retirement savings

Money Topics They Don’t Teach in High School, but Should

June 3, 2014 By Danielle Warchol 5 Comments

students sitting at high school graduation in graduation gowns

One of the biggest disgraces of the school system is that it often fails to teach basics that we all need for everyday life once we graduate. A prime example of this is basic personal finance. If we could get more students to graduate from high school with a basic understanding of how personal finances work so they could make good financial decisions with their money, there would be a lot less money problems in the United States. It’s a wonder the subject isn’t emphasized more in the classroom. Here are some financial topics that they don’t teach in high school, but they definitely should:

Budgeting

In high school, most teenagers don’t have to worry about saving their money or budgeting for rent, groceries, or bills. If they work, they usually only work so they can spend money at the movies or the mall. However, learning how to budget is an important financial topic that should be taught, as it’s probably one of the most important life lessons. Knowing how to allocate your finances each month will save you a lot of frustration. It will also help you figure out how much money you have to spend.

Loans

As a high school or college student, the idea of taking out a loan seems easy. Moreover, loans seem like free money. Of course, they quickly learn that you need to pay loans back and that loan collectors will relentlessly hound you for payments. If high school students don’t learn about loans in high school, then they definitely don’t learn about interest rates and repossession, two negative consequences that result when a loan is not paid off in full.

Insurance

Insurance is a topic that briefly comes up in high school, but is rarely expanded on. High school students know that they should buy car insurance if they drive, but they’re never given a more detailed explanation about what insurance covers. It’s important to teach them about all types of insurance, from renter’s insurance to car insurance to life insurance. It’s also important to teach them how to choose a good insurance based on their specific needs and financial situation.

Debt

Debt is a scary word, especially to a high school student. However, it’s necessary to teach them about it so they can avoid falling into debt later in life. With college tuition at an all time high, it’s easy for a teenager to fall into debt. This financial topic should be taught in school in order to prepare students for the future and to teach them about managing money.

Credit Cards

Getting a credit card can seem exciting. You suddenly have access to an easy way to buy items now and pay for them later. It’s so easy to swipe a card and not worry about paying for it until the bill arrives in the mail. This is a trap that many high school or college students fall into, and it’s a trap that they desperately need to avoid. Teaching courses around credit card management would help teach high school students about credit card debt and managing their purchases.

Credit Scores

Credit scores rarely make the cut when finance topics come up in high school. They should, as your credit score is one of the most important aspects of your financial profile. It determines what credit cards or loans you can apply for and how insurance companies or rental agencies view you. It can even impact you getting a job. Gaining credit and keeping a high credit score is something that needs to be taught early on. It’s very easy for someone to make their credit score plummet, but it’s incredibly hard to raise a low credit score.

Interest Rates

Interest is often discussed in math class at some point over the high school curriculum, but it’s rarely discussed in terms of real life situations. In financial terms, it’s important to discuss how interest rates work and affect both payments and statement balances. It’s especially important to teach high school students the importance of paying off a balance to avoid high interest rates, which usually occur on loans and credit card payments. Interest rates are one of the biggest wastes of money and one that should be avoided if possible.

Retirement Savings

Naturally, a high school student isn’t going to be thinking of retirement savings. At 18, why would they be thinking of something that’s at least 50 years away? However, they should be taught about the benefits of saving for their retirement. A great way to broach the topic is to tell them how much money they’ll be making by investing in a 401K. For instance, if you put in as little as $50 a week from your paycheck, you’re saving a bit more than $200 a month and $2,600 a year. Over the course of 50 years, you’ll have $130,000. If your employer matches your 401K contribution up to a certain amount, so this means you could have as much as $260,000 not even counting interest. With interest, you would have well over $1 million for a mere $50 a week.

Stocks and Investments

A lot of high schools actually teach students about stocks and investments. Schools that don’t have this in their curriculum should consider it. Stocks and investments are a great way to earn additional money. Of course, it’s an activity that needs to be carefully researched, but it’s a financial topic that students should be aware of.

Taxes

Most high school students know about taxes. They’ve either had to pay income taxes or have heard their relatives complain about paying real estate, income, or federal taxes. But most students don’t realize how taxes affect them. When they get their first job, they tend to forget that their hourly or yearly salary is presented pre-taxes. Learning about taxes is an important step in helping them budget and one that should be taught so they can better manage their money.

(Photo courtesy of Nic’s events)

10 Important Personal Finance Lessons Every Person Should Know

April 2, 2012 By Dana O. Crandell 6 Comments

Managing your money is hard and the current times make it more so. The fact is, though, it’s never been more important to get a handle on your personal finances than in today’s economy. Regardless of whether you’re a wage earner or one of the growing number of self-employed individuals, knowing where you stand financially is critical to ensure your success and perhaps even your survival in this tough economic climate. Here’s a list of important financial lessons, offered in the hope that readers won’t have to learn them the hard way.

Start and Maintain a Budget

As difficult as it may be to believe, not creating a budget is still the most common mistake people make in managing – or mismanaging, as the case may be – their money. Trying to juggle your money and bills without a budget is like performing a high-wire act without a net; eventually you’re going to fall and the damage may be irreparable. Preparing at least a basic record of how much you’re earning and where it’s going is the first and most important step in assuring financial security.

Set Financial Goals and Work Toward Them

The harder we work, the easier it becomes to get caught up in a never-ending cycle of work and rest that leads nowhere. If you’re living to work, rather than working to live, it’s probably because you haven’t set goals. We all need to be working toward something to measure our success. Think about where you want to be in 10 years, 5 years, or even next month and focus on getting there. The prize itself doesn’t matter; it could be a European vacation, early retirement or a pedicure. The point is to have a target and use your budget to get there.

Build an Emergency Fund

No matter how faithfully we plan, emergencies happen and nothing can break the budget and the bank quicker. The best way to avoid disaster is to plan for it. Emergency cash should be an integral part of your budget and it should be contributed to faithfully. It’s also important to determine your definition of an emergency. A broken garage door probably qualifies; tickets to the Megadeath concert probably don’t.

It’s Never Too Early To Invest in Your Retirement

No matter what you do for a living, chances are you won’t be able to do it forever. Most of us don’t want to. Many never have the opportunity to enjoy their golden years, even though they’ve worked hard to get there. With the cost of living soaring daily, too many individuals forced to retire end up working at least one job just to put food on the table. The way to avoid the trap is to start building up retirement funds as early as possible. Whether it’s investments, corporate plans, or simple savings, everyone needs a retirement plan.

Health Insurance is an Investment, Too

Accidents or illness shouldn’t wipe out your emergency fund or put you in debt for life. Hospital stays and medical care can devastate your finances and your credit in a heartbeat – pun intended. Be prepared for the worst with health insurance. If it isn’t provided by your company, shop around and find the best plan for your lifestyle, but don’t go without it. Like it or not, health insurance is a necessity and needs to be budgeted for.

Credit is a Double-Edged Sword

This should come as no surprise if you pay attention to the news. Over the past several decades, easy credit has been the downfall of countless individuals, families and even major corporations. There’s nothing like a credit card or line of credit to provide purchasing power. There’s also no quicker way to break that budget I keep referring to. When that happens, and you’re unable to repay the debts you’ve accumulated, you’ll find those once-friendly creditors will be closing their doors to you, as well as the door to your future. Use credit sparingly and be sure to include your payments in the budget.

Know How to File Your Income Tax Return

Even if you pay a tax preparer each year, you should know how to file your own taxes. Even the most honest tax rep or accountant is capable of making an error and if you’re not capable of recognizing when something’s not right in your tax return, you may end up losing benefits you should have received. Worse, you could end up owing back taxes with expensive penalties. You need to have at least a basic understanding of the process to avoid real trouble.

Look Before You Leap

Wise money management requires a slow, careful approach, from preparing the budget to investing and purchasing. Anything that affects your future is worth taking the time to consider and nothing will affect your future like finances. Before you buy that new iPad, consider whether there’s room in the budget, and then wait a month. If you still think you need it, it will probably be less expensive by that time. Before you invest in that new hot stock, take the time to research it. Remember your goals. “Haste makes waste” is a valuable principle in the world of finance.

Learn Not to Waste

Remember the adage, “Waste not, want not”? Unfortunately, many of us, especially in the U.S., never really learn the value of that statement. We prepare bigger portions than we should eat, make impulse purchases and forget about simple things like turning off lights and unplugging cell phone chargers and other devices around the house. We pay huge utility bills while neglecting to check and replace weatherstripping and repair leaky faucets. Learning to be frugal can make a tremendous difference in the money left over at the end of the month.

Don’t Forget the Purpose of the Budget

If it seems I’ve been mentioning the budget a lot in this article, it’s because I have, and with good reason. The purpose of preparing the budget in the first place is to ensure that you don’t spend more than you make. Adhering to this single, basic principle is the financial strategy that will get you farther than any magic formulas you may find.

(Photo courtesy of j.o.h.n. walker)

The Secret to Financial Success: Be an Independent Thinker

January 19, 2011 By Jennifer Derrick 3 Comments

Over the years I’ve discovered that the single greatest thing you can do to help your finances is to be an independent thinker. You need to make your own choices and live according to what you know is right for you, not what society thinks is right for you. Society (your friends, family, coworkers, acquaintances, neighbors, and marketers) likes to tell you that you are a failure if you don’t do this or that, or you’re a loser if you don’t own this or that. You’re told you can’t succeed unless you do or have certain things. It can be hard to stand in the face of that pressure and spend only according to what you know you can afford, but if you want to be financially successful, you have to do it.

And you need to start when you’re young. The decisions you make when you’re just starting out have far reaching impacts. Student loans may be with you until you’re fifty. A bad early marriage can leave you paying child support or alimony for decades. A big house bought before you were ready can lead to a foreclosure that stays on your record for years. Maxed out credit cards can take decades to pay off. From your first independent moments you need to be an independent thinker. You need to stand up and say, “I can’t afford this, so I’m not going to do it. I’m going to do things I can afford, instead.” Begin your independent thinking with the following areas and you’ll save yourself a lot of headaches later.

Housing: When you’re young and everyone around you is buying big houses, it’s hard to stay in your crappy 700 square foot apartment. But if you can’t afford a house, if you want a small house, or if you want to save for other things, you have to resist the temptation to join the herd. When you’re older and everyone is upgrading, you have to have the courage to stay put if your current house meets your needs. Big houses come with big payments and expenses. If you can be happy in a smaller home or apartment, stay there and be happy. Resist the voices of society that tell you to own a big house just because it looks good.

Cars: Cars are like houses when it comes to society telling us to have the newest, biggest, and best. You’re encouraged to upgrade every couple of years, to buy more than you need, and to always buy new. But when you get right down to it a car is, as Steve Martin says in “Planes, Trains, and Automobiles,” “Four wheels and a #@$%ing seat.” You don’t have to have the newest and biggest to get you to and from work. A used car will do the job. Buy the car that meets your needs in terms of reliability, safety, and affordability and let the rest of society drive the luxury cars.

Education: Society would have you believe that you must go to an expensive private school, otherwise you’ll be flipping burgers for a living. Yet studies show that, with a few exceptions in certain fields (medicine, law), where you get your degree does not really matter. What matters is that you get the degree, you get good grades, and you come out of school with marketable skills. The person who graduates with $200,000 in debt from a private school is not necessarily a better employee than the one who went to community school for two years and finished up at a state school. Student loans can leave you in debt for many of your working years, negating any benefit you may have gotten from the private school. If you can’t afford that, go to a school you can afford and work your butt off to develop marketable skills.

Marriage: Don’t marry someone just because they are good looking, your friends/family love them, they are wealthy, or they are the one you’re “expected” to marry. That person may make a great trophy spouse but chances are it won’t end well. Since divorce can set you back financially for years, you’re better off marrying the person you love (or staying single) rather than the one society thinks you should marry.

Investing/retirement: It’s not cool to contribute to a retirement plan. It cuts into the budget for that bigger house or newer car. You’re too young to worry about that, spend your money on fun stuff. No one else at work contributes, so why should you? Society comes up with plenty of reasons to put off setting up your retirement accounts. You should contribute because the younger you start, the more time you have to rack up some serious money and avoid eating dog food in your old age. Resist the urgings to put off saving and start immediately. You know it’s the right thing to do, so do it.

Gadgetry: Game stations, DVD players and movies, cell phones, TV’s, MP3 players, computers, GPS’s, swanky kitchen gizmos, and all other types of gadgets and gizmos can get you into trouble. You may know you need that you only need a basic cell phone, but when everyone around you is buying smart phones, it’s hard to stick to that notion. So you cave in and get stuck with the big data plan you don’t need and the associated expenses. You can get to work just fine without a GPS so do you really need one, or is it just something else everyone else has? Gadgets are fun, but too many of them can send you into a financial tailspin. Resist the pressure to have the newest, most feature rich gizmos. Get only what you really need and pocket the extra money.

Travel: It’s tough to stay home when all your friends are taking their kids to Disney World or going on cruises to exotic lands. Those mini-vacations you take to the nearby beach or amusement park don’t seem like much in comparison. Society tells you to keep up and go to the same places where your friends are going. Your kids won’t grow up right if they don’t see Disney World! Expensive travel is fine if you can afford it. However, if you’re going into debt to take those trips, you’re heading for trouble. Take the vacations you can afford, even if they are just long weekends in the mountains or “staycations” where you do fun things around your home. Kids will be happy just spending time with you and you can take the expensive trips when your finances are in better shape.

Some people talk a lot about how they are individuals or rebels, or how they like to thumb their noses at convention. Yet many of these people are the first in line to buy a new cell phone, trade cars every two years, or upgrade their house every five years. They march right along with the rest of the herd straight off the financial cliff. If you want to succeed, you have to set your mind to doing the right thing for your finances, even if it’s not the popular thing. You might take some flack for your cheap cell phone or used car, but you’ll have the last laugh one day when your finances are on track and your tormentors are seventy-three and working at Wal-Mart.

Do Automatic Retirement Contributions Help or Hurt?

August 16, 2010 By Jennifer Derrick 9 Comments

You may have heard about the movement to automatically opt employees into their 401K’s. Right now, the default option is for you not to contribute. When you’re hired they ask you if you’d like to contribute and how much. If you say no, then nothing is taken out of your check. There is a movement afoot to make opting in the default option instead. When you’re hired you would automatically have three percent (more or less depending on the employer’s plan) deducted from your check and placed into a retirement plan/fund of your employer’s choosing. You would have to specifically tell your employer not to do this in order not to contribute to the plan.

The thinking is that if the default option is to be enrolled in the plan then more people will save because, frankly, we’re all too lazy to be bothered with filling out the paperwork to stop the withdrawals. This is partly why more people don’t currently contribute to retirement plans. They’re too lazy or busy to be bothered with filling out the paperwork to join and researching the options for their contributions. So, the thinking goes, if you automatically enroll people into the retirement plan, they will be saving something and probably won’t opt to change it.

The goal of this plan is to get people to save something for their retirement. The government wants us to save more because retirees with no money will soon overburden Social Security and Medicare. People need to start taking responsibility for their own retirements. Since people have shown time and time again that they won’t contribute voluntarily, the government wants to try to sneak it up on us.

I don’t disagree with the plan. I wish more people would step up and take care of their own retirement planning. I’m not looking forward to supporting others in my old age. I will have saved enough to take care of myself, but I will likely be penalized in higher taxes and reduced Social Security payments to take care of those who did not take responsibility. However, I wonder if the plan will really help all that much.

Sure, it’s great that people will be saving something. And they probably won’t really miss the money because three percent taken out of your paycheck before taxes really isn’t that much. If your gross pay is $2000 every two weeks, for example, then three percent of that is only $60, or $10 per month. That shouldn’t present a problem for most people. And therein lies the problem. The contributions that will be automatically deducted are not nearly enough to create a secure retirement on their own. Obviously the idea is that the employee will opt to contribute even more or to open some other retirement account like a Roth IRA on their own. Yet if people won’t even voluntarily sign up for retirement plans, what makes anyone think they will voluntarily opt to have even more deducted from their checks? I think the odds of most people exceeding the default deduction are pretty slim.

The other goal of this plan is to teach people to save. The idea is that if you show people savings in action they will be inspired to save more. If you show them how a 401K adds up they will want to do more. I don’t think this will work, either. Most people know how saving works. You don’t need much more than an elementary school education to understand interest and compounding. When you start a job you are usually given information on the retirement plan that includes all kinds of charts showing how your contributions add up. People ooh and ahh over those charts during orientation, but still don’t sign up. For all that they understand, people still don’t want to save. You can’t force people to save money. Sure, you can take a nominal amount of their check but you can’t make a non-saver get excited about doing more. Sadly, many people only learn how to save once the crisis comes. Forcing people into a 401K isn’t going to turn them into savers or teach them how to save for the long term.

I worry that these plans will have the opposite effect. Instead of getting people to save more, I worry that this default contribution scheme will increase complacency amongst people and actually lower their desire to save. People will start to think, “I’m saving for retirement through my employer. I don’t have to do more.” They’ll lose any desire they may have had to save more because they will assume it’s being taken care of by those default deductions. Even if you explain that they need to do more, many will assume that what is being done is enough. If people are so complacent when they aren’t saving at all that they think retirement will magically take care of itself, why would anyone think that they would not become even more complacent and guilty of magical thinking once a little money is actually being put away?

When people who’ve been “tricked” into these contributions retire they will have some money saved and that is better than nothing, but it won’t be nearly enough to accomplish the governments’ goal of reducing the burden on entitlement programs. It won’t be enough to make them independent in retirement. I don’t think many of them will have learned to save on their own. I’m afraid that this plan might actually make the saving situation worse in this country. People will assume that it’s taken care of and not bother to save more, to learn about investing, or to take responsibility for their own situation. If they won’t do it when no contributions are being made, why would they do it once some contributions are being made by default? So what do you think? Will automatic contributions help or hurt the long term retirement prospects in this country?

A Life Without Debt: Procrastination Is The Enemy

October 6, 2009 By Sadie Morris 8 Comments

Over my years of debt free living I’ve learned that procrastination is a huge enemy to staying debt free. We all tend to say, “I can take care of that tomorrow,” and put off things we don’t want to (or can’t) deal with right then. The problem is, the longer you put things off, the more they end up costing you, both in terms of money and in terms of leaving gaps in your overall financial situation that can cause you to spend more money later. Put off too many things for too long, and you’ll soon find yourself in a financial mess and on the road to debt. Let me show you some examples of areas where procrastination can cause big trouble:

Home maintenance: The roof has lost a few shingles. You decide not to fix it right now. It rains. The roof leaks and water collects in your attic, wetting your insulation. Leave it unattended much longer and the water is going to damage your ceiling and come through into your house. Now, what would have cost you a couple hundred dollars at most to fix is going to cost thousands. It’s the same with the furnace that is making funny noises. If you call for repair right then, it might cost you a couple hundred to fix. Wait until the thing shorts out and starts a fire and you’ve got a bigger, more expensive problem. Keep on top of repairs and, if possible, head off trouble before it starts with good routine maintenance and troubleshooting.

Car maintenance: The engine is making a strange noise You keep driving it for a few more months. Then the head gasket blows and your entire engine is shot. Had you dealt with this in the beginning, a couple hundred dollars probably would have covered it. Now you’re looking at thousands, or a new car. The same is true for squeaky brakes, engine lights that come on, and fluid indicators that show you’re low. Don’t ignore them. Get it fixed before it costs you more money.

Financial paperwork: You keep meaning to write your will or buy that life insurance. You swear you’re going to increase the coverage on your homeowner’s policy to cover your new addition. But you never get around to it. Then disaster strikes and your insurance won’t pay or your estate is turned over to the State. Had you just taken care of these things, you and your family would be all set. As it is, you face increased repair or legal costs and a lack of insurance money to draw upon.

Retirement savings: You keep saying you’re going to start that IRA or contribute to the 401K at work. But somehow, you never quite get there. Now you’re sixty and looking retirement square in the face. You have no money, so your plans are either curtailed or you’re living on the bare minimum trying to sock as much as you can away before your job forces you out. At worst you’re looking at financing your retirement on credit cards or reverse mortgages, or you’ll be working until you die. But had you just started putting in a little money each pay period years ago, you’d be comfortable.

Emergency fund: How many times have you promised yourself that you’ll use the next tax refund or raise to start that emergency fund, and yet you chose to go to Bermuda instead? Then you have an emergency or lose your job and everything has to go on a credit card. If you had that emergency fund, you might not have to finance the problem. You could pay cash. If you had started that fund years ago when you meant to, you’d be all set to weather life’s down periods.

Bill payment: The bills come and you stuff them in a drawer, intending to pay later. But you get busy and forget. Then come payment time you’re either late or you discover that the money for the electric bill was spent on that weekend beach trip. Now you’re looking at late fees, service charges, bounced check fees, and possibly having your service cut off. Had you just paid when the bill came, you’d have only paid the amount owed.

Health care: You put off your annual physical and vaccinations. You put off starting that diet and exercise program. Then one day you don’t feel so good. The doctor tells you that you have cancer or heart disease and that, had you come in a year ago, they could have done more for you. As it is, you’re facing costly treatments and an uncertain prognosis. Had you just gone ahead and taken care of yourself, you might have been spared the financial and personal pain.

Balancing the checkbook: The statement comes and you don’t balance your checkbook. Months go by and you don’t bother. Then one day you discover you’re out of money and you don’t know why. So you dig out your old statements and start to balance. A combination of math errors, new fees being charged by the bank, and overspending on your part have robbed you of your money. Now you’re facing bounced check fees and overdraft charges. Had you just balanced your books once per month, you would have caught the math errors and had a chance to do something about the fees. You could have also identified spending that was getting out of hand.

When you procrastinate you open the door to debt. Things that only cost a little when dealt with quickly end up costing thousands that you don’t have. And then they get financed. You may think you’re saving money by not addressing a problem right then, but failure to deal with it is likely to cost you a lot more in the long run. If you want to live debt free, you have to conquer procrastination. Get organized, set up a system for alerting you to things, and get in the habit of dealing with things as they come up. You’ll not only sail through life a lot easier, you’ll likely have far less debt.