Teaching Teens Financial Literacy

While financial literacy is a life-long endeavor, the basics are best taught before high school graduation. Books are a great resource to help your young adult, but the conversations you have with them will last longer. Here’s our must-view key topics for starting these conversations.

 

  1. Budgeting

Teens must know how to create a budget, from the time they start earning an allowance or get their first after-school job. They should know the budgeting basics, income, expenses, savings.

 

  1. Credit Cards

Discuss credit and credit cards before your teen hits 18. They’ll be inundated with offers for credit cards and need to know how it works. Interest rates, payment periods, building credit.

 

  1. Bank Accounts

Help your teen set up their bank account and explain fees, different types of accounts, minimum balances, interest rates for different savings accounts. Make sure your teens knows how to write a check. They may one day be completely obsolete, but knowing how to find their routing number and account number on a check can be a life saver.

 

  1. Savings

Teens should know the value of a dollar, especially if you’re the one who is footing the bill. Emergency savings, nest egg, repairs, healthcare costs all need to be factored in when learning to save. And it’s never too soon to start planning for retirement.

 

  1. Credit Scores

Young adults need to know the importance of credit scores and how mistakes now can affect them for years to come. Wise choices with credit building can ensure they are able to purchase a car or a home one day. Ensure they understand the impact that missed payments can have on their credit as well.

 

By having these conversations with your teen early and often, you’ll lay the foundation for their financial security that will last a lifetime. They’ll be more open to coming to you for advice if they know you know your stuff too!

 

Getting Ahead in 5 Easy Steps

If you’ve gained control of your budget and sticking to it, it’s time to start thinking ahead and building your wealth. To get ahead and stay there, follow these easy steps!

 

  1. Max Your 401k contributions

If you’re not maxing out your 401k contributions, you’re losing money. Now, not everyone works a regular 9-5 with 401k options, so this may not seem fair to small business owners or entrepreneurs. If you are your own boss, open a tax deferred account or IRA Roth and contribute 15% of your take home. By maxing out your contributions to these types of accounts and leave them alone, you set yourself up for comfort with 6-7 figure savings.

 

  1. Become A Homeowner

No matter how old you are, the best thing you can do for yourself is to buy a modest home as soon as possible and get out of the renting world. Save up a 20% deposit and get your credit to 700 for the lowest payments possible. In a lot of areas of the country, your mortgage payment can be half of what rent is in the same area would cost. Keep your eye on the housing market and buy when housing prices are low, and if a housing market bubble starts up, sell high. This will get you into position invest in your forever home once you’re ready to really settle down.

 

  1. Educate Yourself

Learn how about the stock market and start a portfolio. Wealthy people can live off the interest from their portfolios alone, while amassing their wealth for future generations. Keep up to date on what’s going on in the finance world and diversify your stocks.

 

  1. Negotiate Your Salary

Ask for what you are worth. Learn to sell yourself and your accomplishments and use them to gain ground each year on your salary.

 

  1. Goals

Set financial goals and take the steps to meet those goals. Give yourself benchmarks along the way. Set time frames for when you want to pay off your student loans, your home, your car. Work your budget, work hard and free up those payments to pay yourself!

The Cost of Vice

Successful people don’t smoke. It may feel judgmental, but it’s true. Look at the great minds and moneymakers in our world and you’ll rarely see a cigarette dangling from their fingertips. The same can be said of alcohol and other vices. Vices are an expensive money pit that drains your time, resources and often, your financial and career mobility. Aside from the long-term health impact, letting go of your vices can be the biggest investment you can make in yourself.

 

Saving by Quitting

If you’re a pack-a-day smoker, you could save up to $4,000 a year by quitting now. Cigarette prices have risen steadily for decades and they’ll keep getting more expensive. Investing that $4,000 a year into your retirement could net you an extra $100,000 to live off of. If you drink about a 12-pack of beer at home per week, you could save over $1000 a year. If you go out every weekend, cutting out one- two weekends a month can save you thousands too. You don’t have to become a teetotaler to save big, just cut back.

 

Career Impact

Hangovers have a marked impact on productivity and it can show on your yearly review. If you’re coming in to work hungover, no matter how hard you try to mask it, your boss and coworkers will notice. They may not comment on it, but you’re not as sneaky as you think you are. Your habits can cost you promotions and other opportunities. The same goes for smokers. If you’re popping out for a smoke every two hours, your productivity can decline and others will take notice. Even if you just cut out smoking during working hours, or keep it to your lunch break only, you’ll raise your productivity and appear more professional.

 

Health Implications

Alcohol and cigarettes are known contributors to negative health outcomes. Long-term use can impact your health significantly and can cost a fortune in medical bills over your lifetime. Quitting now can reduce your risk for cancer, heart disease, pulmonary disease, high blood pressure and more. If you find yourself struggling to quit, reach out to your primary care physician to discuss options.

 

By cutting the cost of your vice, you can improve not only your physical health but your financial health too.

Personal Finance Milestones to Reach by 40

As your age starts creeping up towards mid-life, it’s time to take your financial planning seriously. Here’s our top 5 milestones to reach by 40 to keep you on track for a comfortable retirement.

 

  1. Retirement Savings

A good rule that financial advisors use is that by the time you reach 40, you should have three times your salary saved in retirement accounts like 401k, IRA or other retirement-specific accounts.

 

If you are not there yet, or just getting your life back on track after financial set-backs, don’t worry. You’re still about 20 years from retirement so there’s time to get to where you want to be. If you are self-employed or a contract worker, be sure that you are setting aside at least 10% of your take-home pay. If you are in your mid-late thirties and still paying off debts, put your energy and money into paying off those debts off quickly, then once that’s paid off, put the same amount of those payments into a high yield retirement account in addition to that 10%. You’ll see your retirement savings skyrocket as you pay yourself.

  1. Credit Scores

In your mid-thirties you should set your sights on improving your credit score a great deal. Aim for a 760 or better and research long-term solutions to keep increasing your score.

  1. Emergency Funds

Having a cushy emergency fund can be a life saver when life throws you curve balls. Whether that’s an unexpected medical emergency or a layoff due to a bad economy, having enough in savings to keep you afloat for at least 6 months should be the goal. Use direct deposit to start sending $50-$100 per paycheck directly into a savings account that’s harder for you to access, like a credit union that’s on the other side of town so you’ll be less likely to dip into it.

  1. Life Insurance

If you’ve got kids or a spouse, it’s especially important to have life insurance, as the people who depend on you can be greatly impacted by your passing. It’s not pleasant to think about, but it’s reality. Without life insurance benefits, your loved ones could be on the hook for your funerary arrangements, debts and more. Life insurance policies can cost as little as $15/ month for a 20-year term life insurance plan for $200,000. It’ll give you and your loved ones some peace of mind. If you have a partner, make sure they sign up for one too!

  1. College Planning

If you’ve got little ones, or are planning for them in the next few year, start saving now. College expenses are exorbitant in some countries and by setting aside money starting now, you’ll be setting your kids up to have option in education. Regardless of it they choose the traditional education routes or opt for a trade education, having that money set aside will give them extra edge in life by reducing or eliminating the need for loans.

Finances for Couples

Couples combining finances, when marrying or even cohabitating long term, can feel like turbulent waters to be navigated. It may lead to arguments about fairness, equity and balance. Luckily, some education and communication can make the transition to combined finances much smoother sailing.

Educate

Both partners should do their own research on methods for combining finances and take into consideration their own financial situation as a single person.  Some couples will choose to keep finances separate and have a joint account for household bills, contributing their part. They may agree to contribute proportionally. For example, if Partner A makes $5,000 per month and Partner B makes $3,000 per month, they both contribute an agreed upon percentage of their income to the joint account, generally with the higher earner taking on a higher proportion of the financial burden. The advantage here is that neither partner feels pressured to keep up or budget down. The drawback would be that the higher earning partner may feel resentful over time, or like they are being penalized for earning more.

 

Other couples may split all bills 50/50 regardless of how much either partner earns. Advantages are that neither partner feels taken advantage of or like they’re being subsidized, there is no power imbalance. The drawbacks include potential differences of lifestyle and feeling like a roommate rather than a partner.

 

And still, other couples may combine all finances, with all income put into joint accounts. This allows for easier book-keeping, and a more “we” spirit rather than a “you” and “me. Drawbacks can include resentment over spending habits, resentment over contributions to the joint fund.

 

Communicate

No matter which method of combining finances you and your partner choose, communication must be open and honest. Discuss lifestyle expectations, money management styles and financial goals.

Keep purchases out in the open. If one partner overspends one month and will be short on a bill, it must be communicated. Mistakes happen. Unexpected purchases and unplanned for expenses occur. Talk about it, make a plan and handle it, together.

If you’ve completely combined finances, set a rule that if one partner wants to make a purchase over an agreed upon dollar amount, they must check in the other partner. This dollar amount will vary with your household income, saving goals, debts, and other concerns. Some couples will have a $100 limit, others will have a $30 limit, and still some may have a $1000 limit. If a partner wants to purchase something “extra”, like a big-ticket hobby item, it is best to run it by the other partner. Money spent on “extras” should be balanced between both partners so as not to breed resentment.

 

Keep lines of communication open, keep educating yourselves and be flexible when life throws curve balls. Careers change, layoffs happen so make a plan with your partner now to avoid arguing when stress is high from financial issues and you’ll be thanking yourselves for it later.

Top 5 Financial Books

The American Dream is all about working hard and retiring early with a vacation home. There’s no shortage of books touting their own secret recipe for financial success. We’ve got our top 5 picks as the best jumping off point to get your financial house in order!

Why Didn’t They Teach Me This In School? by Cary Siegel

This book has all the basics of financial literacy. 99 financial principles encapsulated in 8 broad and easy to read chapters, it’s a great place to start if you have no idea where to start. Whether you’re in high school or hitting your high 50s, it’s never too late to start.

Total Money Makeover by Dave Ramsey

An oldie, but a goodie. Financial guru Dave Ramsey boasts 5 New York Times bestsellers and has his own radio show. Ramsey has been dishing out debt busters for decades. His advice isn’t the get-rich-quick variety. Rather, he provides solid foundations of knowledge for debt management and long-term financial wealth.

How to Retire Happy, Wild, and Free by Ernie J. Zelinski

How to Retire Happy, Wild, and Free isn’t your typical financial advice book. It’s got tons of practical advice, sure, but it also delves into the practicalities of retired life without the focus on making millions. Topics like finding purpose after retirement, leisure, and making retirement the best years of your life. This book is personal, creative and a must read for anyone who dreams of early retirement.

All The Money In The World by Laura Vanderkam

Laura Vanderkam’s book isn’t like other finance books. Instead of espousing frugality, Laura explores spending to get the most out of your dollar in a way that makes your life richer.

The Little Book of Common Sense by John C. Bogle

John C. Bogle is the founder of The Vanguard Group, one of the leading investment advisors in the world. His book of wisdom, backed by decades of experience, is a must read for anyone serious about investing.

As you continue your quest for financial literacy, keep in mind that not all books are created equally. Be discerning about the advice you follow and seek reputable financial role models in your journey.