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5 Things Today’s Teens Don’t Know About Money

In Money and Finance on November 11, 2013 at 5:11 pm

by CNBC Nov 11th 2013 1:50PM
By Kelley Holland

teens and finance

You know your teens can be illogical, unreasonable, and occasionally malodorous, but isn’t it at least reasonable to assume they know the basics about money?

Apparently not. Surveys show that teens are failing at financial literacy. And while financial institutions like PricewaterhouseCoopers are investing significant resources in changing that, the problem is persisting.

From those in a position to know best — personal finance and business education teachers — here are some of the most gaping holes in teens’ money knowledge.

1. Bank account basics

“My students had no idea how to figure out online banking,” said Keith Newman, a personal finance teacher at Bodine High School for International Affairs in Philadelphia. Part of the problem, he said, is that there are no high-quality, up-to-date teaching tools to help students learn about bank accounts, so he is hoping to take his students to a bank to open accounts and learn banking nuts and bolts.

2. Budgeting

Students’ “parents just hand them money, and they just burn through it,” said Newman. His students are far from wealthy, but he says many of their parents are wary of financial institutions and prefer to do everything with cash. “I have students who have fathers who take care of their daughters very well, giving them $15 or $20 every day.”

Kim Zocco, a business education teacher at Archbishop Edward A. McCarthy HIgh School in Southwest Ranches, Fla., has many students from families at the other end of the economic spectrum, but says that just creates another problem. “Their parents take care of everything for them. They are oblivious because they can just have and get,” she said.

3. The power of compounding

Maggie Wohltmann, a business education teacher at Teaneck High School in New Jersey, likes to explain to her students that they all have the potential to be millionaires someday — but the odds of reaching that goal increase sharply if they save early. She demonstrates what can happen if someone puts away a reasonable amount every month. Her goal, she said, is “getting across that it’s the 22-to-32 age range, before you have the house or the family, that’s when it’s key to really invest the money.”

4. Keeping credit reports clean

Many teens are stunned to learn that financial behavior over an extended period will affect their ability to borrow money or even obtain a credit card. “It’s really eye opening,” said Wohltmann. “Ten years is a long time to these students.”

5. Rainy day savings

Whether teens come from affluent households or more modest ones, the idea of putting money away in case something happens if often novel, teachers say. “Savings shock them,” said Newman.
Zocco and Wohltmann drive home the importance of a financial cushion with a role-playing exercise. They pair up their students, have them form “households,” and assign them real world jobs. The students have to live within their means and deal with financial setbacks the teachers dole out: Their car may break down, they may suddenly have twins, and so on.
“In the end, they’re pretty shocked at what they’re left with” after taxes, and “what they need to save,” said Zocco.

There is another life lesson as well. The teens see first hand that money issues can be really, really stressful. “The students bicker in their households like couples do — and these are pretend things,” said Wohltmann.

Colleges May Penalize Students Over Preference on Financial Aid Applications

In Money and Finance, Top This on November 11, 2013 at 4:39 pm

by Reuters Nov 11th 2013 7:18AM

By Liz Weston

admissions office
Getty
LOS ANGELES — College applications aren’t fraught enough, so here’s something else to worry you. The order in which you list your preferred colleges on federal financial aid applications could be used against you.

Colleges are keenly interested in what’s known as “FAFSA position” — the order in which high school students list their prospective institutions on the Free Application for Federal Student Aid (FAFSA). Students can list up to 10 schools to receive their financial aid information, and the ones they list first strongly predict which enrollment offers they’re likely to accept, college consultants say.

The Department of Education releases each student’s line-up to all of his or her prospective colleges. That allows the institutions to see how they rank with students and exactly which schools they are competing against.

Most applicants don’t realize this information is shared, and they have no idea their lists could be used to affect their admissions offers or their financial aid packages, said David Hawkins, director of public policy and research for the National Association for College Admission Counseling in Arlington, Virginia.

“The idea that what students may be offered could be significantly altered by the use of the FAFSA position is highly problematic,” Hawkins said.

A recent Inside Higher Ed article detailed some of the ways that information can be used against students. A university concerned about its “yield” — a closely-watched measure that tracks how many accepted students actually enroll — may not extend an admission offer if the university is near the bottom of an otherwise qualified student’s list, for fear the offer will be rejected.

A college at the top of a student’s list, on the other hand, may not feel compelled to offer generous financial aid, since the student is seen as likely to accept without it.

Colleges don’t admit to these tactics publicly, but consultants who advise families on college selection say it’s an open secret that they occur.

“All colleges have the goal of admitting the best students they possibly can at the best price they possibly can,” said Deborah Fox of Fox College Funding in San Diego, which advises affluent families on ways to reduce their college bills. “I strongly believe that FAFSA position … is just one of the tools they use.”

College officials and consultants who advise them insist that such practices aren’t widespread. Schools are far more likely to use FAFSA position to size up their competition and to predict enrollment, they say. But even the defenders acknowledged other ways in which FAFSA position could negatively affect prospective students.

Withholding Offers

Several of those I interviewed were skeptical that colleges would routinely use FAFSA position to withhold an admissions offer, since FAFSA data is generally transmitted to schools in February and March — late in the admissions process.

“The information is not available at the time it would be particularly useful,” said W. Ken Barnds, vice president of enrollment at Augustana College in Rock Island, Ill., who wrote about FAFSA position as part of a recent Huffington Post article about “big data” and college admissions. “And it would be completely inappropriate to use this information in the admissions decision-making process.”

Hawkins, who agreed an outright denial was unlikely, said his college admissions sources have told him that FAFSA position can be used along with other indications of student interest — such as a campus visit or a consultation with a school representative at a college fair — to put students on a waitlist rather offering admission “to see if they’re still interested.”

Colleges with limited resources for recruiting students may not try as hard to persuade students to enroll who don’t rank them highly, said Galen Graber, an associate vice president for financial aid services at enrollment management consultant Noel-Levitz of Coralville, Iowa.

“If I’m 10th on someone’s list, should I call that person and try to persuade them to move us nine positions ahead,” Galen asked, “or should I call that person that has us in the second position instead?”

Noel-Levitz is among the consultants who have convinced colleges to pay attention to FAFSA position. A college listed first by a student will have its offer of admission accepted 64 percent of the time, according to the consultant’s study of 153 private and public colleges. The acceptance rate drops to 22 percent for colleges listed second and 16 percent for those listed third, Graber said.

Augustana College, a Noel-Levitz client, uses FAFSA position to help prioritize its offers of financial aid, Barnds said.

“I want to get [highly interested students] a financial aid offer as quickly as possible,” Barnds said, “so we don’t leave a student who’s listed us as No. 1 waiting forever.”

Expressions of student interest also are used by some colleges to craft financial aid packages, especially those involving “merit aid” that doesn’t require demonstrated need, Hawkins said. Eager-to-attend students may not receive the same generosity as those on the fence.

“The fact that colleges are differentiating between students on anything other than income very much implies … these packages are based on student interest, among other things,” Hawkins said.

Fox, who advises families on the often-complex strategies of “strategically” listing colleges on the FAFSA, is among those who wish the Department of Education would simply stop sharing FAFSA positions with schools.

“I think this is private information,” Fox said. “It should be kept private.”

Food Stamps Again a Vivid Symbol in Poverty Debate

In Money and Finance on September 22, 2013 at 1:40 pm

by The Associated Press Sep 21st 2013 8:29AM
By CONNIE CASS and MARY CLARE JALONICK

food stamps and groceries

WASHINGTON — Food stamps have figured in Americans’ ideas about the poor for decades, from President Lyndon Johnson’s vision of a Great Society to President Ronald Reagan’s scorn for crooked “welfare queens” and President Bill Clinton’s pledge to “end welfare as we know it.”

Partisans tend to see what they want to see in the food stamp program: barely enough bread and milk to sustain hungry children, or chips and soda — maybe even steak and illicit beer — for cheaters and layabouts gaming the system.

Those differences were on display Thursday when the House voted to cut almost $4 billion a year, or 5 percent, from the roughly $80 billion-a-year program.

The House bill would tighten eligibility standards, allow states to impose new work requirements and permit drug testing for recipients, among other cuts to spending. A Senate bill would cut around one-tenth of the amount of the House bill, or $400 million a year.

Republicans argued that work requirements target the aid to the neediest people. Democrats said the swelling rolls — more than 47 million people are now using the food stamps, or 1 in 7 Americans — show that the program is working at a time of high unemployment and great need.

A look at the history and future of food stamps:

No more Stamps

These days, people in the nation’s largest food aid program pay with plastic.

These special debit cards are swiped at convenience store or supermarket checkouts to pay for groceries. The cards can’t be used for alcohol or cigarettes or nonfood items such as toothpaste, paper towels or dog chow. Junk food or high-priced treats are OK.

The first food stamps were a temporary plan to help feed the hungry toward the end of the Great Depression of the 1930s. The government subsidized the cost of blue stamps that poor people used to buy food from farm surpluses.

The idea was revived in the 1960s and expanded under Johnson into a permanent program that sold food coupons to low-income people at a discount. Beginning in the 1970s, food stamps were given to the poor for free. Benefit cards began replacing paper in the 1980s, a move designed to reduce fraud and ease the embarrassment food stamp users felt at the cash register.

Food stamps aren’t the government’s only way to feed those in need. There are more than a dozen smaller programs, including the one for Women, Infants and Children, and free and reduced-price school lunches.

In 2008, food stamps were officially renamed the Supplemental Nutrition Assistance Program, or SNAP. Most people still know the name that’s been familiar since 1939.

One in Every 7 Americans

In a nation of 314 million people, more than 47 million are eating with food stamps each month.

Who are they? Children and teenagers make up almost half, according to the Agriculture Department. About 10 percent are seniors.

The vast majority don’t receive any cash welfare. Many households that shop with SNAP cards have someone who’s employed but qualify for help because of low earnings.

The average food stamp allotment is $133 a person per month. The monthly amount a family gets depends on the household’s size, earnings and expenses, as well as changing food prices and other factors.

Households can qualify for help with earnings up to 30 percent higher than the federal poverty level, making the limit about $30,000 for a family of four this year. These households are limited to no more than $2,000 in savings, or $3,250 if there are elderly or disabled residents.

In addition, most states allow people to qualify automatically for food stamps if they are eligible for certain other welfare programs, even if they don’t meet the strict SNAP standards. Although food stamps are paid for with federal tax dollars, states administer the program and have some choices in setting requirements.

Language in Clinton’s 1996 welfare overhaul required able-bodied adults who aren’t raising children to work or attend job training or similar programs to qualify for food stamps after three months. But those work requirements across most of the nation have been waived for several years because of the high unemployment rate.

People who are living in the United States illegally aren’t eligible for food stamps. Most adults who immigrate legally aren’t eligible during their first five years in the country.

Rising Like Yeast

The cost to taxpayers more than doubled over just four years, from $38 billion in 2008 to $78 billion last year.

Liberals see a program responding to rising need at a time of economic turmoil. Conservatives see out-of-control spending, and many Republicans blame President Barack Obama. While seeking the GOP presidential nomination in 2012, Newt Gingrich labeled Obama the “food stamp president.”

Some of the growth can be attributed to Obama’s food stamp policies, but Congress’ budget analysts blame most of it on the economy.

The big factors: •The SNAP program is an entitlement, meaning everyone who is eligible can get aid, no matter the cost to taxpayers.
•Millions of jobs were lost in the recession that hit in 2007. Unemployment is still high, and many people who have jobs are working fewer hours or for lower pay than before, meaning more people are eligible.
•Obama’s 2009 economic stimulus temporarily increased benefit amounts; that boost is set to expire on Nov. 1. Time limits for jobless adults without dependents are still being waived in most of the country.
•Food stamp eligibility requirements were loosened by Congress in 2002 and 2008, before Obama became president.
•Fluctuating food prices have driven up monthly benefit amounts, which are based on a low-cost diet.
Fewer to Feed?

The number of people using food stamps appears to be leveling off this year, and long-term budget projections suggest the number will begin to fall as the economy improves.

Why is it taking so long? Although the jobless rate has dropped from its 2009 peak, it remains high, leaving a historically large number of people eligible for food stamps. Since the recession began, a bigger portion of people who are eligible have signed up for food stamps than in the past.

Many people who enrolled during the worst days of the recession still qualify for SNAP cards, even if they are doing a little better now. For example, they may have gone from being laid off to working a low-paying or part-time job.

The Congressional Budget Office predicts in about a decade the number of people using food stamps will drop to 34 million, or about 1 in every 10 people.

Food and Fraud

Abuse was a worry from the start. The 1939 food stamp program was launched in May and by that October a retailer had been caught violating the rules.

There’s been progress along the way, especially after the nationwide adoption of SNAP cards, which are harder to sell for cash than paper coupons were. The government says such “trafficking” in food stamps has fallen significantly over the past two decades, from about 4 cents on the dollar in 1993 to a penny per dollar in 2008.

But many lawmakers say fraud is still costing taxpayers too much. Some people lie about their income, apply for benefits in multiple states or fail to quit the program when their earnings go up. Recipients must tell their state agency within 10 days if their income goes over the limit.

Some stores illegally accept food stamps to pay for other merchandise, even beer or electronics, or give out cash at a cut rate in exchange for phony food purchases, which are then reimbursed by the government.

Food and Farms

In Congress, it’s a marriage of convenience.

Food stamp policy has been packaged in the same bill with farm subsidies and other agricultural programs since the 1970s. It was a canny way of assuring that urban lawmakers who wanted the poverty program would vote for farm spending. That worked until this year, when conservatives balked at the skyrocketing cost of food stamps.

In June, a farm bill that included food stamps was defeated in the Republican-led House because fiscal conservatives felt it didn’t cut the program deeply enough.

In response, GOP leaders split the food and farm programs in two. The House passed the farm version in July and the food stamp version on Thursday. Both passed with narrow votes.

The House and Senate versions must be reconciled before the five-year farm bill can become law, and that won’t be an easy task.

Food stamps remain in the farm bill passed by the Senate. That bill made only a half-percent cut to food stamps and the Democratic-led Senate will be reluctant to cut more deeply or to evict the poverty program from its home in the farm bill. Obama supported the cuts in the Senate bill, but has opposed any changes beyond that. The White House threatened to veto the House food stamp bill.

What Now?

The current farm and food law expires at the end of the month.

If the two sides can’t agree by then, a likely scenario, Congress could vote to extend the law as it is, at the expense of many planned updates to agricultural policy. There won’t be much urgency to do that until the end of the year, when some dairy supports expire and milk prices could rise.

Other farm supports won’t expire until next year, but farmers have been frustrated with the drawn-out debate that has now lasted two years, saying they need more government certainty as they manage their farm operations.

SNAP benefits would still be available for now. While farm bills set food stamp policy, the money is paid out through annual appropriations bills that so far have left benefits intact.

Fed to See More Change Next Year Than Just a New Chief

In Money and Finance on September 22, 2013 at 1:23 pm

No matter who winds up heading the Federal Reserve, the nation’s central bank will see some big changes — and even bigger challenges — next year.

Janet Yellen
Janet Yellen, vice chairwoman of the Federal Reserve’s board of governors.

by Kiplinger Sep 22nd 2013 9:10AM
Updated Sep 22nd 2013 10:14AM

By Jerome Idaszak

Look beyond the battle to succeed Ben Bernanke as chairman of the Federal Reserve. Front-runner Janet Yellen, vice chairman for the past three years, comes well qualified, but she faces challenges no chairman has ever faced.

Just ahead is a rare wave of new faces joining the policy-setting Federal Open Market Committee, which consists of the seven governors and the presidents of the 12 regional Federal Reserve banks. The voting members of the FOMC include, in addition to the chairman and vice chairman, the five other governors and five of the regional bank presidents — the president of the New York Fed and four others who rotate into voting positions each year.

One of those governors’ spots is vacant now. Another might as well be: Sarah Raskin skipped the recent meeting in light of her pending departure to take a top spot at the Treasury Department. Bernanke will leave by Jan. 31. Two others are likely to exit in 2014: Jerome Powell, whose term expires at the end of January, and Jeremy Stein, who will return to his tenured professorship at Harvard by late May. Including the four rotating regional bank president slots, that means nine new faces among the 12 voting members next year — or 10, if Yellen doesn’t get the nod as chairman and departs.

Historically, the governors fall in line behind the chairman. They’re usually picked on the basis of expertise in bank regulatory issues, consumer credit policies or other technical work that the Fed carries out. But they cast votes on monetary policy, and their allegiance to the chairman can’t be taken for granted and will be closely watched over the next few months. Regional bank presidents more frequently break ranks and question the chairman’s direction.

All this new blood will make it harder for financial markets to gauge the effectiveness of the new chairman’s leadership, adding volatility to long-term interest rates. And until the newcomers settle in, rates are likely to be a bit higher than they otherwise would have been.

That matters. Although the bond market moves in small increments, just a quarter-point increase in interest rates can add thousands to the cost of a home buyer’s mortgage and hundreds of thousands to the price of financing a business merger or acquisition.

Recent history clearly demonstrates the sensitivity of financial markets to uncertainty about the Federal Reserve’s direction. The 10-year Treasury yield has nearly doubled since spring, rising from 1.6 percent then to nearly 3 percent now. Much of the increase came after an FOMC statement last June. Financial markets interpreted it to mean that Bernanke and company were signaling a sooner-than-expected boost in the federal funds rate. The stock market took a tumble, and interest rates rose in Europe as well as in the U.S. Bernanke hastened to make clear that no such signal was intended, and volatility eased. But the increase in rates hasn’t reversed.

The markets want to see where a new chairman will lead the FOMC and whether dissent emerges. Some new FOMC members will want the central bank to focus more on the goal of holding inflation in check, arguing that even though prices are not surging now, the Fed is drifting off course. That sets the stage for a clash with Yellen, who thinks the focus should be on the other half of the Federal Reserve’s two-pronged mission: managing — in this case, reducing — unemployment.

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