Financial Literacy is About More Than Just Credit Cards

Any time you hear or see the words “financial literacy” it seems the topic immediately turns to credit cards: blaming banks and credit card companies for the woes of consumers.

Financial literacy is about more than just credit cards, credit card debt and how credit card companies prey upon poor, helpless individuals. Financial literacy is about education. It is about providing the necessary tools to make informed decisions when it comes to each individual’s personal financial situation.

Case in point: a recent survey by the business consulting firm Hewitt & Associates analyzed the behavior of 170 thousand 401(k) participants. The participants had one thing in common: they left their jobs and had to make decisions about what to do with the money invested.

The good news is that they had managed to establish a balance in their 401(k) retirement accounts in the first place -- an example of financial literacy -- however, the findings of the survey were more than startling, they were downright scary. Of the participants surveyed, 46% cashed out of the plan. That means they closed out their accounts, took the money, not knowing or caring about the ramifications of that decision. The following is the breakdown for each age group as it relates to cashing out accounts:
• 20-29 60%
• 30-39 47%
• 40-49 43%
• 50-59 34%
• 60-65 31%
• 65+ 31%
As good as this sounds -- and I am sure they were very excited with their new ‘cash windfall’ –doing so creates a series of problems.

First and foremost, the whole concept of establishing a 401(k) retirement account is to save money for retirement. By setting up an account early in life, one takes advantage of the two most important variables of investing/saving: TIME and COMPOUND INTEREST. In addition, there is also the advantage of tax-deferred growth.

Here is an example of what could be lost by cashing in a 401 (k) account. If the employee is in his/her 20’s with a balance of $5,000, leaving the money in the account at an earned average of 8% over 40 years will grow the balance to about $108,600. If the employee is in his/her 30’s with a balance of $10,000, leaving the money in the account at an earned average of 8% over 30 years will grow the balance to around $100,600.

By cashing out, participants not only abandon the basic concept of a retirement account, but are also subject to high tax penalties (up to 30% or more). This means the $5,000 yields only about $3,500 cash in pocket and the $10,000 around a mere $7,000. Spend the full amount prior to tax-time, and one can end up with a large tax debt due. In essence, one gives up $100,000 in future financial security for $7,000 or less.

There is no reason why people who have established a 401(k) retirement account should cash out the accounts when they leave employers and subject themselves to senseless taxation and compromised financial futures, only to start all over again when they begin their future positions.

This is a clear example of why financial literacy is about more than just credit cards. Financial literacy is about EDUCATION. Not just a formal school education is needed, but also life skills and workplace education.
Financial literacy must embody a holistic approach to personal financial planning to ensure that individuals can and will make well-informed monetary decisions. It is not just about credit cards. STOP focusing on credit cards! We need to think bigger picture.

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How Do You Coach Young Adults When They Don’t Know How To Be Coached?

Step one is coach them on coaching.

As I mature, I seem to find myself looking back on my various life experiences more and more. I call these 'points of reference.' It is these instances that we seem to store in our brains like data on a hard drive. When we need to complete a task, make a decision or figure out what is right and wrong, we access the information stored in our brains and wait as our internal microprocessor sorts through all these ‘points of reference’ to provide us with the information we need.

Think for a moment about an activity that may now seem routine and how complicated it initially was. I can see myself, my mother sliding on my shoes, I having no idea what the two strings opposite each other were suppose to do. But within seconds, through a series of intricate swirls, circles, over, under, pull two loops – voila! My shoe was tied. Then she repeated it on the other side, like magic.

When I become interested in football, I had no idea how to throw the ball or what position I would eventually play, despite always being the winning quarterback or wide receiver, when the game was on the line in the backyard. Little did I know that I would grow to be neither and was destined to be a lineman. Through a series of practices, and the patience and perseverance of coaches, I was taught the fine art of being an offensive/defensive tackle.

These are just a couple of the moments in my life when I have been coached.

When I look back, if it weren’t for the college recruitment of my two older brothers and eventually my own recruitment, I might not have known how to be coached about higher education. My parents did not go to college, my father was never recruited to play a sport in college, how could they coach me on something with which they had no familiarity?

Recently, while conducting a session of my after-school program, we were celebrating the news of the class ranking a few of my students had just received. One was beaming with pride that while she was an ‘undocumented’ student whom had only recently learned English, she was ranked first in her class with a 4.20 GPA. Another was ranked 65th with a 3.50 GPA and another ranked 68th with a 3.30 GPA. With a huge smile on my face and high fives all around, I asked, “You know what that means right?” As I looked around all I could see was blank faces and shrugged shoulders. They responded, “No, what?” I informed them they were eligible for special status within the California State University system for admission to college.

They were unaware; they were clueless. Of course they were. How would they know when they come from homes in which no one has attended, much less graduated from college? They have parents, similar to my own, to which attending college, the admissions process and everything that goes along with it, is a foreign concept.

They are in an inner city school system that has a drastic shortage of college counselors. And, they see teachers as just that – a teacher. So they let their survival skills kick in, the same skills they have been using for 17 years and literally just go through life day by day, using trial and error, living moment to moment, and never seeing the bigger picture.

There are so many young adults today that, unfortunately, do not have a ‘coaching’ role model in their lives. They are going about their days the best they know how. Many are stand-offish with adults, even ones they know. They don’t seek out any coach, much less a ‘life’ coach.

Young adults do not know how to be coached in or even to be coached because they are not in environments or situations to know what it means and how beneficial it is in life.

As life coaches our first challenge is to coach them on coaching—to help them understand what they don’t know and how we can help them navigate their way. We must show them what they have already accomplished in life with the help of those with more ‘points of reference.’

It is imperative that ALL people who have ANY type of interaction with young adults mentor them, role model for them, coach them on how to navigate through life beyond high school. We are all life coaches.

This is the way that they begin to develop those ‘points of reference’ which get loaded onto their ‘hard-drives,’ those that they will access for the rest of their lives, that will help them become successful individuals and that will make them positive contributors to our society.

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The basics of investing – follow fundamentals

Three proven strategies, + one, that increase chances for success

The news of the financial crisis continues, with some saying that the recession is easing, despite the continuing news of growing unemployment. People are scared; people are confused. Questions continued to be asked, “Where should I put my money?” “What should I do to rebuild a crushed portfolio?”

Despite what people may fear about Wall Street and the recovery of one of the worst economic times in the history of the United States, and as much as it may appear that something different has to be done, drawing upon our past is the easiest and smartest thing to do.

For young adults all across the country it is quite simple: first and foremost, take responsibility for your future by learning as much as possible about personal finance. It truly is one of the most important life skills one can possess. Second, follow the basics of investing, adhering to the long established fundamentals: asset allocation, diversification and account rebalancing. The plus one that needs to be included is – START EARLY. It is simple: the earlier one begins to save money the greater chance one will have at a successful financial future.

Asset allocation is the process of saving money in different investment classes such as stocks, bonds, money market accounts. Diversification is insuring that a proper variety of investment categories (e.g. small companies, technology, utilities, world funds) make up a portfolio--not ‘placing all your eggs in one basket.’ Lastly, on a periodic basis, (once a year) a review should be conducted of the portfolio and changes should be made to keep the fundamentals in line, known as account rebalancing.

These fundamentals were recently reinforced by T.RowePrice financial planner, Stuart Ritter CFP, stating, “What’s important is to recognize that while trends are generally temporary, the fundamental principles of investing are the bedrock of a solid financial plan.”

The earlier young adults can master vital money management skills, including these three fundamentals of investing, the better off they will be as they journey down the path of their financial future.

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Bonus Blog!!

When I created this blog, I wanted to be able to share information in a way that would provide people with food for thought and also assist people in developing personal money management skills. From time to time, depending on the circumstances, I will share what I call “Bonus Blogs.” These blogs will consist of information that I feel is interesting and/or helpful.
This is my first – Bonus Blog. It is an excellent article that was supplied by For those who do not know, it is a consumer financial services company that provides personal finance content to visitors of its website. Information provided covers such products as mortgages, home equity loans, credit cards, automobile loans, checking and money market accounts, certificates of deposit, online banking and ATM fees and much more. The web site link is
The following link is to a recent article posted on Yahoo Finance entitled, 100 Tips to Help You Save. There are some excellent suggestions within it:
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All of a Sudden, Americans Decide to Spend Less

It’s called living within your means.

A recent Los Angeles Times Article entitled, “Drop in Debt May Hamper Recovery” [September 9, 2009 by Jim Puzzanghera and Jerry Hirsch] stated that Americans owed $21.6 billion less, yes billion, in July. The $21.6 billion decrease was the largest decrease since the Federal Reserve began keeping records in 1943.

This figure was – get this – over 400% more than ‘analysts’ predicted. I have to ask, “What were the analysts analyzing that they would actually miss their estimate by that much?”

The article makes numerous points about how people are “skittish” about where and what direction the economy is going, and that people do not want to take on further debt. This data is a double edge sword as it relates to returning the United States economic condition to the once vibrant and positive environment to which we had all become accustomed. The fear is that the decreasing debt and increased savings will keep the economy from growing at the rapid pace is enjoyed prior to the recession, yet personal fiscal responsibility will benefit everyone in the long run.

The information, as I interpret it, reveals that people are being conservative; people are scared, and rightfully so. My God, look at what has happened to this country and its economic state over the last year: astronomical unemployment, increased bankruptcies and a foreclosure problem that seems to never go away. Americans have a reason to be concerned.

However, there is another school of thought that I would like to throw out there. Maybe, just maybe, this country is returning to an age old concept called, “Living within your means.” Wow! What a marvel concept that is. Because for so many months and years this country has been out of control with its spending. Why do you think that consumer debt had reached over $960 billion dollars? Because Americans made a conscious decision that if they wanted something, even if they didn’t need it, they were going to do whatever it took to acquire it. Which in most cases meant, charging it or as I like to say, “Borrowing money you don’t have.”

This could not be more evident than with the current housing crisis. People were buying houses that they couldn’t afford with loans they didn’t understand from loan officers who were “Taking while the taking is good.” Then, those same people had to furnish those houses, so they went out and purchased everything they needed with money they didn’t have. Now look where they are. All for what--to pursue the ‘American Dream’? In the famous words of Dr. Phil McGraw, “And how did that work out for ya?”

In a recent Yahoo Finance article, Mortimer Zuckerman said, ““The paycheck has returned as the primary source of spending.” I could not agree with him more.

Isn’t it sad though that a financial crisis the magnitude of the current recession, which is being compared to the great depression, had to come along and severely impact the lives of millions and millions of Americans for us to learn our lesson and finally decide that “keeping up with Joneses” does not lead to the smartest financial decisions.

We can only hope that this crisis will now be the lesson that will be shared with young adults to help them understand the importance of taking personal responsibility for their financial future.

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What’s all the buzz about?

The C.A.R.D. Act of 2009

You have probably noticed lately that there has been a barrage of media attention given to the C.A.R.D. (Credit Card Accountability, Responsibility and Disclosure) Act of 2009 signed by President Barack Obama on May 22, 2009. Article after article, news story after news story relentlessly bombards us with of all the changes that are going to take place with credit card laws, procedures and policies for both financial institutions and cardholders to follow.

Whooooooooooooooooooa! Let’s just take a second. Relax, breathe.

First and foremost, the majority of the C.A.R.D. Act will not go into effect until February of 2010. The rule that will take effect sooner is the one in which consumers are to be given 45 days advance notice of major changes in account terms, which will take effect beginning this month. The outline of the other changes can be highlighted within such headings as, Consumer Protection, Enhanced Consumer Disclosures, Protection of Young Consumers and Gift Cards Provisions.

The one thing that I find very interesting is that the C.A.R.D Act includes the words Accountability and Responsibility in its title. When you read the actual law, which by the way, I would only do if you suffer from insomnia and you are looking for some ‘light’ reading, it seems to address the ‘young adult’ population, specifically the college student, as though they solely were the ones being unaccountable and irresponsible. With the overall outstanding credit card balance for the United States hovering around $900 billion, those darn college kids must be running amuck with those credit cards.

I understand that the action has the good intent to get young adults off on the right foot and not stuck with a bunch of debt, but it is not just young adults. It is EVERYONE!

Sure, the Act will definitely make some inroads to further protect consumers, but it gets back to one basic concept – personal responsibility. Personal responsibility begins with reading the disclosures that you are given before you sign your name. Get in the practice of READING everything before you sign anything; it will eliminate a lot of headaches, trust me. I preach it over and over when I speak to young adults. Take personal responsibility for your financial future, spend some time studying your own personal budget, put some figures on paper and begin to live within your means. Understand that if you borrow money you don’t have, you will have to pay it back with interest, which means you will have less money to spend on yourself in the long run each month. Remember the old adage, “if you don’t have the cash to buy it, you probably don’t need it.”

To review the highlights of the C.A.R.D. Act visit the following link:

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Hi, I’m Michael Wagner; thank you for reading this blog. There is nothing that drives me more each and every day than helping young adults prepare for the real world and compete in the new global economy.

While I am a strong proponent for young adults to excel in their formal education, I feel a proper education is not complete without a separate set of 'life skills.' With the changing emphasis in education, the demands of high school graduation requirements and the entrance standards for post secondary education, too often life skills, including financial literacy, are neglected or underdeveloped. The results can be devastating; by the time they are in their early twenties, many young adults are already in severe financial distress.

Mastering personal finances will be one of the most important skills that you can and will need to control. That is why I have written a book that addresses the basics of personal money management and the importance for you to learn, understand and practice these skills from the start. I speak regularly to young adults, providing a road map to a life of financial security and success.
I hope this blog will help you take control of your money.  Please visit regularly for information, timely topics and more.

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