“On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act.”
Fact: Most Americans wonder how the current wave of tax reform will affect them. This article by Kimberly Amadeo summarizes how the Act changes the amount of income tax that both individuals and businesses pay.
Significant changes in the Act for individuals include
- Lower tax rates (highest rate in 2017 was 39.6 percent drops to 37 percent in 2018) could mean an increase in the amount individuals take home each payday.
- Personal exemptions ($4,150 in 2017) per person are eliminated.
- The standard deduction almost doubles for a single person ($6,350 in 2017) to $12,000. For married and joint filers the standard deduction ($12,700 in 2017) is now $24,000.
- More taxpayers will opt to take the standard deduction instead of itemizing deductions.
- For those taxpayers who choose to itemize, many itemized deductions that were previously allowed have been eliminated.
- Taxpayers who itemize can still deduct charitable contributions, most mortgage interest, retirement savings, and student loan interest.
- Taxpayers who itemize can still deduct up to $10,000 in state and local taxes.
For businesses, the largest and most signification change is lowering the maximum corporate tax rate from 35 percent to 21 percent beginning in 2018.
The article does provides more specific information about how the Tax Cuts and Jobs Act affects both individuals and businesses.
For more information, click here.
You may want to use the information in this blog post and the original article to
- Discuss how the Tax Cuts and Jobs Act will affect a single college student or a typical American family.
- Explore how lower corporate taxes could impact economic growth, worker salaries, unemployment rates, job creation, and other factors that impact both the nation and individuals.
- Given the information contained in this article and other reports, do you think the Tax Cuts and Jobs Act is good for you? Explain your answer.
- For an individual, what effect does lower taxes have on your spending, savings and investments, and retirement planning?
The Personal Financial Satisfaction Index (PFSi), reported by the AICPA (American Institute of Certified Public Accountants) is at an all-time high. This quarterly economic indicator measures the financial situation of average Americans. PFSI is the difference between (1) the Personal Financial Pleasure Index, measuring the growth of assets and opportunities, and (2) the Personal Financial Pain Index, which is based on lost assets and opportunities. The most recent report had a Pleasure Index 68.1 in contrast to a Pain Index of 42.1, resulting in a positive reading of 25.9, the highest since 1994.
While the stock market is high, unemployment is declining, and inflation is low, remember the economy is cyclical. Be sure to consider and plan for your long-term goals. Stay aware and position your financial plan appropriately to safeguard finances when the economy is in a downturn. Also, analyze your cash flow to an attempt to increase savings, including an appropriate emergency fund.
For additional information on financial satisfaction, click here.
- Have students create an action plan for situations that might be encountered in times of economic difficulty.
- Have students create a team presentation with suggestions to take when faced with economic difficulties.
- What are examples of opportunities that create increased personal financial satisfaction?
- Describe actions a person might take when faced with economic difficulties.
Can you imagine getting paid each day that you work? That’s the idea behind Instant Financial’s app, which puts cash in the hands of workers on the same day they work. This program attempts to reduce absenteeism and employee turnover for restaurant chains.
At the end of each workday, employees may take 50 per cent of their pay for that day and transfer it to an instant account; the other half is paid at the end of the regular pay period. Funds in the Instant account may be accessed with a debit card or transferred to a bank account.
The app can reduce the use of payday loans, with exorbitant borrowing rates, as workers have access to funds between pay periods. Instant Financial makes money from fees charged employers and merchants when debit cards are used; although employees may pay ATM fees.
A major concern of the app is that it might discourage long-term financial planning. Poor budgeting habits could result in increased use of debt due to a lack of funds at the end of the month. Employees who use the app are encouraged to practice wise money management, including creating and building an emergency fund and other savings.
For additional information on instant pay, click here.
- Have students talk with others about the benefits and drawbacks of an instant account.
- Have students describe two situations: (1) a person who used the instant account wisely, and (2) someone who mismanaged their money as a result of using the instant account.
- What factors might be considered when deciding whether or not to use an instant account?
- Describe how an instant account might result in improved money management and in weakened money management activities.
Natural disasters create a need for unique actions. After physical safety is assured, some of the activities related to finances include:
- contacting your insurance company – request a copy of your policy, take photos and videos to document your claim.
- registering for assistance at DisasterAssistance.gov or call 1-800-621-3362.
- talking with your mortgage lender and credit card companies since you may not be able to make upcoming payments on time.
- contacting utility companies to suspend service if you will not be living in your home due to damage.
Beware of various scams that surface after natural disasters. These frauds can include phony repairs, deceptive contractors, requiring up-front fees, fake charities, and misrepresenting oneself as an insurance company agent or government representative to obtain personal information.
Assistance for the personal and financial chaos created by a hurricane or other natural disaster may be obtained from these organizations:
For additional information on financial actions for disasters, click here.
- Have students role play situations that might require actions such as those described in this article.
- Have students create a video with suggestions to take when encountering a natural disaster.
- How might the advice offered in this article be communicated to people who are victims of a natural disaster?
- Describe common mistakes people might make when encountering a natural disaster.
CPAs and financial advisers point out five “silent killers” that create barriers for the successful implementation of estate, retirement, and investment plans. These common mistakes are:
1. Unrealistic Expectations. A valid financial plan must be based on practical assumptions, such as an appropriate forecast of rate of return, inflation, and future cash flow needs
2. Emotional Decision Making. Feelings and personal sentiment must be identified and minimized when setting goals and planning financial projections.
3. Inflexibility. A useful financial plan must take into account unexpected events. Creation of an emergency fund and contingency plan is vital.
4. Inaction. Without a plan for action, the perfect financial plan is worthless. Common results of inaction can be not having appropriate of property and casualty insurance coverage, financial hardship of dependents due to inadequate life and disability coverage, failing to address how assets are to be distributed in an estate plan, and overlooking a tax strategy.
5. Unclear Values and Priorities. Being on the wrong path will result in an undesired financial destination. Reflection of areas of importance and priorities is fundamental for implementing a financial plan and achieving financial goals.
For additional information on financial planning silent killers, click here.
- Have students talk with others about barriers they have encountered in their financial decision making.
- Have students create situations that reflect each of the five situations. Ask them to suggest actions to overcome these difficulties.
- Explain which of these financial planning barriers you believe is the most dangerous.
- What are possible actions a person might take to avoid these financial planning barriers?
Mobile start-up companies and other organizations are working with financial institutions to assist consumers with apps and websites that address various financial tasks and concerns. These include:
- Albert (www.meetalbert.com) is a mobile app to guide your financial decisions with the assistance of various financial institutions.
- EARN (www.earn.org) is a national nonprofit to help low-income families create a habit of saving and break the cycle of financial instability.
- eCreditHero (www.getcredithero.com) is designed to fix errors that appear on an estimated 80 percent of the credit reports of Americans.
- Scratch (www.scratch.fi) helps borrowers to better understand, manage, and repay loans.
- WiseBanyan (www.wisebanyan.com) is a free financial advisor that suggests and manages investment plans for various financial goals, such as savings for retirement, creating an emergency fund, and buying a home.
For additional information on innovative financial planning apps, click here.
- Have students search for a website or app that would be of value of improved personal financial planning.
- Have students talk to others about the financial concerns they face. Ask students to propose an app or website that would address a personal finance concern.
- What personal financial planning areas provide people with the most difficulty?
- Describe potential apps or websites that might be created to assist people with their personal financial planning activities?
Based on an online survey of personal finance knowledge, 40 percent of Americans earn a grade of C or worse. Financially literate people possess a fundamental understanding of money management activities, and are able to apply them for their financial well being.
The Wallet Literacy survey is available to assess your financial literacy. This test covers a wide range of topics, including credit scores, paycheck deductions, emergency funds, car insurance, home buying, inflation, and investment risk. Respondents are encouraged to use a calculator and other resources when taking the survey.
For additional information on the financial literacy survey, click here.
- Have students take the financial literacy survey to determine the areas where additional learning is needed.
- Have students encourage others to take the survey, and then have students talk with them about their results.
- What items on the survey are topic areas for which most people need additional learning?
- How might people be encouraged to learning more about various personal finance topics?
According to a recent FINRA study, the financial circumstances of Americans have improved over the last several years—driven in large part by an improving economy and job market. For example, the percentage of survey respondents reporting no difficulty in covering their monthly expenses increased from 36 percent to 48 percent. This is very significant and 12 percentage point improvement.
However, some groups are still struggling, particularly blacks and Hispanics, those without a high school education, and women. Here are some sobering statistic: About half of respondents with only a high school diploma or no diploma could not come up with $2,000 in an emergency compared to 18 percent for those with a college degree.
Debt continues to be a problem for many Americans. More than one-in-five Americans have unpaid medical debt. Similarly, more than one-in-five Americans with credit cards have been contacted by a debt collection agency in the last year.
In terms of financial literacy, absolute levels are low; only 37 percent of respondents are considered highly financial literate—meaning they could answer four or five basic questions correctly on a five-question financial literacy quiz. And, financial literacy is down slightly since 2009.
For more information,click here.
You may want to use the information in this article to
- Help students understand that many minority groups are still struggling even though economy and job markets have improved.
- Explain how people can improve their financial lives by saving even a tiny portion of their income for emergencies.
- What can be done to improve the financial circumstances of minorities?
- What might be some reasons that debt continues to be a problem for many Americans?
- Since financial literacy levels are so low, what can individuals, local, state and Federal governments can to improve financial literacy of all Americans?
With a new year, many people hope to get a fresh start with changes in their financial planning activities. To do so, the following actions are suggested:
- Maintain or increase the amount of money in your emergency fund.
- Pay off high-interest credit cards and other expensive loan accounts.
- Set goals that will contribute to long-term financial security.
- Review your cash flow (spending and income) from the previous year in an effort to increase saving by avoiding unnecessary payments.
- Merge various banking, investment, and retirement accounts into one low-cost account.
- Determine if changes are needed in your estate plan.
- Increase your retirement account contributions.
- Revise your tax withholding, as needed
For additional information on January money moves, click here.
- Have students talk to various people about which actions they believe to be most valuable for long-term financial security.
- Have students create a brief presentation describing the value of one of these suggested money actions.
- Describe the January money actions that you consider to be most valuable for long-term financial security.
- What are some other money moves that you would recommend?
Many people grow up without learning how money works, which usually results in difficulties. Studies reveal that less than one-fourth of millennials have basic financial knowledge.
A vital starting point in the learning process is admitting that you don’t know. For example, most people do not know that credit scores show if a person has paid his or her bills on time and how much has been borrowed. Most people are not aware that credit reports often contain incorrect information, or how to check for errors.
Credit card rewards may seem like a good deal but only is you pay your bill on time every month. If you don’t, late fees and interest charges can more than outweigh any reward point benefits.
These are just two areas on which many young people, as well as others, lack a basic understanding. However, a wide variety of sources are available to add to your knowledge.
For additional information on learning how money works, click here.
- Have students conduct research to determine the financial knowledge among various age groups.
- Have students create a video presentation with suggestions for improving financial knowledge.
- Why are people often not informed on basic money topics?
- What are the most common topics that on which many people lack basic financial knowledge?