Unfortunately, financial literacy rates have dropped nationally since the Great Recession of the late 2000s. According to the Financial Industry Regulatory Authority (FINRA) Capability Study (usfinancialcapability.org), which shares financial literacy ratings by state, Iowa scores near the national average for spending and savings habits. For example, only 46 percent of Iowans reported having a “rainy day fund” in 2018 compared to the 49 percent national average. A rainy day fund includes a savings of at least three months’ worth of money to cover expenses in case of an emergency.

Investopedia defines financial literacy as “the education and understanding of various financial areas, including topics related to managing personal finance, money and investing.” This includes managing personal financial affairs and making appropriate decisions about investments, insurance, real estate, college tuition, budgeting, retirement and tax planning.

Why is financial literacy important? Financial health is a catalyst for stability, security and peace of mind. And when you feel safe and secure, your mental focus is better able to shift from surviving to thriving.

In a broader sense, financial literacy is important to the health and stability of our communities, economy and country. The more households with improved financial literacy, the better we are able to care for ourselves and those around us.

Keys to increasing financial literacy:

  • Know your numbers. Starting with your income and expenses, you need to know how much you earn and your monthly expenses so you can wisely determine how much you can save each time you earn.
  • Make savings/wealth building a necessary fixed expense. It’s simple – spend less than you earn. Automatically designate an amount to save from each paycheck before you spend any of it.
  • Start (and retain) a “rainy day” fund. This fund is separate from savings. Your rainy day fund would ideally include approximately 6-12 months of savings to cover monthly expenses if you are unable to work. Saving for a rainy day, plus a regular savings habit, will provide you with some resiliency and ease of mind.
  • Know your limitations. Ask for financial literacy help when you need it. As with learning to read, becoming proficient in financial knowledge can take time. Learn as you go and ask for professional support when you are not sure. That’s what we’re here for!
  • Practice makes perfect – or at least better! Habits don’t get established in a day. Start practicing healthy money habits and be intentional in continuing to grow them every day.

In September, dozens of local organizations will meet for the second time at the Collaboration for Economic Inclusion and Financial Capability Forum. These groups are exploring ways to increase financial literacy in Iowa, and the Triangle Financial team is proud to be participating.

If you’re curious about your own financial literacy, check out our Facebook page or website for a financial literacy test. As always, cheers to your financial health and wealth from the Triangle Financial team!

Kendra Erkamaa, CEO & Financial Advisor

Triangle Financial Services, Inc.

www.trianglefsinc.com

Securities and Advisory Services offered through Harbour Investments, Inc.

As a woman, I’m proud of the unique gifts and qualities our gender offers. We are diverse, we have strong values, and we are caring. Our aptitude for multi-tasking has served us well in the relatively recent advancement of women in the workforce —juggling parenthood, careers and social activities. Additionally, most women are instinctual caretakers. Not only do many of us value self-care through exercise, quiet time and spirituality, we spend significant time caring for others. While these characteristics can make us strong leaders and valuable employees, unfortunately they also play a role in the already troublesome wage gap between men and women.

According to the Bureau of Labor Statistics*, there is a cumulative lifetime earnings gap of $1,055,000 between men and women at retirement based on time taken off in the course of careers. An average woman spends 44 percent of her adult life out of the workforce compared to 28 percent for a man. The time away is primarily due to caretaking — for children, parents and spouses.

Additionally, U.S. women outlive U.S. men by an average of 5 years to the age of 81*. Longer life expectancy means there are more years to fund in retirement, including increased healthcare costs in advanced age. While the average retirement costs $738,000, only 9 percent of American women have $300,000 or more saved for retirement.

It is more important than ever that women stand in their financial power — including being a caretaker for your own money. Here are ways for women (and men) to plan for the future:

  • Make longevity an asset – begin retirement planning as early as possible, and keep in mind the increased health costs in advanced age.
  • Talk about money – break the taboo of not talking about money by being present and engaged with your financial situation.
  • Plan now…and keep planning – planning helps guide decisions and helps you focus on creating wealth to care not only for others, but also for yourself. Continual planning puts you in the power position of dealing with unexpected changes – loss of a loved one, divorce, job transitions and aging needs.
  • Identify YOUR money way – through a tribe of friends, a financial advisor, or a class, you can get to know your own numbers and find ways that work for you to create your own financial power.

As always, a trusted financial advisor can help you identify a customized financial solution based on your values, vision and goals. Until next time, I wish you wealth and happiness!

*https://mlaem.fs.ml.com/content/dam/ML/Registration/ml-womens-study.pdf

Securities and Advisory Services offered through Harbour Investments, Inc. Member SIPC & FINRA.

Years ago, I hosted a family holiday gift exchange that ended up an epic fail. In the spirit of taking the focus off buying gifts and instead creating memories, I implemented what I thought would be a fun experience of a random gift exchange. I was hoping to take the pressure off family members to buy everyone a gift, and I hoped making a fun memory would be a gift itself.

Unfortunately, I found out the joy of gift giving is different for everyone. While I gravitate toward creating experiences and spending time with those I care about, others truly enjoy searching for the perfect gift to buy someone they care about. While I thought I was gifting my guests with a new memory and experience, others felt they were stripped of the opportunity to give intentional gifts and the joy of watching the recipient receive it.

Admittedly, I am always on a quest for a fun, but economical, holiday experience. As a financial advisor, I believe the holidays can be an opportunity to indulge in what brings you and others joy – as long as its within your financial means. But our culture around the holidays has turned more toward finding “the perfect gift,” often at the sacrifice of our own financial wellbeing.

In 2018, the U.S. household debt was at an all-time high of $13.2 trillion.The persistent consumer culture that has influenced beliefs, spending habits and thoughts around the holidays for decades has further perpetuated our habits of overspending. While most of us love giving as much – if not more than – receiving, we feel increasingly pressured to spend more than we have in order to do so.

So this year, I urge you to consider – and even discuss with your family and friends – what gift-giving and receiving means to them. Some of my favorite ways to redefine the idea of material gifts include:

  • Start holiday traditions that build memories – spend time together making cookies or enjoying a holiday light walk.
  • Provide options to buy less – my gift exchange was a failure because I didn’t take into account everyone’s feelings. Some guests enjoyed it – we’ve since modified it to involve only those who choose to participate. Others who have the means and desire to give gifts to everyone or pick out meaningful gifts can still enjoy the gathering as well.
  • Give the gift of time – serving as a family at a food kitchen, going to an escape room, ice skating together, theater tickets and a Boone Valley train ride are all wonderful family experiences that create memories for a lifetime.
  • Create ideas together – talk about what the holidays mean to you with your loved ones and focus on those things. It may surprise you how much less “things” mean than time together. 

Wishing you a wonderful, and memory-filled, holiday season!

Securities and Advisory Services through Harbour Investments, Inc.  Member SIPC.

Divorce is a painful process in many ways. It’s not a topic many want to discuss or think about, but it happens. One of the major areas of focus throughout the process is the division of finances. While marriage is ideally a matter of the heart, if it ends in divorce, it quickly becomes also a matter of assets and debts.

From the date of a legal marriage through divorce, any property, income, assets, money, possessions and debts accrued are considered part of the marital property. In Iowa, that means everything may considered 50/50 equal ownership by the married couple.

How, then, is the equal division of assets and liabilities determined? It certainly would be easy if we could just take the current value of each item amassed during a marriage and divide it equally in half. For obvious reasons, that’s not always possible. Most couples have shared many years together, collecting mutually meaningful memories in the form of items as well as valuable accounts. Even when both parties want to keep the process simple, emotions run deep and can cause angst amidst the details.

Here are some of the financial complexities we often deal with in divorces:

Values that may change over time

The longer divorce proceedings are drawn out, the more it is possible that the value of certain items or accounts may change.For values that may change quickly, find an agreeable date on which you start the conversation about property’s value. This provides a mutually agreed upon starting point for both parties to gather value statements.It can be tempting to withhold or make it difficult for the other party to receive information, but in the end, that just results in more attorney fees and it definitely prolongs the divorce process. Remember, the slower everyone gets needed value information, the more time and opportunity for the value to change.

No current value

When there are assets subject to a variety of variables, such as vesting schedules, contingencies on continued employment, and future retirement income streams, there are methods for calculating the potential value using a complex list of assumptions.While some investments or accounts may be worth more in the future, valuations will only be based on today’s value. It’s important not to focus on the largest cash value available now, but instead to consider the future when child support or alimony payments cease or retirement living becomes a reality.

Division of finances in divorce is incredibly complicated. As difficult as it is to see the next hour or day, it brings to light the importance of having a trusted advisor to help guide you through the fog while keeping an eye on your future.

In the next article, I will discuss tax implications in the division of property among divorcing couples.

Until next month, be wealthy and wise!

 

As an independent financial planning firm, we help people in all stages of their life plan for, grow and enjoy their finances. Recently I have noticed an interesting new trend among the clients we help through tough divorce decisions — approximately 60 percent are in what is being called “grey divorces.”

Grey divorces are among couples who are nearing or at retirement age. While divorce rates in younger couples have leveled off, couples who have weathered the storms of marriage for twenty or more years are increasingly making the tough decision to live their lives apart.

There are specific things senior adults can do to avoid making big mistakes during divorce at this stage of life:

      1) Fix, don’t fight. There is a very positive, mutually beneficial divorce practice called the collaborative divorce process. Collaborative divorce brings both spouses, their attorneys, a Certified Divorce Financial Analysts (CDFA) and other specialists to the same table to discuss areas of importance. CDFAs help divorcing couples explore various financial choices before final decisions are made. Seeing the short and long impacts of financial decisions helps each side better understand the implications; in some cases, we’ve even seen couples decide to stay together!
      2) Pay attention to pension plans. Pensions are different because they are defined benefit plans, not defined contributions. While defined contribution plans, such as 401(k) accounts and 403(b) accounts, provide the values on their statements, pension plans, such as IPERS and FERS, are future income streams for retirement.

      There are two ways to value pensions plans. A “Benson Formula,” splits monthly benefits during retirement. Present-day valuation is offset with assets. Both of these options should be assessed by an attorney and financial team.

      If there is a plan to split monthly pension benefits between spouses during retirement, it is important to protect the ex-spouse of the worker (the person who has the pension plan) in case of death before retirement and after retirement benefits begin.

      3) Create a life insurance strategy. Most attorneys will only value life insurance policies for the cash value in the event it exists. However, some policies allow change of ownership so one spouse is the beneficiary on the other spouse’s life insurance policy even after divorce. In this case, the death benefit can be of value to replace income (child or spousal support or pension income) or to pass assets to heirs through estate planning. And don’t forget — life insurance death benefits are not taxable under current law.
      4) Don’t overlook tax filing strategies for the year of the divorce. Couples should file individual returns for the year the divorce is finalized. Be careful of items that can cause unaccounted for tax implications such as spousal support, temporary orders, sale of investments, charitable contributions, withdraws from retirement accounts and child deductions, among others. Be sure to ask your CPA to review your divorce decree or settlement prior to signing.
      5) Couples married for 10 or more years may qualify for ex-spousal Social Security benefits (which does not affect the working ex-spouse’s benefits). There are two basic benefits an ex-spouse may receive: spousal benefits and survivorship spousal benefit.

Spousal benefits apply when the spouse with social security is still living and their ex-spouse is retirement age and/or disabled. The maximum available spousal benefit is 50 percent of the primary insurance amount.

If the spouse with social security is deceased, an ex-spouse of retirement age and/or who is disabled may be eligible for up to 100 percent of the survivor benefit, even when receiving social security benefits of their own.

Overall, it’s important to address your own intentions and expectations of divorce. Will you have the resources and means to maintain the lifestyle you want? Too often I see individuals who believe their lives will be much improved with divorce — emotionally, physically, financially and mentally. However, sometimes the financial realities don’t match expectations when there has been very little — or no — earning income years.

As with any major life transition, your finances need to be part of the plan. Find a professional you trust, and don’t be afraid to ask questions. In cases of divorce, a Certified Divorce Financial Analyst (CDFA) can be a major source of support and comfort throughout the planning process.

Tips for setting up children for financial success

It’s the time of year when many parents are sending kids off to college to start newly independent lives full of exciting opportunities – new classes, new friends and many new opportunities. It may also be one of the first times some parents realize their children will face real-world decisions that may affect their future financial standings.
The truth is, parents should be preparing their children for financial success long before college. The time to teach kids about financial responsibility and decision making should start when they are young and be cultivated all the way through their childhood.

Here are four important tips for raising children to be financially successful:

      1. Help your child connect with trusted resources to learn from professionals. Rather than telling your child what they should do, help them learn important financial skills from the experts. Find a trusted banker, lender or financial advisor and introduce them. Encourage your child to ask questions or, if they’re young, ask questions for them. When your child enters high school, student loan advisors are an excellent resource for learning about options for financial aid.
      2. The internet can be helpful for research, but make sure any online research is done through trusted sources. Financial professionals can help you find good resources. Online calculators are helpful to show how student loans, or any loans, are not “free.” Understanding the total interest paid over the term of the loan can empower your student to make more informed decisions. We recommend www.finaid.org for resources on student financial aid.
      3. Be an example of what financial health looks like. Our thoughts and attitude toward finances are often reflected in our personal financial health. How we manage our money depends on how we prioritize it. The number one indication of financial health that leads to financial wealth is the ability to spend less than what is earned. Talk to your child about the choices he/she makes and how those decisions affect spending and saving. Show them your own budget or help them create a spending plan as they start their first job as a teenager. Take them with you to your own financial planning session and allow them to ask questions of your trusted advisor.
      4. Practice makes perfect – and this includes the practice of finance! If you have a credit card, talk with your child about how it is used and paid off each month. Discuss also when it’s appropriate to use debit cards as opposed to credit cards. When they reach the age of 21, they are authorized to apply for credit cards. Instead, let your child be an authorized user on one of your credit cards – consider using it as a “practice” or emergency card. If they charge anything, they are expected to pay it off within the next billing period.
      5. Discuss the power of choices with your child. Tap into what they want for their future and what drives them. Talk about how life circumstances can change, and how planning and choices made now can affect how they weather certain life storms. Help them to ask themselves about the “what ifs” of life and be financially armored to stop changes from becoming crises. My youngest daughter (how old?) loves to have fun. If it isn’t fun or leading to fun, it isn’t worth her effort. So, I like to talk to her about spending her money for fun – but also how NOT fun it can be when bad choices lead to negative consequences.

When my first child was born, one of my clients wisely told me, “You are raising an adult not a child.” Most of us dream that our children will always come to us for our wisdom and sage advice. The reality is, they may not. We have limited years to emulate our knowledge, set them up with mentors, and introduce them to professionals who will foster their independence and responsibility. Start now. Set your child up to be healthy with financial abundance to contribute to a better world.

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