Annuity or Lump Sum?

Posted on March 18, 2023 by Melissa Hart

Many people with a retirement plan are asked to choose between receiving lifetime income (also called an annuity) and a lump-sum payment to pay for their day-to-day life after they stop working. An annuity provides a lifetime steady stream of income while a lump sum is a one-time payment.

Deciding which option works best for you takes careful consideration because there are many factors to think about, such as your health, cost of living, assets and savings, and any other income you may have.

Why is this important?

Your employer may ask you to choose between an annuity and lump sum. For example, your employer may ask you to make this choice (1) if you change jobs, (2) when you stop working, or (3) even after you have begun to receive monthly annuity payments.

When making this decision, explore the benefits and risks because whichever option you choose will affect your financial future.

What are the benefits and risks?

 AnnuityLump Sum
BenefitsYou will receive a steady income for the rest of your life, like keeping a part of your paycheck for life You may be able to provide a lifetime income to your spouse or to another beneficiaryYou can use the money to pay off large debts If you don’t spend all of the lump sum, you can pass it on as an inheritance
RisksAnnuities may give you less financial flexibility and may not pay benefits to your survivors If you are in poor health, an annuity may not provide enough money to cover medical billsYou may outlive your retirement funds It’s your responsibility to manage the money to provide you with future income

Factors you should consider:

  • Your health (and your spouse’s)
  • Your investment skills (and your spouse’s), and how they may change as you age
  • Your living expenses (now and future)
  • Your savings (and your spouse’s)
  • Other steady income (Social Security, pensions from other employers)
  • Debt (mortgage, car, credit cards, student loans, child support payments)
  • Taxes on the annuity or lump sum
  •  

Are there online tools that can help me calculate my lifetime income?

Yes. The Department of Labor has a lifetime income calculator that allows you to estimate the amount of monthly income you will receive when you stop working and start receiving monthly payments.

The results shown are estimates, not guarantees, of the level of the account balance or of the lifetime income streams of payments.

For more information, click here.

Teaching Suggestions:

  • Ask students to make a list of benefits that an annuity may provide.
  • Ask students to interview their parents or relatives if they had to make a choice between an annuity or a lump sum option.  If so, which option did they choose and why?

Discussion Questions:

  1. What are the benefits and risks of choosing an annuity or a lump sum payment?
  2. What sources are available if you need assistance in making a decision to choose annuity or lump sum option?
  3. Why is it important to discuss all of the possible options with a financial advisor or an insurance agent?
Categories: Chapter_10, Chapter_14, Retirement Planning | Tags: , | Leave a comment

Are Americans Financially Educated on Retirement Savings?

Posted on March 4, 2023 by Melissa Hart

Financial education helps people learn about savings, credit, and loans. It also helps prepare people for life changes and to face the unexpected. This knowledge is essential when planning for retirement. So, how prepared are U.S. adults for their future retirement? According to a recent poll conducted by the National Endowment for Financial Education:

  • Eighty-five percent of respondents confirmed some part of their personal finances was causing them stress. For 31% of respondents, that concern was “having enough saved for retirement.”
  • In that same poll, 70% said they made financial adjustments due to the COVID-19 pandemic. Of that group, 27% increased contributions to their emergency savings, retirement savings, or other savings or investments. In comparison, 21% tapped into emergency savings—or borrowed against retirement savings.
  • About financial education mandates, 80% of U.S. adults said they wish they were required to complete a semester- or yearlong course focused on personal finance education during high school and 88% think their state should require a semester- or year-long course for high school graduation.
  • In that same poll, 84% of those approaching retirement age (60+ years old) said “spending and budgeting” should be taught in schools.

People who champion financial education typically live by the mantra “the earlier, the better.” It’s also important, though, that people keep learning throughout their lives to ensure they have the knowledge they need to make the best financial decisions.

Lifetime financial education can be a helpful tool in preparing for retirement. This includes understanding Social Security retirement benefits and making the most of retirement income.

For More Information, click here.

Teaching Suggestions:

  • Have students discuss the statement, “Financial education in high schools should be mandatory for graduation.”
  • Ask students how a financial literacy course is helping them to better manage their finances?

Discussion Questions:

  1. Why is financial literacy knowledge essential when preparing for retirement?
  2. Do students feel more prepared for financial challenges of adult life after taking a personal finance course? Explain.
Categories: Chapter_14, Retirement Planning | Tags: , | Leave a comment

FINANCIAL EMERGENCY KIT

Posted on February 18, 2023 by Melissa Hart

In case of a natural disaster or a cyber-attack, a financial emergency kit allows you to keep running your life. These documents would prepare you for the what-ifs of life. Bottom of Form

The kit starts with knowing where your vital paperwork is stored, and where are copies kept. Two suggested storage methods are: (1) a portable, fireproof, waterproof safe, and (2) digital storage with an electronic record of account numbers and sensitive information. This information can then be accessed on your phone. Also backup your data on both an external hard drive and on a cloud service.

The important documents that you should have in both a physical and digital format are:

  • Insurance policies, insurance contact information; prescriptions, medical records
  • Birth and marriage certificates; passports; driver’s license; Social Security cards
  • Mortgage information; car registration
  • Recent tax returns; employment information
  • Wills and deeds; stocks, bonds and other negotiable certificates
  • Bank, savings. Investment, and retirement account numbers
  • Pet medical records; pet identification tags
  • Recent utility bill, school registration to prove your legal place of residence

In addition to your financial documents, also plan to have these items in your emergency kit:

  1. Water; non-perishable food; first aid kit; multi-purpose tool
  2. Flashlight; battery-powered radio; extra batteries; cellphone, charger
  3. Medications, medical items; sanitation, personal hygiene items
  4. Extra cash; contact information of family and friends
  5. Emergency blankets; maps of the area

Consider a hand-crank flashlight and radio to be able to use and charge when there’s no power.

To connect with family and others in emergency times, text instead of calling to avoid network congestion.  Use apps, social media when cell networks are overloaded.  Update your voicemail message to tell your location and status.

Be prepared with these simple things that require minimal money and a small-time investment.

For additional information on financial emergency kits, go to:

16 Items To Pack in Your Financial Emergency Kit

Teaching Suggestions

  • Have students identify situations in which this type of emergency kit would be appropriate.
  • Have students create a visual proposal (poster or slide presentation) to communicate the elements of an emergency kit.

Discussion Questions 

  1. What are reasons people might give for not preparing an emergency kit?
  2. Describe methods that might be used to store financial documents for emergency situations.
Categories: Chapter 1, Chapter 2, Financial Planning | Tags: , | Leave a comment

How to Spot a Government Imposter Scam

Posted on February 4, 2023 by Melissa Hart

Scammers are pretending to be government employees. They may threaten you and may demand immediate payment to avoid arrest or other legal action. These criminals continue to evolve and find new ways to steal your money and personal information. Do not fall for it! We want you to know how you and your loved ones can avoid becoming victims!

 Be Alert

If you owe money to Social Security, you’ll receive a letter by mail with payment options and appeal rights. They only accept payments electronically through Pay.gov, Online Bill Pay, or by check or money order through its offices. The SSA will never:

  • Threaten you with arrest or legal action because you don’t agree to pay money immediately.
  • Suspend your Social Security number.
  • Promise a benefit increase in exchange for money.
  • Ask you to send gift cards, prepaid debit cards, wire transfers, Internet currency, cryptocurrency, or cash through the U.S. mail.

Know What to Look for

  • The caller or sender says there is a problem with your Social Security number or account.
  • Any call, text, or email asking you to pay a fine or debt with retail gift cards, wire transfers, pre-paid debit cards, internet currency, or by mailing cash.
  • Scammers pretend they are from Social Security or another government agency. Caller ID, texts, or documents sent by email may look official, but they are not.
  • Callers threaten you with arrest or other legal action.
  • Internet scammers may use “phishing” schemes to trick a recipient into revealing personal information by clicking on malicious links or attachments.

For more information, click here.

Teaching Suggestions:

  • Ask students if they or their families have received calls from imposters?  If so, what was their response and how did they handle the situation?
  • Ask students to make a list of schemes scammers use to trick people into revealing personal information?

Discussion Questions:

  1. What should you do if you receive a suspicious call, text, or an email from an imposter?
  2. What can local, state, or federal governments do to minimize these scams and protect people?
Categories: Chapter_14, Frauds and Scams | Tags: , | Leave a comment

PREPARING FOR A RECESSION

Posted on January 21, 2023 by Melissa Hart

If you stay ready…you don’t have to get ready!!  Whether or not a recession occurs, certain personal actions will be beneficial for your future.

Job loss is the most common effect of a recession. This can occur due to a layoff, furlough, or company failure.  With many people all experiencing job loss, finding a new job is difficult. For those who keep their jobs, they may experience pay cuts, reduced benefits, and no pay raises. Another major concern is the decline in value of stocks, bonds, real estate, and other assets. 

To be ready to cope if an economic downturn occurs, consider these financial strategies:

  • Monitor your monthly expenses. Know what it costs to live so there are no surprises. Be ready to pay items that occur only once a year.
  • Cut unnecessary spending. Look back at your spending to see what you could have done without. Add up what you could have avoided to make sure you spend less than you make. Possible areas to cut include cable TV, streaming services, gym membership, online music subscriptions, and a less expensive cellphone plan.
  • Start or expand your emergency fund.  No matter how small, be sure to set aside funds for poor economic times. To build your fund, have an amount automatically deposited in a saving account each month.   
  • Budget everything. Telling your money where it will go keeps you in control.    
  • Avoid debt. Just like saving, paying off debt can start small.
  • Be in contact with others to discuss possible late payments, reduced costs, cancel services, and other actions to cope financially.
  • Maintain retirement savings. Keep contributing to your retirement fund so it will be there when you need it. 

For career planning during times of recession, consider the following actions:

  • Inventory your skills, especially those that relate to essential work for your current employers and other organizations. 
  • Expand your skills through online certifications, courses, and training programs. 
  • Be adaptable. Step up to take on tasks needed within your company. 
  • Network for freelance work. Connect with others in your industry for consulting opportunities.
  • Be prepared for the unexpected. Despite taking these actions, a layoff may still occur. If that happens, expand your skills, update your resume, and connect to others through LinkedIn and community service activities.

For additional information on financial planning during a recession,

Source #1

Source #2

Teaching Suggestions

  • Have students research current economic conditions to determine the status of employment and inflation.
  • Have students create a podcast to encourage others to act on the suggestions in the article.

Discussion Questions 

  1. What are the benefits of these actions during every type of economic situation?
  2. Describe actions a person might take to better understand potential career opportunities.
Categories: Career, Chapter 1, Chapter 2, Financial Planning | Tags: , , | Leave a comment

BUILDING WEALTH

Posted on January 7, 2023 by Melissa Hart

A research study that surveyed over 10,000 millionaires resulted in the following findings to help guide others to achieve a comfortable financial security:

  • 79 percent of the respondents did not receive any inheritance; 80 percent were from families at or below a middle-class income level.
    Conclusion:Building wealth is within your control and doesn’t depend on being born into a rich family.
  • 33 percent never made more than $100,000 a year; 31 percent made around $100,000.
    Conclusion: Wise spending, saving, and investing are more important than your salary level.
  • 94 percent live on less than they make; 75 percent reported never having a credit card balance.  
    Conclusion: Stay out of debt and keep expenses below your income to build a financial foundation.
  • 75 percent of those in the study indicated consistent investing over a long period of time as the reason for their financial success; 80 percent invested in their company’s 401(k) plan; none said one individual stock investment was a big factor in their financial success. 
    Conclusion: You don’t need to find that one stock that will make you rich. Invest consistently in broad-market index funds over a long period of time.

88 percent of those who responded graduated from college, compared to 38 percent of the general population. And over half (52%) of the millionaires in the study earned a master’s or doctoral degree, compared to 13% of the general population. Almost two-thirds (62%) graduated from public state schools, while only 8 percent went to a prestigious private school.

Most of the 10,000 millionaires studied achieved their wealth through consistent investing, avoiding credit card debt, and smart spending, along with…no lottery tickets… no inheritances…no six-figure incomes…no lucky stock picks. 

Even when millionaires don’t have to worry about money anymore, they’re still careful about their spending. Over 80 percent reported using a grocery list in some format.

For additional information on building wealth, click here.

Teaching Suggestions

  • Have students talk to others to obtain information about actions they take to achieve long-term financial security.
  • Have students create an oral presentation or podcast that reports the findings of the study summarized in this article.

Discussion Questions 

  1. What actions do you believe to be most important for building wealth?
  2. Describe how you might communicate to others suggested actions for improved long-term financial security.
Categories: Chapter 1, Chapter 2, Chapter_11, Chapter_12, Chapter_13, Financial Planning | Tags: , , | Leave a comment

Personal Finance Simulations for Budgeting and Investing

Posted on December 17, 2022 by Melissa Hart

Question:  What is a Personal Finance simulation? 

Answer:  A Personal Finance simulation allows students to fine-tune their decisions when they encounter real-life scenarios while taking a Personal Finance course. 

The authors of Personal Finance, 14e and Focus on Personal Finance, 7e have partnered with StockTrak.com to provide students with an interactive learning experience before they leave the classroom.   

The simulation that accompanies the Kapoor Personal Finance texts includes two components–a personal budgeting simulation and an investing simulation.

The Budgeting Simulation

  • Students assume the role of a full-time employee or part-time employee living on their own.
  • Over a virtual 12-month period, students review their estimated income and expenses, create monthly budgets and savings goals, and try to build an emergency fund. Each month takes about 20 minutes to complete.
  • Each month students manage their checking, savings, and credit card accounts as they deal with life’s expected and unexpected events that affect their budget.  
  • Within the simulation, additional personal finance tutorials are available to make sure students are learning about budgeting, banking, credit, employment, taxes, insurance, and more.
  • A class ranking based on net worth, credit score, and quality of life keep the students fully engaged and professors informed of each student’s progress.

The Investing Simulation

  • Students receive a virtual $25,000 in a brokerage account.
  • They can research U.S. stocks, ETFs, bonds and mutual funds and create their own investment portfolio.
  • All investment trades are based on real-time market prices.
  • Within the simulation, interactive tutorials help students get started and provide additional information during the simulation.
  • Students can monitor their performance versus their classmates.  At the same time, professors can track each student’s progress.

And BEST of ALL, with the new partnership between Stock-Trak and McGraw Hill, classes using the Kapoor Personal Finance textbook get a 50% savings when students register for the simulation – only $9.99 per student instead of retail price of $19.99.

Teaching Suggestions

  • Visit StockTrak.com/kapoor to learn more about the Personal Finance Budgeting and Investing Simulation.  You can learn even more by watching a short video or accessing the Kapoor demo materials located toward the bottom of the above site. 
  • It’s easy to get started.  All you need to do is access the above site, register your classes for Spring 2023, and indicate the dates you want your student to have access to the Personal Finance Simulation.  The site will generate a unique link for you to give to your students.
Categories: Budget, Chapter 1, Chapter 2, Chapter 3, Chapter 4, Chapter 5, Chapter 6, Chapter 7, Chapter 8, Chapter 9, Chapters, Chapter_10, Chapter_11, Chapter_12, Chapter_13, Chapter_14, Financial Planning Topics, Teaching Tools | Tags: , | Leave a comment

FINANCIAL EMERGENCY KIT

Posted on December 3, 2022 by Melissa Hart

In case of a natural disaster or a cyber-attack, a financial emergency kit allows you to keep running your life. These documents would prepare you for the what-ifs of life. Bottom of Form

The kit starts with knowing where your vital paperwork is stored, and where are copies kept. Two suggested storage methods are: (1) a portable, fireproof, waterproof safe, and (2) digital storage with an electronic record of account numbers and sensitive information. This information can then be accessed on your phone. Also backup your data on both an external hard drive and on a cloud service.

The important documents that you should have in both a physical and digital format are:

  • Insurance policies, insurance contact information; prescriptions, medical records
  • Birth and marriage certificates; passports; driver’s license; Social Security cards
  • Mortgage information; car registration
  • Recent tax returns; employment information
  • Wills and deeds; stocks, bonds and other negotiable certificates
  • Bank, savings. Investment, and retirement account numbers
  • Pet medical records; pet identification tags
  • Recent utility bill, school registration to prove your legal place of residence

In addition to your financial documents, also plan to have these items in your emergency kit:

  1. Water; non-perishable food; first aid kit; multi-purpose tool
  2. Flashlight; battery-powered radio; extra batteries; cellphone, charger
  3. Medications, medical items; sanitation, personal hygiene items
  4. Extra cash; contact information of family and friends
  5. Emergency blankets; maps of the area

Consider a hand-crank flashlight and radio to be able to use and charge when there’s no power.

To connect with family and others in emergency times, text instead of calling to avoid network congestion.  Use apps, social media when cell networks are overloaded.  Update your voicemail message to tell your location and status.

Be prepared with these simple things that require minimal money and a small-time investment.

For additional information on financial emergency kits, click here.

Teaching Suggestions

  • Have students identify situations in which this type of emergency kit would be appropriate.
  • Have students create a visual proposal (poster or slide presentation) to communicate the elements of an emergency kit.

Discussion Questions 

  1. What are reasons people might give for not preparing an emergency kit?
  2. Describe methods that might be used to store financial documents for emergency situations.
Categories: Chapter 1, Chapter 2, Financial Planning | Tags: | Leave a comment

MONEY TIPS FOR YOUR FIRST JOB

Posted on November 12, 2022 by Melissa Hart

As young people get their first full-time job with a substantial paycheck, their money management activities need to be reconsidered, which include: 

1. Automate your savings. For unexpected expenses and major purchases, set aside a specific percentage or amount of your income from every paycheck. These funds should be directed to one or more dedicated accounts.  

2. Make use of different accounts. This money management strategy can help you plan for different savings goals and can prevent spending money planned for a specific purpose. Consider using a checking account to pay regular expenses, along with one or more savings accounts.

3. Start retirement saving. Start with 3 to 5 percent of your gross income, increasing to 15 percent as soon as you get raises and bonuses. These funds may be in a company-sponsored 401(k) or a personal IRA or Roth IRA.

4. Pay off debt. If you have college debt, create a plan to pay it off, especially credit card debt. Set a goal to become debt free in your 20s.

5. Practice wise spending. Minimize your transportation, housing, and clothing expenses.

For additional information on money tips for your first job, click here.

Teaching Suggestions

  • Have students talk to others to obtain money management suggestions to implement when completing college and starting work.
  • Have students create a personal plan for improved money management.

Discussion Questions 

  1. Why do people start taking on more debt when starting work?
  2. Describe money management actions you might take as you complete college.
Categories: Career, Career_Appendix, Chapter 1, Chapter 2, Financial Planning | Tags: , , | Leave a comment

Cryptocurrency Investments Scams

Posted on October 8, 2022 by Melissa Hart

Consumers reported losing over $1 billion to fraud involving cryptocurrencies from January 2021 through March 2022, according to a new analysis from the Federal Trade Commission. Fraud reports suggest cryptocurrency is quickly becoming the payment of choice for many scammers, with about one out of every four dollars reported lost to fraud paid in cryptocurrency.

People ages 20 to 49 were more than three times as likely as older age groups to have reported losing money to a cryptocurrency scam. Older age groups, however, reported losing more money when they did report a cryptocurrency-related scam.

Some of the red flags consumers should watch out to protect themselves from scammers`:

  • anyone who claims they can guarantee profits or big returns by investing in cryptocurrency;
  • people who require you to buy or pay in cryptocurrency; and
  • a love interest who wants to show you how to invest in cryptocurrency or to send them cryptocurrency.

The FTC’s latest Consumer Protection Data Spotlight finds that most of the cryptocurrency losses consumers reported involved bogus cryptocurrency investment opportunities, which totaled $575 million in reported losses since January 2021. These scams often falsely promise potential investors that they can earn huge returns by investing in their cryptocurrency schemes, but people report losing all the money they “invest.”

After cryptocurrency investment schemes, the next largest losses reported by consumers were on:

  • Romance Scams: These scams often involve a love interest who tries to entice someone into investing in what turns out to be a cryptocurrency scam.
  • Business and Government Impersonation Scams: Reports show these scammers often target consumers by claiming their money is at risk because of fraud or a government investigation and the only way to protect their cash is by converting it to cryptocurrency.

Reports suggest that cryptocurrency-related scams often begin on social media. Nearly half of consumers who reported a cryptocurrency related scam since 2021 said it started with an ad, post or message on a social media platform.

For more information, click here.

Teaching Suggestions

  • Ask students to make a list of the red flags consumers should watch out for to protect themselves from scammers.
  • Ask students if they, their families or friends have become victims of cryptocurrency fraud.  If so, what was the outcome?

Discussion Questions

  1. Why is cryptocurrency quickly becoming payment of choice for many scammers?
  2. Why do most cryptocurrency-related scams often begin on social media?
  3. What might be some reasons that people ages 20 to 49 were more than three times as likely as older age groups to have reported losing money to cryptocurrency scams?
Categories: Chapter 4, Frauds and Scams | Leave a comment

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