This Week In Your Wallet: Get Financially Fit
Quick quiz:
1. Suppose you have $100 in a savings account earning 2 percent interest a year. After five years, how much would you have?
A: More than $102
B: Exactly $102
C: Less than $102
D: Don’t know
2. Now imagine that the interest rate on your savings account is 1 percent a year, and inflation is 2 percent a year. After one year, would the money in the account buy more than it does today, exactly the same or less than today?
A: More
B: Same
C: Less
D: Don’t know
3. And finally… Suppose you owe $1,000 on a loan, and the interest rate you are charged is 20 percent per year compounded annually. If you didn’t pay anything off, at this interest rate, how many years would it take for the amount you owe to double?
A: Less than 2 years
B: 2 to 4 years
C: 5 to 9 years
D: 10 or more years
E: Don’t know
Correct answers: 1) A, 2) C and 3) B. How’d you do? If your answer is “fair to middling,” don’t feel bad. On average, Americans who took what is, in full, a six question quiz, (you can find the rest of it here) got just 3.16 answers correct. These results from the FINRA Investment Education Foundation represent a disconnect. This year’s survey of more than 25,000 people show that Americans have grown more confident about their financial knowledge since 2009. At the same time, their actual knowledge seems to be sliding. More people answered the quiz questions correctly last year than this year, and even more the year before that. (And no, the questions weren’t tougher. The scary thing is that they were the same.)
So, what can you do to improve your financial fitness? I think regular reading of newsletters like this one, magazines like MONEY and Kiplinger, columnists like Jason Zweig of The Wall Street Journal and Ron Lieber and Tara Siegel Bernard of The New York Times goes a long way toward bolstering both knowledge and confidence — which, combined, are a very good thing.
College Cash
Kids heading off to college in the next few years? MONEY has tips to help prepare them, like sitting down and filling out the FAFSA (Free Application for Federal Student Aid) and other aid forms together. It’s a good time to have the conversation about what you can afford to contribute, how much debt they’re willing to assume and how much they may need to borrow or earn. As for budgeting, setting them up with a regular allowance distributed by month or semester is probably a better option than transferring funds as expenses come up — that way, budgeting and expense tracking becomes a part of their learning experience. (Full disclosure: Some kids may even need you to take that monthly budget and break it down week by week to help them stay on track. That’s how we started in my house.)
The 411 On FAFSA Changes
And while we’re talking college — Credit.com has the information you need to know about recent changes to the FAFSA. In the past, you could submit the application starting January 1 of the year you’ll need the aid, but now, you can complete it as early as October 1, 2016, if you’ll need aid in the 2017-2018 academic year. So mark your calendar — because, like many things, the sooner you complete it, the better when it comes to the aid package you’re likely to receive. Many states and schools have different ways of giving out funds, and some do it on a first-come, first-served basis. Another big change? For aid in the 2017-2018 academic year, you’ll now use financial information from the 2015 tax year. That could make it easier to fill out the the form — by allowing you to use the IRS Data Retrieval tool that transfers your tax information to the FAFSA.
Do You Have A Question For Me?
I’m doing a LIVE Q&A with PolicyGenius tomorrow, July 27, at noon EST. I’d love to answer any of your money questions, so if anything’s on your mind, let me know here!
Have a great week,
Jean
