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.

Please feel free to visit my web site www.michaeljwagner.net

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.

Please feel free to visit my web site www.michaeljwagner.net

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.

Please visit my website: www.michaeljwagner.net