April is a key month for refocusing on finances. In addition to the IRS tax
deadline, the U.S. Congress has designated April as Financial Literacy
Month. Also, April 4-11, 2020 is Money Smart Week. Parents and guardians
should take the opportunity to not only review their own finances, but to
teach financial literacy to their children.
According to a 2019 survey by GoBankRates, 69 percent of Americans have
less than $1,000 in savings, 17 percent have between $1,000 and $9,999
saved, 9 percent have between $10,00 and $49,000 and only 6 percent have
more than $50,000 in savings.
Moreover, according to this study, women and middle-aged adults appear to
have the most trouble saving money. Most adults seem to focus on boosting
the retirement nest egg without first creating an emergency fund.
As an adult, there are some simple steps you can take to set aside more and
improve your financial literacy:
- Commit to change and make saving a priority.
To determine how much you can set aside, add up the expenses you must pay and determine what nonessential expenses you can
cut back on to make more room in your budget. - Automate savings.
Either ask the human resources department at work to direct deposit
a portion of your pay or set up an automatic transfer from your
checking account into a savings account. - Assess your finances.
This is a great opportunity to be honest about your relationship
with money and to gauge your strengths and the areas that need
improvement. Follow where the money goes to see how you spend and
how much you spend. Document your spending, identify ways to reduce
spending, establish a budget and stick to it. - Clear out the financial clutter.
Getting your financial house organized is a great way to begin on
your path toward financial wellness. - Get copies of your credit reports.
Your credit reports can provide a snapshot of your overall
financial situation. Reviewing them for accuracy can also help you
to identify errors or fraudulent activity. You can get a free
credit report annually from annualcreditreport.com. In addition to
Equifax, Experian and Transunion, you should also be aware of
Innovis and the National Consumer Telecomm & Utilities Exchange
as two fast-rising credit reporting agencies. - Review your debt situation.
Freedom from debt is an achievable goal for every family. The first
step in regaining control is to take an honest look at your
existing obligations. Pay down debt by focusing on either the
highest interest rate account or the smallest balance. - Set SMART financial goals.
S
pecific:
Pinpoint something you want to change.M
easurable
. You can measure or count a SMART goal.A
chievable
. Setting goals too high can lead to frustration.R
ewarding
. Reaching the goal should be a reward for your hard work.T
rackable
. Set milestones and schedules for your goals.
Teaching Financial Literacy to Your Children
Children these days feel pressure to spend money from commercials,
celebrities and peers. Whether it’s the latest “it” doll, sneaker or
gadget, messages on spending (and how much is reasonable) come from many
sources. Get your children involved in the financial spring cleaning as a
means of teaching them financial literacy. It is never too soon to start
teaching them about money, savings and fiscal security.
- For grades K-2, you want to teach the children to understand
currency and how money is earned. Many parents institute an
allowance for chores or a lemonade stand as an early system of
financial literacy. Your kids are bombarded with commercials for
the things they just have to have. This is a great
opportunity to teach them the difference between “needs” and
“wants.” Get them a piggy bank or savings jar and encourage saving. - For grades 3-5, encourage them to participate in career day and
explore the concept of careers and income. Have them get involved
in buying decisions that impact them, and teach them about setting
a budget and working within it. If they have saved up for a
skateboard, for example, have them sit with you while you research
options online so they can see different pricing, features,
coupons, etc., and let them work with you towards the best choice
within a budget you set. - For your middle or junior high students, start teaching them to
evaluate the credibility and motivation behind marketing and
advertising. Teach them to read reviews – especially negative
reviews – to better form their choices. Explain budget categories:
fixed (mortgage), variable (utilities) and discretionary (dinner
out). Continue to promote savings, and make sure they understand
that credit cards are not “free money.” This is a good time to also
start to talk about fiscal safety and the risks of identity theft
and account or online fraud. Your middle school student may want to
start volunteering (as some school systems requires a certain
number of hours for graduation), or babysitting as a means of
making money, in addition to any allowance. This will help them
understand the time value of money. When it comes time to spending
it, work with them to understand smart shopping habits. - For your high school student, check to see if their school
curriculum includes financial literacy or accounting electives, and insist they take these courses. They will also be working
towards college and career options. Many high school students work
after school or over the summer. This will introduce them to FICA
and Medicare withholdings and minimum wage laws. Have them set up a
savings account (with you as a custodian) to help them create a
savings and discretionary fund. At this age, the desire to get a
driver’s license and a car will be a great motivator to set up that
savings account. Consider setting up a monthly bill, perhaps for
their cell phone data coverage, which they must pay to you (and on
time) to get accustomed to the responsibility. Finally, in
preparation for college or a career, begin working with them on a
resume. - For your college-bound students, know that once they are on campus,
they will be inundated with credit card offers. If you’ve spent
time on financial literacy education as they grow up, then you will
have to trust that smart choices will be made. However, it never
hurts to counsel your newly-adult students about being careful with
credit cards and incurring debt. Tell them to look for low APRs and
not just low introductory APRs. Suggest low credit limits
as a means of curbing spending. Open an account with a bank that
has a local branch on campus to avoid ATM fees. And, as always,
work with them on a budget that they will, hopefully, stick to
consistently.
You can learn more about practicing and teaching financial literacy by
reviewing the resources available from the Federal Deposit Insurance
Corporation Money Smart training modules, the Consumer Financial Protection
Bureau’s “Your Money, Your Goals” training program or the Federal Financial
Literacy and Education Commission’s website. Consumer Action, a nonprofit,
has many publications on financial literacy, including one titled “Teens
and Money” which includes sample budgets, needs vs. wants checklist and
other useful tools.
For more information about this or other consumer issues, call the
Montgomery County Office of Consumer Protection at (240) 777-3636 or visit
montgomerycountymd.gov/OCP.
