Colliton: When should you stop managing your own money?



An article appearing in Next Avenue, www.nextavenue.org, a trendy new website for seniors, reprinted an article from MarketWatch.com, and addressed a common question with no easy answer – how do you handle your finances as you age? The article is titled “At What Age Are You Too Old to Manage Your Money?” It raises a very sensitive topic. In a somewhat similar vein, people might ask at what age should you no longer drive or when should you stop performing any number of tasks, the topic implying there is a time when you no longer have the abilities you possessed at a younger age. In this respect there is both good news and precautionary advice.

According to the article,a new study may have the answer to ages at which many or most Americans might be expected to lose their ability to pay bills, handle debt, maintain positive credit and assess the rate of return of an investment and detect fraud. The study conducted by the Center for Retirement Research at Boston College, “Cognitive Aging and the Capacity to Manage Money,” differentiates between the ability to pay, say your gas or electric bill and the ability to make sound financial decisions such as investment decisions you might make with a financial advisor.

First, there is good news. Assuming the individual has prior experience paying their bills and keeping track of their bank accounts, most people not suffering from cognitive impairment can be expected to continue managing their own money into their 70s and 80s. Those who are inexperienced and who, for instance, left this function to their spouses, could be expected to need help to do this.

However, according to the researchers, “financial capacity relies on two key abilities: 1. performing financial tasks, which mostly requires crystallized intelligence or knowledge; and 2. making financial judgments, which requires a mix of knowledge and fluid intelligence like memory, attention and information processing.”

In other words, while you might perform perfectly well paying your electric bill or your mortgage, your decision making ability to make sound financial judgments, like recognizing whether a proposal for a new investment is reasonable or recognizing fraud can diminish earlier. In fact, and here is one shocking conclusion, the authors stated the ability to process new information, the type of ability needed to make sound financial decisions, can begin to decline as early as in the 30s. There are, of course, those among us who might say, tongue in cheek, that many younger people do not begin to develop sound financial judgment until they are in their 20s or 30s (and for some people never) so there might be a very narrow window of opportunity.

There are now tests to measure financial capacity and for some elder law attorneys and financial advisors this might be an exciting development. We often realize there are some people, regardless of age but especially as we age, who handle themselves just fine for day to day living but should not make complicated investment and financial decisions. Guardianship is too serious a limitation. But there is a need for some assistance. With tests available,this might be one objective way to assess who needs assistance. Another factor, of course, is finding a reliable and honest person, often a trusted family member who can serve as agent under power of attorney.

Here are some recommended tips suggested (in abbreviated form).

1. Spend the time to make a spending plan when you retire, which will include where to draw money from, how to invest, whether to downsize or use home equity, and what might be left for the kids.

2. Involve the (adult children) and any other people (from whom) you seek financial advice when you make the plan.

3. Once you have a plan, document it and share it with your family and trusted advisers who may help you later on.

4. After age 75, make sure both members of a couple and a trusted adviser … know about the plan and have access to the account … to monitor for fraud.

5. Before age 75, agree on a process for transferring responsibility for managing money (in the event of death or disability) … and make sure both (spouses) know how to run the household’s finances…

Janet Colliton, Esq. is a Certified Elder Law Attorney and limits her practice, to elder law, retirement and estate planning, Medicaid, Medicare, life care, and special needsat 790 East Market St., Suite 250, West Chester, Pa., 19382, 610-436-6674, colliton@collitonlaw.com. She is a member of the National Academy of Elder Law Attorneys and, with Jeffrey Jones, CSA, co-founder of Life Transition Services, LLC, a service for families with long term care needs.

Tune in on Wednesdays at 4 p.m. to radio WCHE 1520, “50+ Planning Ahead,” with Janet Colliton, Colliton Elder Law Associates, and Phil McFadden, Home Instead Senior Care.

Colliton: When should you stop managing your own money?



An article appearing in Next Avenue, www.nextavenue.org, a trendy new website for seniors, reprinted an article from MarketWatch.com, and addressed a common question with no easy answer – how do you handle your finances as you age? The article is titled “At What Age Are You Too Old to Manage Your Money?” It raises a very sensitive topic. In a somewhat similar vein, people might ask at what age should you no longer drive or when should you stop performing any number of tasks, the topic implying there is a time when you no longer have the abilities you possessed at a younger age. In this respect there is both good news and precautionary advice.

According to the article,a new study may have the answer to ages at which many or most Americans might be expected to lose their ability to pay bills, handle debt, maintain positive credit and assess the rate of return of an investment and detect fraud. The study conducted by the Center for Retirement Research at Boston College, “Cognitive Aging and the Capacity to Manage Money,” differentiates between the ability to pay, say your gas or electric bill and the ability to make sound financial decisions such as investment decisions you might make with a financial advisor.

First, there is good news. Assuming the individual has prior experience paying their bills and keeping track of their bank accounts, most people not suffering from cognitive impairment can be expected to continue managing their own money into their 70s and 80s. Those who are inexperienced and who, for instance, left this function to their spouses, could be expected to need help to do this.

However, according to the researchers, “financial capacity relies on two key abilities: 1. performing financial tasks, which mostly requires crystallized intelligence or knowledge; and 2. making financial judgments, which requires a mix of knowledge and fluid intelligence like memory, attention and information processing.”

In other words, while you might perform perfectly well paying your electric bill or your mortgage, your decision making ability to make sound financial judgments, like recognizing whether a proposal for a new investment is reasonable or recognizing fraud can diminish earlier. In fact, and here is one shocking conclusion, the authors stated the ability to process new information, the type of ability needed to make sound financial decisions, can begin to decline as early as in the 30s. There are, of course, those among us who might say, tongue in cheek, that many younger people do not begin to develop sound financial judgment until they are in their 20s or 30s (and for some people never) so there might be a very narrow window of opportunity.

There are now tests to measure financial capacity and for some elder law attorneys and financial advisors this might be an exciting development. We often realize there are some people, regardless of age but especially as we age, who handle themselves just fine for day to day living but should not make complicated investment and financial decisions. Guardianship is too serious a limitation. But there is a need for some assistance. With tests available,this might be one objective way to assess who needs assistance. Another factor, of course, is finding a reliable and honest person, often a trusted family member who can serve as agent under power of attorney.

Here are some recommended tips suggested (in abbreviated form).

1. Spend the time to make a spending plan when you retire, which will include where to draw money from, how to invest, whether to downsize or use home equity, and what might be left for the kids.

2. Involve the (adult children) and any other people (from whom) you seek financial advice when you make the plan.

3. Once you have a plan, document it and share it with your family and trusted advisers who may help you later on.

4. After age 75, make sure both members of a couple and a trusted adviser … know about the plan and have access to the account … to monitor for fraud.

5. Before age 75, agree on a process for transferring responsibility for managing money (in the event of death or disability) … and make sure both (spouses) know how to run the household’s finances…

Janet Colliton, Esq. is a Certified Elder Law Attorney and limits her practice, to elder law, retirement and estate planning, Medicaid, Medicare, life care, and special needsat 790 East Market St., Suite 250, West Chester, Pa., 19382, 610-436-6674, colliton@collitonlaw.com. She is a member of the National Academy of Elder Law Attorneys and, with Jeffrey Jones, CSA, co-founder of Life Transition Services, LLC, a service for families with long term care needs.

Tune in on Wednesdays at 4 p.m. to radio WCHE 1520, “50+ Planning Ahead,” with Janet Colliton, Colliton Elder Law Associates, and Phil McFadden, Home Instead Senior Care.

Money Talks News: How not to blow your tax refund

For the people who will receive a tax return, there are a variety things that they can do with their money.

Options weigh from spending the money on shopping, using it for traveling, catching up on bills or simply saving it for a rainy day.

According to the IRS, the average tax refund in 2017 was about $2,800.

Anyone who is expecting a big check this year knows the temptation is going to be great to blow it.

But it’s important to consider that this refund check isn’t “found money.” It’s actually your money. Money you overpaid to Uncle Sam. Now it’s time to make the best use of it. Here are some ideas:

First, pay down high-interest debt. No debt? Beef up that emergency fund or boost your retirement savings.

Idea number two: Become productive. Take a class or start a business or leverage your refund into more money.

And a final good and smart idea is to make a charitable donation. By doing so, you’ll be helping others yourself by creating a deduction for next year’s taxes.

If those options aren’t exactly what you had in mind, at least try not to spend it frivolously 

An example of that would be to create more debt. Resist the urge to use that refund as a down payment to borrow for a car or other depreciating asset.

Also deciding to loan your money to someone who might not pay it back, might not be the brightest thing to do.

And a final foolish way to use your tax refund: frittering it away to temporarily live beyond your means. Remember, this isn’t free money. You worked hard for it.

Here’s one more tip: While it’s obviously nice to get a check in the mail this time every year, if you overpaid your taxes, you could adjust your W-4, have less withheld from each paycheck, and have more to save throughout the year.

More ideas on what to do with your  tax refund can be found at the Money Talks News website.

© 2018 Money Talks News. All Rights Reserved.

Liz Weston: What good financial advice looks like

Good financial advice can help you achieve your life goals. Bad financial advice can cost you a fortune and leave you worse off than if you had tried to go it alone.

Unfortunately, you’re still on your own in trying to determine the good advice from the bad. The U.S. Department of Labor has delayed key portions of a fiduciary rule that would require financial advisers to put their retirement account clients’ interests first. The provisions are set to begin July 1, 2019, but it’s anyone’s guess if that will happen.

Officials say they need more time to consider possible changes to the rule, which was crafted under the Obama administration. Opponents of the delay say the rule has already survived legal challenges and a congressional effort to block it, so the delay amounts to a repeal.

“The safe thing is for the investor to assume it’s still the same buyer-beware market that’s always existed,” says Barbara Roper, director of investor protection for Consumer Federation of America, a nonprofit advocacy group.

Many Americans believe, incorrectly, that their financial advisers already are required to act in their clients’ best interests. In reality, most are held to lower standards. Asking advisers to disclose their conflicts of interest is always a good idea, but here are some other ways to spot advice that truly puts clients first:

GOOD ADVICE DOESN’T PROMISE THE MOON AND STARS. Beware of advisers who only want to talk about their investing prowess and how they plan to beat the market. Few advisers can consistently deliver market-beating returns, and attempts to do so usually drive up their clients’ costs. A better approach for most people is to invest all or most of their portfolios in low-cost index mutual funds or index exchange-traded funds that strive to match various market benchmarks.

GOOD ADVICE DOESN’T PROMOTE “HIGH-COMMISSION GARBAGE.” That’s what financial journalist Bob Veres, publisher of Inside Information, a service for advisers, calls products that are notorious for high costs and potential to enrich advisers at the expense of their clients. These can include non-traded real estate investment trusts, indexed annuities and variable annuities inside retirement accounts.

Proprietary mutual funds also can be problematic. These are the house-brand funds offered by the bank, brokerage or investment company where you have your account. Your adviser may earn extra compensation for pushing them, and they can have higher costs or worse performance than competing funds. Advisers may be able to make an argument why any of these products make sense for you, but it’s worth getting a second opinion from someone who doesn’t make commissions selling them.

“The more complex, opaque and illiquid the investment, the more generous the compensation to the adviser tends to be,” Roper says. “The incentives line up in a way that is directly contrary to the investor’s best interest.”

GOOD ADVICE DOESN’T PRETEND TO BE FREE OR CHEAPER THAN IT IS. All investments have costs, and advisers can be paid in a variety of ways that may not be readily apparent to their customers. Financial advisers should be straightforward in explaining those costs and the ways they’re compensated.

Also, investors who pay a percentage of their portfolios for advice should know how that fee is calculated. A fee that’s “only” 0.35 percent each quarter seems dirt cheap, but that adds up to 1.4 percent a year, which isn’t. Veres’ survey of about 1,000 advisers found most charge annual advisory fees of around 1 percent for portfolios worth less than $1 million.

GOOD ADVICE DOESN’T DELIBERATELY CONFUSE PEOPLE. Some advisers make a big deal about being fee-based, but that means they also accept commissions or other incentives. Fee-only financial advisers , by contrast, are compensated solely by fees their clients pay. Also, some advisers have been telling their clients that the fiduciary rule required them to start charging fees. That’s not true, Roper says.

GOOD ADVICE COMES FROM AN ADVISER WHO PUTS CLIENTS FIRST. Only a few categories of advisers are required to be fiduciaries, or someone obligated to put their clients’ interests ahead of their own. Those advisers include registered investment advisers and certified financial planners when they’re offering financial planning advice. Certified public accountants have a professional code of conduct similar to a fiduciary standard.

When advisers don’t have a RIA, CFP or CPA after their names, ask if they’re willing to be fiduciaries and to put that promise in writing. The Committee for the Fiduciary Standard, a volunteer group promoting the standard, has an oath advisers can download and sign.

______________________________________________________

This column was provided to The Associated Press by the personal finance website NerdWallet.

Liz Weston is a columnist at NerdWallet, a certified financial planner and author of “Your Credit Score.” Email: lweston@nerdwallet.com. Twitter: @lizweston.

RELATED LINKS:

NerdWallet: How to choose a financial adviser:

https://nerd.me/choosing-financial-adviser

The National Association of Personal Financial Advisers: What is fee-only advising?:

https://www.napfa.org/financial-planning/what-is-fee-only-advising

The Committee for the Fiduciary Standard’s fiduciary oath:

Fiduciary Oath

Copyright © 2018 The Associated Press. All rights reserved. This material may not be published, broadcast, written or redistributed.

Why Most New Year’s Resolutions Fail and What You Should Do Instead


Did you look forward to the holidays for a short rest to recharge your batteries, reflect upon your business and then start planning for the new year?

Many of my clients share that they enjoy the short break, but then harsh reality of life quickly sets in, and they complain about being tired, overworked and burned out. Can you relate? Most entrepreneurs and executives have high-performance expectations for themselves and can feel disappointed with their lack of progress regarding their health, relationships and their revenues after reflecting upon the past year. That’s when we are now convinced that something’s gotta change, right?

Related: 10 Simple Daily Practices That Will Make You Happier

Suddenly, we are empowered and excited by moving into the “New Year.” We come up with all sorts of New Year’s resolution ideas. It’s our chance to start fresh like a new baby. We get in the car and rush to join the gym (again) while setting some great New Year’s resolutions for our body and our business, thinking to ourselves, This is it, this is my new year of success, prosperity and happiness.

A lot of people have great resolution ideas to achieve their goals, like automatic bank transfers for saving money and a new smartwatch to help with weight loss. However, statistics show that only 9.2 percent of people ever achieve their New Year’s resolutions and break free from their bad habits.

I believe that New Year’s resolutions not only don’t work but can make matters worse. Most people live in a safe comfort zone where they have scripted their life with their subconscious mind. The subconscious acts as a recording that repeats the same song over and over again. We might be telling ourselves all day long that we want something different from our past but, in vain, our history plays back by default, and we get the same results.

Do I need to remind you about the definition of insanity? Doing the same thing and expecting different results? Now that I have hopefully touched a sensitive nerve, you are probably asking, “So why do most New Year’s resolutions fail? If they don’t work, then what does work?”

Related: I Started Saying ‘No’ to These 6 Things. My Life and My Business Got a Lot Better.

The reasons why most New Year’s resolutions fail

Unfortunately, most of us create too much resistance by injecting too many resolutions and goals into our minds. We write down a long list of stuff like the following.

  • Double business revenues.
  • Get more online reviews.
  • Quit smoking.
  • Quit drinking.
  • Lose weight.
  • Spend more time with friends and family.
  • Read more books.
  • Eat more healthy food or stop eating junk food.
  • Learn to play an instrument.
  • Learn a new skill, like social media marketing.
  • Meet new people.
  • Travel more.

This process results in setting too many expectations and creating unrealistic goals. We end up with a long list of trying to do everything at once, relying on our emotions to keep us motivated until we achieve them.

Related: 12 Scientifically Proven Ways to Reinvent Yourself

So, what should you do instead of making New Year’s resolutions?

Change just one of your habits that creates the most change.

I discovered that making just one small change in your daily repetitive routine is a crucial step to alleviate the resistance that comes with change.

Remember that real change takes time, effort and patience. According to research from University College London, it takes about 66 days to completely break an old habit, and it can take much longer to master something new. While you are anchoring this unique pattern of action into your life, you are also uploading a new program in your subconscious. To stay motivated, it is important to celebrate even the smallest positive changes.

As you transform, it is very natural to experience different waves of emotion as you become more aware of how you feel. Honestly, self-awareness is the key to unlock all your potential for success.

Related: 5 Powerful Ways to Become Your Best Self

21 habits of highly successful people

What do highly successful entrepreneurs have in common? They share productive habits that lead to prolific action which translates into positive outcomes and results!

Ultra-successful people like Bill Gates, Daymond John, Oprah, Richard Branson, Marcus Lemonis, Deepak Chopra and even Napoleon Bonaparte all share everyday habits that are proven to produce success:

Here’s just a list of the 21 habits of successful entrepreneurs:

  1. They keep a journal.
  2. They talk to themselves in a mirror.
  3. They meditate.
  4. They read.
  5. They embrace their fears.
  6. They know that failure is part of success.
  7. They associate with only positive people.
  8. They set intentions.
  9. They talk to the universe.
  10. They are thankful.
  11. They prioritize their time.
  12. They don’t sweat the small stuff.
  13. They focus on what they can control.
  14. They actively listen.
  15. They enjoy money as a byproduct of their dream.
  16. They don’t count on luck.
  17. They love having fun and celebrate.
  18. They forgive themselves and others.
  19. They never give up but will change when needed.
  20. They don’t make rash or emotional decisions.
  21. They listen to their intuition.

Related: 5 Keys to Making Your New Year’s Financial Resolutions Stick

Hopefully, you noticed that most of these new habits are not activities, like going to the gym. Instead, they relate to creating new patterns for your thoughts. Once you change your thoughts, your habits and actions will automatically change, too.

It typically takes 21 days to shift into a new gear, so don’t give up! In his bestselling book Psycho-Cybernetics, author Dr. Maxwell Maltz says the “human mind takes almost exactly 21 days to adjust to a major life change.” Even though his research was originally on traumatic life events, he claims the principle applies “universally” and works just as well on positive changes.

If you can stick with it for only 21 days, you will have an excellent chance to succeed in achieving your goal because you changed just one habit. Commitment is key! You can do anything for 21 days, right?

Related: 8 Ways You Can Use Science to Make Your New Year’s Resolutions Stick

Don’t worry if you fail for that day, just keep going to the next day and the next day after that. Remember to celebrate your small victories, so you train your subconscious brain to program you for continued success.

Start by doing something about today and don’t waste your time thinking about why it may not work, or you won’t do it. Your one new daily habit will soon replace your motivation, and it will become a consistent part of your life, like brushing your teeth.

The reason you are an entrepreneur is that you are far from average and taking educated risks gives you an edge. You rise up daily, make life-changing decisions, and you hopefully perform better every day by overcoming challenges and solving other people’s problems. You can do this!

Ben Offit | Clear Path Advisory

offit-ben-clear-path-advisoryBen Offit, CFP, a principal with Pikesville-based independent financial planning and wealth management firm Clear Path Advisory, has been named President-elect of the Financial Planning Association of Maryland by the Board of Governors.

Offit has nine years of industry experience and a Bachelor’s Degree in entrepreneurship from the University of Maryland.

The Financial Planning Association is the largest membership organization for personal financial planning experts in the U.S. and includes professionals from all backgrounds and business models. FPA helps connect thousands of consumers to competent and ethical planners who uphold the FPA Standard of Care.

Members of FPA are those who commit to the highest standard of professional competence, ethical conduct and clear, complete, disclosure to those they serve. They deliver advice using an objective, client-centered, ethical process. FPA membership consists of financial planners and all those who support the financial planning process.

Information in Movers and Shakers is provided by the submitter. To submit a Movers and Shakers item, visit http://thedailyrecord.com/movers/.

Comment: As app-based ‘Open Banking’ hits UK, USA is likely follow suit

One of the biggest shake-ups to the way that consumers manage their finances launched in the UK this weekend. Known as Open Banking, it means that you’ll no longer be limited to using whatever apps your bank chooses to make available, but can instead manage your accounts from a wide variety of third-party apps.

It’s been possible for some time to use third-party apps to analyse your spending, and even perform some financial transactions, but right now in the USA, anything with access to your accounts relies on partnerships agreed by your bank. You can use the apps your bank wants you to, but not others. For example, Chase partners with Intuit and Wells Fargo with Xero and Finicity, but the choice of app is up to your bank, rather than you.

That’s what Open Banking changes …


NordVPN

What is Open Banking?

Under both EU and UK law, banks are now legally required to allow consumers to use their choice of apps to access their accounts.

Banks can no longer act as gatekeepers, and you are free to use apps that aggregate data from multiple accounts and move money between them.

The thinking behind the move is that apps allow consumers to be better informed about their finances and do things like work out which bank account offers them the best deal, as well as to boost saving and cut the cost of borrowing.

What types of apps are available?

There are, of course, already huge numbers of apps that offer to analyse your spending, but most rely on you tracking your expenditure manually. Pennies (shown above) is one example. The reality for most people is that they use it religiously for a week or two and then it all becomes too much trouble.

One big difference with Open Banking is that you can grant the app of your choice direct access to your bank statements so that the analysis is performed automatically. Most of these apps get read-only access to your accounts, so they can import data but not carry out transactions.

But some apps can be given transaction access too, meaning that you can allow the app to act on its analysis, not just nudge you to do so.

At their most basic, apps show you how you spend your money. Particularly for small, regular expenditure, it’s easy to be completely unaware of your total monthly or annual spend. For example, if you spend $5 a day in a coffee shop, that’s $150 per month or around $1800 a year. Armed with information about how you spend your money, you can then make decisions about your spending.

But they can do more than this, like encouraging you to save. Once an app has offered you an opportunity to save money (perhaps by making lunch at home instead of buying it at work), you can then set it to automatically arrange to siphon spare funds into the savings account of your choice – which may not be with your primary bank.

There are other apps for borrowing, aiming to work out which bank or financial institution offers you the best deal for your circumstances. This can result in substantial savings when compared to just choosing from the lending products available from your own bank.

There are also apps for those who have difficulty managing their money. If someone tends to spend too much money when they get paid, you can use an app to automatically transfer your salary into a separate account, and drip-feed it back into your main account throughout the month.

How secure are Open Banking apps?

Allowing a third-party app access to your accounts is obviously a pretty scary thing to do, and has the potential to go horribly wrong, so the UK has taken a simple approach to security. It has applied the same rules to apps as to direct debits.

What this means in practice is that it is your bank’s responsibility to vet apps for safety, and if an app takes money without your authority, it is your bank – and not the app developer – that has to refund you. Your bank can then chase the developer to get their own money back, but that part of it isn’t your problem.

All the same, some are concerned that people may fall for fraudulent apps, manually entering bank details which then give them access to your account – and if you use an unapproved app, then that isn’t covered by the Open Banking guarantee.

Will the USA follow the UK and Europe?

So far, the U.S. attitude has been that it should be the market, and not the government, that decides how things work. That banks should be free to allow or deny access to whichever apps they like, and consumers can then choose their bank accordingly.

That partly reflects philosophical differences between Europe and the USA, of course. US banks are also not noted for innovation: they lagged a long way behind Europe, for example, in adoption of contactless cards.

There’s also not yet much impetus for change. Hardly anyone in the UK is yet aware of Open Banking and the changes it makes possible. It will take time for companies to educate consumers.

But my guess is that, once the benefits are more widely known, that will create pressure for US banks to offer the same kind of access. Most likely through commercial partnerships rather than through legislation, but just as banks had to adopt Apple Pay or risk losing customers, the same pressures will apply here. One way or another, US as well as European customers will be able to use a great many more apps to manage their money.


Check out 9to5Mac on YouTube for more Apple news:

Liz Weston: Try to save for something a little fun

Financial planners tend to have firm ideas about the most important goals: You should save for retirement, pay off debt and build an emergency fund. Buying a pair of $200 sneakers or an ultra-high definition TV is probably not on that list.

But maybe saving for something you really, really want isn’t frivolous. It may be exactly what you need to get your financial life on track.

Researchers who have studied the role of savings in financial health say what’s important is the habit of putting aside money and having a plan for that cash. People who have a planned savings habit are four times more likely to be financially healthy than those who don’t, according to a report by the nonprofit Center for Financial Services Innovation. That habit is more important than income, age or other demographic characteristics, the report found.

Saving even small amounts can help people avoid the high cost of being broke. A few hundred bucks saved may help bypass credit card debt, payday lenders, rent-to-own stores and bank overdraft fees. It can help avoid eviction, or losing a job because the car broke down. Even a thin financial cushion can help people become more financially stable.

“That ability to be resilient in the face of ups and downs is a very important component of financial health,” says John Thompson, senior vice president and head of research consulting at the Center for Financial Services Innovation. “It also helps people avoid high-cost financial services when they face a short-term challenge.”

But saving a small amount, only to see it wiped out by an unexpected expense, isn’t satisfying. Saving up to buy something we want, on the other hand, can feel like a real win – and it’s the winning that matters to our brains. Each time we anticipate getting a reward, our brains are treated to a shot of dopamine, the chemical that makes us want to repeat a pleasurable experience.

Recalling our small wins also can help us learn to persist when difficulties arise, rather than just giving up, says Michael Thomas Jr., an accredited financial counselor who advises clients at the University of Georgia’s free Aspire Clinic.

Remembering the times we’ve achieved a money-focused goal helps counteract the “negative automatic thoughts and catastrophic thinking” that keeps people from seeing progress, says Thomas, who has studied psychology and is getting his Ph.D. in financial planning and who also co-hosts “Nothing Funny About Money ,” a public radio program in Atlanta.

If people aren’t already in the habit of saving money, their goal doesn’t need to be lofty – and perhaps shouldn’t be. Being told to save $1 million for retirement or three months’ worth of expenses for emergencies could cause them to give up in despair.

“When I’m starting from zero, those seem like magical, fantastical, unattainable sums of money,” Thompson says. “How would you begin is a daunting challenge.”

What may be worse is telling non-savers that they need to put aside money for retirement and emergencies and a host of other goals. Researchers at the University of Toronto’s Rotman School of Management found people were much more likely to save money when presented with a single goal. When contemplating multiple goals, people considered the trade-offs and put off taking action, the researchers found.

Letting people set their own goals also may goose savings habits. WiseBanyan, a digital investing site, found the percentage of customers who set up automatic savings plans increased about 50 percent after it allowed them to create their own milestones or goals, whether retirement, a trip around the world or a new wardrobe, says chief operating officer and co-founder Vicki Zhou.

“When you personalize it, the way you think about it changes,” Zhou says.

That’s not to say people should save only for the fun stuff and ignore their long-term financial health. But the fun stuff can be a powerful motivator.

“The behavior of savings is what we’re trying to encourage,” Thompson says. “It’s not that we’re suggesting (saving for emergencies and retirement) isn’t important, but before that comes the behavior.”

This column was provided to The Associated Press by the personal finance website NerdWallet. Liz Weston is a columnist at NerdWallet, a certified financial planner and author of “Your Credit Score.” Email her at lweston@nerdwallet.com. Follow her on Twitter @lizweston.

More online

n NerdWallet: Pay off your debt: https://nerd.me/steps-pay-off-debt

n Center for Financial Services Innovation: Understanding and improving consumer financial health in America: https://www.metlife.com/assets/cao/foundation/understanding-and-improving-consumer-financial-health-in-america.pdf

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Open banking: The money revolution nobody knows about

This weekend a major change in the way banks manage your data takes place, one that could completely revolutionise how we bank, who owns our financial data and which companies can offer us targeted financial services.

It’s called Open Banking and it’s driven by a new EU directive and new UK competition rules. Changes taking effect this weekend mean that banks will have to share financial data such as transaction history and spending patterns with other (regulated) third-party providers if the account holder requests it.

That might sound like baffling small print, but it could genuinely shake up the way in which you manage your money.

Instead of your personal data being something jealously guarded by your bank, you’ll be able to request that approved companies can also access it. That will mean they can help you analyse and improve your spending habits or simply just point you at financial services that better meet your needs.

But it’s not without its critics, and those critics argue that Open Banking will actually strip power from the consumer by creating complex chains of data access, making it harder to prove who was at fault if information is stolen.

Concerns have also been raised that fraudsters may capitalise on this development by tricking customers into sharing their login information under the banner of ‘Open Banking’.

Perhaps most alarmingly, though, very few people seem to have actually heard about it. As far as revolutions go, this one is remaining firmly within the palace walls so far.

Who needs it?

There has been some real fintech innovation in recent years and months. There are now apps that analyse your spending habits and save affordable monthly amounts on your behalf, and apps that drip-feed your money into your account so you don’t overspend (check out our favourite apps here).

With Open Banking, such apps can get your permission to use your data instead of relying on co-operation from the banks. It could allow innovative firms to develop app dashboards that list all your financial products in one handy place.

It could also make it easier for third parties to assess which bank account is best for you by actually analysing your use. For example, many of us have no idea how much our overdrafts cost us but a company that could access your account could provide far more clarity about cheaper alternatives.

Rachel Springall, finance spokesperson at moneyfacts.co.uk, says that this change could do far more than just make switching accounts easier.

She says it could be used to help get people approved for finance or to allow debt management tools to better recommend current accounts.

“One example of how the data could be used is for those consumers looking to save money for a specific goal who feel that they don’t have enough disposable income. Sharing their data with a budgeting app could uncover some unnecessary purchases and work out where they can save money, whereas before they may not have been as motivated to look deeper into their transaction history themselves. 

“Using an app to easily see every account in one place will be helpful for consumers with multiple accounts from different firms.”

Concerns remain

Those consumers who have actually heard about the Open Data revolution may well be worried about whether shared data will remain secure.

After all, ‘open’ and ‘banking’ are not two words that naturally go together in a world where people have to guard their financial data against fraudsters.

That reluctance could be key in whether new Open Banking rules herald a revolution or a slower, more hesitant pace of change. And that could allow banks a head-start in making use of the rule change.

“Open banking has the potential to transform consumers’ relationship with financial products, but it hinges on consumers’ willingness to embrace it,” said Jeremy Light, a managing director at Accenture who leads the company’s Payment Services Practice in Europe. 

“Until new entrants to the financial services sector can earn consumers’ trust, banks can draw on their extensive heritage to secure an important early advantage.”

Some commentators have sought to reassure consumers by highlighting that Open Banking does not mean a free-for-all.

Springall says: “It’s likely that some consumers remain concerned about sharing their personal information or having it hacked. However, Open Banking was set up to create software and security systems that comply with the data security standards and protect any information. Data is to remain encrypted and any usage of information is tracked. 

“Consumers would need to give companies their permission to access any data and then expressly authorise the bank or building society to supply it.”

Nobody knows

Astonishingly, despite being one of the biggest developments in consumer banking in decades and one that could totally transform how we manage our finances, most people don’t know that anything is changing.

Back in September, the consumer champion Which? carried out a survey that showed 92% of the public had not heard of Open Banking.

What’s more, over half (51%) said they were fairly or very unlikely to consider sharing their financial data, even if doing so would mean they were offered more relevant products and services. 

That reluctance was also apparent in a survey carried out by Accenture. It questioned more than 2,000 UK consumers and found that 69% said they would not share bank account information with third-party providers. In fact, 53% said they would never change their current banking habits and make use of Open Banking rules.

But Dave Tonge, chief technology officer at Moneyhub Enterprise, says that the data security will be at least as robust as existing security protocols such as direct debits, as well as having to be renewed every three months.

He says: “Technology is transforming financial services and will bring huge benefit to consumers, particularly in how they organise and take control of their finances, but one of the biggest barriers remains fear around sharing data. This reflects legacy issues within the sector and also how difficult banks have made it for consumers and new entrants including third-party money management tools.

“There is still…education needed to bring consumers up to speed with just how much Open Banking can improve their financial interaction, through monitoring spending and making better saving and investing decisions.”

 

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Financial Planning in the New Year: Consider Getting Personal

Dreaming big: Financial goals, personal goals, SMART goals

Ah, the new year! It’s a chance to hit the “reset” button; to make a fresh run at those things we’d like to do better. And for many of us, financial planning is at or near the top of the list. 

First question: Do you have a budget in place? Are you tracking what goes in and out of your account each month? Creating a personal financial plan can be the next step. If you know the “what, why, and when” of your savings, it becomes easier to formulate a financial plan that puts money away for that ultimate dream—whether it’s traveling the world, giving back to your community, or helping your children graduate from college debt-free.

Financial planning takes into account your long-term life goals and helps you create a plan to achieve them. And if you need extra motivation, here’s something: a TD Ameritrade Goal Planning Survey revealed that those with a plan are more confident and have set higher goals for retirement.

Do Take It Personally

Many investors find that selecting tangible goals can actually help them reach their objectives. Knowing what your goals are can help you make better decisions and encourage you to be more vigilant about managing investments.

One person’s dream may be a short-term financial goal, such as buying a boat or other luxury item. Another might dream of putting children through college or retiring by a certain age.

“Setting an investing goal is the first step in any client’s financial journey,” said Keith Denerstein, director of guidance product management at TD Ameritrade. “Having concrete lifestyle goals, such as putting the children through college or retiring at a certain age, can help investors focus more closely on what they really want to achieve, and send them on the road toward their life milestones.”

Understanding your ultimate goal can also help you through whatever type of stormy weather the market might bring. Many believe one of the biggest mistakes a long-term investor can make is getting out of his or her investments when the market turns down. One of the keys to long-term investing is staying invested. Knowing why you’re investing can give you the fortitude to hang in there.

“Cash can provide security and peace of mind, but it ultimately won’t compound at a rate you need to cover future needs—things that a lot of millennials might not have on their minds now, such as the cost of their own children’s education,” said Patrick O’Hare, chief market analyst at Briefing.com.

Need help setting your financial goals? TD Ameritrade offers a complimentary goal planning session with a Financial Consultant to help get you started with setting up an actionable plan for your future.

Programming Your Financial GPS

Once you know what you want to accomplish, you can plot a financial road map to help steer you there. That means coming up with the hard numbers, as in how much you need, when you need it, and whether the goal is attainable.

In other words, be SMART about your financial goals—make sure they are specific, measurable, attainable, relevant, and timely.

Things to keep in mind while setting financial goals include: (1) the time horizon—meaning how much time you want to take to achieve your goal; (2) the amount of money you plan to start with; (3) the amount of money you’ll need to contribute each month; and (4) how these goals may fit in with your risk tolerance as an investor.

Working with a financial consultant who provides access to solutions such as products, tools, research, and guidance may help increase your confidence in meeting goals. A financial consultant can help you develop a plan that defines a strategy, timeline, and potential solutions that can help you pursue these objectives. But some investors prefer to plan these things themselves.

Having both a personal and financial goal can help you plot a path to the future, and can give you the motivation you need to sacrifice now to help make your ultimate dreams a bit more achievable.