The Emporia Gazette

May 28, 2012

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How many of us made financial management resolutions at the beginning of the New Year?

We are hearing lots about our economy right now and most of it is bad news. So, how are you and your family doing?

How do you stack up against most American families? Do you talk to your children about money? Have you showed them how to build a budget? Way too many of us answer no to these questions.

Too many individuals and families are experiencing financial crisis because of inadequate savings, too much debt and poor planning for potential major life events. On average, U.S. households carry about $8,000 in credit card debt, up two-thirds compared to a decade ago. More than half of Americans report living paycheck to paycheck. During the past decade, the rate of personal bankruptcy in the U.S. rose by 69 percent.

Self-sufficiency—the first step in achieving financial security—is the ability for individuals to be on their own financially without depending on friends, relatives, or government programs. Next along the continuum of personal financial responsibility is stability, or making ends meet. Life is often a constant paycheck-to-paycheck treadmill, where short-term needs are met. However, one shift in the status quo (for example, loss of a job, death of a breadwinner, divorce, or long-term illness) can result in desperate measures, such as personal bankruptcy.

The goal of most Americans is financial security—the ability to save and invest for the future while keeping pace with day-to-day basic needs. Adequate financial assets provide security. Financial assets can result in less economic strain on households, more financial resiliency, less risk of poverty spanning across generations, and better overall health. Building financial assets allows households to achieve goals that require a lot of money. Examples include buying a car or real estate, paying for a college education, starting up a small business.

There are three main ways that U.S. households accumulate assets: savings, home ownership, and small business ownership.

Once a household has an emergency fund in place, it can channel its savings into higher-yielding investments, or into home and small business ownership. Buying a home not only increases household assets in most cases, but it is also a key contributor to community prosperity. Where home ownership flourishes, residents take more pride in their community, they are more civic minded and can benefit from better school systems.

Several things can stand in the way of significant asset accumulation. Credit card debt is on the rise. In the U.S., the rate of personal savings as a percentage of disposable personal income is among the lowest of any industrialized nation. Another concern is the estimated 10 million U.S. households that do not have a deposit account or any relationship with the banking industry.

So, how do we teach our children about money? When we don’t understand money, are embarrassed about our debt or we just don’t want to talk about it. We have to talk to them about money. Money is a topic that is hard for many people to talk about, and is to easy to sweep under the rug until real problems arise.

Children are not born with “money sense.” Children learn about money by example and experience, beginning at a very young age. Parents are an important influence on what and how children learn about money. It is never too early to start teaching sound money management skills. Begin teaching basic principles of money as soon as children can understand that money is needed to buy the things they enjoy.

Much of what your children learn about money is not from the conscious efforts you make to teach money management. Children are great imitators. Children pick up your values, attitudes, and money habits by watching and listening to you. In fact, you do not have to say anything to pass along money attitudes, habits, or decision-making styles.

If you shop with a list, your children will probably shop with a list. If you always spend money before it is earned, you may have a hard time teaching children to save. Children learn from observing you and others in the grocery store, post office, bank, toy store, mall, and home. Many parents are amazed at what children have learned about money through observation.

Managing debt and building a secure financial future is do-able, and the sooner you start saving the better. Here are some tips from the Kansas Saves Campaign.

F Pay yourself first. Ask your employer if you are eligible for payroll savings or a 401K plan. If so, set up an account so that the money will be deducted before you receive your check.

F Track expenses so you will know where your money is going - record take-home pay and typical weekly, biweekly and/or monthly expenses. The spending record should include must-haves, such as rent or a house payment, utilities, food, health care costs, taxes, insurance, car payment, etc., and discretionary expenses like entertainment, dining out or charitable giving.

F Make a list of debts, including periodic payments such as an auto loan, house payment, student loan, balances on credit cards, etc. and the interest rates on the loans.

F Put your money to work for you: Begin shifting discretionary expenses to reduce debt. Tackle the higher interest loans first, but be sure to meet (or exceed) minimum payments on other loans to avoid missed payment fees.

Paying down debt is the first step in building a secure financial future. Carrying a balance on a credit card or other loan can commit future earnings long after a product or service has been used. Kansas Saves is part of the America Saves initiative. This year’s program runs from Feb. 22 to March 2. For more information on Kansas Saves please contact me at the extension office.

• Rhonda Gordon is the Family and Consumer Sciences agent for K-State Research and Extension in Lyon County. For more information on this column, nutrition, food safety, parenting, financial management, health and safety e-mail Rhonda at rgordon@ksu.edu call the Lyon County Extension Office at 341-3220.