Tips for Teaching Young People About Money

Kids and moneyYoung people need all the help they can get to survive economically. One of the most important lessons of all is how to make money work. Good money management skills, when taught clearly and by good example, can set a person on a solid road to the future. Here are some helpful tips to support that worthwhile endeavor.

Talk about money management often. Discuss with your child not only what you’re doing with money at home, but why you do it that way. Let them see you make financial decisions, and even contribute their thoughts to the process. Tell them why you purchase off-brand items in some instances but not in others, and the financial implications of that decision. The earlier they perceive the work that goes into making decisions and living with the consequences will help them avoid serious pitfalls when they get older. For example, explain why you chose to use the debit transaction rather than the credit. You might say, “Using this as a debit card works like an electronic check where they take the funds out of checking right away. If I selected credit, I would have to pay for it at the end of the month… and there may not be enough money then.”

Use their allowance to teach, not just to reward. Before you give a child his or her allowance, consider having them set some goals on what they will do with the money. In addition, help them set up a way to track their goal. Talk about trade-offs between spending it all on candy at the store and saving some for their target purchase or savings. Experts recommend that you think twice about giving a child more money if he or she runs out before the next allowance disbursement. Remember how important it was for you to learn impulse control and savings discipline—and try to give your child the advantage of learning that early!

Teach youth to avoid knee-jerk purchasing. There are a lot of scam artists out there and bad guys intent on stealing what financial assets you (and your children) have. So teach children to be skeptical of unsolicited sales pitches, especially through the internet and social media. “Special offers” are rarely the great deal they say they are. Teach your children to analyze advertisements and avoid being sucked in to spending their precious money recklessly.

There are, of course, many other aspects of learned money management skills. The FDIC has an effective and well-written financial teaching resource for teachers, parents, grandparents and other concerned parties. Their Consumer News provides overall guidance, and even groups additional suggestions by the age of the student. It will help you assist young people in establishing a good financial foundation for their life. You can download a PDF with all of their great tips and resources or just browse to the most interesting section. Take some time to check it out. There is great information on this site!

Common Factors Affecting Retirement Income

Common factors affecting retirement incomeWhen it comes to planning for your retirement income, it’s easy to overlook some of the common factors that can affect how much you’ll have available to spend. If you don’t consider how your retirement income can be impacted by investment risk, inflation risk, catastrophic illness or long-term care, and taxes, you may not be able to enjoy the retirement you envision.

Investment risk

Different types of investments carry with them different risks. Sound retirement income planning involves understanding these risks and how they can influence your available income in retirement.

Investment or market risk is the risk that fluctuations in the securities market may result in the reduction and/or depletion of the value of your retirement savings. If you need to withdraw from your investments to supplement your retirement income, two important factors in determining how long your investments will last are the amount of the withdrawals you take and the growth and/or earnings your investments experience. You might base the anticipated rate of return of your investments on the presumption that market fluctuations will average out over time, and estimate how long your savings will last based on an anticipated, average rate of return.

All investments are subject to risk and loss of principal. When sold, investments may be worth more or less than their original cost.

Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

 

Unfortunately, the market doesn’t always generate positive returns. Sometimes there are periods lasting for a few years or longer when the market provides negative returns. During these periods, constant withdrawals from your savings combined with prolonged negative market returns can result in the depletion of your savings far sooner than planned.

Reinvestment risk is the risk that proceeds available for reinvestment must be reinvested at an interest rate that’s lower than the rate of the instrument that generated the proceeds. This could mean that you have to reinvest at a lower rate of return, or take on additional risk to achieve the same level of return. This type of risk is often associated with fixed interest savings instruments such as bonds or bank certificates of deposit. When the instrument matures, comparable instruments may not be paying the same return or a better return as the matured investment.

Interest rate risk occurs when interest rates rise and the prices of some existing investments drop. For example, during periods of rising interest rates, newer bond issues will likely yield higher coupon rates than older bonds issued during periods of lower interest rates, thus decreasing the market value of the older bonds. You also might see the market value of some stocks and mutual funds drop due to interest rate hikes because some investors will shift their money from these stocks and mutual funds to lower-risk fixed investments paying higher interest rates compared to prior years.

Inflation risk

Inflation is the risk that the purchasing power of a dollar will decline over time, due to the rising cost of goods and services. If inflation runs at its historical long term average of about 3%, the purchasing power of a given sum of money will be cut in half in 23 years. If it jumps to 4%, the purchasing power is cut in half in 18 years.

A simple example illustrates the impact of inflation on retirement income. Assuming a consistent annual inflation rate of 3%, and excluding taxes and investment returns in general, if $50,000 satisfies your retirement income needs this year, you’ll need $51,500 of income next year to meet the same income needs. In 10 years, you’ll need about $67,195 to equal the purchasing power of $50,000 this year. Therefore, to outpace inflation, you should try to have some strategy in place that allows your income stream to grow throughout retirement.

(The following hypothetical example is for illustrative purposes only and assumes a 3% annual rate of inflation without considering fees, expenses, and taxes. It does not reflect the performance of any particular investment.)

Equivalent Purchasing Power of $50,000 at 3% Inflation

Equivalent Purchasing Power of $50,000 at 3% Inflation

Long-term care expenses

Long-term care may be needed when physical or mental disabilities impair your capacity to perform everyday basic tasks. As life expectancies increase, so does the potential need for long-term care.

Paying for long-term care can have a significant impact on retirement income and savings, especially for the healthy spouse. While not everyone needs long-term care during their lives, ignoring the possibility of such care and failing to plan for it can leave you or your spouse with little or no income or savings if such care is needed. Even if you decide to buy long-term care insurance, don’t forget to factor the premium cost into your retirement income needs.

A complete statement of coverage, including exclusions, exceptions, and limitations, is found only in the long-term care policy. It should be noted that carriers have the discretion to raise their rates and remove their products from the marketplace.

The costs of catastrophic care

As the number of employers providing retirement health-care benefits dwindles and the cost of medical care continues to spiral upward, planning for catastrophic health-care costs in retirement is becoming more important. If you recently retired from a job that provided health insurance, you may not fully appreciate how much health care really costs.

Despite the availability of Medicare coverage, you’ll likely have to pay for additional health-related expenses out-of-pocket. You may have to pay the rising premium costs of Medicare optional Part B coverage (which helps pay for outpatient services) and/or Part D prescription drug coverage. You may also want to buy supplemental Medigap insurance, which is used to pay Medicare deductibles and co-payments and to provide protection against catastrophic expenses that either exceed Medicare benefits or are not covered by Medicare at all. Otherwise, you may need to cover Medicare deductibles, co-payments, and other costs
out-of-pocket.

Taxes

The effect of taxes on your retirement savings and income is an often overlooked but significant aspect of retirement income planning. Taxes can eat into your income, significantly reducing the amount you have available to spend in retirement.

It’s important to understand how your investments are taxed. Some income, like interest, is taxed at ordinary income tax rates. Other income, like long-term capital gains and qualifying dividends, currently benefit from special–generally lower–maximum tax rates. Some specific investments, like certain municipal bonds,* generate income that is exempt from federal income tax altogether. You should understand how the income generated by your investments is taxed, so that you can factor the tax into your overall projection.

*Interest earned on tax-free municipal bonds is generally exempt from state tax if the bond was issued in the state in which you reside, as well as from federal income tax (though earnings on certain private activity bonds may be subject to regular federal income tax or to the alternative minimum tax). But if purchased as part of a tax-exempt municipal money market or bond mutual fund, any capital gains earned by the fund are subject to tax, just as any capital gains from selling an individual bond are.

Note also that tax-exempt interest is included in determining if a portion of any Social Security benefit you receive is taxable.

 

Taxes can impact your available retirement income, especially if a significant portion of your savings and/or income comes from tax-qualified accounts such as pensions, 401(k)s, and traditional IRAs, since most, if not all, of the income from these accounts is subject to income taxes. Understanding the tax consequences of these investments is important when making retirement income projections.

Have you planned for these factors?

When planning for your retirement, consider these common factors that can affect your income and savings. While many of these same issues can affect your income during your working years, you may not notice their influence because you’re not depending on your savings as a major source of income. However, investment risk, inflation, taxes, and health-related expenses can greatly affect your retirement income.

 

Contact our Peoples Investment Services, Inc. representative at 828-464-5620 or  www.raymondjames.com/PeoplesInvSvcs. 

This information, developed by an independent third party, has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The material is general in nature. Past performance may not be indicative of future results. Raymond James Financial Services, Inc. does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC, an independent broker/dealer, and are not insured by FDIC, NCUA or any other government agency, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2015

You’ve been hacked. Now what?

You have been hacked. Now what?Here’s what to do if you are the victim of a cybercrime.

Peoples Bank invests significant resources to protect itself against cybercrime, and in so doing, protects you. The bank also distributes important information to help community businesses and consumers stay safe from cyber criminals. Despite all effort, some cybercrimes succeed. Here’s what to do if it has happened to you.

What is cybercrime? Crimes committed via the internet, such as online-identity theft, financial fraud, online stalking or bullying, hacking, email-spoofing, data breaches, information forgery, intellectual property crime, and other forms of technical online-based criminal activity.

Reporting Cybercrime

Businesses and consumers have no legal basis for pursuing retribution or justice from cybercrime. That responsibility lies with government agencies. The nature of cybercrime makes it difficult to investigate and prosecute. The crime crosses jurisdictional (counties, countries, etc.) and legal boundaries. To complicate things even more, technology allows cybercriminals to affect a wide area, quickly, and then quickly disappear before law enforcement is aware of the problem.

In the United States, law enforcement is getting better at quickly seeing cyber criminal activity and have the tools to bring such ones to justice, sometimes before they cause harm.

  • Local law enforcement is a good place to start when you need to report a cybercrime. They have a responsibility to assist, and often your having a record of such a report will protect you from financial loss.
  • Another place to report the crime may be the Internet Crime Complaint Center (known as IC3). This organization is trained to assess the facts of the matter and to direct the complaint where it can be handled most effectively, whether it be the FBI or other federal or state agency.
  • The Federal Trade Commission maintains a database called the Consumer Sentinel used by law enforcement agencies to detect patterns of cybercrime and thus get valuable insight for successful capture and prosecution.

Your responsibilities

It is always a good idea to report the crime to local law enforcement and get a copy of the report in writing.

Experts recommend that you also record and maintain evidence of the crime, even if law enforcement doesn’t ask you to. Keep the evidence clear, and in a safe place. It may be requested later in the process of investigation or prosecution. Remember that evidence would include those items supporting financial activity, so keep cancelled checks, receipts, print-outs of text or group chat messages, bank and credit card statements, even envelopes with their recorded date of cancelled postage. If the evidence includes emails, be sure to print out or store the entire message, including the “header” with the full date, subject, sender and recipient information.

Change your passwords! If your email or bank account has been hacked, take immediate action to change the email account password and the password of the hacked account. Typically, both accounts are connected to the crime. The password should be “long and strong”, and you should keep it safely stored in a place that is not obvious (such as on your computer screen or under the keyboard).

Consider what other information may also be at risk, and move to secure it. For example, if you think that your driver’s license number was included in the stolen item list, contact the department of motor vehicles. You may need also to contact the credit bureaus and discuss whether to place a fraud alert on your account.

Nobody should be a victim of a cybercrime. Take precautions against it by securing your accounts with a “long and strong” password that is different for each account; no bank account password should be shared with another organization’s online account. It is OK to write your password down, just don’t put it where somebody can find it easily, and don’t label it to make it easy for someone to use.