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Helping Your Child Establish Credit

Preparing your child for adulthood is daunting. As a parent, no matter how old your child becomes, worrying about their health and safety will always remain in the forefront. However, as they begin to mature into young adults, their financial future becomes a growing concern.  Often overlooked, and yet, equally as important as helping your child choose a career path that is right for them, is helping your child establish credit.  

Here are a few tips to help you begin building credit for
your kids.

First and foremost, begin the “money talk” with your kids
while they are young. You should begin discussing basic financial concepts like
saving (help them open a savings account) and delayed gratification when they
are in elementary school. As they get older, introduce more complex concepts,
such as insurance, investing, credit cards and borrowing, and explain what
credit really means – the building blocks of consumer credit – and why it’s so
important. As a responsible parent, you should also make sure your credit
habits provide a good example.

In addition to providing a good financial
education…foundation, the following steps will help ensure your young, adult
child is well on his or her way by the time they are flying solo.

  1. Help them
    open a checking account.
    Show your child how a checking account works as
    well as the penalties associated with them if they overdraw their account or
    bounce checks. Once they understand and are comfortable with the basics, ease
    them into a debit card. This gives them some spending independence, while
    limiting it to the balance in their checking account.

  • Have
    them get a part-time job.
    A strong work ethic is a vital part of your child
    becoming a responsible adult. Having a part-time job in high school provides them
    with a valuable life lesson – the excitement of watching their savings grow and
    the frustration of seeing it disappear, especially if it’s due to a poor
    decision. This lesson is a precursor to understanding credit. In addition, the
    income provided by a part-time job will help them when they apply for their own
    credit card.

  • Add
    them as an authorized user on your credit card.
     As long as your own credit habits are sound,
    this is a good way to help your child establish his or her own credit record.  As an authorized user, your teen will usually
    get a credit card in his or her name, tied to your account. Typically, this
    account will also go on your child’s credit record.By setting ground rules for what they can charge and how and when
    (on-time) payments will be made, you will enhance your child’s understanding of
    how credit works as well as help their credit grow.

You can also add them as an authorized user without
giving them access to the account. Without giving them the possibility…opportunity
of overspending, you can still help them grow their credit as you use the
credit card and pay it off every month.

  • Have
    your college-aged child apply for a student credit card.
    Once your late
    teen has established good financial habits and income to support a credit line (usually
    income from a part-time job is sufficient), they may be ready to apply for
    their own credit card. These cards typically have lower credit limits and
    higher interest rates than general credit cards.

  • Help
    your college-aged child apply for a secured credit card.
    This is another
    option if your young, adult child is unable to get a student credit card. A
    secured credit card requires the cardholder to put down a deposit, typically a
    few hundred dollars, which is usually the credit limit they are given. Because
    there is little risk to the bank/credit card company with this type of card,
    most people can get approved.

What Does the Federal Reserve’s Recent Rate Reduction Mean to You?

The recent interest rate reduction, from 2.5 percent to 2.25 percent, by the Federal Reserve doesn’t directly touch any of the everyday interest rates that affect Americans. This quarter-point cut, the first cut in a decade, reduced the federal funds rate, the rate banks and other financial institutions charge one another for very short-term borrowing.

Even though most Americans don’t participate in this type of
borrowing, the Fed’s move will still have consequences on the borrowing and
saving rates you encounter every day.

Interest rates on car loans, credit card balances,
mortgages, etc., and earned interest on the money you save won’t necessarily be
directly or immediately impacted. But, consumers could, likely, over time, experience
the following trickle-down effects.

Savings Account Rates

Savers have only recently benefited from higher deposit
rates – the annual percentage yield banks pay consumers on their money – with
several online banks offering over 2.5 percent. However, the recent rate cut
will most likely cause these rates to come down.  Now is the time for consumers to shop around
for short-term rates or lock in rates with a 1-, 3- or 5-year certificate of
deposit with money that doesn’t need to be readily accessible.

Mortgage Rates

According to Bankrate, the current 30-year fixed mortgage
rate is about 3.93 percent, the lowest it’s been since November 2016. Because
mortgage rates are tied to long-term rates, which move well in advance of any
rate changes by the Fed, the current low rate came on the heels of the
expectation that the Fed was going to cut rates.  Consequently, unless the Fed hints that more
rate cuts are on the horizon, mortgage rates are not expected to fall much
more.

With that said, if you borrowed money to purchase a home
late last year, when the average 30-year mortgage rate was nearly 5 percent, it
may be time to consider refinancing.

Credit Card Interest
Rates

The Fed’s recent rate reduction is good news for Americans
who carry balances on their credit cards. Because most credit cards have
variable interest rates, there is a direct correlation to the Fed’s benchmark
rate.

With the rate cut, the prime rate lowers too, and credit
card rates will likely follow. For credit cardholders, this means you should
see a reduction in your annual percentage yield or APR (the current rates on
average are as high as 17.85 percent) within a couple of billing cycles.

With almost half of all credit cardholders in the U.S.
holding balances every month, averaging approximately $1,150 in interest
yearly, this quarter-point reduction will create some savings.

Auto Loan Rates

For those of you who are planning to purchase a new vehicle,
the Fed’s rate reduction will most likely have little impact on your car
payment. However, this rate cut lowers the financing costs for car manufacturers
and dealers, which can offer a better negotiating position for the would-be car
buyer.

Student Loan Rates

While most student loans are fixed-rate federal loans,
approximately 1.4 million students in the U.S. today use private student loans.
Private loans can be fixed or have a variable rate tied to the Libor, prime or T-bill
rates. Consequently, the Fed’s rate cut means borrowers with variable rate loans
will likely pay less interest. If you have private, variable rate loans, you
should look into refinancing to possibly lock in a lower fixed rate.

However, as borrowers begin to celebrate this recent rate
cut, retirees have begun to worry. This type of rate reduction doesn’t bode
well for returns on investments preferred by those who’ve left or have
immediate plans to leave the workforce.

Typically, yields on fixed annuities, CDs, savings accounts
and bonds go down with a Fed rate cut. Long-term care premiums and pensions
will also be pinched. The impact will likely not be felt immediately. Retirees’
portfolios may not feel a hit for more than a year.

Investment professionals warn retirees not to chase returns
in the market, possibly placing more emphasis in their portfolio on investments
like equities and real estate, which might not be safe for those who have a lot
more to lose and generally can’t afford to take on much risk. With any rate
fluctuation, it’s important to work with your financial advisor or planner to
develop a portfolio that’s right for your situation.

Although the Federal Reserve’s recent rate cut can be viewed
as both a good thing and a bad thing, the same as any rate increase, the
guiding force behind the reduction is heading off a recession. With this move,
the Fed hopes to prevent the economy from weakening and forestall layoffs and
other economic damages that could adversely affect everyone.

Trade School or College?

By the end of the 1950s, the focus of education in the United States shifted from vocational and job-ready skills to preparing all high school students, through college prep courses, for college. However, today, statistics indicate that the highly coveted bachelor’s degree doesn’t seem to carry the weight it once did.

The latest figures from the U.S. Bureau of Labor Statistics (BLS) indicate that approximately 68 percent of high school students attend college. The remaining students graduate with neither academic nor job-ready skills. But even the 68 percent aren’t fairing that well. Almost 40 percent of these students, as low as 10 percent for those in poverty, don’t complete a four-year college program, wasting a lot of time and money, and often acquiring significant student debt. Of those students who do graduate, the BLS found that about 37 percent end up with jobs they could’ve obtained with a high school degree.

In the United States, a college degree has been viewed as the pathway to success, and it still is for many. Earnings studies do show that college graduates earn more over their lifetime than high school graduates. However, these studies don’t take into account the amount of debt these students take on in pursuit of higher education (the outstanding student debt balance in the U.S. was $1.5 trillion as of 2018, according to the Federal Reserve) nor that more than half of recent college graduates are unemployed or underemployed. In addition, these studies don’t include data on those high school students who graduated with vocational training. These graduates have gone on to well-paying, skilled jobs, creating a rosier picture for them than many of their college graduate counterparts.

The U.S. economy has changed. The manufacturing sector is growing and modernizing. This, along with the demise of vocational education in high school and retiring baby boomer, skilled trades workers, has created, and will continue to create, a significant demand for skilled labor. The skills shortage in manufacturing today has created a wealth of opportunities for high school and unemployed and underemployed graduates alike. Many of these jobs are attainable through apprenticeships, on-the-job training, and vocational programs offered at community colleges.

Even with the above statistics aside, the traditional 4-year degree isn’t for everyone. People have a diverse range of skills and learning styles. Some do best in a lecture hall or classroom, studying math, biology, history and other traditional subjects, while others learn best by doing, and would thrive in a studio, workshop or shop floor.

There are still many advantages to a 4-year degree. As stated before, most college graduates will earn more money over their lifetime, especially if they continue their studies through master’s or doctoral degrees. However, the cost/benefit equation to higher education is changing every day. The education system needs to recognize this and that vocational schools can offer students with valuable skills, resulting in competitive paying jobs and a secure financial future. Students need to be exposed to the possibility of vocational training as an alternative to the college degree, helping both them and their parents see a variety of paths to a successful future.

National Internet Safety Month

June is designated as National Internet Safety Month as a
means of spotlighting the importance of safe online practices for you and your
family.

As we head into summer, and, according to the National Cyber
Security Alliance, our children and teens begin spending an average of 7.5
hours each day with electronic devices, this month provides the perfect time to
spread awareness of the various ways we can keep our families and ourselves
safe on the Internet.

Today, with social media and social networking becoming
increasingly important in people’s everyday lives, even Grandma’s, ensuring a
safe online experience for you and your family can seem daunting. So, here are
a few guidelines that can help you keep the entire family safe in today’s
increasingly threatening digital world.

  • Home
    Wi-Fi Security

Your home Wi-Fi gives your children or
grandchildren access to the Internet from anywhere in your house. This makes it
more difficult to monitor their online activity. So, make sure your Wi-Fi is
highly secured by using strong router passwords, enabling wireless encryption,
to prevent strangers from seeing or having access to your network.

  • Read
    Online Privacy Policies Carefully

Websites and social networks that require
basic information from you when you create an account with them have privacy
policies. So, whenever you or a family member want to join a new social network
or set up a new website account make sure you know the creator’s privacy
policies – how they intend to use your information and what they do to ensure
the information you give them remains safe from dangers such as phishing and
identity theft.

  • Ensure the
    Whole Family Practices Safe Social Networking

Unless a social network is specifically
created for kids, a child under the age of 13 shouldn’t subscribe to a social
network. However, everyone else that does should use their personal information
wisely – don’t use full names, disclose birthdays or addresses. In addition,
you shouldn’t discuss your vacation plans or share photos with identifiable
details (your home address, car license plate number, etc.). You should also
talk to your children about cyberbullying and online predators and stalkers.

  • Ensure
    Safe Online Gaming

Kids and teens can interact with
their friends and people they don’t know in a fun way via live online games. However,
this can expose them to dangers such as bullying and predators. Make sure your
child uses only a nickname or an avatar (a icon or a figure) when playing
games. In addition, carefully monitor your child’s play and use the parental
controls – safety measures – the game offers.

  • Install
    Parental Control Tools on Family Computers

Although open communication and trust
is always the best practice when it comes to your child’s online use, some
extra precaution doesn’t hurt. Parental control tools can block your child’s
access to inappropriate websites as well as monitor their online activity.
Implementing a parental control tool isn’t about spying on your child. It’s
about keeping them safe from the growing number of online dangers.

  • Create
    Safe Passwords

Creating strong account passwords will help
keep hackers from breaching your online accounts and stealing your identity.
Create a strong, unique password for each online account and change it
regularly.  Make your passwords long, at
least eight characters, and a mix of letters, numbers and symbols. Also,
whenever possible, use security questions with answers only you’d know. Teach
your family members this practice as well.

  • Install A
    Complete Internet Security Program on Family Computers

An effective security program will protect you
and your family from malicious links, viruses and malware.

  • Only
    Download and Install Software from Trusted Sources

The Internet provides access to free games,
movies, etc. However, some of them contain spyware and other types of malware
that can compromise your computer as well as the whole family’s Internet
security.

  • Look for
    https:// in Website URLs

The https:// at the beginning of a web
address means it’s a secure site. This should appear in every bank or online
shopping site you use. In addition, if you or a family member bank or shop
online, make sure the Wi-Fi is secure.

  • Recognize
    and Avoid Phishing Scams

Cybercrooks are after your personal
information, and they’ll use all kinds of email and text scams to try to obtain
it. Watch out for alarming messages and threats of bank account or credit card
closures. You and your family members should also be wary of requests for
charitable donations, lottery wins and giveaways as well as links contained in
suspicious looking emails, texts or websites.

  • Backup
    Important Files/Data on Your Computer Regularly

You never know when your computer will crash
or become the victim of an accident or a cyber attack. So, backup your home
computers on a regular basis to keep your data safe and sound.

  • Stay
    Informed About Internet Security Threats

The best defense is always a good offense.
You don’t have to be an Internet security specialist/analyst to defend your
family from online dangers. You just need some basic knowledge.  So, do your homework and stay informed.

Nurturing the Entrepreneurial Spirit in the Workplace

Many employees have fantasized about being their own boss.
But, they typically don’t act on it because of the responsibility and/or risk associated
with owning and running a company. This doesn’t mean, however, these employees
don’t harbor the entrepreneurial traits, which if nurtured, could take the
organization to a whole new level of success.

As businesses strive for increased competitiveness, creating
an entrepreneurial culture has become an important advantage.  In today’s business environment, the term
entrepreneurial means more than just the business intelligence required to turn
an idea into an enterprise. It’s a skill or mindset embodying innovation,
creativity, calculated risk-taking and empowerment. It’s the responsibility of leaders
to identify, tap into and cultivate these traits within their organization.

Sometimes referred to as an “intrapreneur” (entrepreneurs
working within a company), these employees can be identified by the following
traits:

  1. Creativity
    – Innovation stems from creativity. This drives the company forward.
    Intrapreneurs change the status quo and notice opportunities.

  • Long-term
    focus
    – A person who is creative and innovative must also be focused,
    otherwise they will fleet from one shiny object…new idea to another. The
    intrapreneur can identify what adds value to the company and what doesn’t.

  • Team
    player
    – Naturally, teamwork is essential in a business. Yet, it’s the
    ability to realize that sometimes others have to take control that makes the
    intrapreneur standout in the company.

  • Risk-taker
    – Playing it safe in today’s world will get you nowhere. Intrapreneurs aren’t risk
    adverse.

  • Results
    oriented
    – The intrapreneur is more concerned about the results than the process.

  • Take
    responsibility
    – The intrapreneur takes ownership of his or her successes
    as well as his or her failures.

  • Adaptable
    – The business landscape is continually changing. The intrapreneur is very
    flexible to change and can quickly adapt, especially in high-pressure
    situations.

  • Planners
    – Intrapreneurs develop a plan and then work the plan.

  • Effective
    – Intrapreneurs are more interested in how effective each task or activity
    is as opposed to concentrating solely on efficiency.

Once a company leader recognizes the intrapreneurs in
his/her organization, he or she must take the next steps to cultivate these
traits.

Create an environment
of empowerment

It’s a business leader’s actions that create an environment
of empowerment. It’s his or her leadership style. Research shows that
leadership based on relationships increases the entrepreneurial spirit of the
company as opposed to task oriented leadership style. An effective leader leads
by example.

Encourage innovation

Innovation keeps a company competitive and growing. In large
companies with layers of management, the innovative spirit can often get lost.
Leaders must welcome, encourage and reward innovative thinking in the
workplace.

Welcome internal
competition

Competition amongst co-workers, if handled correctly, can
spur incentive and innovation. Healthy competition can drive co-workers to push
one another to be more productive and produce better work.

Communicate

Communication is a fundamental function of good leadership.
Leaders often get so caught up in the day-to-day operations of the business
that they forget to tell their staff where they are going – the company’s
vision and direction. Employees want to get the important information. They
also want to know that their concerns and ideas are being heard. Leaders must
continually communicate to their staff that the entrepreneurial approach is
valued, encouraged and rewarded.

Succession Planning…A Must for Business Owners

“If you fail to plan, you are planning to fail.” -Benjamin Franklin

People become business owners for a variety of reasons. The driving force behind most business owners is the belief that they can do things better than anyone else, the allure of being their own “boss,” and the ability to be the master of their own destiny and build their own wealth.

The natural evolution of being a business owner begins the minute you start or buy the business. The life cycle continues as you design, build and grow your business into something special…and profitable. However, at some point, the sooner the better, you must begin planning for an exit strategy, or a succession plan, to ensure the kind of legacy you want to leave behind with your business.

Most business owners don’t prepare for their exit. In fact, a recent trust survey revealed that only approximately 40 percent of small business owners have a succession plan in place. The majority of those without a plan said that they enjoy what they do so much that they can’t imagine a transition of ownership, while the remainder of the business owners surveyed said they were too busy to plan or felt that succession is still too far away in the future to begin thinking about it. But, life happens fast and unexpected life events can happen at any age. So, if you own your own business and you don’t have your exit strategy…succession plan in place, it’s time to get started!

How to build your succession plan

First, you must ask yourself a few important questions. Do you plan on selling your business to a third party at a certain price, do you want your business to live on through one or more or your children or do you see yourself selling to a third party yet maintaining a level of involvement in the company? This decision is key to how you will build your succession plan.

Once you’ve determined this, begin by taking the following steps:

1. Gather financial documents – A smooth transition of ownership begins with organizing the company’s financial documents like valuation data, inventory and up-to-date financial reports (audited P&L and Balance Sheet Statements). Buyers and lenders will want to review these records to determine how the business has performed historically before entertaining a deal. Organizing and consolidating your financial documents also protects your business if an unexpected circumstance forces you to sell or a family member is left handling a transition.

2. Establish a buy-sell agreement – A buy-sell agreement is a legally binding contract that allocates portions of the business in the event an owner passes away, becomes seriously ill or is contemplating selling his or her share of the business. This agreement contains information about the business like its sale price, the value of each owner’s share and stipulations such as who can or can’t buy the business. A buy-sell agreement also reduces the risk of conflicts among family members or partners who may not have the company’s best interest at heart.

3. Begin identifying your potential successor(s) – As a successful business owner, you’ve built your company from the ground up…it’s your baby…your pride and joy. Consequently, you want the business to continue to flourish when you are no longer at the helm. For this to happen, you must select the right person. Finding the right person, however, takes time. Whether you choose a family member or an outsider to take over your business, you will need to train them to run the business. By having an active role in the training process, you’re afforded the opportunity to develop and evaluate the critical skills and business traits of your potential successor to help ensure the long-term success of the business.

4. Establish a timeline – Set a timetable to determine when the control of your company will be turned over to your successor. Ease your successor into the transition, allowing him or her to make decisions, as well as mistakes, during this phase.

5. Execute your succession plan – If you’ve done your homework…the proper preparations, this should be as simple as handing over the keys. But, before you step aside make sure all your account information is organized and readily available to the new owner. As part of an exit strategy, you should have all sensitive login credentials for email servers, business software, IT systems, etc. organized and in a secure place to pass on to the new owner(s) or you should assist them with setting up new ones before you leave.

A well-thought-out succession plan is essential for small businesses and partnerships. Planning early and revisiting the plan as conditions change are the keys to a successful transition of ownership when that day arrives. With many options available to you and your business, you’ll greatly benefit from the counsel of a business and commercial law attorney. He or she will be an invaluable resource in helping you design a plan that is right for your business as well as minimize your business’s tax burden.

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