Financial Advocacy Summer 2013 Howard.Meyers@nyls.edu Final Exam 3PM-5PM 4 Essays Open Book I.

Friday/Saturday 6/7-6/8

MONEY PERSONALITY TYPES: (Know these types for final) a. Hoarder: Accumulates money for the sake of having it. Only spends on the bare necessities. b. Kinds of Overspenders: i. The Money is Love Spender: Someone who spends over the top to overcompensate. ii. The Blue Light Spender: Someone who only spends when there are deals going on. People spend when they think theyre getting a bargain. i.e. Kmart iii. The Esteem Spender: Someone who emotionally decides to spend money because they feel they deserve it. iv. The Overboard Spender: Someone who spends beyond their means (due to credit card). v. The Spin-of-the-Wheel Spender: No control or rhyme or reason as to why this person chooses or how they choose to spend their money. vi. The Ill Show You Spender: Someone who spends their money on designer products or high end buying to prove something. c. Money Worrier: Being paralyzed where you dont take calculated risks. (Afraid to spend any kind of money) d. Money Avoider: Someone who tries not to think about where their money is and is afraid to check their bank accounts, etc. (Someone who is either afraid to take risks, or who takes risks but does not want to face the consequences). e. Money Monk: Someone who does not spend a lot of money on themselves. Lives by their minimal needs and wants. f. Money Amaster: Hedge fund tycoons. Whatever they have is not enough. g. Risk-Taker: Someone who invests haphazardly, a gambler, etc. Lives for the adrenaline rush of taking a risk. No real rationality behind someone who risks their money. h. Risk-Avoider: Someone who is afraid to spend a dime, for fear of not having any money. i. Money Merger: (in a relationship) Taking separate accounts and putting them together. (Risk: if one spouse is free spender and the other is a riskavoider or saver, there can be bigger issues) j. Money Separatist: Keeping separate accounts. (Risk: if one spouse is a spender, and cannot keep their end up to pay joint expenses)

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WEALTH IS an abstract concept, but in order to reach personal goals, need to put into action, and turning abstract into concrete. BUDGETING: Uses of budgeting on Exam a. Expenses: i. Fixed: Payments that you know will be due every month. Top line item in order of priority. ii. Discretionary: Not mandatory. Ex: entertainment, lifestyle choices, etc. NEGOTIATION: a. Step 1: Knowing the Market: Information: The more information you get about what youre negotiating for, the more powerful your position will be. b. Step 2: Anchoring: Throw out a high/low end number to position your opponent where you reasonably want them to end. Plant ahead to value the case. c. BATNA: Best Alternative to a Negotiated Agreement: What is your alternative to not reaching a deal? (Walk away) i. Know your audience/client ii. Know Opposing Counsel iii. Have the Ability to Walk Away iv. Posturing d. Know the Authority of Each person in the room e. Analyze Concessions: Look for patterns in the types of concessions made by the other parties. Be able to back up your numbers. f. Bidding Against Yourself: (What not to do) g. Deflecting the Question: Avoiding to propose a money amount for negotiation DEBT: (consumer) What greases the wheel to our economy. a. Installment: Every month pay the same exact amount to pay off loans (I.e. Student Debt) i. Principle: Part of the monthly installments pays a percentage of the Principle amount. ii. Interest: Part of the monthly installments pays off interest. 1. Paying interest + principle early gives the company lending their profit early b. Revolving: (I.e. credit cards) c. Charge Card: (Amex) Responsible for paying that monthly amount in full at the end of its cycle. d. Credit Report vs. Credit Score: i. Credit Report: 3 Major credit reporting agencies; for purposes of identity thefts. 1. TransUnion 2. Equifax 3. Experian ii. Credit Score: 1. FICO: Fair Isaac Company

a. Scores range from 300 and 850 b. Interest rate directly reflects your assets and your credit score i. I.e. when applying for a mortgage, for a job, apartment, car insurance, etc. ii. Being admitted into the bar (character & fitness test) c. Factors go into determining this number: i. 35% of the score goes into payment history ii. 30% of the score goes to amounts owed iii. Length of credit history 1. Utilization Rate: a. Ex. 2 Cards, $10K credit limit on both, $5K used, 25% used on both i. After canceling one card, the utilization rate doubled to 50%, this works against you. iv. New Credit (too many not good) v. What types of credit the accounts are VI. INVESTING: a. Risks vs. Return: i. The greater the risk, the greater the possible return. ii. As an investor, youre going to demand a higher return (the more risky that investment is) b. Diversification of Assets: Dont put all your money that you earn into one company stock, bonds, mutual, fund, etc. i. I.e. Undiversified portfolio: Enron: a lot of employees wealth was in Enron stock and when company went bankrupt, employees lost their retirement. ii. Diversified portfolio: Know your customer rule: broker-dealer has an affirmative obligation to ask questions of investors before they make recommendations. 1. Risk Tolerance: The longer that you dont need access to your money, the longer you can wait out market volatility, and stock market shocks over time 2. Age: Older vs. younger investor: younger investor can wait out the shock of stock market 3. Time Horizon: what does your timeline look like (are you planning on buying a house soon?) 4. Income sources: if youre making a certain amount of money a month and you dont need a fixed amount monthly, you can tolerate having this amount invested

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5. Net worth: The higher the net worth, the greater ability to take risks c. Broker-Dealer Type of Misconduct: i. Suitability: Making an unsuitable investment recommendation: 1. Elderly person goes into investment firm, investor advises to invest in stock, loses money. a. Broker should have known there was no way this investment would be suitable. Time of the recommendation wasnt appropriate. ii. Churning: Rapid buying and selling. 1. Doesnt help the investor, but results in large commissions for the investors iii. Misrepresentations: Broker lies to the investor to induce a sale. iv. Unauthorized trade: A trade made that was not authorized to the broker to purchase them. 1. Investor needs to notify the broker immediately if they see this on their statements. d. What to do if you encounter misconduct: i. Complain to the firm: if they made a mistake, they will fix it. ii. File an Arbitration Claim: Anytime you open an account, there is an arbitration clause. States that you cannot sue in federal court. Need to arbitrate with FINRA. iii. Arbitration vs. Court: 1. Positive: Less expensive 2. Positive: More expedient 3. Positive/Negative: Limited subpoenas, no discovery, no interrogatories, no depositions 4. Negative: Decisions are not published 5. Negative: No appeals 6. Negative: Private in nature 7. Federal Arbitration Act: Vacating an arbitration award. 8. Manifest disregard of the law standard ACCOUNTING: The process of classifying, recording, and communicating financial information concerning the economic activity of an organization/entity. a. Who Relies on Accounting: i. Investors ii. Attorneys iii. Lenders iv. SEC regulators b. GAAP: Generally Accepted Accounting Principles c. SEC: Securities and Exchange Commission: i. Publicly traded companies: (Google, Yahoo, all traded throughout the day) 1. Income Statement: Represents economic activity of a business over a period of time. a. Revenue: Top line number (sometimes sales).

i. Has to be realized ii. Under certain circumstances iii. Accrual Accounting: If a company is required to follow GAAP, they are required to follow accrual accounting. 1. Revenue is recognized when its earned by the company, and expenses are recognized when theyre incurred. a. Revenues are recognized when theres substantial completion to a contractual obligation. b. Manipulating earnings: recognizing revenue when the earnings process has not been completed. i. Company commits fraud if they claim revenue when they send another company a trial product when theres no contractual agreement in place. 2. Costs of a good sold: GGS/Revenue =% a. Gross margin: what you sell at what youre making. i. Profit per sale. ii. High profitability: Ex.: (Tech industry) Apple, Luxury brand items (Luis Vuitton) iii. Low Profitability: Necessities (i.e. food market products). b. Financial Analyst: will look at these margins to see if theyre being squeezed over a period of time. i. If the costs of the goods sold (ingredient), rises, it must increase the price of the product b. Expenses of a company:

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Salary Utilities Appreciation Research and development 1. Financial Analysts: can see whether a company is increasing this budget or decreasing c. EBITDA: Earnings Before Interests Taxes Depreciation and Amortization i. Operating Income ii. Extraordinary Item 1. Losses from Act of God 2. Interest Expenses, Taxes 3. Net Income (Bottom Line Number) a. Is net income the same thing as cash on hand? i. No. (Accrual accounting) --It is based on money that will come in, not money that has come in. 2. Statement Cash Flow: How much case a company has on hand. (What ENRON failed to file.) 3. Balance Sheet FINAL EXAM: (Open Book) a. 4 Essay Questions (multiple parts) b. Mortgages is not going to be tested on the final. c. 2 Hours for exam

i. ii. iii. iv.