ORLANDO, Fla. – Taxes done? What a relief, right?
For most Americans, April brings either joy (tax refund) or dread (tax payments) depending on how those tax filings went.
But now that April 15 is behind us, there’s another reason to focus on your financials – April is National Financial Literacy Month.
First established by Congress in 2004 (Canada celebrates their version in November of each year) the month-long initiative grew out of efforts by nonprofit groups like Jump$tart Coalition and the National Endowment for Financial Education to promote financial education – especially for young people.
And the message still holds true today. As 925 Financial puts it: “Financial literacy isn’t just a skill – it’s a necessity.”
So who better to give us some tips on financial literacy than our own Jill Schlesinger. We spoke to her last week about areas of personal finance people may struggle to understand. Below is the full transcript of our conversation:
WKMG-TV:
April is Financial Literacy Month, a time to upgrade your financial smarts and establish healthy financial habits. CBS News Business Analyst Jill Schlesinger is here to give us some insight into some of the most frequently asked questions.
Jill, a good place to start is retirement. People want to know how much money they need to retire. Is there a one size-fits-all answer?
Jill Schlesinger:
No, there is not. You knew that!
So, I you probably you’ll hear random numbers, $1 million, or you’ll hear eight times your salary. You know what? It totally depends. It depends on how much you spend now. How long do you plan to work. Are you putting money in your retirement plan? Do you get a match? Do you have a pension?
All of these things are factors. The good news is you can crunch the numbers. Just use one of the many online retirement calculators and you’ll see exactly where you stand.
WKMG-TV:
So, here’s something that’s puzzling. Can you explain compounding?
Jill Schlesinger:
You know, I think that this is a word you hear. But the way it works is kind of fun to break down. So, let’s say you deposit $100 in a bank, and it pays you 5% annually. And in the first year you’ve got 105 bucks. You keep the money in the account for a second year, and then you’re going to earn another interest payment on both the original $100, but also on the $5 that you earned in year one.
So that compounding means that at the end of two years, the $100 grows to just over $110. Now, there is a dark side of this gang, and you probably can imagine that the flip is that compounding interest can work against you if you’re holding debt. So imagine that credit card balance that high interest rate. That interest rate keeps getting charged against you.
And the amount of money you owe continues to rise.
WKMG-TV:
So, it’s kind of good and bad news there. Last question Jill – most retirement plans offer target date funds. What are they and should we use them?
Jill Schlesinger:
So, these are funds that allocate your money in stocks, bonds, cash. It’s all according to an intended retirement date in the future. That’s your target. Now, using these funds, it’s not going to lower your risk. They’re not moving money around to avoid losses when the markets tank. But they’re really easy to use, especially if you’re just starting out.
But before you plow the money into one, just look at the expenses of the fund. It’s always there. And compare that to any low, lower cost alternatives, maybe like a couple of index funds. So, it may be better for you to just use a stock in a bond index fund than the target date fund. If the fee on that target date fund is high.
WKMG-TV:
Jill great advice. Thank you so much.
You can see Joe regularly on CBS Mornings and the CBS Evening News. For more analysis, go to JillOnMoney.com.