September 22, 2014

Links to Navigate Social Security and Improve Financial Literacy of Kids

Some of the most useful resources on personal finances are free but lack the recognition that they deserve. I believe these two additions to our Useful Links page are helpful for navigating the Social Security maze and improving the financial literacy of kids (and adults too). I believe you find that they add clarity and context in an objective manner. Let us know what you think.

Navigating Social Security

The more I learn about Social Security, the more opportunities I see for seniors to use them as one of their tools to address concerns of outliving savings and their ability to have a comfortable retirement. Social Security is one of the few programs that offer guaranteed retirement income for life, survivor benefits and inflation adjustments to preserve buying power. With proper planning, the program can greatly reduce shortfalls in retirement income. By itself, Social Security may not be enough, especially for residents of high cost areas such as San Francisco or New York. It can play an important part of an overall strategy to increase retirement income and extend the longevity of savings.

Going beyond the surface of the official Social Security website raised important questions. I found the Ask Larry column on the PBS website very helpful in addressing those questions. It is a weekly column by Dr. Larry Kotlikoff, PBS NewsHour’s Social Security expert and a Professor of Economics at Boston University. Noting that every recipient is different, Professor Kotlikoff reviews different decisions that can greatly impact one’s Social Security benefits. As people live longer and longer, starting benefits later may be better than the bird-in-hand strategy of starting retirement benefits at age 62. With patience and planning, every year they wait will mean greater benefits that can add up to 72% higher if they waited until age 70. Folks that are married may be eligible to be paid to wait using a file and suspend strategy. More is less is a risk for some seniors with income above the earnings limit that results in a reduction of their benefits. In other words, someone can be penalized for working if they make too much. For every $2 that a recipient earns above the earnings limit ($15,480 in 2014), Social Security benefits may be cut by $1. Less can be more for those using a start, stop and start strategy to suspend benefits to accumulate delayed retirement credits that result in more benefits later. Navigating Social Security is key part of a broader strategy for retirement planning. These are examples why I believe careful planning is necessary.

Improving Financial Literacy for Children

When was the last time you tried to teach your kids about personal finance? It may be less awkward, but I think the challenge ranks up there with doing the talk about the birds and the bees. We all want our kids to make good financial decisions. From my experience, the journey to financially literacy is a process that benefits from exposure and experience to applying basic math and reading skills to financial concepts. A good outline of activities to do with your kids to get them started is available at the website Money As You Grow, 20 Things Your Kids Need to Know for Financially Smart Lives. What I like most about the site is that it gives context to activities that is segments by age group– 3 to 5, 6 to 10, 11 to 13, and 14 to 18 and 18+ year olds.

Some folks hope that a class taught at the local school will be sufficient for financial literacy. Unfortunately, the evidence suggests the opposite. There is little difference between the scores on financial literacy tests of high school students that have taken a semester long course on personal finance and those that have not according to the Jump$tart Coalition for Personal Financial Literacy, a non-profit organization that has been doing surveys on this matter since 2000. The studies show that experience with bank accounts and investing, for example, do help. I am a fan of formal education but that book learning does not always translate into real life knowledge.

Personal finance touches so many aspects of our daily lives. Investing time to improve skills in handling income and wealth enables us to make better use of financial resources to achieve our goals. It makes us more competitive in the global economy. Yet there is much room for improvement. The financial literacy of 15 year olds in the US was middling when compared to those from 18 other countries according to a recent OECD comparison of financial literacy. The US ranked ahead of Russia and France, but below Poland and Latvia. China scored the highest with results much higher than everyone else. Starting early with the help of resources such as Money As You Grow is a step in the right direction.


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