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At What Age Should I Teach my Child about Money?

There is no agreed-upon age to begin teaching your child about money. Some sources claim they should learn around age 7, while others say they need to be familiarized with the concepts at age 3. There are plenty of ways to teach your young child about money, especially in subtle ways that help them build the skills they will later need for financial literacy. 

Does a toddler really need to know about money?

As with many financial matters, our team at Blakely Financial believes the best advice is to start early. The sooner children learn financial fundamentals, the more likely they will become informed investors later in life. You never know; you may even benefit from learning alongside your child! If there are areas where you could use a refresher, take the time to review those topics as you approach them with your son or daughter. Remember to always consult with your financial advisor for guidance on investing and saving.

Obviously, a toddler will not understand the importance of a diverse portfolio. There are ways, however, to provide children with skills that will help them make smart financial decisions as they age. The first few years of life are critical for mental development. Toys that incorporate counting, such as building blocks, can help your child develop mathematical skills. Many young kids books also cover important topics like saving, spending, and the value of a dollar. 

How can I teach money skills to a young child?

Teaching your child about money doesn’t just mean describing how to create a budget. Forming a positive association with the concept of money is essential to future financial wellness. Be sure you and your partner don’t instill a negative association with money in your child by arguing about finances in front of them. Do not avoid the topic of money altogether, but be careful not to speak in such a way that could cause your child to associate negativity and stress with the concept of money. Your child could develop “money avoidance” tendencies where they resist acknowledging their finances or learning more about budgeting and saving. 

Consider using physical cash more often. If your young child only sees things being purchased with a card, they may take longer to understand the concept of money and the value of a dollar! 

Another way to indirectly teach a young child about money is to educate them on the difference between wants and needs. When you are very young, it can feel as if you need something that is actually just a want. Be sure to discuss the difference between these terms with your child so that they can learn to categorize the two by themselves. Talk about wants and needs in terms of the consequences they will face if they don’t get to have/do the thing they want or need. This line of thinking will help them prioritize their needs over wants; an essential skill for dealing with money later in life. 

How can these skills be expanded as my child grows?

The skills they learn (physical cash, wants vs needs, math) can be applied to their own purchases as they begin to earn and possess their own money. If your child receives money from family members for birthdays or holidays, consider how you will help them use it wisely! Maybe you will offer to hold on to some of the money for them or get them a piggy bank. Try to discuss what they would like to do with the money and make suggestions, but don’t go overboard!

Let them make mistakes. Though it may be tempting to take full control over your child’s money, you need to allow them the freedom to slip up. If, for instance, they immediately spend all of their birthday cash on a video game, they will learn the consequences when they want something else and don’t have any money left over. This is a far more effective lesson than simply being told what to do, so be sure to give your child a reasonable amount of freedom when it comes to spending! By the time they become a teenager, these skills will help them navigate the financial freedom of their first job and beyond. 

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other specialized advice we can provide towards your financial well-being.

Raising Money-Smart Teens

As teens look forward to summer activities, especially those that cost money, the next few months might present an ideal opportunity to help them learn about earning, spending, and saving. Here are a few age-based tips.

Younger Teens

Recently, apps have proliferated to help parents teach tweens and teens basic money management skills. For example, some money apps allow parents to provide an allowance or pay their children for completing chores by transferring money to companion debit cards. Many offer education on the basics of investing. Others allow children to choose from a selection of charities for donations. Some even allow parents to track when and where debit-card transactions are processed and block specific retailers or types of businesses.

Most apps typically charge either a monthly or an annual fee (although some offer limited services for free), so it’s best to shop around and check reviews.

Older Teens

Many teens get their first real-life work experience during the summer months, presenting a variety of teachable moments.

Review payroll deductions together. A quick review can be an eye-opening education in deductions for federal and state income taxes and Social Security and Medicare taxes.

Open checking and savings accounts. Many banks allow teens to open a checking account with a parent co-signer. Encouraging teens to have a portion of their earnings automatically transferred to a companion savings account helps them learn the importance of “paying yourself first.” They might even be encouraged to write a small check or two to help cover the expenses they help incur, such as the Internet, cell phone, food, gas, or auto insurance.

Consider opening a Roth account. A teen with earned income could be eligible to contribute to a Roth IRA set up by a parent — a great way to introduce the concept of retirement saving. Because Roth contributions are made on an after-tax basis, they can be withdrawn at any time, for any reason.

Roth IRA earnings can be withdrawn free of taxes as long as the distribution is “qualified”; it occurs after a five-year holding period and the account holder reaches age 59½, dies, or becomes disabled. Nonqualified earnings distributions are taxed as ordinary income and subject to a 10% early-withdrawal penalty; however, if the account is held for at least five years, penalty-free distributions can be taken for a first-time home purchase and to help pay for college expenses, which may be helpful in young adulthood. (Regular income taxes will still apply.)

 

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other specialized advice we can provide towards your financial well-being.

EMILY PROMISE is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262 and can be reached at (336) 885-2530.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

Prepared by Commonwealth Financial Network®

Following the Inflation Debate Steve LaFrance Blakely Financial

Following the Inflation Debate

Presented by STEPHEN LAFRANCE, CFP®, MBA

During the 12 months ending in June 2021, consumer prices shot up 5.4%, the highest inflation rate since 2008.1 The annual increase in the Consumer Price Index for All Urban Consumers (CPI-U) — often called headline inflation — was due in part to the “base effect.” This statistical term means the 12-month comparison was based on an unusually low point for prices in the second quarter of 2020 when consumer demand and inflation dropped after the onset of the pandemic.

However, some evident inflationary pressures entered the picture in the first half of 2021. As vaccination rates climbed, pent-up consumer demand for goods and services was unleashed, fueled by stimulus payments and healthy savings accounts built by those with little opportunity to spend their earnings. Many businesses that shut down or cut back when the economy closed could not quickly ramp up enough to meet surging demand. Supply-chain bottlenecks, along with higher costs for raw materials, fuel, and labor, resulted in some troubling price spikes.2

Monitoring Inflation

CPI-U measures the price of a fixed market basket of goods and services. It is a good measure of consumers’ costs if they buy the same items over time, but it does not reflect changes in consumer behavior. Extreme increases can unduly influence it in one or more categories. In June 2021, for example, used-car prices increased 10.5% from the previous month and 45.2% year-over-year, accounting for more than one-third of the increase in CPI. Core CPI, which strips out volatile food and energy prices, rose 4.5% year-over-year.3

The Federal Reserve prefers a different inflation measure called the Personal Consumption Expenditures (PCE) Price Index in setting economic policy. This measure is even broader than the CPI and adjusts for changes in consumer behavior — i.e., when consumers shift to purchase a different item because the preferred thing is too expensive. More specifically, the Fed looks at core PCE, which rose 3.5% through the 12 months ending in June 2021.4

Competing Viewpoints

The perspective held by many economic policymakers, including Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen, was that the spring rise in inflation was due primarily to base effects. As such, temporary supply-and-demand mismatches, so the impact would be mostly “transitory.”5 Regardless, some prices won’t fall back to their former levels once they have risen, and even short-lived bursts of inflation can be painful for consumers.

 

Source: U.S. Bureau of Labor Statistics, 2021

Some economists fear that inflation may last longer, with more severe consequences, and could become difficult to control. This camp believes that loose monetary policies by the central bank and trillions of dollars in government stimulus have pumped an excess supply of money into the economy. In this scenario, a booming economy and persistent and/or substantial inflation could result in a self-reinforcing feedback loop in which businesses, faced with less competition and expecting higher costs in the future, raise their prices preemptively, prompting workers to demand higher wages.6

Until recently, inflation had consistently lagged the Fed’s 2% target, which it considers a healthy rate for a growing economy, for more than a decade. In August 2020, the Federal Open Market Committee (FOMC) announced that it would allow inflation to rise moderately above 2% for some time to create a 2% average rate over the longer term. This signaled that economists anticipated short-term price swings and assured investors that Fed officials would not overreact by raising interest rates before the economy had fully healed.7

In mid-June 2021, the FOMC projected core PCE inflation to be 3.0% in 2021 and 2.1% in 2022. The benchmark federal funds range was expected to remain at 0.0% to 0.25% until 2023.8 However, Fed officials have also said they are watching the data closely and could raise interest rates sooner, if needed, to cool the economy and curb inflation.

Projections are based on current conditions, are subject to change, and may not come to pass.

1, 3) U.S. Bureau of Labor Statistics, 2021; 2) The Wall Street Journal, April 13, 2021; 4) U.S. Bureau of Economic Analysis, 2021; 5-6) Bloomberg.com, May 2, 2021; 7-8) Federal Reserve, 2020-2021
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide towards your financial well-being.

STEPHEN LAFRANCE, CFP®, MBA is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262. 336-885-2530.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

Grandparent 529 Plans Get a Boost Under New FAFSA Rules

529 plans are a favored way to save for college due to the tax benefits and other advantages they offer when funds are used to pay a beneficiary’s qualified college expenses. However, up until now, the FAFSA (Free Application for Federal Student Aid) treated grandparent-owned 529 plans more harshly than parent-owned 529 plans. This will change thanks to the FAFSA Simplification Act that was enacted in December 2020. The new law streamlines the FAFSA and changes the formula used to calculate financial aid eligibility.

Current FAFSA Rules

Under current rules, parent-owned 529 plans are listed on the FAFSA as a parent asset. Parent assets are counted at a rate of 5.64%, which means 5.64% of the value of the 529 account is deemed available to pay for college. Later, when distributions are made to pay college expenses, the funds aren’t counted; the FAFSA ignores distributions from a parent 529 plan.

By contrast, grandparent-owned 529 plans do not need to be listed as an asset on the FAFSA. This sounds like a benefit. However, the catch is that any withdrawals from a grandparent-owned 529 plan are counted as untaxed student income and assessed at 50% in the following year. This can have a negative impact on federal financial aid eligibility.

Example: Ben is the beneficiary of two 529 plans: a parent-owned 529 plan with a value of $25,000 and a grandparent-owned 529 plan worth $50,000. In Year 1, Ben’s parents file the FAFSA. They must list their 529 account as a parent asset but do not need to list the grandparent 529 account. The FAFSA formula counts $1,410 of the parent 529 account as available for college costs ($25,000 x 5.64%). Ben’s parents then withdraw $10,000 from their account, and Ben’s grandparents withdraw $10,000 from their account to pay college costs in Year 1.

In Year 2, Ben’s parents file a renewal FAFSA. Again, they must list their 529 account as a parent asset. Let’s assume the value is now $15,000, so the formula will count $846 as available for college costs ($15,000 x 5.64%). In addition, Ben’s parents must also list the $10,000 distribution from the grandparent 529 account as untaxed student income, and the formula will count $5,000 as available for college costs ($10,000 x 50%). In general, the higher Ben’s available resources, the less financial need he is deemed to have.

New FAFSA Rules

Under the new FAFSA rules, grandparent-owned 529 plans still do not need to be listed as an asset, and distributions will no longer be counted as untaxed student income. In addition, the new FAFSA will no longer include a question asking about cash gifts from grandparents. This means that grandparents will be able to help with their grandchild’s college expenses (either with a 529 plan or with other funds) with no negative implications for federal financial aid.

However, there’s a caveat: Grandparent-owned 529 plans and cash gifts will likely continue to be counted by the CSS Profile, an additional aid form typically used by private colleges when distributing their own institutional aid. Even then, it’s not one-size-fits-all — individual colleges can personalize the CSS Profile with their own questions, so the way they treat grandparent 529 plans can differ.

Use of 529 Savings Plans

Source: ISS Market Intelligence, 529 Market Highlights, 2019 and 2020

When Does the New FAFSA Take Effect?

The new, simplified FAFSA opens on October 1, 2022, and will take effect for the 2023-2024 school year. However, grandparents can start taking advantage of the new 529 plan rules in 2021. That’s because 2021 is the “base year” for income purposes for the 2023-2024 FAFSA, and under the new FAFSA, a student’s income will consist only of data reported on the student’s federal income tax return. Because any distributions taken in 2021 from a grandparent 529 account won’t be reported on the student’s 2021 tax return, they won’t need to be reported as student income on the 2023-2024 FAFSA.

Consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. This information and more is available in the plan’s official statement and applicable prospectuses, including details about investment options, underlying investments, and the investment company; read it carefully before investing. Also, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits and other benefits, such as financial aid, scholarship funds, and protection from creditors. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated. In addition, for withdrawals not used for higher-education expenses, earnings may be subject to taxation as ordinary income and a 10% federal income tax penalty.

 

 

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other specialized advice we can provide towards your financial well-being.

BLAKELY FINANCIAL, INC. is located at 1022 Hutton Ln., Suite 109, High Point, NC 27262, and can be reached at (336) 885-2530.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through Blakely Financial or CES Insurance Agency

 

This communication is strictly intended for individuals residing in the state(s) of AK, AZ, AR, CA, CO, FL, GA, IL, IA, MD, MI, MN, MS, MO, NJ, NY, NC, OK, PA, SC, SD, TN, TX, VA, WV, and WI. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Advisor Solutions Copyright 2021.