something and you're like wow that's a great opportunity definitely just be careful of that and de second General wisdom is to not give out personal identifiable information or pii
• 44:00 - 44:30 things like your social security number if you're American Social Insurance Number if you're Canadian or whatever the equivalent is to your country try not to give people your birthday as much as possible try to you know use different passwords different types of emails just like don't do things that can expose you to more scams remember stranger danger you know the things when you say it like you meet everybody we're all just like oh like I would totally never get scammed because of something like this but when reality like when they're actually like doing these things
• 44:30 - 45:00 it it can be very very realistic like scammers are very good at tapping into the emotional part of your brain and it makes you start doing things that are completely irrational so please if you feel like something could be potentially off try to ask more questions about it try not to do anything rash when it comes to your money I guess that's a general sentiment as well not just for scams and frauds now with all that being said though I do kind of want to make a caveat and this is kind of like actually a personal caveat it's actually not from the course so not from K Academy um it's the fact that you can also go the
• 45:00 - 45:30 opposite direction like for me I'm so scared of getting scammed that I essentially just like think everything is a scam and I miss out on a lot of opportunities you know because of that and I think that also can be a problem like when you hear so many horror stories about scams that you just end up not actually like making moves that could potentially benefit you financially so yeah just keep that in mind as well there are scams but there's also genuinely good opportuni out there as well all right moving on to next section I'm actually going to group
• 45:30 - 46:00 together the two sections the first one is careers and education but I also want to group in employment and the reason why I'm doing this is because these sections are not as indepth as the other sections and also they're very very us Centric so if you are American by all means please do check out those sections if you're interested in kind of a good overview about things to think about when you're thinking about school and your career and employment but for this video I'm going to talk about more General Frameworks for how to think about these things let's talk about Education First specifically let's say
• 46:00 - 46:30 colleges and universities it is a really really big investment to go off to college whether that be like a 2-year degree or a 4-year degree so before making a decision like this it's very important to understand the breakdown of cost in relation to how much additional Financial value that the degree can bring you so return on investment the sticker price of what university tells you something cost is never actually the true cost of going to that school a lot of additional cost to tuition that people don't fully consider would be like the cost of books the cost of
• 46:30 - 47:00 materials like lab materials if you're into Sciences art material if you're into Arts many universities also have these other like random little fees that they just stick in there like mine definitely did and I did not know that until I actually saw you know the amount of money additional money that I had to pay other types of costs would include transportation and living expenses if you're going to be living near the school and actually commuting to the school so that would be Transportation housing cost food costs and just personal expenses if you need to move to a city that's much more expensive than where you're living right now then you
• 47:00 - 47:30 have to factor those into account as well it is possible that attending a university is actually cheaper than you would expect too and that's through something called financial aid I think it's especially common in us-based universities but there's a lot of like grants and scholarships for people who can't afford to go to school where they're you know at a certain Merit level then they would get these scholarships of course there's also the option of loans and I'm not going to go into too much detail about this cuz there's a lot of different types of student loans available but generally speaking it's just a very good idea to
• 47:30 - 48:00 actually go through these numbers and actually calculate how much things cost and what potential financial aid that you could apply for um before choosing a university that you're going to when it comes to if you're getting a post-graduate degree like a master's degree or a PhD another consideration you want to take into account is the idea of opportunity cost so the amount of money that you're going to be spending on this degree in addition to the cost that is associated directly with that degree also includes you not working during during that period of time so all of that is called opportunity costs all of that money that
• 48:00 - 48:30 you could potentially have earned if you actually kept working at your job would be gone so that's also something that you need to be careful about considering many people also fall into the Trap of thinking that getting a master's degree or a postgraduate degree would definitely increase their salary expectations afterwards and that is not always the case so it's also very important to evaluate that carefully too anyways if you're looking to attend school or go back to school it is obviously a really really big decision and it's something that you should very carefully consider now the second from the course which I thought was really helpful for people who both want to go to school also for people who are trying
• 48:30 - 49:00 to get a job is an actually very very obvious thing it's to actually talk to people like if you're thinking of going to a university and getting a certain degree and you're like oh like I'm not sure if this is actually going to get me to job that I want I don't know if it's I'm going to learn the things that I want to be learning then actually reach out to people who have graduated from that degree and same goes for a job if you're like oh I'm not really sure if I want to do this job not really sure what that's going to be like then try to actually reach out to people who have done that job before seriously if you just talk to someone who's actually been through the experience that you're
• 49:00 - 49:30 trying to decide about it can potentially save you a lot of money time and headache okay now let's do a fun exercise answer the question when was the last time that you paid taxes a in the last 24 hours B in the past week C in the past month or D in the past year I would hope the majority of you probably should have chosen a in the last 24 hours whether you have bought anything in the last 24 hours you should have picked eight and that is because of sales tax which is the tax that you pay
• 49:30 - 50:00 every time that you purchase something at least if you're in North America I know that not all places have sales taxes but my point being in doing this little exercise is the fact that when most people think about taxes they just think about tax season like when they have to pay taxes um every single year when in fact you're actually paying taxes all the time throughout the year in a variety of different ways let me just list out a few for you income tax payroll tax sales tax property tax corporate tax estate tax excise tax
• 50:00 - 50:30 hotel tax and toll tax so these taxes generally fall into two different categories the first one is called a flat tax and a sales tax would be an example of this it would just be like every time you buy something or you go to a restaurant and you eat something um there would be like a certain percentage at the end of your bill that's tacked onto your bill and this is going to be the same rate for everybody then there's progressive tax an example of this would be income tax higher earners would generally pay a larger percentage of their income some taxes are going to be built into the prices itself and there's nothing you can do about it while for others like income tax or property tax
• 50:30 - 51:00 you can calculate and sometimes there are ways that you can actually reduce that tax so generally speaking if you're a single person you're an employee working a full-time job um and you don't own any properties then you would have like the simplest tax forms and a simplest tax process you would just fill out some forms in the beginning of your employment and usually the tax is deducted directly from your paycheck so you don't actually even get to see that money it gets directly paid to the government now it gets a little bit more complex say if you're a contractor and you're working for yourself then you're taxed at different rates and you're responsible for reporting your taxes and
• 51:00 - 51:30 paying your taxes yourself as well and if you own things like properties then that's like a whole set of other types of tax that you would be paying other thing to know is that there's things called deductibles so if there are certain things that don't count towards your taxes so you don't get taxed on those specific things there's also something called a tax credit and this can be used to reduce the amount of tax that you have the rest of this unit goes into detail about us-based specific tax forms how to fill them out what they mean and all these things so definitely check them out if you're interested but I'm not going to cover them here just because we have a pretty Global audience
• 51:30 - 52:00 let's now talk about Banks the way that a bank makes money is that when you deposit money into a bank you'll receive a little bit of interest for the money in your bank but they'll actually take that money and lend it out to other people and charge a much higher interest rate for it and the bank gets to keep the difference in interest rate Banks pretty much all work in a very similar way but there are many different types of banks so first you have your very big National or even Global Banks places like JP Morgan Chase Bank of America America City Bank generally speaking these banks are full service Banks so
• 52:00 - 52:30 they'll do lots of different things for you but you wouldn't make the most money in terms of interest rates when you're banking with a larger bank then you have your Regional Bank so they're smaller they're more specific to where it is that you live you can probably get better interest rates when you bank with them and they may have specific perks and offerings that would be especially useful for you you also have credit unions where you can also deposit money and take out loans but these are generally nonprofit and based on membership so you actually have to be a member to be to do stuff with a credit union if you bank with a credit union your interest rate is generally going to be higher but they do have more limited
• 52:30 - 53:00 services and finally there is online banks so these are banks that don't have physical locations although sometimes they would partner with bigger Banks so that you can use um different ATMs that are around so because the bank itself needs less money in order to operate since it doesn't have any physical locations generally if you bank with them you would also get a much higher interest rate for your money although it is also true that some of these online banks can be a little bit more risky um because you know they're just online people doing online things so when you're choosing a bank with a bank people generally start off with a regional bank or a national or global
• 53:00 - 53:30 bank just because you know there's more services that are being offered and it's generally considered to be more secure but if you want something with better rates and a more personal touch you could consider a credit union and finally if you're comfortable with online things and if you want lower fees and higher interest rates you can try an online bank now let's talk about different bank accounts so within a single bank there's usually different options for bank accounts so these terms might be a little us-centric but based upon where you are there's probably an equivalent of this so the have your checking account which is kind of like your everyday account has very low
• 53:30 - 54:00 interest rates or no interest rates and you're essentially just using it just a place to store your money as opposed to hiding cash and hoarding cash in your house there are money market accounts which has slightly higher interest rates um but you know they may have some things like you can't withdraw under certain limits you have to keep a certain amount of money within that bank account or you can only do withdrawals like five times a month similarly is savings accounts it also has a little bit higher interest rate but more restrictions then there are certific ific Ates of deposit where CDs uh in Canada where I do a lot of my banking
• 54:00 - 54:30 these are called gic's and this is kind of like the highest level of saving before you start going to investment territory because you're essentially going to take that money and lock it up for like 6 months one year or 2 year and in exchange for this the bank will give you a much higher interest rate for it and the reason why the bank is willing to do this is because if you're basically like saying I'm not going to take this money out then the bank is able to take that money and Loan it out to people knowing the fact that you're not going to want it back of course the downside is if you actually do have to like touch that money and take it out you'll have to pay a very significant
• 54:30 - 55:00 penalty for it and finally you have investment accounts so investment accounts is also kind of a category in itself there are a lot of different investment accounts there stock accounts you have your special investment retirement accounts like your forks or your IRAs you could also have like normal brokerage accounts where you can buy things like stocks and funds and things like that most people generally don't have just the single type of bank account usually at least you would have like a checking account for just moving money around some form of savings accounts um to get a little bit of interest rate and then potentially also
• 55:00 - 55:30 at least one type of investment account to be doing investing stuff okay so now let's actually revisit the idea of interest rates specifically in relationship to bank accounts I mentioned interest rate for some of the accounts that I just talked about earlier but let's specifically talk about the accounts that has compound interest built into it remember the story Miguel and Jasmine Miguel contributed less money but he actually had more money at the end of retirement and that is because of the magic of compound interest luckily some accounts have compound interest built specifically into it for savings accounts these would be regular saving
• 55:30 - 56:00 accounts and CDs retirement accounts like 401ks and Ras and also most brokerage accounts which are accounts in which you're investing stocks bonds or mutual funds so any money that you earn from that investment can actually be reinvested so you can let compound interest do its magic so if you're looking to take advantage of compound interest then you should be looking into these types of accounts the last thing I want to talk about in this section is inflation inflation refers to the idea that the prices of things that we buy are generally going up over time so your
• 56:00 - 56:30 money actually is worth less over time so if you ever hear in the news that inflation is 3% or 6% this is basically saying that things are getting on average 3% more expensive or 6% more expensive it's very important to keep track of inflation because it is a force that will continue to make your money worth less that's why if you actually do nothing with your money you're actually slowly losing money over time and even when you're investing money sometimes you know somebody would tell you oh like the interest rate for these Investments where you know putting it into your savings account is like 2% right you're
• 56:30 - 57:00 like oh wow like I could make 2% but say like your inflation raise 3% you're actually still losing money you're just losing it at a slower rate at only 1% as opposed to 3% so yeah always keep that in mind whenever you're planning for the future inflation is one of those things that will sneak up on you all right we are almost done only two units left and actually Unit 13 which is car buying you know going through that unit the thing that I B basically got out of it was that people would try to scam you a lot they would do a lot of trickeries to try
• 57:00 - 57:30 to scam you uh and then the course does like list out like a few different types of trickeries that they will do on you to try to scam you but I feel like unless you're actually actively buying a car it's not super useful to you so if you are check it out but for everybody else I am not going to take up more of your time um because this is already like a very long video so let's just end on the housing unit so the first part of this unit talks about whether you should rent or whether you should buy and the instructor s goes through a pretty good example so I'm going to share that with
• 57:30 - 58:00 you guys now so imagine that you want to buy a house that is listed for $400,000 you have $100,000 which will'll put as a down payment which leaves $300,000 which you're going to take as a loan so just for Simplicity sake let's say that you take out a loan that is simply a 6% interest rate per year this means that you need to pay $188,000 a year now assume that you also make $100,000 in income so in the US your interest rate the mortgage that your paying is actually deductible this does not mean that you can just subtract $188,000 from the amount of taxes that
• 58:00 - 58:30 you're paying that would be great but that would be called a tax credit it means that instead of having to pay taxes on $100,000 of your earnings because you're spending $188,000 to pay back for the loan you only get tax on $82,000 so very approximately a third where $6,000 will be considered reduced taxes which means that the effective cost that you're paying for interest for your mortgage is $122,000 so unfort fortunately the cost associated with buying a house is not just the mortgage there's also additional things like
• 58:30 - 59:00 property tax let's say for example here that property tax is $4,000 which is 1% of the value of your property and say that you have to spend another $2,000 just to upkeep your property and like do some Renovations or something like that which means that in the end the amount of money that you're paying for the house in terms of buying is $118,000 so now let's consider renting say you have that same place right and the rent for it is $11,500 per month this means that it also works out to be $188,000 a year if you actually rent the house but
• 59:00 - 59:30 that's not it all things consider equal if you still had $100,000 and you did not put it into a down payment for buying a house it means that you could have invested it somewhere else and let's just say that we're going to be very conservative and your Investments only yield like 2% maybe you just stuck it into a savings account and you only got 2% out of it this means that you earned another $2,000 so effectively decreasing the $18,000 per year to 16,000 per year if choose to rent so in this example using you know these specific numbers it turns out that it
• 59:30 - 60:00 would be better for you to actually rent the house um as opposed to buying this house however of course this is like a very simplistic example and there's also a lot of other factors to consider as well like maybe the fact that psychologically speaking you just want to have a house right like maybe you want to have a place to yourself you don't want to keep moving around whenever your lease is over there are a lot of other factors at play as well but I do think this is a really nice little framework um in terms of trying to understand whether you should be renting versus buying I think people in our
• 60:00 - 60:30 generation might just believe that buying is always better than renting because from our parents generation that usually was always the case but unfortunately it's not always the case anymore so if you are deciding whether you should rent or buy try to kind of do this little exercise first count economy also has a nice little mortgage calculator which I will link in the description if you're based in the US then that will be helpful for you as well okay we are at the end of of this video oh my gosh this is such a long video actually took me two days to to
• 60:30 - 61:00 film the whole thing truthfully I don't think I was able to cover like everything about this course so I tried my best to kind of go through these foundations and give you the big ideas of them so that if you are interested in any specific section you can actually go to that course and Con Academy course is all completely free and to do that section um by yourself but hopefully this at least gives you an idea of what you don't know cuz if you know what you don't know then you can look up the things that you don't know thank the very difficult thing about financial literacy is often times we don't know what we don't know anyways I'm going to
• 61:00 - 61:30 stop laughing so as promised here is an assessment that covers these sections please write your answers in the comments if you're interested in self-learning stem subjects I really recommend that you check out brilliant brilliand is a stem learning platform that specializes in interactive Hands-On learning when I was interviewing for meta and it was actually meta that recommended to me that I should use brilliant to brush up on my math and stats before the interviews and that's because it's just so effective at teaching stem subjects through Interactive problem-based Learning brilliant incorporates like little quizzes analogies and just like little
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• 62:00 - 62:30 QR code on screen if you go through my link you'll get a 20% off the annual membership by the way if you celebrate Christmas this is also a pretty good Christmas present for people who are like slightly nerdy like I would appreciate it thank you all so much for watching and I will see you guys in next video we live stream