Taking a Loan from Your Retirement Plan = Bad Idea

Why you should refrain from making this move. Thinking about borrowing money from your 401(k), 403(b), or 457 account? Think twice about that, because these loans are not only risky but injurious to your retirement planning. A loan of this kind damages your retirement savings prospects. A 401(k), 403(b), or 457 should never be viewed like a savings or checking account. When you withdraw from a bank account, you pull out cash. When you take a loan from your workplace retirement plan, you sell shares of your investments to generate cash. You buy back investment shares as you repay the loan. So in borrowing from a 401(k), 403(b), or 457, you siphon down your invested retirement assets, leaving a smaller account balance that experiences a smaller degree of compounding. In repaying the loan, you maybe repurchasing investment shares at higher prices than in the past – in other words, you will be buying high. None of this makes financial sense.1 Most plans charge a $75 origination fee for a loan, and of course they charge interest – often around 5%. The interest paid will eventually return to your account, but that interest still represents money that could have remained in...
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Should Millennials Be Your Money Models?

Gen Y is doing some things right when it comes to saving & investing. Financially, Generation Y is often criticized for being risk averse & unaware. Is this truth, or is it fiction? In some instances, pure fiction. Here are some good financial habits common to millennials – habits their parents and grandparents might do well to emulate. Millennials are good savers. Last year, Bankrate found that about 60% of American adults younger than 30 were saving 5% or more of their paychecks. Only around half of the adults older than 30 were doing so. This difference is even more interesting when you think about the overhanging college debt faced by many millennials and the comparatively greater incomes of older workers. Twenty-nine percent of millennials were saving 10% of their incomes last year, right in line with the average for other generations (28%).1 Millennials value experiences more than possessions. Data affirms this view – in a Harris Poll of millennials, 78% of those surveyed said that they would rather spend their money on an experience or an event rather than some pricy material item. In contrast, some members of Gen X and the baby boom generation have spent too much...
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Having the Money Talk with Your Children

How much financial knowledge do they have? Some young adults manage to acquire a fair amount of financial literacy. In the classroom or the workplace, they learn a great deal about financial principles. Others lack such knowledge and learn money lessons by paying, to reference William Blake, “the price of experience.” Broadly speaking, how much financial literacy do young people have today? At this writing, some of the most recent data appears in U.S. Bank’s 2016 Student and Personal Finance Study. After surveying more than 1,600 American high school and undergraduate students, the bank found that just 15% of students felt knowledgeable about investing. For that matter, just 42% felt knowledgeable about deposit and checking accounts.1 Relatively few students understood the principles of credit. Fifty-four percent thought that having “too many” credit cards would negatively impact their credit score. Forty-four percent believed that they could build or improve their credit rating by using credit or debit cards. Neither perception is accurate.1 Are parents teaching their children well about money? Maybe not. An interesting difference of opinion stood out in the survey results. Forty percent of the parents of the survey respondents said that they had taught their kids specific money...
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