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3 Ways to Teach Kids About Money

Kids get some funny ideas about money. David Frisch, president of Frisch Financial Group in Melville, New York, co-founded an investing club at his kids’ middle school in 2014. One fifth-grade club member told his classmates that his family doesn’t worry about money because his dad has a “special thing you just buy stuff with, and you don’t have to pay for it — it’s called a credit card,” he says. “It was priceless.”

Cute or not, misconceptions about money can sprout when parents avoid the topic, as many do — 71% of parents are reluctant to discuss money with their youngsters, according to a T. Rowe Price Kids and Money survey. The good news is that kids who get opportunities to talk about finances can quickly advance from oblivious to sophisticated.

“You can start teaching your children about money from a young age, as early as 5 or 6 years old,” says Stacy Francis, president and CEO of Francis Financial in New York City. “Children are a lot more perceptive than we often think. They listen to how we speak about money, notice our attitudes towards it and what we do with it.”

She and other experts shared some ways they’ve taught their kids about money.

1. Invest pretend money

The investing club Frisch and a teacher founded, called Fantasy Stocks, had a group of about 20 kids who would meet after school every two weeks in the school’s computer lab. Each student set up a mock brokerage account with $10,000, using a free online stock simulator. They got to pit their stock portfolios against each other’s and learned to search financial sites for good and bad news on their stock picks.

Frisch’s own triplets, then 12, were enthusiastic investors in the club. “Conversations at the dinner table changed to, ‘I’m thinking about buying Apple because there’s a new phone coming out,’” he says. His daughter showed interest in the clothing company Michael Kors as a business rather than just for fashion trends.

One important investing experience in particular will likely stay with the kids for life. That first fall, the stock market performed well and many of the young investors watched their portfolios increase in value. “But in January, the market fell hard, and they quickly learned that it can go down, and it can go down big,” Frisch says. That’s a fundamental lesson that would serve any investor well.

2. Play games with money lessons

If you think about it, some of the most beloved board games revolve around financial decisions. The classic game Monopoly, for example, models real estate investing, while The Game of Life has players driving spouses and kids around the board in pastel-colored cars through a variety of financial ups and downs.

Francis, the New York City financial planner, uses her favorite board game to explain complex financial concepts to teenagers and younger kids. “One thing we like about [the game] Cash Flow for Kids is it allows kids to learn about the difference between assets and liabilities,” she says. Kids easily understand that assets are things you own, like a bike or a toy, while things you have to pay each month are liabilities — like a cable bill, she explains.

Players aim to get assets that generate income, so they can earn money without working for it. “The goal of the game is to have enough ‘passive income’ to pay for all of your expenses, so that you don’t need your salary to pay for them,” Francis says.

3. Fill out FAFSA together

When the time came to fill out her college-bound daughter’s financial aid application, Marguerita Cheng, chief executive of Blue Ocean Global Wealth in Rockville, Maryland, saw it as an opportunity to start a conversation. She suggested that the two fill out the Free Application for Federal Student Aid, or FAFSA, together. Her daughter agreed to help.

“I made her get the tax return and read off the line items,” Cheng says. Being exposed to the specifics of family finances for the first time was a learning experience. “It was eye-opening because she learned why you have to keep good records,” she says.

The first time filling out the FAFSA was a bit difficult, but doing it together has become an annual ritual and the basis for meaningful conversations about student loans, interest payments and future career plans, Cheng says. “I think she’s more aware of how much it’s costing. There’s an appreciation of what it costs for her to go to school.”

When parents find ways to talk with kids about real-life finances, it’s doing them a favor. “By teaching them about money, you are empowering them by giving them knowledge and tools they will use for the rest of their lives,” Francis says. In fact, the most important thing you can do is to start having those money conversations with your family sooner rather than later.

Jeanne Lee is a staff writer at NerdWallet, a personal finance website. Email: jlee@nerdwallet.com. Twitter: @jlee_jeanne.

Money Market Accounts Could Drag Down Your Retirement Savings

After the stock market meltdown of 2007 and 2008, many Americans grew wary of investing and moved more of their savings into money market deposit accounts. These have less volatility than stocks and a higher return rate than traditional savings accounts.

In fact, the total amount in money market accounts has nearly doubled since the stock market crash, from around $2.7 trillion at the end of 2007 to more than $5.1 trillion as of this June, according to data from the Federal Deposit Insurance Corp.

Trading the volatility of stocks for the safety of a money market account might sound like a good idea, but many financial advisors believe that putting long-term savings, such as retirement savings, into money market accounts — and forgoing the better long-term returns of the stock market — would cost Americans plenty.

Money market accounts usually return 1% or less, which is lower than the rate of inflation. That means people are essentially losing money they’re hoping will ease them through their retirement years.

We asked Anna Sergunina of MainStreet Financial Planning to explain how money market accounts may be hurting consumers and what they should be doing instead. Anna is a member of NerdWallet’s Ask an Advisor network.

Are people costing themselves money by putting their retirement savings in money market accounts?

Yes. Money market accounts are good places to park your short-term money, but these accounts are paying very low returns, 1% per year if you are lucky. With inflation at 3% or more per year, you won’t be able to make your savings stretch very far. That’s where stock and bond market investing comes in handy. It helps you stay ahead of inflation.

Are there some cases where you should keep your money in money market accounts?

Yes, but only if you plan to be using the money in the next year or two. This way you can avoid any short-term market fluctuations and the potential loss of principal.

It’s best to think about your financial goals: Are you planning to buy a car in the next few months? Are you going to do a home remodel next year? Are you going to take a costly vacation soon? If the answer to these questions is yes, putting money in a money market account is a good idea, because you wouldn’t want to see that money shrink due to a bad month for the stock market.

You can also use a money market account as the place where you keep your emergency fund. This is the place where you want to keep at least three months of expenses to pay for any unforeseen costs that come up, like car repairs. Money markets are liquid, so you can easily withdraw this money when it’s needed.

» MORE: Here are the best money market accounts

What would you tell cautious investors who think the stock market is dangerous?

The stock market is not a dangerous place if you have the right strategy in place. The key thing to know about the stock market is that it needs time — time to work for you and time for your money to grow. Historically the stock market grows an average of around 7% per year. But that doesn’t mean it grows that much every year. For this reason, we recommend investing more money in the stock market when it is for long-term goals such as retirement savings, because then you’re giving it time to grow and you can ride out the ups and downs.

Are there any other investing tips people should keep in mind?

I like the idea of a “buckets of money” approach for investing. Think of your savings vehicles as short term (one to three years), medium term (three to seven years) and long term (seven years or more).

In your short-term bucket, you should only have “safe,” FDIC-insured investments such as savings accounts and money market accounts. Your medium-term bucket can include some stocks and bonds to generate more return, since three to seven years should be enough time to capture the upside of the stock market. For your long-term bucket you definitely need to have significant stock-market exposure. Your goal is to help your money grow so that it lasts longer and beats inflation.

Anna Sergunina is a financial advisor, the owner of MainStreet Financial Planning, and creator of the Money Library platform. MainStreet has offices in California, Maryland, New York and Washington, D.C.

How to Deal With Student Loans When You Owe More Than Your Annual Salary

You borrowed money to pay for school, but when it came time to start working you found that your loans add up to more than your first year’s salary. It’s not ideal, but it’s not an impossible situation, either.

Follow these tips to make your payments more manageable.

Assess your financial situation

The first step toward taking charge of your student loan debt is figuring out where you stand. For your student loans, find out how much you owe, what your interest rates are, how much of your monthly payments goes toward paying down the principal and how long you have to pay it off. Then do the same exercise for any other types of debt you have. Once you have all the information in front of you, it’ll be easier to see where your money should be going.

But before you can solely focus on paying off your student loans, registered investment advisor Tom Martin advises considering another aspect of your finances: your emergency fund. It’s how you’ll be able to handle unexpected costs, like a flat tire or a fried hard drive. As a general rule of thumb, NerdWallet advises saving three to six months’ worth of living expenses.

For Martin’s millennial clients with student loan debt, he suggests starting off by working toward a $1,000 emergency fund.

Prioritize your high-interest debt

Anyone with a large amount of student loan debt knows the weight of that debt hanging over your head can be stressful. And it’s probably tempting to throw all of your extra cash at your student loan payments.

But you may be better off using that money elsewhere. Credit cards and personal loans, for example, tend to have higher interest rates than federal student loans — think 25% or higher versus 3.4%.

“Financial advisors typically talk about the benefits of compounding interest to millennials because of their long time horizon. Carrying high-interest debt causes just the opposite. With debt, compounding is now working against you,” says Matt Hylland, a registered investment advisor based in Virginia.

Take advantage of repayment plans and forgiveness options

If you have federal loans, switching to an income-driven repayment plan can lower your monthly payments to as low as $0 per month. Plus, after 20 to 25 years, any remaining balance will be forgiven.

There are a few financial drawbacks: The forgiven amount will be taxed and your total interest payments will be higher. You also have to reapply every year. But keeping your payments manageable will help you stay on track and out of default, which can negatively impact your credit score, lead to wage garnishment, and cause your entire student loan debt to become due at once.

Another forgiveness option for federal loans is public service loan forgiveness. It’s available to those who work for a nonprofit or the government for at least 10 years and make 120 on-time payments on their loans. If you plan to sign up for PSLF, you can cut costs even further by switching to an income-driven repayment plan to lower your monthly payments.

If you’re ever having trouble making your monthly payments, contact your loan servicer to go over your options. If you have loans from a private lender, you may be able to postpone your payments for a period of time.

Live like you’re still in college

Getting that first big paycheck is cause for celebration, but you should continue to be pragmatic with your spending. That doesn’t mean you have to wipe out fun purchases altogether: Financial planner Catie Hogan advises taking a creative approach to cutting monthly costs.

“Instead of going out for an expensive night of dinner and drinks, have a dinner party where everyone contributes to the meal,” Hogan says. “So many cities now offer free community fitness and yoga, festivals, and concerts. It’s all about how resourceful you can be.”

Whatever changes you can make to cut your cost of living, know that it’ll be easier to replicate the college lifestyle when you’re fresh out of school rather than when you’ve spent months living at or above your means. So the sooner you make those adjustments, the easier it’ll be.

Use deferment and forbearance as a last resort

If your student loan payments are too high and you’ve exhausted all other options, look into getting a deferment or forbearance on your loans while you get your finances in order.

Both deferment and forbearance will allow you to postpone your student loan payments, but only deferment on federal loans allows you to do so interest-free; the government pays the interest on subsidized federal direct loans and Perkins loans when they’re in deferment. If you don’t qualify for deferment, you may be able to put your loans into forbearance instead, but interest will continue to accrue. For private loans, contact your student loan servicer to see if deferment or forbearance is an option.

If your financial situation is more secure before you come out of deferment or forbearance, consider paying off any accrued interest before your regular payments begin. That way you’ll avoid having that interest capitalized, or added to your principal balance, and save money in the long run.

Devon Delfino is a staff writer at NerdWallet, a personal finance website. Email: ddelfino@nerdwallet.com. Twitter: @devondelfino.

Mortgage Rates Today, Sept. 29: Ticking Up, FHA Proposes New Condo Rules

Thirty-year and 15-year mortgage rates reversed their declines, while 5/1 ARM loan rates dramatically increased, according to a NerdWallet survey of mortgage rates published by national lenders Thursday.

Mortgage Rates Today, Thursday, Sept. 29 (Change from 9/28) 30-year fixed: 3.60% APR (+0.02) 15-year fixed: 3.01% APR (+0.03) 5/1 ARM: 3.61% APR (+0.20) FHA proposes more flexible condo rules

The Federal Housing Administration proposed new regulations this week that will make it easier for condominium developers and homebuyers on the hunt for more affordable housing. FHA is proposing to reinstate single-unit approvals in unapproved condominium developments and to require condo developers to recertify their project status every three years instead of the current shorter term of two years.

FHA is also reconsidering its stances on minimum owner-occupants in approved condo developments. In other words, FHA is trying to be more flexible and responsive to market shifts while ensuring that developers create sustainable, financially sound condo communities.

FHA currently requires that approved condominium developments have a minimum of 50% owner-occupied units. On the surface, this requirement makes sense to ensure a condo community is viable, but it also dramatically limits the potential for marketing these developments and providing affordable housing options for renters. Through this proposed rule, FHA is considering an allowable range of 25% to 75% to be more responsive to shifting market conditions.

Another proposed change: FHA might insure mortgages for selected condo units in developments that are not currently approved, opening up more options for potential buyers using FHA loans.

Homeowners looking to lower their mortgage rate can shop for refinance lenders here.

NerdWallet daily mortgage rates are an average of the published APR with the lowest points for each loan term offered by a sampling of major national lenders. Annual percentage rate quotes reflect an interest rate plus points, fees and other expenses, providing the most accurate view of the costs a borrower might pay.

More from NerdWallet How to refinance your mortgage Compare mortgage refinance rates Find a mortgage broker

Deborah Kearns is a staff writer at NerdWallet, a personal finance website. Email: dkearns@nerdwallet.com. Twitter: @debbie_kearns.

How Library Fines Can Hurt Your Good Credit

You likely know some of the most obvious things that can send your credit score into a tailspin — filing for bankruptcy, a foreclosure on your home, habitually being late on payments, not returning a library book on time.

Wait, what does the library have to do with your credit? Potentially a lot.

Read between the lines

So you checked out a book and somehow lost track of the due date. The library charges you a fine, but since the amount is so small, you decide not to pay it or it slips your mind. Before you know it, that book fine turns into a financial nightmare as you field a call from a collection agency and you see your credit score dip.

The issue isn’t just library fines, of course; any debt that goes to collections looks bad on your credit report. You can see if you have collections against you by checking your credit reports; you’re entitled to a free copy from each of the three credit bureaus every year.

The collection agency may report your unpaid debt to a credit-reporting agency, which is where your credit score and your overdue library book cross paths. If this happens to you, you could face added penalties from the collection agency as well as a hit to your good credit, all over a minor fine.

How to protect your good credit

Don’t worry only about the large bills you assume will affect your credit. As seen in the example above, it’s not just credit card bills that you must pay punctually so your good credit stays that way. It’s parking tickets, library fines and a number of other fees as well.

Try to avoid such penalties in the first place, and if you are faced with a charge, pay it promptly. One of the keys to good credit is making payments on time, as it’s an indicator of your creditworthiness.

Late payments that go to collections, no matter how small, can cause your credit score to drop. And that could mean you’d be turned down when you apply for loans or credit cards for people with good credit.

Updated Sept. 29, 2016.

Strategies to Maximize Your Child’s Financial Aid Eligibility

By Mike Eklund

Learn more about Mike on NerdWallet’s Ask An Advisor

Parents need to be wise about how they will pay for the increasingly high costs of college. That means many families should be applying for financial aid — and preparing their finances to get the most aid possible. With smart college planning, you can maximize your student’s financial aid eligibility.

Types of aid

First, there are two main types of college aid: merit aid and need-based aid. Merit aid is straightforward — it is based on academic and extracurricular achievements. Students who excel in academics, sports or the arts can be awarded merit-based scholarships directly from their schools or through other institutions. Online tools such as Fastweb can help students seeking scholarship opportunities.

Need-based aid is more complicated. It depends on the student’s financial circumstances and can take the form of grant money, loans or work-study. Many affluent families assume that their children will be ineligible for need-based aid, but it often makes sense to apply anyway. By taking the right steps before the college-funding years, even affluent families may still qualify for a significant amount of aid. Plus, those who don’t qualify will still need to go through the federal student aid application process to receive federal loans.

Because finances are generally not considered for merit aid eligibility, the financial preparations you do will impact your student’s eligibility for need-based aid, whether it is federal or institutional.

Applying for need-based aid

To apply for federal need-based aid, families must complete the Free Application for Federal Student Aid (FAFSA), which is administered by the government. To apply for institutional aid from almost 400 schools and programs, students must also complete the CSS Profile, administered by the College Board.

These forms collect information about your family’s finances to determine your expected family contribution (EFC), the minimum amount your family is deemed able to contribute toward the cost of college. The amount of need that a student is eligible for is the cost of attendance less the EFC. The EFC takes into account factors like family size and the number of children in college, but the key drivers of aid eligibility are the income and assets of the parents and the student. Note that the FAFSA and CSS Profile use similar formulas, but the CSS Profile considers additional factors like home equity and businesses.

The FAFSA and CSS Profile are available in October of your child’s senior year of high school and each year thereafter until the year before they graduate from college. However, the income used to determine the level of need is based on the previous year’s tax return. For example, if your child starts college in the fall of 2017, your income will be based on your 2015 tax return. (These are recent changes for the FAFSA, which used to open in January and require the tax return information from the year immediately prior to enrolling.) The federal FAFSA deadline is in June, but deadlines vary for your state, school and the CSS Profile.

How income and assets are counted

For most families, the parents’ income will be the most important determinant for aid eligibility. Under the EFC formula for the FAFSA and CSS Profile, up to 47% of parents’ adjusted gross income (AGI) is considered available for college funding. (Since this is progressive and there is an income allowance, it typically averages 20% to 25% of AGI for most families.) Up to 5.64% of non-retirement assets are counted, with a small allowance as well. Students are expected to contribute as much as 50% of their income and as much as 20% of their assets.

It’s important to note that your retirement assets are not counted in the calculation of EFC. Other assets like the value of small businesses, home equity and nonqualified annuities are not included on the FASFA either, but they are on the CSS Profile. However, in some cases, home equity is capped at 1.2 times the parent’s adjusted gross income on the CSS Profile.

Also note that parent and student assets are based on their market value at the time that you complete the aid forms. However, remember that you’ll be completing the financial aid forms annually, so as your financial situation changes so will your student’s aid eligibility.

Ways to increase aid eligibility

There may be steps your family can take to increase your child’s chances of receiving the most student aid possible. Here are some strategies to consider:

  • Max out your retirement accounts. While your child is younger, you can build up significant savings in retirement accounts, which will not be included in determining aid eligibility. In the year your student applies for aid, you’ll need to add contributions back into your income, but the assets still won’t be included for aid. Assets in a bank or brokerage account, on the other hand, would reduce aid eligibility.
  • Pay down debt. Use taxable accounts like bank or brokerage accounts to pay down expensive credit card or student loan debt. This not only reduces your interest costs, but reduces your taxable assets, which can help increase aid eligibility. Since home equity is included for the CSS Profile, paying down your mortgage may not be the best strategy. But remember, FASFA does not consider home equity in determining aid and many CSS Profile schools place a cap on how much is counted.
  • Reduce income. If possible, it helps to limit your income in years that are counted for financial aid. This is difficult to do if you have a regular salary, but you can watch out for selling assets that would trigger a large capital gain in your taxable accounts or look for ways to offset them with capital losses.
  • Do not open custodial accounts for your children. Student assets are counted more heavily for financial aid purposes. If you already have custodial accounts, consider moving those assets to a 529 college savings plan for your child instead. Liquidating existing custodial accounts could result in capital gains, but you may still save more money in the long run. Since 529 assets are typically included at a lower rate than custodial accounts for financial aid, you’d want to run the numbers to see whether it is beneficial to make the move.
  • Plan ahead for family contributions. Plan carefully if grandparents or other family members want to contribute toward college expenses. The amount and timing of this type of contribution can materially impact your child’s aid eligibility, so it’s critical to optimize such assistance.

Parents should also consider how aid is affected when they have more than one child in college. For instance, with two children in college, the parent’s expected family contribution is not twice what it would be for one child. In fact, the parents’ expected contribution is reduced for each child, though the percentage may differ on the FAFSA and CSS Profile.

Aid packages

When a student qualifies for a certain amount of need-based aid, it doesn’t necessarily mean that the student will receive that much in the form of a grant. The college or university might not meet 100% of the student’s need or may offer a combination of grant money, work-study and/or loans. Schools also base some of their aid package decisions on how desirable the student is to the school, so it’s possible that the same financial information could produce very different aid packages from one school to the next.

You’ll find the information about the type and amount of aid the school is offering your student in financial aid award letters. It’s important to be sure you fully understand each type of aid being offered. You can compare award letters from different schools using the College Board’s online tool. If you are not happy with your aid results, you can always appeal, especially if your financial situation changes.

Also, keep in mind that to receive federal loans, you have to file the FASFA. Therefore, even if your income is too high for aid, but you would like your child to pay for a portion of college costs through federal loans, you should still complete this form.

Finding your strategy

College funding and admissions experiences are unique to each family. There are so many variables that even minor differences can have a dramatic impact on a family’s aid eligibility. Thus, it’s best to base your college planning and decisions on your situation only.

In some cases, the cost of a bad decision can be painful, especially when parents end up spending money on college at the expense of their own retirement. To develop a sound financial aid strategy, I recommend working with a fee-only financial planner who understands the process and the potential pitfalls. Applying for financial aid is complicated, and the wrong strategy can result in paying thousands of dollars extra for college.

Mike Eklund is a financial planner at Financial Symmetry in Raleigh, North Carolina. A summary of this blog is also available via podcast on the Financial Symmetry website.

7 Ways to Tell If That IRS Tax Collections Call Is Fake

A new IRS program set to take effect next spring may make it harder to tell which of those dubious phone calls many people get about outstanding tax bills are actually fake.

The agency announced this week that it’s hired four private debt-collection firms to search America’s couch cushions for overdue federal taxes: ConServe, based in Fairport, New York; Pioneer, based in Horseheads, New York; Performant, based in Livermore, California; and CBE Group, based in Cedar Falls, Iowa. The IRS says the four contractors will mostly get old, overdue accounts or accounts it doesn’t have the manpower to pursue.

One problem, however, is that taxpayers are up to their eyeballs in tax-collection scams and could easily mistake legitimate calls for yet another criminal trying to sucker them.

This year, the IRS reported it has already seen a 400% increase in phishing schemes. And in March, the Treasury Inspector General for Tax Administration, which oversees IRS activities, said it’s received over a million reports of phone scams involving fake tax collectors since October 2013. Over 5,500 people collectively have lost about $29 million, it said.

The IRS is aware of the problem — it keeps a dedicated, ongoing list of scams on its website. In May, for example, it warned taxpayers about phone calls regarding a bogus “federal student tax,” and in August it reported that IRS impersonators were demanding tax payments on iTunes cards and other gift cards.

Now that some debt-collection calls will actually have the IRS’ blessing, how will you be able to tell the real ones from the fakes? Here are seven red flags.

1. You didn’t get a letter first.

Under the new program, the IRS will first mail you a written notice that it’s turning your account over to a private collection agency. Then, one of the four collection agencies will send you a letter confirming the transfer. That agency is the only one that should be calling.

2. The caller asks you to pay the collection agency.

The contracted agencies aren’t allowed to accept payment on the IRS’ behalf. They also aren’t allowed to ask for payment on a prepaid debit card. Instead, they should send you to IRS.gov if you want to see your electronic payment options; checks should always be made payable to the U.S. Treasury and sent directly to the IRS, not the collection agency.

3. You already have a repayment plan in place with the IRS.

The IRS won’t assign your account to a private collection agency if you’ve already got an installment agreement going. Likewise, if you have or are negotiating an offer in compromise with the IRS, legitimate debt collectors shouldn’t be calling you.

4. The caller doesn’t know or care that you’re in a disaster area or deployed.

The IRS won’t turn over accounts involving taxpayers who are deployed in combat zones or who are in presidentially declared disaster areas and are requesting relief from collection. If that describes you, and one of the IRS’ contracted collection agencies gets your case by mistake, it’s supposed to return it to the IRS. (That doesn’t mean you’re off the hook; it means the IRS will pursue payment itself.)

5. The caller wants payment from someone who is deceased or under 18.

People who have died or are minors may have outstanding tax liabilities, but their accounts won’t be going to private collection agencies, according to the IRS.

6. The caller doesn’t know or care that you’re already grappling with the IRS over a specific issue.

The IRS’ private collection agencies have to keep their hands off cases involving tax-related identity theft, litigation, examinations, criminal investigations, levies, appeals or innocent spouse classifications — for those going through a divorce or other problems in their marriage.

7. The caller is a huge jerk.

The private collection agencies have to abide by the Fair Debt Collection Practices Act, which means they can’t swear at you, threaten you with violence or harm, call in the middle of the night or lie about what you owe, among other things. Though the IRS is using the law to ensure contracted debt collectors respect taxpayers, another agency — the Consumer Financial Protection Bureau — might say good luck with that. It gets more complaints about debt-collection companies than any other financial product or service.

Tina Orem is a staff writer at NerdWallet, a personal finance website. Email: torem@nerdwallet.com.

Liz Weston: Treat Your Marriage Like a Business

My artist husband likes to say that if I were in charge of our spending, we’d be sitting on milk crates instead of furniture and that if he were in charge, we’d have no retirement accounts.

The fact that we have both nice furniture and retirement funds is a testament to compromise — and the wealth-building power of marriage.

Married people are significantly wealthier than single people in every age group, and the gap tends to widen as people approach retirement age. Married couples age 55 to 64 had a median net worth, excluding home equity, of $108,607 in 2011, the latest available Census Bureau figures show. By contrast, single men in the same age bracket were worth a median $14,226 and single women $11,481.

Income and education also contribute heavily to wealth — and to the likelihood that people will marry. But a 15-year study of 9,000 people found that even after controlling for those and other factors, marriage itself contributed to a 4 percent annual increase in net worth. The same study found that wealth typically began to drop four years before a divorce, which ultimately reduced people’s wealth by 77 percent.

Since marital status is so powerfully associated with financial status, people would be smart to view marriage as a business arrangement in addition to a romantic one. Taking a few pages from the business world has certainly made our 19-year marriage stronger as well as wealthier.

Here’s what works for us:

Conduct due diligence

Before a “merger of equals,” companies can spend millions of dollars and countless hours scrutinizing each other’s financial details, performance and prospects. You don’t need to hire a fleet of lawyers and accountants, but knowing what each person owns and owes before marriage can prevent unpleasant surprises later.

Create your own financial statements

You need two: a balance sheet showing your net worth as a couple — your assets minus your debts — and a cash flow statement, which shows your current incomes and expenses. Use these documents to judge your financial health, spot potential problems, such as spending more than you make, and track your wealth-building progress.

Draft your business plan

Successful businesses have to set priorities and decide where to concentrate their resources. So do couples, who have to figure out how to save for the future (with retirement, emergency and college funds, for example), pay off the past (mortgages, student loans, credit card debts) and live their lives in the present (paying the bills and having some fun). You’re likely to have more goals than money to achieve them, so you’ll need to decide together which are the most important and how to divvy up your income among them.

Appoint a chief financial officer

Chances are one of you is better at the day-to-day financial details, such as paying bills and monitoring financial accounts. Having one person take responsibility for these chores helps make sure they get done. The CFO also may be the person who researches large purchases, does the tax returns, shops for insurance and rebalances the investment accounts. The CFO does not, however, make financial decisions unilaterally. In the business world, the CFO is responsible to the board of directors. In a marriage, the partners are responsible to each other and should be making the big decisions together.

Commit to full disclosure

Publicly traded companies have to keep their shareholders informed with quarterly financial statements, audited annual reports and announcements of major events. Couples don’t have to keep to a federally mandated schedule, but regular meetings to review the finances are a good idea. Disclosure is key if you’re going to make sound financial decisions together. Unfortunately, a recent Harris poll for NerdWallet found that 1 in 5 Americans in a relationship with a partner who’s saving for retirement have no idea how much their partner has saved.

A similar proportion of those saving for retirement haven’t disclosed the amounts to their partners. That’s bad enough, but what’s worse than lack of disclosure is deliberate dishonesty. Hiding debts, concealing purchases and having secret accounts all undermine intimacy and trust. That doesn’t mean you can’t have separate accounts or “no questions asked” spending money to reduce conflict. But you shouldn’t conceal or lie about your financial situation to avoid a fight. That’s a red flag that there’s something you two should be discussing.

Liz Weston is a certified financial planner and columnist at NerdWallet, a personal finance website, and author of “Your Credit Score.” Email: lweston@nerdwallet.com. Twitter: @lizweston.

This article was written by NerdWallet and was originally published by The Associated Press.

 

3 Things to Know About Student Loan Consolidation (Told in Under 350 Words)

Do you have three minutes? If you’ve ever considered student loan consolidation or refinancing, it’ll be worth your time. Those terms are often conflated and confused, so we want to set the record straight. Here goes:

1. Consolidation doesn’t always = refinancing

Student loan consolidation is often made to seem synonymous with refinancing, but the two aren’t always identical.

Federal loan consolidation means changing one or more federal student loans into a single new federal Direct Consolidation Loan. Student loan refinancing, which is also sometimes referred to as consolidation, is a way to save money by taking out a new, lower-interest loan to pay off your existing loans.

2. Consolidation won’t necessarily save you money

Refinancing can save you money by lowering your interest rate, but federal loan consolidation can actually cost you more in the long run because it may increase your term length. So why do it?

To access repayment and forgiveness options: Only federal direct loans are eligible for most income-driven repayment plans and Public Service Loan Forgiveness. If you don’t know what kind of loans you have, sign in to your Federal Student Aid account on studentloans.gov to look it up. Consolidating will help you qualify for those programs if you don’t already have a federal loan that qualifies.

To get out of default: Consolidation is one of three ways (along with full repayment and loan rehabilitation) to escape federal loan default. After consolidating, you’ll be able to sign up for an income-driven repayment plan or put your loan in deferment or forbearance, but the default status will remain on your credit report.

3. Consolidating federal loans is free

You may have seen Facebook ads or gotten phone calls about companies offering to consolidate or forgive your debt. They’ll charge you fees to do so, but you can consolidate your federal loans for free by logging in to your Federal Student Aid account and filling out an application.

That’s the CliffsNotes version of student loan consolidation. To dig deeper, read about the pros and cons of consolidation and refinancing.

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.

3 Personal Finance Tips for Small-Business Owners

By Heather Castle, CFP

Learn more about Heather on NerdWallet’s Ask an Advisor 

As entrepreneurs, many small-business owners are comfortable taking risks. But their business is often their biggest asset, as well as the largest source of their household’s income, which means it’s especially important for them to follow basic personal finance and investing guidelines. Not doing so can cause business owners to take on too much risk and endanger their business and income.

Here are three tips that small-business owners should use to guide their personal-finance and investing decisions.

1. Establish an emergency fund

Business is cyclical, meaning there will be times throughout the year when business is better than at other times, and income can vary from month to month.

That’s why it’s critically important to set up an emergency fund account containing enough cash or liquid funds to cover the months when your income does not cover your household’s living expenses. Keeping at least three to six months’ living expenses is a good rule of thumb, and more is even better.

Money market accounts are good places to store this emergency fund, because they give you a better return than most traditional savings accounts while remaining free of stock market volatility, which is important for a short-term savings vehicle.

2. Diversify, diversify, diversify

I’m sure you’ve heard, probably more than once, that diversification is one of the most important concepts in investing. For small-business owners this is a critical point, because many of them invest all of their assets back into their businesses. While investing in your business is a good idea, you should consider setting limits on it.

When small-business owners invest their funds back into their companies, they are concentrating funds into one asset. This increases their level of risk because if something were to happen to their business, it would endanger the household’s financial security.

When reviewing investment options, make sure you invest as much money as possible outside of your business, as well as outside of your industry and sector. Doing this will help protect your portfolio if the markets change and your business’ sector goes out of favor.

3. Customize your investments

Don’t overlook getting help when evaluating investment options. There is no one-size-fits-all investment approach, and it’s easy to get bogged down with research. When reviewing their overall portfolio, business owners sometimes forget to include other investments they hold, such as their companies or real estate investments they may have, as assets. This can lead to less-than-optimal investment decisions.

Working with a professional can help you factor in all of your investment holdings, determine your right time horizon, evaluate your risk tolerance, and weigh your options against your current holdings to help you select an investment strategy that is tailored to you.

Heather Castle is a certified financial planner and the founder of Castle Wealth Advisors LLC in Los Angeles.

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