Published by Rock Valley Publishing LLC 2019
Investing IN YOUR FUTURE
PAGE 2 • 2019 • INVESTING IN YOUR FUTURE
How young people can avoid the debt trap
R
ites of passage come in many forms. Some are religious ceremonies marking an important stage in a person’s spiritual life, while others are less ceremonial but still impactful. For many young people who are old enough to vote but not necessarily old enough to live completely independent of their parents, digging oneself out of debt is an early financial rite of passage. But youth and debt need not go hand in hand, even though statistics suggest otherwise. According to the Federal Reserve, student loan debt reached historical highs in the first quarter of 2018, surpassing $1.5 trillion for the first time ever. That figure is even more staggering when compared to figures from a decade ago, when total student loan was about $600 billion. And it’s not just student loan debt that’s jeopardizing young people’s financial futures. Consumer debt compiled through the use of credit cards has long been a thorn in the sides of young adults, many of whom apply for credit cards before they fully understand the concept of credit, only to learn the hard way that swiping credit cards comes at an oftentimes steep cost. But while the young people of yesteryear might have landed in debt by using credit cards for nonessentials like a night out with friends, a recent survey from the professional services firm PwC found that young adults currently between the ages of 25 and 34 are more likely to buy day-to-day essentials with credit. In fact, 20 percent admitted to doing to so in the past six months, compared with just 6 percent of adults age 55 and over. That could be due to a number of factors beyond young adults’ control, including low and stagnant wages, but it also might be a byproduct of young adults not knowing how to avoid debt. If it’s the latter, then young adults can try to employ the following strategies to avoid falling into the debt trap.
See DEBT TRAP, Page 6
STOCK PHOTO Investing in Your Future
The cost to attend college extends beyond tuition and room and board. Many additional expenses can stretch families’ budgets.
It adds up fast
Be aware of all of the costs for college
College is often met with excitement and interest by students pursuing their passions and what they hope will be fulfilling, lucrative careers. And the rising costs of college, coupled with the growing number of students taking on substantial debt to finance their educations, make it necessary that prospective students consider their earning potential when deciding on a major. According to the College Board, the average cost of college tuition and fees for the 2017-2018 school year was $34,740 at private colleges, $9,970 for state residents at public colleges, and $25,620 for out-of-state residents attending public universities. Canadian citizens studying in Canada can expect to pay $6,571 per year, according to Statistics Canada. The cost of tuition and room and board may catch parents’ eyes, but there are some lesser known expenses associated with college that can make attending school even more expensive. According to Cappex.com, a website offering ideas on how to pay for college, the extra costs of college can cost between $250 and $500 per month. The following are some lesser-known expenses that college students and their families may need to budget for this school year.
Transportation STOCK PHOTO Investing in Your Future
Many college students watch their student loans increase with growing anxiety, but there are ways for young people to avoid debt and pave the way for a bright financial future.
Commuter students will need to drive to and from campus, which involves budgeting for gas, repairs and auto insurance. Students who live on campus may be subjected to a high fee for a resident student parking pass. Colleges in the United States earn an average
of $4 million to $5 million in parking revenues each year, according to the most recent rate study from the National Parking Association. A typical four-year college or university in the United States charges about $635 per space for the school year. Other students use public transportation or ridesharing services to get around. Those fees can quickly add up, too. Students attending school far away from home also need to budget for plane tickets home during the holidays and other breaks.
Fraternities and sororities Many students join Greek organizations to fully immerse themselves in the college experience and make new friends. Many of these groups charge fees to prospective pledges and then semester dues once students are accepted. Parties, trips, living expenses, and other expenses may come up as well.
Added fees Many colleges and universities charge technology fees, sports center fees and activity fees. Exploring these fees in advance of the school year can help families create accurate budgets.
Dining out Families spend hundreds of dollars on campus meal plans per semester, but students also like to visit local eateries during the school year. Snacks, lunches and dinners purchased from such establishments can cost hundreds of dollars per year. Farmer’s Financial Solutions, a division of Farmer’s Insurance, says offcampus dining expenses cost an average of $770 a year.
School supplies A new laptop or tablet, textbooks and other supplies a professor requires can cost thousands of dollars. The College Board estimates students spend $1,300 on books and supplies in a typical school year. (METRO CREATIVE)
INVESTING IN YOUR FUTURE • 2019 • PAGE 3
Investing is complicated, and many investors find working with certified financial planners is an effective way to secure their financial futures.
STOCK PHOTO Investing in Your Future
Investing requires some measure of risk. Risk understandably makes people nervous, especially in regard to their finances. Investing is an important component of securing your financial future, and the risk involved with investing should never prevent you from putting your money to work. Many people, including both novice and experienced investors, overcome their fears about investing and risk by working with certified financial planners, who can do a lot more than make suggestions.
Explain the jargon Financial planners can make sense of complex products. Financial jargon can be hard to understand for those who do not work in finance. Financial planners simplify the complex array of products available to their clients, helping them understand each of their options as well as which of those options is best for them.
Expand options Financial planners can expand your investment options. Financial planners sometimes have access to products that are not directly available to everyone. Some financial product providers work exclusively through intermediaries (i.e., planners), so working with a financial
planner can give investors more options in regard to how to invest their money.
Do the legwork Financial planners do the legwork. Even seasoned investors with a firm grasp of financial products and services may not have the time to stay up on all the latest investment options. Financial planners do so for a living. A good planner will inform his or her clients of the latest products available and then help clients decide if such products are right for them. That’s a lot of work that busy professionals often do not have the time to do on their own.
Have the qualifications Financial planners are certified. Investors should only work with certified financial planners. Certification standards vary by country, but certified planners have been vetted by third party organizations and have met rigorous professional standards. In addition, to maintain their certification, certified planners are required to provide their clients with straightforward advice and put clients’ needs ahead of their own. Those that don’t could be held financially accountable for providing misinformation or bad advice to clients. (METRO CREATIVE)
Finding help Topics to cover when interviewing financial advisors
Investors put a lot of faith in their financial advisors. Many professionals work hard to save up enough money to invest so they can secure their financial futures. Handing that hard-earned money to a financial advisor can be nervewracking. But prospective investors can calm their nerves by discussing certain topics with planners before deciding to work with them.
FIDUCIARY STATUS
People new to investing will no doubt find some financial jargon confusing. Fiduciary is one term that novice investors may be unfamiliar with. A fiduciary is a financial professional who must place clients’ interests ahead of his or her own. Fiduciaries also must disclose any existing or potential conflicts of interest that might affect clients’ willingness to work with them. That includes how they earn their money. Non-fiduciaries have no such responsibility, so they can sell clients a particular investment without having to
See FINDING HELP, Page 4
investing future IN YOUR
Advantages to working with a financial planner
EDITOR:...................................................................... Tracy Ouellette CREATIVE/PRODUCTION DIRECTOR:.......................Heidi Schulz ADVERTISING DIRECTOR:.................................. Vicki Vanderwerff SECTION DESIGNER:................................................... Jen DeGroot
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PAGE 4 • 2019 • INVESTING IN YOUR FUTURE
• Finding help
(Continued from page 3)
tell clients how their own compensation is affected by that sale. Some fiduciaries work for specific funds that only allow them to sell those particular funds’ proprietary products. That’s the case even if they believe there are other investments that are better for given clients. Such arrangements must be shared with clients for advisors to maintain their fiduciary status. The Certified Financial Planner Board of Standards’ “Rules of Conduct” can be found at www.cfp.net.
FEES
Fees should be discussed before signing an agreement with a financial advisor. Ask each advisor you interview how they earn their money. Some might charge clients a percentage of the assets they’re managing while others may earn money by selling you specific products. Investors have a right, and an obligation to themselves, to understand how financial advisors they work with will earn money. That’s smart investing and can help investors sleep easy knowing their advisors have put clients’ interests first.
SERVICES
Financial advisors offer different services. Some might only suggest investments, while others may help clients come up with comprehensive financial plans that focus on short- and long-term goals. Some investors may only want suggestions, while others may need more from their advisors. Determine which type of investor you are and then find the right advisor for you.
ACCESS
STOCK PHOTO Investing in Your Future
Financial advisors help millions of people across the globe secure their financial futures. Discussing various topics and strategies with prospective advisors is a great way for investors to find the right individual for them.
Investors, particularly those without much experience, might be comfortable knowing they can contact their financial advisors as often as they’d like. Some advisors are more accessible than others, so discuss access with advisors before signing any agreements, and determine if you’re comfortable meeting just once a year to go over things or if you want more routine check-ins. (METRO CREATIVE)
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Town Bank is a community bank — right here in your town. We take the time to really get to know you and your business needs. WellTown Bank is a community bank — right here in your town. We take established or just starting out, dairy or crop focused, we’ll help you the time to really get to know you and your business needs. Wellwork through the challenges and prosper with new opportunities. established or just starting out, dairy or crop focused, we’ll help you With more than 25 years of experience each, our lenders have the work through the challenges and prosper with new opportunities. insight and expertise to help your business thrive. With more than 25 years of experience each, our lenders have the insight and expertise to help your business thrive.
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INVESTING IN YOUR FUTURE • 2019 • PAGE 5
Investing in your future
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PAGE 6 • 2019 • INVESTING IN YOUR FUTURE
Many different factors impact the size of modern families today, and the rising cost of raising children may be the most influential of such factors.
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What it costs to raise kids today A generation ago, it was common to see families with four or more children. But things are a bit different today. Pew Social Trends indicates that parents now have 2.4 children on average, a number that has remained fairly stable for two decades. In addition, since 1976, the share of mothers at the end of their childbearing years who have one child has doubled, from 11 percent to 22 percent. While shrinking families may be based on many different factors, including postponing having children until later in life, the rising costs of raising kids may have something to do with it as well.
• Debt trap
The U.S. Department of Agriculture says the cost of raising a child today has climbed to $233,610, which excludes the expenses of college. A 2011 article that appeared in the Canadian publication MoneySense estimated childrearing costs to be $12,824 per year, which adds up to $243,656 by the time a child reaches age 18. It’s also well documented that more adult children are living with their parents for longer than kids used to stay with mom and dad. Pew Research has found that roughly one-third of women and half of men between the ages of 18 and 34 are still living at home, surpassing records set
Did you know? The U.S. Department of Agriculture says the cost of raising a child today has climbed to $233,610, which excludes the expenses of college in the 1940s. This means expenditures on child rearing may continue long after kids reach adulthood. As a result, it is easy to see how
having multiple children can be a major source of financial stress for the average middle-income family. The financial planning resource NerdWallet estimates that the cost of raising a child today is higher than the DOA figures, coming in at roughly $260,000 – and that is just for the basic essentials. Throw in tiered levels of care, including everything from more expensive choices for food and clothing, and extras for early childhood care, sports lessons, music instruction, and electronics/gaming, and the cost can get as high as $745,634.
(METRO CREATIVE)
(Continued from page 2)
Explore your repayment options According to Student Debt Relief, a private company that looks to educate and empower consumers about student loan debt, the average college graduate in the class of 2016 had $37,172 in debt. That’s nearly $10,000 more debt than the average graduate from the class of 2011. Young adults struggling to repay their student loans can explore various options, including federal student loan repayment plans, such as the Pay As You Earn plan and the Income- Based plan. Each plan is different,
but young adults should know that they have many repayment options.
Avoid consumer debt Interest rates on credit cards can be high, especially for young people without lengthy credit histories. As a result, it’s best to only use such cards for emergencies and not to pay for nights out with friends or a new pair of shoes. Consumer debt that’s not paid off in full each month also can adversely affect young adults’ credit ratings, which can hurt them when they get older and
look to buy their own homes or other big-ticket items.
Live at home While many college graduates want to maintain their independence and live on their own after graduation, moving back in with mom and dad might be the most financially savvy move to make. Doing so allows young adults with jobs to begin building their nest eggs and can help them avoid having to use credit cards to meet their day-to-day needs. Debt ensnares many young adults. (METRO CREATIVE)
Creating a financial plan
INVESTING IN YOUR FUTURE • 2019 • PAGE 7
Simple ways to keep a realistic budget
Successful financial plans often begin with the creation of a budget. A budget is an estimate of income and expenses in a given period of time. Budgets help with long-term goals like paying off a mortgage or sending a child to college as well as short-term goals like financing a dream vacation. Not all budgets are alike, and when people hear the word “budget,” they may get apprehensive. Budgeting may require making some concessions in regard to spending habits, but it doesn’t have to put a complete damper on plans. In fact, with a budget in hand, people may be more free to spend because they will have a stronger grasp of their financial situation. Making a realistic budget does not have to be a chore. Here is how to get started.
LIST THE NECESSITIES Begin by calculating the costs associated with fixed needs, including rent/mortgage, utilities, food, and any other bills you have to pay each month.
ADD EXISTING DEBT Debt includes any routine payments being made to credit card companies, student loan lenders, car payments, or unpaid medical bills.
LOOK THINGS OVER Conduct a spending analysis over
several months. Budgets are easier with fixed numbers, but unforeseen variables can affect spending every month. These can include the extras for clothing, entertainment and much more. Average the cost of these expenses throughout your analysis period so you can get some idea of how much to allocate for them.
GET TECH HELP Use software or apps to help. There are plenty of resources available to help people calculate their budgets and get a picture of their financial habits. Resources such as Mint, YNAB (You Need a Budget) and various accounting programs can produce spreadsheets, pie charts and bar graphs as you work to create a budget.
START TRIMMING GRADUALLY Quitting a certain lifestyle cold turkey can be jarring. Gradually cut back on your spending if your analysis suggests that’s the way to go.
AUTOMATE SAVING Immediately removing a set amount from your paychecks by having it directly deposited into a separate account can remove the temptation of spending too much from your financial equation. Budgets are a key part of a financial plan and can help people reach their goals. (METRO CREATIVE)
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PAGE 8 • 2019 • INVESTING IN YOUR FUTURE
“Remember when there was only one way to do things and that was the right way?”
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At Knopp Construction we still do it the right way. Honestly. Fairly. With quality and integrity. We’ve been remodeling homes, updating kitchens, baths and performing other home improvements in Boone and Winnebago Counties since 1976 and are proud to be longstanding members of the Rockford Chamber of Commerce. Call us. We are ready to serve you.
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