MONEY Workplace

Science Games for Girls Can Open Doors to Lucrative Careers

Courtesy Roominate Roominate rPower, available this fall, lets girls control ferris wheels, RVs and other creations using a phone or tablet.

But are they learning the money management and fundraising skills that will allow them to run their own companies?

Pink Legos not being quite enough, a slew of start-ups, many of them founded by women, are attempting to motivate girls into lucrative and satisfying careers in the traditionally male-dominated areas of science, technology, engineering and math (STEM).

But while girls string together HTML instructions and tinker with circuits, are they learning the money management and fundraising skills that will allow them to run their own companies – or even just manage their bank accounts?

Women have traditionally lagged men in financial literacy and investing prowess, according to Annamaria Lusardi, a professor of economics at the George Washington School University of Business in Washington, DC.

“Knowing science is not enough for women,” says Lusardi, an expert in financial literacy. “You need a capacity to make good financial decisions.”

Confidence is the key to unlocking women’s potential in these areas, Lusardi says. She helps run annual studies testing financial literacy, science and math knowledge around the world. When “I don’t know” is included as an option, women pick that much more than men, Lusardi says. Yet in a test case removing that option for some respondents, women answered the questions and mostly got the answers right.

“We have to really show to women that they should take the plunge, because it is very important,” says Lusardi.

Try, Try Again

Debbie Sterling, who founded the building kit GoldieBlox, says her products teach confidence by allowing girls to fail. “It opens their minds to say it’s ok to tackle a problem even if you’re not going to get it perfect the first time,” she says.

Players can fit the toy’s interlocking plastic building pieces in many different ways, so they experience trial and error.

Storybooks accompany the set, featuring positive role models. The main characters, Ruby and Goldie, are purposefully not prodigies, but rather are B+ students who are really open-minded and willing to try, try, try again.

“There’s the boy-genius archetype in media that suggests that unless you have IQ off the charts, you’re not good enough. I think that archetype is really damaging,” says Sterling.

Supply and Demand

The goal of STEM play is to get children’s creativity flowing, and the founders of GoldieBlox and other programs such as Roominate have seen all sorts of inventions come to life.

The best of them identify some sort of need and figure out how to capitalize on it – the basic laws of supply and demand that drive all successful business.

The lesson to learn, says Lusardi: Think of how you can build something you can sell, and then creatively manage your resources.

With Roominate, a modular building system with circuits, players create rooms with functional lights, fans, furniture and other features. While the pastel-colored pieces are designed to fit together into rather domestic configurations, the company’s founders, Alice Brooks and Bettina Chen, have seen customers take off from there. They develop play storefronts, lemonade stands and other businesses, which teach them mini-business lessons as well.

One GoldieBlox user took the kit and some paintbrushes and created a drawing machine, according to Sterling. She made original paintings with it that she sold, and then she donated all the profits to charity.

Another success story: Tampon Run, a free iPhone app designed by two New York city teenagers. It is an old-fashioned arcade game where the heroine uses tampons as weapons to defeat enemies. The app was created by students of Girls Who Code, a national non-profit aiming to teach computer programming to one million girls by 2020.

More wide-reaching is that many girls have graduated from Girls Who Code to paid internships in the community. “I think they are now comfortable making money,” says founder Reshma Saujani.

MONEY

Panic Won’t Pay Your Student Loan Bill After a Layoff

Man in bed with scared look
Williams + Hirakawa

But these 3 smart moves can help.

When Jesse Lambert lost his job last December, he was about a level seven for panic. After paying rent in Arlington, Virginia, the 33-year-old’s student loans for his undergraduate degree and masters in international commerce were the next biggest expense at around $450 per month.

Lambert’s first step was the one experts advise: He called his lender.

After that, his panic quickly subsided. With a game plan in place, the odds were actually in his favor for a short-lived unemployment.

“Having a college degree is a good hedge against unemployment,” said student loan expert Mark Kantrowitz, who publishes the education resource site Edvisors Network (http://edvisors.com).

In fact, the unemployment rate for those in the 16-24 age group with a bachelor’s degree or higher was 15 percent lower than for those without a high school degree – 4.8 percent versus 20.2 percent in May 2015, according to government data. For the 25 and older category, the unemployment rate for those with higher education was only 2.7 percent in May 2015.

The following are steps experts advise taking if you are out of work for a few months while paying off student loans.

1. Call your lender

The default rate for student loans, which total over $1 trillion, was 12.9 percent for public colleges in 2014. In addition to ruining your credit, one reason you do not want to hide from lenders is that they may be able to help.

Federal loans come with set options for deferments, with all payments suspended for a time. There is also the option of forbearance, allowing you to delay payments, although interest will still accrue and be tacked back onto the loan.

Deferments are a better choice because they do not add on to the total loan balance, Kantrowitz notes.

Private lenders will also offer these options, and some will go further to come up with alternative payment plans. Wells Fargo, for instance, has a team trained to craft specific solutions for borrowers after listening extensively to their circumstances, said John Rasmussen, Wells Fargo’s head of Education Financial Services.

2. Rally your network

When Lambert ramped up his job search last winter, he even got help networking from his lender, SoFi, a start-up that has handled $2.5 billion in loans since launching in 2013. (By contrast, Wells Fargo, has a $12 billion current-loan portfolio.)

When Lampert refinanced his loans, he remembered seeing something about career services. After calling SoFi about deferment options, he ended up getting personalized job search coaching.

Lampert a few months later landed a job as a senior analyst for a company that does government consulting. Bob Park, SoFi’s head of career strategy and professional development, helped him negotiate his salary offer.

So far, about 100 borrowers have gone through SoFi’s job search boot camp. Another 45 are currently in the program.

“We haven’t lost anyone yet,” said Park, who has seen everyone go on to land a job. When Park started in 2013, the average time to a new job was over 100 days; now it is 90 days.

3. Lean on your emergency funds

Because your job search is likely to be short, the best way to get through it is to have an emergency fund, advises Jenny Smith, financial services representative for The Principal Financial Group.

Borrowers in financial trouble should avoid expensive options like consolidation, because it will likely result in an overall higher interest rate, Smith says. Nor should they take on credit card debt in order to pay off student loans. “Band-aiding can be bigger problem later,” she said.

If your lender does not offer career services, look to your state government or local chamber of commerce for programs aimed at young professionals.

MONEY

Shark Tank’s Daymond John Blew His First $20 Million Before Wising Up About Money

The Shark-Daymond John Presents "Xpensive Habits" Lavo Brunch Sponsored By: Jack Daniels, Miller Lite & Evian Water
Jerritt Clark—WireImage Mark Cuban and Daymond John attends The Shark-Daymond John Presents "Xpensive Habits" Lavo Brunch Sponsored By: Jack Daniels, Miller Lite & Evian Water at Lavo on February 14, 2015 in New York City.

The FUBU founder shares what he's learned about investing since then.

On ABC’s “Shark Tank,” Daymond John scrutinizes the business plans of wannabe entrepreneurs, but how does he manage his own finances?

A self-made businessman, John is actually pretty realistic – working his way up many ladders and learning from failures. A native of Queens, New York, John founded FUBU at age 23 in 1992, riding the wave of hip-hop fashion trends.

Now 46, he has been with “Shark Tank” since its debut in 2009. He serves as a consultant, gives motivational speeches, writes books and is a spokesman for other businesses, such as Gillette.

Reuters spoke with John about how his acumen for business translates to managing his own money:

Q: How much of your net worth is locked away for the future, and how much is at your disposal now?

A: I’ve probably put in 50 percent for long-term, and the rest I play with. I have squirreled away enough to not have to worry about it. Hopefully, I’ll never have to touch it, and it will be passed onto my kids or a great organization.

What I play with now, it can fluctuate. I can end up using a good percentage of it on a great acquisition, or I can hold it.

Q: How involved are you in the management of that money?

A: There are several levels of it. I’m involved when I’m doing my day-trading. When we’re talking about asset allocation, I have very different approaches. I’m with Goldman (Sachs) and various other firms. I kind of let three out of five of them do their own thing. For two out of five, I monitor (my account) over the course of every month or so.

Q: Most of what you do on ‘Shark Tank’ can be considered alternate investments, but do you do anything beyond that to diversify your portfolio?

A: My larger investments have been apparel brands. As for real estate, I’m part of a fund, but I’ve never been that great at real estate.

Q: When you do a promotion like for Gillette’s Shave Club, do you have an investment in that, or is it just for promotion?

A: It’s a brand association. It’s just an investment of my time and my face and my integrity. I don’t take it lightly.

Q: You lend your name to a lot of causes as well. How do you decide what charities get your time and money?

A: It’s not really a planned thing. I try to give on various platforms, and not do too much check-book philanthropy. For some, I will try to make more people aware of the plight, and help get more people to give. To some I will dedicate time, such as my desire to get out word about dyslexia.

Q: Do you have planned giving worked into your estate plan?

A: I don’t have that formal plan – some will go to family and certain small organizations. One is animal related, one is dyslexia, one is hip-hop against violence.

Q: Who first taught you about finance and money management?

A: I got the knowledge by blowing about $20 to $30 million the first time I made it. I’m not one of the few who hit lotto or peaked at 25 as an athlete. I have had several other bites at the apple.

Q: You have listed Robert Kiyosaki’s “Rich Dad, Poor Dad” as one of your favorite books. What have you learned from it?

A: The fundamental lesson to it is it’s not how much you make, it’s how much you save. You should go after small opportunities that have the potential to grow into large opportunities. That educated me on the tool of money.

MONEY Workplace

The Dangers of Working for the Family Business

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Getty Images

A sense of entitlement could get you fired.

There is one big advantage 23-year-old Clint Morrison has found joining his family’s business fresh upon graduating from Rider University: he has a job, while most of his friends do not.

“They’re all still sort of scrambling,” Morrison says.

The Morrison family business, Benefit Design Specialists Inc, administers employee benefit plans for small businesses and is based in Mechanicsburg, Pennsylvania. Dad Tim employs not only his youngest son, Clint, but also two older sons, ages 27 and 29, as well as his own sister, a sister-in-law, a cousin and about 10 other non-related employees.

The key to a harmonious office with so many family members? “You have to find a spot for them to be productive or they won’t make it in the family business,” the patriarch says.

Here are some tips on joining the workforce – with your relatives, according to family business experts:

Start Elsewhere

There is no official tally of how many “& Sons” or “& Daughters” are among the 28 million small businesses in the United States, according to the Small Business Association.

Yet one of Clint Morrison’s business professors advised him not to start in the family business. The advice: go elsewhere and garner some knowledge of the industry first. Given the state of the job market and his family’s specialty niche, Morrison decided that was not feasible.

The strategy worked well for Laura Salpeter, who got a law degree and then worked for a few years at a law firm before joining her father Scott Salpeter’s Miami-based investment banking firm. Also working there, after a few years of getting experience with other companies, is Philip Cassel, son of Scott Salpeter’s partner. Both offspring are now 30.

“Working with my father was something I’ve always contemplated. So I dived into the business world and found out more about what it is,” said Cassel.

Work You Way Up

Even if you spent your childhood playing in the family factory, that does not mean you are going to walk into a corner office once you get your diploma.

Robert Spielman, a partner in the tax and business services unit at Marcum LLP, advises clients that it is their job to make sure their kids are exposed to all aspects of the business, especially if they expect to hand it over to them one day.

For example, one of his clients, a fish distributor, hired several family members for its sales force. “But none learned how to manage the business, and eventually, they had financial troubles,” Spielman said.

The best way is to start at the bottom and experience all areas of the enterprise. If the family business is a trucking company, start out in maintenance, then drive for six months, go into sales and then assist in the financing side before managing the fleet and employees, Spielman says.

Manage Expectations

The family business dream – that someday, all of this will be yours – can be a great motivator, but it can also instill an unwieldy sense of entitlement.

This happened to one family business owner client of Steve Faulkner, head of private business advisory for J.P. Morgan Private Bank’s Advice Lab. The son was lording his status over his coworkers and superiors, saying “Someday, I’m going to own all of this, and fire everyone I don’t like.”

When the son’s manager finally had the courage to tattle to the boss, he fired his own son. However, two months later, when the son could not find another job, the boss asked another manager to hire him back.

“That’s a horrible succession plan,” said Faulkner.

It is better, he says, for business owners to get their relatives to work harder than they ever have to be worthy to take over the reins.

Another of Faulkner’s clients does exactly this, down to a formalized training program for the fourth generation that is now joining the business. Newcomers spend up to six years training at international subsidiaries before being brought back to headquarters for management jobs.

The process drills respect into the employees, something Laura Salpeter says she has learned on the job.

Her top advice for those joining the family business? Understand you are working for your parent, not with your parent.

 

MONEY Health Care

Even an Appendectomy Can Hurt Your Credit Rating

150520_EM_AppendectomyCarLoan
Steve Wisbauer—Getty Images

The medical billing error from hell

When Saideh Browne had an emergency appendectomy in the summer of 2012, she had no idea it would raise the cost of a car loan three years later.

The 44-year-old personal trainer from New York recently visited a dealership to buy a new Honda Accord and discovered her credit score had been dinged by two lingering medical bills for $770 that had gone to collection.

Browne says she did not purposefully ignore the bills, nor did she shirk them because she could not pay. Like many other people, she got caught in an endless loop of indecipherable paperwork between the many providers involved in her care and the insurance company. The amounts due and the reasons listed for the charges kept shifting. Browne did not want to pay a wrong bill and never see the money again.

“I’m an astute consumer, but it gets confusing,” Browne laments. “You don’t know what bill is what.”

Almost 50 percent of medical bills have errors, according to government data studied by NerdWallet, which has a medical bill review service.

“It’s quite staggering,” says Christina LaMontagne, a general manager for NerdWallet. “Probably all of us have been mis-billed on a medical service.”

That includes LaMontagne, who recently received a medical bill she did not understand that was due in 30 days. Her first recommendation to consumers: ask for an itemized statement.

Therein lies the dilemma for most consumers.

“There are cobwebs in the system,” LaMontagne says.

So what is a consumer to do? Here are the three steps to keep your credit healthy:

1. Communicate immediately, in writing

You can pick up the phone to call your provider and the insurance company, but you need documentation, says LaMontagne. The doctor and insurance company need to respond back to you in writing, or you have grounds for appeal because you were not properly notified.

Disputing a charge should stop the clock, but there is no guarantee your unpaid bill will not be sent to collection.

The average time a provider will carry a bill is usually 120 days, which is how long Medicare providers are required to wait, says Chad Mulvany, director of healthcare finance policy for the Healthcare Financial Management Association, a trade group for hospitals.

LaMontagne says significant anecdotal evidence exists that more bills are being sent to a collections agency after 90 days, so the transition to collection could be quick.

1. Get outside help

If you are getting nowhere with your provider, turn to your state insurance commission.

You can also hire a bill resolution company, such as NerdWallet Health or Medical Billing Advocates of America, which charge either a flat fee or take a percentage of the savings you achieve.

Some workplace human resources departments also offer assistance, or at least can run interference with insurance companies.

Expert help is important because many collection agencies prey on consumer fear and tend to go away quickly if confronted by somebody who knows the law, says Pat Palmer, president of Medical Billing Advocates.

For instance, collection agencies are not supposed to be familiar with your medical details. So the first thing Palmer does for clients is call and ask about the charges. If the agents know what the bills are for, she tells them they have violated medical privacy laws. “You never hear from them again,” Palmer says.

3. Negotiate a payment plan

Most medical providers want to close out your account. Setting up a payment plan could get the monkey off your back, says Healthcare Financial Management’s Mulvany.

Most of all, paying something allows you to move forward, says credit expert Beverly Harzog, author of “The Debt Escape Plan.”

“If you don’t take care of it, it’s going to drag you down,” Harzog says.

That is exactly what Browne has done, setting up a payment plan for the unexplained bills.

“At this point, I just want it to go away,” she says.

MONEY Kids and Money

The Best Way to Bank Your Kid’s Savings

150403_FF_KidBankAcct
YinYang—Getty Images

After the piggy bank fills up, here's how to launch your child on the path of saving and investing.

When I told my 7-year-old that her wallet was getting full and it was time to open a bank account, her eyes widened. She wanted to know if she would be allowed to carry her own ATM card.

Um, no.

When transitioning from a piggy bank to handling a debit card linked to an active account, financial experts say it is best to start with a trip to a bank, but which one and when? Here are some steps to get started:

1. Bank of Mom and Dad

Don’t be in a rush to move away from the bookshelf bank, says financial literacy expert Susan Beacham. There are lessons to be learned from physical contact with money.

Sticking with a piggy can be especially effective if you teach your kids to divide their money into categories. Beacham’s Money Savvy Pig has four slots: save, spend, donate, invest.

When you cannot stuff one more dime into the slots, it is time to crack it open and seek your next teachable moment.

2. Neighborhood Convenience

Many adults bank online, but kids still benefit from visiting a branch, says Elizabeth Odders-White, an associate dean at the Wisconsin School of Business in Madison.

Do not worry about the interest, Beacham says. “A young child who gets a penny more than they put in thinks it’s magical. You’re not trying to grow their money as much as grow their habits.”

Your second consideration should be fees. Your best bet may be where you bank, where fees would be determined by your overall balance and you could link accounts.

Another option is a community bank, particularly a credit union, which are among the last bastions of free checking accounts.

“The difference between credit unions and banks is that credit unions are not-for-profit and owned by depositors,” says Mike Schenk, a vice president of the Credit Union National Association.

At either type of institution, you could open a joint account, which would be best for older kids because it allows them to have access to funds through an ATM or online, says Nessa Feddis, a senior vice president at the American Bankers Association.

Or you could open a custodial account, for which you would typically need to supply a birth certificate and the child’s Social Security number. Taxes on interest earned would be the child’s responsibility, but likely would not add up to much on a small account. A minor account must be transferred by age 18 to the child’s full control.

3. Big Money

If your child earns taxable income, the money should go into a Roth individual retirement account, experts say. There is usually no minimum age and many brokerage firms have low or no minimums to start an account. You can pick a mix of low-cost ETFs, and let it ride.

Putting away $1,000 at age 15 would turn into nearly $30,000 by age 65, at a moderate growth rate, according to Bankrate.com’s retirement calculator.

Not all kids can bear to part with their earnings, but there are workarounds. One tactic: a parent or grandparent supplies all or part of the funds that go into the Roth, akin to a corporate matching program.

The other is to work with your child to understand long-term and short-term cash needs. That is what certified financial planner Marguerita Cheng of Blue Ocean Global Wealth in Potomac, Maryland, did with her daughter, who is now in her first year of college.

While mom and dad pay for basic things like tuition, the teen decided to pool several thousand dollars from her summer lifeguard earnings, money from her on-campus job and gifts from her grandparents to fund several educational trips.

“She would make money investing, but it’s only appropriate if you have a longer time horizon,” says Cheng. “It’s not even about the money, it’s the pride she gets from paying for it herself.”

MONEY Taxes

3 Tax Loopholes for the Merely Middle Class

You don't have to be super wealthy to find profitable loopholes in the tax code.

Former presidential candidate Mitt Romney’s legendary tax deduction for his horse may sound like the ultimate boondoggle of the super rich.

Ditto for writing off the private jet, stashing money in offshore accounts and paying the nanny as a corporate employee.

Here are some other tax loopholes that might be within your reach:

1. Maximize your 529

The tax benefits of a 529 college savings plan are baked right into the plan—you put in after-tax money and the proceeds grow tax-free, like a Roth individual retirement account. In some 34 states and the District of Columbia, you also get a tax benefit on your state taxes. But there’s more to it than that.

Depending on the state, each parent can make a contribution for each child. That’s why Patrick Beagle, a financial planner at WealthCrest in Springfield, Va., has four accounts for his two children. Beagle and his spouse each contribute the maximum of $4,000 per year for his state’s tax break, for a total of $16,000.

You can also front-load your 529 savings by making several years of contributions at once, something President Barack Obama and his wife Michelle were able to take advantage of for their two daughters, putting $240,000 away all at once in 2007.

Depending on the state, there may be no time limit on how long your contribution has to stay in the 529 account before you get a deduction. If you have a child who is already in college, you can make your yearly contribution, get the tax credit and then withdraw it for use immediately.

2. After-tax Roth conversions

Want to fill up your Roth IRA but either make too much to qualify or find the $5,500 per year limit too low? You can contribute after-tax money to your 401(k) and convert it to a Roth, thanks to a new Internal Revenue Service notice.

Jim McGowan, a certified financial planner with the Marshall Financial Group in Doylestown, Penn., altered his tax-planning strategies for many of his clients because of this change.

For those whose companies allow it, McGowan is having clients put aside $20,000 to $30,000 extra in their 401(k)s after they have maxed out the $18,000 allowed with pre-tax money.

The total an individual can save per year, including any matching funds, is $53,000, so there is plenty of wiggle room.

McGowan’s clients are just starting to utilize Roth conversions, so nobody has rolled over funds yet. “Potentially, it could be an enormous benefit tax-wise,” he says.

Not the least of which is that if you put the same amount in a brokerage account, you’d be paying capital gains every year. But with the extra in a 401(k) and then rolled into a Roth, the funds are sheltered.

Likewise, you can make a “back-door” Roth contribution, even if you are over the income level of $183,000 for singles or $193,000 for married couples.

First, you contribute after-tax dollars to an IRA, which you can do up to the regular limits of $5,500 or $6,500 for those over 55. You can then convert this “non-deductible IRA” at will to a Roth, says Harvey Bezozi, a tax accountant with his own firm in Boca Raton, Fla.

“Some people commingle the funds with a traditional pre-tax IRA, but I like to keep them separate so you can keep track of what you did,” he says.

3. “Business” income

You don’t have to buy a farm, like one of Patrick Beagle’s clients did, just to get some additional expenses to off-set income. Any small business will do.

Beagle has clients who sell products at home-based parties through companies like Thirty-One and Silpada. This opens up a lot of other deductions because they are using part of their home as an office or to store merchandise. There are also phone costs, office supplies, and advertising costs to consider.

And all that guacamole for the handbag party? A legitimate business expense.

MONEY Kids and Money

The Best and Worst Ways to Give Your Teen Credit

When your kid needs access to serious money, what kind of plastic is best for the job?

When your children’s concept of pocket change involves actual change, helping them keep track of their money is pretty easy. But when they start needing serious coin to gas up a sports utility vehicle, or travel abroad, you need more sophisticated financing alternatives like a credit card.

Keith Singer saw the light when his teenage son’s backpack was stolen at school, and he realized there had been $300 in his wallet. “He lost all his money,” says Singer, a wealth manager from Hollywood, Florida.

Here are some options, along with what you need to know before you give your teen access to credit:

Your Credit Card

Pros: Adding your child as an authorized user should take a simple phone call, and the child will have her own card to use. You can usually get a separate accounting of their charges.

Cons: The card will have your credit limits. Plus, no restrictions will be imposed on spending. Also, U.S. cards do not always work in foreign countries. They often have high transaction fees abroad, especially for cash advances.

Parents say: It’s hard to trust a teen with your own credit. Curtis Arnold, editor-in-chief of cardratings.com, added his two oldest children as authorized users on his accounts, but never gave them the cards. “We’ve never felt comfortable handing them a card other than for one-time use,” he says. His top fear: they would lose it.

Bank Account with ATM Card

Pros: It may take an in-person visit to a bank to open up an account for a minor, but then you can link it to a parent’s account to easily transfer funds. The ATM card makes it easy to get cash while traveling and can be used as a credit card. If you do not sign up for overdraft protection, transactions will be denied when funds are not available.

Cons: Beware that fees can rack up if the account does go negative or below a required minimum. Debit cards do not offer all the same consumer fraud protections as credit cards. They may incur overseas transaction or ATM service fees, and they require parental attention to keep adding funds.

Parents say: When one of Elizabeth Powell’s 16-year-old triplets went to England last summer, he opened up an account at his dad’s credit union. Then she transferred in several hundred dollars a month. The teen was able to use the debit card for his needs in British pounds, with minimal fees. “The system worked perfectly,” Powell says.

Keith Singer says one additional benefit for the bank account he opened for his son, who is now 17, is that it encouraged the teen to deposit his summer earnings.

Prepaid Debit Card

Pros: Getting one is easy, and most have slick mobile interfaces. As they are not linked to any bank account or credit line, there are fewer worries about overspending, loss or identity theft. Some cards, like Oink, allow parents to restrict spending in certain categories, like alcohol.

Cons: Some prepaid cards come with lots of hidden fees just to access your own money. They do not help build a credit history.

Parents say: Arnold likes the Bluebird card offered by Wal-Mart and American Express because, he says, “it’s like a credit card on training wheels.”

Most of all, he likes the relative safety of it. His oldest son had a credit card that was compromised while he was a senior in college. “With a prepaid, you don’t run that risk because they could wipe out the account, but not the whole checking account,” Arnold says.

Personal Credit Card

Pros: Building a credit score at 18 is smart. A typical newcomer does not start at zero, but rather at around 600, says Greg Lull, head of consumer insights at Credit Karma. That is in the middle range between the top of 850 and the bottom of 300.

Cons: If your young adult is not ready to handle the responsibility, his credit score will drop, and he will build up debt. Most young adults bottom out at age 21 before turning things around, says Lull.

Parents say: When our kids are ready, we’ll go for it. Arnold says of his third child, who is now 17: “Once he gets through freshman year of college, maybe we’ll do regular debit card, and then as an upper classmen, get a student credit card for him.”

MONEY Taxes

How to Avoid Audit Red Flags When You Change Up Your Taxes

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iStock

A break from how you normally file your taxes can lead to costly mistakes—and attract the attention of the IRS.

Taxes are one of the few constants in life, but what happens when you change the way you do your return?

People move or get divorced, tax preparers pass away. There is always the lure of do-it-yourself—the number of people using tax software to file, like Intuit’s TurboTax, increases by 6% annually, according to the Internal Revenue Service. And then there is the reverse exodus of people who have decided their financial lives are too complicated, and they need to hire a professional.

With so many changes, consistency takes a beating. If you are on the wrong end of it, you could end up drawing the dreaded attention of the IRS.

Here are the items that can trip up taxpayers when they switch the way they do their taxes:

1. Mileage logs

When John Dundon took over his father’s tax business after he passed away last July, the biggest surprise for the Denver, Colorado-based tax preparer was that road-warrior clients were not keeping mileage logs.

“Boundaries erode all the time between practitioner and taxpayer,” Dundon says. Laziness seeps in disguised as trust, and years later, there are simply no logs.

Dundon tells his father’s crossover clients they need a renewed zeal for paperwork—get a GPS device or a smart phone app for next year. For 2014 taxes, he is asking clients meticulously through calendars and maps to sort it out.

2. Rental property depreciation

Depreciation is a deduction you can take on certain assets, like rental property. The tax impact can be pretty significant, especially if you are trying to off-set income like rent.

The dollar amount is determined by a formula you follow year-after-year, called a depreciation schedule, which could run almost the full course of a 30-year mortgage.

“You definitely need that schedule. You can try to guess at it, and you’d probably be okay, but you wouldn’t be doing it 100% right,” says tax preparer Anil Melwani, who runs his own firm, 212 Tax & Accounting Services, in New York.

If it was not done at all previously or done wrong? You’ll need to file an amended return to correct it, Melwani says.

3. Carryforward losses

The IRS allows taxpayers to take $3,000 in losses a year on investments, and to carry forward those losses indefinitely until the amount is all used up. But use it or lose it—meaning, if you miss a year because you forget, you can’t pick it up in the following years as if nothing happened.

Harvey Bezozi, who has his own firm in Boca Raton, Florida, has a new client this year who will likely have to file amended returns because she skipped over this with her last preparer.

4. Home office

Taking the home office deduction? Stay consistent with the square footage of your home office. The best way to do that is to get out your tape measure and only include space that you use exclusively for work.

If there’s a pingpong table in the middle of the basement study you’re trying to claim, that’s a no-go, says Dundon.

5. Life changes

There is a lot that a new tax preparer—or a tax software autobot—can learn about you by just looking at your past returns, but their questionnaires will not catch everything. If you have a baby, buy a house, get divorced, have income in a foreign country or have job-hunting related expenses, you’ve got to speak up.

But things can get missed when people do not know enough to know what they are missing. That’s what drove a DIY-type like Ben Jaffe into the hands of a paid tax preparer this year.

Jaffe, a 29-year-old who works in PR in New York, bought a house in 2014 while his wife had a baby. He made the switch away from tax software because, he says, “I wanted an expert opinion to verify that I was doing everything right.”

One hour and $500 later, he’s feeling confident: “It saved me a lot of time and stress.”

MONEY Credit

Getting a Free Credit Score is Now Easier Than Ever

The reason your number is going up or down can still be a mystery, though.

As a Citibank customer, I have been receiving my credit score on my statements since January. In February, my number went down five points, leaving me wondering: What did I do wrong?

There are still some mysteries in the world of credit scores, which financial institutions use to determine whether to give a person a loan and how much to charge for it. But the biggest unknown—what is your score?—has been solved.

While consumers could get their credit reports for years at no charge, their scores were not available, or they had to pay for them. In the past year, however, more than 60 million Americans suddenly were able to get either their FICO score, provided by the Fair Isaac Corp, or their VantageScore, from a system developed by the credit reporting bureaus.

Among the other financial institutions giving out scores each month are Ally, Chase, Bank of America , Barclays, Discover, and USAA.

“I keep this growing list of all of the free credit-related services that are now being given away from websites and credit card issuers,” says John Ulzheimer, president of consumer education at CreditSesame.com. “It’s cool to see the momentum.”

The push for open access came from both market forces and the U.S. government. The hope is that consumers with ready access to their scores will make smarter financial choices, like not paying bills late.

So far, so good. “The anecdotal evidence we’re seeing from both lenders and consumers indicates people who know their FICO Scores tend to develop healthier credit habits than people who don’t know their scores,” says FICO spokesman Jeff Scott.

Discover, which has provided about 10 million scores a month for the past year, has seen customer questions evolve from basics to the minutiae of the many factors, such as your payment history and the amount you owe, that drive the credit score algorithm. The company added a specially trained customer service unit to deal with questions, says Discover President Roger Hochschild.

What consumers generally need to know is that credit data is collected by three reporting agencies—Equifax, TransUnion, and Experian—and there are a range of scores generated. Car dealers may use a slightly different score than mortgage lenders, for instance.

Most people will find that their scores do not shift much, month to month. At Discover, 80% see a move of less than 20 points a month, according to Hochschild.

Also, most volatility is at the high end, above 775, on scores that top out at just above 800. But that in itself is nothing to worry about. “When you move from 790 to 750, you’re still in the great range,” Hochschild says.

A score below 600 is considered bad, while roughly from 620 to 690 is average.

My score probably fluctuated because of some big charges last month. Even though I paid them off in full, it would have lowered my available credit temporarily.

How to Affect Change

Whatever score you see you on your monthly statement will be a good indicator of your general creditworthiness. If it shocks you, you can take action.

Order full copies of your credit reports to see the details. You can get one free report annually.

Do not bother calling the financial institution providing the score, as you are unlikely to get much detailed information, says CreditSesame’s Ulzheimer.

Sometimes a low score is simply a mistake or a matter of one reporting bureau not aligning with the others.

This happened to Kevin Yuann, director of credit cards at Nerdwallet.com, a credit card information website. He found that one bureau did not have a listing of an account the others had, so it gave him a lower score. He was able to get the bank to report the account to the credit bureau.

You will not be able to change an item like a ding for a late payment. But it is useful as a deterrent for the next time.

In fact, Discover’s Hochschild thinks this might be one of the most valuable things about ready access to one’s credit scores: “It’s like knowing your cholesterol.”

 

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