As featured in The Wall Street Journal, Money Magazine, and more!

Financial Literacy

We recently updated an article here on Consumerism Commentary, arguing that high schools should not require students to take personal finance classes. The article, written by the site’s original founder several years ago, makes some compelling arguments.

But I don’t buy it.

As a parent, I sure plan to teach my kids personal finance. In fact, we’re already talking about how to start teaching our five-year-old about money management. But just because I’m planning to teach my kids these concepts doesn’t mean other parents are. And that’s not only bad for students graduating high school, it’s bad for our society as a whole.

Teaching Personal Finance: Required versus Offered

To be fair, the author of the original piece didn’t argue that personal finance shouldn’t be offered in schools. He argued that it shouldn’t be a graduation requirement. I don’t necessarily disagree with that premise, but apparently some states do. According to a recent Business Insider article, 17 states in the US require public high school graduates to take a personal finance class — or an economics or civics course covering personal finance — before they can graduate.

The article cites the Great Recession as the reason behind this requirement. That time was when many people suddenly had to go into major debt, were underwater on their homes, and had serious financial troubles. When it all imploded, we saw just how lacking in basic financial knowledge the US really was.

So, no, I don’t necessarily believe that personal finance should be required for high school graduation, though the states seem to be moving in that direction. But I do believe that high schools — actually, even elementary schools — should work more personal finance into their educational efforts.

Why Should Schools Teach Personal Finance?

So, why do I think that personal finance should be taught? Here are the main reasons:

1. Many parents aren’t comfortable teaching this subject.

One 2012 survey showed that 81% of parents believe that it is their responsibility to teach their kids about money. But the problem is that two in five US adults rate their own knowledge of personal finance as very poor. Add in the fact that many parents are simply uncomfortable talking to their kids about money, and you get a very sticky situation.

Sure, some teachers may be uncomfortable with teaching personal finance, too. But, honestly, they only need to stick to the basics and it would have an impact on the next generation. If these kids were taught how compound interest works, spending less than you make, how debt works, and the basics of filling out tax forms, they would have a substantial leg up.

Basic personal finance really isn’t that difficult. With a decent curriculum — there are many in action and more being developed right now — most math and civics teachers could handle introductory personal finance classes easily.

2. Personal finance doesn’t have to be a standalone class.

Many commenters on the original article pointed out, fairly, that their kids don’t even have room in their schedules to take all the classes they want to take. The idea of adding an additional course for finance seems impossible. But here’s the thing: personal finance doesn’t have to be a separate course that takes a full year, or even a semester.

The best option, I think, would be to work personal finance concepts into other math courses, starting in elementary school. Even small children can understand what happens when you make $10 but spend $15!

Related: How to Develop the Habit of Spending Less Than You Make

Working personal finance applications into everyday mathematics — and even higher-level math courses, like algebra — helps with two things. First, it familiarizes students with money management concepts they’ll need their entire lives. Second, it helps them see how their math knowledge actually applies to their lives moving forward.

What about other concepts, like balancing a checkbook or filling out tax forms? Many middle and high schools still require economics, health, and similar courses. It doesn’t take a visionary to develop a course that combines these concepts. The end result could be a class focused on functioning as an adult and a citizen in the world. Students could learn to take care of their homes, their bodies, their finances, and their societies in a single course over a school year.

3. We can probably agree on the basics.

Another issue the original article points out is that personal finance is complicated, and there are many different opinions out there. Which type of life insurance? How much life insurance? Stocks or bonds? Traditional or Roth?

As someone who is even reading this blog, you’re probably aware of the many opinions on personal finance matters, most with good research and data to back them up.

But here’s the thing: we don’t necessarily have to give kids all the answers in a personal finance-related class. Instead, we need to help them define terms and understand very basic financial concepts. Here are some of the questions a personal finance class might seek to answer:

  • How does insurance work (whether it’s life, health, or homeowner’s… whatever)? And why do people even pay for it if they’re not likely to use it?
  • How does compound interest work? What happens if I put $100 in a savings account and leave it there for 50 years? Or, what happens if I rack up $500 in credit card debt and make the minimum payments?
  • What is a credit score? Why is it important, and how do you keep it in good shape?
  • Why do we pay taxes, and how do we fill out the most basic tax forms?
  • What are some tools you can use to budget? And what happens if you consistently spend more money than you make?

Learn More: Things You Won’t Find In Your Credit Score

These concepts aren’t that hard. They don’t require us to recommend term life insurance over whole life insurance. And they don’t require a lot of detail. But they give students a jumping off point. Plus, they’ll at least have an understanding of the basic terminology. They’ll know what they’re getting into ten years from now, when they go to buy and insure a home.

Good teaching, after all, isn’t always about providing kids with the right answers, but about helping them ask the right questions. A hands-on personal finance curriculum could do just this, while setting kids up to make better choices in their lives.

4. Students are jumping straight from high school into major debt.

Personal finance instruction may be even more important now than it has ever been. The average college graduate in 2016 had $37,172 in student loan debt. Many high school students are signing the promissory notes on these huge loans before they even graduate!

Sure, there are times when taking on debt to further one’s education isn’t a terrible choice. But all too many students don’t understand the future implications of this choice, including how much of their future income will be tied up in student loans. Even understanding basic loan terminology could help students make better student loan choices, where possible.

Related: How to Remove a Cosigner from a Student Loan

One Fox Business article makes the case that teaching financial literacy early is pointless because kids will forget most of it before they have a chance, or need, to use it. And that may be true. But many high school seniors are already examining school acceptance letters and financial aid offers, and they’re getting ready to take on that debt.

5. At-risk kids need these classes the most.

Finally, the original article argued that kids in high-risk areas don’t have time to deal with personal finance in school because they’re just trying to survive. I would argue that these are the students who most need to graduate high school with a basic understanding of money and how it works.

Sure, kids from advantaged backgrounds are more likely to score well on financial literacy tests, whether a course is being offered or not. But these kids are also more likely to score well on the ACT and SAT, and that doesn’t mean we give up on helping at-risk kids get to college.

If a high school student lives within a few blocks of fifteen payday lenders, they have the right to know what a 25% interest rate looks like played out over time. And these concepts are not difficult to teach in high school.

Read More: Payday Loans’ Fees and Interest Rates: A Fair Comparison?

So, What’s My Verdict?

We may disagree on what should be taught in elementary or secondary school personal finance courses. We may disagree on how those courses should be taught. But I think that we could mostly agree that finding ways to incorporate basic personal finance concepts into our children’s education would be a good thing.

I won’t try to dictate how states should set up their graduation requirements. But I will say that, as a parent, a school offering both advanced calculus and personal finance courses would look pretty good to me!

{ 0 comments }

Unless you’ve been living under a rock, you’ve probably heard whisperings of the Federal Reserve’s rate hike last month. This is only the third time since the Great Recession that the Fed has increased rates… and, well, it’s both a good thing and a bad thing.

A Fed rate increase means that the economy is on the upswing. The Fed will only raise the benchmark rate when the economy no longer needs stimulus. Janet Yellen, chairwoman of the Fed, said that her organization plans to go slowly with such rate increases. So, it’s best to assume that the Federal Reserve is cautiously optimistic about the economy and where we stand today.

The most recent benchmark increase was only a bump from .75 to 1 percent. It doesn’t seem like much, but even a tiny change in the benchmark rate can spell major changes for your personal financial situation. Let’s take a look at what the latest increase may mean for you.

How the Fed changes interest rates

The Federal Reserve doesn’t directly affect interest rates. Instead, its benchmark rate affects the federal funds rate — the rate that banks charge each other. The banks then pass those costs (or savings) on to consumers by changing the rates of short-term loans. Then, when short-term rates increase, long-term rates increase, as well.

In short, when the Fed increases its benchmark rate, you’ll first feel the pinch with your credit cards and other adjustable-rate or new shorter-term loans. But you’ll eventually feel the pinch if also you try to take out a longer-term loan, like a mortgage.

Here’s how the current rate increase is most likely going to impact your wallet:

If you have adjustable-rate debt

Variable- or adjustable-rate debts — like credit cards, HELOCs, and variable-rate mortgages — will likely be the first place to feel the difference, post-rate hike. A quarter-percentage interest hike doesn’t seem like much, but it can really add up over time. This is especially true if you’re carrying around a lot of credit card debt.

Let’s assume that you’re holding the average American family’s $16,000 worth of credit card debt. Depending on your terms, the rate increase could potentially cost you several hundred dollars per year.

Learn More: How Is the Nation REALLY Doing With Credit Card Debt?

Just how much more can you expect to pay on your variable rate loan? Dig into your statements to ensure you always know your rates, even as they change. Then, use an online calculator to see how much you’re going to pay in interest when your rate increases.

The best way to deal with this particular issue? Just pay off that debt as soon as you can. Right now, you may only be looking at a difference of $100 a year or less. But if the Fed continues to increase their benchmark rates, the interest rates on your already higher-interest debts are only going to increase.

Need a boost to get you started? Consider transferring some of your debt to a card with a 0% APR introductory period. Paying no interest for even 12 or 15 months can make it much easier to get that principal paid down before you end up paying through the nose because of rate increases.

If you have, or are in the market for, a mortgage

Fixed-rate mortgages, which remain the most popular option, may not skyrocket immediately. But the pinch will come.

According to Freddie Mac, the average 30-year, fixed-rate mortgage in January charged 4.15% interest. In March, that increased to 4.2%. That’s a fairly large increase from this time last year, when rates were more like 3.69%. But from February to March, that much of an increase would probably only make a few dollars’ worth of difference in your monthly payments.

With that said, even a point’s difference on a 30-year mortgage can have a big impact on your finances over time. That’s because you’re paying interest on this loan for so long. Even a few bucks a month will add up over the course of 30 years!

Read More: Can This Simple App Get You Out of Debt?

So, what should you do with all of this in mind? Well, if you’re in the market for a mortgage, you might try to buy sooner rather than later. But only if you have a sufficient down payment and good credit. It doesn’t make sense to pay more for a mortgage, simply because you’ve rushed in before you’re financially ready.

With the Fed’s cautious outlook, it doesn’t seem that interest rates are going to skyrocket any time soon. So, it doesn’t make sense to lock in a lower rate if you’re not financially prepared to buy yet.

What about those who already own a home? If you’re still paying pre-Great Recession interest rates of 5% or more, you might want to consider refinancing while the rates are still low. This is especially true if you’re also in a better credit and all-around financial situation now than you were last time you bought or refinanced your mortgage. If nothing else, it’s worth looking into your refinance options now, before rates increase any more.

In the Know: Can You Refinance Your Mortgage With Bad Credit?

If you have savings and investments

Just as interest rates on consumer debt are rising slowly, so will rates on savings products. Chances are you’ll see a slight increase on the rate on your interest-bearing accounts, including savings accounts. Other interest rates — like those on CDs — will also rise, albeit slowly.

Bottom line: now could be a good time to shop around, Make sure that you’re getting the best interest rate on your high-yield savings accounts and, if you’re not, think about switching.

What about your longer-term investments, including those in your retirement account? It’s much harder to predict a rate hike’s impact on savings vehicles like these. When it comes to long-term investing, just stay the course and keep paying attention to the basics, like asset allocation.

Related: The Perfect Asset Allocation Plan

So, what exact impact will the Fed’s rate increase have on you? It really depends on your current financial situation, especially your debt and savings account mix. Just be sure to pay attention to interest rates on both debt products and savings products, so you can take advantage of the best deals around.

{ 0 comments }

We’ve always been fans of Quicken here at Consumerism Commentary, and we’ve got a lot of reviews floating around to prove it. But you don’t really need reviews of Quicken from five years ago. You just need to know what to expect from the latest version: Quicken 2017.

Here, we’ll give you the highlights, and we’ll also talk you through the basics of using this interface.

quicken guide

The Highlights

Quicken still provides everything you’ve come to expect, including the ability to track all of your money in one place. If you’re big on tracking your net worth, it’ll help you do that. It tracks both assets and debts, and it will also track investments. (Though if you’re a serious investor, you may want to upgrade to Quicken Premier.)

What’s new with the 2017 version? Not a whole lot has changed, but there are a couple of upgrades you should know about, including:

  • Mobile: Now you can download the Quicken app to track your investments and budget on the go. The mobile app has a nice interface with everything you’ll find in the desktop version. Plus, you can add budget line items as you spend.
  • Advanced Search: You can find mobile transactions more easily with the mobile advanced search feature.
  • Refresh: Quicken got a refresh this year. The screen looks nicer, and the interface is a little more user-friendly. It’s not a major overhaul, but it’s easy on the eyes.
  • Zillow: You can connect with Zillow to automatically import your home’s estimated value. While Zillow may not be the most accurate option if you’re actually getting ready to buy or sell a home, this is a simple way to get a ballpark idea of your home’s value when calculating your net worth.
  • Alerts: You can get alerts sent to your phone or email inbox when bills are due or when you’re about to go over your budget.
  • Receipt Storage: Need to track expense receipts, but tired of paper clutter everywhere? You can snap photos of your receipts and store them with the mobile app.

Related: How to Track and Manage Receipts with Google Docs

Once you get set up, keeping track of everything in Quicken is relatively simple. Here’s what it all looks like:

First, import your accounts

As with other popular budgeting and financial tracking software, Quicken will automatically sync with your bank and credit card accounts, as well as your investment accounts. This makes it easy for you to track transactions without having to enter them manually.

In fact, the very first thing Quicken asks you to do after you enter your credentials is to sync a new account. To make it happen, you’ll just need your account’s login information. You can import all sorts of accounts, even to the basic version of Quicken, though investment tracking is more robust with the higher-level versions.

Next, check your recent transactions

When your accounts are imported, it can seem a little overwhelming at first. Quicken automatically categorizes your transactions, but you’ll likely have to go through a recategorize many of them. Quicken will give you the last thirty days’ worth of spending information to work with.

I do like how the system breaks everything down graphically. Once you set all of your transactions into categories, you can see what percentage of your budget goes to each category, and check out a corresponding chart breaking down your spending. It looks like this:

Quicken 1

You can see that Quicken will alert you when there are uncategorized transactions. You can click into that directly to see those transactions. Then, you can sort your transactions by account, date, and type of spending (with or without taxes).

You can also click into spending categories to figure out which transactions Quicken has placed into which categories. Chances are you’ll want to change some of those if you’re a budgeting stickler!

Quicken 2

Related: A 10-Minute Budget That Actually Works

Try the bill reminder system

Once you’ve been in the spending category interface, you can use the bill system to remind you when your bills are due. It’ll look at your last two months’ worth of transactions and find recurring bills and their due dates. The system will also track any paychecks you have automatically deposited to your bank account.

Quicken 3

You can then set up the reminders, which will alert you when bills are due and project your checking account balances over the next 12 days, based on your upcoming income and expenses.

Quicken 4

Since it’s not accounting for one-off spending like groceries and gas, this balance isn’t very accurate. At least not for me! But it can be a helpful way to stay on top of your bills so you don’t miss any due dates.

Learn More: Track Your Cash Flow with Google Docs

You can also sign up to have Quicken actually pay your bills for you. This requires a validation of your bank account and a monthly payment of $9.95. Since many banks offer free bill pay services, this one may not be worth the additional spend.

Create a budget

As with other pieces of this interface, Quicken will automatically create a budget for you based on past spending. However, this spending is according to Quicken’s categorizations. If you think Quicken has gotten a few things wrong, it’s best to re-categorize your existing transactions before delving into the budget tab.

Once you do, though, you can get access to a quick budget that you can change from there. The budget interface now looks very similar to Intuit’s Mint.com, which features slider bars to show how close you are to the budget limit in each category.

Quicken 5

You can, of course, change the budget for each category depending on your preferences and needs. You can also look at the budget in terms of only certain bank accounts, toggling between transactions in each account on the left sidebar.

One of the interesting things about this budget interface is that you can run various reports. These come out as very nice, color-coded documents that you could print off or store electronically, for an over-time view of your personal finances.

You can run reports for a variety of scenarios, including spending by category, spending versus available budget, income versus expenses, or spending for the month versus average spending by category. These over-time reports will become more useful the longer you use Quicken, which gives it more data to pull from. But some of the reports look like this:

Quicken 6

These reports could be really helpful if you’re trying to meet specific financial goals, like reducing spending in a few categories or tracking your budget over time.

What about upgrades?

My review has been based on the Quicken Starter option, but there are other options currently available, too. Here’s a quick breakdown of what they offer:

Quicken Deluxe

Quicken Premier

Quicken Home & Business

Quicken Rental Property Manager

Is Quicken right for you?

Quicken offers a load of great features, and its new interface is definitely more user-friendly than the last version I reviewed in 2014. If you want a one-stop-shop for tracking all of your personal finance details — from budgeting to investments to debt — then Quicken may be a worthwhile investment.

With that said, I don’t think I’d pay for the basic version of Quicken when free tools like Mint.com can do basically the same thing. My personal preference for budgeting is YNAB, though it does come with a $5/month fee.

However, if you want to add investment tracking and detailed financial planning into the mix, Quicken Deluxe might be a good option for you. And, of course, if you run rental properties or a small business, you can’t go wrong with the robust business-oriented versions of Quicken.

So, tell us: do you think Quicken is the right option for your personal finance tracking needs?

{ 0 comments }

It’s a good thing I’ve been saving a good portion of my income for the past year. Even with making estimated tax payments — the last of which was due on January 16 — I still have a significant tax bill this year, thanks to increased income.

Many taxpayers dread filing their taxes, even if they receive a refund from the IRS. It’s often a time-consuming process that can be fairly stressful. Plus, pressing Submit on your electronic return (or licking the stamp of your paper return) can bring out fears and anxiety over the possibility of an audit, no matter how diligent you were about your records.

Some people, like me, have a stronger reason for the lack of anticipation: we will end up owing money. And for those who haven’t saved enough money throughout the year, this is a dreaded situation.

TAX BILL

What If You Can’t Afford Your Tax Bill?

First of all, you don’t want to owe the IRS money. This type of debt is one of the hardest types to erase. There is no statute of limitations on IRS debt, either, so it won’t just go away on its own if ignored long enough. Even if you declare bankruptcy, it’s very difficult to get rid of tax debt.

Related: How to Adjust Your Witholdings for a $0 Return

Sometimes taxpayers receive a notification saying they owe money, but it might not be accurate. The IRS is a system subject to human error, just like any other agency. You can dispute the amount you owe if it doesn’t match your records and you have a reason to believe your calculation is correct.

Need More Time to File? How to Get an Extension on Your Taxes

The government is sensitive to the issue of whether you can afford to pay, so they’re willing to work with you a little bit. The best option is to avoid using a credit card to pay your debt, which would ordinarily be many consumers’ first choice. When you file your taxes, don’t pay online at that time if you can’t afford it in cash. Instead, wait until after you submit your form and it’s accepted by the IRS. Then, visit the IRS website to file an Online Payment Agreement.

If you take long enough, the IRS will send you a tax due notification, but there’s no need to wait for that to arrive. If you have your adjusted gross income (AGI) from your tax return, the amount you owe, and, of course, your Social Security number, you can get started. The form will first ask you how much you can pay and when you can pay it. Then, it will come up with a payment plan that works for you.

The payment plan will allow you to spread your tax bill out over a longer period of time. This improves the chances that paying your bill won’t cause you a financial hardship, and the IRS still manages to collect the monies due —  a win-win in their book. There is a fee for creating a payment plan, ranging from $43 to to $225.

If your financial hardship is only temporary, the IRS may delay collection, though interest and late fees will still be added to your bill. The IRS could also file a federal tax lien, even if they delay collection. This means your property could become property of the government in order to satisfy your debt.

The last line of negotiation with the IRS is an Offer in Compromise. There are only a few situations in which the IRS will accept a lower tax payment than what they believe is due. If the IRS believes you’ll never be able to satisfy your tax liability, but you agree to the amount you owe, an Offer in Compromise might satisfy the IRS.

If there is legitimate doubt about the tax bill — this will usually happen only in complicated situations — the IRS might consider an Offer in Compromise. Also, if you could afford your tax bill, but paying it would create a significant economic hardship, the IRS might consider an Offer in Compromise for you, as well. This is only in exceptional circumstances.

Because the IRS does charge you interest and penalties when you don’t pay in full or on time, the best solution is to pay the bill in full as soon as possible to reduce these extra costs, even if you agree to payment plans. I prefer the above options over other payment types (such as a high interest credit card) when cash isn’t available at the time the bill is due. However, the IRS offers these additional suggestions:

I’m not a big fan of any of these, but it is important to take care of your IRS debt above many other financial priorities.

Have you ended up with a big tax bill you couldn’t immediately pay? What was your plan of action?

{ 16 comments }

The Best Budget Tools for Tracking Your Money

by Aliyyah Camp

Budgeting doesn’t come naturally for everyone. Some of us need a little assistance with tracking our income and spending. That’s where budgeting tools come in. There are several front runners in this space. Many of them offer a wide range of features to help you manage your money better. Here are four of the best […]

0 comments Read the full article →

Why Do I Have More Than One Credit Score?

by Stephanie Colestock

At some point in your life, you’ve talked about your credit score. In fact, you’ve probably talked about it many, many times. What it is, how to improve it, how much you paid to get it… But what if I told you that “it” is really just one of dozens of potential scores out there, […]

1 comment Read the full article →

6 Ways Your Bank is Ripping You Off

by Richard Barrington

The Occupy Wall Street movement seems to have faded away, but it is fair to say that banks are still not very popular institutions. Fairly or unfairly, the prevailing impression many folks have is that bankers are fat cats who make their fortunes at the expense of ordinary people. However, instead of being mad at […]

1 comment Read the full article →

Wealthy Shanghai Teens Are More Financially Savvy Than Average Americans

by Luke Landes

The Organisation for Economic Co-operation and Development (OECD) recently conducted a study, presenting a financial literacy test to fifteen-year-olds around the world, and has now published the group’s findings. The sample included 29,000 teens from eighteen countries (or, in the case of Belgium and China, two communities, Flemish and Shanghai). The test is designed to […]

3 comments Read the full article →

The Best Investments for a Teenager

by Luke Landes

While it doesn’t hurt to discuss investing with children at an earlier age, they can get real, hands-on experience with investing as a teenager. Like many other kids in the 1980s, I played the Stock Market Game in elementary school, and learned nothing about investing, but I learned that adults checked the newspaper every day […]

9 comments Read the full article →

Financial Problems Impair Cognitive Abilities

by Luke Landes

Need more evidence that the financially disadvantaged are in a worse position to succeed in education and work than those without financial concerns? A new report published in the journal Science shows how financial constraints, particularly poverty, impede cognitive functioning. I find one of the experiments interesting not only because of the results, but because […]

4 comments Read the full article →
Page 1 of 212