Wednesday, December 30, 2020

Reflections on the State of Financial Education

I recently participated as a guest on the Next Gen Personal Finance (NGPF) speaker series with Laura Levine, CEO of the Jump$tart Coalition for Personal Financial Literacy (a.k.a., national Jump$tart). Our topic was “The State of Financial Education” and changes over time as national Jump$tart recently celebrated its 25th anniversary.

Below are ten key take-aways from the thoughts that I gathered to prepare for this online presentation:

¨      Teacher PD is Plentiful- Quality financial education requires teachers to be competent and confident with respect to personal finance content and pedagogy. Compared to 1995, there are many more professional development methods (face-to-face and virtual) and content providers for teachers including NGPF, Take Charge Today, the Council for Economic Education (CEE), and national Jumpstart and its state affiliates.


¨      Tech Tools are Useful- Perhaps at no time ever before was technology as important to teaching as 2020, when  schools went virtual. Among the tools teachers have relied on are the free 37-module MoneySKILL online course, Khan Academy videos, and various online calculators, video, and quizzes for personal finance topics.


¨      Course Penetration Needs Work- According to the 2020 CEE Survey of the States, 21 states require high school students to take a financial education course. While this is an increase of four states since 2018, it still means that students in more than half of the U.S. do not receive any formal personal finance instruction.


¨      Teachers Can Get Certified- Teachers can enhance their subject matter expertise with certifications including Certified Personal and Family Financial Educator (CPFFE) from AAFCS, the Personal Finance Certification for Educators from W!SE, and nine subject-matter specific certifications from NGPF.


¨      Collaboration is Amazing- There are so many ways that teachers share ideas and resource materials these days instead of remaining “siloed” alone in their own schools. Examples include the “FinLit Fanatics” Facebook group organized by NGPF, interactive virtual and face-to-face (pre-COVID) workshops, and informal networking facilitated via e-mail, Twitter chats, video chats, and other electronic methods.


¨      Outcome Research has Improved- Recent studies of financial education with rigorous methods have confirmed positive impacts on knowledge and downstream behaviors. An example is a 2020 meta-analysis of 76 randomized experiments that found meaningful treatment effects realized from financial education.


¨      New “Lenses” are Emerging- Following an increased focus on wealth inequality and social justice, some developers of financial content and curriculum standards are conducting bias reviews to make sure that their materials do not unintentionally perpetuate stereotypes or use culturally insensitive content or case examples.


¨      Education is Cumulative- The earlier students receive formal financial education, the more courses in later life can build upon. An example: my Personal Finance class students at Rutgers University arrived more knowledgeable after New Jersey passed a financial education graduation requirement for high school seniors. New Jersey now has a middle school mandate which will give pre-teens more background for high school.


¨      Teachers Overcame Challenges- Personal finance content developers were “all hands, on deck” in 2020 to equip teachers for online and/or hybrid learning. Among the challenges teachers successfully addressed were technology challenges (theirs and students’), virtual teaching engagement, and frequent changes in teaching methodology plans (e.g., virtual and hybrid classes).


¨      Teachers Make a Difference- I found a quote about teachers using a classroom analogy: “The influence of a good teacher can never be erased.” Here is another: “To teach is to touch a life forever.” Alicia Keys and the One Voice Children’s Choir have just two words for teachers (and other essential workers): “Good Job.”


If this were a state of the union (SOTU) address for financial education, I would note that there are encouraging signs, as described above. There are also challenges to address including financial fragility exhibited by many U.S. households and a lack of access to financial education in 29 states + Washington, DC. 

It will take a “village” of advocates, content creators, financial educators and practitioners, researchers, and financial media (shout out to FinCon)  to bring financial education to every American student, as well as adults of all ages. I am happy to be a small part of this effort.

Thursday, December 24, 2020

Twelve Tax-Saving and Planning Tips

One week remains to take advantage of 2020 tax-saving opportunities. Now is also a good time to look ahead and make income tax adjustments that will affect your taxes in 2021. 

Below are twelve tips to reduce your tax bite for 2020 and start planning for next year:

¨      Donate to Charity- As a result of the CARES Act, cash donations of up to $300 to qualifying charitable organizations are deductible if they are made before December 31, 2020. The $300 tax deduction is available to the almost 90% of U.S. taxpayers who elect to take the standard deduction instead of itemizing deductions.


¨      Donate a LOT to Charity- The CARES Act raised the limit for itemized charitable deductions on taxpayers’ Schedule A from 60% of a donor’s contribution base (typically the donor’s adjusted gross income or AGI) to 100% for 2020 only. This limit applies only to cash contributions to qualifying organizations.


¨      Make a Qualified Charitable Distribution (QCD)- Taxpayers age 70 ½ and older can make a QCD to a qualified charity that counts toward their required minimum distribution (RMD) for a traditional IRA. While mandatory RMDs were suspended for 2020, withdrawals can still be taken if taxpayers choose to do so.


¨      “Bunch” Deductions- This means paying two- or three-year’s worth of deductible expenses by the end of 2020 so you can itemize on your 2020 tax return. Since state and local taxes have a $10,000 cap and 2020 standard deductions are $12,400 (single) and $24,800 (married couples), plus $1,300 extra if taxpayers are age 65+, this often involves making large charitable donations.


¨      Create a Donor Advised Fund (DAF)- A DAF is set up with a custodian such as Schwab, Vanguard, and Fidelity for future charitable giving. Donors deposit funds (typically in excess of their standard deduction amount so they can itemize) and receive a deduction for the tax year in which a DAF deposit is made.


¨      Consider a Roth IRA Conversion- With a Roth conversion, taxpayers move all or part of their money held in a tax-deferred Traditional IRA to a tax-fee Roth IRA. Taxes are due in the year of the conversion. If 2020 was a year with reduced income, a conversion may make sense for someone in a lower tax bracket.


¨      Consider “Tax Loss Harvesting”- The term “tax loss harvesting” refers to the practice of proactively selling investments that have lost value during the past year by December 31 and using the capital loss to offset investment gains and up to $3,000 of ordinary income on federal income taxes.


¨      Review Income Tax Withholding- Estimates can be done for both 2020 and 2021 whether you have tax withheld from your pay and/or make estimated quarterly payments. The fourth quarter 2020 estimate is due on January 15, 2021. Use the IRS Tax Withholding Estimator tool to help determine how much to set aside.


¨      Use Up Flexible Spending Account (FSA) Funds- Money set aside pre-tax in an FSA must generally be used by the end of the calendar year or be forfeited. Some employer plans allow a short grace period (up to 2.5 months) to spend FSA funds or the ability to roll over up to $500 to 2021. Check on the specifics of your plan.


¨      Review Voluntary Retirement Savings Plan Contributions-  Now is the time to make changes for savings plan deposits from 2021 paychecks. If your income is stable or increased in 2020 and you have at least six month’s of expenses stashed away for emergencies, consider making a larger retirement savings deposit. Even 1% more of pay in savings can translate to thousands of extra dollars saved at retirement.


¨      Try New Tax-Savings Techniques- Many people experienced a drop in income in 2020 related to the pandemic. As a result, they may qualify for tax breaks that they always had “too much income” for before. Examples include the earned income tax credit (EITC) and the retirement saver’s credit.


¨      Be Realistic About 2021 Tax Refunds- This has not received much attention amidst stories about COVID-19 deaths, vaccines, stimulus payments, and food banks, but it is another looming issue. Low-wage taxpayers who count on tax refunds the most may be less likely to receive them. Refunds only occur when people earn an income and over-withhold for taxes. Unemployed workers who did not do either in 2020 may get less money back than before (depending on personal income tax variables such as tax credits and unearned income).

Friday, December 18, 2020

A Creative, Consumer-Savvy, COVID-19-Centric Christmas

 Many people would agree that 2020 was, perhaps, the most challenging year of their life. This is especially true for those who have experienced illness, death, unemployment, and financial insecurity as a result of COVID-19. With impacts on many aspects of daily living, it is no surprise that the pandemic is also affecting holiday planning, shopping, and celebrations.

I recently attended a virtual holiday party with former co-workers at Rutgers University, a #creditchat Twitter chat, and a webinar about safe, frugal, and fun ways to celebrate the holidays. Below are 12 key take-aways:

¨       Meet Virtually- Celebrate the holidays within your immediate household “bubble” (i.e., people who live together) and connect with friends and family members “on the outside” via phone calls and online platforms. My family, for example, is holding a virtual get-together on Zoom complete with an ugly sweater cookie contest.

¨       Set a Virtual Meeting Agenda-  Formulate some key discussion topics to make sure that everyone has an opportunity to participate in a large virtual family gathering. My family is using a “3-2-1” format for our agenda: 3 good things that happened in 2020, 2 things they are grateful for, and 1 thing they plan to do over the holidays.

¨       Limit Indoor Risks- Wear a mask indoors (except eating/drinking) if you interact with people outside your “bubble.” Admittedly, this could be very awkward and raise “issues” with others who have a different stance on mask-wearing.  Another option is to meet outdoors, but this is difficult in most of the U.S. now, even with heat lamps and fire pits.

¨       Plan Fun Virtual Activities- Examples include virtual singing/karaoke, an ugly sweater contest, a secret Santa drawing (to determine who to buy a virtual gift card for), a talent showcase, a holiday toast, and watching the same movie/show (e.g., the Trans-Siberian Orchestra livestream) and texting or chatting commentary.

¨       Know Your Spending Triggers- Determine what causes you to overspend so you can “check” yourself. Examples include advertising (e.g., television, newspapers, and social media), social pressure, guilt about keeping gifts “even” for everyone, using plastic (i.e., credit and debit cards) instead of cash, and getting caught up in holiday season euphoria.

¨       Give Frugal Gifts- Develop a holiday gift budget and stick to it. Give frugal gifts if money is especially tight. Examples include baked goods, crafts, masks, food baskets, and new or nearly new items purchased at thrift shops. Another option is anything that you can buy for free with cash-back rewards points (i.e., “free money”) earned on a credit card.

¨       Give Time and Experiences- Work around COVID-19 restrictions with “gift cards” for services and shared experiences. Examples include “socially distanced pizza and a movie,” home-cooked meal delivery, and free services including pet-walking, snow removal, and lawn mowing. Other examples are a special poem, video, or song for a gift recipient.

¨       Find Holiday Sales- Follow favorite retailers on social media for flash sale news and special promo codes. Some frequently recommended sites for online shopping that surface frequently in surveys include Amazon, Rakuten, Snapdeal, Dosh, and Ibotta. On December 26, buy marked-down holiday items for use in the future.

¨       Regift Carefully- Consider regifting holiday gifts if they are in good condition and you will be regifting in a different “social circle” than the original gift giver. Otherwise, things could get awkward. Reasons to “recycle” a gift include something that does not fit or is the wrong style or something you won’t use, eat, or wear due to personal preferences.

¨       Understand Persuasive Marketing Tactics- Beware of three common techniques that marketers use to persuade people to buy things: 1. Social Proof, a.k.a., “groupthink” (e.g., “everyone is buying this so it must be great”), 2. Scarcity (e.g., “only X left in stock” or “this offer expires in 10 minutes”), and 3. Authority (making references to well-known people).

¨       Make COVID-19 Adjustments- Consider shifting savings from events that won’t happen (e.g., holiday travel and office or organization holiday parties) and smaller meals to other holiday expenses (e.g., larger gifts for family members who are experiencing financial distress) and/or philanthropy.

¨       Set Gifting Expectations- Discuss realistic expectations for holiday gifts with children and family members. While television ads often equate expensive presents with love (e.g., couples buying each other cars), the best gift of all is love. Thoughtful gifts do not need to be expensive.

Wednesday, December 9, 2020

Financial Tips for Three COVID Categories

 Virtually every American has been impacted by COVID-19 in at least one way. I recently presented a webinar for Rutgers University employees titled COVID-19 and Your Finances. In it, I noted that Americans can be grouped into three broad categories with respect to the financial impact of the COVID-19 pandemic on their lives:

¨      Reduced income and struggling

¨      Stable income, but anxious

¨      Increased income with opportunities

No matter what category you fall into, there are actions steps you can take to improve your personal finances. Below is a description of key action steps for all Americans and for those in each of the above categories:

All Americans

¨      Get Your Financial Affairs in Order- Over 285,000 deaths and counting due to COVID-19 and tens of thousands more “long-haul” cases with health complications are a major wake-up call. Key legal documents to prepare are a will, living will, and durable power of attorney. Also take the time to prepare a list of your digital assets and beneficiary designations on retirement savings plans and/or life insurance policies.


¨      Anticipate Income Tax Implications- Tax rules that affect many Americans include tax on unemployment benefits, a $300 charitable donation deduction for non-itemizers, tax credits (e.g., EITC and savers credit) for workers who experienced a reduced income in 2020, suspension of required minimum distributions for 2020, changes in tax liability as a result of changes in income (versus 2019), and possible new state income tax bills and non-resident tax return filing required for workers who decamped to other states to work remotely.


Group #1: Reduced Income and Struggling Tips

¨      Prioritize needs, obligations, and wants and reduce spending accordingly

¨      Get help from local human services or government agencies by calling 211 or visiting www.211.0rg

¨      Eliminate subscription services (satellite radio, gym membership, streaming)

¨      Assess financial resources (e.g., emergency savings, cash value life insurance, retirement plan)

¨      Remain insured (health, life, property) but inquire about possible ways to reduce policy premiums

¨      Protect your credit by contacting creditors and negotiating leniency provisions that are not reported

Group #2: Stable Income, But Anxious Tips (in addition to tips for Group #1)

¨      Develop a “furlough preparation plan” by calculating the after-tax value of a day’s pay and equivalent expense reduction strategies to offset the loss of income.

¨      Increase your emergency fund via increased income, reduced expenses, or both

¨      Accelerate debt repayment using the snowball or avalanche methods to repay more than minimum payments

¨      Invest in your human capital with training, certifications, degrees, and good health habits

¨      Start a “side hustle” to earn additional income and have fallback work, if needed

¨      Consider refinancing your mortgage if the math makes sense

¨      Rebalance your investment portfolio to your target asset allocation weights

Group #3: Increased Income with Opportunities Tips (in addition to tips for Group #1 and Group #2)

¨      Save/invest positive cash flow resulting from working at home and/or reduced spending opportunities

¨      Make prudent home improvements with a high return-on-investment (ROI)

¨      Use caution about requests for cosigning and “loans” that become permanent gifts

¨      Withhold sufficient income tax on additional income earned in 2020

¨      Get serious about philanthropy to help individuals and organizations (e.g., start a donor advised fund or make qualified charitable distributions from an IRA)

In summary, everyone reading this post is in one of the three categories described above. Find the one that best describes you and your family and consider taking one or more of the suggested action steps to shore up your finances.

Tuesday, December 1, 2020

Take-Aways from the 2020 AFCPE Symposium


I recently attended the 2020 Association for Financial Counseling and Planning Education (AFCPE) virtual symposium. Below are ten “nuggets” that I took away from the speaker presentations and posters:

¨      Hope is a Key Outcome- ACFPE president Ryan Law noted that financial education, counseling, and coaching programs give people hope and a path forward for a better future. They change lives because they help people see their dreams as possibilities and develop a series of small action steps to achieve them.

¨      Financial Capability Improves Lives- Research presented by Dr. Jing Xiao from the University of Rhode Island found that different measures of increased financial capability were associated with decreased financial anxiety while debt was linked to financial distress.

¨      Savings Hacks Produce Results- The following tips were shared: give each financial goal its own savings account (or earmark), name your savings accounts (e.g., Destination: Disney World) to evoke emotional responses, transfer savings out of a checking account, automate savings deposits and transfers, track spending to “find” money to save, and track your progress and share it with accountability partners.

¨      Financial Advisors Should be Checked Out- The FINRA BrokerCheck® tool can help investors make informed choices about brokers and brokerage firms. It includes information about a broker’s employment history, disciplinary actions (if any), and investment licenses. FINRA also has a four-question Scam Meter to help users tell if an investment that hey are thinking about is a scam.

¨      Many Things are Beyond our Control- Financial author and speaker Carl Richards noted that money management is about feelings, not spreadsheets. People crave certainty and a “straight line” path from Point A to Point B, but, in reality, there are many detours in life. The best thing we can do is keep focused on the intersection (pictured in a Venn Diagram) of things that matter and things we can control.

¨      COVID-19 has Stressed Family Finances- Research conducted by the National Endowment for Financial Education in April and September found that over 80% of Americans reported feeling financial stress. Top financial stressors included amount of emergency savings, job security, retirement savings, income fluctuations, and paying different types of household bills. In response, nearly 2 in 5 respondents cut their expenses.

¨      Good Credit is an Asset- Credit hacks that prevent “dings” on a person’s credit history are maintaining a mix of at least three active installment and revolving tradelines (credit accounts), keeping low debt balances on revolving lines of credit, and always paying at least the minimum required payment by the due date. One missed payment can drop a person’s credit score by up to 100 points.

¨      SIGHT is a Better Goal-Setting Acronym- The letters stand for the words Specific (experienced with human senses), Informed (based on data), Graduated (has measurable progress points), Hard (pushes people out of their “comfort zone”), and Time-stamped (has a final deadline). SIGHT is more useful than SMART because people don’t work on goals that are not “Attainable” and “Relevant,” (in the SMART acronym), so they are already “givens.”

¨      Small Steps Add Up!- Financial goals should build in small steps that “move the needle” (e.g., steadily building up an emergency fund). Include progress points with rewards so you don’t feel deflated. Early financial successes, such as a small amount of savings or reduced debt, can be very motivational. A “first wind” fuels people to get their “next wind” and keep going.

¨      Economic Abuse Has Consequences- Financial insecurity is the #1 obstacle to victim safety in cases of intimate partner violence, which is estimated to be experienced by 1 in 4 women and 1 in 2 transgender individuals during their lifetime. Economic abuse occurs when victims are not allowed to work, keep money from a paycheck, and/or have a bank account, and have no fallback financial support system (e.g., friends or family members).


Loud Budgeting: A Financial Discipline Strategy

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