Raising Financially Savvy Kids

“Mom, I want that!”  “Dad, can I get this?”  “Why can’t I just get a new one?”  Have you ever heard your child utter those words?  Or maybe you have heard someone else’s child complaining as you rolled by with your little one in the stroller thinking, “That isn’t going to happen to me.”  It doesn’t have to happen to you if you work to help your children understand how to be financially savvy at a young age.  

More often children learn from observation and imitation rather than through any other method.  As you do your best to make sound financial decisions, your children will see and often emulate your commitment to fiscal responsibility. Outside of being an example for your children, you should also talk to them about fiscal responsibility. Here’s a few tips for what you should emphasize in these lessons.

Lesson #1:  Money has value.  One of the first lessons to teach children is that money has value.  Whether you have millions of them, or only a few, one dollar is one dollar.  It has the same purchasing potential regardless of who is holding it.  As children learn that money has value, you should explain that they will acquire the things they need and want by using money.

Lesson #2:  Understand the difference between “wants” and “needs.”  While this may be a different discussion for different age groups, it is important for your child to understand that not everything he or she “wants” to have is a “need”.  You can use the example that food is a “need,” but candy is a “want” even though it is considered “food”.  As children get older, the lines blur between wants and needs, so be sure to teach this lesson when your children are young.  It’s important to impress the point that, acquiring the things we “want” is not bad. But, it should only happen after our needs are met, and there is money available to do so.  

Lesson #3:  Patience is an important virtue when it comes to money matters.  Exercising patience is another virtue that can pay dividends when teaching your children financial responsibility.  While it is enticing (and easy) to purchase a “want” right now, it is not always the best move. For example, purchasing the newest cell phone technology the first day it becomes available isn’t a fiscally responsible move.  When the technology is new it costs more, but if you are patient for six months you can save a good deal of money and possibly avoid technology glitches or design flaws.

Lesson #4: Providing an allowance.  Using an allowance is a method many parents use to teach their children about money; but it can be a harmful endeavor, depending how you go about it.  If money has value, and you intend to give your child an allowance, it would be consistent with earlier lessons to require your child to put forth effort and earn the allowance. Take care to interfere with that lesson by adding variables to it.  For example, if you want to teach the concept that “work equals money,” you would not also want to teach lessons about behavior or grades using the same trade off.  It can be confusing for a child to distinguish between money they’ve received for grades or behavior versus money they’ve received for their effort.

Lesson #5:  Allow them to make final decisions.  One of the more difficult parts of teaching about finance is when it comes time to take a step back and watch your children implement what you have taught them. It can be difficult to step aside and let them make their own choices, but it’s important to let them do so.  When they ask for something, you should simply respond with the statement, “it’s your money.”  Children need to learn to make decisions, and then discover both the benefits and consequences, before they reach an age where a financial decision can make or break their credit history.

Take Control of Your Finances: Part 5

Focus on Your Future (Article #5 in a Series of 5) 

Taking control of your finances is more than just spending less and earning more money.  You must save effectively, get out of debt, and have a great plan for your future.  There are five critical steps to follow to help you gain more control of your finances, which are: 

  • Track Every Penny You Spend
  • Develop a Useful Budget
  • Start an Emergency Fund
  • Get Out of Debt
  • Focus on Your Future

In this article, we will focus on the last step in the process, which is:  “Focus on Your Future.”

There are three critical areas of focus to consider when trying to establish a successful financial future: 1) Increase your earning power; 2) Focus on your net worth; and 3) Plan for your future.  Let’s look at each of these areas in a little more depth.

#1:  Increase Your Earning Power.

We have all learned from the dawn of the Information Age that education and training must be an ongoing process throughout the remainder of our lives.  It is not only important for our children to be educated, but each one of us must be willing to adapt to a rapidly changing world no matter how old we are.

Take a few minutes to contemplate your current earning situation.  Are you earning an amount of money that is adequate for the basic needs of your family? If not, you need to give serious thought to receiving additional training in a more marketable skill. Simply put, unskilled workers do not have as much economic leverage in today’s high tech marketplace as those who are skilled. 

If you are making an adequate living, you should still continue to look to the future and review where you may have growth opportunities within your industry.  Take the steps necessary to be the most informed and trained you can be and your earning power will continue to increase.

#2:  Focus on Your Net Worth.

All of the work you do to improve your financial situation will be manifest in one fundamental way; it will increase your net worth.  If your financial activities are not accomplishing this, then you must adjust in some way.  As the old saying goes, “it’s not what you make, it’s what you keep.” Whether you are taking steps to save more money, increase your earning power, or eliminate debt, your ultimate objective must be to increase your financial net worth.

To calculate your net worth, add up the current market value of all of your assets (e.g., home, automobiles, stocks, cash and other investments).  Then, subtract from that value all of your liabilities or debt (e.g., home mortgage balance, auto loans, credit card debt, student loans, and other personal debt obligations).  If you use a money management software program, such as Quicken or Microsoft Money, it will usually provide you with your net worth automatically from the information you put into the system.

Take the time to understand where you currently are. If you currently have a negative net worth, do not panic. You can take steps to improve your financial situation (e.g., get out of debt, increase your income, save more money, etc.), and you will slowly see your net worth improve.  Make wise use of bonuses, tax refunds and other financial windfalls.  Instead of spending them, put them into productive assets or into paying off debt, and you will be able to make even more progress in your goal of having financial security. 

#3:  Plan for Your Future

Decide now where you want to be and when. Then, develop a realistic (but aggressive) road map to get there.  You must write down how you plan to take control of your financial future.  Do not rely on the government, an employer, your church, a friend, or a rich family member to plan it for you.  The only person qualified to make decisions about your long-term financial future is you.  Be specific and take advantage of the financial tools available to make a difference in your life. 

Take a moment to review the five steps we have discussed in the past several articles.  Don’t become overwhelmed; start with one step and move on to the next.  Eventually, you will begin to see progress and start feeling better about your financial future.

Take Control of Your Finances: Part 4

Get Out of Debt (Article #4 in a Series of 5) 

Taking control of your finances is more than just spending less and earning more money.  You must save effectively and get out of debt (and stay out).  There are five critical steps to follow to help you gain more control of your finances, which are: 

  • Track Every Penny You Spend
  • Develop a Useful Budget
  • Start an Emergency Fund
  • Get Out of Debt
  • Focus on Your Future

In this article, we will focus on the fourth step in the process, which is:  “Get Out of Debt.”

Debt is a killer when it comes to managing your finances.  Maybe you struggle with heavy credit card debt or student loans.  There is a method to help you eliminate the debt you have, but you will need to be patient and consistent in this effort.  To start, pay off your debts beginning with the lowest balance first.  Let’s take a look at how this works:

  1. Order your debts from the lowest to the highest balance.
  2. Pay the minimum balance on all debts, except for the lower balance, where you can make a higher payment.
  3. Using your budget, designate a fixed amount you will pay monthly toward each debt.
  4. When the lowest debt is gone, work on the next lowest debt, and so forth.

When you pay off your debt, you will feel an accomplishment that may motivate you to continue the process.  Furthermore, once you get out of debt, don’t get back into it.  Limit your credit cards and other loans to “emergency only” use.  You should also consider using credit only for larger purchases (e.g., vehicles, homes, etc.), but make sure you are getting the best deal all the way around.  The key is to spend less than you earn each month.

A great way to stay out of debt is to make sure you understand the difference between needs and wants.  A need is something that is required for you to survive, such as water, electricity, a vehicle (for many), food, etc.  A want is something that is not necessarily critical to your survival, but you enjoy having it.  For example, wants could be things like attending a professional sporting event, buying a Corvette, getting a morning coffee every day at the local coffee shop, etc.  Stick to using your money to cover your needs. Then, when you have some extra money in your budget, you can then start getting some of your wants.  

Getting out of debt is a critical way to take your life back.  You will feel freer and happier because you will not have the stress of bills and other expenses weighing you down. 

Take Control of Your Finances: Part 3

Start an Emergency Fund (Article #3 in a Series of 5)

Taking control of your finances is more than just spending less and earning more money.  It is also about preparing properly for your future by saving effectively and having funds available in case of emergency.  There are five critical steps to follow to help you gain more control of your finances, which are: 

  • Track Every Penny You Spend
  • Develop a Useful Budget
  • Start an Emergency Fund
  • Get Out of Debt
  • Focus on Your Future

In this article, we will focus on the third step in the process, which is:  “Start an Emergency Fund.” 

Many people live paycheck-to-paycheck and figure they cannot save. That’s just not true. Everyone can save…it just takes discipline.  As part of your budget, you need to develop an emergency fund for things like unexpected medical or vehicle expenses.  Many financial experts suggest that once you have safely put together an emergency fund of at least $1,000, you can then move on to attacking your debt.

But, how can you create a fund when you are living so tightly month-to-month? 

Pay yourself first!  Make having an emergency fund something you must do to survive, at least as important as paying the rent, mortgage or electricity bill.  The rule of thumb is to save approximately 10 percent or more of your gross income. However, many experts recommend saving three to six months worth of monthly expenses that can be easily accessed in case of an emergency. 

To calculate your current savings rate, divide how much you save each month by your monthly income.  For example, if you earn $5,000 each month and you save an average of $250 each month, your savings rate is 5%, which is low.  Of course, saving some money is better than nothing, but you may want to adjust to save a little more each month.  Remember, you want to have an emergency fund set up prior to paying down any other debt.

Be sure the money you save for your emergency fund is liquid, or in other words, you must be able to access it.  For example, you should consider a basic savings or money market account for this purpose.  While these accounts do not yield the highest rates, they do allow you to access your money easily. 

To learn more about the savings options available at Central National Bank, click here.  Or, if you prefer, you may call one of our representatives at (888) 262-5456, or stop by one of our branch locations for more information.

Take Control of Your Finances: Part 2

Develop a Useful Budget (Article #2 in a Series of 5) 

Everyone wants to have complete control of their finances and be able to live comfortably and happily. There are five critical steps to follow to help you gain more control of your finances, which are:

  1. Track Every Penny You Spend
  2. Develop a Useful Budget
  3. Start an Emergency Fund
  4. Get Out of Debt
  5. Focus on Your Future

In this article, we will focus on the second step in the process, which is:  “Develop a Useful Budget.”  Budgets are a necessary evil.  They are the only practical way to get a handle on your spending and make sure you are using your money the way you want to.  Creating a useful budget requires three key steps:

#1:  Identify how you are spending your money.

The easiest way to track your spending is by using a software program, such as Quicken or Microsoft Money, because they have built-in programs to help you review everything you have earned and spent simply by clicking a few buttons.  The more often you download transactions and categorize them, the more updated information you will have and the easier your review will be at a later date.  However, if you prefer, you can keep track of your receipts and write down everything you have spent over a period of time for evaluation.

#2:  Evaluate your current spending and set goals.

Now that you have tracked your spending, it is time to sit down and determine your financial goals.  Do you want to own a home in two years?  Do you want to buy a car at the end of the year?  What types of things does your family need for home improvement purposes?  How old are your children and how much can you save each month for their college education?  What does your retirement investment strategy currently look like?

All of these things must be considered as you establish your household budget.  Budgeting is usually not a very fun process because you have to figure out what you should cut.  In fact, sometimes it can lead to some frustration within the home.  However, if the goals are established, cuts will have to be made.  And, your goals will only be accomplished if everyone is “on board” with the created budget.

You must also consider things such as medical expenses, recreational or sports team fees, insurance costs, etc., as you develop your budget.  It is wise to make sure you have developed an emergency fund should you have car problems or a major medical issue.

Go through everything you spend money on and analyze why you spend that money and if it is possible to spend less in that category.  For example, John and Alice were reviewing their household spending and found that they spent nearly $400 each month dining out, whether going out to lunch or dinner.  In conversation, they committed to only going out to dinner once a week and out to lunch twice a week.  They felt this was a realistic option and would save around $200.

Once you go through every expense item, you need to write down exactly what you think you will spend in the coming month, or establish a budget for your family.  If you use Quicken or Microsoft Money, you can actually create your budget right in the system.  Then, each month when you review your budget, you simply print the budget-to-actual household budget, which is done automatically.  Focus on the things that you are trying to control more than every single penny you are spending.  For example, in John and Alice’s case, they would pay special attention to the food budget because they are trying to control that area of their spending.

The idea is not to deprive because no one will follow that budget.  A budget should be something that is in the forefront of everyone’s minds when they are making purchasing decisions, yet doesn’t create hostility within the home. 

#3:  Track your spending to make sure you fall in line with your goals.

It is a good idea to monitor your budget on a monthly basis.  Have a meeting with your spouse, significant other, and/or other members of the family to review where you stand.  Do you need to make more cuts?  Are you on track with the goals you have established?  Why were certain things purchased that may not have been budgeted?  

Whatever the case may be, this is the time to discuss financial goals and keep the budget “top-of-mind.”  We all know that anything not measured will not be obtained; household budgets are no different.  You may find that the budget may be a little too stringent in one area and maybe not stringent enough in another.  This is also when you discuss modifying any portion of the budget and recommitting to make it work.

Your Budget

Creating a budget is a not usually a fun task.  You have to review how you are spending your money; much less how other members of your family are spending as well. You have to “get real” with your finances, which can be a painful process for many.  Just be sure to keep your eyes on the goals you have established and work toward a better tomorrow.

Take Control of Your Finances: Part 1

Track Every Penny You Spend (Article #1 in a Series of 5) 

Would you like to have more control of your money? More than ever before, Americans are drowning in debt.  According to Experian’s National Score Index, at least one in ten consumers has more than 10 credit cards in their wallets. The overall average number of credit cards per consumer is four.  And, the average balance for the American family is approximately $7,400 in credit card debt. 

How can you avoid being in this situation? There are five critical steps to follow to help you get more control of your finances, which are: 

  1. Track Every Penny You Spend
  2. Develop a Useful Budget
  3. Start an Emergency Fund
  4. Get Out of Debt
  5. Focus on Your Future

In this article, we will focus on the first step in the process, which is:  “Track Every Penny You Spend.”

One of the first things you need to do to get your finances in order is to track everything you spend…down to the last penny.  It doesn’t matter how you track your spending, you just need to do it. 

Some people track expenses automatically using a computerized money management program, such as Quicken or Microsoft Money.  Others track their spending manually by saving receipts and entering them into a cash notebook or on a computer spreadsheet.  Whichever method you choose, stick with it, make it a habit, and record your transactions as soon as possible. 

For example, every morning as part of her daily routine, Jane downloads her checking transactions on her computer through Quicken and then categorizes them.  That way, she only has to categorize a few transactions from the day prior rather than many transactions from a week or month ago. She does the same with all of her credit cards and any other accounts she has.  At the click of a button, she then knows exactly how much she has spent to date, how she is doing in comparison with her monthly budget, and most important, how much she has available in her accounts.

This step in the process is all about gathering data, not judging how you spend your money or making drastic changes to your current money management habits.  When you see something written down, you may be motivated to live within the budget you have created.  You may find that you are spending too much on fast food, or maybe the cost of commuting is much higher than you thought due to higher gas prices.  Whatever the case may be, it gives you the first step in taking control of your finances. 

You should gather data regularly and keep record of what you are spending for at least 30 to 60 days so you will know what your tendencies are in terms of monthly spending.  Then, you will be ready to move on to the next step in the process, which is:  “Develop a Useful Budget.”

Reference:  http://www.nationalscoreindex.com/ScoreNews_Archive_13.aspx, http://www.indexcreditcards.com/creditcarddebt

C.S.A.S. Training

The Topeka branches hosted “Central Secret Agent Savers Training” on Saturday at the downtown bank location. The bank partnered with Big Brothers Big Sisters to plan the event, and the day was a great success. “We had eight kids attend,” said manager, Candis Meerpohl. “I think our turnout was definitely affected by graduation, but we are eager to do it again in six months.” The kids started the day with juice and doughnuts, and then went on a bank tour. After the tour, it was explained that the kids needed to complete three missions to become agents:

Mission #1 Make their alias. They picked their secret agent names and made masks to hide their identity from Mr. Splurge.

Mission #2 Learn about saving money! This was a classroom-type event where we explained that when we get little bits of money we can save it and end up with a large amount of money. We also explained earning interest on money and making savings goals.

Mission#3 Human Board Game This mission was designed so that the kids could use what they learned in their class and put it to use. The kids were the board game pieces and picked clues that said either a good money decision or a bad money decision to try and get around the board.

 “I’m happy to say we graduated all eight agents that came!” said Meerpohl. All of the kids had a great day, and a BBBS representative who attended was very impressed with the program and the account.

Central Secret Agent Savers

Working in the banking industry I see the mistakes that the younger generation makes when dealing with their finances. As a parent I have also realized that I can directly influence my children on financial responsibility.  Here are some staggering statistics that should impact all of us.

  • American teens spend $175 billion annually
  • Young adults (ages 20-24) are the fastest growing group declaring bankruptcy
  • Today’s teens and young adults will inherit $12 trillion+ over the next 20 years
  • 85% of students graduate from high school without any instructions in personal finance

I believe these numbers should be eye openers to all parents. You might be asking yourself: “What can I do to instill good spending habits and financial education in a child’s life?”

Central National Bank recently addressed this question and found a great way for kids to learn about savings, and finances with it being fun.  Beginning January 1, 2009, the Central Secret Agent Savings account is a program where your child becomes a secret agent and helps rid the world of wasteful spenders. The account is only $5 to open and comes with a piggy bank, newsletter and a secret agent badge.  Your kids will continue receiving quarterly newsletters which will keep their finances at the top of their mind all year long. Each newsletter consists of missions, jokes and fun activities. When a child brings in their piggy bank full of money to a Central National Bank branch they can pick from a selection of cool secret agent gadgets.

I recently signed my four-year-old daughter up for the account and already she has embraced the concept. She picked her agent name, “Agent Diamond,” and is filling her piggy bank up so she can earn prizes.

If you are interested in teaching your child about the fun of saving money check out a Central National Bank near you and learn more about our Central Secret Agent Savings account.

FDIC Insurance Limits

As part of the FDIC’s temporary liquidity guarantee program, participating institutions get full FDIC coverage for non-interest bearing transaction deposit accounts, regardless of dollar amount, until December 31, 2009. For purposes of the rule, the FDIC’s definition of a non-interest bearing transaction account is a traditional checking account that allows for an unlimited number of deposits and withdrawals at any time, and pays no interest.

Central National Bank is participating in this program, so our customers get full FDIC coverage on every dollar in their non-interest bearing checking accounts, regardless of the account balance. Business accounts and personal accounts qualify for the unlimited coverage, as long as they are transaction accounts that do not earn interest.

To clarify: all of our bank deposit account types are FDIC insured up to the $250,000 limit per depositor. The unlimited coverage is only offered on our non-interest bearing transaction accounts.

 

FDIC’s Press Release: http://www.fdic.gov/news/news/press/2008/pr08105.html

Save Now, Get Rewarded Later

I recently told my friend about a great auto rate at CNB. He bought a Prius a year ago and has a loan with a 7.5% interest rate. I crunched some numbers to show him what his payments would be and the amount of money he’d save in interest if he was approved to be refinanced at 4.74% APY*.

Over a five year period, he would save almost $2,000. No brainer, right? He ended up passing on it.

You see, he lives out of state and to get the deal he had to agree to open a checking account and have the payments automatically deducted. He thought it would be too difficult to have a checking account out of state. I told him he could use his current bank’s online bill pay and send the payment amount to his checking account each month, but he still thought it too troublesome.

When you look at his savings in the long run and what that 2K could do in a Roth IRA, look at the possible returns:

  • Roth IRA in 10 years at 5%…$3,257 at 8%…$4,317
  • Roth IRA in 20 years at 5%…$5,306 at 8%…$9,322

My friend falls into the way numerous members of Generation Y behave financially. Many of us don’t like to think about how much we could have in the future if we looked into ways we could save today.

Instant gratification surrounds us everywhere we go; 0% down, no monthly payments for a year, no interest for three years. All of these deals are thrown at us and we feel like they are too good to pass up. Look at some of these statements members of Gen Y make when it comes to saving:

  • “I can’t socialize and save.”
  • “Why save when you can reverse save?” Reverse saving: spend today, pay tomorrow
  • “When I settle down, I’ll save.” Saving is for older and married people
  • “I love spending money; what else am I going to do with it?”
  • “I just know something great is going to happen to me.”
  • “Banks only care about people with money.”

The skewed view that you can spend now and worry about your nest egg later is one reason all generations are contributing to a negative savings rate. It’s also the reason it is going to get harder and harder for people to truly retire. Do your future self a favor and talk to someone about the benefits of putting money away, and refinancing high interest debt.

The early bird gets the worm, and the early saver gets to enjoy the golden years w/o having to have a part time job!

* Annual percentage rate quoted above available for loan amounts $30,000 or greater for borrowers who meet credit qualifications. APR will be adjusted for different loan amounts. Loan fees and certain restrictions may apply. Auto loans subject to qualifications. Member FDIC.