Some Things Never Change

I have three grown children: each with two kids of their own. They once shared (with an eyeroll) how they always knew when mom was learning a new parenting curriculum because I would implement the strategies and techniques on them. It is now a privilege and a joy to watch my kids as parents and occasionally I will see one of those strategies from their past emerge in their home.

I really liked those parenting programs and the lessons that they reinforced in my kids (showing love while setting limits, using natural consequences, Savings/Spending/Credit, etc.). But as you would expect, there is now an app for SOME of that.  One that caught my eye allows a parent to pay their child an allowance or for extra chores. The money accumulates on a debit card which they can use to purchase the things they want or need.

The latest app being used with a couple of my grandkids is quite amazing. It teaches the Time Value of Money, Smart Spending through Rewards and the power of delayed gratification using Savings Goals.  The free version allows you to assign points to chores the child can earn and points for rewards the child can save for. For example…if a child wants a sleep over, the child will need to earn 1000 points.  Cleaning the toy room (a weekly chore) may be worth 5 points while emptying the dishwasher (a daily chore) may be worth only 1 point. The points can be assigned a dollar value as well.  So, if the child wants a $5 stuffed animal and it takes 10 points to equal $1, the child will need 50 points to buy the stuffed animal….I think there is also a math lesson in there.

What keeps it interesting is the fact that no two kids are alike, so what works for one child may not work for the next. I see that with my grandkids: one is highly motivated by rewards and has a long list of wants, while the other just loves to help and has no wish list.

By searching for “Child Chore Apps” on the web, you will find lists of apps that could be useful to parents trying to raise responsible young people and provide kids an opportunity to experience, practice and apply life skills, including money management.

Brenda Schmitt

A Iowa State University Extension and Outreach Family Finance Field Specialist helping North Central Iowans make the most of their money.

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Savings Strategies

Note: this post builds on yesterday’s post about having a meaningful reason to save.

Once you have a reason why you want to save, or save more, the next step is to “find” money to save. That generally means either increasing income or reducing expenses, which means something will need to change. Change can be hard, but most of us can succeed if we have a good enough reason.

To reduce expenses, you can make several small changes; for example, eat out one less time per week, drink one less can of pop each day, or stop buying magazines and read them at the library instead. OR, you could make one big change that saves money; for example, you could find a roommate to share housing expenses or move to a smaller (less expensive) apartment. To increase income, you could ask for more hours at work, get an extra part-time job, collect cans and bottles for the 5-cent deposit, or have a garage sale.

Once you have “found” some money by reducing expenses, increasing income, or both, the next key is to MOVE that money to a savings account or to some location where you are unlikely to touch it.

This seems like an obvious step, but it can be overlooked.

Imagine a scenario where you exercised self-discipline by skipping your morning coffee shop stop, bringing your lunch to work, and stuck to a limit at the grocery store! You’re proud of yourself! But if you don’t actually MOVE the money to your savings account, it will just end up getting spent on something else.

To make sure the money gets moved to savings, one helpful strategy is to treat savings like a bill you pay each month. If you’ve decided you can save $50/month by making some changes in spending, then “pay” that saving bill just like you pay your utility bill and your car payment. That approach increases your chance to be successful with saving. Even if you are saving small amounts, building the habit of saving each month is a way to reach your goals, whatever they may be.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Summer Money Crunch

Summer can cause a financial crunch for families with children. Children who are home all day need to eat, and they want things to do; if they go to day care, the cost of full-day care instead of after school care can really stretch the wallet. This summer, with inflation already straining budgets, may be even worse than normal.

There is, of course, no magic wand that will “uncrunch” summer finances. But there are steps that can help! Not all these ideas work for everyone, but see if some of them fit your situation:

  • Take control of food costs, starting with tools from “Spend Smart. Eat Smart.” You’ll find a grocery budget calculator, meal planning tools (and a video), shopping strategies, and a whole slew of recipes that are easy, low-cost, healthy and tasty – some with video instructions. There is even an app for your phone so you can have tools available while you’re at the grocery store!
  • Ask about discounts for summer pool passes or summer recreation programs. Many communities and rec centers offer discounted rates; in some communities the Community Action Agency can provide help here, as well. 
  • When special events come around (fairs, festivals, etc), decide in advance what your spending limit will be, and stick to that limit. It’s easy to get carried away in the midst of the fun if you don’t set limits in advance. Before the events, do some research (ask around) to identify free or low-cost activities that you and your family will enjoy.
  • If your children’s wants and wishes seem never-ending, parents often get tired of saying no, which means they start saying yes too often and end up spending more than they want to.
    One way to ease that pressure is to give your children a weekly or monthly allowance, be clear about what it is for, and not “give in” when they ask you for more money after their allowance is gone. This puts the kids in control, and when they run out of money it’s because of their own choices (and NOT because you are a “mean parent”).
    Several years ago I shared my own experiences with an allowance for my children. The University of Minnesota offers a helpful fact sheet about allowances (scroll down to find it).

What tips can YOU share for tackling the summer financial crunch?

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Thinking About Retiring Early? Things to Consider…Part 1

This is not a new phenomenon, but the Financial Independence, Retire Early (FIRE) Movement gained quite a bit of momentum over the past few years. As the pandemic raged on, many people started to question their quality of life, workplace satisfaction, and their connection to family, friends, and the outside world in general. For most of us, this was a normal reaction to an extremely stressful situation; however, a handful throughout society decided they had had enough and hit the road for greener pastures.

Depending on which article you read on the internet (there are hundreds!), this may sound like a reality anyone can achieve, but I noticed quite a few details were either left out or not applicable to the general population. In order to cover this topic in full, I decided to break it up into two posts – one focusing on income, and the other focusing on expenses – so if you are thinking about retiring early…read on!

Income…. Where will it come from now?

News flash – your cash flow will be significantly impacted by retiring early. Gone are the days of receiving a regular paycheck from an employer. So, how do people make it work when we think of the typical “early retirement” age as 59 ½ or 62 (for Social Security purposes)?

  1. For starters, it is a little-known fact that there are MANY ways to retire before the age of 59 ½ without being hit with the dreadful 10% tax penalty, but you must qualify for it.
  2. You may read that some FIRE-achievers received severance packages, inheritances, own rental properties, and/or save upwards of 75% of their income (primarily in taxable brokerage accounts).
  3. And most importantly, many continue to work. Unlike their previous career, however, they typically work part-time through the gig/freelance/app economy, and/or their new work finally enables them to follow a passion.

Come back next month for the discussion on expenses (hint: it has a lot to do with the cost of healthcare!).

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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Emergency Savings: How Much Do I Need?

Prior to the Covid-19 pandemic, approximately 30-50% of adults in the United States (depending on the study) would struggle when faced with an unexpected or emergency expense. While the percentage of affected adults improved with the arrival of COVID relief programs, recent data shows that the numbers may be trending back down toward pre-pandemic levels. The aggregate data will continue to show these fluctuations over time depending on the macroeconomy, significant policy changes, etc., so a more immediate question for consumers is:  How much do I need in my emergency savings account? $400…$1,000…3-6 months of expenses? The answer is not concrete and completely depends on your own personal situation, but here are some things to consider:

  1. How large is your household? – the necessary living expenses for a single individual will likely look much different than a household of four.
  2. Do you own a home or rent? – homeowners face the risk of repair costs, which increases their need for emergency savings. The recent derechos are a perfect example.
  3. What are your insurance deductibles? – this is an often-overlooked aspect of emergency savings. Auto insurance deductibles tend to be around $250 or $500, while health insurance and homeowner’s insurance deductibles could be in the thousands. A higher deductible provides lower premium costs, but does increase your need for emergency savings.
  4. How stable is your income? – are you self-employed or an independent contractor? Do you work in a high-turnover industry or face occasional government shutdowns? How likely you are to need those savings to make up for lost income should also factor into the amount saved.

This is not meant to be an exhaustive list, but rather a starting point for your emergency savings plan. For the DIY-ers, I encourage you to utilize PowerPay, Utah State University Extension’s free, online, personal finance tool to create your emergency savings plan; otherwise, you can contact your local Iowa State University Extension and Outreach Financial Educator for a free, confidential, 1:1 Financial Consultation!

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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New Option on the Advance Child Tax Credit Portal

Families can now easily update their mailing address in the IRS Child Tax Credit portal. This is very important for families who choose to receive their payments in the mail, rather than by direct deposit.

To use the portal, go to the IRS Child Tax Credit page and select “Manage Payments.” The portal now allows users to:

  • Change their mailing address;
  • Switch from receiving a paper check to direct deposit;
  • Change the account where their payment is direct deposited; or
  • Stop monthly payments for the rest of 2021.

If you run into challenges using the portal, our July 12 post offers a few tips. An earlier post explains what is different about the Child Tax Credit in 2021, including who is eligible for the expanded credit. If you previously were eligible, based on your income in prior years, but are no longer eligible now, you might consider opting out of the advance payments, which are being sent monthly on the 15th of each month through the end of 2021.

Log into the portal by midnight (Eastern Time) on August 30 if you want the changes to kick in for the September 15 payment. The IRS expects to add a few more functions to the Child Tax Credit portal in coming months, including the ability to:

  • Add or remove children in most situations;
  • Report a change in marital status; or
  • Report a significant change in income.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Improve Retirement Readiness by Being Realistic About Social Security

We already know that the average American is financially under-prepared for retirement, putting them at risk for lifestyle cutbacks and even hardships in retirement. A recent study (University of Michigan Retirement and Disability Research Center) showed:

  • that having unrealistically high expectations for Social Security benefits contributes to inadequate retirement savings; and
  • that the majority of workers over-estimate what they will receive in Social Security retirement income.

Those two findings combine to suggest trouble ahead. And it doesn’t take TOO much thought to reach the conclusion that everyone needs realistic expectations about Social Security income in retirement. The good news? It’s pretty easy to obtain a reasonable estimate of your Social Security income!

The Social Security Administration offers two excellent tools we can use to obtain a good estimate of what our Social Security retirement benefit will be. Both involve entering personal data, so be sure to use a secure internet connection. The Retirement Estimator provides a personalized estimate of your benefit at three ages: 62; your full retirement age (which is between age 66 and 67); and age 70. By logging into your “My Social Security” account on-line, you can see even more: you can pick a precise age at which you wish to claim social security, rather than being limited to just three options, AND you can review the earnings record shown there to make sure that all your earnings are included. Note: about a month ago I talked with a woman whose record was missing her earnings for 2018 and 2019! It’s a good thing she checked! Without those figures, her Social Security income would have been lower than what she was supposed to receive.

Suppose you discover that your Social Security income is projected to be about $2,000/month (in today’s dollars). Then you can consider: do you want to live on $2,000/month after you retire? If you’d rather have more income to live on in retirement, that’s motivation to save and invest now! To get started, learn about retirement saving options available through your employer: if a 401(k) or other tax-advantaged plan is available to you, that can be a great option. If your employer will match your contributions to a retirement account, then be sure to take advantage of that match, as well.

For those who do not have a retirement savings option available through their job, be sure to check out your Individual Retirement Account (IRA) options. The IRS Publication 590A explains the rules associated with contributing to an IRA account. You may choose to consult with a financial adviser in deciding how to invest those funds – an IRA can be invested in any type of financial account, including mutual funds, a stock and/or bond portfolio, and money market accounts. Your choice of investments, along with your decisions about how much to save, will have a huge impact on your retirement well-being. The Financial Industry Regulatory Authority (FINRA) offers great learning materials for learning to invest and for choosing financial professionals.

Sources: Squared Away Blog: Workers Overestimate their Social Security, 6-17-21, from the Center for Retirement Research at Boston College; and
Prados, María J., and Arie Kapteyn. 2019. Subjective Expectations, Social Security Benefits, and the Optimal Path to Retirement, University of Michigan Retirement and Disability Research Center.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Child Tax Credit Update: Non-Filers Tool

Over the next few weeks we expect to see several updates about how to access the special 2021 Child Tax Credit described in last week’s post. Reminder of what makes the 2021 credit “special:” 1) it is bigger; 2) part of it is payable in monthly advance payments beginning in mid-July; and 3) it’s available even to people who don’t file taxes and/or who don’t have income!

Today the IRS announced a new “Non-Filer Sign-Up Tool” for those who did not and will not file in 2019 or 2020.

For most households, the IRS will base the monthly advance payments on information from 2019 or 2020 tax returns. But what about people who did not file and do not NEED to file for either 2019 or 2020? Today the IRS announced a new “Non-Filer Sign-Up Tool” to help make sure those folks receive their payments. This allows parents/guardians to enter information about the people in their household, AND to enter direct deposit information so they receive their tax credit payments speedily.

Please share this information with those who need it!!

A couple of notes:

  • If you filed a 2019 or 2020 tax return, you don’t need to take any action.
  • If you used the “non-filers tool” LAST year (2020) to receive your Economic Stimulus Payment, you don’t need to take any action.
  • In the coming weeks the IRS will be adding two more tools: 1) an interactive tool to help you find out if you are eligible for the expanded Child Tax Credit; and 2) a Child Tax Credit Update Portal, where you can add children born in 2021 or make updates that matter, including changes to your address or bank information.
  • A non-profit organization has launched a consumer-friendly informational website that may be useful at https://www.getctc.org/en. I recommend sharing it widely!

Source: https://www.irs.gov/newsroom/irs-unveils-online-tool-to-help-low-income-families-register-for-monthly-child-tax-credit-payments
For more information: https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Attention Parents! New Child Tax Credit Features

The American Rescue Plan Act, a huge federal COVID recovery bill passed in March, did more than provide for $1400 stimulus payments. One of its provisions will soon begin impacting millions of American families with children: advance payment of the expanded child tax credit. Those affected should:

  • Plan now for best use of extra funds.
  • Make a point to pay attention to IRS updates on this topic over the next several weeks.
  • Watch their mail – the IRS has begun this week to mail a general information letter to all families it believes to be eligible. In July, they will mail individualized letters specific to each household, telling what to expect.

Expanded Credit. The Child Tax Credit was formerly $2,000 per child; it was unavailable to families with no income, and the amount was limited for families with very low income. For 2021 only:

  • Families with children who will still be under age 18 at the end of the year (born after December 31 2003) are eligible for the full amount of the credit, even if they had no or low income.
  • The amount of the annual credit is increased to $3,000 for most children, and to $3,600 for children under 6 (born after Dec 31 2015).

NOTE: the expanded credit is available to families with incomes below $75,000 (single); $112,500 (head of household); or $150,000 (married-joint). Families with higher incomes will still receive the $2,000 child tax credit under the previously-existing rules.

Advance Payment. Instead of waiting until tax time next February, eligible families will begin receiving monthly advance payments for part of the Child Tax Credit. This means that beginning about July 15 through December, families will receive monthly payments from the IRS equal to $250 per child. The amount will be $300 for younger children eligible for the $3,600 credit. These advance payments will equate to half of the total tax credit; the remainder will be paid as part of the household’s tax refund next spring.

Consider focusing on family stability. Before making special purchases, families may wish to use the funds to get current and/or stay current on all household expenses (rent, utilities, child care, etc). Building a savings cushion also promotes stability: 1) providing funds in case of unexpected expenses such as car repair or appliance replacement; AND/OR 2) covering upcoming expected costs such as back-to-school, holidays, or property taxes. A savings cushion to cover extra expenses can prevent financial setbacks, promote family stability, and reduce financial stress.

Paying off debt is also a good use of extra funds, especially debts with high interest rates. HOWEVER, it is often wise to build a savings cushion even before all debt is paid off. Without that savings, every unexpected expense simply creates more debt and more stress.

Watch for Updates! The IRS will base payments on information from 2020 tax returns. If your situation changes, you will be able to let them know of changes through one or more on-line portals they will create in the near future (similar to the “Check Your Refund” portal, or the “Get My Payment” portal used for stimulus payments). The portal(s) will allow families to enter information such as: bank information for direct deposit; a new child in your household; updated mailing address. The portal will also allow you to decline the advance payments and choose to receive the entire amount with your tax refund after the year is over.

The IRS reference page for the advance child tax credit is here.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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