Teaching Children Financial Responsibility: Start Early

close up of family hands with piggy bank

Would it surprise you to know that students graduating from high school enter college with little to no knowledge about their finances, how to budget, or save for their futures? The problem has become so severe that 40% of these students wind up going into debt in order to fund their social lives and 70% of these students wind up damaging their credit ratings shortly after college graduation.

Unfortunately, it seems as though this debt will not be going away anytime soon.  The average student loan debt for the class of 2016 increased by 6% from the previous year and the financial literacy rate in the U.S. has not improved over the past three years. While college enrollment and the number of college graduates has continued to increase, financial literacy lags among these young people at record lows. Where does this disconnect come from?

Few states offer personal finance or economics courses and even fewer states test students on the financial knowledge they have acquired. It therefore comes as no surprise that American students (and we can infer American adults) have one of the lowest levels of financial literacy when compared to other countries.  While the number of student loans has increased,

  • 44% of Americans don’t have enough cash to cover a $400 emergency
  • 43% of student loan borrowers are not making payments
  • 38% of U.S. households have credit card debt
  • 33% of American adults have $0 saved for retirement

Why does it matter? How is it affecting the economy?

Students are graduating with loans they can’t afford to pay back and with minimal financial knowledge in planning for their futures. According to Student Loan Hero, Americans have over $1.48 trillion in student loan debt, which is more than double the total U.S. credit card debt of $620 billion. This debt is becoming a major barrier to home ownership. 43% of student loan borrowers are not making payments and most of these individuals do not have any savings. A lack of sound financial knowledge will affect the economy as these millennials enter the labor force burdened with student loans.

As parents, we play a vital role in educating our children about the importance of personal finances.  In the Sherman household, we are teaching our children the importance of finances on a daily basis. Our 4 year old son is learning about savings by doing chores in return for an allowance, which he saves in his piggy bank. He is learning to save and spend his money wisely.

Parents can begin educating their children at home in order to increase the financial literacy of their kids. By demonstrating wise financial habits, parents can serve as role models for their kids. Talking in an age appropriate way to your children about the dangers of debt and the importance of saving a portion of any money they earn instills financial values and lessons your child can use throughout life.  You may find that using an allowance is a way that you can teach your kids about saving and spending appropriately. Since it has been shown that kids who manage their own money have been found to demonstrate better financial habits in the future, giving your kids the opportunity to spend and save their own allowance or money earned is a good way to prepare them for later on. Even a simple trip to the store can be used as an opportunity to start the conversation about the danger of credit cards and how they should only be used in an emergency.  Educating your kids at an early age will enable them to better learn and practice sound financial habits while under your watchful eye and cause them to be less likely to make irrational decisions once they are out on their own.

kids managing money


This issue is not only affecting students and young adults.  Many professionals with advanced degrees have spent countless hours studying and researching information in their particular field.  Despite all of the hours spent earning their degrees, many of these people have never taken a single course in financial education and are surprisingly not prepared to deal with the important financial decisions affecting their futures.  As a result, many extremely smart and successful people are making critical financial errors which can negatively impact the amount of money they have saved upon retirement.

Beginning in 2011, studies were conducted where participants were shown a computer generated rendering of what they might look like at their age of retirement.  They were then asked to make financial decisions about whether to spend their money today or save that money for the future. In each study, those individuals who were shown pictures of their future selves allocated more than twice as much money towards their retirement accounts than those who did not see the age-progressed images.  Seeing the images gave the participants a connection with their future selves that they did not possess before. As a result, their spending/saving behavior changed dramatically because “saving is like a choice between spending money today or giving it to a stranger years from now.”

The benefits of educating your children about the importance of personal finances are undeniable, and you’ll be able to set them up for a promising future and help them prepare for retirement. Visit us online for more information about how we can help improve your financial life.

Want to Get More “Financially Fit” in 2018? Set Savings Goals Now


One of the most important elements of a good financial plan is regular saving. Unfortunately, it is one of the biggest stumbling blocks as well, with 57% of Americans reporting they had less than $1000 in savings in a 2017 survey. To make matters worse, 1 in 3 American has no retirement account, and only 1 in 4 Americans has over $100,000 in their retirement account.

These are concerning figures, particularly now. As interest rates keep rising – short term treasuries at their highest in nine years – and the market continues its climbing streak, you’re missing out if you are not putting savings to work for you.

Why aren’t more people saving when, according to a recent you.gov survey, “saving more money” was the 4th most popular New Year’s resolution for 2018?

One factor our clients have cited that kept them from saving in the past is discouragement due to past failures. The solution is to make sure your goals are SMART goals: goals that are Specific, Measurable, Attainable, Relevant, and linked to a Timetable.

It is important to set Specific and Relevant immediate, short, and long-term savings goals that you can visualize – like a beach vacation, a bigger home, or a child’s graduation ceremony. Tying savings goals to images that align with your life and your values can make them more emotionally compelling and easier to keep in mind.

Equally critical is to make your goals Measurable and set a Timetable: how much you are planning to save each month, or by a certain date. Don’t set figures or dates that are impossible; make sure they are Attainable as well.

Just like physical fitness, financial fitness is best achieved by setting specific, achievable, and measurable goals. A defined goal, whether it’s “save 5% of each paycheck” or “add extra hours to save for a vacation,” gives you a much better shot at success rather than a simple “I should be saving more.”

A huge part of good financial planning is goal setting. A good financial planner can help you calculate the long-term benefits of saving more and on a regular sustainable basis. It’s particularly important that your financial planner is a fee-only Fiduciary: that means there will be no “additional charges” or investment recommendations with commissions for the broker that could throw off your savings calculations.

And if you’d like help defining financial goals and evaluating whether you are saving enough to achieve them, please feel free to contact me for a free introductory call. We are always on call to help you realize your highest financial potential.

A New IRS Withholding Tax Calculator Eliminates the Guesswork


Last week, in response to confusion surrounding the 2018 tax law that was passed in December, the IRS released an updated online Withholding Calculator. The tool is designed to help taxpayers make sure they are not wildly underpaying or overpaying what they will owe.

The new law is highly complex and made changes that included increasing the standard deduction, removing personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions, and changing the tax rates and brackets.

The online calculator should go a long way to help employed taxpayers plan ahead, particularly those in middle-income and upper middle-income brackets.

This is important because you don’t want to be withholding too much –in effect giving the government a free loan of money you could be investing in your home, the market, educational savings funds, or just your day-to-day needs. On the other hand, you don’t want to be withholding to little and risk facing an unexpected tax bill or penalty at tax time in 2019

According to the IRS some of the groups who should check their withholding are:

  • Two-income families
  • People with two or more jobs or seasonal work
  • People with children who claim the Child Tax Credit (or other credits)
  • People who itemized deductions in 2017
  • People with higher incomes and more complex tax returns

According to Acting IRS Commissioner David Kautter, about 90 percent of taxpayers would have “some adjustment one way or the other” to the amount they are withholding. That’s most of us.

The changes do not affect 2017 tax returns due this April. Your completed 2017 tax return can, however, help you input data to the Withholding Calculator to determine what you should be withholding for 2018 to avoid issues when you file next year. And if you do need to change the amount you are withholding (remember- 90% of us might), there is also a new version of the W-4 form to download and submit to your employer.

More information is available from the IRS here: Withholding Calculator Frequently Asked Questions.

And if you have questions about how these important changes may affect you, please call us for a free consult or reach out to your CPA.

8 Financial Mistakes to Avoid in Your 20s and 30s

8 financial mistakes to avoid in your 20s and 30s

Your 20s and 30s are an exciting time. You’re starting to build the life you envision for yourself, or perhaps you’re still seeking out new experiences to learn more about yourself and your goals.

These are years when we expect to learn and grow by exploring jobs and careers, cultural experiences, social experiences and other educational opportunities. But too many of us forget to explore and master one of the most critical parts of building the future we want: financial literacy and financial planning.

The result is that many people enjoy their 20s and make important life changes in their 30s (or vice versa) without understanding how best to support their career and personal goals with a rock-solid financial plan. You could end up flying high, but forget to build a safety net!

Here are some key mistakes to avoid as you’re getting started:

1. Letting the Chips Fall Where They May: No Budget

A first job—or second, or third—is a great feeling. You’re earning money and it’s yours to spend. And too often, we spend it until it’s gone. While a budget may sound restrictive, it actually gives you more freedom because it keeps you from overspending in areas you don’t care about so you have the money you need for what’s important. A budget helps you understand where to splurge—on quality that lasts longer, for instance—and where it’s best to economize, such as buying a used car instead of a new one.

2. Keeping Too Low of a Profile: No Credit Rating

Many people just starting out have low credit ratings, or worse, no credit rating at all (if you’ve always used your parents credit cards, for instance). With a low credit score, your costs will be higher for things like insurance, car financing and mortgage rates. Building good credit now, by getting your own credit card and paying it diligently, or even getting a credit-building loan, will establish a good rating that will help you down the road.

3. Putting It off Until Tomorrow: Living on Credit Cards

Credit cards can be a godsend, particularly the ones with loyalty points. But those points pale in value beside the damage that finance charges can do. Do treat your credit cards like a smart way to keep track of your spending, but don’t spend more than you actually have. Paying credit cards off in full each month not only keeps you within your budget and keeps you from accruing finance charges, it also helps you build a great credit rating for when you do need to borrow money. (For related reading, see: 10 Reasons to Use Your Credit Card.)

4. Living on Perks Instead of Salary: Not Paying Yourself First

We’ve all been to that job interview where they say that the salary is low but they have a great exercise room, volleyball team and popcorn machine. That popcorn won’t pay the rent and it won’t pay a down payment when you find that great condo. Create a savings plan and pay yourself first before you splurge on lifestyle perks like vacations and expensive shoes. That plan should include saving for short-term goals, saving for an emergency fund, and starting to save for retirement. While retirement may seem a long way off, the earlier you start, the more you harness the power of compound interest. Make sure your budget includes saving and contributing, on a regular basis no matter how small the amount, to an IRA or 401(k) before you start spending.

5. Living on the Edge: No Emergency Fund

While it’s hard to imagine needing emergency funds when you’re young and just starting out, you never know what the future can bring. Crises like Hurricane Sandy and the 2008 crash left a lot of people struggling without a safety net, but even something as simple as a pet’s sudden illness can present a huge challenge when you’re on a tight budget. Try to start contributing to an emergency fund that you keep in highly liquid funds for when the unexpected happens. (For related reading, see: Building an Emergency Fund.)

6. Playing the Odds: No Health Insurance

Many young people who are in peak health think that they can skip—or skimp—on health insurance. While you may indeed be fit and healthy, that doesn’t protect you from potential sports injuries, appendicitis, bouts with the flu or—perish the thought—a car accident. High medical bills are the biggest cause of personal bankruptcy. Get the best coverage you can afford: you’ll be amazed how quickly it pays for itself.

7. Going With the Flow: Not Setting Financial Goals

“If you do not change direction, you may end up where you’re heading,” goes the famous quote attributed to Lao Tzu. That means it’s a good idea to think about where you’d like to be—in a year, in five years, in 20 years—and make sure that’s the path you’re on. Simple goals like “I want to save $20.00 a week,” or more elaborate ones, like “I’d like to work for myself from a house on the beach,” all begin with awareness and taking the first small steps. Set a few goals; you can always change them later, but if you don’t, you’re drifting without being mindful of where the currents are taking you.

8. Taking Your Eye off the Ball: Using a Non-Fiduciary Advisor or Commission-Based Investment Site

It’s never too late to become financially literate. The internet is full of great tips (like these) and sites that can help you organize your finances, and it provides access to a range of advisories. Having a financial advisor guide you is an excellent idea but blindly trusting just anyone can be dangerous. Many non-fiduciary advisors are compensated by the financial products they recommend, products that may not be the best ones for you. Make sure the advisor you consult is a fiduciary, i.e. someone who is legally obligated to only recommend options that are in your best interest.

Be sure to check out our next post: 5 More Financial Mistakes to Avoid. You’ll enjoy your 20s and 30s even more knowing that you’re also building a solid future.

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions, please Contact Us.

3 Ways to Make Budgeting a Success in the New Year

developing a financial budget

At the end of each year – and the beginning of the new one – most of us think about things we’d like to accomplish in the coming year. It’s a time we engage in self-reflection, ideas for self-improvement, and new – or ongoing – resolutions and goals.

One of the most common resolutions is losing weight, but we all know how that goes: crowded gyms in early January, inevitable drop-off when February rolls around. In fact, a study done by the University of Scranton shows that only about 8% of people actually achieve their resolutions.

Financial resolutions often include starting – or finally sticking to – a budget. Unfortunately, that resolution is all-too-often hard to stick to as well. (For related reading, see Financial New Year’s Resolutions You Can Keep.)

Why do so many people have trouble sticking to their resolutions? One of the main reasons is having unrealistic expectations. Overconfidence doesn’t just affect fitness goals, it affects investors’ behavior as well.

How can you make this the year you stick to your goals?

Take Baby Steps

Be reasonable in assessing where you are with your finances and don’t try to tackle everything at once. Start by listing all the areas of your financial situation you would like to improve. Then prioritize the individual elements in order of importance to you, and start by taking on one or two at a time. (For related reading, see: Achieve Your Financial Goals With a Financial Plan.)

If one of your goals is to start – and stick to – budgeting, don’t give yourself super-strict boundaries. Instead, start by creating good habits one at a time. If you want to pay off all of your credit card debt, for instance, take a look at how much debt you have and create a realistic weekly or monthly plan to start paying it off. If you want to buy a house in five years, you could decide to spend less now on something that you currently enjoy. (For related reading, see: Got a Raise? Here’s How to Avoid Lifestyle Creep.)

Focus on one or two goals at a time, see how it goes, and make progress – and adjustments – to stay on track.

Be Specific

Instead of saying “I am going to save more this year,” or “I am going to save $5,000 this year,” try to specify exactly how you plan to do it. Start with something like: “I will take $100 from each paycheck and put it into a savings account.” By giving yourself a tangible – achievable – steps, you’ll be better able to track how well you are sticking to it.

In addition, try to think about what it is that you are trying to accomplish. Why do you want to save an extra $100 each paycheck? Are you saving up for a car? Trying to pay off debt? Building up an emergency fund? When you add purpose to your goals, it makes it more compelling and easier to accomplish. (For related reading, see: Why Investors Can Be Their Own Worst Enemy.)

Stay Accountable

Know yourself: accept who you are and what that means. Are you someone who might let things build up then feel too overwhelmed to jump back on track? Think about sharing your goals with a friend or family member and set times to check in with them and go over your progress. If you want to go to the gym three days a week, think about getting a workout partner. If you want to save an extra $100 from each paycheck, see if there is a friend that has the same goal and you can do it together, comparing how it’s going throughout the journey.

Most importantly, understand that this is a process. Some weeks will be better than others, but, if you can follow these three steps – set realistic goals, set specific goals, be accountable – hopefully you will be part of the 8% that gets it done this year. (For related reading, see: The Importance of Personal Finance Knowledge.)

To read more about budgeting:

Financial Budgeting and Saving

Should You Start to Save… or Pay Down Debt?

This article was originally published on Investopedia.com


The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.