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Tuesday, July 21, 2015

Empty-Nest Chronicles: Financial Literacy 101

A Money Method & Empty-Nest Chronicles Special

(Photo Credit: TC's Views)

My son has officially graduated from high school and is on his way to college in August. But before I send him off to soar around the adult world I took him to our local bank to open a checking and savings account in his name.

We got a financial literacy lesson about credit scores, identity protection and Regulation D - a federal regulation that limits the number and type of withdrawals from savings, or Money Market Accounts to six per month for each account.

Credit Score Discussion

My son had many questions about credit scores for our banker.

Q: “What’s the highest credit score that you can have?”

A: Turns out anything over 800 can get you almost anything that you want. The higher the credit score, the better.

Q: “How long does it take to build your credit score?”

A: A solid score takes time to build. I’m talking about years. You have to make sure that you pay your bills on time because one late payment can cause your score to take a 70 point hit instantly.

Q: “How can you build your credit score?”

A:  Avoid late payments. Don’t bounce any checks. Avoid overdrafts. Use credit cards responsibly and get a bill in your name.

  • This is where parents come in. The banker suggested that once my son gets a job that I should give my son a small bill in his name and social security number that he will be responsible for. That way he gets into the habit of paying his bills on time and this will give his credit score a chance to grow.

  • The banker also suggested that it would have been wise to have opened a savings account when my children were born and contribute $5 a month until they were old enough to take over the account themselves. The magic number here is 18 years old. This would have built a long standing relationship with the bank, which would have given the kids more options to loans, lines of credit etc. Now I know… Better late than never.

Identity Protection

As the banker started to enter information into the system I explained to her that my son has the same name as his father. Although the account is being opened with a different birth date and social security number, I requested that she put in extra percussion to protect his identity.

Now, I am not saying that his father would mess up his own son’s credit but you can never be too safe. I’ve been a victim of identity theft from my own mother and I didn’t find out until after she passed away. It took several years to clean up that mess. Call me overly cautious … It’s OK.

The banker agreed to put a note on the account for withdrawals and phone in confirmation. The teller/customer service representative will have to ask a question that only my son will know the answer to.   

Savings Account: Reg. D

The student account that we set up is actually a sweet deal. Every time my son swipes his card to make a purchase, $1 is automatically taken from his checking and placed into his savings account. The account is also set up to where he has to make at least 10 debit card purchases to avoid a monthly fee of $5. <-- This part I don’t like so much because that’s too much pressure for a young adult to remember, especially with his first year in college.

The account is also set up to where if he makes six withdrawals from his savings account that he will be charged a monthly fee on the account. If he continues to withdraw from his savings then he risks losing his savings account all together. Why? Because of Regulation D, which I mentioned earlier as a federal regulation that limits the number and type of withdrawals from savings, or Money Market Accounts to six per month for each account.

The banker explained that the Federal Government wants people who have savings accounts to use them as such…to save and not use it as a checking account. The explanation still doesn’t make 100% sense to me but I guess if it’s a way for me to save money for my retirement or for that new Mac I would like to purchase for my birthday, then, fine. I will follow the rules or risk being charged a fee or worse, risk losing my privilege of having a savings account all together.  

I had to make sure that I shared this last tidbit of the risk of losing the savings account with my daughter, who is a rising junior in college. Turns out she just can’t keep her wings off of her savings account.

By the time my son and I left the bank he was fully equipped with a temporary debit card, a checking and savings account number, a wealth of financial knowledge, and the importance of taking his credit history seriously. I had him download the app for his banking institution and navigate his way around the website for online banking. Needless to say, my son’s chest perched a little bit higher now that he was full of all this financial information. “I learned more today than I did at school in financial literacy class,” he shared. However, he’s still in learning mode.

Since I am on the account with him, I get emails whenever he makes a move on his account. I just realized that I now have to explain overdraft fees to him before he swipes his card. During his online banking set up, he opted to have charges go through if there isn’t enough money in the account and that he must replenish the account within 24 hours or risk being charged $35 for each insufficient transaction.

A mama bird’s work is never done.

Empty-nesters: How did you financially prepare your birdies before sending them off into the world?

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