Lessons in Basic Finance for Children

Lessons in Basic Finance

High school math can leave everyone scratching their heads in frustration. Students often complain, asking questions like “When will I ever use this?” Despite years of algebra, geometry, and calculus, sometimes you may find yourself feeling like you missed the most important financial lessons in high school. As a teacher, here are a few of the most important lessons in basic finance we should be teaching our children.

5 Lessons in Basic Finance to Teach Children


1. Know the Value of a Dollar

The first lesson in basic finance every child needs to learn is the value of money. Children learn the denominations and equations in school, but understanding that cash is a limited resource is an entirely different lesson. They watch you go to work and pay bills, but take time to teach them that money must be earned.

An allowance is the perfect vehicle to show kids that money is received in exchange for performing tasks. You may be tempted to give your children everything they ask for, but they will learn to appreciate things more if they work for what they have. A weekly allowance or part-time job is a great way for children to practice counting and saving their money.

2. Learn the Fundamentals of Accounting

Once your child begins earning their own money, the next step is teaching them how to manage it. Even if they don’t plan to have a career as a CPA, everyone should know how to balance a budget. Spending more than you earn is a recipe for disaster and insurmountable debt. Showing your children how to set a budget prevents the formation of bad spending habits.

You can begin using a savings account so they can watch the principle amount grow and track the interest earned. They can also record each withdrawal and deposit into their account with their bank book or online banking. Not only will this teach them to be mindful of their spending, but it will also prevent overdraft and late payment fees due to negligence.

3. Start Investing Early

Many adults are too embarrassed to admit that they don’t have a clue about investing. Rather than seeking information, they may avoid the stock markets altogether. While adults can’t reclaim those lost years, you can teach your children so they don’t miss out on big opportunities to begin building wealth.

You don’t want to overwhelm them with the subtle nuances and strategies of investing. However, a rudimentary understanding of investing is one of the most fundamental lessons in basic finance. The daily stock market reports are a simple and easily accessible learning tool. Whether you choose to invest real or hypothetical money, you can offer a hands-on learning experience by tracking their chosen company’s gains and losses.

4. Understand the Power of Compound Interest

Although people don’t reach their full income potential for many years, your children have a huge advantage when it comes to investing – time. If your children begin saving and investing early, they have years to build wealth and take advantage of compound interest.

The best part is that you don’t even need a large amount to begin. If your children put a small amount of money into a high-interest savings account, their money will multiply over and over again. You can make it seem more fun and interesting with the case of the magic penny. You can even enlist the help of videos through your children’s favorite viewing sites.

5. Build and Maintain Good Credit

Credit cards are an important part of building credit in the United States. Most of us start receiving credit card applications even before we turn 18. They are a useful tool if you are responsible and pay your bills on time each month. On the other hand, they are also the cause of many people’s financial stress and debt. Interest rates of overdue balances accrue daily and drastically increase the amount owed.

You may think it wise to avoid credit cards altogether, and advise your children to do the same. However, it is nearly impossible to buy a house or obtain a loan without a credit history or a cosigner with a good credit score. If  you don’t want a traditional credit card, there are other options. Instead, consider a secured credit card for your children. It requires  a cash deposit which will cap the credit limit. Since secured credit cards report  activity to all three reporting agencies, it allows your children to safely build and improve  their credit history.

The Bottom Line

Personal finance is a lifelong lesson and we never truly stop being students, no matter how old we get. Where school education ends is where parents must begin teaching their children  lessons in basic personal finance. If you can instill good habits and strong values, it will make a positive impact in the success of your children’s financial future.


Read More

Sole Proprietorship or Single-Member LLC:

Sole Proprietorship or Single-member LLC

Which is Right for Your Business?

With the internet at your fingertips, going into business for yourself has never been easier. Whether you are a freelancer, a consultant, or an entrepreneur, your web presence introduces you to potential clients around the world. There are unlimited possibilities to expand your business and reach new markets. However, choosing a business model  can be overwhelming. There are many different options for your corporate structure. The most common choices are Sole Proprietorship or a Single-member LLC. Each one has its benefits and drawbacks, but here are a few questions to help guide your decision.

What are the Differences Between Sole Proprietorship and an LLC?

Sole Proprietorship is the most basic structure and requires minimal paperwork. Essentially, when you begin doing business, you are operating as the sole proprietor. There is no legal separation between you and your business. However, it requires you to separate your personal and business assets. You must maintain separate accounts for each.

Single-member LLCs are limited liability companies  that are owned and operated by a single person. The owner must file paperwork with the state where they plan to do business and comply with all local regulations. For tax purposes, they are considered ‘disregarded entities.’ However, LLCs are separate legal entities when it comes to questions of liability. This business structure protects the owner’s and the company’s assets from any claims or lawsuits brought against the other. It requires more time and paperwork to set up, but can protect you and the future of your company.

What are the Tax Advantages and Disadvantages?

Both models can  file with personal income taxes using Schedule C. You simply list your company’s income and expenses on your return. However, accurate bookkeeping is crucial. If you don’t stay on top of your records, it could make the filing process more complicated than it needs to be.

The major responsibility for a sole proprietor is the self-employment tax. You are responsible for both the employer’s and the employee’s share of FICA taxes which is 15.3%. The taxation rates are higher, although the employer share can be deducted as a business expense.

Single-member LLCs also have the option to file as a C Corporation. Depending on the owner’s income, paying the corporate taxation rates may be more advantageous. The laws relating to corporate taxation vary between states. Filing as a corporation could get you a larger return depending where you live. There are a number of factors to consider when choosing how to file, but owning an LLC gives you options.

How Does it Affect Liability?

The greatest advantage of forming a Single-member LLC is liability protection. Since a sole proprietor and the business are considered one entity, you are left vulnerable. Since the LLC is a separate legal entity, there is no personal liability for the owner. All of your private assets are shielded under the umbrella of the LLC. This means that your home, vehicle, and accounts cannot be seized in the case of indebtedness or bankruptcy. Although financial contributions to the Single-member LLC may be at risk, your personal assets are off limits.

This protection also works both ways. Your business assets are safeguarded against personal liabilities, debts, or bankruptcy. If you suffer personal misfortunes, the LLC will protect your business from personal creditors. Keep in mind this separation can’t be maintained if you ‘pierce the corporate veil.’

Should I Choose Sole Proprietorship or Single-member LLC?

Every company’s needs and situations vary over time. As your company grows, these needs evolve as well. Both structures have their advantages and disadvantages, but you’ll need to choose one. Sole Proprietorships are easy to form and dissolve in addition to offering pass-through taxation. While it does require more paperwork, a Single-member LLC provides liability protection and flexibility when filing taxes.

If your business is operating with little or no liability, sole proprietorship is probably your best option. However, if you plan to expand your business, incorporate other LLCs, or convert to an S corporation down the line, you should consider a Single-member LLC. Remember, these are only general suggestions to lead you in the right direction. Make time to sit down with your financial advisor to decide which structure is best for your business.

Read More

Writing off Charitable Donations for Tax Benefits

Writing off Charitable Donations for Tax Benefits

Perhaps it is only a trick of the imagination, but every year it feels as if my home becomes unbearably cluttered after the holidays. Between the growing mountain of decorations and unused items in storage, it is easy to see the need for the annual spring cleaning. However, you may want to ask yourself if your unwanted junk has any further value before hauling it away. If you have ever thought about donating your things for a tax break, here’s what you need to know about writing off charitable donations.

Charitable Donations to Qualified Organizations

The Internal Revenue Service has strict criteria for writing off charitable donations. Before dropping off your items, make sure that the organization is eligible. According to the government website, the organization must operate for charitable, scientific, educational, literary or religious purposes.  This definition also includes foundations dedicated to the prevention of cruelty towards children and animals as well as some sports competitions.

Listed below are some common recipients for charitable donations.

  • Religious organizations like churches, synagogues, mosques, and temples
  • Charitable organizations like the Salvation Army, Goodwill, and the American Red Cross
  • Nonprofit organizations like hospitals, schools, and volunteer fire departments
  • Veteran’s’ groups
  • Cultural organizations
  • Public parks and recreation projects

Itemize your Tax Return

The only way to receive a tax break for your charitable donations is to itemize your deductible expenses on Schedule A. Your annual deductions must exceed the standard deduction limit for 2019 to qualify. Last year this amount was $12,200 for singles and $24,400 for married couples. The instructions for Schedule A for claiming gifts to charity can help guide you through your next tax return.

Currently, you are allowed to deduct up to 50% of your adjusted gross income. Keep in mind that certain organizations may affect this limit. Itemizations can become cumbersome and confusing, so it’s best to consult the government website if you have specific questions about your contributions.

Keep Receipts for Writing off Charitable Donations

Just like any other claimed deductions, you will need receipts for writing off charitable donations. This is especially important for gifts greater than $250 which require written acknowledgment. Receipts also provide proof if the IRS takes a particular interest in your tax return. A little forethought and immaculate record keeping can save you a headache down the line.

Most charitable organizations ask if you would like a receipt when you drop off donations. The receipt should include the name of the organization, a description, and an estimated amount of donated items. The Goodwill even provides a valuation guide online to help you calculate the total value of your donation.

For larger donations, you should request a statement from the charitable organization. It should include a description, estimated amount, and whether you received any goods or services from the donation. The last point is of note since you can only deduct the contribution, less the value you received. For example, if you donate $500 to a local arts program and you receive concert tickets valued at $100, you must deduct the ticket value from your donation.

Donating your unwanted items and charitable contributions is a great way to give back to the less fortunate and claim tax benefits. Before you make a drop off in the donation bin, ask your financial advisor about writing off your charitable donations for tax benefits on this year’s return.

 Read More