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We feel confident our kids will be taught reading, writing, and basic math in school. But how will they learn to budget, use a credit card, save for a car or a down payment on a home, and stay out of debt? Just as reading and writing are critical skills for a successful future, so is financial responsibility. Unlike with common academic subjects, however, it often falls on families to teach money-related lessons. Before a teenager leaves the nest, they should know these basic financial concepts to lay a foundation for success in adulthood.

Budgeting and Banking
Allowances are commonly offered to kids as a reward for doing chores. They also provide lessons in saving and budgeting. A monthly allowance—as opposed to a weekly one—gives more opportunities for planning ahead because the cash needs to last longer. Creating a budget with your teen for how to spend an allowance can lead to a discussion about prioritizing needs over wants and figuring out how to spend less on some things so you have more to spend on others. You might suddenly find your kid packing a snack at home, for example, instead of visiting the vending machine at school.

Teens often have additional opportunities to learn money management when they earn cash from part-time jobs or summer work. That additional income means they have more to spend and budget—and they’re attaining more financial independence.

One common approach is to instruct kids to divide their income into three categories: save, spend, and give. Although saving in an envelope or piggy bank might work for young children, opening a savings account for your teen helps them learn about banking in general, accruing interest, and planning for long-term goals. Many banks offer teen checking accounts with a debit card as well as allow parental access and controls.

It might be possible to set up direct deposit for paychecks and have your teenager check the balance from their mobile phone. Looking at the paycheck together can also spark lessons in taxes, such as types of deductions, what the government uses the money for, and who must file a return. This way, you’ll save them from a big surprise when their take-home pay is less than expected. You can also look into youth brokerage accounts to get your teen to learn about investing.

A Course in Good Credit
Once your teen has money in the bank, they’ll need a way to access it. Options include debit cards, prepaid cards, and adding an authorized user to your credit card account. Each of these methods offer lessons in how to spend within your means.

A debit or prepaid card can help your teen start making online and in-person purchases without incurring debt. Practicing using a debit card can get them in the mindset of spending only what they have, which will be helpful when they are eligible for an actual credit card. Although most lenders won’t issue a credit card to anyone younger than 18, adding your teen as an authorized user on your credit card is another option for a starting experience with credit. To maintain the same spend-within-your-means line of thinking that a debit card offers, consider requiring receipts for your teen’s purchases and collecting cash from them for each expense.

Look at the credit card bill together each month, explaining annual fees, interest charges, late payment fees, and—most important—the consequences of amassing credit card debt. Paying the bill together can also help your teen form a habit of checking all charges, getting mistakes or fraudulent charges corrected, and paying attention to due dates.

Once you’ve taught your teen how to responsibly pay the bill, you can explain the basics of credit scores, such as how they’re calculated and how they can affect a person’s ability to borrow and make large purchases as an adult.

Contributing to a Cause
“Spend, save, give” might sound easy, but what would motivate your teen to donate any of their earnings—and to whom should they give? One way to introduce the concept of donating to charity is to share information about the contributions you make, why you chose those organizations, and how the recipients benefit from your help. Perhaps your teen is an animal lover, has a friend battling a disease, has a relative who is a veteran, or is interested in another cause that would benefit from a donation.

After selecting a charity, discuss the importance of researching organizations to confirm their legitimacy and to verify that any contributions directly benefit those in need. Lastly, educate your teen about itemized tax deductions and how charitable donations to qualified organizations can reduce your tax bill.

Staying Safe from Scams
Just as you’ve taught your child general online safety, there are new lessons to learn once debit cards, banking apps, and online donations enter the mix. It’s important that your teen knows never to share passwords, online banking information, or account numbers. Help them regularly check credit card bills or debit accounts for fraudulent charges and guide them through reporting purchases they don’t recognize.

If you have questions about how to communicate these—or any other financial concepts—to your teen, please reach out to our office. We aim to help your whole family achieve financial success.

© 2023 Commonwealth Financial Network®

Thinking about a loved one’s outstanding debt is the last thing on anyone’s mind when a family member passes away. Unfortunately, many people find themselves dealing with creditors and figuring out how to pay their loved one’s debts as they grieve. To avoid this situation, it makes good financial sense to consider these matters ahead of time.

Who’s Responsible for Outstanding Debt?
Generally, the deceased person’s estate assets are used to satisfy creditor claims before being distributed to beneficiaries. If estate assets are insufficient to pay all outstanding debt, the estate is considered insolvent, and state law prioritizes the payment of the deceased person’s bills with the available assets.

In some cases, however, outstanding debts may not fall to the estate:

• Cosigned or joined debts. If you’ve cosigned on a loan or credit card with the deceased person or owned the account jointly, you are financially responsible for that debt.
• Guaranteed debts. A similar situation to cosigning, if you are the guarantor of a loan for someone who has passed away, you will owe the lender payment of any remaining debt.
• Community property. If your spouse passes away, you may find yourself responsible for debts for which you weren’t a cosigner or coapplicant. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are considered community property or quasi-community property states, meaning all property and debt acquired during a marriage is considered jointly owned. If you live in one of these states, you could be held responsible for debts your spouse incurred.

How Are Different Types of Debt Handled?
• Credit card debt. Again, family members are not responsible unless they cosigned on the credit card. Although debt collectors may be aggressive, they can only make a claim against the estate. If you did cosign, you will be held responsible for the debt, even if you didn’t directly incur it. However, being an authorized user on the credit card account will not make you responsible for the credit card debt.
• Medical debt. If your parent qualified for Medicaid, the state may try to recover the payments made for their care. The state cannot ask you to pay, but it may be able to put a lien on your parent’s home to recover the funds or seek recovery from your parent’s estate. If a family member dies with other unpaid medical bills (unrelated to Medicaid), those bills become an estate debt. Keep in mind that many states have filial responsibility statutes that, under certain circumstances, hold adult children responsible for a deceased parent’s medical debt. A spouse might also be responsible for a deceased spouse’s medical debts under a state’s family expense act. Be sure to understand how state law may apply in your situation.
• Mortgage debt. If you inherit a residence with a mortgage, you generally aren’t required to pay it off immediately. If you fail to make the mortgage payments, however, or cannot sell the house for a price that will pay off the mortgage, the lender will likely foreclose (or possibly agree to a short sale). If you don’t wish to own the real estate, you may disclaim it, at which point it would transfer to the next estate beneficiary.
• Student loan debt. Federal programs, such as Perkins and Stafford loans, usually offer cosigners forgiveness if the borrower passes away. However, private loans may be another story. Although some lenders have started to discharge the debt if a borrower dies or becomes disabled, many demand the money owed from cosigners.
• Taxes. The estate is responsible for paying any property, income, or estate taxes. Tax authorities are usually given top priority as creditors.

Don’t Be Bullied
Family members of deceased debtors—and all consumers—are protected by the federal Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices in attempting to satisfy a debt. Under the FDCPA, collectors can contact the deceased person’s spouse, guardian, executor, or administrator to get their contact information, but they are not allowed to discuss the details of the debt. You have the right to control your interactions with these collectors. For more information, visit the Federal Trade Commission’s website.

Know Where You Stand
Inherited debt can be a complex issue. If you find yourself in this situation, seek advice from your financial advisor and an attorney who can guide you through the probate process and work with debt collectors. Although dealing with a loved one’s death is never easy, getting your questions answered and protecting your inherited assets may make the situation a little less stressful.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

© 2023 Commonwealth Financial Network^®

All couples hope for a “happily ever after,” but it’s no secret that money issues can be primary reasons partners split up or divorce. To avoid future battles over finances, it’s smart to put all your cards—credit and otherwise—on the table. Of course, a conversation about salaries and student debt is probably premature on a first date. But once you decide to enter a long-term relationship, be sure that you and your partner are on the same page about handling current and future expenses. Even if you’re married, it’s never too late to talk about where you stand and where you’re headed financially.

Set yourself up for that happily ever after by having these important financial conversations.

1) What Do Each of You Bring to the Table?
It’s a good start to be honest about liabilities, such as student loans, credit card debt, medical expenses, and other financial obligations, as well as assets, such as salary and investments. Knowing these figures will help you plan for the future and understand how you’ll need to budget. It may also give you a bit of a reality check. Once you combine finances, your goals will be mutual—perhaps owning a house, paying off debt, starting a family, saving for retirement—and you’ll need to work together toward them.

Lying to your partner about money, or hiding debt or separate accounts, is often referred to as financial infidelity. This term alone gives you a sense of the trouble it can cause in a relationship and why it’s ideal to be honest about finances from the start.

2) What Are Your Credit Scores?
Your credit scores will factor into your ability to buy a car or house—or even rent an apartment. Since these events will inevitably happen during a long-term relationship, revealing your scores early will help you determine whether you’re in good standing as a couple or if you’ll need to improve your scores before attempting a big purchase. You can start by getting a credit report from Equifax, Experian, or TransUnion (you’re entitled to one free report from each company per year). Go to AnnualCreditReport.com to get started. Need help getting your score up? Check out Credit Karma or NerdWallet for tips.

3) How Will You Split Expenses?
Drawing up a monthly budget is a huge step toward the goal of financial stability. Consider how much income you are bringing in, what your regular costs will be, and whether you will pay them from a joint account or split them up. There are many budgeting apps you can use to help you set up a plan and stick to it. You’ll also want to have an emergency fund, which should cover three to six months of expenses. If you don’t have enough to set those funds aside, factor a monthly contribution to your emergency fund into your budget plan.

4) What Is Your Risk Tolerance?
Whether you’re a risk taker or have a more conservative approach, it helps to agree with your partner when it comes to investing as a couple. Risk tolerance also comes into play regarding debt or divorce. Although signing a prenuptial agreement is often associated with protecting your assets in case of a separation, it can also protect one partner from another’s debts—either personal or business related. Having a conversation about the value of such a document could help prevent problems in the future.

5) Will You Have Kids?
According to the Brookings Institute, the average cost of raising a child born in 2015 through the age of 17 is $310,605. Needless to say, having a child—and certainly having multiple children—would be a major expense. Childcare (or living on one income if a parent is caring for the child) is another big cost to consider. Hospital expenses are often high before your child even arrives. In addition, adoption, IVF, surrogacy, and egg freezing and storage can be expensive, should you go through any of those processes.

6) What Are Your Plans for Retirement?
Once you’ve had these important financial conversations, you’ll be on track to eventually head into your golden years and retire together. You should start planning for that as soon as possible. The earlier you set up a retirement plan and start accumulating savings, the less you’ll need to contribute on a regular basis. If your employer offers a 401(k) or another plan, decide if you can afford to start contributing now. If they offer to match a percentage of your contribution, that’s even more incentive to enroll.

Discuss your retirement plans with your partner. At what age do you hope to retire? How much savings will you realistically need to support yourselves from that retirement age through the rest of your lives? Do you plan to travel? Relocate? Talking through these answers will help determine how much you need to save together to retire comfortably.

Although this isn’t the most romantic list, a solid financial foundation is a critical aspect of a long-lasting partnership. If you need additional information about any of these discussion topics, please reach out to our office.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

© 2023 Commonwealth Financial Network^®

Sarah Ruef-Lindquist, JD, CTFA

By Sarah Ruef-Lindquist
For Pen Bay Pilot 

Recently we shared information about the increase in the age for the Required Beginning Date (RBD) for taxpayers to begin taking annual Required Minimum Distributions (RMD’s) from retirement assets like Individual Retirement Accounts (IRA’s). This was a key part of SECURE 2.0 and there are several more provisions that impact taxpayers that are working or retired. To recap, the RBD age for those born in the years including 1951 through 1959, is 73 and for those born in 1960 or later, the age is 75. This is potentially a greater period of time for these assets to grow tax-free until withdrawals must begin and income tax paid on those withdrawals.

For those who fail to take their RMD, there has historically been a penalty of 50% of the amount required to be taken but not distributed. This was a significant incentive for people to be sure to take the full amount of their RMD. SECURE 2.0 reduced the penalty to 25% and for those able to correct the underpayment “in a timely manner” the penalty is 10%.

The law also expanded the opportunity to put funds into retirement accounts on a pre-tax basis.  For taxpayers aged 50 or older, the IRA “catch up” contribution of $1,000 (on top of the contribution limit of $6,500) will be adjusted annually for inflation starting in 2024.

Beginning in 2025, retirement plan participants (401(k) and 403(b) plans, for example) age 60-63 will have a catch-up limit of up to $10,000 or 50% of the regular catch-up limit (currently $7,500) whichever is greater. The 2023 contribution limit for these plans is $22,500.

Currently those participants aged 50 or older have a catch-up limit of $7,500 ($3,500 for SIMPLE IRA’s). In 2023 the SIMPLE Contribution limit is $15,500 and catch-up amount for those 50 and over is $3,500.

All of these provisions offer a greater opportunity for taxpayers to save more with pre-tax earnings toward their retirements. Many more provisions of the SECURE 2.0 Act involve new rules for qualified plans and their administration. If you are an employer with a plan, your plan administrators should be able to update you on the provisions that impact your plan and employees.

Taxpayers should consult with their own tax advisors to understand the impact of these provisions on their particular financial situation.