CFP Board eNewsletter
June 2008
Kids and Money II: The Adolescent Years
Frequently Asked Questions about Financial Planning
Revised Ethical Standards Enhance the Value of CFP® Certification
It’s Time to Schedule Your Mid-Year Financial Checkup
CFP Board on Track for Successful Financial Planning Clinics
Survey: Does Your Financial Plan Include Stock Purchases?
Financial Alerts
About This Newsletter
Kids and Money II: The Adolescent Years

In this, the second in a series of four articles on kids and money, It’s Your Turn presents tools and tips to help parents, as well as adolescents and teens, get a handle on personal finance. This article focuses on children between the ages of 11 and 18. Last month's article focused on the early years, click here. Future articles in the series will deal with college-age kids and young adults who are still living at home.

Most adolescents have trouble planning much further than next weekend. Getting them to plan for their financial futures can seem like an impossible task. In fact, there is evidence that the financial literacy of teenagers is declining. A survey published in April by the Jump$tart Coalition for Personal Financial Literacy found that, on average, high school seniors correctly answered just 48% of personal finance and economics questions. The figure was down from 52% in the last survey, conducted in 2006. One question, for example, asked which type of investment would offer higher growth over 18 years. Only about 17% of kids gave the right answer — stocks; some 37% said U.S. savings bonds, one of the most conservative investments, would offer higher growth.

Adolescents clearly need a crash course in financial planning to prepare them for the future. At a press conference announcing the results of the Jump$tart survey, Federal Reserve Chairman Ben Bernanke said, “In light of the problems that have arisen in the sub-prime mortgage market, we are reminded of how critically important it is for individuals to become financially literate at an early age so that they are better prepared to make decisions and navigate an increasingly complex financial marketplace.” But how can parents get teens to prepare for their financial futures when it’s hard enough just getting them to clean up their rooms? Make it real, says Richard Martinez, Jr., president and CEO of Young Americans Bank and Young Americans Center for Financial Education in Denver.

“The biggest challenge comes from the fact that the financial services industry has shifted to an electronic delivery system,” says Martinez. “There is no more going to the bank to make a deposit. It’s all about credit cards and debit cards and Internet banking. As a result, cash has become a fictitious thing for many kids and having a credit card has come to mean having money. That makes it difficult to teach kids how to keep track of things. One way to deal with that is to go back to a cash basis so kids have something tangible in their hands.”

There are plenty of stats to suggest that kids need to get real about personal finance. A 2007 Charles Schwab survey on teens and money found that only 45% knew how to use a credit card and just 26% understood credit-card interest rates and fees. The same survey found that only a third of teens knew how to read a bank statement, balance a checkbook and pay bills. Barely 20% knew anything about investing.

To give kids tangible, hands-on experience, Young Americans Bank — the only bank in the world, Martinez says, designed for young people under the age of 21 — gives them their own accounts. “We offer every product an adult bank offers — savings and checking accounts, loans, CDs, credit, debit and ATM cards — but simplified,” says Martinez. “Every transaction is a learning opportunity. Our tellers, all of whom have backgrounds in working with children, engage kids with brief financial lessons, like debit versus credit cards, every time they visit.” Kids under the age of 18 need a sponsoring adult to open an account. The bank, which Martinez describes as “a grass-roots savings effort,” currently has $14 million in assets from some 15,000 accounts, 36% of which have less than $100 on deposit.

The non-profit Young Americans Center for Financial Education teaches the principles that kids put into practice at the bank. The Center’s “Money Matters” classes cover everything from budgeting and banking to planning for major purchases and investing in the stock market. The Center also provides teachers with a personal finance curriculum to prepare students for a day of role-playing during which they run a business or, in the case of “A Day in International Towne,” run the world. International Towne “is a simulation of a global marketplace where students apply the financial concepts they’ve learned,” Martinez says. “Each child has a job, there is a finance minister, and there are businesses to run and trade deals to negotiate. It gives kids enormous confidence. Afterwards, they can say, ‘Hey, I was president of a bank. Yeah, I can do that job.”

In her book Raising Financially Fit Kids, Joline Godfrey, founder of the financial education firm Independent Means Inc., proposes a number of other activities kids can do at home to help them acquire tangible money management skills. Set up a savings account with your child for a specific goal, Godfrey suggests, and don’t use the money until the goal is reached. Go through the family’s utility bills and ask your kids for ideas about how to lower them, or give a lesson on tipping the next time you’re in a restaurant. You could even create a mock credit card for use against the child’s allowance.

If you’re feeling really ambitious, you might want to have the teen complete his or her own tax return or college financial aid application. (Why not get your child investigating scholarship opportunities, too? For more information, see Smart Ways to Pay for College from the August 2006 issue of It’s Your Turn.) “The important thing is to take time with your kids,” Godfrey says. “Doing something is better than doing nothing, and whatever you do will end up being more financial education than most kids get.”

And doing something rather than doing nothing is crucial, especially during the teenage years when poor money management habits and conspicuous consumption can first set in. “Kids in adolescence are seeking to identify themselves,” Godfrey says. “The parents’ job is to help kids associate spending money with managing real needs, not filling empty places within the soul; to help them shift from the external ‘I am my logos’ to the internal ‘I am the choices I make.’ As they get ready to leave the house — either for college or for that first full-time job — your kids are both vulnerable to the larger world and part of it.”

Godfrey describes financial literacy as “economic self-defense,” the repertoire of self-protective skills that will help them make the transition from relying on mom and dad to earning their own money and exploring entrepreneurship. “Not every kid has to get a CFP® certification,” she says, “but they need to know enough to make critical decisions and evaluate the professional advice they may get in the future.”

“Children who feel helpless and hopeless because information is withheld from them will grow up with the long-term consequences of being left out of problem-solving opportunities,” Godfrey writes in Raising Financially Fit Kids. “It is sometimes lack of information that makes kids turn away from financial responsibility … Perhaps the greatest gift you can give your kids is the opportunity to take risks and make mistakes while the stakes are still low.”

Next month: Kids and Money III — The College Years.

Online Resources

Jump$tart Coalition for Personal Financial Literacy
Jump$tart is a national coalition dedicated to improving the financial literacy of kindergarten through college-age youth. The Personal Finance Clearinghouse is a database of educational materials from government, businesses and non-profit organizations for use in primary schools and high schools. Jump$tart’s 12 Principles that Every Young Person Should Know features month-by-month lessons on topics like ‘Start saving young’ and ‘Don't borrow what you can't repay.’ The Web site’s Reality Check is a fun way for young people to see how much their “dream life” may cost. Kids answer simple lifestyle questions, such as where they want to live and what kind of car they want to drive, and the Reality Check provides an estimate of how much money it would take to live that kind of life. The site even lists career options that would support the chosen lifestyle.

Junior Achievement
Junior Achievement (JA) is dedicated to “educating students about workforce readiness, entrepreneurship and financial literacy through experiential, hands-on programs.” JA’s High School Programs are designed to help students develop skills related to entrepreneurship, financial literacy, and work readiness.

NEFE High School Financial Planning Program
This High School Financial Planning Program, compiled by the National Endowment for Financial Education, features games, tools, calculators, and articles to help kids learn how to manage their money. The Web site offers lessons on topics like investing, insurance, and good debt versus bad debt.

The Stock Market Game
The Stock Market Game™ is a classroom tool that allows students to invest $100,000 in a portfolio and track the results. Students use actual Internet research and news updates to evaluate stocks, and then make decisions based on what they have learned. The game teaches important lessons about investing as well as about the wider economy. The Stock Market Game™ is a trademark of the Foundation for Investor Education, a non-profit that develops learning resources for investors of all ages, under the sponsorship of the Securities Industry and Financial Markets Association (SIFMA).

The Wall Street Journal Classroom Edition
This special edition of The Wall Street Journal provides high school teachers and students with real-life information and news on business and personal finance.

YoungBiz.com
The mission of YoungBiz is “to empower youth with entrepreneurial, business, and financial skills through innovative education and real-world experience.” The Web site features profiles of teenage entrepreneurs as well as background articles on everything from negotiating a higher allowance to starting your own firm. YoungBiz also trains educators to teach business, entrepreneurship, and financial literacy curricula in schools, after-school programs, and camp formats.

 
Frequently Asked Questions about Financial Planning

Managing money is a complex process, and not everyone has the experience, expertise or the time necessary to do all of their financial management themselves. That’s when a CERTIFIED FINANCIAL PLANNER™ professional might come in handy. Yet many people are unsure about how and when to seek out a planner. So It’s Your Turn put a few of the most frequently asked questions about financial planning to Marilyn Capelli Dimitroff, CFP®, president of Capelli Financial Services, Inc. and 2008 Chair-Elect of CFP Board’s Board of Directors. The resulting FAQs provide an overview of some of the issues to consider when approaching financial planning as well as links to more information about how the planning process works and how it could help you achieve your financial goals.

It’s Your Turn: Isn’t financial planning only for the rich?
Marilyn Capelli Dimitroff: “Anyone who wants the freedom to live life as they wish can benefit from financial planning. Financial planning is a critical component to creating a life that goes beyond living hand-to-mouth. For wealthy folks, the consequences of not planning are certainly there, but in many cases it may just be a question of doing a little more or a little less well. For folks who are not as wealthy, financial planning can mean the difference between a life of financial stress and a life of financial security. The tools of financial planning apply whatever your income level.”

The financial planning process consists of six basic steps: gathering relevant financial information, setting life goals, examining your current financial status, coming up with a strategy for how you can meet your goals, implementing the strategy, and monitoring the success of the strategy and adjusting it along the way, if necessary. For more information on how the planning process works, and how people of all income levels can benefit, see The Financial Planning Process on CFP Board's Web site.

IYT: When should I start financial planning?
MCD: “Everyone tends to wait too long to start paying attention to their finances. Everything looks so far off. But a little planning early on goes along way. Folks who start out and stick with a financial plan in their 20s can coast through most of the rest of their lives. We’re all responsible for our financial well-being as we become adults, so a good time to begin seriously looking at financial planning is with your first job. It’s important to look at your financial goals and to know where you stand in terms of achieving them. It’s important to practice sound financial habits, like putting a little money aside every month, not spending more than you bring in, not getting into credit card debt that can take years to undo. Financial health is just like physical health; it’s not something that you get instantly. It’s a lifelong process. The first step is evaluating where you are. You need to know where you are before you can take the positive steps necessary to get to where you want to be.”

The key to making a success of financial planning is to take charge of your finances, to set measurable goals, to understand the effect of your financial decisions on other financial issues, to re-evaluate your financial plan periodically — and to start now! It’s never too early to secure your financial future. For more tips on how to make the most of financial planning, see Best Practices When Approaching Financial Planning.

IYT: What are the responsibilities of the financial planner?
MCD: “It is the responsibility of the planner to help you bring clarity to your financial situation, to help you clarify your goals, to help you determine whether they are realistic, and then to provide you with practical ways to achieve those goals. Your financial actions are still your responsibility. But your planner can help you understand the consequences of your actions — as well as the consequences of not taking action.”

Before choosing a financial planner, it’s a good idea to interview more than one. You’ll want to know details of the planner’s experience and qualifications, as well as his or her possible conflicts of interest and views on investing. As part of your financial planning agreement, the financial planner should clearly tell you in writing how and how much he or she will be paid. To help you find someone qualified to offer financial planning advice, see How to Choose a Planner. To make sure you get all the information you need when interviewing a planner, see the Checklist for Interviewing a Financial Planner.

You will also want to be aware of the kind of treatment you can expect from a financial planner, such as your right to objective advice, privacy and professional competence. For more information on the level of service you are entitled to expect from a financial planner, see Your Rights as a Financial Planning Client.

IYT: Why should I work with a CERTIFIED FINANCIAL PLANNER™ Professional?
MCD: “The CFP® credential is the gold standard of financial planning. It means that your planner has the education and experience to put your financial needs first. It also means that he or she has agreed to abide by a rigorous code of ethics. Many people don’t think their financial situation is complex enough to warrant getting help. Many people don’t even realize the help is there. But CFP® certificants can provide all levels of help to meet an individual’s needs.”

For more information on the advantages of the CFP® designation, see Why Are the CFP® Certification Requirements Important? To find out more about CFP Board’s ethical standards, see the Updated Standards of Professional Conduct and download a copy of the frequently asked questions about the updated standards. If you already work with a financial planner, you can use this Checklist to determine your level of comfort with him or her. To locate a CFP® professional in your vicinity, see the Search for a CERTIFIED FINANCIAL PLANNER™ Professional. You can also request a free Financial Planning Resource Kit from CFP Board’s Web site.

 
Revised Ethical Standards Enhance the Value of CFP® Certification

Whether you're young or old, living paycheck-to-paycheck or a high net worth individual, planning for a child’s college education or searching for care for an elderly parent, you'll eventually want advice from someone who can help you reach your life’s goals, someone who is competent, ethical and most of all, someone you trust.

Trust. It’s a small word, but it carries big implications, especially when your money and your future are involved.

When you engage a financial planner to help you meet your life goals, you enter into a special relationship built on trust and confidence. The planner you entrust with helping you reach those goals, in turn, becomes the steward of your financial future and in doing so becomes a fiduciary.

There are a lot of highfalutin ways to describe what a fiduciary is, but it boils down one thing: the clients' interests come first. It’s a concept built on high ethical standards and it is the keystone of the trust between the financial planner and client. With no trust, there is no relationship.

To further its goal to increase the public’s confidence in the value and benefit of the CFP® certification, Certified Financial Planner Board of Standards Inc. (CFP Board) has raised the bar for ethical standards. CFP Board revised its Standards of Professional Conduct last year and they become effective July 1. The revised Standards raise the duty of care for CFP® certificants providing financial planning services from the current duty to "act in the interest of the client" to the "duty of care of a fiduciary.” In other words, "One who acts with utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client."

Under the revised Standards, a consumer seeking financial guidance will have a clearer understanding of what to expect from his or her CERTIFIED FINANCIAL PLANNER™ professional, including: discussion of topics a financial planner should bring up with a client prior to entering into a business engagement, disclosures that should be given to a client receiving financial services, and conduct that at all times put the client’s interests ahead of the interests of the CFP® professional.

These standards apply to more than 57,000 financial planners in the U.S. who are authorized by CFP Board to use the CFP® certification marks.

“The revised Standards move the ethical benchmark for CFP® certification forward in a way that benefits the public,” said David G. Strege, CFP®, chair of CFP Board’s Board of Directors. “Ethics has always been a vital part of the requirements for CFP® certification and these revised Standards reflect the heightened level of ethical service the public deserves from financial planning professionals.”

Today more than ever, Americans need financial advice that they can trust. Eighty million Americans are nearing retirement, and only 40% of the American workforce has a solid retirement plan. In a world of complex financial choices where more than two in three Americans have some concern about the state of their own financial future, the need for trustworthy guidance is greater than ever.

How do CFP® certificants earn that trust? Simply put, they do right by the client. The concept is simple but the process of preparing a financial plan is involved:

Establish and define the client-planner relationship.
The financial planner should clearly explain or document the services to be provided and define both his and your responsibilities. The planner should explain fully how he will be paid and by whom. You and the planner should agree on how long the professional relationship should last and on how decisions will be made.

Gather client data, including goals.
The financial planner should collect information about your financial situation. You and the planner should mutually define your personal and financial goals, understand your time frame for results and discuss, if relevant, how you feel about risk. The financial planner should gather all necessary documents before giving you the advice you need.

Analyze and evaluate your financial status.
The financial planner should analyze your current information and determine what you must do to meet your goals. Depending on what services you asked for, this could include analyzing your assets, liabilities and cash flow, insurance coverage, investments or tax strategies.

Develop and present financial planning recommendations or alternatives.
The financial planner should offer financial planning recommendations that address your goals, based on your information. The planner should go over the recommendations with you to help you understand them so that you can make informed decisions. The planner should also listen to your concerns and revise the recommendations as appropriate.

Implement the recommendations.
You and the planner should agree on how the recommendations will be carried out. The planner may carry out the recommendations or coordinate the process with you and other professionals such as attorneys or stockbrokers.

Monitor the financial planning recommendations.
You and the planner should agree on who will monitor your progress towards your goals. If the planner is in charge of the process, she should report to you periodically to review your situation and adjust the recommendations as needed.

A financial planner can play a central role in helping you meet your life goals and achieve financial well-being. To find a competent and ethical financial planner who can help you reach your financial goals, visit www.CFP.net/search.

 
It’s Time to Schedule Your Mid-Year Financial Checkup

You get regular medical physical examinations – or you should – and it’s also a good idea to give your finances a regular once-over as well. Mid-year is as good a time as any looking into your situation now should provide you with a reasonable picture of what to expect for the rest of the year.

Now's the time to revisit those employee benefits you signed up for in January and do a little tweaking so you can make the most of your earnings for the rest of 2007.

Earnings Re-Cap
If you earn a steady paycheck, this is your chance to make sure you’re not overpaying Uncle Sam.

If you got a hefty tax refund last year ($1,000 or more), haven’t adjusted your W-4 and don't anticipate any major life changes, look at your most recent pay stub and last year's income tax return with an eye toward adjusting your withholdings. One website that can help is paycheckcity.com. To avoid underpayment penalties, shoot for the number of allowances that satisfies 100% to 110% of the prior year's tax payment (not counting your refund).

Savings Strategies
Check your contribution rates and balances on your at-work savings plan, such as 401(k), 403(b), or profit sharing.

The 2008 contribution limits are $15,500 (those 50 and older can add another $5,000), not including any matching contributions from your employer.

Don’t forget about your IRA, either. If you haven't contributed to it yet, consider automating contributions to this account and put it out of your mind. You have until next April to fund your account for 2008. So over the next nine months, set aside $555 a month (if you qualify for the maximum contribution limit $5,000) or $667 if you are age 50 or older and want to hit the $6,000 savings ceiling. Even if you can't spare that much cash for the next nine months, sock away something. You'll thank yourself in retirement.

Spending Rundown
If you enrolled in a flexible spending account (medical and/or dependent care) at work, start reaping the benefits of paying for necessities with pre-tax dollars. If you haven't already, gather your bills and submit those reimbursement forms. Then project the next six months of spending so you are sure to drain the account. Remember that these plans have a “use it or lose it” feature that does not allow carry-forwards on unspent money).

A Review Is Worth The Effort
Human nature being what it is, it’s not easy to motivate yourself to do a financial checkup without a deadline hanging over your head. But mid-year adjustments will help prevent headaches that are harder to remedy at the end of the year.

 
CFP Board on Track for Successful Financial Planning Clinics

CFP Board’s preparations for its two free Financial Planning Clinics later this year are shifting into high gear. The Clinics are scheduled for Saturday, Sept. 13, in Washington, DC, and Saturday, Nov. 15, in Miami.

More than 100 CFP® practitioners have already volunteered to share their financial planning expertise with Washington, DC, consumers. In Miami, meanwhile, 25 practitioners stepped up to the plate even though CFP Board hasn’t yet begun soliciting volunteers for the event. The volunteers heard about the Clinic from CFP Board’s website and through word of mouth, according to Program Specialist Eddy Demirovic.

“We’re pleased to see the level of response from our stakeholders who are willing to devote their time, energy and talent,” said David G. Strege, CFP®, Chair of CFP Board’s Board of Directors. “Their sense of responsibility to give back to the community is heartening and a reflection of CFP® certificants’ desire to help American families better prepare for their financial future.”

“Our 2008 Clinics are building on the momentum of our successful Clinics in Los Angeles and Boston,” CEO Kevin Keller added.

Now in its third year, CFP Board’s Financial Planning Clinic initiative is designed to give consumers a chance to experience the advantages and benefits of competent and ethical financial planning.

Each year, the Clinics offer consumers in selected cities an opportunity to address their specific financial questions with CFP® professionals who volunteer their time and expertise for the event. Volunteers are seated at tables designated for specific financial planning topics, including:

  • General Financial Planning (education funding, debt management, mortgages, loans, special circumstances)
  • Retirement Planning (pension, 401(k), IRA, Roth IRA, Social Security)
  • Investment Planning (stocks, bonds, mutual funds, real estate, investment strategies)
  • Income Tax Planning (filing, deductions, contributions, small business planning)
  • Estate Planning (wills, trusts, gifting, estate taxes)
  • Insurance Planning (life, health, disability, long-term care, property & casualty)
  • Employee Benefits (medical, disability, stock option plans)
The Financial Planning Clinics also include Educational Workshops on a range of financial topics presented by leading experts in personal finance who are CFP® professionals.

The Clinics are part of CFP Board’s efforts to educate the public about the benefits of ethical and competent personal financial planning and the value of the financial planning process. For more information about the Clinics, including times and locations, visit www.CFP.net/clinic.

 
Survey: Does Your Financial Plan Include Stock Purchases?

The major U.S. stock market indices have sagged all year, unable to shake concerns of ongoing economic concerns. As we approach the mid-year point, does your financial plan include additional investments in stocks during 2008?

Take Our Survey

In the April edition of It’s Your Turn, we asked readers to let us know whether rising energy costs would crimp their vacation plans. As it turns out, nearly 30% had no intention of forgoing their planned vacation. However, an identical number planned to stay at home. Coming in at a very close third place, 28% planned to take fewer trips. Eight percent planned to take shorter trips, while only 4 percent said they would drive rather than fly.

 
Financial Alerts

Auto Insurance: Get Prepared Before Your Summer Road Trip
If you're planning a summer road trip, it’s crucial to review your auto insurance before you hit the road. In case you’re involved in an accident, it’s also important to know what happens when you file a claim. The National Association of Insurance Commissioners (NAIC) offers these tips for consumers planning summer travel.

Red Cross Alerts Public to Scam Targeting Military Families
The Office of Investigations, Compliance and Ethics has been alerted to a scam targeting the families of military staff. A caller contacts a spouse or another family member of a military staff person and identifies himself/herself as a representative of the American Red Cross. The caller states the military staff person has been injured while on duty in Iraq and is being or will be airlifted to Germany for treatment and care. The caller may ask for additional information about the military staff person; for example, date of birth or social security number. In a subsequent call, the caller updates the family member and asks for a donation to the Red Cross to help cover the cost of the air-lift and medical care. This is a scam using the Red Cross brand. American Red Cross representatives typically do not contact military members or military dependents when a service member has been injured or killed in action. Rather the service member’s Command or the casualty assistance branch of the respective Service contacts the primary next of kin in these instances.

FTC Warns Consumers about Potential Charity Scams
The Federal Trade Commission is urging consumers to be cautious of potential charity scams in connection with the recent floods and tornadoes that have caused damage in the Midwest. Scam artists may take advantage of this situation by creating bogus fund-raising operations. The FTC has issued a Consumer Alert, the “FTC Charity Checklist,” which lists precautions consumers should take when donating to charities. The alert advises consumers to be wary of appeals that tug at your heart strings, especially pleas involving current events. Read more at: www.ftc.gov/opa/2008/06/midwestfyi.shtm

Read more financial alerts.

 
About This eNewsletter

CFP Board's "It's Your Turn" eNewsletter is sent monthly to those who have subscribed through CFP Board's Web site, www.CFP.net/learn. CFP Board exists to make people aware of the benefits of financial planning and to encourage people to seek out individuals who can help them apply the financial planning process to improve their financial lives. This eNewsletter is designed to provide information about financial planning, financial planning tools and resources, consumer alerts and more. Suggestions and feedback are welcome at mail@CFPBoard.org.