What To Teach Your Kids (and Adults) About Investing

Providing for your children’s education is an important part of your financial plan. But, for the most part, that education won’t teach your children very much about basic financial literacy. The money lessons that kids learn from their parents can help to fill that gap and instill habits that will improve their Return on Life.

 

You can teach these three simple financial lessons to your kids with activities that illustrate the basics of financial planning.  And remember the quip, ‘Everything I need to know, I learned in Kindergarten’?  Same goes for the principals of good financial planning, so these lessons are still good for us adults to hear regularly as well.

 

  1. “Pay yourself first.”

 

Many families have a rule that X percent of any money a child earns for chores or receives as a gift has to go into a custodial account. This is a good way of helping kids understand the importance of investing in their futures.

 

However, many parents don’t take the essential next step of showing kids how their savings have grown over time. This can create awkward feelings around money and make it hard for kids to appreciate the end result of their responsible behavior. Just updating a simple spreadsheet together after a big birthday deposit can give kids a greater sense of control and deeper feelings of satisfaction around how they’re handling their money.

 

  1. “Money makes money.”

 

Your kids have probably learned about Ben Franklin flying a kite in a lightning storm. You can teach them Franklin’s lesson about the magic of compound interest: “Money makes money. And the money that money makes, makes money.”

 

Thanks to higher-than-usual interest rates, your child’s custodial savings account might be providing a good lesson on compounding right now. It’s also a great time to shop around for a new savings account as many banks are offering higher rates to entice new customers — especially online.

 

Most financial institutions also allow parents to open custodial brokerage accounts for their children, which can be another option for those special self-payments. Some brokerages also sell shares of companies that kids will recognize, like Disney, as a physical framed certificate. These gifts can help kids connect how they spend their time and money with an understanding of how the stock market creates and compounds wealth for shareholders.

 

Again, check in on these accounts every month or every quarter and show your child how their money is doing. Down periods are an opportunity to introduce the concept of volatility. Even modest losses might sting at first. But seeing their ROI move up and down over the course of a year will eventually help your kids get comfortable with managed risk. And if they start eying their toy shelf for other companies they might want to invest in, you can start talking to them about the power of diversification.

 

  1. “Plan ahead.”

 

Kids often think money works like a vending machine: swipe, tap, punch in some numbers, and what they want magically appears. Instant gratification is such a basic part of their lives that they rarely stop to think about where money comes from or how adults manage it to fulfill so many different needs. They see the end result, but not the plan.

 

Reviewing your monthly budget probably won’t hold your kids’ attention for very long. Instead, create new budgets that provide for both short-term and long-term goals that will interest your kids. Break down the cost of a new bike or video game over a couple weeks of allowance money. Or, show them your saving plan towards a big family vacation to illustrate how your financial plan provides for current needs while also progressing towards bigger goals.

We are always happy to help our clients have life-centered planning conversations with their children, especially older teens who are starting to earn their own money. Give us a call and let’s start your kids on a path towards a healthy relationship with their money.

 

Protecting Your Child from Identity Theft

In September 2017, about a year ago, a massive Equifax security breach became public knowledge. If there was a silver lining to this infamous event, it likely spurred more consumers to take more measures to protect their identities. Perhaps you’ve frozen your lines of credit, or you’re at least checking your credit reports more regularly these days.

 

All well and good. But what about your kids? As distasteful as the idea may be, child identity theft is a serious and growing concern, for several reasons:

 

It happens more often than you might think. In a 2018 Child Identity Fraud report, Javelin Strategy & Research found more than a million children were identity fraud victims in 2017, costing families more than $540 million in out-of-pocket expenses.

 

Your kid’s identity is a tempting target. Identity thieves especially love your child’s Social Security Number, since it usually offers them a clean slate, devoid of credit history. If they can get ahold of it, they can create all sorts of havoc, such as racking up debt, filing bogus tax returns or applying for public aid – all under your child’s identity.

 

It’s easy pickings. Kids may not be as careful with their identity, and new technologies expose them to added risks. Javelin’s report also connected kids’ susceptibility to being bullied with a higher likelihood they’ll end up giving out personal information – online or to people they know.

The theft often goes undetected. While we may be vigilant about monitoring our own credit reports, many parents don’t realize they should be doing the same for their children. As described in this Wall Street Journal piece, lax oversight “often allows theft to go unnoticed for years, until the victims reach college age and start applying for credit cards and student loans.”

Fortunately, a few basic steps can go a long way toward protecting your child from identity theft.

 

Know the early warning signs, and take them seriously. Is your seven-year-old receiving credit card offers in the mail? Has a collection agency called and asked to speak to your toddler? Don’t laugh it off. It could mean your child’s identity has been compromised.

 

Check your child’s credit history regularly. Use AnnualCreditReport.com to check in with the three major credit agencies, to see if your child has a credit history. Unless you’ve opened a file in your child’s name, they shouldn’t have one; if they do, this is a big red flag.

 

Consider establishing and freezing your child’s credit file. For added protection, you may choose to create credit files for your children, and then freeze them until needed. This makes it much harder for an identity thief to successfully use any stolen information to establish a fake line of credit. Note: Effective September 21, 2018, a new Federal law makes it easier to freeze your own and your minor children’s credit files.

 

Educate your child. As soon as your children are old enough to understand, recruit them to assist. The Federal Trade Commission offers this handy information on how to talk to your children about computer security. Also assure them, they should never be afraid to tell you if they feel they’re being bullied by anyone – under any circumstances.

 

Just as it is second nature to help your children apply sunscreen when the sun is shining or to bundle them up on a winter day, protecting them from identity theft should be part of your regular, all-weather routine these days. A few sensible and regularly applied defenses could ward off years of damage done from an “overexposure” to identity theft.  If you have questions or concerns about identity theft for yourself or your child, or if you’d like guidance on implementing any of these recommendations, the team at PLC Wealth Management is ready to help.

10 Practices for the New Year

Happy New Year! Now that 2017 is a wrap, one of the best presents you can bestow on yourself and your loved ones is the gift of proper preparation for rest of the year. Want to get a jump-start on it? Here are 10 financial best practices to energize your wealth management efforts.

  1. Save today for a better retirement tomorrow. Are you maxing out pre-tax contributions to your company retirement plan? Taking full advantage of your and your spouse’s company retirement plans is an important, tax-advantaged way to save for retirement, especially if your employer matches some of your contributions with “extra” money. And, by the way, if you are 50 or older, you may be able to make additional “catch-up contributions” to your plan, to further accelerate your retirement-ready investing.
  2. Verify your valuables are still covered. Most households have insurance: home, auto, life … maybe disability and/or umbrella. But when is the last time you’ve checked to see if these policies remain right for you? Over time, it’s easy to end up with gaps or overlaps, like too much or not enough coverage, deductibles that warrant a fresh take, or beneficiaries who need to be added or removed. If you’ve not performed an insurance “audit” recently, there’s no time like the present to cross this one off your list.
  3. Get a grip on your debt load. Investment returns will only take you so far if excessive debt is weighing you down. Prioritize paying down high-interest credit cards and similar high-cost debt first, and at least meeting minimums on the rest. You may also want to revisit whether you still hold the best credit cards for your circumstances. Do the interest rates, incentives, protections and other perks still reflect your needs? Ditto on that for your home loan.
  4. Check up on your credit reports. Speaking of those credit cards, have you been periodically requesting your free annual credit report from each of the three primary credit reporting agencies? Be sure to use annualcreditreport.com for this purpose, as it’s the only federally authorized source for doing so. By staggering your requests – submitting to one agency every fourth months – you can keep an ongoing eye on your credit, which seems especially important in the wake of last summer’s Equifax breach.
  5. Get a bead on your budget. How much did you spend in 2017? How much do you intend to spend in the year ahead? After current spending, can you still afford to fund your future plans? Do you have enough set aside in a rainy day fund to cover the inevitable emergencies? These days, there are apps available to help you answer these important questions. Mint.com is one such popular app.
  6. Get ready for tax time … with a twist. While income tax reform looms large in the U.S., the changes won’t apply to 2017 taxes (due by April 17, 2018). There now may be tax planning opportunities or challenges to consider as the new laws take effect in 2018. You may want to fire up those tax-planning engines on the early side this time around.
  7. Give your investments a good inspection. Where do you stand with your personal wealth? Have you got an investment strategy to see you through? Does your portfolio reflect your personal goals and risk tolerances? If you experienced strong growth in 2017, is it time to lock in some of those gains by rebalancing your portfolio to its original mix? While investment management is a marathon of patient perspective rather than a short-sighted sprint of mad dashes, a new year makes this as good a time as any to review the terrain.
  8. Ensure your estate plans are current. Do you have wills and/or trusts in place for you and your loved ones? If so, when is the last time you took a look at them? Your family may have experienced births, deaths, marriagies or divorces. Dependants may have matured. You may have acquired or sold business interests, and added new assets or let go of old ones. Your original intentions may have changed, or government regulations may have changed them for you. For all these reasons and more, it’s worth revisiting your estate plans annually.
  9. Have a look at your healthcare directives. As healthcare becomes increasingly complex, advance directives (living wills) play an increasingly vital role in ensuring your healthcare wishes are met should you be unable to express them when the need arises. Don’t leave your loved ones unaware of and/or unable to act on your critical-care or end-of-life preferences. If you don’t already have a strong living will in place, Aging with Dignity’s Five Wishes is one helpful place to learn more.
  10. Give your newly adult children the gift of continued care. Have any of your children turned 18 recently? You may send them off to college or a career, assuming you can still be there for them should an emergency arise. Be forewarned! If you don’t have the legal paperwork in place, healthcare providers and others may be unable to respond to your requests or even discuss your adult child’s personal information with you. To remain involved in their healthcare interests, you’ll want to have a healthcare power of attorney, durable power of attorney and HIPAA authorization in place. It may also be prudent to establish education record release authorizations while you’re at it.

Next Steps in the New Year

We get it. Life never stops. The holiday season can be a busy time that often spills right into the new year. Don’t despair if you can’t get to all ten of these tidbits at once. Take on one each month, and you’ll still have a couple of months to spare before we’re ringing in 2019.

Better yet, don’t go it alone. Let us know if we can help you turn your financial planning jump-start into a mighty wealth management leap. It begins with an exploratory conversation.

Equifax Security Breach, Part II

I initially wrote about my take on the Equifax Security Breach about a month ago.  In that time since, the news continues to come out about just how pervasive this hack was (and maybe continues to be).  We were already on high alert for instances of identity theft. But the source, scope, and what seems like a justified feeling of betrayal associated with this particular breach have ushered in a new era of cybersecurity. There was before the Equifax security breach; now there’s after.

What does “after” look like, and how can we help you navigate it?  Unfortunately, there is no one-size-fits-all regimen, but here are some of the most frequently cited actions we’ve seen, along with our commentary on them.  Some of these were mentioned in my first post (repetition never hurts) but I have added some new thoughts as well.

What should you do right now?

  1. Check your credit reports using annualcreditreport.com. Keeping an eye on your credit reports has long been a best practice, and should continue to be, today more than ever. Be sure to only use annualcreditreport.com. As the website says, it is the only provider authorized by Federal law to provide you with the free annual reports that already are rightfully yours. Also, so you can obtain a free credit report more than annually, consider staggering the three primary agencies’ reports, selecting one to review every four months.
  2. File your tax returns as early as you’re able. This might sound strange considering that we are only a few days away from the extension deadline; however, January 1st, 2018 will be here before we know it. Plan to have your tax information organized and ready to go to your CPA.  Filing early minimizes the opportunity for an identity thief to file a bogus return on your behalf.
    This may not be practical for some of you, but the bottom line…if you can file earlier than later, do so.
  3. Consider placing a fraud alert or a freeze on your credit. Deciding which (if either) of these actions makes sense for you depends on your personal circumstances. For example, if you’re frequently applying for credit, placing a freeze may be impractical. On the other hand, if you have been a victim of identity theft, an alert might not suffice. In this instance, it’s worth reading through the advantages and disadvantages before determining your next steps. We’re here for you as well, to serve as an additional sounding board.
  4. Consider enrolling in a credit monitoring service. Equifax has offered to provide a year of free credit monitoring and identity theft protection via TrustedID Premier. We’ve seen mixed reviews on whether it makes sense to accept Equifax’s offer. First, there’s the whole trust issue raised by the recent breach. Plus, identity thieves have nearly endless patience, so one year of monitoring is only the beginning. That said, other independent services can be costly (especially if you’ve got an entire family to cover), and they may not ultimately offer much that you cannot do on your own if you so choose. It comes down to a cost/benefit analysis unique to you.
  5. Regularly change the passwords and PINs on your financial accounts. Like regularly monitoring your credit reports, periodically changing your financial account login information has been and remains a best practice. Quarterly or at least twice a year makes good sense to us.

Information fatigue is the enemy of action

We’ve seen other tips and pointers besides these, some of which may be advisable as well. To avoid informational overload, here are three guiding lights:

  • Pace yourself. As with any seemingly insurmountable challenge, it may be best to take things one step at a time, lest you lock up and end up doing nothing at all.
  • Patiently prevail. Approach your security as an ongoing process rather than a quick fix. After determining which actions make sense for you, set up a routine and a schedule for implementing them. Write down your plans, and then follow them.
  • Partner with us. We won’t go into sensitive specifics here but, as financial advisors, we have long been taking strong measures at our end to protect against hackers and identity thieves. That said, no system is impregnable. The more aggressively we join forces to thwart cybercriminals, the more likely we will ultimately prevail.

So, how can we help you moving forward? If you’d like to consult with us as you think through some of the points we’ve touched on above, we welcome the conversation. We also ask you to be responsive when we reach out to you with security-related questions or suggestions. For example, earlier this year, we produced a quick-reference and more detailed overview, “Avoiding Financial Scams and Identity Theft Slams,” filled with perennial information and best practices. We’d be delighted to share those materials with you so just ask.

As this wise educator observed in reflecting on the Equifax breach, “Security isn’t a product. It’s a process.” Just as sensible investing involves taking appropriate near-term steps in the context of an ongoing, personalized plan, so too do we find it increasingly imperative to respond to this and future cyberattacks with upfront planning, well-reasoned action and continued best practices. Let us know how else we can assist with that!