Money Matters: financial literacy
Developing financial literacy is important for children and families alike, and local banks and credit unions can play an important role in helping with that education — all while keeping them secure. We reached out to a trio of experts to learn how to begin that process and how they can help.
- Abigail Shaine of Shaine Law.
- Kim Fontaine, Assistant Treasurer and Financial Education Officer, Jeanne D’Arc Credit Union.
- Polly Saltmarsh, Vice President, Financial Education & Business Development, NH Federal Credit Union
When should I start to help my child establish financial literacy?
Fontaine: “You should start helping your child establish financial literacy as early as possible. The younger they are when they begin to learn about money, how it works and the role it plays in your daily life, the more they will be able to develop good habits and carry those good habits with them as they grow older and have to make their own financial decisions. You can start early by taking advantage of everyday teachable moments, such as when they witness you handling your own money or when they receive a monetary gift for a special occasion. It is also important to make sure that you have established your own smart money habits so that you can set an example for your child. Children are like sponges — they model everything a parent does and incorporate what they see into their own lives.”
If grandparents want to contribute to a college fund for their grandchildren, is it better for them to set up a 529 Plan themselves or give money to the parents and let them put it in a 529 Plan?
Shaine: “529 Plans are flexible savings plans designed specifically for educational purposes. Earnings grow on a tax-deferred basis, and withdrawals are free of federal income tax and certain New Hampshire state taxes. If the grandparents set up an account, they remain the owner of the account. They determine when to make a withdrawal and how much money to withdraw. While contributions are treated as completed gifts and are subject to the gift tax rules, these tax rules have some additional flexibility that other kinds of gifts may not have. Of course, withdrawals are only tax-free if they make the withdrawal for ‘qualified educational expenses.’
“There are reasons why it may be more helpful to the student’s eligibility for financial aid for the 529 Plan to be established in the parents’ name rather than the grandparents. For a parent-owned 529 Plan, as much as 5.6 percent of the saved assets are treated as part of the expected family contribution. A grandparent’s 529 assets are only counted in the year following a distribution to the grandchildren, but at that point, 20 percent of the asset value is treated as funds available to help pay for college. This can reduce college financial aid by 20 percent. It is also better for the money to be contributed to a 529 account than to put it in a custodial account for the child where earnings will be taxed and the money will also reduce eligibility for financial aid more.”
How can I best educate my family about the possibility of financial fraud attempts?
Shaine: “One critical source of vulnerability of families to financial fraud stems from their use of the internet. Make your family aware of the risks of people trying to gain access to the information on the family’s computers. Warn them not to open messages or emails from people whom they do not know, as communications by strangers masquerading their true identity is one way in which fraudsters will try to gain access to data on the computer. This technique is called ‘phishing.’ Also warn them against opening attachments to messages from people they don’t know as such attachments may contain malware that enable a fraudster to gain access to the data on the computer. Make sure that your family understands the importance of protecting computer passwords, PIN numbers for ATM cards, and the numbers on credit cards that a parent may share with their children.”
What types of safeguards can be put in place to protect my child as he/she begins to earn money?
Fontaine: “At Jeanne D’Arc Credit Union, our members’ security and trust is of upmost importance to us. We go to great measures to ensure that our members’ account and personal information is protected. Your credit union is a great place to learn the different ways you can protect yourself from identify theft and other types of fraud, but it’s also an important place to turn to in the event you do become a victim. We can provide you with the right steps to take to get your identity theft incident resolved. It’s also crucial for us to know when you have become a victim so that we can keep a close eye on your accounts and alert you of any suspicious activity. Jeanne D’Arc Credit Union’s Member Perks program offers an Identity Theft Restoration service, among several other benefits. If you do become a victim, the program will provide you with a licensed team of attorneys that will help you get your identity back. Your child is also protected under this program.”
How can a bank/credit union help me to get an accurate snapshot of my family’s financial health or manage my budget?
Fontaine: “Not many people think to turn to their banking institution to learn how they can better understand their current financial state, but there are many ways your bank/credit union can help you with your family’s financial wellness. At Jeanne D’Arc Credit Union, our mission is to help our members make smart financial choices, and this extends itself well beyond simply providing checking and savings accounts. Our Member Service team is always willing to counsel families in learning how to set and stick to a budget. They will also make sure your accounts are meeting your needs and paying you the most interest, as well as identify opportunities where you can enhance your financial health. We also offer an online financial management tool called Money Compass. Money Compass allows you to set a budget for each of your accounts within online banking and allows you to categorize transactions as you spend your money throughout the month. This automatically updates your budget for you, so you can keep track of where you stand on a day-to-day basis. Additionally, you can see a spending analysis for each of your accounts, so you’ll be aware of the categories in which you’re overspending. This will give you a snapshot of your spending and savings habits, and will allow you to establish and follow patterns that will lead to smarter financial decisions over time.”
When and how should a teen start establishing a credit history?
“1. First, we need to be clear — a person must be 18 to legally sign a contract. Once 18, your child can begin establishing credit.
“2. Before age 18, teach your teen the concept of living within your means. Perhaps begin with an allowance and a checking account with a debit card. Have your teen manage specific expenses through the account. These accounts typically have no additional costs based on student status or age. (At NHFCU, those under age 26 receive checking accounts with debit cards with no out-of-pocket costs. Parents can also set up automatic transfers into the accounts).
“Make sure teens understand what credit is and how to use it responsibly. While credit or borrowing is often necessary when buying big-ticket items, borrowing money comes with a cost and a monthly payment! Be sure to discuss affordability and good and bad uses of credit with your teenagers before embarking on building credit.
“3. We live in a society where the generations born after 1970 or so have been raised in a ‘buy now/pay later’ environment. We focus on monthly payments so items seem more affordable than they really are. How many college grads can really afford a high-end car with a $500 car payment right out of the gate? Teens may be easily lured into buying items that are not as affordable as they appear. Talk about this with your child. Did you make mistakes? Talk about them.”