Financial Education for Kids

Parents always seem to want their kids to learn about finance but do not seem to know how to teach them.

I found a website by NISA…

In light of the recent World Cup in Brazil, it is a site to help financial literacy. The players are swooped into a soccer stadium where they are prompted to play a game that asks them financial questions as the soccer match is played.

There are 3 levels and the oldest bracket is age 18+. Game lengths are 5, 10, 20 and 30 minutes. As a member of Team USA, I chose Italy as my opponent. In the 5 minute game, I trashed Italy 6-0.

It is a fun game and you will learn a lot. May I suggest you sit with the family (and all the kids) to play the match. It will bond you together and help everyone learn some basics about finance.

Good luck and Gooooooal!!

Gathering Debt Storm

The Congressional Budget Office (CBO) keeps warning that the nation’s debt is building so the fiscal ship is going to hit an iceberg.

The warning cited a similar crisis in Argentina, Ireland and Greece as examples. The crisis is not imminent so politicians will not address the issue since it will happen after they leave office.

Federal debt held by the public is at 74% of GDP and set to rise dramatically over the next 10 years to 180% and climb from there. The next 10 years will be the calm before the storm. In 10 years, the baby boomers cohort will be age 62 to 80. Combine that with a slow expansion of the working age population and grim demographics are baked in the cake.

Add to this, the growth of federal spending for Social Security, Medicare, Medicaid, CHIPS and Obamacare and it is evident that federal spending will swamp revenue.

The government will need to keep borrowing, which creates the “crowding out effect”. As the government borrows more, it crowds out savings available for investment into capital goods, which makes workers more productive. Wages are primarily determined by workers productivity, thus reducing wages.

Also, with the huge amount of debt, the government will not be able to use borrowing to respond to financial crisis.
As the debt continues to grow, the public will be less willing to lend to the government thus pushing rates higher.

What to expect: I have mentioned many times in this blog that the long term plan of the “spend and tax” politicians is to raise taxes to 60% for those making $50,000 to $100,000 per year. Just look at the facts. In 1980, the top 10% of income earners paid 49% of all taxes. In 2011, the 10%, those with AGI above $120,000, paid 68% of all personal income taxes.

We are here to help you develop tax free income sources that will never be taxed. Forewarned is forearmed.

Breaking the Buck

In 1972, the first “money market fund” (MMFD) was brought to market. For many years, the public was terrified to use this investment program. Now it is an everyday, run of the mill, simple holding pot for cash. One of the main features was that it produced higher interest rates than the average bank savings account. Many will remember in 1978, getting in excess of 12-13% from these MMFD’s. In order to obtain higher returns, they invested in higher risk instruments, but, it was promised that the NAV (Net Asset Value) would never drop below $1 per share. During the 2008 financial crisis, the Reserve Primary Fund “broke the buck” when the NAV dropped below $1, mainly due to the large position in Lehman Brothers commercial paper.

In mid July, 2014, the SEC approved rules that included the new NAV standard. This will allow money market funds to implement “exit fees” and other measures to safeguard against any investor exodus. In effect, it will allow for the NAV to drop below a “buck”. This new rule only applies to institution prime funds, but, be prepared for it to hit your personal money market accounts in the not too distant future.

Out of the box Strategies

Many times people get very uni-directional in their thinking and make improper decisions. On some occasions it is because they do not know what they do not know. At a recent seminar I heard a young man (about 23), during a discussion about 401k plans, blurt out…”why should I invest into a 401k plan… since when I am ready to retire at 65 or 70, well, $401,000 dollars will not really be worth much.”

He thought a 401k plan was a place to put money that would only grow to $401,000. Don’t laugh- many people still think that when they sell their house, in order to avoid capital gains tax, they must buy their next home of equal or greater value. The law regarding this changed dramatically in 1997 (17 years ago), yet, the majority of Americans still think the old law is in effect. Get professional financial help and save a bundle before you make any move.

Here are a few examples that professional financial advisors have saved people bundle of money just by thinking outside the “uni-directional” box.

Example 1: A client was able to use capital gains to escape the tax collector: “Dad” was in the highest federal tax bracket (40%) and was planning to pay down his daughter’s $18,000 student loan out of his own income (we will leave the discussion why he was doing this for another time). Dad would have had to earn $30,000 of salary to net the $18,000 for the payoff using uni-directional thinking. (So it really would have cost him $30,000 to get rid of the loan not just $18,000.)

The daughter was in a much lower 15% bracket, and, the client (Dad) was holding appreciated stock. So rather than having “Dad” use cash which would be subject to ordinary income tax rates, the advisor suggested “Dad” gift the appreciated stock to his daughter.

Since the adult child was in the 15% tax bracket when she sold the stock the long term capital gains tax was ZERO. (By the way the Dad had bought the stock originally for $2,000… so his real cost to pay off the loan… was $2,000). All the time I hear people say I do not want to pay for a professional advice. Yet, by not paying a small fee for expert ideas in this case it would have cost “Dad” $30,000 instead of $2,000 to pay off the $18,000 loan.

Example 2: A couple owned a home on more than 5 acres of land. They did not want to leave the home and they did not need the excess land. At the same time they wanted to expand their condo in the city. Two different “brokerage firm advisors” told them to take money out of their retirement accounts to fund the condo expansion (at ordinary income tax rates). A Certified Financial Planner told them otherwise… “Sell your extra 5 acres at capital gains tax rates and keep your retirement accounts growing.” So they kept their home, upgraded the condo and kept their retirement accounts. Again, uni-directional thinking would have had them paying at least 39.6% ordinary income tax rates (plus state income taxes) on the retirement monies versus a 15-20% capital gains tax rate on the land.

We at Founders Group strive to find the most efficient, ethical and effective route to our clients’ issues. Contact us at

Planning a Split-Up

A divorce is never a fun discussion. Unfortunately, emotion often clouds a person’s logical thinking which leads to financial losses. These losses come about through… “I’ll show him/her” or by attorneys that are not financially trained. Here are just a few examples why a Certified Financial Planner should be brought in:

    (1) Many attorneys are not concerned about frequent flyer miles or corporate perks. Yet those items play into a couple’s lifestyle when they are married and will be lost when divorced. A fair split would help make up for that loss.

    (2) A married couple gets a $500,000 tax exclusion on the profit from the sale of a personal residence. If the property is simply transferred to one spouse and sold later the exclusion drops to $250,000. If a couple has a substantial gain in the property it will be at least a $37,500 mistake, even if the $250,000 profit is taxed only at a 15% capital gains tax rate. If the homeowner is in a high tax bracket or lives in a state that assess tax on capital gains- ouch. An alternative is to sell the property jointly while they are married (or within 3 years of the split), use the larger exemption amount, split the cash after saving tremendously on taxes, and, move on.

    (3) A couple has $1 million in assets – $500,000 in retirement accounts and $500,000 in taxable accounts. A “fair” approach may seem to let one spouse take the retirement accounts and the other the taxable one. Unfortunately, when money comes out of the retirement account 100% will be taxed at ordinary rates. The taxable account only gets hit on the profit and at the preferential capital gains rate.

These are just a few examples of where a Certified Financial Planner can help minimize taxes and maximize the net benefits to each person. Contact us for assistance.