Many parents have found out the hard way that their children never learned about finances in grade school, high school, or even college.  While some schools do offer some level of instruction on money, it’s never a safe assumption that the schools will teach your children financial literacy at a level that will truly prepare them to be responsible financial stewards. This is not because teachers don’t believe it is important.  In fact a 2011 Charles Schwab survey revealed that nearly 90% of teachers felt that all high school students should pass a test or take a required course on finances.  However, few states make financial literacy proficiency a requirement.

So, whose job is it to teach financial literacy anyway?  Some might argue that this is a parent’s responsibility.  The time to start is actually even before kids start to school.  Many experts recommend you start as early as age 2 or 3, when kids are old enough to count.  However, few parents feel they are prepared or even qualified to pass these lessons on to their children.  As parents, we don’t always have the answers, no matter how badly we wish we did.  The reality is that in order to ensure that every child has access to financial education; it needs to become part of required curriculum.  Students are required to learn subjects and skills such as match and reading because they are critical for daily success.  Knowing how to manage money is an essential life skill as well.  Most of us make choices about money on a daily basis…for some it is as often as several times a day.  Even young teens tell us they are already experiencing this in their lives.

Most people agree that ages 8 to 14 are the key time frames for children to comprehend and begin practicing the basics of money management.  Certainly by this time there are many activities and resources that can be used by every parent to help teach financial literacy:

1. Start with money allowance and the piggybank.  From the very beginning, when you give your child an allowance for chores or miscellaneous activities, make sure they understand that a portion of this should be put in the piggybank for emergencies, charity and special purchases.  Teaching them to save for later will serve them well all their life.
2. Make money management fun through games.  Make the learning process fun using tools, like our award winning ThriveTime, board game or create your own home made games that encourage learning. You can create games around money they may need on a family vacation. Your children should be able to have fun and learn some valuable money management skills at the same time.
3. Use the dinner table as a risk-free forum for discussing financial basics.  You don’t have to disclose all your personal challenges, but kids need to know some specifics about home mortgages, buying-versus-renting, food and electricity costs, credit cards, and planning for a college education. Consider having them help pay your bills each month so they start to understand the cost of everyday living.
4. Migrate the piggybank to a savings account.  This is an opportunity for a joint trip to a bank or savings institution, to give them an understanding and real experience in dealing with money as a virtual as well as a physical entity.  Plus, it introduces the concept of keeping records, and reviewing statements on a regular basis.
5. Have them help make decisions on daily spending activities.  It’s never too early to have your child understand the price differences in the grocery store between large and small cans, and premium brands versus generic.  Later they can help estimate the cost differences between various restaurants, or eating at home versus eating out.
6. Integrate budgeting into their activities.  Have them look ahead at things they want, such as a bicycle or special clothes for school, and have them plan to earn or set aside amounts each week in preparation.  Kids will follow your example, so demonstrate the process you follow for a special family vacation or new car purchase.
7. Introduce and nurture entrepreneurial activities.  There is nothing like the old standby lemonade stand, paper delivery, or lawn service business to teach the concepts of money management.  Don’t forget the well-accepted investor axiom that entrepreneurs learn more from failure than from success. It’s easy to learn entitlement, and hard to unlearn it.  Our YOUTHpreneur BIZKit was designed to help you support your children in their entrepreneurial endeavors.
8. Actively seek out summer programs and educational programs.  While many schools are short on formal money management curriculums, there are often special activities and programs available for teens, or mentorship boot camps available through sponsors and volunteer organizations outside the formal educational system. Be proactive in finding these.

Once your children leave home for college, or make their first attempt to live alone, it may be too late to look for formal education processes on financial literacy.  The “school of hard knocks” takes over, and is a harsh teacher, as learning comes with potentially painful consequences.

Financial security for tomorrow for your kids starts today, with you teaching them financial literacy at a youngest possible age.  To ensure that every student receives financial literacy education that will be critical for their long term success, please join me and my team as we continue to push for proficiency requirements in formal education.  In Arizona we are starting with support of SB1449, which will provide us a positive step in this direction.  If you are an Arizona resident, you can voice your support as well by contacting your local Representative and asking them to vote in favor of SB1449.  Learn more about SB1449 here.

If your children or loved ones are old enough to spend money, they are old enough to understand the responsibilities of doing it right. Believe me, the joy and satisfaction of seeing them do it right is far better than the pain of watching them learn the hard way, for all concerned.

To Your Success,

Sharon

In the long term, most experts agree that buying can be up to 45% cheaper than renting, primarily due to tax advantages, but the up-fronts cost, including the down payment, are much higher.

According to government statistics, about 65% of households in the U.S. last year were owned rather than rented, reflecting personal interests and cost advantages. But before you jump into this majority, here are seven key financial elements of this decision to contemplate:

1. Type of mortgage and payoff period.  The two basic types of mortgage loans are the fixed rate mortgage (FRM) and adjustable-rate mortgage (ARM).  Mortgages commonly have a term of 30 years with fixed monthly payments, except that adjustable-rate versions move the rate upward after an initial 3 to 5 years. Longer terms and lower rates mean lower monthly payments.
2. Payment amount qualifications.  The financial literacy “rule of thumb” is that you should never spend more than 30% of your annual income on the mortgage, and have savings available for 20% of the price as a down-payment. Most banks and lending institutions will review your specific financials, check your credit, and “pre-qualify” you for specific loan limits, before you start shopping.
3. Loan pre-approval estimate.  These qualified limits can then be formalized into a pre-approved loan amount, destined to be used to make an offer on the home of your choice, with a reasonable expectation of closing the deal before conditions change.  To prevent delays and disappointments, I recommend that you get a loan limit pre-approved before serious home shopping. And remember, you don’t have to spend the full amount you have been pre-approved for.
4. Loan commitment.  After a home purchase offer is made, you need to quickly get a formal loan commitment from the lender.  At this stage the lender will verify all of the financials you provided to get the pre-approval (i.e. income, employment, assets, etc.), and the property appraisal is ordered.. Once these activities are completed successfully, the lender can then issue a loan commitment and rate lock.
5. Loan rate lock. A mortgage rate lock is the lender’s promise to honor a specific interest rate and specific closing costs for a limited period of time. It’s meant to protect you from interest rate changes while your loan application and closing papers are prepared.  These activities can take several weeks, so don’t skip this step.  Most rate locks are good for a period of 30 or 60 days.  Banks may offer extensions on the lock, but for a fee, so it is important to be timely with anything the bank requests that you provide.
6. Purchase transaction settlement.  Often called closing, this is the final step to home ownership, where the property is formally transferred to the buyer. Key activities during closing include delivery of the payment from the buyer (or loan from the bank), the seller signs the deed and delivers the keys, the title company registers the new deed, and the seller receives the proceeds. You are now the proud owner of a home and a mortgage.
7. Mortgage payment process.  For many new homeowners, the reality sets in at this point.  You are now committed to making a fixed payment on a specific day each month, until you sell the home, or for the length of your loan, whichever comes first.  You can write a check each month, or have your bank account automatically debited, but the responsibility to have the money there is always yours.  Missed or late payments will reduce your credit rating, result in extra charges, and could lead to foreclosure.

The alternative to buying a home is renting, which has the distinct advantage of a predictable monthly expense, with much less volatility and long-term liability. Other advantages of renting include shorter term commitments, minimal maintenance activities or costs, potential access to perks like club houses and workout facilities, and no risk of loss on the next economic turndown.

Obviously, the positive side of home ownership is the potential for your home to appreciate (increase) in value over time, while giving you significant annual tax savings, and full control over your own layout and decorating interests.  You can settle into the community and get a feeling of permanence.

If all these points on home mortgages are clear, and no surprise to you, you should feel good to have a solid foundation of knowledge on the topic..  Now all you have to do is pass along your knowledge to your friends, family and children, as they get ready to strike out on your own.  If you aren’t sure how to get the conversation going, check out my Financial Mentorship site, where we talk about mortgages, credit and other topics that will help you improve your finances today. It is never too late to give the gift of financial literacy!

Warmly,

Sharon

I’m happy to report that more people, young and old, are starting their own businesses these days, whether driven by the recent recession to be more independent, or driven by their conscience to save the world.  It’s just one more reason to check your financial literacy, since running a business requires a strong understanding and commitment to basic financial principles.

The cost of starting a new business, and being an entrepreneur, is lower than ever.  You can incorporate your new company online for less than $100, and create a website to sell your products via the Internet for even less.  All you need is a new and innovative solution that solves a real problem in the marketplace, or serves an unmet need.

Unfortunately, I often see entrepreneurs who are quick to implement a new idea or technology, before they have figured out what problem it solves, or what competition is already out there.  These people need to remember that customers pay for solutions, not ideas or technology.  If you are looking for some ideas leading to marketable solutions, here are some places to start:

1. Look for personal innovations that could help others as well.  Most people have built some creative solutions in their personal realm, which actually may have much larger potential as a business.  This could be a hobby, like fashioning antique furniture out of scraps, or developing new recipe ideas to excite the family.
2. Enhance a current product to make a new solution. We all get frustrated with current products that are hard to use, need to be made more portable, or have obvious new features that could be added.  Take a hard look at a few of these, for concrete ideas on new products, and the business opportunity they may represent.
3. Fix an existing process that doesn’t work for you.  If you are struggling in schools or on the Internet to find links to resources that can help you with a problem, or need, probably lots of other people are having the same problem.  Take the challenge as an opportunity to create a new website, new tools, and new solutions.
4. Find an affordable route to an expensive solution. Offering bed and breakfast facilities out of homes was started to reduce the cost of overnight accommodations. Inexpensive, yet fashionable, jewelry and clothing is another area that has spawned many successful businesses, and is ripe for many more.  Look for opportunities to provide solutions where currently existing ones may not be accessible to everyone.
5. Take an inexpensive item and create a luxury version. This is the inverse of the preceding item, but it has an equal number of opportunities.  Think of luxury homes, fine restaurants, expensive shoes, and unique handbags.  With proper marketing, the concept has even been applied to pet rocks and small stuffed animals.
6. Provide automation to reduce human labor.  Start by thinking of all the time you spend on boring manual tasks, like housecleaning, or complex tasks, like building a budget and tracking expenditures. The second is the traditional realm of computer applications, now moving rapidly to smart phones, while the first is begging for smarter robots.

If these don’t work for you, then it’s time for some brainstorming on your own. Coming up with ideas that can be made into a business does take effort, but it’s not rocket science.  Use your common sense, as well as the multitude of resources available today on the Internet to finalize a solution, size the opportunity, check the competition, and put together a business case.

After the business case, most people fear that money to build the business is the number one challenge. In reality, as I said in the beginning, the cost of entry has never been lower, and self-funding or “bootstrapping” is by far the most common approach for startups. Try it first.

If your solution is compelling, and additional resources are required, don’t hesitate to contact the Small Business Administration (SBA), banks, or local investors for assistance.

Whatever the road you choose to take, remember that being an entrepreneur is a lifestyle, not a job.  It’s hard work, but it provides a great sense of satisfaction and fulfillment to many people who enjoy the extra level of control and independence.
Warmly,

Sharon

It’s that time of year again!  With the holiday season in full swing you are probably low on time and may feel even lower on cash.  As you do your holiday shopping, keep in mind that excessive credit card bills can dampen the joy and tarnish the glow of the holiday spirit. The perfect holiday gift is one that creates memories and provides an experience that your loved ones will remember.  A greater price tag does not necessarily translate to greater enjoyment when it comes to gift giving.

To help keep you on track for the holidays and kick start your 2013, here are some key ideas for your financial well-being.

1. Pay yourself first.  By consistently setting aside a portion of your income for savings, retirement, or your investment account before you pay your bills, you will develop a new financial confidence.

1. Create clear written financial goals.  Clearly stated goals committed to writing will be the most compelling for action to achieve financial freedom.  Limit the number of goals to less than five, and pick ones that will inspire you to action. Goals are not just about numbers- but about creating the life you want, and deserve!

1. Plan your spending   A spending plan (budget) provides you the tool to help you achieve your financial goals.  It helps control impulse shopping and overspending on holiday gifts.  Remember that it is the time and experience you spend with your loved ones that are most important…not the expense of the gifts that you buy.

1. Reduce your bad debt load.  The first step is documenting all the debts you have.  Then pick one, and target it for elimination, through early payment, applying a tax refund, or negotiated payoff. Stay persistent and set goals that you can celebrate one you achieve them.

1. Remember, we each have the power to control our own financial lives- to become masters of money.  If you feel more like a slave to money today, start with the small steps provided here.  Take one step at a time and keep at it.  Don’t forget to utilize available resources online.  There are countless free resources on the Internet and great low cost training at www.financialmentorship.com.

The perfect gift this holiday season is that of financial education and empowerment and a stress free January. Consider our award winning ThriveTime for Teens board game for the youth in your life or our books and coaching programs for those adults still on your gift giving list.  Know someone still struggling with fear and financial insecurity? Outwitting the Devil will help them break the chains of fear and achieve the success they deserve. Visit www.sharonlechter.com/store.html to learn more about how you can kick start financial success for your loved ones this holiday season.

There is no better way to celebrate the holidays than by helping others.  You can help us reach teens with the financial education they will need by supporting our Financial Education and Scholarship campaign at www.indiegogo.com/ThriveTimeChallenge. A small financial donation today will give the gift of a lifetime…financial education.  Start now to make 2013 a financial year to remember!

To your success!

Sharon Lechter

As we approach Thanksgiving and end of year holidays, you may be reflecting on all your blessings and what is in store for you and your family next year.  The unknown can be exciting for some yet fearful for others- particularly when it comes to financial matters.  Without a doubt, fear is one of the strongest emotions that we experience.  Fear can do one of two things: it can motivate us or it can paralyze us.  Fear is often what keeps many people from dealing effectively with personal finance issues.  In fact, you may know someone who has tried to ignore the problem, taken no action, and ended up only making matters worse from the increased anxiety.

Conquering our fears is an essential step to becoming financially empowered and effectively managing our financial lives.  To take control, we first need to understand the root causes of these strong emotions, and then learn to deal with them.  Here are some recommendations that may help you conquer your fear and stay in control of your financial future:

• Make fear your friend, not your enemy.  Recognize fear as a natural alert signal, indicating potential danger ahead, which can allow you to avoid painful consequences.  Use these signals as motivation to get help quickly, rather than remain frozen until the damage is done. Today there are more sources of help than ever before, including the Internet, social media, as well as instant access to experts, friends, and family. Get all the facts related to your financial questions, weigh the alternatives, and you will be able to make an informed decision.

• Separate the real from imagined fears.  Imagination, in the world of unknowns, is not your friend.  Think of all the things you worried about as a child that never happened.  Don’t allow your financial future to be one of your unknowns.  Practice the basics of keeping up to date on budgeting, credit rules, mortgage alternatives, and debt management.  The result will be fewer imagined nightmares and clearer decisions that you can implement without fear.

• Use your fear as motivation to control your spending habits.  Technology and online services have made it easier than ever to track every dollar you spend, and look for ways to change bad habits.  Don’t let peer pressure or the “urge to splurge,” railroad you into embarrassing financial nightmares, like maxed out credit cards that you can’t pay, or even bankruptcy. Controlled spending leads to controlled saving and the financial freedom of your dreams.

• Use modern technology to overcome the fears of financial complexity.  Remember the healthy fear you had of driving a car, or operating your first computer, before you learned how simple they can be in getting you where you want to go?  With all the financial tools available today, you don’t need to be a math wizard to estimate mortgage payments, pay your taxes, and build a budget. Use these tools to help you make decisions and keep you in control.

• Keep a positive mental attitude to keep financial fears at bay.  Remember that a happy family life, good health, and a job that you enjoy are worth more in happiness and self confidence than a bigger car, bigger house, or more money than your neighbor.  Don’t be pressured by others into extravagant or risky financial situations.  Happiness and laughter will chase away all your financial fears.

• Consciously build a financial buffer to reduce the fear of emergencies.  If you don’t walk so close to the edge of the cliff, your fear of falling will go away.  Everyone needs an emergency fund to cover life’s little stumbles, unforeseen expenses, and repairs that come up in everyday life.  It only takes a small amount, done regularly, to mitigate your fear of recovery. Using insurance wisely is another way to buffer financial losses.

• Start early on the long-term necessities to minimize anxiety.  It’s never too early to start funding your retirement, and building a nest egg for your kids’ college education.  Once you start the habit of putting something aside for these predictable needs, you won’t even feel the pain of giving, and your nagging fears of when to start will go away.

Finally, nothing mitigates financial fears like having the skills you need to handle most situations, and the access to a trusted financial advisor to help you with the special cases that may come up. Make sure that you and your family work as a team to learn and stay current on financial terms and transactions.  Ongoing training and education is required, no matter what your background.  Check out my Financial Mentorship website for great coaching and resources at www.financialmentorship.com to connect with likeminded individuals who can celebrate your financial goals with you!

Don’t be afraid to ask questions, and don’t be afraid to make a decision.  Procrastination and ignoring a financial problem are the real causes of fear, rather than the other way around.  There has never been a more important time than now to take control of your own financial destiny. Rather than allowing financial fears to spiral your finances and your happiness into the ground, take these recommendations and enjoy life while looking forward to the future!

To Your Success,

Sharon

Don’t Let Key Tax Advantages Expire This Year Unused

Keeping up with the shifting sands in certain key areas, like taxes, can be a very challenging part of financial literacy.  The world of taxes is one of the most volatile and most critical to individuals, families, and companies. Insensitivity to the tax implications of their activities, both in timing and proper handling, has cost many consumers and businesses their livelihood.

In that context, I’m dedicating this article to highlighting ten tax changes which will likely happen at the end of 2012, barring last minute congressional action.  By reviewing your personal situation today, you may be able to take action before the end of the year to yield significant tax savings. These points are not meant to be your legal guidance on any given case, but merely an alert that changes are happening which could impact you if you have transactions in relevant areas:

• Individual income tax rate reductions expire.  The top marginal tax rate reduction for ordinary income from the 2001 Tax Relief Act is scheduled to expire this year, raising the top tax rate from 35% up to 40%. Alternative Minimum Tax  indexing will also expire, meaning more people will suddenly become subject to and have to pay this tax. Accelerate your income into 2012, if  possible.
• Long-term capital gains rate reductions will expire.  Similarly, capital gains tax relief will expire this year, raising the top rate from 15% to 20%. Business owners considering a sale of their business, or  consumers selling investments, may benefit by closing the sale by year-end to take advantage of reduced long-term capital rates. Review your portfolio to determine if you should sell certain investments before year-end to take advantage of the lower tax rates.
• Dividend income tax rate reductions will expire. If you have “qualified” dividends due to you this year, don’t let the transaction date slip into next year, or you will pay ordinary income rates on the dividends, rather than the  long-term gain rate of 15%. Review your investment portfolio of dividend paying stocks in light of these changes.  You may not want to make any changes but you need to be aware of  the increase in taxes they will be subject to.
• Medicare tax on investment income goes up.  Two new Medicare-related taxes take effect in 2013: an additional 0.9% payroll tax on high-wage earners, and a 3.8% tax on the unearned income of high-income individuals. If you have high wages and investment income, you could be subject to both tax increases. Consider taking investment income in 2012 to avoid these.
• Hospital insurance tax increases.  Another “Bush Tax Cuts” expiration in 2012 is an additional 0.9% hospital insurance tax that will be imposed on  earned income of high-income individuals. Here is another case where income should be accelerated in 2012 where possible.
• Lifetime gift tax exemption will decrease, and estate tax rate goes up.  The amount that can be gifted from a tax  payer over a lifetime before the gift tax applies will decrease from $5.12  million to $1 million.  In addition, the estate and gift tax rate will increase from 35% to 55%. It is very  important to review your estate planning and gifting practices to optimize your situation before year end.
• Tax relief for businesses acquiring equipment will be eliminated.  Businesses  considering a capital equipment investment should act now to take full advantage of available tax benefits. For a limited time, qualifying businesses can write off 50 percent of the cost to acquire eligible  equipment on 2012 tax returns. This is a great benefit to small businesses that will expire at the end of the year. Review your business equipment needs and act before year end.
• K-12 component of a Coverdell tax-free savings account expires.  Coverdell savings accounts have been tax-free if used to send students to private or religious K-12 schools. The K-12 component of this tax credit expires at the end of this year.
• Business accelerated depreciation options will be eliminated.  Since 2008 some level of accelerated depreciation — or bonus — has been  available to equipment owners. Be sure to take this bonus depreciation (additional first-year depreciation) for business assets before it expires at the end of 2012.
• Business payroll tax cut expires. The two percentage point reduction in the employee Social Security payroll tax  rate in effect for calendar years 2011 and 2012 was designed to stimulate the economy by increasing workers’ take home pay.  This reduction will no longer apply in 2013 and your employee’s will see a reduction in their take home pay.

If any of these sounds like it may be relevant to your personal situation, or your business situation as an entrepreneur, now is the time to talk to your tax expert to understand the details, and implement the best strategy for your individual and business financial strategy.

One of the basic precepts of financial literacy is that every red-blooded American has to file their tax return each year as well as the right to minimize the amount of income taxes he or she owes, according to the law. Failure to file your taxes, or to do it right, can negate the value of budgets, managing credit, and planning for your retirement. Now is the time to make the necessary moves that ensure you are only paying what you need to and positioning yourself to maximize an enjoyable retirement later.

Warmly,

Sharon

Top Ten Measures of Your Own Financial Literacy

The economic uncertainty over the last few years has many people searching for ways to ensure they are financially sound.  It has also highlighted the fact that financial literacy is essential for the success of our children!  But how can we be sure that they (or even we) are financially literate?

According to Wikipedia, financial literacy refers to the set of skills and knowledge that allows an individual to make informed and effective personal financial decisions. But what does that really mean, and how do we make sure our kids learn in time?

A recent survey found that almost fifty percent of those who closely monitor their finances say that they learned about personal finance from their parents at home, so most experts agree that the role of parenting is key. But many times, parents do not feel they are the best resource for financial education either because of their own financial status or because their children are not likely to listen.

I have dedicated my life to creating resources and tools that empower parents and kids to get the financial education they need and want.   Below are ten top financial tasks that most people have to deal with throughout their lifetime. “Rules of thumb” are offered, where possible, for pragmatic advice on what might be considered good practices in each area. You may have seen or heard some of these before.  It is often the simplest tasks that can make the biggest impact!

1. Balance your check book monthly.  According to a recent poll, 69% of people never balance their check book, but it’s not known how many of these simply don’t know how. Three good reasons for doing it include verifying your records against the bank, finding bank mistakes, and correcting your own oversights.
2. Handle home buying and mortgage alternatives.  Buying a home is a major transaction, with severe financial implications based on the type of mortgage you choose, monthly payments, payoff period, and initial down payment. If you are spending more than 30% of your gross income on the mortgage, you may be in financial jeopardy.
3. Balance a home budget and pay normal bills on time.  A simple home budget is a comparison of monthly income to monthly expenses, to make sure you are living within your means.  If you don’t know these numbers, it’s highly likely that the urge to spend will exceed your income, leading to financial hardship and long-term unhappiness.
4. Set up and manage a savings account for a rainy day.  Unfortunately, not all expenses can be predicted, including emergencies, one-time purchases, and unexpected income losses. Experts recommend that you plan to put 10% of your net income into a bank savings account for those unforeseen requirements, or an amount that would cover 3 to 6 months of your living expenses.
5. Establish credit and manage credit card payments.  Establishing a good credit record means simply paying all bills on time. If your credit record is bad, you won’t be able to borrow money you need for your next car, mortgage, or major purchase. Good practice is never having more than two credit cards, and always paying the balance each month.  In addition, it is good practice to keep your monthly debt payments to below 36% of your monthly income.
6. Determine insurance requirements for auto, home, and health.  Buying insurance is paying a small amount each month to protect you from large outlays for accidents, natural disasters, and high health costs.  Avoiding the s small amounts today and praying you never have big ones, can be financially catastrophic.
7. Save for your kids college education costs.  The costs to educate your children, even pre-college, are going up each year.  The time to start saving for these costs is when each child is born.  Learn the tax implications and growth implications of the many alternatives available, including special bank savings accounts and 529 Plan accounts.
8. Build a retirement fund for your own future.  It’s inevitable that your earning power will decline over time, and your health costs will go up.  The time to start saving for retirement is when you get your first job. Options are numerous, including IRAs, 401(K)s, and special savings accounts. Your target should be 15% of your net income while working.
9. Pay income and property taxes.  Part of financial literacy is anticipating your tax burdens.  These can usually be withheld from your wages, or included in your monthly mortgage payments, so they need not be a surprise.  As a general rule, you should expect that about 30% of your gross income will go to taxes, so budget for it.
10. Manage simple investments for income growth.  Your savings are investments in the future, but bank savings accounts offer very low growth potential.  Financially literate people will leverage this growth potential, and balance the risk, with a portion of their savings, through smart investments in property, stock, bonds, and other assets.

In a practical sense, anyone and everyone in your family who feels they understand and could have written eight or more of the definitions above is financially literate. According to a 2009 Harris Poll, that would put you in the top 20% of the US population.

If, on the other hand, half or more of these are new to you, then it’s time for additional financial education. Maybe it’s time for an evening course at your local college, some dedicated learning time on the Internet, or professional help. Alternatively, it may just take more determination and work to practice what you already know.

As importantly, in your role as a parent, every one of your kids needs to take the same financial literacy test while they are still at home and before they graduate high school.  Advocating for our children includes ensuring they learn the skills necessary for a successful life.  Money is just as much a life skill as reading and writing.  Not addressing the issues will jeopardize their future and yours as well.  This doesn’t have to mean another lecture from a mom or dad.  Check out learning tools and resources for fun and engaging ways that your children can learn.

Some financial education and coaching programs can be very expensive, which is why I created the financial education and coaching site www.financialmentorship.com.  For less than the cost of going out to lunch each month you can access financial education resources for you and your family.  I invite you to join me at this site where I will be sharing important financial strategies and information from my financial experts and masterminds in a fun and social online environment where you can connect with others who are taking control of their finances.

Remember that financial literacy is a term that covers both “knowing” what to do, and actually “practicing” it.  Thus knowing what to do is necessary, but not sufficient for success. Where are you and your family along the spectrum?  Your long-term happiness and theirs depends on it.

To Your Success!
Sharon

You have probably seen headlines and heard reports that while there are still a variety of challenges ahead, the Great Recession is officially over.    What is certain is that we have an opportunity to reflect on the lessons that can be derived from the financial pain of the last few years.  I am reminded of the message from Winston Churchill, who once said, “Those that fail to learn from history, are doomed to repeat it.”

Hopefully you are seeing your own personal finances rebounding, so now is the time to implement some practical steps to reduce the probability of surprises in the future.  Here are some key recommendations to get the process started:

1. Step up your own financial education.  A recent survey by the National Foundation for Credit Counseling found that over 40 percent of U.S. adults still give themselves a grade of C, D or F on their knowledge of personal finance. It’s time to pay more attention to those night courses at your local college, articles on the Internet, and the free seminars you skipped in the past in favor of your favorite TV show.
2. Pay the same education forward to your kids.  Another recent survey by Charles Schwab of 18-year-olds reports that only 39% claimed to be “knowledgeable about how to manage a credit card” and only 32 percent say they know “how credit card interest and fees work.”  Teenagers learn primarily from their parents, so make sure you are spending the time and effort required to be the role model and education provider they need.
3. Create a plan for your income and spending.  A spending plan will empower you to be informed and take control of your finances.  This may seem easier said than done, but it is worth the effort and dedication. Check the Internet for examples of budgets at all income and family size levels. Seek help from local banking and financial professionals as required for personal problem areas. Discipline and determination are key ingredients.  Are there ways you can reduce consumption of utilities and gas?  If you eat out frequently, cut back and watch your savings add up.
4. Restore your savings account.  Unfortunately, personal savings rates have declined over the past few years, to nearly zero prior to the recession. A good rule of thumb is that families should have at least six months worth of emergency savings in the bank. Unexpected expenses come up even during good economic times, and if you’re reserve is zero, a sudden large expense can upset the most carefully-planned budget.
5. Be penny-wise while having fun.  Join the spending ranks of millionaires, who are notorious penny-pinchers. Deals continue to abound as retailers compete for precious consumer dollars. Don’t fall back to the old habits of just grabbing the first deal, and thinking your plastic will cover it. Remember, being penny wise makes you smart, not cheap.
6. Pay off credit cards and keep monthly balances at zero. Having a credit card with a zero balance will help you build your credit score, give you financial confidence, and is always useful in case of an emergency.  On the other hand, if you can’t afford something, save up for it rather than burdening yourself with the additional cost that credit card use can often bring.  A little patience will pay off big!
7. Set goals and celebrate when you achieve them.  Before the recession, you may have forgotten the line between needs and wants.  Maybe you don’t really need that 60” LCD TV, and you can hold onto your old car longer, rather than race out to buy a new vehicle.  Put aside a fixed amount each month for your son’s college tuition, and your retirement later.
8. Seek out opportunities for professional development.  Keeping your skills and computer literacy up to date make you more valuable to your employer/those you work with and make you competitive for new opportunities. Take advantage of employer education perks and if you are able, work overtime or evenings.  Your extra effort will translate as a commitment to your work and others will take notice and be more committed to you!

The good news is the recession has actually opened up many new opportunities for entrepreneurs and new jobs for professionals. Many other people have been shocked out of entitlement into action, and young people (Gen-Y) are showing a new determination to throw off outdated business models and change the world.

Yet making good financial decisions is still up to you. It’s a choice that we can all learn to be more alert, more creative, and more focused on tradeoffs, especially short-term desires versus long-term consequences. Use the lessons of the recession to avoid any repeat of old financial pains, and even remove the term “recession” from the vocabulary of future generations.

To Your Success!

Sharon

Your child graduated from college, only to enter a lackluster job market with little promise for financial stability, at least in the near future.   Instead, the kids have headed back to the roost.  Now what?

According to the New York Times, a study conducted by Ameriprise Financial revealed that more than half of baby boomers (the tumultuous generation born between 1946 to 1964) report they‘ve allowed their adult children to move back home, rent free.  You already know how I feel about personal responsibility – but of course, ultimately I feel this decision is a highly personal one best left to parents.

Still – I want to weigh in here, because that same study revealed something I hear all too often.  More than 90% of those parents said they’ve have provided some kind of support for expenses to their adult children to defray costs associated with vehicles, health insurance or rent, food and utilities.

But here’s the real issue – only 25% say they are saving funds for their own future.  And that’s where I have to offer fair warning.  Our first responsibility to adult children now is to take care of our own futures.  Otherwise, when it’s time retirement, there could be trouble.  And I’m certain boomers don’t want to be a burden on their own families.  So take care of your long-term goals, first. 

As a mother of three, I understand the challenges many parents face when trying to individuate from their adult children.  Growing up, it is critical for us as parents to empower their journey by training them from a very early age to earn and steward their own money, so one day, they can enjoy their own financial independence.  It is the job of parents to work themselves out of one – to set children free to make their own way.  There is no better avenue to promoting self-esteem then to allow a child to earn his or her own successes (no matter what age our children are).

But in a down economy, when even service jobs are scarce – reality often dictates that we must help our adult children.  So I’d like to offer a few parameters to follow when welcoming the kids back into the nest.  (Just when you getting used to quiet evenings alone!)

6 Tips for conquering the Boomerang effect

1. Communicate expectations.  True, your child has probably kept to his or her own schedule at school and life in general.  But if you just can’t sleep until they’ve arrived home safe and sound, implement a curfew out of respect.  (I can’t think of a better incentive for them to work toward moving out!)
2. Establish household responsibilities.  Chores are back!  Ensure your adult kids help out around the house with shopping, cooking, cleaning, and yard and vehicle maintenance.  This gives them the message that you are no longer fully responsible for their lives, and they must earn their keep, so to speak.
3. Determine financial responsibilities.  It’s your call as to whether your kids will contribute financially, but it is a good idea to at the very least require them to save a portion of any funds they earn, or pay toward even a small amount of rent.  You can always put it aside for them as an extra savings toward a down payment on a rental deposit, or even toward the sale of a home.  This will establish discipline if they hadn’t learned it beforehand.
4. Determine a goal toward employment.  Even if your child has not secured a job worthy of his or her education level, there is nothing wrong with requiring him or her to get a filler job in the meantime.  (Better yet – teach them to launch their own business and inspire entrepreneurship!)  At a minimum, you can prevent couch potato syndrome from setting in by requiring them to be actively seeking employment so they don’t get too comfortable while they are with you.
5. Plan a goal for moving out.  Discuss a goal for your child’s departure date, and empower him or her with resources to earn, steward and save the funds they’ll need to make it on their own.  It isn’t easy to set those boundaries, but you’ll give your children the message you believe in their abilities!
6. Put it in writing.  Having a written agreement will allow you a tool to refer back to in order to hold your child accountable for maintaining personal responsibility and working towards independence.

Remember – parents need to give their children both roots and wings.  But the goal is not to have them fly back to the nest whenever times get challenging!  Try not to feel guilty, but instead, set expectations, offer support; and remind your child that achieving your own financial stability is a gift they’ll appreciate one day!

Warmly,

Sharon