Teaching Children to Save Money

Teaching children to save money is becoming a priority for parents. That ability to save, that is, defer gratification, is both a part of financial literacy and of character-building. The trick in doing this is to make delaying pleasure downright fun.

A variety of games helps with that. In addition to the traditional board game of Monopoly, there is The Game of Life, Ed’s Bank Game, and Mad Money. It is up to you, the parents, to reinforce the lessons that can be learned. For example, among the takeaways from Monopoly is the reality that you have to anticipate what other players will do before you spend your money on this hotel or that. It might be prudent to save your money until you get a clearer idea of the other players’ strategies. Essentially, this introduces children to the fundamentals of Game Theory, leveraged in so many in financial fields.

A second fun tactic of teaching children to save money is to set up a savings account for them. That provides compounded interest so they can watch their savings grow. By federal law, it will be a custodial one until the children are 18. The most common type is the Uniform Gift to Minors Act account (UGMA). You will be the “owner.” However, only the children can make withdrawals. The advantage of that is that it allows the children to make mistakes – and learn from them. After they spend two-thirds of the balance in the savings account on a video game, they will recognize they have not enough left over for holiday gifts.

At an online-only bank that savings account could receive higher-than-average interest. That is because online-only banks do not have the expenses of real estate and live tellers, which brick-and-mortar banks do.

A third way to position saving as fun is to make comparison shopping an adventure. You will not have to invest too much gasoline going to stores. Most of that research can be done on the Internet. Based on what the children learn, they could package those lessons in social media via Facebook, a blog, tweets, and/or videos on YouTube. Who knows, maybe your children will become a kind of celebrity of frugal shopping.

Saving can also be framed as cool by charting progress. This generation of children is visual. Through an actual blackboard or one software-generated, inputs and outputs can be recorded in great detail. You can spice up results by matching savings at certain milestone points. When the first $100 is saved, then there is a 10 percent match of $10. For Show and Tell at school, you and your children can create a PowerPoint Presentation of the upward trajectory.

Eventually, as your children mature, these teaching children to save money initiatives could develop into the platform for careers in some aspect of finance.

Practical Banking Tips for Students

Banking tips for students will enable you to enjoy free services, avoid ATM fees when you travel, and start building wealth. The first step is to do your homework. Before you get to campus, you have to research which banks offer the best deal for your student needs. It might turn out not to be the bank that promotes itself during orientation and the first weeks of school.

What you want to find is the bank that provides a free checking account with special features such as notifying you when the balance declines to a certain limit. That prevents expensive overdraft fees. Better yet if it provides interest. Often that is available at online-only banks. That is because it can afford to since it does not have the burden of brick-and-mortar’s expenses for real estate and live tellers. Since you are a “digital native,” you will find the online-only bank within your comfort zone. You prefer to conduct business online and through mobile devices than by phone or in-person. Also, the online-only bank is a disruptor in technology.

Online-only banks also tend to provide savings accounts with higher than average interest rates and the least constraints such as a high initial deposit and minimum monthly balance. The advantage for you of a savings account is that you can link it to your checking account. That is yet another way of preventing overdrafts. Until you are 18, by federal law, you only open a custodial savings account. That entails the oversight of an adult but that adult has no access to your funds. Only you can make withdrawals.

As a student, you likely travel a lot, both in the U.S. and abroad. You need a bank that has a wide network of ATM outlets or reimburses the expenses when you use out of network ones. Usually withdrawing cash is a better approach to making purchases than applying for a credit card. A study of student credit card users published in the International Journal of Business and Social Sciences found that 90 percent wound up carrying balances month to month.

Another option for purchases is the prepaid debit card. But for that you will also have to do your homework. Some banks charge high fees to load the card. That is called “pay to play.” You need low fees.

If you plan to have a part-time job, find out what banks offer Roth Individual Retirement Accounts (IRA), which is tax-advantaged. You can put part of your earnings in that IRA and begin a habit of not only saving but also investing.

It is in your financial self-interest, once you choose a bank, to transact all your financial affairs there. That is the way the financial services industry operates. There could be additional discounts, higher interest rates, and loyalty rewards for being a customer with multiple accounts.

Partnering with the bank that’s right for your student needs and following these banking tips for students can be your first steps on the road to a lucrative financial future.

Common Retirement Mistakes for Investing

Retirement mistakes for investing are among the most serious in personal finance. That is because they can make the difference between a comfortable lifestyle when you retire and joining the aging poor. Your generation faces what previous ones had not. That is the Longevity Risk. Given longer life spans, the odds are greater that you could run out of money. Fortunately, being aware of the most common mistakes can help you build enough wealth to fund your retirement and prevent those worst-case scenarios.

At the top of the list of retirement mistakes you could make is not planning. Like death, aging can be a taboo topic. Yet, without an overall plan for how to create and protect wealth, you will not do it.

Of course, the planning can be disrupted by emergencies such as loss of a job or medical bills not covered by insurance. However, if you are committed to your plan that “derailment” will only be temporary. Remember, you are in control.

A plan positions you to always be open to investment opportunities. For instance, you will choose to participate in the tax-advantaged 401(k) employer-sponsored accounts. Usually employers contribute to them. Yet, only 20 percent of the workforce signs up for the 401(k), found the Center for Retirement Research at Boston College.

However, contributing to the 401(k) is only the first step. The next is that you have to continually manage what is in the 401(k). A typical mistake is not diversifying according to the level of risk you can tolerate emotionally and which is age-appropriate. For example, you may be putting too much in company stock. A more prudent approach is to only put a small percentage in any one equity, including the stock of the company. Mutual funds and Exchange Traded Funds (ETF) spread the risk. With those, though, you have to monitor the fees. Excessive fees can reduce your earnings.

In terms of aligning risk with your age, one guideline for equities is to subtract your age from 110. What is left represents the percentage of equities in the portfolio. Being too risk-averse could prevent investment yields from keeping up with inflation. Although stocks are among the riskiest investments they can have among the highest yields.

Also, your portfolio should be balanced through what is known as “asset allocation.” That would include a percentage in bonds and other investment vehicles. However, only invest in what you understand. That is the Oracle of Omaha Warren Buffett’s first rule of investing: Stick with what you know.

Along those same lines of tax-advantaged opportunities is the individual retirement account (IRA). Financial services organization TIAA-CREF found that a whopping 80 percent of those surveyed did not have an IRA. As with the 401(k), you must continually evaluate your investments in the IRA.

Not maximizing wealth and/or losing money also can result from ignoring “unsexy” investment vehicles such as Certificates of Deposit (CD), I-bonds and individual Treasury Inflation-Protected Securities. During periods of high volatility in the stock market, they could provide a safe harbor. However, it could be a mistake to leave the funds there long term. You must continually manage investments.

The good news is that if you plan and are alert to changes in the risk/reward ratio for diverse kinds of investments, you can prevent many of the common retirement mistakes. In addition, you will have the confidence to do course correction on those parts of your investment plan which are underperforming.

Online Banking Safety Tips

Keep your financial information safe and secure with these online banking safety tips.

Online banking safety tips help you protect your financial transactions from fraud, identity theft, and any unauthorized access to your personal information. Essentially, those tips are best practices that have been developed by banks for customer cyber security. Here are nine critical ones.

Ensure the bank website is encrypted

Encryption is the process of scrambling the data transmitted so that the information is not accessible to hackers. This is indicated by a tiny icon of a lock or key.

Install quality anti-virus software

In itself, this can deter hackers. They will move on to vulnerable computers.

Create a strong password

Hackers are adept at figuring out what customers will use for a password. For example, that could be a combination of a last name and date of birth. That’s why one of the best online banking safety tips is to create a strong password. Create a novel password which has no association with proper names, milestone dates, and number sequences such as last four digits of your Social Security number. Do not share the password with anyone. If in an emergency you do, then change it immediately. After keying in a password, never leave your online banking account unattended, not even to walk to the water cooler.

Beware unexpected email from the bank

A common scam is to create a copy-cat version of the bank’s website, complete with logo. Likely you will receive an email configured that way. The tone will be urgent. That could be a warning the account will be closed without your immediate response. There will be a request for your account information or “click here” instructions which will bring you to a rogue website. Before doing anything, check with the bank if it contacted you by email.

When banking, keep only one browser tab or application open

Multitasking, such as reading email or playing a video game, exposes the banking transaction to hackers monitoring those other sites. At the very least, they can capture your keystrokes. At the worst, they can navigate from the application right into your account.

After completing transactions, log out

Leaving the account open makes it accessible to hackers. Also clear the cache and close the browser.

Don’t transact banking business on public computers or shared wi-fi

You are at the public library and remember you have to pay your utility bill. Your computer is back at the office. The library’s public computers and open wi-fi networks can be catnip to hackers. It is not wise to use them, but if you do, call the bank afterward to change your password.

Set up a notification system

You can specify what you want the bank to notify you about and how. For example, for any check over $500, you request email notification. This allows rapid response to possible fraud.

Alert the bank if you are a victim of a scam

Suddenly, you realize that the email was a con and you did provide account information. Let your bank know immediately.

The good news is that online banking is a mature financial service. Over the years, banks have learned a great deal about cyber security, both for their own protection and that of their customers. Increasingly, the bad guys are getting the message, “Don’t even think about hacking us.”

Do you have any other online banking safety tips? Share yours in the comments!

How SMS Banking Works

How SMS banking works is essentially through the texting feature of each customer’s individual mobile phone. SMS, or short message service, allows personalized, real-time communications from the bank to the customer (push messages) and from the customer to the bank (pull messages). When activating the service, customers select what categories of messages they will allow from the bank.

The key advantage of this kind of technology-enabled communication for customers is that they usually have their mobile phones with them at all times. Therefore, it is unlikely there will be a time delay in receiving urgent messages. For example, the bank might text about safety at ATMs in the area. Had that been sent to the customer’s personal computer office email, they might not have checked that in time to prevent being robbed at the ATM.

Typical push messages from the bank range from alerts about activity in the account to marketing information about lower interest rates on mortgages. For instance, the bank received a check for an amount significantly larger than the average written by that customer. They text the customer about this. Immediately the customer can respond if the check is legitimate.

Part of that message from the bank might include a one-time password (OTP) for the customer to use in that one response. This feature enhances security. After the communication notification-response cycle is complete, then the OTP, which is programmed for one-time use only, will be discarded. Customers can request this feature when they sign up for SMS. Some find it more convenient than having to remember and key in a PIN regularly.

Other kinds of push messages could include notification of direct deposit of a payroll check, periodic account balances, delay in transferring funds overseas, and unusual activity on credit, debit, or ATM cards.

Pull messaging—communications from customers to the bank—takes the form of standardized requests. Those could include real time account balances, statement for the last several or the month’s transactions on one or all accounts, closing down a lost or stolen credit, debit, or ATM card, the value of the yen or other foreign currency, electronic payment of a bill, stop payment on a check, and interest rate for a five-year $100,000 certificate of deposit. After receiving the requests, the bank texts the answer.

To sign up for SMS banking, go to the bank’s online site using your mobile phone. Different financial institutions might have a variety of slightly different instructions. However, activation essentially involves the following steps.

There could be a button for SMS banking. Or the initial click will be on Mobile Banking. Once in the SMS field, there will be a prompt to provide the mobile phone number. The bank will text an activation code. Then the process begins. Each customer sets the preferences for what kinds of push communications they want from the bank. There will be a list of standardized requests such as “LAST” for the previous five transactions on a specific account. Now you know how SMS banking works!

Big Steps on Saving Money

The steps on saving money can become big ones. The strategies can be downright radical.

You might adopt that kind of approach when you realize that your current modus operandi about savings will never generate the funds you need. That money might be for quitting a job to open a business, paying a child’s college tuition, or retiring. Often those initiatives involve more emotional upheaval than they do actual financial risk. That is because you frequently will be leaving your comfort zone. However, a growing number of people are leaving their routine behind in order to achieve their financial goals through saving. Here are 4 examples of big steps forward in saving.

Relocating

Some locations in the U.S. impose a high cost of living. That ranges from the percentage of income spent on the mortgage or rent to the price of food. An option is to research locations in the U.S. and abroad where those costs could be halved or even reduced more than that.

Since an increasing number of jobs and types of self-employment can be done totally through telecommuting, this has become a viable option for some. Those relocation destinations include domestic spots like parts of Arizona and Florida, and foreign locales like Ecuador and Mexico. As everywhere, those overseas nations have both upscale and affordable sections. That is why research is necessary.

Changing Employment

More income can mean more money available to save. Sometimes it could be substantially more if a job is taken overseas. That could provide free transportation and housing. Those with the appropriate skills, for example, can coach students in China about applying to American universities. They could also teach English as a second language. Forensic experts in construction have myriad opportunities in foreign settings. Some contract college instructors find better paying jobs in foreign universities.

Another type of job change yielding more income is the shift from non-profit to profit, with essentially doing the same job description. There is also the freed-up funds from a job which pays the same but does not entail the extreme commute.

Multi-generational Households

Two, the old saying goes, can live as cheaply as one. Several generations of families and even people who are not related to one another are finding the huge savings from living together under one roof. The cost to individuals for keeping a roof over their heads can plummet beneath that one-third of income recommended by personal-finance experts.

Farming

Large and extended families who produce much of what they eat could reduce the fixed cost of food. In addition, they could sell any surplus, adding to the possible amount they can save. The group would not necessarily have to become residential farmers. They could lease the space or arrange a barter relationship. Also, some communities and housing complexes are providing free farming space as part of the Living Local movement.

Taking big steps on saving money can represent a whole new way of life. Or, they can be temporary initiatives. Once the goal, such as the children’s education, is achieved then you can return to what your comfort zone had been.

How to Save for Retirement in your 40s

How to save for retirement in your 40s is really a mindset. You make up your mind that you will be in control of your financial future. This is the ideal period in your career to be making that commitment. You are in your peak earning years.

Once you have decided that you are in charge, you develop a plan for what lifestyle you want in retirement and when you will stop doing paid work. If you intend to maintain your current lifestyle in essentially the location you are now in, that will require about 70 percent of your present income. The amount could be more if you are relocating to a more expensive area or less if to a less expensive one. Even if you are determined to continue with paid work after 65, you will likely still need a substantial retirement nest egg. That is because human beings are living longer and longer. That makes it possible to actually run out of money.

Some financial planners recommend you save at least 10 percent from what you take home monthly. Others estimate 15 percent. Meanwhile, you should be paying off debts, especially student loans. According to the Federal Reserve Bank of New York, more than 2 million Americans age 60 and over still carry the burden of those loans. Since they cannot usually be discharged in bankruptcy, what is not paid off will be deducted from your Social Security payments and any tax refunds.

If you are employed and your employer provides a tax-advantaged 401(k) you should contribute the maximum. The fund grows quickly if the employer also contributes. In addition, you can open a tax-advantaged individual retirement fund (IRA). The self-employed have choices among a number of tax-advantaged retirement accounts.  Some select two.

Both groups have to actively manage those investments. Fundamental asset allocation guidelines for those in their 40s are for a high percentage of the portfolios to be in equities. There is what is called the “110 minus your age” rule. The percentage of equities for a 47 year old would be 63. The risk inherent in equities can be reduced by choosing mutual funds instead of many individual stocks, including that of your company. The rest of the portfolio could include bonds, commodities, and currencies. Stick with what you understand but do not be too conservative.

Other ways of saving for retirement include savings accounts, money market funds, certificates of deposit (CD). and annuities. You also have to evaluate if you can depend on your house to be an appreciating asset. If so, it is in your financial self-interest to hold on to it. If not, when you can sell it at a break-even price, do that and consider renting. Residential property which is not a productive investment eats away at income. You can also invest in commercial real estate.

You will have more money to save if you can generate more funds coming in. You might consider getting a better job, finding a part-time job, starting a side business, expanding your current business, and selling unneeded possessions.

Financial emergencies do happen. Treat them as temporary setbacks and return to your original savings plan as soon as possible.

We hope you find that these tips helped you learn how to save for retirement in your 40s, or any other age.