Financial Driving Lessons: What Teens Need to Know

Your teen or teenage grandchild is becoming more independent, but still needs plenty of advice. With more money to spend and more opportunities to spend it, teens can easily get into financial trouble. The American Institute of Certified Public Accountants offers these strategies for teaching teens a few financial lessons before money burns a hole in their pockets:

• Lesson 1: Handling earnings from a job. Encourage your teen to get a part-time job that will enable him or her to earn money for expenses. Agree on what your child’s pay should be used for; talk to them about taxes, and encourage them to deposit a portion of every paycheck in a savings account before spending any of it.

• Lesson 2: Developing a budget. Consider giving out a monthly, rather than weekly, allowance, and tell them the money must last for the whole month. Also encourage him or her to keep track of what’s been spent. Suggest ways to earn more money or cut back on expenses, and show them how to modify a budget by categorizing expenses as needs (expenses that are unavoidable) and wants (expenses that could be cut if necessary). Resist the temptation to bail your teen out.

• Lesson 3: Saving for the future. Have your teen put savings goals in writing to make them more concrete. Encourage them to set goals that are based on his or her values, not on keeping up with what other teens have or want. Motivate your child by offering to match what he or she saves toward a long-term goal.

• Lesson 4: Using credit wisely. If you decide to cosign a credit card application for your teen, ask the credit card company to assign a low credit limit (e.g., $300). Set limits on what the card can be used for, agree on how the bill will be paid, and what will happen if your child can’t pay the bill. Make sure your child understands how long it will take to pay off a credit card balance if he or she only makes minimum payments. If putting a credit card in your teen’s hands is a scary thought, you may want to start off with a prepaid spending card. This will allow your teen to gradually get the hang of using credit responsibly. Because you can access account information on-line or over the phone, you can monitor your teen’s spending habits, then sit down and talk with your teen about money management issues.

You can also visit 360 Degrees of Financial Literacy (www.360financialliteracy.org) for more information, including strategies, tools and research to help teens better manage personal finances. The Web site was created by the American Institute of Certified Public Accountants.

Source: American Institute of Certified Public Accountants (AICPA).

FDIC Insurance: How to Safely Stretch Your Coverage

Want to take full advantage of Federal Deposit Insurance Corporation (FDIC) insurance?

The Independent Community Bankers of America offers a number of tips to help depositors increase the amount of money that FDIC insurance will safely cover at a single community bank.

The basic coverage for deposits in an FDIC-insured community bank is up to $100,000 per depositor and $250,000 per owner for certain retirement accounts. However, the FDIC provides separate coverage for deposit accounts held in different categories of ownership that allow a customer to have more than $100,000 insured at the same community bank.

Some basic examples of how depositors can expand their coverage beyond $100,000 include:

• A husband and wife both have separate bank accounts in each of their names (each account is covered for $100,000 or $200,000 total).

• The couple also has a joint account which is covered for up to $200,000.

• The husband and wife each have separate IRA accounts for $250,000 each.

In addition, revocable Payable on Death (P.O.D.) accounts are another option that allow a customer to expand beyond $100,000 in the same bank. For example, all of the following accounts could be insured for one couple at one community bank:

• John Doe, P.O.D. to Jane Doe: $100,000

• Jane Doe, P.O.D. to John Doe: $100,000

• John and Jane Doe, P.O.D. to Baby Doe 1, Baby Doe 2, and Baby Doe 3: $600,000

• John and Jane Doe, P.O.D. to Grandchild Doe 1, Grandchild Doe 2, and Grandchild Doe 3: $600,000

The FDIC is the best source for tools to determine deposit insurance coverage, including their on-line Electronic Deposit Insurance Estimator, which can be found on the FDIC’s Web site at www.fdic.gov/edie.

The ICBA recommends that depositors consult with their legal advisers and with the FDIC Web site prior to establishing different bank accounts or changing the title of an existing bank account to maximize deposit insurance.

Source: The Independent Community Bankers of America (www.icba.org).