Archives for November 19, 2018

Parents often try to impart their values about money to help their children establish a strong financial foundation. If you are a parent, talking to your kids about money can help them learn how to be financially responsible, self-supporting adults. To get the discussion flowing, consider using these conversation starters depending on your child’s age.

Begin with basics for your preschooler

Look for opportunities to teach values that will help your child develop positive financial attitudes and behaviors later in life. For example, the concept of sharing with others is something most young children can grasp. Talking about what you’re thankful for and involving kids in philanthropy can help instill gratitude.

Explain financial building blocks to your elementary school student

As your child progresses through school, start introducing the difference between needs and wants. Present the concepts of cost and quality to teach your child how to discern value. Give your child the chance to make some simple financial decisions that involve delayed gratification, such as setting aside a small allowance to buy a toy.

Understand that your middle schooler may be watching more than listening

Kids tend to be peer-oriented in the preteen years and may be less receptive to parental advice. Keep talks short, but don’t abandon the mission. Remember that your actions speak volumes about your values. For example, if your child hears you continually talking about a new car purchase or sees you frequently shopping, he or she may pick up similar behaviors toward material goods. Consider involving your child in donations or charitable work you are passionate about, or encourage him or her to support a cause of their own.

Encourage your high school student to think about the future

Now is the time to discuss college costs and encourage saving for college expenses. Talk to your child about what you plan to contribute and what portion you expect them to pay. Discuss whether student loans will play a role and their potential impact down the road. Conversations about college and majors can include frank discussions about the job market and future income potential. Discuss day-to-day financial responsibilities as well, such as how to maintain a checking account and debit card and how to protect accounts from fraud.

Help your college student prepare for independence

Counsel your child about the importance of living within their means and establishing and maintaining a good credit record. Explain how to use a credit card appropriately (and how to avoid fees and other credit troubles). As graduation nears, discuss your expectations for your child’s transition from student to working adult. Offer yourself as a resource for guidance on how to seek fulfilling work, negotiate a good salary and navigate the world of employee benefits.

Inspire your college graduate to embrace adulthood

Once your child becomes financially independent, be thoughtful about how you approach money topics. Let your newly employed college graduate know you are willing to offer support and guidance yet steer clear of making decisions for him or her. Allow your child space to decide their financial goals. Continue sharing advice based on your experience, such as the importance of saving for retirement early, having appropriate insurance or creating an estate plan. Encourage your child to establish a relationship with a financial advisor who can provide an objective perspective and tools to create a financial plan unique to their goals.

It’s worth it

If you want to help your child develop financial competence and independence, start the conversation early and keep it going. Sharing your financial values can enrich your relationship and bring lasting rewards.

Many working adults are used to losing a portion of their income to taxes. New retirees, on the other hand, are often shocked to find that much of their income is, in fact, subject to taxes as well. Here are a few unpleasant tax surprises that might catch you off guard in retirement if you aren’t careful.

1. Taxes on Social Security benefits

If the bulk of your retirement income comes from Social Security, then you might manage to avoid taxes on those benefits. But if you have additional income sources, and substantial ones at that, then there’s a good chance you’ll lose a portion of your benefits to federal taxes.

To see whether this will be the case, you’ll need to figure what’s known as your provisional income, which is basically your income outside of Social Security plus half of your yearly benefits. If your total lands between $25,000 and $34,000 as a single tax filer, or between $32,000 and $44,000 as a couple filing taxes jointly, then you could be taxed on up to 50% of your Social Security income. And if your provisional income is above $34,000 as a single filer or $44,000 as a joint filer, you could be taxed on up to 85% of those benefits.

Even if you manage to avoid federal taxes on your Social Security income, your benefits might get taxed at the state level if you live in one of the following 13 states: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. The good news, however, is that most of these states offer some form of exemption for low to moderate earners, which means that if your income isn’t too high, you might avoid state taxes on your benefits as well.

2. Taxes on retirement plan withdrawals

Unless you’re housing your savings in a Roth IRA or 401(k), you can expect to be taxed on your retirement plan withdrawals, and the extent to which the IRS takes your money will depend on your retirement tax bracket. If you expect to be in a higher tax bracket in retirement than during your working years, it pays to consider saving in a Roth account. And if your income is too high to contribute to a Roth directly, you could instead fund a traditional account and convert it to a Roth after the fact.

3. Taxes on pension income

Though pensions aren’t as common as they once were, those who are lucky enough to retire with a pension are subject to taxes just like folks with traditional retirement savings plans. That said, you might avoid taxes on pension income if it stems from a military or disability pension.

4. Taxes on investment gains

Holding investments outside of a retirement plan like an IRA or 401(k) is a good way to buy yourself more flexibility with those assets. The downside, however, is that if you make money on those investments in retirement, you’ll be subject to taxes on them each year you realize a gain, just as you would for investment gains realized during your working years.

Thankfully, you can minimize your tax burden by holding investments for at least a year and a day before selling them at a profit. By doing so, you move from the short-term capital gains category to the long-term gains category, thereby reducing the amount of tax you’re liable for on those gains.

The more you educate yourself about taxes in retirement, the fewer surprises you’ll run into when you’re older. A whopping 70% of recent retirees admit that they entered their golden years lacking key knowledge about tax planning, according to the Nationwide Retirement Institute. If you’d rather not join their ranks, take the time to read up on tax liabilities in retirement today, or enlist the help of a tax professional or financial advisor who can guide you in this regard.

If you have an excellent boss who has treated you well all year, you might be tempted to add them to your holiday gift list. That’s not always a good idea, and it’s a decision you should be very careful with.

“Tread carefully,” Jo Bennett, a partner in the executive search firm Battalia Winston, told Monster.com. “It’s not all that common and I think if you want to give a gift to your boss, you need to think about what’s in it for you.”

That sounds more dire than the situation actually is. There are scenarios where it’s fine to give your boss a gift, but you need to do some work to figure out what’s appropriate (or if just a thank-you card with a nice note is enough).

A small gift is sometimes appropriate. Image source: Getty Images.

Learn the lay of the land

If you work at a large company, it’s important to figure out what the policies and traditions are. If nobody in your department gives the boss a gift and it’s not common at the company, in general, you probably shouldn’t do it.

At some smaller companies, it’s traditional to give the boss a group gift with everyone pitching in a small amount. If that’s the case, then you should go along with the group and not do something on your own.

If giving an individual gift would not be out of the ordinary, it’s fine to do so, but be careful. You want the gift to come off as sincere — something you did because you want to say thanks, not an attempt to curry favor.

What should you give?

Generally, for an individual gift, you want to give something meaningful but not expensive. It can be as simple as a small gift card to someplace you know your boss enjoys going (maybe a favorite local coffee shop). Avoid clothing unless it’s something like a T-shirt for your boss’s favorite sports team.

Avoid anything too personal (you don’t want to be the person who gives the boss underwear, no matter how well-intentioned) and don’t spend more than $25. You should also be discreet in delivering the gift, as you don’t want to show up your coworkers who chose not to get anything for the boss.

Be very careful

There’s no work scenario where you have to give your boss a gift, unless you happen to draw her or him in a secret-Santa exchange or other type of gift swap. Before you even consider giving the boss anything outside of that scenario, you should make sure you’re not sending an inappropriate message or doing something that nobody else does. You won’t get in trouble for not getting the boss anything, so if you have any questions about propriety, don’t.

That said, a heartfelt, carefully selected token gift can be very meaningful. Just make sure your efforts will be taken in the spirit they are being offered.

Many new couples inquire about a potential mate’s age or how many previous partners they’ve had. Others are more interested in another number.

Approximately 42% of adults say knowing someone’s credit score would affect their willingness to date that person, according to a recent survey of 1,000 adults by personal finance website Bankrate.com. That’s up from nearly 40% last year. Women were nearly three times as likely to consider credit score a major influence on a potential partner compared to men (20% versus 7%). Younger daters are not as concerned about these three digits: 45% of older millennials, defined here as those aged 27 to 36, said they care about these three digits.

This can be useful for people using dating sites like Tinder, Bumble, OKCupid IAC, -1.51% and Match.com. A high credit score can help predict whether someone is trustworthy. Similar credit scores are “highly predictive” of whether couples stay together, according to another 2015 paper by researchers at UCLA, the Brookings Institution and Federal Reserve Board, Washington, D.C. “Initial credit scores and match quality predict subsequent credit usage and financial distress, which in turn are correlated with relationship dissolution,” they wrote. “Credit scores reveal an individual’s relationship skill and level of commitment.”

“Previous studies have documented the various traits by which individuals sort themselves into committed relationships, including race, educational attainment, and earning capacity, parental wealth, social caste and physical appearance,” they wrote. “Credit scores are arguably the most prominent individual-level characteristic lenders use to underwrite credit.” These three digits, therefore, help give single people a bird’s eye view into a person’s ability to meet future financial (and familial) obligations.

By showing an interest in these three digits, people are probably being smart rather than shallow, says Jeffrey Hall, associate professor of communications at the University of Kansas. “Finances, education, and job prospects all factor into the value of a potential mate,” he says. “Assuming that people can actually interpret a credit score meaningfully, it makes sense they would think a credit score is useful in evaluating mate value.”

What people do and say in the early days of dating might have an impact later on. People are combining their finances when they marry, after all, and that can impact their future happiness. In fact, the higher your credit score, the less likely you’ll separate from your partner — and a lower score often means you’ll be less lucky in love. More than half of Americans (58%) said they wouldn’t marry someone with significant debt, according to a study released in March 2017 of more than 2,300 adults from legal industry site Avvo.

While knowing someone’s credit score doesn’t necessarily reveal whether that person has a medical or student debt or even their annual income, it does indicate whether they are eligible for a loan. A bank will look at each person’s middle scores— from the three major credit bureaus, Experian, Equifax, and TransUnion — and then take a couple’s average score to determine their overall credit worthiness. And a low credit score doesn’t necessarily mean that you are irresponsible with money or even have no money. Credit scoring models look at the amount a consumer owes versus the total amount of credit available, known as the credit “utilization ratio.”

Low credit scores can deny one access to a mortgage or increase the costs of credit by thousands of dollars, says Stephen Brobeck, executive director of the Consumer Federation of America, a consumer advocacy group. Credit scores are likely to increase the finance charges on a $20,000, 60-month car loan by more than $5,000.

For those who are interested in talking about this during a candle-lit dinner, they should know what it means. A score between 661 and 780 is considered good credit and between 781 and 850 is regarded as excellent credit, according to financial website Credit.com. The site rates fair credit as between 601 and 660, poor credit between 501 and 600 and bad credit as anything below 500.

But different lenders may have different criteria when it comes to loaning money, and may approve borrowers with a credit score of below 700. A high score effectively means that their prospective date has been paying their bills off on time, or only uses a small percentage of their available credit on credit cards.

Still, those millennials in Bankrate’s study might be too quick to judge. That age group also has the lowest credit scores of any generation of Americans, a separate report released by credit bureau Experian concluded. The report, based on anonymous data from Experian’s consumer credit database, found that millennials have an average credit score of 625 on an average debt of $52,120.

By comparison, Generation X (aged 35 to 49) have a credit score of 650 on average debt of $125,000, while both baby boomers and the Greatest Generation (with a combined age of between 50 and 87) have credit scores of 709 on average debt of $87,438. Credit scores, experts say, are built on experience, and millennials have plenty of time to improve their digits.

Previous research also supports the proposition that women are more concerned about their potential partner’s earning power than men. “Too many women are still overly-focused on their romantic partner’s holdings. In their minds, money equals power, and women want powerful men,” says Fran Walfish, a Beverly Hills, Calif.-based psychotherapist. “Money comes and goes, and you are always faced with each other.”

Walfish says the rich, famous and privileged flock into her office with the same ailments and issues as regular people, namely communication, sexual issues, parenting, and, most importantly, conflict resolution skills. Financial responsibility runs through most of these issues, and can be a test for how willing people are to work together as a team to build a future. “The goal for every person is to evolve as a complete, whole and self-reliant individual,” she says.