Money Management

There’s a simple step that could set young people on a solid financial footing. Read on to see what it is. [[{“value”:”

$1.05 trillion in credit card debt. $245 billion in personal loan debt. These are just a couple of figures showing how much debt U.S. consumers were carrying as of the final quarter of 2023, according to TransUnion.

Now in reality, it’s possible to land in debt despite being financially savvy. But a big reason some consumers end up with debt is that they were never taught the importance of trying to avoid it — at least in the context of credit card balances.

In fact, it’s for this reason that there’s been a big push to introduce personal finance courses at the high school level. As of March 2024, 25 states guarantee that their students will take a financial literacy course prior to graduation, says Next Gen Personal Finance, a financial education nonprofit. But that still leaves half of the country without such a requirement. And states that don’t impose it could be doing their students a major disservice.

Financial literacy pays off

A recent report by Tyton Partners in collaboration with Next Gen Personal Finance found that taking a financial literacy course yields a lifetime benefit of $100,000 per student. Much of that $100,000 benefit can come in the form of debt avoidance and strong credit, which can lead to affordable borrowing for essential expenses like auto loans and mortgages.

Students who learn strong financial habits may also be more inclined to have more success with budgeting, saving, and investing for the future. So it’s important to make sure your child has access to such education during young adulthood.

Of course, it’s hard to determine just how accurate that $100,000 claim is. But there is plenty of data that shows a correlation between financial education and financial strength.

According to data from the Brookings Institution, low financial literacy is linked to numerous negative credit-related behaviors, including higher borrowing rates, higher mortgage delinquency rates, and foreclosures. On the flipside, financial literacy among teens has a positive correlation to asset accumulation and net worth at age 25.

Make sure your child gets the education they need

As you can see, teaching children to manage their finances and debts can go a long way. So if your school doesn’t currently offer a financial literacy program, petition your school board to introduce one. And if that doesn’t work, impart some knowledge yourself.

Some of the topics you should especially make a point to discuss with your teen are:

The importance of having emergency savings at all timesThe importance of having good credit, and how to arrive at itHow to benefit from using credit cards without landing in debtHow to avoid taking on too much total debtHow to set financial goalsHow to create and follow a budget

Along these lines, being open about your financial situation could also help to set your child on a solid path. So if you’re comfortable doing so, share your financial wins (as well as your mistakes) so they can learn from them.

It’s a little hard to say with certainty that getting a personal finance education will make your child $100,000 wealthier in their lifetime. But it’s more than fair to say that the more financially literate your child is at the end of their high school years, the better their chances of making savvy money-related decisions as a young adult and beyond. So it’s definitely in your best interest to transfer that knowledge or petition your local schools to do it for you.

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Child care is expensive, but there are ways to cut your costs. Keep reading to learn how. [[{“value”:”

Navigating the terrain of child care expenses can feel like trekking up a financial Everest — daunting, exhausting, yet utterly necessary for the journey of parenthood. According to the U.S. Department of Labor, the cost of daycare for an infant in the U.S. averages between $8,310 to $17,171 annually in 2022, depending on location, and potentially consumes up to 47% of a family’s income in major cities. So the hit to a family’s bank account is substantial. For those considering a full-time nanny, the stakes climb even higher, with costs averaging about $31,000 per year.

Yet, with this fiscal challenge, there are strategies and tools designed to alleviate the burden, turning a steep climb into a manageable hike.

1. Leverage financial assistance and government subsidies

First, exploring financial assistance and government subsidies can reveal lifelines for many families. Programs like Early Head Start offer not only early childhood education but also comprehensive services for young children from low-income families.

Additionally, some states provide free pre-kindergarten, easing the financial strain. It’s crucial to explore these avenues, as they can significantly reduce out-of-pocket expenses, making quality child care more accessible and affordable.

2. Use employer-sponsored Dependent Care Accounts

For many working parents, employer-sponsored benefits such as the Dependent Care Flexible Spending Account (DCFSA) can be a financial shield. By setting aside up to $5,000 of your pre-tax income for eligible expenses, you can achieve an average savings of 30% on dependent care, according to the U.S. Office of Personnel Management. This account covers a range of services, from daycare and preschool to summer camp, making it a versatile tool in your cost-cutting arsenal.

3. Capitalize on tax credits to offset costs

The Child and Dependent Care Tax Credit is the ace up the sleeve for parents looking to mitigate past and future child care costs. Available for those with an adjusted gross income of less than $438,000, this credit can return up to $4,000 for one qualifying dependent or $8,000 for two or more.

By strategically filing this credit using Form 2441 during tax season, families can reclaim a portion of their child care expenditures, easing the financial burden and potentially freeing up funds for other essential needs or savings.

4. Find a nanny share buddy on Facebook

Now, let’s not forget the power of good ol’ Facebook for something pretty cool beyond cat videos and birthday reminders. For those looking to cut down nanny costs, finding another family to share a nanny with can be a game changer. Facebook is like this unexpected hero here. Dive into local parenting groups or nanny-share pages; you might just find your nanny-share soulmate (sharing a nanny with another family by having her watch both families’ kids or split the days). It’s like online dating, but for your wallet and child care needs.

Use these tools to cut your child care costs

While the financial demands of child care can seem overwhelming, especially in the wake of the COVID-19 pandemic’s impact on pricing, the availability of subsidies, employer-sponsored accounts, and tax credits offers a beacon of hope. By employing these strategies, parents can navigate the fiscal challenges of child care with greater ease, ensuring that their children receive quality care without compromising the family’s budget.

With these tools in hand, the journey through the landscape of child care expenses can become a journey of manageable steps, rather than an insurmountable climb.

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CDs are a great way to grow your wealth, but it can be tough to know which to choose. Here are three CD perks that could make a difference for you. [[{“value”:”

Certificates of deposit (CDs) aren’t as flashy as some other types of bank accounts. They lock your money away for a certain period of time, known as the CD term, so they don’t have things like debit card access or check-writing capabilities.

Their primary draw is their annual percentage yield (APY). But there are some special types of CDs that set themselves apart with extra perks. Here are three to watch for.

1. Rate increases

CDs typically lock in your rate for the full length of your CD term, which could be years depending on the account you choose. But some CDs will increase your APY if the rates on new CDs are higher than what you’re getting.

These usually come in two flavors: step-up and bump-up CDs. Step-up CDs have a predetermined rate increase schedule. For example, they might automatically increase your rates every year if new rates are higher than the rate you locked in when you open the account. Bump-up CDs enable you to request rate increases whenever you want during the term, though there are usually rules about how often you can do this.

If you’re considering either of these types of CDs, do some investigating into the terms before you open one. Learn whether the bank will automatically increase your rate or if you must request it and how to request an increase, if necessary.

2. No-penalty withdrawals

Typically, you pay a penalty for withdrawing CD funds before the term ends. Exact penalties depend on the CD you choose and how early your withdrawal is. Usually, it’s equal to several months of lost interest.

Though rare, there are no-penalty CDs that permit you to withdraw your cash at any time without paying this penalty. However, these CDs may have lower interest rates than traditional CDs because there’s a greater chance that you might withdraw your cash early. Also, you typically have to withdraw all your funds from the CD at once. You can’t make a partial withdrawal.

3. Early access to interest payments

Banks typically reinvest the interest you earn each month on your CD back into that CD, so the next month, you earn interest on your interest. This is a great way to maximize your profits, but it’s not right for everyone.

If you want to reap some of the reward of your CD now, you might prefer a CD that enables you to transfer your monthly interest payments to a savings or checking account as you earn them. Your principal will still remain locked up until the CD term ends.

If you’re not sure whether this is an option or you have other questions about a bank’s CD offerings, it’s best to reach out to the bank directly. Get clarity before you open your account, so you don’t have to worry about penalties.

And if you’re unsure whether a CD is a good fit for you, consider a high-yield savings account instead. These accounts also offer a high interest rate — as much as 5.00% (or even higher) right now — but that rate is variable and can change over time. The upside is that you can access your cash whenever you need to, which is a lot less restrictive than CDs.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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There are a few money ideas I want my kids to know. Read on for a discussion of what young people should know about saving, investing, and giving. [[{“value”:”

Many people grow up without any formal instruction about personal finance. Some states are beginning to teach personal finance in schools, but the latest data shows that just 40% of high schoolers will have taken a personal finance course before they graduate.

Most of us pick up ideas about spending, budgeting, and saving money by looking at what our parents do. That idea has made me think about what I want my kids to learn about managing their money. Here are a few lessons they’ve been learning about saving, investing, and giving back.

1. Saving money

Several years ago, my two sons wanted expensive Lego sets, each costing more than $100. My kids love Lego, and I knew they could build the sets and play with them for a long time. But it wasn’t their birthday or Christmas, and I thought it’d be the right time to teach them a little bit about saving up for things they want to buy.

I generally let them buy whatever they want with their money, but I told them they had to save up birthday money and any other monetary gifts to make the purchase. It took a while, but they finally had enough money saved for the sets and had a blast putting them together.

The lesson they learned: Saving money takes time and effort. After spending most of the money they had on their Lego sets, they were cautious about letting their savings accounts go back down to $0. They learned the value of waiting for something they wanted and also how easy it is to spend everything they’ve saved.

2. Giving to charity

When my wife and I received some of the COVID-19 stimulus money, we decided to give some of it away, and we wanted to involve our kids in the process.

We found a charity where you can buy goats, chickens, and other animals for people in different countries that help them provide food for their families or to be used to generate income. We let our kids pick out which animals they’d purchase, so they could feel connected to this gift.

The lesson they learned: I’m still learning how to be generous with my money, but I wanted my kids to see that the money we have — whether we earned it or it was given to us — can be used in more creative and generous ways than just for our own wants and needs.

3. Investing

I recently talked to my oldest son about a stock I bought in a company that I think has great long-term potential. My son has some general interest in the work the company does, so I knew he’d understand a little bit about what I was talking about.

I wanted him to understand the benefits of investing money to ideally generate more money later. I’ve got some more investing lessons to teach both of my kids, and one fact I want to drive home is that the earlier you invest your money, the more time the magic of compound interest has to work.

The lesson they learned: This lesson is a work in progress. The next step I’m going to take is to show my kids my brokerage account and the benefit of putting some money aside for retirement in a low-cost index fund. I’ll also show them some investment calculators that show how a small investment can potentially turn into a much larger sum over time.

Just like all other lessons I try to teach my kids, it takes more than once to tell them how something works for them to learn it (I can relate!). But my goal is to make discussing money a normal topic to discuss — and that there are a lot of different ways to use it. And if I’m lucky, I’ll learn more in the process, too.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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