FINRA Investor Education Foundation Publishes “The State of U.S. Financial Capability”

Did you know that in 2018:

  • 19% of households spent more than their income?
  • 46% of individuals lacked an emergency fund?
  • 35% of credit card holders paid only the minimum on their credit cards?

In September 2019, the FINRA Foundation released data from its latest Financial Capability Study—one of the largest and most comprehensive financial capability studies in the United States. Among the findings, younger Americans, those with lower incomes, African-Americans and those without a college degree face the toughest financial struggles. More than 27,000 respondents participated in the nationwide study. Conducted every three years beginning in 2009, it measures key indicators of financial capability and evaluates how these indicators vary with underlying demographic, behavioral, attitudinal and financial literacy characteristics—both nationwide and state-by-state.

For more information, click here

Teaching Suggestions:

  • Ask students if they spend more than their income in a given year.
  • Ask students if they have a rainy day fund. If not, why?
  • Ask students if they pay in full when the credit card bill arrives. If not, why?

Discussion Questions

  1. What might be some reasons why almost one in five households spends more than their income?
  2. Why is it important to have a rainy day fund? Why almost half of Americans lack such a fund?
  3. Why is it vital to pay credit card bills in full? What are the costs of paying a minimum balance?

Meet the “Henrys” (high earners not rich yet)

Many young people making high salaries still say they feel broke. A “Henry,” short for “high earners not rich yet,” is someone who lives an extravagant lifestyle combined with their student loans has very little money left over.  These “working rich” place a strong emphasis on travel, and often limit their spending on food and clothing in order to afford luxury trips.  While many have a desire to get their finances in order, very few take appropriate actions to do so.

Henrys are characterized by a higher-than-average income, little or no savings, and a feeling of low material wealth. Most of their earnings go toward current living expenses rather than building wealth with investments.

For additional information on high earners not rich yet, click here.

Teaching Suggestions

  • Have students conduct online research to determine various financial attitudes and behaviors of people in different age categories and life situations.
  • Have students prepare a video that recommending actions to the people described in the article.

Discussion Questions 

  1. What factors might be influencing the financial activities of the people described in the article?
  2. Describe possible financial concerns associated with these financial attitudes and behaviors, and recommend corrective actions that might be taken.

Kakeibo: The Japanese art of saving money

Kakeibo, pronounced “kah-keh-boh” and translates as “household financial ledger,” is a method used in Japan for managing personal finances. For over 100 years, this system has helped people make smarter money decisions.

Similar to other budgeting systems, kakeibo is designed to help you understand your relationship with money by recording all financial inflows and outflows. As proven by research, this recordkeeping method emphasizes physically writing your financial activities making you more aware of bad money habits. Kakeibo can help you become completely honest about your spending with the use of four categories: (1) needs, (2) wants, (3) culture, such as books and museum visits, and (4) unexpected – medical expenses or car repairs.

Kakeibo encourages you to ask yourself these questions before buying any non-essential items, or things you buy on impulse:

  • Can I live without this item?
  • Based on my financial situation, can I afford it?
  • Will I actually use it? Do I have the space for it?
  • How did I come across it in the first place? (Did I see it in a magazine? Did I come across it after wandering into a gift shop out of boredom?)
  • What is my emotional state in general today? (Calm? Stressed? Celebratory? Feeling bad?)
  • How do I feel about buying it? (Happy? Excited? Indifferent? And how long will this feeling last?)

In addition, to spend more mindfully, Kakeibo recommends that you:

  1. Leave the item for 24 hours.
  2. Don’t let major “sales” tempt you.
  3. Check your bank balance regularly.
  4. Spend in cash.
  5. Put reminders in your wallet – use a sticker: “Do you REALLY need this?!”
  6. Change the environments that cause you to spend.

For additional information on kakeibo, go to:

Link #1

Link #2

Link #3

Teaching Suggestions

  • Have students conduct a survey to determine reactions to this budgeting system among people in different age categories and life situations.
  • Have students prepare a visual summary of some of the characteristics of the budgeting system.

 Discussion Questions 

  1. What elements of this budgeting system might people find beneficial? What are possible drawbacks?
  2. If you were to implement this system for your life, which actions would you select to do first?

Avoiding Personal Finance Nonsense

Many personal finance reports are published with advice that may not provide the best guidance. In an effort to avoid buzzwords and troubling phrases, consider these suggestions:

  • determine who conducted the research; a company may sponsor a study that lacks the rigor of academic or government researchers.
  • be wary of research that reports feelings or predictions rather than actual behaviors and actions of respondents.
  • consider the number of people in the study and how the respondents were selected.
  • avoid generalizations that about a certain age group, such as Millennials, Baby Boomers, or Generation X.

Don’t revise your money management activities based on some survey or research report. If your current actions are working, then you are on the correct path.

For additional information on avoiding personal finance nonsense, click here.

Teaching Suggestions

  • Have students conduct online research to locate a recent personal finance study to evaluate the validity of the advice offered in the report.
  • Have students create a video presentation reporting both valid and nonsense personal finance advice.

Discussion Questions 

  1. What problems could occur if a person uses inappropriate financial advice?
  2. In addition to the suggestions in the article, what actions might a person take to determine the validity of personal finance advice?

Financial Planning for a Career Change

When considering a career change, the following financial suggestions are offered:

  • have an appropriate amount of savings for unexpected expenses during the transition.
  • create a budget to live frugally; cut living costs to be prepared for sudden expenses.
  • reassess your investment portfolio to reduce risk exposure and possibly eliminate fees.
  • seek advice from a financial advisor.
  • determine how a career switch might impact your ability to save.

For additional information on financial advice when changing careers, click here.

Teaching Suggestions

  • Have students talk to a person who recently changed jobs to obtain information about their experiences.
  • Have students create a video presentation with suggested actions when planning to change careers.

Discussion Questions 

  1. What relationship exists between a person’s career choice and money management activities?
  2. Describe additional financial planning actions that might be appropriate when considering a career change.

Anchoring Your Personal Finance Decisions

To spend less and save more, consider an “anchoring” system.  One example of an anchor is the price of an item to determine if that is an appropriate amount of money to spend for the item.

Anchors prevent shoppers from being overwhelmed by the many choices, prices, and features.  You can create your own anchors by:

  • setting the maximum price you are willing to spend for an item.
  • considering the value of an item in relation to the number of hours you have to work to pay for it.
  • comparing the cost in relation to another item. If you buy coffee costing $2.50 a cup and want a sweater costing $50, view the sweater as costing 20 cups of coffee. Your “coffee” anchor will help you determine how valuable the sweater is to you.

When buying a home, you may be encouraged to look at properties outside your price range.  Anchoring yourself at a price limit will avoid overspending, make you feel more in control, and encourage wiser financial decisions.

For additional information on financial anchoring, click here.

Teaching Suggestions

  • Have students talk to several people to obtain information about how they determine the price they are willing to pay for an item.
  • Have students create a video presentation that demonstrates various anchoring methods.

Discussion Questions 

  1. How might anchoring help improve personal financial literacy and money management activities?
  2. Describe anchors people might used to determine the price they would be willing to pay for an item.

Financial Regrets

Most people would like to be able to go back and do some things differently related to their personal finances. A study by bankrate.com revealed that 76 percent of those surveyed have at least one financial regret. The largest concern, over half (56 percent), involved not starting to save sooner for retirement, an emergency fund, or their children’s education.  Other financial regrets reported in the study include: living above one’s means; taking on too much credit card debt; and the burden of student loans.

A recommended action to address these financial regrets include breaking down large goals into smaller, easier ones can help put individuals on a path to success. A “save-first” mindset instead of “spend-first” is also suggested. In addition, consider opening an online savings account with higher returns, and set up direct deposits for regular saving.

For additional information on financial regrets, click here.

Teaching Suggestions

  • Have students conduct online research to determine various financial regrets of people in different age categories and life situations.
  • Have students conduct an interview with a person about actions that might be taken to avoid financial regrets.

Discussion Questions 

  1. What factors might create situations that result in a financial regret?
  2. Describe possible financial regrets and corrective actions a person might take.

When A Robot Reads Your Resume

Before a person views your resume, it might be scanned by a computer to screen your qualifications.

Career experts suggest preparing your resume for three audiences: a computer screening program, a human resources specialist, and the hiring manager.

To pass the test of automatic resume scanners, consider these suggestions:

  • Be sure to include your contact information, and avoid putting required information in the heading where it might be missed by the scanner.
  • Avoid fancy formats and fonts. Use a professional presentation.  Bullets are suggested for an organized, easy-to-read appearance.
  • Emphasize keywords that reflect your competencies and experiences.
  • Connect to the job description. Use the requirements and responsibilities of an employment position as a guide for presenting your background, skills, and accomplishments. Avoid a generic resume; tailor your resume to the specific position. Especially look for keywords that are repeated in the job description.
  • Use clear job titles. Adapt and simplify previous job titles to fit generally-accepted labels in an industry.
  • Seek guidance. Ask for assistance from career development centers, professional colleagues, friends, and others who can help you prepare a resume appropriate for scanning software.

Of special note, job applicants with military experience should match job description keywords to their military service. They should also emphasize and communicate their background so the resume scanning software will easily recognize their employment competencies.

For additional information on automatic resume scanners, click here.

Teaching Suggestions

  • Have students create a resume for a specific job description to connect their background to the available position.
  • Have students talk to a few people to obtain suggestions for improving their resumes.

Discussion Questions 

  1. Based on selected job descriptions, name keywords that might be appropriate to use in a resume for those positions.
  2. List various sources that might be used to obtain resume preparation assistance.

Investing Success for Young People

Young people should take advantage of time, and start investing now for the long-term.  When doing so, they should consider these actions:

  • Make use of low-cost mutual funds, exchange-traded funds and index funds to minimize administrative costs, transaction fees and commissions.
  • Take advantage of tax-deferred retirement programs, which will allow them to invest pre-tax dollars to lower their current tax bill. Employers may match retirement fund contributions.
  • Don’t avoid risk by emphasizing conservative investments. Taking on more aggressive investments creates greater potential for higher, long-term returns.
  • Effectively manage risk with fixed index annuities, fixed annuities, and market linked CDs. Dollar-cost averaging allows for obtaining more shares at a lower cost during market downturns.

For additional information on investing by young people, click here.

Teaching Suggestions

  • Have students talk to others for suggested investment actions to take.
  • Have students conduct online research regarding the best investments for their life situation.

Discussion Questions 

  1. What factors might a person consider when selecting investments for their life situation?
  2. Describe actions people might take to increase the funds they have available for long-term savings goals.

Where to Keep Your Emergency Fund

While having an emergency fund is vital, putting this money in a low-yield checking account is not recommended. A certificate of deposit (CD) also may not be appropriate since your funds may be locked-up when the money is needed. For safe storage of your funds along with quick access and a better return, consider these alternatives:

  • High-yield savings account. These financial products are offered by banks to attract new savers. These accounts have high liquidity and are covered by federal deposit insurance; although, interest earned is taxable. Most high-yield savings accounts are available through online banks. Also be aware of fees, minimum balances, or a required minimum length of investment.
  • Money market fund. Usually offered by investment companies, these financial products are similar to high-yield savings accounts but do not have federal deposit insurance. However, they are protected by Securities Investor Protection Corporation (SIPC) insurance, usually covering amounts up to $1 million for investors.
  • Treasury bills and bonds. These debt instruments of the U.S. Treasury have a maturity ranging from 90 days to 30 years. While considered very safe, an investor may lose money if sold before it matures.
  • Ultra-short term bonds. For a higher yield with a bit more risk, consider ultra-short term bond exchange-traded funds (bond ETFs).  These funds invest in corporate bonds, which are not guaranteed.  However, it is possible to find funds that invest only in highly-rated bonds.

In each situation, be sure to consider the tax implications of earnings from these savings and investment products.

For additional information on emergency funds, click here.

Teaching Suggestions

  • Have students create a list of unexpected situations that might require accessing money from a person’s emergency fund.
  • Have students talk to others to determine where they keep money for emergencies.

Discussion Questions 

  1. What factors might a person consider when selecting a savings instrument for storing money for emergencies?
  2. Describe actions a person might take to have more funds available for an emergency fund?