Young people should take advantage of time, and start investing now for the long-term. When doing so, they should consider these actions:
- Make use of low-cost mutual funds, exchange-traded funds and index funds to minimize administrative costs, transaction fees and commissions.
- Take advantage of tax-deferred retirement programs, which will allow them to invest pre-tax dollars to lower their current tax bill. Employers may match retirement fund contributions.
- Don’t avoid risk by emphasizing conservative investments. Taking on more aggressive investments creates greater potential for higher, long-term returns.
- Effectively manage risk with fixed index annuities, fixed annuities, and market linked CDs. Dollar-cost averaging allows for obtaining more shares at a lower cost during market downturns.
For additional information on investing by young people, click here.
- Have students talk to others for suggested investment actions to take.
- Have students conduct online research regarding the best investments for their life situation.
- What factors might a person consider when selecting investments for their life situation?
- Describe actions people might take to increase the funds they have available for long-term savings goals.
Your landlord’s insurance will cover damage to a building or home you rent, but it will not cover your personal items, and yet only 40 percent of renters purchase renters insurance. But renters insurance is usually affordable. For people who rent, renters insurance typically includes three types of coverage—personal property coverage, loss of use, and personal liability. Keep in mind that flood damage is not covered with renters insurance. Also remember, if you are a dependent, your parents’ home-owners policy may cover your belongings even if you are not living at home.
For more information, click here.
- Ask students if they are living on their own and renting an apartment. If so, do they have renters insurance?
- Ask students to call local insurance agents to get quotes for renters insurance. Do you have to pay extra for expensive items you own?
- What can you do to cover losses to your personal property due to floods or other acts of God?
- What actions can you take to reduce the cost of renters insurance? Should every renter purchase renters insurance? Why or why not?
While having an emergency fund is vital, putting this money in a low-yield checking account is not recommended. A certificate of deposit (CD) also may not be appropriate since your funds may be locked-up when the money is needed. For safe storage of your funds along with quick access and a better return, consider these alternatives:
- High-yield savings account. These financial products are offered by banks to attract new savers. These accounts have high liquidity and are covered by federal deposit insurance; although, interest earned is taxable. Most high-yield savings accounts are available through online banks. Also be aware of fees, minimum balances, or a required minimum length of investment.
- Money market fund. Usually offered by investment companies, these financial products are similar to high-yield savings accounts but do not have federal deposit insurance. However, they are protected by Securities Investor Protection Corporation (SIPC) insurance, usually covering amounts up to $1 million for investors.
- Treasury bills and bonds. These debt instruments of the U.S. Treasury have a maturity ranging from 90 days to 30 years. While considered very safe, an investor may lose money if sold before it matures.
- Ultra-short term bonds. For a higher yield with a bit more risk, consider ultra-short term bond exchange-traded funds (bond ETFs). These funds invest in corporate bonds, which are not guaranteed. However, it is possible to find funds that invest only in highly-rated bonds.
In each situation, be sure to consider the tax implications of earnings from these savings and investment products.
For additional information on emergency funds, click here.
- Have students create a list of unexpected situations that might require accessing money from a person’s emergency fund.
- Have students talk to others to determine where they keep money for emergencies.
- What factors might a person consider when selecting a savings instrument for storing money for emergencies?
- Describe actions a person might take to have more funds available for an emergency fund?
Ads abound for products that claim to treat or prevent serious health conditions. Unfortunately, these products often are unproven and useless. Sometimes the ads even make false promises for Alzheimer’s disease and dementia – diseases for which science has no cure.
In March 2019, the Federal Trade Commission (FTC) and the Food and Drug Administration (FDA) issued warning letters to certain companies making unproven claims that their products can treat or cure Alzheimer’s or other diseases .Many of these products are sold on websites and social media platforms – and called “dietary supplements” or natural remedies. But that doesn’t mean they are necessarily safe. Products that claim to do it all often do nothing.
The reality is that phony miracle products can be dangerous, and not just because of interactions with medicines you’re already taking. They also might cause you to delay or stop proven medical treatment ordered by – or available from – your physician. They might also delay you from making important dietary and lifestyle changes to help your condition. And some may contain unlabeled and unapproved drugs, which can cause serious injury or death.
For more information, click here.
- Ask students to make a list of credible sources of health information.
- Ask students if they, their relatives or friends ever bought a dietary supplement or health-related product that did not work as promised. What action(s) did they take?
- Why is it important to talk to your healthcare professional before you take any dietary supplements?
- What are some of the most effective ways to stay healthy, instead of wasting your money on unproven dietary supplements?
While a savings account and a checking account provide the foundation for managing finances, several other accounts should be considered. Since all most people don’t put all their financial documents in one drawer, all your money shouldn’t be in one account. The various recommended accounts include:
- Emergency savings for funds when you face financial difficulties that cannot be resolved in others ways. An amount equal to 6 to 12 months of living expenses is often recommended. Consider storing these funds in an “out of sight, out of mind” location, such as with an online bank account.
- Regular savings for short-term needs, such as home repairs, vacation, auto maintenance, or new furniture. Be sure to have a goal and plan for these funds.
- Household checking account for paying current bills. All income is deposited in this account with automatic transfers for regular bills and amounts to various savings accounts. Extra funds in this account can go to the regular savings fund.
- Spouse checking accounts to pay expenses for which each person has responsibility as well as work-related costs.
- Health savings account (HSA) for tax-free payments of medical-related expenses. HSAs are especially of value with high-deductible insurance plans.
- The extra fund involves the “fun money” leftover after all bills are paid, savings is under control, and all accounts have a balance at an appropriate level. This money is the reward for spending wisely.
If all your accounts are at the same financial institution, using the online dashboard will allow you monitor your balances. Or, if you use different banks, websites or apps such as Mint.com can be used to view your overall financial situation.
For additional information on needed bank accounts, click here.
- Have students design a personal plan for the various bank accounts they will use to to monitor their spending and saving.
- Have students talk to others about methods used to monitor spending and to maintain an appropriate level of saving.
- What are the benefits and drawbacks of the system discussed in this article?
- Describe actions to monitor spending and saving using online banking and apps.
While many savings, investment, and retirement plans are available to achieve financial goals, other actions are possible to achieve personal ambitions. Financial advisors and counselors also recommend these actions:
- Learn a new skill, which can result in time away from shopping or expanding your career and income potential.
- Invest in friendships that does not involve a major monetary requirement as many free and low-cost activities are available.
- Participate in a reading challenge at your local library or through a community organization.
- Create art by getting involved with writing, photography, drawing, or sculpture through a community-based group.
Many activities are available to invest your time and energy without spending much money.
For additional information on non-financial goals, click here.
- Have students list free and low-cost activities that can enhance personal and career development.
- Have students talk to others for additional suggestions for free and cost-cost personal and career development activities.
- What factors might a person consider when selecting an activity to enhance personal and career development?
- Describe personal development activities that could result in enhanced career and income potential.
Technology impacts every aspect of personal finance. FinTech (financial technology) involves apps, software, and other innovations for banking and financial activities, which includes PayPal, Venmo, and cryptocurrencies, such as Bitcoin. FinTech companies use online activities, mobile devices, software, apps, and cloud services to for financial transactions. Over 1.5 billion people around the world do not have access to formal banking. FinTech can provide these unbanked people with financial services through easy-to-use technology.
The main categories of FinTech for consumers are:
- Crowdfunding, such as Kickstarter and GoFundMe, which allows individuals or businesses to go directly to potential investors for funding.
- Blockchain and cryptocurrency, such as Bitcoin, with improved verification for financial transactions.
- Mobile payments through a smartphone.
- Insurance coverages provided by online start-ups.
- Robo-advising provides portfolio investment recommendations and allocations based on algorithms. For stock-trading, investors buy and sell stocks using apps such as Robinhood and Acorns.
- Budgeting apps, such as Mint and You Need a Budget (YNAB), monitor and plan spending.
For additional information on FinTech, click here.
- Have students talk to several people to obtain information about their experiences with FinTech products.
- Have students create an app prototype for a proposed FinTech product to help people make better financial decisions.
- What might financial literacy and money management activities be improved with FinTech?
- Describe concerns that might be associated with expanded used of FinTech.