Financial Education

It’s not just a nice idea to teach kids how to handle money and credit — it’s essential! Teen spending in the United States — products bought by and for teens — totaled $208.7 billion in 2011, according to research published in September 2012. Clearly they know how to spend. What we need to teach them is how to save, invest and live on a budget. 

Early Money Management Habits for Kids 

There are many events in children’s lives when good money management skills can be fostered. By constant repetition, these skills will develop into life-long habits. Consider a few opportunities to reinforce messages: 

Piggy Banks — The First Lesson in Saving 

The arrival of a child’s first piggy bank teaches at an early age that pennies, dimes and nickels can add up to dollars pretty quickly. 

Weekly Allowance — Spend Some & Save Some 

Help children see the value of spending a little now and putting some aside to spend later. Giving some to a worthy cause can also be suggested. If you provide your children with an allowance, you can start them off right by requiring them to budget and save a portion of it. 

That First Job — Time to Open a Bank Account and an IRA! 

Ask a young person what he or she will do with the income from their first job, such as babysitting or doing yard work for the neighbors. Encourage them to think about their spending and savings options. Many teenagers today make enough money to open their own checking account or a joint one with their parents. It’s even possible to open a retirement account. 

The Big Things They Want — What it Takes to Buy Them 

So they want the latest game console or MP3 player. Or maybe it’s a special school trip or even a car someday. Saving for these takes time. Now’s the time to talk about being disciplined to save for what we want and being realistic about our needs and wants. 

Protect Your Financial Information — Don’t Give Away Account Information 

Tell children that bank account numbers are secret numbers and should never be given away. Never “mail” letters by putting them into your own mailbox for the postman to pick up. Sometimes thieves look for secret bank numbers in outgoing mail. Tear up or shred any papers with your secret bank numbers, rather than throwing them in the trash. Tell kids that believe it or not, thieves will even go through your garbage to steal your financial secrets. 

Teens notice each time you pull out the plastic — but do they understand how it works? Probably not. You might be using a debit or credit card — very different ways to pay for things, but to kids, they look the same. Any time you make a purchase, regardless of whether you use cash, credit or debit, there’s an opportunity to teach kids about savings, budgeting and credit. 

Learning about credit cards and debit cards is particularly important for teens, with debit cards becoming a very good option over credit cards. In fact, according to the most recent nationwide survey of high school seniors, the Jump$tart Coalition^® for Personal Financial Literacy found that students’ use of debit cards has skyrocketed. Some 53.3 percent of respondents reported having a debit card compared with 35.9 percent just six years previously. Teens and their parents are realizing that a debit card can be a very valuable budgeting tool since cardholders can only spend what is already in their account (unless there are special overdraft features of the card). As kids mature, a credit card will be an important option in order to establish a credit history that may be necessary to rent or purchase a home. Some 55 percent of college seniors have a credit card of their own. The credit history may even be checked by a potential employer. Thus, helping your teens develop good credit management habits will help them avoid serious consequences that can last for years. 

An opportune time to talk about spending and using debit and credit cards is before shopping for school clothes. Talk about: 

• How you will pay for the purchases — debit or credit. 
• Budgeting — these are anticipated expenses that can be planned for in advance. 
• Having a limit on what you’ll spend. 

What you or your family might need to cut back on or do without to cover these expenses. Children only see what you buy and not what is given up. 

If you use a credit card, help your children understand that you are taking out a small loan. Paying your debts on time and keeping your credit history strong is another important message. And tell them what the real cost will be for your purchase once the interest charges are added on. 

Here are a few quick questions your teen could ask himself or herself when shopping: 

• Do I really need this item now? 
• Do I have enough money in my debit account or in my budget this month to pay off the entire purchase? 
• If I use a credit card, what additional fees or interest will I pay to carry a balance? 
• What will I have to give up in order to buy this? 

A Few Things You Should Know About Credit 

Borrow only what you need and what you can afford to repay. 

Before you consider what kind of credit to use, you should determine whether you should use credit at all. Ask about the annual percentage rate (APR) of interest charged, if the interest rate is variable, and what fees are charged, if any. 

Installment Loans and Lines of Credit 

Installment loans: These are loans that give you a lump sum of money up front, repayable in steady monthly payments with predetermined repayment terms, such as a fixed interest rate. Car loans and mortgages are installment loans, for example. 

Lines of credit: These allow you to borrow money up to a certain amount any time you want and generally offer flexible repayment terms. Credit cards offer a line of credit. 

With both types of credit, the maximum amount you can borrow, or credit limit, depends upon your credit score, income, and other factors that determine your ability to repay. 

Secured Versus Unsecured Loans 

Secured credit is backed by property you own. For example, a car loan is generally secured credit. If you fail to pay your car loan as promised, the creditor has the right to take your car. This is also the case for home equity loans and mortgages, which are tied to a house. Secured credit is usually less expensive than unsecured credit, but you should carefully consider whether you can afford to lose the property you use to secure the credit in case you experience difficulty paying back your loan. 

Unsecured credit, like that offered by credit cards, will usually cost more, but will not place your personal property at risk, except under certain circumstances (e.g., if you file for bankruptcy). Borrowing money is a serious undertaking that comes with important responsibilities. 

Loans are Contracts and Carry Important Responsibilities 

Understand your responsibilities. Just like with any contract, you need to understand the responsibilities and the consequences if you fail to meet what’s required of you. Even a few missed or late payments can affect your credit record and make it harder to get loans in the future and make them more expensive. 

If you find yourself having difficulty repaying your loans, you should act right away to address it. The worst mistake people make is ignoring the problem or hoping it will go away. It won’t. Dealing with it early is the best course of action. Below are some warning signs of problems. If these sound familiar, look at the next section for ways to get your finances in order. 

Getting in over your head is stressful. If you run into financial trouble, the first step is to address it immediately. Ignoring the problem will only make the situation worse. Getting organized and creating a budget is an excellent start. However, if a more immediate solution is called for you should: 

Contact the creditors whom you are having difficulty paying. Creditors are often the best source of short-term help and can help you avoid blemishes on your credit report. 

Pay cash. 

Set a monthly limit on charging, and keep a written record so you do not exceed that amount. 

Consider a lower interest debt-consolidation loan. If you qualify, combining your credit card debts into a single, lower-interest secured loan can make paying your debt down easier and free up money for living expenses. However, be careful. Consolidating your debt is only beneficial if the resulting loan terms are favorable and if you stop using additional credit. 

Contact a local certified credit counseling service if you continue to experience difficulties. The staff at the National Foundation for Credit Counseling (1-800-388-2227), for example, can help you prioritize your needs, sort through your debts, and establish a more affordable payment plan with your creditors. 

Avoid scammers who promise to “fix” your credit. Getting back on your feet takes time. There is no “quick fix” and no one — payday lenders or loan sharks — can make your debts simply disappear. 

Know your rights as a debtor. Bill collectors must follow certain rules, which are enforced by the Federal Trade Commission (FTC) or subject to the Consumer Financial Protection Bureau’s supervisory authority, in cases where a firm has more than $10 million in annual receipts from consumer debt collection activities. Read about these rules on the FTC’s website: consumer.ftc.gov/ articles/0149-debt-collection and on the CFPB’s website: consumerfinance.gov. 

Do not take bankruptcy lightly. Filing for bankruptcy has long-term consequences that you should carefully consider before proceeding. Bankruptcy is not a quick or casual solution for anyone charged a late fee for late payment. 

A budget is an organized list of your sources of income and the money you spend on essentials like housing and food, fun things like dinner and a movie, and what you need to save for the future. Just as using a map to make sure you reach your destination, budgeting is a tool that helps you realize your financial goals. It can help you navigate those moments when you experience financial difficulties. You can take charge of your finances by setting financial goals, planning a budget, and sticking to it. 

Saving is important for many reasons, including for unexpected expenses such as car repairs, medical emergencies, and possible unemployment, and for planned needs such as a vacation, college tuition, or retirement. A budget can also help you reduce your debt. 

Collecting as much information as you can about your spending will allow you to prepare and plan. Keep monthly records of your spending so you’ll spot places where you can save money. Know how much you can reasonably spend — and be realistic about it. Being disciplined to save a smaller amount of money on a regular basis is generally better than saving more money sporadically. Finally, rewarding yourself by spending a reasonable portion of money you have saved with the help of a budget is a good incentive to stick with your budget. 

Here are some guidelines to keep in mind: 

What is your current income? Be sure to include all sources of income — but only the money you’re sure you’ll receive. Don’t forget to subtract taxes and other deductions. 

What are your monthly credit obligations? The amount you owe on credit cards, monthly car payment, student loans and other monthly payments should not exceed 10 to 15 percent of your take-home pay. 

What are your monthly rent or mortgage expenses? If your rent is more than 30 percent of income, it may be hard to afford a down payment on a house. Keeping mortgage payments (and other expenses of owning a home) to under 30 percent is also a good idea. 

What are your monthly credit and mortgage expenses? Total rent or mortgage payments plus your credit obligations should not exceed 35 to 45 percent of monthly income. Keeping these under 30 percent is a good goal, with 20 percent to housing and 10 percent to other credit obligations. 

Pay yourself first If you wait to see what’s left over, you are less likely to save. Determine in advance how much money to deposit into a savings account each month. If you receive a raise, increase the amount of money deposited into your savings account. 

Take advantage of bank technology Consider automatic payroll deductions or automatic transfer from checking to savings. Arrange to have a specific amount transferred to your savings account every pay period. 

Pay your bills on time — and pay more than the minimum amount Although the vast majority of Americans pay their bills on time, some find themselves paying late fees. Alleviate the hassle by scheduling time to pay bills, and put them in the mail with enough time to get to the creditor. If you pay your bills online, be sure to schedule payments several days in advance to insure the payment clears before the due date. Some online payments to merchants are still sent by check. Be sure to verify whether payment is transferrer or a check is sent. 

Determine needs versus wants Do you need to eat out every day for lunch? Do you need that gourmet cup of coffee in the morning? By bringing your lunch to work a couple days a week, you can save hundreds of dollars a year. 

Consider investments For long-term goals, such as saving for a home or retirement, look into bonds, mutual funds, real estate and stocks. 

Talk to us Our representatives are eager to answer your questions. Ask which package of bank products and services would best suit your needs. 

Simple Steps to Protect Yourself 

Identity theft is one of the fastest-growing types of financial fraud. It involves crooks assuming your identity by applying for credit, running up huge bills and stiffing creditors — all in your name. 

Take these steps to protect yourself: 

1. Order copies of your credit report once a year to ensure they are accurate. You can call each of the three national credit-reporting agencies because each may contain different aspects of your credit history, or you can contact the Annual Credit Report Service for one free credit report each year. 

• AnnualCreditReport.com: 1-877-322-8228 or annualcreditreport.com
• Equifax: 1-800-685-1111 or equifax.com
• Experian: 1-800-311-4769 or experian.com
• TransUnion: 1-800-916-8800 or transunion.com

1. Call your local police department — Financial fraud is a crime. 2. Contact the fraud units of all three credit bureaus. Ask them to “flag” your account, which tells creditors that you are a victim of identity fraud. Also, add a victim’s statement to each of your credit bureau reports that asks creditors to contact you in person to verify all applications made in your name. Call the fraud units of the credit bureaus at: 

• TransUnion Fraud Assistance Department 1-800-680-7289 
• Equifax Fraud Assistance Department 1-800-525-6285 
• Experian Fraud Assistance Department 1-888-397-3742 

3. Call the Federal Trade Commission’s ID Theft hotline at 1-877-IDTHEFT. The hotline is staffed by counselors trained to help ID theft victims. Check out the FTC Web site, which includes an Identity Theft Affidavit to help simplify the process of clearing up accounts opened by an identity thief. 

4. Notify your banks. They can help you obtain new account numbers for all of your checking, savings and other accounts. Be sure to pick a new PIN number for your ATM and debit cards. Close all of your credit card accounts and open with new account numbers.

5. Notify the Postal Inspector if you suspect mail theft, which is a felony. 

6. Contact the Social Security Administration (SSA). Depending on your situation, you may need a new Social Security number. The SSA’s telephone number is 1-800-772-1213 and the website is ssa.gov. You also may want to contact your telephone, long distance, water, gas and electric companies to alert them that someone may try to open an account in your name.

7. Maintain a log of all the contacts you make with authorities regarding the matter. Write down each person’s name, title, and phone number in case you need to re-contact them or refer to them in future correspondence. 

mymoney.gov

MyMoney.gov is the U.S. government’s website dedicated to teaching all Americans the basics about financial education. There is also a toll-free hotline (1-888-MYMONEY). 

MyMoney.gov has resources on buying a home, balancing your checkbook, or investing in your 401(k), and much more. This information can help consumers maximize their financial decisions. Throughout the site, there is important information from more than 20 Federal agencies and Bureaus designed to help consumers make smart financial choices.

fdic.gov/consumers/consumer/moneysmart

The FDIC developed the Money Smart curriculum to help adults enhance their money management skills, understand basic financial services offered by the financial mainstream and build their financial confidence to use banking services effectively. 

usmint.gov/kids

The United States Mint’s H.I.P. Pocket Change™ website was launched in July 1999. H.I.P. Pocket Change is a fun educational tool for students and teachers that generates interest in coins, the United States Mint, and U.S. history. Through games, stories, and other engaging activities, the site brings to life both the extraordinary individuals who appear on U.S. coinage and the generations of citizens who have carried this change — or “History in Your Pocket.” For educators, the United States Mint offers a set of free lesson plans (for kindergarten through 12th grades) based on the new nickel designs. 

FederalReserveEducation.org

The Federal Reserve Education website provides instructional materials and tools designed to increase an understanding of the Federal Reserve, economics and financial education. Classroom resources include lesson plans, publications, activities and information on tours and teacher programs. There are games and simulations for kindergarten – 12th grade.