MONEY couples and money

The Surprising but Essential Thing You Don’t Know About Your Spouse

couple sitting in separate chairs
Steve Hix—Corbis

Many people don't even know how much their partner earns.

If you harbor any doubt that money remains a taboo subject around the household, consider these findings from the 2015 Fidelity Investments Couples Retirement Study:

  • 43% of couples do not know how much their spouse earns annually, and of those, 10% cannot guess within $25,000;
  • 36% of couples disagree on the amount of their household’s investable assets;
  • 60% of couples have no idea how much their Social Security benefits might be worth, including 49% of boomer couples—a group in or on the cusp of retirement.

Not talking about money around the house can have broad reaching repercussions. Without discussion, odds are there is little financial planning. Nearly half of couples say they have no idea how much they will need to retire, and a similar number disagree over the amount, Fidelity found. Those with a plan are twice as likely to expect to live comfortably in retirement. Other surveys also have found that people who have a plan are more confident about their future.

On another level, the taboo around money conversations may be passed down generationally. We do our children no favors by making the subject mysterious. Young people are coming of age in a period of diminishing social safety nets and would benefit immeasurably from discussions around the house about budgeting and saving. That such conversations do not take place in many households has given rise to a broad effort to require money management courses in schools.

Among the more confounding aspects of the money conversation is the misperception that it is actually taking place. Some 72% of couples in the Fidelity survey say they communicate exceptionally well with each other, and 90% say that starting a conversation about budgets, savings and investments, and estate planning is not difficult. Yet these are some of the same respondents who said they don’t know how much their mate earns.

Meanwhile, nearly half of parents say they strongly encourage their kids to talk to them about money, but only one in five kids strongly agree that this is the case, a T. Rowe Price survey found. Nearly three-quarters of parents say they talk regularly with their children about spending and saving, but just 61% of the kids agree. A third of kids believe their parents are leaving them in the dark about money issues.

Clearly, money is a tougher family topic than most of us realize. But it has never been more essential to talk about. This quiz might help you get started. And here are four questions that can help you and your spouse get on the same page when it comes to household finances.

  • What are the next big goals? Buy a house? Save for college? Identify what you want to achieve in the next three to five years, and make saving a habit.
  • Do you have an emergency fund? What if you get laid off? What if the car breaks down? You should have three to six months of living expenses safely tucked away, just in case.
  • Do you share a vision for retirement? Travel the globe or tend the garden? Downsize and live near the kids or move to a warmer climate? Make sure you see eye to eye.
  • Are your documents in order? Plan for the inevitable by having an estate plan, a durable general power of attorney, and a health care proxy. Designate beneficiaries for investment accounts and insurance policies. To do this as a team you will need to talk about things like inheritance, estate planning and eldercare.

Read next: How to start a money conversation with your mate

MONEY Kids and Money

Shark Tank for Kids: This Game Delivers the American Dream

A cattleman from Peoria, IL gets a second chance to show the Sharks what he's learned about his gourmet meat business since his Season 4 visit to the Tank.
Kelsey McNeal—ABC

Educators are using reality TV as a model for teaching kids about money. Here's why it works.

As part of his middle school history and civics classes, James Kindle incorporates a segment on money. He calls it Shark Tank after the popular TV show, and while the idea is to introduce personal financial concepts and entrepreneurship what Kindle believes he really teaches is how to achieve the American dream.

Just like the competitors in the TV show, Kindle’s students must come up with a business idea, write a proposal, and pitch the concept to teacher “investors.” He’s a pretty good pitchman himself. Bringing financial education alive through his Shark Tank program at Sullivan Community School in Minneapolis, Minn., earned Kindle first place in the PwC Financial Literacy Innovation Challenge and a $50,000 prize for his school.

“I want to give my students a taste of this dream, while teaching persuasive language, entrepreneurship, and financial literacy skills,” Kindle wrote in a request for funding. In an email, he added “while it might be awhile before my students are meeting with investors and venture capitalists to fund their business ideas, it won’t be long until they are presenting at science and history fairs, competing in speech and debate, or meeting with college admissions officers.” So his program teaches presentation skills, too.

As one of the judges in the PwC Charitable Foundation contest, I can say that what resonates in Kindle’s program is the game-based approach to a difficult subject, along with the infusion of popular culture to make the experience relevant. These were common traits of all top finishers. The results suggest to both parents and educators that they would do well to keep the principles of fun, hands-on, and timely instruction in mind when trying to teach young people about money.

Second place went to a history and civics class at Lawrence County High School in Moulton, Ala., where they play Biggest Loser, also modeled after a popular TV show. Students visit “exercise stations” where they choose a loan or credit card or make some other decision to help them lose “weight” (debt). Who knew reality TV could serve a purpose? Other finalist programs were organized around things like how much various careers pay, and everyday saving and spending decisions.

“Mr. Kindle’s Shark Tank lesson bases financial literacy around core values and behaviors versus facts and figures in order to teach skills like persuasion, negotiation and ownership,” says Shannon Schuyler, PwC corporate responsibility leader. “The idea was contagious, authentic and, most importantly, fun.”

Interestingly, this contest’s winners are taking bows even as educators around the country wrestle with the role of play in learning. With today’s focus on formal education, kids are being asked at earlier and earlier ages to put away the blocks and listen to their teachers lecture. Yet some researchers say this “head start” may backfire. Rebecca Marcon, a psychology professor at the University of North Florida, found that pre-school students allowed to learn through play earned significantly higher grades in the third and fourth grade. With financial education, especially, most experts agree that a game-based approach works best.

One study found that when good instruction is paired with high-quality digital games there is a 12% jump in cognitive learning outcomes. The game-oriented H&R Block Budget Challenge has produced evidence that this type of learning significantly improves financial know-how. Says Kindle: “Using games always increases student engagement. An activity that seems mind-numbingly boring, when slightly twisted into a game, suddenly becomes thrilling.”

Relevance and timeliness are also important. Modeling programs after Shark Tank and Biggest Loser gave students an instant touchstone. At home, parents trying to make a financial point might choose an opportune moment—perhaps when their teen is getting an iPhone upgrade, which means more to them than the incremental cost of your adjustable-rate mortgage as bond yields tick higher.

Understanding personal finance isn’t just a way to make ends meet. As the enterprising middle school teacher from Minneapolis might say, it’s how you achieve the American dream.

Read next: Kids and Money: The Search for What Really Works

MONEY financial literacy

Most 20-Somethings Can’t Answer These 3 Financial Questions. Can You?

people taking quiz
Getty Images—Getty Images

A new study finds that young Americans could use some help when it comes to managing their money.

Just in time for financial literacy month, a new San Diego State University study of young Americans has found that they are lacking when it comes to financial knowledge and behavior.

Out of these three questions measuring basic financial knowledge, the average respondent could answer only 1.8 correctly—and only a quarter got all three right. (Answers are at the bottom of this story.)

(1) Do you think that the following statement is true or false? Buying a single company stock usually provides a safer return than a stock mutual fund.

(2) Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow: More than $102, exactly $102, or less than $102?

(3) Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, would you be able to buy more than, exactly the same as, or less than today with the money in this account?

Perhaps most troubling was what the research showed about how respondents have actually been managing their money. The average young person surveyed showed responsible behavior in only one of three categories: Paying off debts on time, budgeting and living within one’s means, and having any retirement savings at all. Only 2% of all respondents showed responsible behavior in all three categories.

Furthermore, the study—led by SDSU professors Ning Tang, Andrew Baker, and Paula Peter—found that there was little to no effect of financial knowledge on financial behavior. That is, young people manage money poorly, even when they know better.

But there is hope for America’s youth, says Tang.

“Our findings suggest that if you want to improve your own financial behavior, the best thing you can do is be open to the influences of others,” says Tang.

Though the study did not examine the influence of peers, its results suggest both family and financial professionals could play an important role in improving young people’s financial habits. The researchers found that being close with parents was correlated with better money management among women—and that higher self-reported levels of being “thorough” and “careful” was correlated with better financial behavior among men. Among both sexes, higher self-reported levels of being “self-disciplined” was correlated with better money habits.

That suggests educators and financial planners should focus on getting young people to be more self-aware in general and more motivated to improve their organizational habits across the board—not just when it comes to finances, says Tang.

“It can be helpful just to be more aware of your own psychological barriers,” she says.

One thing the study did not explore much is the cause of gender differences in the results. For example, the authors did not control for whether parents tend to treat daughters differently than sons.

And the answers to the questions above? They are: (1) false; (2) more than $102; and (3) less than today.

Read Next: This One Question Can Show If You’re Smarter Than Most U.S. Millennials

TIME

Why More Access to Credit Is Not a Good Thing

Getty Images

It's basically like getting the keys to a race car we don't know how to drive

According to a recent survey from the New York Fed, Americans today feel pretty good about their ability to get credit. The percentage of people applying for credit cards ticked up over the last quarter, and it’s up about three percentage points since October 2013, while the percentages of rejected credit card applications and involuntary account closures have fallen. The percentage of people rejected when they ask for a credit limit increase has fallen even more sharply; as of last quarter, more than 75% of people who asked for increases got them.

And we think the good times are going to keep rolling. The same Fed survey found that more people expect to ask for credit limit increases — and get them — over the next 12 months. Abut 12% of survey respondents expect to apply for credit cards in the next year, a jump of about four percentage points over the previous quarter.

This would be all well and good, except for one tiny detail: We really have no idea what we’re doing when it comes to credit, and being clueless can cost us big bucks.

The 2015 Chase Slate Credit Survey finds that about 40% of us have never checked our credit scores, and people in this camp have a fuzzy grasp of what a “good” credit score entails. People who have never checked their credit think, on average, a score of 668 is good (it’s really not terrific).

Even among the people who have checked, they think a score of 719 is good — which is better, but still not where you need to be if you want to get the best rates. With a score like that, you’ll probably be able to get credit, but you might pay more, and these survey results indicate that many of us might not even realize we could be doing better and saving money in the process.

Chase also shows that we’re overconfident about our credit smarts in other ways. While almost 90% of people who say they’re in a “poor financial situation” have a good handle on what constitutes a good credit score, only about 80% of those who think they’re in good shape, credit-wise, know what that really means.

A survey by credit bureau TransUnion finds a similar knowledge gap: More than two in five of the people in its survey who checked their credit in the last month think your income is included in a credit report, and almost half of those who have checked their score in the last year think getting a raise automatically boosts your score. (Neither is true.)

And while we’ve got great intentions, we don’t always follow through: Although two-thirds of respondents to the Chase survey say they want to improve their credit over the next year, only about a third of respondents say they have a plan to do so, and more than one in five say they’ve never lifted a finger to improve their credit. More worrisome: A majority of people surveyed don’t even know paying bills on time is the top factor that contributes to your credit score.

Sometimes, this lack of knowledge can prevent us from educating ourselves further: 20% of respondents in TransUnion’s survey who checked their score in the last year think doing so lowered their score, which could keep them from checking it more frequently. In reality, checking your own score doesn’t hurt it; it’s only when a lender makes an inquiry that your score takes a small hit.

So, while lenders are happy to keep giving America credit and borrowers are eager to take it, many of us are doing so without even a basic grasp of how the system works. This isn’t blissful ignorance; this is potentially expensive ignorance, and the worst part is many people don’t know how or why to improve their credit.

 

MONEY Financial Education

Kids and Money: The Search for What Really Works

piggy banks with chalkboard saying "savings 101"
Getty Images

A new study aims to understand the effectiveness of the money lessons kids learn in school.

Those who oppose integrating financial education into our nation’s classrooms have long argued money lessons don’t actually change behavior. Slowly, evidence to the contrary is emerging. But much more proof is needed before personal finance will be taken as seriously as math, science, or history.

That line of thinking underlies a new $30 million commitment from professional services firm PwC, which in 2012 launched its Earn Your Future program, designed to help educators gain the tools and knowledge they need in order to teach kids about money. PwC pledged $100 million worth of service hours from its employees and $60 million in cash over five years.

This new commitment is all cash, and a good chunk of it takes aim at a research void: finding what teaching methods and strategies result in lasting behavior change among students who study personal finance. PwC has teamed with two major universities to analyze financial education programs in grade schools and colleges with the goal of understanding how students learn and apply money lessons.

“Financial capability techniques are still evolving,” says Shannon Schuyler, corporate responsibility leader at PwC. “We need to make sure that as we are implementing them into classrooms, we are measuring their effectiveness and adjusting our strategy and approach based on the findings from sound research.”

Critics say this may all be a waste of resources. They argue that marketing messages overwhelm the common sense you might learn as a young student, and that the financial landscape changes so fast that anything you learn about, say, bank fees and cell phone packages quickly becomes obsolete.

Such issues have been studied for years. We have a global library of some 1,400 papers on the subject. But only recently has this research begun to hone in on what really works. In a groundbreaking study in February, researchers at the University of Wisconsin Center for Financial Security tied personal finance lessons in school to higher credit scores among young adults. Other recent research sponsored by H&R Block found remarkable attitude changes in students following a nine-week personal finance course, including that 92% said learning about money management was very important and 80% wanted to learn more.

The new PwC commitment will also fund research into how iPads and other mobile technologies can speed learning of financial concepts—even as the firm sets aside more funds for good old-fashioned learning from print. A colorful six-page magazine through Time for Kids, Your $, spotlights financial literacy for kids. The print version is being distributed in New York schools and will roll out in Chicago this month. It is also available online.

Policymakers in the U.S. and around the world are embracing financial education as a way to help prevent or minimize the effects of another financial crisis. In the U.S., the Obama administration has made its priorities clear—it wants clean data that can be analyzed and used to find proof of financial education strategies that work. We seem to be moving that direction.

MONEY financial literacy

This is the State That Is Smartest About Money

Concord, New Hampshire
Alamy The folks in Concord, New Hampshire, can boast that they are the most financially literate in the nation.

Based on financial literacy and spending and borrowing data, a new survey ranks the states.

Think you and your neighbors are savviest in the nation when it comes to money?

Well, unless you live in New Hampshire, you’ll have to let that notion go. According to a report released Tuesday by WalletHub, the Granite State alone can claim the title of “most financially literate state.”

The report looked into the financial education programs and consumer habits in all 50 states, as well as the District of Columbia, to create its rankings. Each state was judged on 11 different qualities, ranging from Champlain University’s high-school financial literacy grades to the percentage of residents who spend more than they make, and then scored on its planning/daily habits and knowledge/education level separately before receiving an overall rank.

New Hampshire pushes its way to the top by having the lowest high school dropout rate, the second lowest non-bank borrowing rate, and the fourth lowest number of unbanked households in the country.

Mississippi ranked last in financial literacy, dragged down by having the most residents without a rainy day fund and the most unbanked households.

Want to know how your state fared? See the full ranking below. Check out the study details to see the states that did best and worst by each measure.

Overall Rank

State

Knowledge & Education Rank

Planning & Daily Habits Rank

1 New Hampshire 2 1
2 Utah 1 7
3 Massachusetts 21 2
4 Maryland 12 4
5 New Jersey 11 9
6 North Dakota 33 3
7 Illinois 14 8
8 Minnesota 8 13
9 Pennsylvania 30 4
10 Virginia 3 20
11 New York 24 10
12 South Dakota 6 15
13 California 38 6
14 Maine 30 11
15 Iowa 20 14
16 Colorado 5 24
17 Wisconsin 13 17
18 Florida 40 11
19 Nebraska 23 16
20 Washington 19 18
21 District of Columbia 10 22
22 Idaho 4 36
23 Montana 14 23
24 Hawaii 29 21
25 Vermont 16 27
26 Wyoming 18 26
27 Delaware 44 19
28 South Carolina 28 28
29 Connecticut 37 25
30 Alaska 35 30
31 Oregon 27 32
32 North Carolina 22 36
33 Missouri 7 44
34 West Virginia 33 33
35 Indiana 45 29
36 Ohio 42 31
37 Tennessee 26 38
38 Georgia 17 40
39 Rhode Island 39 38
40 Michigan 48 34
41 Arizona 25 42
42 Texas 32 40
43 Alabama 50 34
44 Kansas 9 48
45 Oklahoma 35 46
46 Kentucky 46 42
47 New Mexico 47 45
48 Louisiana 43 49
49 Arkansas 51 47
50 Nevada 41 50
51 Mississippi 49 51

 

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 investing strategy

Most Americans Fail This Simple 3-Question Financial Quiz. Can You Pass It?

piggy bank with question marks on it
Peter Dazeley—Getty Images

These questions stump most Americans with college degrees.

Following are three questions. If you’ve been around the financial block a few times, you’ll probably find all of them easy to answer. Most Americans didn’t get them right, though, reflecting poor financial literacy. That’s a shame — because, unsurprisingly, the more you know about financial matters and money management, the better you can do at saving and investing, and the more comfortable your retirement will probably be.

Here are the questions — see if you know the answers.

  1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years, how much do you think you would have in the account if you left the money to grow? (A) More than $102. (B) Exactly $102. (C) Less than $102.
  2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account? (A) More than today. (B) Exactly the same. (C) Less than today.
  3. Please tell me whether this statement is true or false: Buying a single company’s stock usually provides a safer return than a stock mutual fund.

Did you get them all right? In case you’re not sure, the answers are, respectively, A, C, and False.

Surprising numbers

The questions originated about a decade ago, with Wharton business school professor and executive director of the Pension Research Council Olivia Mitchell, and George Washington School of Business professor and academic director of the Global Financial Literacy Excellence Center Annamaria Lusardi. In a quest to learn more about wealth inequality, they’ve been asking Americans and others these questions for years, while studying how the results correlate with factors such as retirement savings. The questions are designed to shed light on whether various populations “have the fundamental knowledge of finance needed to function as effective economic decision makers.”

They first surveyed Americans aged 50 and older and found that only half of them answered the first two questions correctly. Only a third got all three right. As they asked the same questions of the broader American population and people outside the U.S., too, the results were generally similar: “[W]e found widespread financial illiteracy even in relatively rich countries with well-developed financial markets such as Germany, the Netherlands, Switzerland, Sweden, Japan, Italy, France, Australia and New Zealand. Performance was markedly worse in Russia and Romania.”

If you think that better-educated folks would do well on the quiz, you’d be wrong. They do better, but even among Americans with college degrees, the majority (55.7%) didn’t get all three questions right (versus 81% for those with high school degrees). What Mitchell and Lusardi found was that those most likely to do well on the quiz were those who are affluent. They attribute a full third of America’s wealth inequality to “the financial-knowledge gap separating the well-to-do and the less so.”

This is consistent with other research, such as that of University of Massachusetts graduate student Joosuk Sebastian Chae, whose research has found that those with higher-than-average wealth accumulation exhibit advanced financial literacy levels.

The importance of financial literacy

This is all important stuff, because those who don’t understand basic financial concepts, such as how money grows, how inflation affects us, and how diversification can reduce risk, are likely to make suboptimal financial decisions throughout their lives, ending up with poorer results as they approach and enter retirement. Consider the inflation issue, for example: If you don’t appreciate how inflation shrinks the value of money over time, you might be thinking that your expected income stream in retirement, from Social Security and/or a pension, will be enough to live on. Factoring in inflation, though, you might understand that your expected $30,000 per year could have the purchasing power of only $14,000 in 25 years.

Mitchell and Lusardi note that financial knowledge is correlated with better results: “Our analysis of financial knowledge and investor performance showed that more knowledgeable individuals invest in more sophisticated assets, suggesting that they can expect to earn higher returns on their retirement savings accounts.” Thus, better financial literacy can help people avoid credit card debt, take advantage of refinancing opportunities, optimize Social Security benefits, avoid predatory lenders, avoid financial scams and those pushing poor investments, and plan and save for retirement.

Even if you got all three questions correct, you can probably improve your financial condition and ultimate performance by continuing to learn. Many of the most successful investors are known to be voracious readers, eager to keep learning even more.

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