USMint.gov

You’ve seen those commercials on TV that proclaim, “For just 50 cents per day, you can change someone’s life.” And while some of those charities are no doubt worthy, what if the life you could change were your own?

This is not a gimmick. To see how spare change can add up, I was just playing around with Econ4U’s Compound Interest Calculator to see what saving two quarters a day could earn you in the long run. If you sock away 50 cents every day, you’ll have $182.50 at the end of one year. Not bad in itself.

But what if you put that in a basic savings account paying 1 percent in interest?

Well, after five years of continuous saving, you’d have $930. And after a decade? You’re up to a whopping $1,908 — all for saving just 50 cents per day.

No matter how close to the brink you are, just about anyone can scrounge up two quarters by emptying your pockets, keeping an eye on the sidewalk, and checking change-return wells in vending machines. Hey, even the office couch may yield a return.

As they say, a penny saved is a penny earned — and with compound interest working for you, that makes nothing but sense.

EveryJoe.com

In May, we brought you some of the lessons that having a summer job teaches teens who are working for the first time in their careers.

Now that summer is in full swing, the Christian Science Monitor has some more valuable takeaways from that first job:

• Getting to know tax forms and direct deposit. Having a paycheck will be most young adults’ first introduction to Uncle Sam. The Monitor encourages parents to help kids set up bank accounts if they don’t have them already, and teach them the value of living within their means. To this, we’d add our own article, “Pay Checks: Who Is FICA and Why Is He Getting All My Money?”
• Learning about plastic. Remember when swiping that first credit card with your name on it was a thrill? Rein in that youthful exuberance for spending by explaining the difference between debit and credit, and the importance of having enough cash to pay for your purchases — either now or at the end of the month.
• Making that first budget. Having a budget is not just for people with big household bills to manage every month. Teach teens to play around with budgeting software like Mint.com. With dozens of money-minded apps for tablets, smartphones, and other handheld devices, it can even be fun for young adults to learn about money management.

Lowes.com

Welcome to this week’s edition of our Tuesday Top 5, Econ4U’s weekly tips post to help you manage your money in five easy steps.

Maybe you’ve just graduated and need to find a new place to live, or perhaps it’s time to say adios to your roommates and get a place of your own. Moving can be one of the most stressful experiences in life, but if you follow our advice, you can minimize the financial drama and be kicking back in your new living room in no time.

1. Get your credit in tip-top shape. Many landlords use your credit score to assess your trustworthiness as a renter. Pull your credit report — you can do this three times a year for free from AnnualCreditReport.com — to make sure it’s an accurate representation of your financial history, and give yourself some time to clear up any cases of mistaken identity or erroneous information.
2. Save up for a security deposit. Depending on your city, you’ll probably need to come up with a deposit worth at least two months’ rent before you take possession of an apartment. Start saving early so you’re not crunched for cash right around the time you’re itching to buy furniture for your new home.
3. Be aware of moving scams. WalletPop.com has a good article on identifying the most common scams perpetuated by moving companies. If a mover gives you references, check up on them before you give them access to all your worldly possessions.
4. Review your lease carefully. Never sign anything you haven’t read in full. If you don’t understand the terms of your lease, ask for clarification rather than assuming it’s boilerplate. Trust your gut if something seems fishy, even if it means walking away from the “perfect” place. You don’t want to get stuck with major bills and heartache if something goes wrong.
5. Protect yourself by inspecting the apartment. Take a video camera through your new pad before you’ve moved in your furniture so you have a record of its condition. Take written notes of chips in the paint, a rotted window sill, and any appliances that don’t look factory-fresh, and give a copy to your landlord. It will come in handy when you move out and want to get your deposit back.

Zimbio.com

Pretend your brother has come to you with a problem: His credit score is shot, but he wants to buy a new car. He is asking you not for money but to cosign an auto loan for him of $20,000. You have a flawless credit report and you agree, but less than a year later, he defaults.

What does the lender do?

A.) The collections department exhausts every avenue of getting your brother to make good on his payments before approaching you for help.

B.) The collections department comes after you for the full amount of the debt, since you’re the one with the great credit history and probably the money to back it up.

See the answer after the jump.

The answer is B. When you cosign a loan, you’re agreeing to be on the hook for the entire debt. And unfortunately, the track record for borrowers is not great in the current economy.

The default rate on credit-card loans is currently 5.91 percent, with auto loan defaults hovering around 1.45 percent, according to the most recent S&P/Experian Credit Default Indices. Primary mortgage holders go into default at a rate of 2.16 percent, and second mortgages founder 1.51 percent of the time.

As financial columnist Megan McArdle wrote this week, “If you think that they really need the money, and that you’re not just helping someone dig themselves even deeper into financial irresponsibility, then my advice is to just give them the money.” And if you can’t afford to do that, then decline your loved one’s request to cosign — because a co-signature means taking on a risk you’d eventually be doing exactly that.

MIT.edu

Should colleges disclose to undergraduates the expected future salaries for people with degrees in their field of study? That’s the major question (no pun intended) posed by Georgetown University’s Center on Education and the Workforce, which compared the median lifetime earnings for bachelor’s degrees in a range of disciplines, from engineering and computer science to English and psychology.

The Washington Post reports:

According to the study, the median annual earnings for someone with a bachelor’s degree in engineering was $75,000. The median wage was $47,000 in the humanities, $44,000 in the arts and $42,000 in education or in psychology.

The individual major with the highest median earnings was petroleum engineering, at $120,000, followed by pharmaceutical sciences at $105,000, and math and computer sciences at $98,000.

The lowest earnings median was for those majoring in counseling or psychology, at $29,000, and early childhood education, at $36,000. Workers with a bachelor’s degree in English language and literature, the most popular major within the humanities, have median earnings of $48,000.

That means that an average B.A. in engineering is worth, salary-wise, up to two or three times what a degree in the humanities is. Not only that, but a recent study by the National Association of Colleges and Employers found that 56.2 percent of graduates with a computer science degree were considering at least one job offer, compared with just 19.5 percent of those with a bachelor’s degree in education.

Without question, the world still needs teachers and scholars in addition to scientists and engineers. But in an era when the average graduate walks away with $24,000 in student-loan debt, making an informed decision about what subjects to pursue should be part of the curriculum for every student choosing to invest big bucks in academic enrichment.

Wendell T. Webber

Welcome to this week’s edition of our Tuesday Top 5, Econ4U’s weekly tips post to help you manage your money in five easy steps.

If you’re a parent or plan to be, you are in a position shape the money habits your children will have, even as adults. Beyond living by example, there are a few ways to make sure the lessons they learn are the best ones. Here are a few tips to put the next generation on the right path.

1. Be open about the household bills. “If you don’t talk about money, it’s almost like it doesn’t exist,” said Pamela Yellen, a financial educator, in an interview on NPR last week. Speaking frankly about the household budget and how you decide where limited resources go is a lot more instructive than a vague “money doesn’t grow on trees” parable.
2. Show them how to use credit responsibly. Let your kids watch you handle your bills so they can connect the dots between credit use and paying the bank monthly.
3. Teach them that plastic is a tool. Credit and debit cards can be useful products when handled properly. Consider putting their allowance on a prepaid debit card to teach them the practical applications of plastic — and that when the money runs out, the fun stops there.
4. Encourage entrepreneurial ideas from a young age. Got a kid who’s excited to start a lemonade stand or babysitting club? Great! Today’s roadside beverage purveyor is tomorrow’s Fortune 500 executive.
5. Look for everyday examples of economics in action. Keep your eyes peeled for teaching moments about economic lessons like supply and demand or price sensitivity.

ParentingTeens.com

This opinion column from the Kansas City Star shows such sensible advice for teens seeking out their first job that we couldn’t say it any better than writer Steve Rosen did:

Every year around this time, I think about my first summer job and the money lessons I learned – mostly the hard way.

I started as a grocery store sacker, earning minimum wage. Supplemented with tips and the occasional overtime shift, I seemed to have enough money to cover overpriced late-night fast food, album purchases at the record store, and other necessities of life.

But when it came to socking some dollars away, there never seemed to be enough at the end of the paycheck. My loss, since I didn’t make it a priority.

Rosen goes on to recount the money lessons he learned that summer, mostly by making mistakes. But they all boil down to a few undeniable truths: Teens are not too young to save toward larger goals — whether it’s a car or college tuition — and a job gives you more than just a paycheck. A first job also gives young people a chance to network, build up good references, gain experience, and qualify for better opportunities in the future.

If you’re a teen who hasn’t yet been able to line up a traditional job for when school lets out, check out our list of five summer jobs that aren’t flipping burgers or bagging groceries.

As National Financial Literacy Month draws to a close, it’s a good time to reflect on the lessons you want to re-commite yourself to for the rest of the year. After all, isn’t spring a good time to reflect on the New Year’s resolutions you may have let slide?

Here are a few tips to get you on the fast track to riches:

• Come up with a plan to tackle your consumer debt.
• Know how the rich and financially savvy truly act and follow their lead. You might be surprised: Being rich doesn’t mean driving a Mercedes Benz or having a closet full of $700 shoes.
• Revisit your regular monthly expenses to see if you can cut back anywhere to add up real savings. That might mean trading in your car for a more affordable used model to eliminate your car payment, refinancing, or talking to a tax professional to adjust your tax deductions.
• Think long term and give your money the opportunity to grow. When you contribute to retirement, don’t even think about touching that money again until you’re in your 60s.
• Don’t have a will? Take some time to draft one — with so many software products on the market today, you won’t even need a lawyer to get started.

BlissTree.com

April 15 is traditionally tax day, but because today is a public holiday to celebrate Emancipation Day in Washington, D.C., the country is given three extra days to file their federal tax returns for 2010.

If you’re a wait-til-the-last-minute type, here are three commonly misunderstood deductions and how to claim them on your return:

• You can deduct health expenses only if your spending exceeds 7.5 percent of your adjusted gross income (AGI). For example, on an AGI of $40,000, you would need to spend more than $3,000 out of pocket on health-insurance premiums, payments for medical services not covered by your insurance, prescription medications, laser eye surgery and vision correction products, dental services, and ambulance transportation to hospitals. However, if you are eligible to participate in a subsidized health plan through an employer, you can’t count those premiums toward that minimum. (Note: In most instances you will save the most money by paying for health insurance, so you shouldn’t forgo health insurance to maximize your tax deductions.)
• If you have a home office, you can deduct the proportion of space that the office takes up in your apartment or home — assuming you meet the IRS’s two requirements. The first is that it is a room that used regularly and exclusively for your business, and it must be your principal place of business. That means if you put a desk in the living room, you can’t deduct the entire living room. For the purpose of avoiding an audit, it’s better to set up your office in an enclosed space, like a spare bedroom.
• Just because New Year’s is long gone doesn’t mean you can’t still save like it’s 2010. You have until April 18 to contribute to your 2010 IRA or Roth IRA — up to $5,000 if you’re under age 50. It can be an excellent way to reduce your taxable income and potentially turn a tax bill into a tax refund, assuming you have enough lying around in your bank account to make it happen.

HuffingtonPost.com

In the home-buying process, the first question you must answer is “how much house can I afford?” And in an effort to determine that amount responsibly, you may have googled for a calculator like this one on CNNMoney.com, which will tell you that you can spend between 28% and 36% of your gross income on a mortgage.

But just how realistic is that advice? Let’s run some numbers.

Say the Smith family earns $52,029, the median household income (in 2008, the most recent year for which data is available). They have saved a 20% down payment on the median home price – which currently rests at $140,000 – for a down payment of $28,000. The national average interest rate for a 30 year fixed mortgage is 5.01% right now, so we plug that in as well. And we’ll also assume the Smiths are making $300 monthly payments on student loans, car notes, and credit-card debt.

The calculator reports the Smiths can buy a house valued between $192,162 and $217,016. That’s up to 55% more than the average home is selling for right now.

Surprised? We are. The lending guidelines on which this calculator and its copycats are based tell people they can afford to spend more on housing than they really can.

For example, if you’re spending 36% of your gross income on a mortgage, another 25% or more on taxes, and then you’re responsible for other monthly expenses like debt repayment, groceries, utilities, healthcare, home maintenance, and transportation, what exactly is left over for a rainy day? If you followed that advice, saving anything would be basically impossible for the average household. It’s a recipe for falling behind.

At Econ4U, we often talk about “living within your means.” But to figure out what that really means for your household, you may have to ignore commonly accepted rules of thumb and use your head instead. After all, that’s where your brain resides.