Category Chapter_13

Oct 15 2014

Here’s How to Become a 401k Millionaire

“If your job offers you a 401k or similar retirement plan, you’ve got one of the very best investment tools at your disposal.”

To become a 401k millionaire, all you need is a paycheck, reasonable options in your retirement plan, and time.  This article also explains that once you start putting money into the plan, the tax-deductible investments grow and are tax-deferred until you begin to withdraw money from your 401k account.  As an added bonus, your employer may match all or part of the money you contribute to your 401k account.

A very useful table that shows how many years it will take for you to become a millionaire based on how much you (and your employer) invest each month with different rates of return is also included in this article.  And there are also suggestions for increasing the amount that you save or invest in a 401k account or other savings or investment accounts.

For more information go to http://www.fool.com/retirement/401k/2014/09/27/heres-how-to-become-a-401k-millionaire.aspx

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Stress the importance of beginning an investment program sooner rather than later.
  • Discuss ways to save the money needed to start an investment program.

Discussion Questions

  1. Why is it important to begin saving and investing sooner rather than later?
  2. Assume you (and your employer) invest $250 a month in your 401k account. How long will it take for you to become a millionaire if your investments earn annual returns of 10 percent?  (Note:  Using the table in the article, the answer is 35.5 years.)
Sep 17 2014

The Credit Card Mistake That’s Costing Millenials

“A new survey from BMO Harris Bank shows consumers are confused on how credit card balances affect credit scores. . .”

While using a credit card is one of the easiest ways to build credit, there are plenty of misconceptions about how best to do that.  According to this survey

  • 39 percent of Millennials—people between ages 18 to 34—believe carrying a balance increases their credit scores. In fact, carrying a balance does not improve credit scores and can actually hurt scores.
  • 23 percent of those surveyed indicated that a person’s educational level affects his or her credit score. In fact, a credit score is based only on the information in your credit report, and educational level is not included in your credit report.
  • 27 percent of those surveyed thought checking their credit scores would lower their credit score. In fact, the opposite is true:  If you regularly check your credit scores, it’s likely you’ll make financial decisions that will improve your credit score.

For more information go to http://finance.yahoo.com/news/credit-card-mistake-thats-costing-103040745.html

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Discuss why a credit score is important.
  • Stress the importance of “managing” credit card debt.

Discussion Questions

  1. What affect will your credit score have on the finance charges you pay for credit purchases?
  2. How can your credit score affect your ability to purchase a home or an automobile?
  3. Assume you have a low credit score and have been turned down for a home mortgage. What steps can you take to increase your credit score?
Sep 13 2014

U.S. Job Growth: Eight-Month Low, Labor Force Shrinks

U.S. employers hired the fewest number of workers in eight months in August and more Americans gave up the hunt for jobs . . .”

This Reuters article describes current employment trends and the effect it has on both the economy and the actions of the Federal Reserve.  Specifically,

  • Nonfarm payrolls increased 142,000 in August after expanding by 212,000 in July.
  • The jobless rate fell one-tenth of a percentage point to 6.1 percent in August.
  • The lower jobless rate in August was the result of more people dropping out of the labor force and not because of an increase in working Americans.
  • The Federal Reserve Board and Fed Chair Janet Yellen will use the weakness in the unemployment numbers to keep interest rates at present levels in order to provide a stimulus for the economy.

Specific information about different industry sectors, labor force participation, the number of part-time employees, etc. is also provided in this article.

For more information go to http://www.reuters.com/article/2014/09/05/us-usa-economy-idUSKBN0H008E20140905

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Reinforce how the nation’s economy can affect a person’s ability to obtain employment, develop a financial plan, and achieve both personal and financial goals.

Discussion Questions

  1. Assume you are unemployed and looking for a full-time position after graduating from college.  What knowledge, skills, and experience do you have that will make an employer want to hire you?
  2. What steps can you take to provide financial security if you think the economy is about to experience a recession?
Aug 20 2014

Brokerage Services Buying Guide

“Whether you’re a seasoned investor, a newbie, or someone retesting the waters after a scary loss, financial services companies want your business.”

In this article, Consumer Reports evaluates a number of factors that investors should consider when choosing a brokerage firm to help them achieve their financial and investment goals.  Brokerage firms were rated for customer satisfaction.  (FYI, USAA was number 1 and Scottrade and Vanguard tied for second place.)  In addition to customer satisfaction ratings, other factors discussed in this article include

  • The amount of professional advice and if there were costs or requirements for free advice.
  • A discussion of retirement plans offered by various brokerage firms.
  • Steps you should take when choosing a brokerage firm.
  • Questions you should ask when choosing a brokerage firm.
  • Sales tactics that raise a “red” flag when choosing a brokerage firm.

For more information go to http://www.consumerreports.org/cro/brokerage-services/buying-guide.htm

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Point out to students that not all brokerage firms are the same and that the information in this article can help them choose the firm that can “best” help them obtain their investment goals.
  • Because this is a lengthy article, you may want to assign this as a homework assignment with students answering the questions below.

Discussion Questions

  1. What types of advice were offered by different brokerage firms?
  2. Did the information in the article help you understand the advantages and disadvantages of retirement plans?
  3. What specific steps should you take before choosing an advisor or a brokerage firms.
  4. What were some of the “red” flags you should watch for when choosing a brokerage firm?
Aug 13 2014

Survey Says: Investors Are Getting Scared

“As world unrest surges and the stock market wobbles, investors have gotten nervous.”

At least three separate sentiment polls indicate stock investors are worried about the trouble in Ukraine, the Middle East violence, continuing projections for a long-overdue correction or worse in the financial markets, and frustration with Washington politics.

For example, respondents to the weekly American Association of Individual Investors survey indicated their strongest levels of pessimism in almost a year.  A survey by Investors Intelligence (which polls investor newsletter editors) indicates a drop in investor bullishness compared to the previous survey.  And, a Bank of America/Merrill Lynch survey of investment strategists indicated heavy bearishness on Wall Street.

For more information go to http://t.money.msn.com/top-stocks/survey-says-investors-are-getting-scared-1

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Reinforce the relationship between world affairs, the economy, and the financial markets.

Discussion Questions

  1. At the time of this post, the world situation is troublesome to say the least. What is the relationship between world events, the economy, and the financial markets?
  2. These three recent sentiment surveys indicate that there are more bears than bulls? How would you define a bear?  A bull?
  3. Even though the sentiment surveys indicate investors are pessimistic about the market, some analysts view the market’s bearishness as a buying opportunity. Why could pessimism in the financial markets signal a time for investors to purchase stocks or mutual funds that invest in stocks?
Jul 26 2014

Retirement Catch Up: Saving After 50

“. . .more than a third of people 55 and older have saved less than $10,000.”

According to Carrie Schwab-Pomerantz, President of the Charles Schwab Foundation and daughter of Charles Schwab, there are a number of steps anyone can take to get their financial house in order.

For example, Ms. Schwab-Pomerantz suggests that savings should be non-negotiable–it’s that important.  To increase the amount saved, people should take a hard look at where they are spending their money.  For example, do you really need cable television or that new car?

She also suggests that a person in their 20s should save 10 percent of income in order to save the money needed for a comfortable retirement.  If the same person waits until she or he is in their 30s, the percentage for savings increases to 20 percent while someone in their 40s will need to save 30 percent of their income.  Finally, a person in their 50s will need to save 40 percent of income to provide for retirement.   The Bottom Line:  The percentage a person must save for a comfortable retirement increases if they wait to begin a savings and investment program.

For more information go to http://finance.yahoo.com/news/retirement-catch-up–saving-after-50-043631641.html

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Remind students how small changes in how they manage their financial affairs can change their lives both now and when they reach retirement age.
  • Stress the importance of beginning a savings and investment program sooner rather than later.
  • Use a Time Value of Money calculation to show how regular savings can increase over time.

Discussion Questions

  1. Why is it important to begin a savings and investment program when you are in your 20s?
  2. Where does the money come from to begin a savings and investment program?
Apr 23 2014

The Slacker’s Guide to Saving for Retirement

Whether retirement is coming soon or feels far away, it’s something you need to think about.

This article encourages students to make retirement planning a part of their budget and one of their financial goals.   It also points out the benefits of starting early—even if students can contribute only a small amount because of other obligations that include paying off student loans and other debt obligations, paying rent, buying groceries, and establishing an emergency fund.

A very good suggestion included in this article is to start by saving just $25 from each paycheck, and then increase the amount until someone feels they have reached a limit they are comfortable with.

Other suggestions include participating in a 401(k) account at work and using bonuses and salary increases to boost the amount contributed to your retirement account.

For more information, go to

http://finance.yahoo.com/news/slackers-guide-saving-retirement-113005671.html

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Encourage students to develop a long-term financial plan that includes retirement goals.
  • Discuss time value of money examples that show how small dollar amounts invested on a regular basis can help achieve long-term financial goals.
  • Launch a discussion about the different types of retirement accounts.

Discussion Questions

1.  Many people never begin saving or investing because there is never anything left over at the end of the month.  How can you find the money needed to begin saving and investing?

2.  Why should you begin to save for retirement now instead of waiting until later in life?

Apr 6 2014

Average Tax Refund More than $3,000 So Far

A month into the 2014 tax filing season, the IRS said the average tax refund is up 3 percent to $3,034.

This article also reports that more taxpayers are completing their own returns as opposed to using the services provided by tax professionals and filing their returns earlier this year when compared to 2013.   Already, the IRS has received nearly 40 percent of expected total returns during the first month of the filing season.

Finally, recent surveys indicate most Americans plan to use their tax refund to pay down debt, for shopping, or for entertainment.

For additional information, go to    http://www.usatoday.com/story/money/personalfinance/2014/03/06/irs-tax-refunds-returns/6125597/

Discussion Questions

1.  Assume you just received a $3,000 tax refund.  How would you use the money?

2.  If you received a $3,000 refund this year, what effect would it have on your tax planning for next year?

Teaching Suggestions

You may want to use the information in this blog post and the original article to discuss

  • If students should use a tax refund to pay down debt, start an investment program, or spend the refund.
  • Time Value of Money examples to show how a refund that is saved or invested can increase in value.
Apr 2 2014

Can the Government Get Us to Save More for Retirement?

Millions of Americans aren’t saving enough for retirement. Now the President is getting involved and has proposed a new way to help workers save more!

According to a survey by the Employee Benefit Research Institute, 46 percent of American workers had less than $10,000 saved for retirement. The survey also revealed that half of all workers and the majority of part-time workers didn’t receive any retirement benefits from their employer.

To encourage workers to save more, President Obama proposed the “MyRA” plan that allows workers to invest $5,500 a year in government savings bonds that earn 2% to 3% until their balance reaches $15,000. At that point, the money in the account can be rolled over to a private sector Roth IRA, where the money can continue to grow tax-free.

While MyRA accounts are seen as a first step to encourage workers to begin saving, critics argue that the tax-free withdrawals encourage workers to withdraw money before reaching retirement.

For additional statistics on how much Americans save or more information about MyRA accounts, go to http://money.cnn.com/2014/02/11/retirement/retirement-savings/index.html?section=money_pf.

Discussion Questions
1. Many people never begin saving or investing because there is never anything left over at the end of the month. How can you find the money needed to begin saving and investing?
3. Why should you begin to invest money now instead of waiting until later in life?
3. What are the advantages of a MyRA savings plan? of a Roth IRA plan?

Teaching Suggestions
You may want to use the information in this blog post and the original article to discuss
• Why students should develop a long-term financial plan that includes both savings and investments.
• Time Value of Money examples to show how small dollar amounts invested on a regular basic can help achieve long-term financial goals.
• Different types of retirement accounts.