What I’ve Been Up To

This Week in Your Wallet: Median Incomes on the Rise & Having a Budgets and Boundaries Talk

It’s the Tuesday after a holiday weekend. You’re back in the office, under the fluorescents and three (maybe four) cups of coffee in – it’s high time for some extra motivation, right? How about the idea of bringing home a bigger paycheck?

According to new data from Sentier Research, the median household income increased to $53,891 in June, a 3.8% increase in the past three years. Yes, it’s a pretty good sign for economic recovery, but still too early to bring out the bubbly, as CNNMoney puts it. Americans’ median income is still 4.8% lower than it was right before the Great Recession in December 2007.

The research also found ethnicity, age and where you live to possibly affect the rate of your personal recovery. For example – if you look back five years – seniors are the only age group to have enjoyed a jump in median income. Why’s that? Sentier says it’s possibly because wealthier Baby Boomers moved into the age category. Moreover, those nearing retirement went through the steepest decline at 6.4 percent, whereas the median income for workers 35-55 years old dropped by roughly 3 to 5 percent.

If you live in the Midwest, you’re in luck. Midwesterners saw a jump in median income since 2011. If you live in the South? Not so much. Their median income is still about 6 percent below the June 2009 level. And both people who live in the Northeast and those in the Western part of the country saw their median income slip by about 4 percent.

It’s not the birds and the bees

I’d venture to guess your college-bound kid received very little personal finance education in high school. Meaning, it’s up to you – the parents – to fill the void, especially if they’re on their way to college this month or next year. Yes, it’s time to have the budgets and the boundaries talk. Don’t worry, last week in my Fortune column I offered advice on how to get the ball rolling. (And don’t worry if they’re already gone. You can recap on the phone, on Facetime, even by text.)

Budget. First, talk spending limits. Some colleges offer rough estimates of how much spending money to give your kids (often referred to as miscellaneous) for the academic school year. For example, at Northwestern University, it’s $2,000. At the University of Arizona, it’s $1,800 (not including textbooks). Whatever number you settle on, it it will never be enough if they don’t know how to stretch the dollars. That’s why you need to sit down with them and develop a basic list of what money will (and should) be used for – and how much things cost – to make sure actual expenditures match the estimates.

Also, think low and slow for the pace at which you give money. Richard Barrington, senior financial analyst for MoneyRates.com, suggests doling out money monthly for specific purposes. Act like a lender: the more responsible they prove to be over time, the longer the leash you can give them, providing money for longer periods of time.

Boundaries. It’s also important that your students don’t get plastic happy with their student ID cards, which nowadays have as many functions as a veritable Swiss Army Knife. This card doesn’t just get them into the library after hours, but also serves as a prepaid debit card that can buy them food and books (with the money you put on it). At some schools (i.e. the University of Arizona, my reporting assistant’s alma mater), it even acts like a credit card at the beginning of the semester, in which students can rack up a balance within the first few weeks of school. And much like a credit card, it’s mythical money for them, says J.J. Montanaro, a certified financial planner with USAA. Parents can turn the ID into a learning tool however, and set boundaries. You’ll be able to see the balance too. If they blow through their card’s budget too soon, then they can be responsible for buying their own pizza and shampoo until your next scheduled deposit. Read more on Fortune.

One-upping the outlets

How’d your Labor Day shopping go? If you went to the outlets, I hope you saw one of my tweets over the weekend before you bought anything. (If you don’t follow me on twitter, I’m @jeanchatzky.) It seems 60 to 85 percent of the goods in major retailer outlets (think Banana Republic and Gap) are specifically made only for the outlet itself. According to Consumer Reports, these products are made with cheaper materials so that retailers can justify the lower prices. This means you’re not really scoring a deal, or saving on the original price.

As DailyFinance reports, if you’re looking for the same brand quality, now you know to inspect things a little more closely. Insider tip: Look to the tags. For example, at Banana Republic and Gap look for three dots on the price tags. These dots mean what you’re seeing is outlet-store merchandise. At Brooks Brothers, look for tags with the number “346” on them. Coach will be marked with an “F” in the style number. Also inspect the sewn-in tags. If they’re sliced, marked or altered, it can mean it was never fit for retail in the first place.

Cash is still (kinda) king

According to a recent CreditCards.com survey, 65 percent of Americans still prefer using cash over plastic for purchases less than $5. Millennials, however, pull out the plastic instead: 51 percent of consumers ages 18-29 prefer plastic to cash, and they’re the only age group to do so. This preference to swipe might be a mistake in the making, according to MONEY. It goes back to the 2008 research published in the Journal of Experimental Psychology, which found that physically handing over bills triggers an emotional reaction – a pang – to deter spending, whereas swiping does not. Using cash discourages spending – plastic encourages it.

Have a great week,

Jean