Every day is financial literacy day at Wealthy Habits, but April is officially National Financial Literacy Month. With many schools and businesses closed and uncertainty over when they’ll reopen, we’ve put together a list of things to review to keep your finances in order.
To make sure you won’t put off the items on the list, we’ve focused on the ones that could potentially help you spend less and save more.
That got your attention, didn’t it?
Of course, we always advise that you have a clear understanding of your financial situation and do what’s best for your personal situation before making any changes to the items on this list.
Your annual personal finance review should include:
1. Home and auto insurance policies. Most insurance companies are willing to show you how you can save money on auto and home insurance, especially if it helps them earn your business. For example,
- Auto Insurance. Some companies will give you a 10 percent discount if you take a safe driving class.
- Homeowners insurance. There are many ways to lower the cost of homeowners’ insurance, from making sure you understand policy terms to improving home security. Even improving your credit history can help. You can find these and other ideas on the website for the Insurance Information Institute.
2. Life Insurance coverage amount. Let’s face it, no one lives forever and life insurance can protect your family if the inevitable happens before you expect it. Life insurance costs less to purchase when you’re young, but you need to reevaluate your policy annually because monthly premiums can decrease over time. Life situations can change too; if you add a child or your lifestyle changes substantially, you may need to reevaluate your benefit amount.
3. Monthly or recurring memberships. At least once a year, revisit all the monthly membership or other recurring fees you pay. That means reviewing your bank and credit card statements to identify charges for memberships you no longer or rarely use. $100 or $200 a month might not get your attention, but those fees add up quickly when you multiply them by 12.
4. Your company’s benefits plan. Annual enrollment meetings can be dull. But if you take the time to understand what your company is offering, you’re less likely to leave money on the table, which is what happens when you don’t make full use of your benefits. Here are the big ones that should be on your checklist for an annual review.
- Retirement contributions. If you aren’t contributing the amount your employer matches, you are basically not accepting a raise. Although it can feel impossible to maximize your contribution to your employer’s matching limit, find a way to do it. Your pre-tax savings, together with your employer’s match, will add up faster than you think.
- Retirement (tax-deferred), health saving and flexible spending accounts. Contributions to these accounts are tax-free, which makes them great opportunities to save while reducing your tax liability. (Contribution are deducted before federal income tax withholdings are calculated, which reduces your taxable wages. This helps reduce the amount of federal income, payroll and FICA taxes you pay.) It is always a great idea to talk to your accountant about ways you can maximize your options.
5. Services you pay for. The goal here is to look for comparable but less expensive options. Take the time to review services such as:
- Investment accounts. Fees for investment accounts can vary widely. Depending on your number of transactions, the amount you have invested and the degree you want to be involved with investment decisions, you may find that no-fee or low-fee accounts meet your needs.
- Bank accounts. Bank fees can be a drain on your checking account. Review several months of account transactions to find any fees you may have overlooked. Then examine disclosure forms to see if there are things you can do to waive fees – keeping a required minimum balance, signing up for direct deposit, etc.
- Household services. If you pay for ongoing alarm monitoring, yard care or HVAC maintenance, for example, you may be able to find a lower-cost provider. Talk to friends or neighbors for recommendations or ask your current providers if they are willing to match other providers’ prices or advertised specials.
The most important part of this process is to save or invest the savings you uncover. Set aside an equal amount to be automatically deposited in a savings or investment account. This isn’t free money – it’s money you found through hard work and diligence. Put it to better use. Your future self will thank you.
For more resources about National Financial Literacy Month, visit the Federal Reserve Bank of Chicago’s website, or sign up for one of the student and parent workshops we offer at Wealth Habits.
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The teen brain can be a mysterious thing to adults. Luckily, we have scientific research that can help explain why teens do things that may seem illogical, irrational or inconsistent to us.
Here’s an example: Brain research shows that teen brains are wired for instant gratification. So it’s not just social media, the internet and Amazon that have created a “right here, right now” mentality for teens. Their brains are just wired that way, and such outside influences seem to just reinforce an existing mindset.
The good news is that there are ways to help teens resist their impulses, at least when it comes to saving money. Over the years, we’ve taught these tips to thousands of teens, and we’ve seen how a little guidance can work wonders in building good money habits.
The Four Basics of Saving
These four tips to help teens save money are effective for just about anyone, including adults and even middle-school and elementary-school kids.
- Set up a savings goal and figure out how to achieve it. For teens and the rest of us, it can be difficult to save for something that seems far away (retirement) or is poorly defined (a dream vacation). However, a 14-year-old who wants to buy his or her own car in two years has a clear-cut goal and a self-imposed deadline. The next step is to talk to your teen about how to reach that goal – through a part-time job, saving up birthday money, or selling old sports equipment, for example.
- Spend toward your savings goal before spending on other things. This is something adults struggle with too. It’s hard to avoid the temptation to treat yourself or spend on a splurge item when you tell yourself, “I’ve earned it.” Try instead to think about it this way: If you save before you spend, you’re rewarding your future self by attaining a goal that’s more important. Teens, like the rest of us, are more successful if they, “pay themselves first,” by spending toward their savings goal before doing anything else with their money.
- Check in regularly. Online banking makes it easy to check balances for that sense of immediate gratification that teens need. With online and direct deposits, they can stash their money away quickly, then check their account balance to watch it grow.
- Consider how many hours you’ll need to work to purchase the item. This is especially true for teens who have jobs. Whether they work as pet sitters, lifeguards or behind a restaurant counter, their hard-earned money represents hours of their young lives. Teach them to consider anything they want to buy in terms of the hours they’ll need to work to pay for it and remind them to use their NET INCOME. Is that video game console worth 30 hours of their hard work? And if they buy it, how many hours of work will it take to stay on track to reach all of their goals?
How Involved Should Parents Be in Helping Their Teens Save?
Many parents struggle with the balance of teaching or helping but not micromanaging their teens. Here are some ways that parents can help their teens develop a saving habit without taking over.
- Share instead of lecturing. Parents often don’t want to admit their own mistakes, including their financial ones. Honestly, that’s one of the biggest missteps parents make when trying to help their kids with money management. Instead, be honest and open with your teen. If your own financial knowledge is lacking, sign up for a financial literacy class you can take together. Or if you’re not comfortable with investing, try an investing simulation (Investopedia has a free platform) and make it a friendly competition to see who can do the best with their investments. You’ll learn a lot along the way.
- Encourage them to use an app. Most bank apps these days do a good job of showing users where they have spent their money. Using an app for saving, investing or both can encourage teens to follow the “save first and spend what’s left,” advice above. Teens can open investment accounts with their parents as a custodian of the account.
- Talk about their job options. For preteens, volunteering is a great way to learn job skills such as punctuality, task completion and working with teams. Volunteering is also a way for kids to gain experiences that could lead to a future job or round out a college application. Of course, volunteering doesn’t come with a paycheck, so some teens will want to find a paying job. Summertime can be a great time to put volunteer skills to work to score a paying job.
What do each of these three suggests have in common? Communication, or more specifically talking to your teen honestly and openly about what can be a difficult topic. If that sounds scary, we can help. Wealthy Habits has some great resources on our site. We also offer summer camps to help tomorrow’s adults lay the groundwork for healthy financial futures.
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When kids invest early, they avoid financial fear. By starting early, they learn that managing their finances doesn’t have to be scary. Instead, they see each portion of the financial world as a tool for them to build a better future. The best way to get them started is to open an investment account with your child and allow them to have a voice in the choices being made.
Getting Started: Types of Accounts
Once your child has spent some time learning about investing, it’s time to help them open their first account. When dealing with accounts for minors, there are two options –
- UGMA (Uniform Gift to Minors Act)
- UTMA (Uniform Transfers to Minors Act)
From an investment perspective, these accounts behave similarly. The primary difference between the two is the age at which ownership is transferred to the child. In an UTMA account, the account will be transferred at the age of 21, while in an UGMA, the child can take ownership of the account at the age of 18. These accounts can be opened at virtually all brokerage houses. The primary focus should be the platform’s ease of use and the commissions the brokerage takes on each trade.
Once you’ve established an account for your child, it’s time to deposit funds. The primary way to do this is by writing a check to the brokerage firm. Since a minor is not allowed to deposit funds into the account, the money needs to be transferred from your account.
What’s Next: Types of Investments
After funding the account, it is time to begin looking at different options in which your kid can invest. The primary three investment types are as follows –
- ETFs, or Exchange Traded Funds, are funds that allow your child to invest in the general market passively. These funds tend to be cheap as there is little happening to them, but can allow for great exposure to the markets.
- Mutual Funds
- Mutual Funds behave much like ETFs in the way that they allow your child to invest passively. The primary difference is that many mutual funds actively manage your money on your behalf, in the hopes of getting higher returns than the general market. Due to this active management style, mutual funds tend to come with a slightly higher management fee. Before investing in a mutual fund, identify if the fund has front-loaded or back-loaded fees. These fees are the cost to invest in the mutual fund BEYOND the annual maintenance fee. For simplicities sake, it may be best to find a no-load fund for your child’s first entrance into the market.
- Individual Stocks
- Individual Stocks are the highest risk option on this list. Buying into just a single company, or a mix of a few companies eliminates the diversification you are getting from investing in both ETFs and Mutual Funds. By investing this way, you are hoping that those few companies continue to do well. Investing in individual stocks is also the fastest way to get your child interested in both the markets and what makes for a good investment. By being tied to a select few companies, they become interested in checking their account regularly and follow the news cycles/financial reporting of the companies each quarter.
How Can You Help?
Remember, when kids invest, they learn to avoid big mistakes later. Getting your child their first investment account and allowing them to have a voice in the decisions made is only the first step in setting your student up for a brighter financial future. Regardless of what career path they take, they need to know that money is not a scary or taboo subject. Speak with them openly about money and highlight both the good and bad habits that you see throughout the world. Continued education is necessary for them to develop wealthy habits that will provide for them in the future.
Have questions or don’t know where to start your child’s financial education? Please take a look at the resources on our site, or sign your child up for one of our 5-day summer camps where our instructors help develop the habits that will lay the groundwork for the remainder of your child’s financial future.
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How to Raise Financially Empowered Kids
Guest Post By: Grant Means, Founder & Author at Start Now Press
First, let’s clear the air: nearly every aspect of raising children seems an impossibly complex challenge – no matter how much love, passion, discipline and reason we bring to the table, outcomes prove frustratingly difficult to predict. On the other hand, effective financial management represents a surprisingly simple path that we often struggle to take. For most of us, the biggest challenges are pesky distortions such as lack of confidence, tough medical issues, paralyzing emotional tug-of-war, well-funded corporate marketing budgets that nudge us to spend beyond our means, and skepticism (sometimes justified) of the financial system*. That said, there is good news!
Self-empowerment is one of the greatest gifts any parent can give their child. Parents are able to easily get ahead of the curve by engaging with their kids on several key financial foundations: instilling self-confidence, effectively managing health risks, modeling emotional grit, engaging on the issue of needs versus wants, and educating them on the nuances of banks and brokers*. Knowledge is power, so if we teach the next generation how to build a more fulfilling life, we can enable them to chart a brighter future for themselves, their communities, their country, and the world.
What You Can Teach
- Model delayed gratification: the bedrock of financial literacy
- If we always buy what we want, there will never be financial margin
- It starts before kids understand money. Self-control is a necessary step
- Instill work ethic through experience: income is our greatest wealth generating tool, so career lessons are a wise investment
- Start now with defined commissions for chores around the house. Later on, consider dialing back an extracurricular and adding a part-time job
- Incentivize budgeting
- Push for a job that involves teamwork or serving people
- Discuss how time is money – hours of work become dollars.
- Money management cannot happen without income
- Equip youngsters with questions to ask and tools to find: “teach a man to fish…”
- Most of us don’t know the right questions to ask, so finding the answer that’s right for us proves challenging. Any lessons you have learned are ahead start for your kids – teach them what you know, be upfront about what you do not know, and keep them curious!
- As data access continues to grow, we need to nurture kids’ quality control filters. Not all information is created equal.
How You Can Teach
- Communicate openly: a trusting rapport is vital to intellectual progress.
- Many say that silence is complicity. We battle ignorance when we tell stories, explicitly impart lessons, and engage in healthy dialogue
- You reap what you sow – if you cultivate upfront, vulnerable, and reasonable conversations from the beginning, your kids are more likely to seek your advice when it matters most
- Solicit questions: help cultivate your child’s curiosity
- Ask them what good questions they asked each day
- Encourage them to ask when they don’t know
- Show them how to ask a deeper question for more information, even when they think they understand
- Make it tangible: engage more senses to help the point stick.
- Set an example. Teach them, “Do as I say… and as I do”
- Use props, especially three money jars that say, “give, save, & live”
- Read, watch, or listen to credible financial sources
Start Now Press
At Start Now Press, we strive to distill seemingly complex issues into simple, tangible, and actionable principles. We tirelessly read, think, write, and debate in order to improve our content and infuse meaning into each sentence. Guided by our mission, “to plant seeds of knowledge that blossom into a more fulfilling life for every reader,” we are excited to bring our children’s books to life through supplemental content that helps adults apply our lessons as they raise their kids.
We believe that, whether you write a rule, provide an incentive, or impart enlightening information, there are a few simple and empowering principles that can make a world of difference in your child’s life. Above, we’ve highlighted six principles that serve as powerful tools to cut through fear-inducing complexity on our quest to empower the next generation. For more information on our mission or to take a look at our children’s books, visit us online at: https://www.startnowpress.com/.
Financial education is key to a fulfilling life. Teaching kids these lessons early on not only prepares them for the future, but ensures they are building the Wealthy Habits that will last a lifetime. Until next time, remember our motto: The best time to plant a tree was 20 years ago. The second-best time is now. Start Now!
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Did you know that maintaining good financial habits can help you easily pay off your student loans? Take a look at these shocking student loan statistics in 2019:
- 69% of college students have student loans and graduated with an average debt of $29,800
- 14% of their parents took out federal parent PLUS loans with an average debt of $35,600
However, according to the Federal Reserve System, almost one-fifth of students were behind on their payments and roughly half of borrowers could afford to pay off debts. We understand paying off debts is painful, but is there any way we can make it easier? Allow me to share this story from Fox News with you:
The Ross Family and Their Debt Pay-Off Plan
The Ross family from Michigan were dedicated to becoming debt-free before starting a family. At first, following a wise suggestion, they applied for deferment and deferred their loans long as possible. During that time period, however, they only made minimum payments to maintain good credit. Unfortunately, they were not aware of the snowball effect until the interest rate mounted up to 7%. Always keep in mind: It costs money to borrow money. How you manage your interest rate and processing fees can determine whether or not you have to high-cost borrow (with a high interest rate) or a low-cost borrow (with a low interest rate).
Due to the increase in their rate, the Ross family decided to try something different. They changed their financial habits drastically, while making a total of $150,000 in family income. That’s when the magic happened: They paid off $120,000 in student loans in less than 3 years! Curious about how they made it happen? The Ross family would simply tell you: it’s all about financial habits.
So What Really Makes a Difference?
Attending college is the first financial decision for most teens. Studies have found that taking a course in personal finance before college helps students change the way they plan to finance their degree. A systematic financial literacy program is imperative to guide students to make wise financial decisions; even more, it helps tremendously to avoid financial traps and personal debts. Students who have attended financial courses tend to live a more saving-oriented lifestyle than those who have not.
Sadly, the National Financial Capability Study revealed that only few students could answer financial questions correctly and only one in six high schoolers could meet basic financial proficiency. But don’t worry! We are here to help you reach your goals!
Wealthy habits focuses on improving teenagers’ financial habits to change their mindset on money. We have created a solid and practical financial literacy program that includes building an investment philosophy, managing their relationship with money, creating financial accounts, accumulating credit responsibly, assessing loans and debts, and improving personal beliefs on money behaviors. Our hopes are to see our students go off to college and make it a point to shift from high-cost borrowing to low-cost borrowing to finance their degree. While scholarships and grants are the way to go, borrowing student loans doesn’t have to be the worst thing in the world. Learning about the right financial habits now can ensure they can pay off their debts like the Ross family someday. Check our programs! A small decision makes a whole difference.
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Net Worth = Assets (what you own) – Liabilities (what you owe).
Have you ever been lost in the middle of shopping mall? If you’re like me and you refuse to ask for directions, you probably look for one of those stands with a map of the mall, but let’s be honest: those are usually just as hard to find. Anyway, you get there, you look at the map, and you find the store you want to go to, but what must you first figure out? Where are you? To get where you want to go, you must first figure out where you presently are. Knowing where you stand will help you better prepare for your future. That is exactly how net worth works in terms of your journey to financial freedom.
Your net worth is a snapshot of current financial health or condition. You cannot become financially free until you have a handle on where you are and what you are doing right now. Even more, understanding that very simple number will allow you to see the value in not spending hard earned money on yet another item that doesn’t truly add value (i.e. net worth). So how exactly do you figure out yours? It’s very simple. Assets-Liabilities = Net worth.
First, determine the value of your assets. Assets include any retirement accounts, investment accounts, homes, vehicles, and more. If it has true monetary value, you can include it. To some people, this may be the hardest part of the equation. You may have purchased an item at one price, but that was years ago and the value has definitely changed. If possible, try to find or calculate the current market value of your assets.
Next, determine the total amount of your liabilities. Liabilities are your total debt balances. This includes your mortgage, auto loans, student loans, credit card debts, etc. It may be daunting, but get all these numbers together and add them up. Don’t freak out. It can look kind of scary all together, but remember: each debt still has its own due date, interest rate, and minimum payment. You’ll be fine.
Finally, subtract the two numbers. There you have it. That is your total net worth. Note: If you are married, you can do these same calculations to determine the net worth of your total household. Now, you may be asking yourself “What in the world am I supposed to do with this number now?” My answer: Reflect on it.
Create a Goal
Financially speaking, where do you want to be in five years? Ten? Twenty? This is where you need to start. Take a look at your net worth and decide where you would like it to be. According to the Federal Reserve, the average net worth for families in the U.S. under the age of 35 was $76,200 in 2016 (Intuit Inc.). Take a look at these averages based on age to see where you stand. Are you ahead or do you need to start making major moves forward? That answer doesn’t truly matter. Just do what you need to do to get where you want to be.
Remember, your net worth is just a snapshot of your financial health based on your outstanding debts. Sure, it is difficult to save more and spend less when there are so many things we need and want, but the difficulty gets wiped out when you set a real goal. One big motivator is seeing positive results; this is where knowing your net worth can help. Download an app, like Mint, that keeps track of your net worth by tracking all of your accounts, including your retirement accounts. Watching the amount grow due to improved decision will encourage you to make more of those better decisions.
In the meantime, see how we impart this important lesson on our students here. It is never too early, or too late, to start thinking about your net worth. Together, you and your child can understand the importance of net worth and get started on the journey to financial freedom.
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