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.
- 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.
- What problems could occur if a person uses inappropriate financial advice?
- In addition to the suggestions in the article, what actions might a person take to determine the validity of personal finance advice?
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.
- 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.
- What relationship exists between a person’s career choice and money management activities?
- Describe additional financial planning actions that might be appropriate when considering a career change.
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.
- 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.
- How might anchoring help improve personal financial literacy and money management activities?
- Describe anchors people might used to determine the price they would be willing to pay for an item.
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.
- 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.
- What factors might create situations that result in a financial regret?
- Describe possible financial regrets and corrective actions a person might take.
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.
- Have students talk to others for suggested investment actions to take.
- Have students conduct online research regarding the best investments for their life situation.
- What factors might a person consider when selecting investments for their life situation?
- Describe actions people might take to increase the funds they have available for long-term savings goals.
While a savings account and a checking account provide the foundation for managing finances, several other accounts should be considered. Since all most people don’t put all their financial documents in one drawer, all your money shouldn’t be in one account. The various recommended accounts include:
- Emergency savings for funds when you face financial difficulties that cannot be resolved in others ways. An amount equal to 6 to 12 months of living expenses is often recommended. Consider storing these funds in an “out of sight, out of mind” location, such as with an online bank account.
- Regular savings for short-term needs, such as home repairs, vacation, auto maintenance, or new furniture. Be sure to have a goal and plan for these funds.
- Household checking account for paying current bills. All income is deposited in this account with automatic transfers for regular bills and amounts to various savings accounts. Extra funds in this account can go to the regular savings fund.
- Spouse checking accounts to pay expenses for which each person has responsibility as well as work-related costs.
- Health savings account (HSA) for tax-free payments of medical-related expenses. HSAs are especially of value with high-deductible insurance plans.
- The extra fund involves the “fun money” leftover after all bills are paid, savings is under control, and all accounts have a balance at an appropriate level. This money is the reward for spending wisely.
If all your accounts are at the same financial institution, using the online dashboard will allow you monitor your balances. Or, if you use different banks, websites or apps such as Mint.com can be used to view your overall financial situation.
For additional information on needed bank accounts, click here.
- Have students design a personal plan for the various bank accounts they will use to to monitor their spending and saving.
- Have students talk to others about methods used to monitor spending and to maintain an appropriate level of saving.
- What are the benefits and drawbacks of the system discussed in this article?
- Describe actions to monitor spending and saving using online banking and apps.
Technology impacts every aspect of personal finance. FinTech (financial technology) involves apps, software, and other innovations for banking and financial activities, which includes PayPal, Venmo, and cryptocurrencies, such as Bitcoin. FinTech companies use online activities, mobile devices, software, apps, and cloud services to for financial transactions. Over 1.5 billion people around the world do not have access to formal banking. FinTech can provide these unbanked people with financial services through easy-to-use technology.
The main categories of FinTech for consumers are:
- Crowdfunding, such as Kickstarter and GoFundMe, which allows individuals or businesses to go directly to potential investors for funding.
- Blockchain and cryptocurrency, such as Bitcoin, with improved verification for financial transactions.
- Mobile payments through a smartphone.
- Insurance coverages provided by online start-ups.
- Robo-advising provides portfolio investment recommendations and allocations based on algorithms. For stock-trading, investors buy and sell stocks using apps such as Robinhood and Acorns.
- Budgeting apps, such as Mint and You Need a Budget (YNAB), monitor and plan spending.
For additional information on FinTech, click here.
- Have students talk to several people to obtain information about their experiences with FinTech products.
- Have students create an app prototype for a proposed FinTech product to help people make better financial decisions.
- What might financial literacy and money management activities be improved with FinTech?
- Describe concerns that might be associated with expanded used of FinTech.
Despite a strong economy, millions of Americans face financial struggles. These difficulties include lower household net worth, increased loan defaults, and high levels of credit card debt. These are the findings in the recent report, U.S. Financial Health Pulse, published by the Center for Financial Services Innovation (CFSI), in partnership with Omidyar Network, the Metlife Foundation, and AARP.
The report assesses various financial health indicators that include income, bill payment, spending, saving, debt load, insurance, retirement planning and credit scores. When combined, these factors provide a composite view of the spending, saving, borrowing, and financial planning activities of Americans.
Some of the findings of the 2018 baseline report include:
- 17 percent of American are viewed as financially vulnerable, 55 percent financially coping, and 28 percent financially healthy.
- 47 percent of respondents reported spending that equals or exceeds their income.
- 36 percent are unable to pay all of their bills on time.
- 30 percent say they have more debt than is manageable.
U.S. Financial Health Pulse is intended to guide financial institutions, government agencies, and community organization in developing educational programs and financial products to better serve the needs of Americans. This study will be conducted each year to determine changes in America’s financial health.
For additional information on U.S. Financial Health Pulse and to view the report, click here.
- Have students talk to friends to determine which of the financial health indicators they believe to be most important.
- Have students create a survey instrument to measure various financial health indicators.
- What are the benefits of measuring financial health in our society?
- Describe actions that might be taken by business, government, and community organizations to address the financial difficulties faced by people.
As more and more people work as freelancers, independent contractors, and sharing economy workers, concerns grow regarding retirement for this group. A recent study revealed that very few full-time gig economy workers have an adequate retirement plan. Relying on Social Security is probably not enough since those funds will not likely cover retirement living expenses.
Most gig economy workers are one-person businesses, many with limited financial literacy. As a result, they do not properly plan for retirement savings. Self-employed individuals also face the challenge of volatile income streams. And, they lack employer-provided benefits, such as health and disability insurance, unemployment benefits, and paid time off. In addition, these gig economy workers are responsible for paying 100 percent of their Social Security and Medicare taxes through self-employment tax.
Some advantages of gig economy workers are:
- deducting most business-related expenses, reducing their taxable income.
- access to Simplified Employee Pensions (SEPs) that allow self-employed people to contribute to a tax-deferred retirement fund.
- the ability to supplement their retirement income as they may continue to work part-time with customers and clients in their later years.
While gig workers face several financial challenges, programs are surfacing to help the self-employed save for retirement and achieve better long-term financial security. These include:
- Open Multiple Employer Plans (MEPs) or Pooled Employer Plans (PEPs) that let employers combine resources for independent workers to purchase group health and disability insurance.
- A proposed Portable Benefits for Independent Workers Pilot Program Act to establish a fund through the U.S. Department of Labor.
- Several states are creating automatic-enrollment IRAs involving government-facilitated programs administered by private financial firms.
For additional information on retirement planning in the gig economy, go to:
- Have students talk to a freelancer or independent contractor to obtain information about their financial planning activities.
- Have students create a financial plan with recommendations for a freelancer or independent contractor.
- What do you believe are the benefits and drawbacks for gig economy workers?
- Describe actions you would recommend to self-employed individuals for improved personal financial security.
While every person and every generation has something to learn, we all also have ideas and information that can benefit others. Those skillful in asking questions have an advantage for planning and implementing financial activities. Asking questions usually results in useful knowledge before taking action and being less intimidated about unknown topics.
Other actions with strong benefits for better money decisions include:
- Joining groups through social media and online communities resulting in connections and information to support financial concerns and decisions.
- Not being overly confident, but researching a topic carefully before making a financial decision to take action.
- Maintaining a minimal competitive nature; instead identify actions and investments that best meet your financial goals.
- Manage spending and saving with the use of debit cards, instead of credit cards, and automating your savings with online deposits or an app.
For additional information on successful financial planning actions, click here.
- Have students survey friends to determine which of the actions in this article are commonly used.
- Have students create role playing situations or a video to communicate the benefits of the actions discussed in this article.
- What do you believe are the benefits and drawbacks of these suggested actions?
- Describe other actions that might be taken for successful financial planning.