Amid times of erratic markets and a struggling economy, there are an excess of theories about how the downturn evolved and what possible remedies exist. It seems one of the most overlooked details is that the uncertainty in the economy is simply a reflection of the individuals that make it up.  Through FDIC insurance, a lack of discipline, university curriculum and an overall shortfall in initiative, our society continues to spiral towards financial illiteracy.

The roots of this widespread financial unawareness start at a young age. Many children grow up in families and school districts that do not adequately address personal finances. It’s interesting that many investment and savings strategies are particularly simple, yet unknown to a majority of the public. For example, one simple rule is the idea of subtracting your age from 100 (subtracted from 120 for the more aggressive) to determine a reasonable portfolio mix. The resulting number is the percentage of money that should be held in stocks, while the remaining percentage may be in bonds, CDs or cash equivalents. Following this process at age 35, 65% of your portfolio would be in stock with the remaining 35% in cash equivalents. This reflects the idea that the younger you are, the more risks you should be able and willing to take. This is by no means a universally accepted formula, but rather a simple idea that can help create the fundamental understanding of financial principals and discipline for maturing adults. Perhaps if colleges and universities must have core classes that virtually all undergraduates dread anyway, they should look to at least require classes that help educate and initiate financial maturity for future generations. Classes that simply address balancing a checkbook, how and where to save, the pros and cons of credit cards, and how to avoid debt will help to lower the incredibly high number of graduates who know relatively little about money management and certainly not enough to avoid serious debt. Pre-University classes and subsequent required college courses for undergraduates can help stress the monetary essentials and create awareness.

Every day life is full of financial decisions; a choice to purchase gas to go to work tomorrow or have the instant gratification by seeing a movie or eating out today is just one. With a fundamental lack of fiscal education and discipline, people encounter opportunities to make decisions that easily can become financial traps.  It seems everything today – homes, cars, TVs, credit card bills – can be financed; helpful for the most part if approached from an educated perspective, but ruinous if done frivolously and without checks and balances of the ability to pay . Although choosing financing may seem like a great way to buy that something special, maybe it suggests the individual should look more closely as to why financing is essential to the purchase, and perhaps a need to finance indicates one should think twice about a doing so.  An excess of individuals purchasing homes that were out of their price range largely contributed to the recent financial crisis, and also reflects the mindset of consumers; easy financing, together with the basic lack of understanding of financial consequences led to a large part of the population acquiring real estate that they could not realistically afford.  If financing that new SUV is the only sure way in which you can drive it home, perhaps a financial sense of responsibility to one’s self and dependants should outweigh the impulse of ego and social status. This temptation may result in benefits for the institutions providing financing and selling products, but consumers young and old are finding themselves unable to keep control of their finances.

Baby boomers are arriving at an age of retirement, but have a checkbook that is yet to hit the golden years. It seems many did not prepare for tomorrow, or simply did not have the discipline to execute on what they had planned. With years of financially illiteracy, many older adults are facing the harsh reality that previous overspending, lack of planning, or a combination of the two has put them in a position where they cannot continue their current lifestyle without a working income.  Many times, this behavior can be directly correlated to the lack of education and knowledge of an individual, as well as possible unfortunate decisions due to the ease of financing or instant gratification that perpetuates an attitude of buy it today, worry about it tomorrow.

Government agencies are functional and beneficial parts of our financial system that unfortunately do not go far enough to educate the population and, in fact, indicate an underlying foundation of ignorance in our country. One example is the FDIC. As an independent agency formed by Congress, it has a mission to insure depositors money thereby maintaining public confidence and stability of the financial system in this country.  While protecting the assets of our citizens is accomplished, it also does nothing to motivate the depositor to understand the risk of the particular institution they are depositing their money into or investigating alternative investments. One subtle result of the FDIC is that many individuals have unintentionally used this insurance as a crutch to avoid tackling the complexity of the financial system and simply rely on the assurance. It is important that individuals seek out knowledge in order to understand and manage money. This could include simply reading the FDIC insurance policy, as you would read any other policy you sign, which could be a beginning of change in awareness of the financial system.

While greed, lack of policy oversight, and aggressive financing have contributed to the current economic and personal crisis, there is no doubt that there is tremendous room for improvement in financial knowledge and discipline in our country. Individuals must become motivated to seek knowledge and learn to make responsible and reasonable decisions so that they can plan for a secure future. Success, in any subject–be it parenting, sports, or finances–cannot occur unless there is a certain amount of discipline and planning in the process. Discipline and planning cannot happen without education.  Perhaps if the individuals that make up our economy learn to better understand and embrace a personal commitment and responsibility to finances, it will echo in a widespread healthy new beginning.

-Paul Rava

Michael B. Allmon & Associates tweets daily about personal finances, new tax provisions, and other current issues (sometimes not money-related). In return, we have received feedback from our Twitter followers as to which Tweets they found most interesting. The following are our most popular Tweets for the past month:

1.) @TomHumbarger + @MichaelBAllmon article on social media- the internet version available today- check it out http://ht.ly/4PRO8

2.) Congrats Manhattan Beach Schools!! http://ht.ly/4ICkM

3.) Headin’ to Texas? – top place for Californians http://ht.ly/528NQ

4.) 102 great personal finance tips http://ht.ly/4CUyQ

5.) Defend your estate before it’s too late http://ow.ly/4wswA

Michael B. Allmon & Associates tweets daily about personal finances, new tax provisions, and other current issues (sometimes not money-related). In return, we have received feedback from our Twitter followers as to which Tweets they found most interesting. The following are our most popular Tweets for the past month:

1.) IRS after unreported gift taxes… California real estate in this article http://ow.ly/4mm8w

2.) The secret to a long life… This may not be what you would think!! http://ow.ly/4daUe

3.) How income taxes work… the simple explanation http://ow.ly/4o9oR

4.) IRS files in court to find Californian’s unreported gift taxes http://ow.ly/4mYlC

5.) Do you “work to live” or “live to work”? http://ow.ly/4hTNB

6.) The repercussions of a well-intended act. In this case, taxes are the subject. http://ow.ly/4hTEg

7.) When the economy looks glum, everyone reacts! Even those who are unaffected http://ow.ly/4mY

8.) Beach Business Bank Ad with Pres Robert Franko and … who’s that other guy?! http://ow.ly/4imSa

9.) How income taxes work… the simple explanation http://ow.ly/4o9oR

To follow us on Twitter and read our posts daily, click on the following link: http://twitter.com/MichaelBAllmon.

When I think of going green, I think of a great cause, but also an extra expense and a time commitment that I would rather not deal with. While initially, all these things are spot-on, working at Michael B. Allmon & Associates has shown me that there is great payoff to be gained from a paperless workplace. Clutter and accumulations of paper have no place in an accountant’s environment, but a computer certainly does.

Mike Allmon decided to transition our office to a paperless system over five years ago. I’ll be the first to tell you that faxes still come and go, and printed tax workpapers still find their way to our clients and the IRS, but there is an immense amount of efficiency gained from our paperless system. Scanning and electronically filing copies of non-print-worthy documents is time efficient and space maximizing. Once a document is scanned into our office’s network, it takes merely a moment to find the right folder to store it in. And with a consistent and organized electronic filing system, the search process couldn’t be simpler.

Because Mike’s investment in a scanner and an updated network organizational structure has been so time-saving and convenient, he and his assistants (such as myself) are now assisting some of our clients with a smooth transition to paperless systems. Pretty much any profession (and thus any individual) can profit from less clutter and more ease, so it’s fulfilling to share this simple yet valuable system with our clients.

– Emily Berry

Having recently increased our social media presence here at Michael B. Allmon & Associates, we have established a following on Twitter. We tweet about various topics regarding personal finances, new tax provisions, and other current issues (sometimes non-money-related). In return, we have received feedback from our Twitter followers as to which Tweets they found most interesting. The following are our most popular Tweets:

1.) A refreshing point about how we present ourselves to others. Authenticity is the key! http://ow.ly/43yA5

2.) “End of life” planning… also called “Estate Planning”- my interview. http://ow.ly/2x23p

3.) Highest state income tax rates for 2011… CA #3. http://ow.ly/3to4F

4.) Ever been “crammed?” we have… and cost us about $2k!! http://ow.ly/3Vkhl

5.) New & temporary (until 2012) FDIC insured amounts- some accounts unlimited in insured amounts. http://ow.ly/3DEOk

6.) Huff Post and Grateful Dead have what in common?? http://ow.ly/3XKs5

7.) Let’s toast to this! http://ow.ly/3LLDe

8.) Are you a secret spender?? http://ow.ly/3kLpG

9.) Beware of the franchise tax board! http://ow.ly/3NupW

10.) Great article! The estate tax benefit and how to take advantage of it! http://ow.ly/43xSj

To follow us on Twitter and read our posts daily, click on the following link: http://twitter.com/MichaelBAllmon.