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The best place to learn solid financial behavior is at home. Although a kid’s environment at school and among peers is important in his or her development, the biggest influence on a growing child’s set of values is the behavior of the parents. Parents are role models, so in a perfect world, they are best suited to solve young adults’ lack of preparedness for handing the world from a financial perspective.

Parents, on the other hand, are often ill-equipped for this responsibility, so public school teachers are left to pick up the slack for parents who can’t or won’t be the role models necessary. The lessons aren’t difficult, but financial behavior is so embedded in life at home, poor models there can easily undo any lessons taught in a school environment. Although New Jersey updates its public school curriculum standards a few years ago to require 2.5 credits in financial, economic, business, and entrepreneurial literacy, the typical class is not going to be effective for establishing solid financial behavior.

Eighth gradePrograms that teach financial literacy need to get creative. If there’s ever a chance for the banking industry to get involved with its future customers at an early age, this is it. Capital One sees the benefit in teaching young children how to use its products and is sponsoring the “Finance Park” program, coordinated by the non-profit organization Junior Achievement.

Finance Park is a mobile program for middle school students. After a few preparatory lessons in the classroom, the students visit one of these mobile stations and a Capital One bank branch. Students are assigned a family situation (single, married, with or without children, etc.) and a job, and are faced with simulations requiring financial decisions that have consequences. Due to a lack of preparedness in real life, most people learn how to manage their money “on the job.” But even in real life, the consequences of poor financial decision-making can be somewhat removed from the decisions themselves. The distance between cause (overspending, for example) and effect (not being able to afford a house due to high debt levels, for example) are so separated that learning on the job isn’t always effective as quickly as it would need to be.

Simulations can bring the cause and effect relationship into focus.

Capital One’s presence is significant in this program. The official name of the initiative is the “Capital One Junior Achievement Finance Park” with the necessary trademark symbols. Corporate involvement doesn’t stop with Capital One. There are more co-branded programs which one might expect to see corporations training young consumers to be life-long customers, in New Jersey alone:

Elementary school grades

  • Our Nation® Sponsored by United Technologies
  • JA More than Money™ (After-school Program) Sponsored by HSBC

Middle school grades

  • JA Global Marketplace™ Sponsored by MasterCard Worldwide
  • JA Economics for Success™ Sponsored by the Allstate Foundation
  • JA America Works Sponsored by Pitney Bowes & The Literacy and Education Fund

High school grades

  • JA TITAN (Internet based) Sponsored by Oracle
  • JA Economics™ Sponsored by the MetLife Foundation
  • JA Exploring Economics™ Sponsored by the MetLife Foundation
  • JA Banks in Action™ Sponsored by the Citi Foundation
  • JA Business Ethics™ Sponsored by Deloitte
  • JA Careers with a Purpose™ Sponsored by HCA & John Templeton Foundation

Junior Achievement programs in other states have different partnerships.

Shareholders are often impressed with corporate involvement in positive social initiatives and happy when companies are beneficiaries of tax incentives for charitable spending. I am concerned about the effect of branding in education lessons for eighth-graders. Corporations should not be involved with the education of children, but these corporations have money to devote to programs like Finance Park. If it weren’t for corporate sponsorship, programs like these would likely not exist.

Corporations have been involved with public education since the 1920s, but the trend has increased in recent years. As the United States falls behind other countries in education, citizens look to blame this country’s public school system. We look to corporations that create charter schools as an alternative, with the idea that schools with a better funding source, corporate profits rather than taxpayer money, will help solve the educational crisis. Results show that charter schools have mixed results when compared with public schools.

The lessons in personal finance are important, so it’s a good thing that kids are getting the exposure to real-life simulations. Can it be done without corporate involvement and indelible branding at an impressionable age?

Photo: daveparker
Junior Achievement Finance Park, Stanford CREDO study

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Tavis Smiley and Dr. Cornel West have been working hard to bring the issue of poverty into the consciousness of the citizens and political discourse of the United States. As a team, Smiley and West have been touring city to city, speaking to audiences concerned about the increasing wealth gap in this country. Their book, The Rich and the Rest of Us: A Poverty Manifeseto, is the culmination of their observations of American citizens throughout these travels.

While the economy is technically in recovery from the Great Recession, a vast slice of Americans have not experienced a real recovery. A “jobless recovery,” where the beneficiaries of an improving economy are the wealthy while the middle class struggles with unemployment, is not a real recovery. Despite this disadvantage, the prevalence and pervasiveness of poverty is still astonishing. According to Smiley and West, 150 million people in this country are in or near poverty. That number represents one out of every two individuals — half the country.

Tavis SmileyThe issue of poverty, affecting this number of individuals, is bigger than poverty itself. The government tallies 46 million Americans living in poverty according to the 2010 census and the government’s own definitions of poverty. Many more individuals are affected by poverty because they are living dangerously close. Many middle class households, particularly those already living in debt or in a paycheck-to-paycheck situation, are one lost paycheck away from a dangerous financial situation, and many families are already experiencing a personal decline due to the inability to find gainful employment.

Poverty has traditionally been a problem classified as urban or rural. Minorities have been and are disproportionately affected by poverty, but poverty is not a suburban problem, too. With white, middle-class families now facing the issue of poverty, whether by losing a job or being dangerously close to not being able to afford their homes, the issue is gaining more attention. While poverty is making life difficult for an increasing number of Americans, those in or seeking office, whether Democrats or Republicans, are not concerned. In order to receive a voice in political discourse, you need money. While the United States may have been founded on the ideals of freedom and liberty, these have generally only been granted to an elite selection of its inhabitants. The distribution of social power is expanded only by revolution among the disenfranchised.

Smiley and West contacted Consumerism Commentary with an interest in speaking to me about these issues — to defend their position, and to open my eyes to the realities faced even by the middle class in this country, many of whom are the “new poor.” We arranged an interview for the Consumerism Commentary Podcast, airing Sunday, May 13. Unfortunately, Dr. West was unable to participate in the interview at the last minutes as he was in New York waiting for a verdict after a conviction related to a political protest in that city. Tavis Smiley was able to participate, but our time together was short. We weren’t able to address all the questions I had prepared, but the discussion was valuable.

Listen to the entire discussion with Tavis Smiley, podcast host Jay Frosting, and myself, Luke Landes, once it is available this weekend. Smiley is the host of Tavis Smiley on PBS and The Tavis Smiley Show on Public Radio International. Update: Listen to the podcast here.

In the interview, Smiley dispelled many of the myths about poverty. One such myth is the idea that those in poverty are entirely to blame for their financial situation.

On Consumerism Commentary, I’ve written that taking personal responsibility for your decisions, financial and otherwise, plays the biggest role in achieving financial security and independence. This is today’s American promise: “Anyone can make it in America.” The media love rags-to-riches stories, even if it doesn’t reflect a reality for the majority of Americans. It’s true that this country’s brand of capitalism is favorable to the situations European immigrants left behind. Religious intolerance, a caste system based on ancestry, and an economic system wherein generally only the first-born male would have rights to any property drove pioneers to create a new society or join a country with a promise to create a better life for yourself. Never mind that doing so displaced others who occupied the land here.

Even in this new society, you had to be a member of the elite to receive the rights as endowed. Not everyone begins on equal footing. The lack of early educational opportunities throughout this country is one of the strongest causes of generational poverty. As Smiley addresses in the podcast, Washington state is the home to large multi-national corporations, providing a huge advantage to those who reside in Washington thanks to the tax these companies pay. The educational opportunities in Washington state far outshine the opportunities in Washington, D.C., for example. Until a quality education for the entire country is given priority, generational poverty will continue to exist.

In the interview, we also address the issue of austerity. The concept of reducing the deficit and national debt is and should be a high priority for policymakers, but the timing of austerity measures, such as reducing funding to societal programs, is just as important. Smiley argues that we cannot cut the budget for these important issues when the economy is not “flowing,” saying that the budget is being balanced on the backs of poor people. Budgets are moral documents, and you can determine a country’s real priorities by evaluating where the money is going. If this country does not address the economy for the 99 percent — those who have seen no benefit from this “jobless recovery” — rather than the “1 percent,” Smiley warns of the downfall of the United States as a world leader.

No empire in the history of the world that at some point did not falter or fail. Every empire had its day. Americans don’t want to think we could be dangerously close to the edge… Poverty is the moral and spiritual issue of our time.

Time did not permit us to explore all the topics I would have liked to cover in the interview with Tavis Smiley. For example, I would have liked to talk more about the Occupy movement and getting a national stage for the issue of poverty. In recent weeks, civil rights are again receiving national attention, from the perspective of same-sex marriage. Not to minimize that issue of equal treatment under the law for all individuals, poverty deserves the same attention from our nation’s leaders.

Be sure to subscribe to the Consumerism Commentary Podcast to hear the interview with Tavis Smiley, where we address more topics related to poverty than are outlined above, as soon as it is available. Be sure also to read The Rich and the Rest of Us: A Poverty Manifesto. Update: The interview is now available as a podcast here.

Photo: DC Central Kitchen

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The more money you have, the more likely you are to cheat on your taxes. The rich have more opportunities to try to hide assets and income from the Internal Revenue Service, particularly through offshore bank accounts. In the United States, banks are required to report income earned by their customers on savings and investments. Many taxpayers are familiar with the 1099-INT and 1099-DIV forms for interest earned and dividends respectively. The I.R.S. can somewhat easily match the 1099 forms provided by banks with the 1040 income tax return forms filed by taxpayers to find discrepancies.

Banks located outside the United States, depending on their local laws, may not be required to provide this information fully to the United States government. Thus, the I.R.S. might not know if a taxpayer is earning money in an offshore account, making it easy to “forget” to include that income when filing taxes. Of course, this is fraud, and a bad idea.

The government is getting better at convincing banks located in tax havens to comply with I.R.S. requests for information about customers who happen to be taxpaying citizens of the United States. UBS, the largest bank in Switzerland, has ended its offshore “secret” banking service in Switzerland as a result of a settlement of a federal investigation. And this year, the I.R.S. is requiring certain taxpayers to file a new tax form, Form 8938, disclosing offshore assets and income.

Here are the certain taxpayers who must file this form:

  • Unmarried taxpayers or married taxpayers filing separately living in the United States whose total offshore assets at the end of the year total at least $50,000 or whose offshore assets exceeded $75,000 any time during the year. Married taxpayers filing jointly living in the United States have thresholds that are double the amounts for unmarried taxpayers.
  • Taxpayers living abroad whose total offshore assets at the end of the year total at least $200,000 or whose offshore assets exceeded $300,000 any time during the year.

Taxpayers who are otherwise not required to file an income tax return are not required to complete this form, either. The guidelines for determining who must file Form 8938 and which assets to report can be a bit complicated, so it’s best to read the rules from the I.R.S. and speak to an accountant familiar with the new law for advice.

The penalties for incorrect information of Form 8938 are steep, and even small errors can result in significant fines. Failure to file the form when required to do so can result in a penalty of $10,000, and if you continue to ignore requests from the I.R.S. to file, the penalty can reach $50,000. Even if you live offshore and your country has a law preventing you from disclosing your financial information to the United States, you can’t avoid the reporting requirement and penalties. If you file the form but underpay your taxes even due to an error on Form 8938, you will be charged a penalty of 40 percent of your underpayment.

If the government can show you committed fraud in underpaying your tax, the penalty will increase from 40 percent to 75 percent of your underpayment. Those penalties are additional to paying what you do owe, according to the I.R.S., plus interest.

The I.R.S. is also threatening criminal penalties for taxpayers who fail to file Form 8938, fail to disclose all offshore assets, or underpay their taxes.

If you look at Form 8938, you will see that reporting requirements for offshore assets and income are different than requirements related domestic bank accounts and investments. In general, you only need to report income from domestic bank accounts and investments, but with offshore accounts, the I.R.S. wants to know the value of your assets, not just your income.

As David Jolly points out in The New York Times, the information you report to the I.R.S. on Form 8938 duplicates a separate reporting requirement. Taxpayers who have more than $10,000 in offshore bank accounts must already file a Report of Foreign Bank and Financial Accounts (FBAR). The FBAR is used by the United States Treasury to identify money laundering and terrorism funding, so the I.R.S. is already receiving some of the information it needs. Form 8938 ties this information to taxpayers’ income tax returns. If the government decides to use the information filed on the FBAR to cross-check the information included on Form 8938, it could potentially identify more income tax evaders.

New York Times

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Just when you thought the era of new online banks splashing into the market was over, TIAA-CREF is on the hunt for customers’ deposits. TIAA-CREF Trust Company, FSB was established in 1998, and the bank just began offering deposit accounts in the last month. The products, under the name TIAA Direct, are intended to compete with the best online savings accounts and checking accounts, and as of now, the interest rates are attractive.

I have some of my retirement funds invested with TIAA-CREF’s mutual fund division, and after a frustrating effort with the company to fund my SEP IRA several years ago, I decided to leave the company in favor of Vanguard for my investments.

I initially chose to invest with TIAA-CREF due to their low minimum investment amount and their association, at least in my mind, with the education industry and non-profit organizations. Several companies within the TIAA-CREF family are non-profit organizations, but the government revoked its 501(c)(3) status in 1998. As a result, the company does not enjoy the same tax benefits as other non-profit organizations.

My experience with the investment arm of TIAA-CREF and the lack of a need to open yet another savings account may prevent me from opening a new account with TIAA Direct. Customers who are looking for the best interest rates would do well to investigate the bank further, though. When a new account arrives on the scene, it will attempt to attract new depositors, and that often includes offering a great interest rate for savings accounts.

I’ve found that for the most part over the last decade, banks who offer overly attractive terms and initiate a significant marketing endeavor after their arrival soon lower interest rates. Once the company has received its target amount of deposits, there is less motivation to attract new customers. Some banks have even closed their doors to new customers once their target was reached.

The following details are as of March 20, 2012, and are subject to change at any time.

TIAA Direct is attracting new customers to its basic High Yield Savings account with a 1.25% APY, one of the best interest rates currently available in the United States. This rate is about twice as much as the interest offered by some of TIAA Direct’s most relevant competitors.

There is a $25 minimum initial deposit and there are no fees. The savings account and the companion Money Market account are limited to six non-ATM transactions each month, as mandated by banking regulations. The Money Market account offers the same interest rate and minimum deposit as the High Yield Savings account but also offers check-writing privileges. Both accounts include an ATM card.

The bank is also offering an interest checking account with interest rates ranging from 0.05% to 0.15% APY. Customers will receive free checks, a debit card, and the ability to deposit checks using an iPhone application. Again, there is a initial deposit requirement of at least $25.

Once these accounts are open and funded with at least $25, there is no ongoing minimum balance requirement.

If you’re willing to lock up your savings for a period of time, TIAA Direct is also offering certificates of deposit with maturities of six months, one year, and two years. The interest rates for these accounts are lower than the High Yield Savings account and the Money Market account. You’re better off keeping your money in a savings account earning more interest and keeping your savings liquid until the CD rates exceed the rates earned in the savings account.

There are some finer points to consider; if you expect the savings account interest rate to dip below the best CD interest rate within the next two years, and you expect the CD rate to dip as well, you might be better off locking in the two-year CD rate today. It’s impossible to predict the future though, and you can make these decisions based only on what you know. There’s a good chance that the high interest rate on the savings and money market accounts won’t last, as has been the case for banks looking to make some noise and attract depositors right away.

There’s an indication of a lack of transparency, a troubling sign. There is a fee to withdraw funds from your CD before it reaches maturity, but you can only discover the details of this fee in the disclosure document customers receive only after funding the CD. You have to lock up your money before you’re told how much it’ll cost you to withdraw your cash in an emergency. Other banks typical penalize customers for withdrawing money from a CD by charging a fee based on the interest accrued in the account.

The real tests of a savings account, particularly in an environment where interest rates are low, are whether your money will be accessible when you need it and how well you’re able to work with customer service. TIAA Direct is new on the block, but if it inherits its customer service from its parent company, based on the feedback from hundreds of customers visiting Consumerism Commentary, potential customers may want to steer clear of this bank’s new deposit products.

Note: Richard Barrington from Money-Rates.com has asked for an interview with a spokesperson for TIAA Direct, but the company is saying they are not yet ready to launch these new products. You can, however, open a new account using the TIAA Direct website, and it is open to the public.

Photo: frankh

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