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5.26-blog

Your Teen Wants You to Cosign a Loan—Now What?

Let’s paint a quick picture of the college landscape: there is $1.2 trillion in outstanding student loan debt, and, if the current system remains, every graduating class from this point forward will become the most indebted class in history.

That may seem dreary, but it’s important not to paint college affordability with a broad stroke because a picture may still be worth 1,000 words, but a solid financial college plan is worth way more than $1,000.

Part of that plan may include student loans. Before you sign on the dotted line as a cosigner for your teen and send them on their merry way, consider these important facts:

  1. Consider ALL options

Federal loans never need a cosigner and have more favorable terms for students to pay back the money in a fair and timely manner. Look into these types of loans first, along with any and all scholarship or grant opportunities. Only then should you look into private loans, which require a cosigner.

  1. Know the implications of becoming a cosigner

If you’re thinking about making a big purchase like a car or a house, you may want to reconsider your choice to cosign a student loan. Becoming a cosigner makes it more difficult to take out other loans or credit cards. Plus, if you miss any payments, your credit score will suffer. And if you want to get out of the pact, think again. It’s next to impossible to relinquish your responsibility once your teen is 21 years old and your name is still on that paper. In extreme cases, cosigners sometimes remain responsible for payments even if the person who is receiving the loan passes away. That is why many experts recommend a life insurance policy in conjunction with a private student loan.

  1. Be sure your teen is on board with the plan

Every parent will differ in their approach to their teen’s financial contribution. If you expect your teen to contribute, ensure that they can do so responsibly. You can get your teen accustomed to this responsibility by setting up a chores-for-allowance system. A more extreme option is to have your teen sign a document that stipulates they will repay any missed payment and/or fees you cover over the life of the loan. In an ideal world, this will mostly serve as a real-life reminder of the loan and not a first step toward a date in daytime television family court.

  1. Be realistic with the loan

One of five things all students should know about loans is to only take out the amount of money they truly need. The general rule of thumb is to estimate the salary your teen could earn upon graduation and stay below that number. If you learn better through hard figures, The Wall Street Journal reported that between Oct. 1 and Dec. 31, 2015, private debt collection companies hired by the Department of Education garnished more than $176 million in wages from defaulted student loan borrowers in order to pay back their debts. You don’t want that for your teen, do you?

After poring over the reality of the situation, you may find it in the best interest of both you and your teen not to cosign a student loan. You may get a cold shoulder or two because of it, but you will be able to say, “I told you so,” when they graduated debt-free.

5.5blog

4 Things Teens Absolutely Must Know Before Taking Out a Student Loan

A college degree today is equivalent to a high school diploma 50 years ago. That is to say it’s an expected, if not necessary, level of education needed in order to secure a job in a number of professional fields.

The one major difference between high school and college is, of course, price. But given the importance placed on higher education, many families will do whatever it takes financially to ensure their child can earn that degree.

For most, that means taking out student loans. Before you and your teen go down that road, you should both be aware of the implications going forward.

These are four things you and your teens absolutely must know before taking out a student loan:

  1. Almost 71 percent of bachelor’s degree recipients will graduate with a student loan.

As a parent, you might think loans aren’t necessary since they weren’t when you were looking into college. According to a 2015 Wall Street Journal article, your memory doesn’t deceive you — less than half of students graduated with student loans two decades ago and about 64 percent did 10 years ago. These days, however, roughly 3 out of 4 students will need to borrow money to graduate.

  1. The average 2015 college graduate with student loan debt will have to pay back a little more that $35,000.

If your teen is one of those three students who will take out a loan, they can expect to be saddled with $35,000 upon graduating. That amount is more than double what borrowers had to pay back two decades ago, even after adjusting for inflation. So not only are more students taking out loans, they’re also paying more in loans.

  1. Only borrow what you need.

It’s generally thought the biggest loan you can get is the best. This is not true. A loan should strictly serve to cover the cost of college — this includes spending costs in addition to the basic costs of education, room and board. When taking out a loan, look at what the averages are and then apply yourself and your situation against those. This is one of several tips you should consider during the process.

  1. Know what types of loans are out there

When applying for financial aid, loans are normally included in the school’s offer. Some student loans are made through the federal government, while others come from private sources like banks for financial institutions. Generally speaking, federal loans offer borrowers more ways to pay the money back along with a lower interest rate.

Make sure your teen has a basic idea of what they’d like to study and what they hope to achieve while in college. They can figure it out while already there, but that’s a costly deliberation period. Getting some real world experience first either through a job, volunteering, or even traveling can help hone their interests and formulate a plan for a worthwhile college experience.

Remember to remind your teen to speak to someone in his or her desired college’s financial aid office. They’re there as resources to help you!

4.7-blog

Teaching Teens Financial Literacy on National No Housework Day

If you add up all the housework parents do in a given year to maintain a happy, healthy and, most importantly, clean home, it’s safe to assume that on average every single day will involve a chore or two.

But not on April 7. Today is the one day that deviates from the mean because it’s National No Housework Day.

For one day, all the dishes should be left in the sink; all the laundry should stay soiled; all the beds should remain unmade. But this national holiday should be a valuable reminder for teens: housework piles up quickly when nobody tends to it.

So how can you turn this day into a teaching lesson?

Divide and Conquer

The saying “two heads are better than one” is a universally accepted truth, but for reasons unknown many parents dismiss it when it comes to family housework. A Chicago Tribune article reported 82 percent of parents did chores when they were kids, but only 28 percent ask their kids to do the same. By splitting all the cleanup duties in the wake of No Housework Day, your teen should understand that a united front against chores will make for a faster and easier process. Additionally, if you give your teen a specific role that they can continue to own long after No Housework Day, it will give them a clearly defined responsibility and lessen the need for micromanaging.

Pay to Play

The same article reported 13 percent of parents said their kids will only do chores if they’re paid. Even though this is a low number, these teens are working wisely within our capitalist system. Providing an allowance for completion of housework is something that parents should consider, especially if you ask your teen to do larger jobs that can be seasonal or bi-annual (think: cleaning the gutters). Creating a minor work environment will teach teens compensation is only rewarded with a job well done — a vital real world lesson.

Time is money management

Giving teens household duties they are expected to complete on time will provide a tangible time management system they can take to the next stage of their lives. If they want to see a movie, for example, they won’t be able to afford it without timely completion of their tasks. Three-quarters of the parent respondents agreed that chores make children “more responsible,” so the only thing holding back their development is a well-structured plan.

If you lead the way, parents, you’ll find a well-balanced distribution of household work will create more free time for you — perhaps even a semi-annual celebration of No Housework Day!

3.24blog

Who’s a Bitcoin and Where Can I Facebook Him?

Have you ever heard your teens talking about Bitcoin and thought, “Oh, great—not another video game”?

If so, then you’ve been greatly misinformed. Yes, Bitcoin is a product of the Internet age and is used solely within the digital sphere, but it is not a video game. It’s also not a social media platform, mobile app or new dance craze.

Bitcoin is a form of digital currency—a.k.a. cryptocurrency—created and held electronically that operates independently of a central bank and its regulations. Being that it’s a decentralized currency free from the control of one institution or government, its value is derived from the relationship between its supply and demand.

This is all very confusing and quite abstract, we understand. But the simple truth is that teens can buy and use Bitcoin on the Internet to purchase just about anything. There are no age restrictions in place to purchase Bitcoins, and for a younger generation that operates almost exclusively on the Internet, it’s more than likely they’ll come across an opportunity to get involved with it.

So what should you, the parent, know about Bitcoin? We’ve distilled the info and packaged it into bite-sized pros and cons.

Pros:

  1. Allows teens to make purchases online

In most jurisdictions, an individual must be 18 years of age to make a purchase on online. That means your teen will either get a hold of your credit card with no restrictions (yikes!) or you’ll have to monitor each and every purchase (also yikes!). With Bitcoin, a teen can spend a specific amount and receive a corresponding amount of bitcoins in return, regardless of age. There’s no immediate risk of overspending.

  1. Teaches teens practical personal financial skills

Budgeting is engrained in this system. Teens have to decide what is worthy of their bitcoins. Additionally, all bitcoins are encrypted with the history of each and every purchase, meaning frivolous purchases will never be forgotten and hopefully can teach meaningful lessons. This system of spending also provides more independence, which might work well with some teens that resent being constantly monitored by parents.

  1. Encourages entrepreneurships

Teens can actually earn bitcoins using their skills—just like a job. The Internet isn’t as ageist as the real world, so if a 13 year old can do computer programming as good or better than a 35 year old, then they can be hired and paid in Bitcoin. Freelance writers, gamers and programmers are regularly being paid in Bitcoin for their services. The value of ability and competence is valued more highly in this space than experience/wisdom/degrees.

Cons:

  1. The dollar value of bitcoins is volatile

Fluctuation is the name of the game here. Within a two-year span, the price of Bitcoin went from under $100 to over $1,000. The current price of Bitcoin on the market as of this writing it $375. What this means in normal person terms: a bitcoin that bought you a DVD on Amazon yesterday won’t necessarily be able to buy you a piece of gum tomorrow. Additionally, there is only a finite amount available. This gets complex as well, but the basic fact is there will only ever be 21 million bitcoins in existence, with close to 15 million of them still unreleased to the general public.

  1. Only 2 percent of merchants currently accept Bitcoin

That 2 percent equates to 160,000 digital merchants, so there are places to use Bitcoin. It’s frustrating, but don’t expect to be able to use it everywhere. Additionally, if more merchants don’t begin adopting Bitcoin payment, the overall value could potentially take a hit.

  1. Can be used for not-so-reputable dealings

While some see and use Bitcoin as a way to fund some shady dealings, the big picture view is that they’re better used as an investment tool. Some analysts have made optimistic predictions that by 2025 one Bitcoin will be worth $17,473. That would provide a handsome return to current Bitcoin owners.

However, your teen can still use Bitcoin for smaller payment transactions. It’s a fun foray into money management that could give them insight into an emerging form of currency that could very well become commonplace in our society.

3.31blog

Tips for the Tax Filing Procrastinator

Here’s some good news for all you tax filing procrastinators out there: Tax Day has been pushed back three days this year.

No joke—because Emancipation Day is being observed on Friday, April 15 this year, Tax Day has been moved to the following Monday, April 18.

So what will you do with these three extra days? That depends on your level of procrastination, of course. Here are the three most important things to consider if you’re filing your taxes at the eleventh hour:

  1. Do you owe money to the IRS or does the IRS owe you a refund?

If you don’t owe any money to the state or Federal government, then the April 18 deadline doesn’t apply to you. Yes, you heard that right. You will not incur a late filing penalty on your taxes if you’re owed a refund, so take a deep breath and stop stressing out. BUT (and this is important for people prone to procrastination) the longer you wait to file your taxes, the longer it will take to receive your refund. On top of that, you run the risk of becoming a victim of tax fraud the longer you wait to file, which is why we suggest filing as soon as you can. (If you file your taxes early, a fraudster can’t do it before you.)

  1. File an extension / Ask for payment installment plan

If you do owe the IRS money, you will incur late filing penalties on that amount unless you file for an extension. Even if you file for an extension, you will incur late payment penalties unless you pay at least 90 percent of your tax liability by April 18. Luckily, the process is fairly easy—fill out Form 4868 online or by mail and your new deadline will automatically be extended to October 17. Also, if you file on time but don’t think you’ll be able to pay the owed balance by the original deadline, you can request a short-term extension to pay the balance due or request an installment payment plan. This process requires a request be made by the deadline (check to see if your state requires a separate extension), but will give you time to get your finances in order.

  1. Don’t rush

The worst thing to do is try to beat the deadline without filing for an extension. Chances are you’ll overlook critical deductions and credits that may lower the amount you owe or increase your refund. There are a slew of life events that can affect your tax situation (e.g., marriage, divorce, starting a business, having a baby, etc.) and it would be a shame to ignore them, especially when it means more money coming out of your pocket.

For more info on how to avoid penalties that come along with missed tax deadlines, visit our Block Talk blog. In order to prevent winning the two-time tax procrastinator award, check out this handy infographic to find out what forms you’ll need, along with a tax prep checklist for next year’s prompt filing.

3.1blog

3 Big-Ticket Items Teens Save Up For That Also Have Hidden Costs

There comes a time in every teen’s life when their interests and hobbies outgrow the realm of childhood and enter into a mature landscape of adulthood. The only problem is their maturing interests develop faster than their financial literacy skills.

Despite their best efforts to save money toward expensive items they intend to buy , most teens fail to account for the additional, and sometimes hidden, costs associated with these purchases.

Here are three big-ticket items many teens will save up for without considering the additional costs.

Cell Phone

Today’s cell phones are used for more than strictly making phone calls, but that doesn’t mean your teen should buy one simply for its camera capabilities. A data plan is a necessary evil, and the average monthly bill can range upwards of $100, according to U.S. News & World Report. Additionally, there are the expenses to insure a phone, not to mention all the bells and whistles teens will surely want to add on. What all this means is after your teen has saved up money for the physical phone they will need to continue their thrifty ways on a month-to-month basis if they want to keep their phone operational.

Car

When it comes to ditching the “little kid” status, owning a car is just about the quickest route for teens. But cars are a big responsibility, and the associated costs back that up. Right off the bat there’s car insurance, which the DMV says averages close to $900 a year. There’s no grey area here—if your teen wants to be on the road they MUST have car insurance. Then there’s gas, which is fairly important if your teen wants to actually drive anywhere. (Parents might be fine with a car that never leaves the driveway though.) And don’t forget how costly it is when—not if, when—the car needs repairs. Teens should be aware that car ownership is an ongoing responsibility.

Computer

It’s more than likely that your teen already has access to a home computer. It’s also more than likely your teen wants their own fancier version. That’s fine as long as they understand that without paying the additional costs, they’ll be able to use it for games of solitaire and little else. Most software comes with a price tag (think Microsoft Office), as does hardware (mouse, printer, speakers). Then there’s virus protection and a warranty, which is recommended if your teen wants to get the most out of their purchase.

Maybe you’re covering all of these costs for your teen, and maybe you’re not. It’s safe to say most parents will fall somewhere in the middle. Encourage your teen to research additional costs when they begin the process of saving. It will save them from disappointment later on, which will save you from having to hear about how unfair it all is.

2.23-blog

5 Questions to Ask Your Teen before Lending Them Money for a Big-Ticket Item

As children become teenagers and begin growing both physically and mentally, parents begin to find their “little ones” get too big for more than just their clothes. A developing teen with tastes and preferences all their own is a teen who will inevitably want to make bigger, more expensive purchases.

Gone are the days of giving little Billy a $5 bill to spend on comics and candy. Teenaged William is interested in buying a car, and he’s looking to you for financial assistance.

But before you throw a chunk of change right in Billy/William’s lap, it’s important to use this opportunity as a teaching moment. Parents should feel encouraged to lend their kids money and be paid back as part of a financial exercise in credit, lending, and timely payments.

As a parent, you should ask yourself these five questions before lending your teen money for a big-ticket item:

  1. I can’t believe my baby is all grown up!

Technically that’s not a question, but children do grow up fast. Try not to get too emotional… let’s move on to the next question.

  1. Does my teen need this item or is it a luxury good?

While even necessary items can cost a pretty penny, it’s those luxury items teens should really learn to budget for. Responsible adults have to weigh all factors when making purchase decisions, often deciding not to buy a luxury item in favor of necessities.

  1. Will this item help my teen advance their education or career?

If your teen needs an item to advance their education or career, it doesn’t necessarily make it a necessity — luxuries can exist within necessity. But purchases that directly link to income (i.e., car for transportation) or education (i.e., text books) are obligations that should warrant a loan. Just make sure your teen actually uses these items once they’ve been purchased!

  1. Can my teen realistically pay back the loan?

It’s difficult to pay off a loan without an income stream. If your teen doesn’t have a part-time or side job, think about implementing an allowance-for-chores system. This will teach them the value of a dollar. If your teen does have a job, encourage them to start saving some money with each paycheck and begin budgeting for loan payments.

  1. Can I establish a payment process that will actually teach my teen something?

The point of the parent/child money-lending exercise is two-fold: it gives teens a taste of adulthood while introducing them to all the intricacies of money management. The exact process you set up for your teen is up to you. Will you set a payment due date? Will you add interest? It’s all up to you. Remember not to distort the reality of the process though, which can provide your teen a false sense of potential consequences.

2.16-blog

5 Things to Avoid Buying with a Credit Card

As much as you try to reinforce to your teens that credit cards are an adult responsibility that should only be used with proper planning and budgeting, it’s hard to deny the magical aspect of using a plastic card to buy things you need or want without having to fork over cash at the time of purchase.

The concept that you will be paying for this later, and sometimes paying more if you cannot make monthly payments and incur high interest rates, can be a difficult concept to grasp for even seasoned credit card users. Make sure your teen knows what NOT to pay for with credit cards to ensure they don’t fall into a pit of debt as soon as they head off on their own after graduation. It’s easier than cataloguing the numerous items they can buy with credit, and will at least safeguard them from buying expensive items they will never be able to realistically afford.

Here are five items your teens should never pay for with a credit card:

  1. Tuition: 

Yes, a college education is important, if not a requirement for success these days. Trouble is, the cost of college tuition is perpetually on the rise and college students are still as broke as they always have been. Due to the exorbitant costs of education, most teens receive financial help either from their parents or through scholarships and loans. But if your teen is responsible for even a portion of their tuition, they should not use a credit card to pay the bill. Many schools will add a convenience fee (roughly 2-3%) for paying with a credit card. On top of that, the amounts are so large your teen wouldn’t be able to pay off the credit card before having to start paying interest on it. If your teen is having trouble paying tuition on time, talk to the school and find out about the types of low-interest student loans, grants or work-study programs that are available to offset the cost.

  1. Vehicle:

Not every auto dealer will accept credit card payment, but the ones that do will likely charge a transaction fee of 1-2%. When you’re buying an expensive item like a car, 1-2% can add up to several hundred dollars. Also, the chances your teen has a credit card with a high enough limit to handle the initial down payment on a car are slim. More than likely, your teen would max out their cards, negatively affecting their credit score. Instead, consider borrowing from a bank or credit union. Interest rates would be around 3-4%, compared to 15% rates your teens would endure on the average credit card. Another benefit of receiving an auto loan is adding it to your credit report, which helps the health of your credit score.

  1. Medical bills:

The cost of healthcare is not cheap and paying for it with a credit card will add high interest rates to the overall bill. Your teen could wind up digging an early debt hole that could affect their future finances if they go down this road. Contact a hospital’s financial department to help your teen set up a payment plan. This result in smaller or no interest charges and give them a clear road to paying off the balance completely.

  1. Taxes:

If your teen needs to file taxes and ends up owing money to the IRS, they should not use a credit card even though it is an option. Like vehicles, taxes can end up being a large dollar amount and tax preparers will charge a convenience fee for using a credit card. The 2-3 percent fee could tack on a good amount of added money if the initial amount owed in taxes is high to begin with. Plus, interest rates on credit cards are other higher than what the IRS charges through its range of payment plans. Speak with the tax preparer to figure out the best way your teen can pay taxes or contact the IRS ahead of time to work out a payment plan.

  1. Business startup:

So your teen is using their education to begin a business. Excellent! But they use a personal credit card to expense their venture to get it off the ground. Not so excellent. This tactic is risky because it generally takes a few years for business to become profitable. In that time, your teen will pay high interest rates on those costs, effectively negating any profit from the business. Small business loans are more suitable in these situations.

Matt Tetreau

Meet H&R Block Budget Challenge Scholarship Winner: Matt Tetreau

Hard work and long-term planning pay off when taking the H&R Block Budget Challenge. Don’t believe us? Just ask Matt Tetreau from St. Clair High School in Michigan who won a $20,000 scholarship. We spoke with him to learn more about how he was so successful!

Growing up, did you see a need for financial literacy and education among your classmates?

I really think that it’s valuable information, especially since next year many of us will have student loans. Many kids my age don’t really know too much about student loans or living on their own. That’s what inspired me to take Mrs. Volz’s class where we took the Budget Challenge.

Where did your previous financial education come from? Did you take any classes prior to Mrs. Volz’s?

No I didn’t. I didn’t ever really talk to my parents about money either. I’m not much of a spender. During the simulation, I learned almost everything I know though through the class or on my own.

Do you think that the simulation taught you the real world money skills that you need to be successful?

Absolutely. I feel like I can budget on my own now, whereas before I don’t know if I would have been able to manage.

What do you think was the recipe to your success that helped you win the scholarship?

I checked the Budget Challenge every day and made sure that my budget was balanced. I tried a bunch of different strategies and tried to find the strategy that would save me the most money on my budget.

How often did you tweak your budget throughout the simulation?

In the beginning, I planned it all out by how I thought it’d work out — but that didn’t work because unexpected things came up in the Budget Challenge where I had to make refinements. We had one unexpected event to deal with, and our credit card expenses were pretty unpredictable at times. We didn’t know how much we’d get charged for the event, so we had to account for that as well.

Did you work together with your classmates through the simulation?

I actually did work with some. It was really valuable working together and bouncing ideas off each other. Some of my classmates proposed strategies that I didn’t initially think of — and I came up with ways to play that helped others. I think that sharing of ideas among a few of my classmates was part of my success.

What did your parents think when you told them you were taking the H&R Block Budget Challenge?

I told them about the simulation, and they were pretty into it as well. They were asking me what was going on and how I was doing.

How has winning this scholarship changed your post-graduation plans?

I always planned on going to college, but I didn’t plan how I would pay for it. So the scholarship definitely helps.

Where do you plan on going to college and using your scholarship?

I plan on going to Michigan or Grand Valley State and studying computer science. I want to probably be a computer programmer or similar type of job.

Would you recommend this simulation to other students? Why?

Going into this, I didn’t know much at all about budgeting. I learned so much information that will help me throughout my life. I honestly think that every high school student should participate in something like that or at least take a class related to it.

Learning financial literacy is fun with the H&R Block Budget Challenge. To find out more about how your teenagers or students can learn real-world money management skills without the real-world consequences, encourage teachers to register here for the next H&R Block Budget Challenge simulation.

How Important is Money to Teens? [INFOGRAPHIC]

How important is saving, spending and investing to teens? Here’s what we found out.HRBDS January-0204-02-01

Thanks to the Budget Challenge, these teens gained confidence in their financial literacy skills and ability to save. Maybe they can keep their smartphones after all!

Learning financial literacy is fun with the H&R Block Budget Challenge. To find out more about how your teenagers or students can learn real-world money management skills without the real-world consequences, encourage teachers to register here for the next H&R Block Budget Challenge simulation.