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Financial Tip

Oliver Wendell Holmes, former Justice of the United States Supreme Court, once said, "Taxes are what we pay for a civilized society." Although people work hard to meet their needs and the needs of their families, there are some things they cannot purchase themselves. For example, the taxes paid to state and local jurisdictions help pay for police and fire protection. These taxes also pay for the operation of the local governments, and for local recreation areas such as parks and other public facilities.

On the national level, federal income taxes help pay for defense for the country. They also pay for capital facilities such as highways and other transportation services, and to help those who are poor or ill. These are all services that individual citizens cannot purchase the way they can buy food and clothing and the other necessities of life. When people live together in a society, all of its citizens bear the cost of providing such services. Taxes are the means by which the society raises the money to cover these public costs.

The United States Department of the Treasury has a number of fact sheets that can help people better understand the various taxes imposed in the United States. These include: Economics of Taxation explains how taxes support government services and benefit the country's citizens. Writing and Enacting Tax Legislation explains the process for developing and passing legislation into law.

In addition, Lesson 1.5 of the Yes, You Can Curriculum includes classroom examples of how taxes are collected and used by the various jurisdictions.

Source: Adapted from United States Department of the Treasury.

Great Credit Score Isn't Built in a Day

When young adults apply for a credit card, they may know basic information about the importance of having a good credit score. However, many are unaware of the impact establishing good credit could have on life's important milestones, such as getting a job, applying for an apartment lease or securing a car loan.

According to a report published by the credit rating company Experian, at the end of 2013 young adults between 19 and 29 years old had an average credit score of 628 - more than 50 points lower than the national average and the lowest of all the age groups.

Beginning the process of building a positive credit score while young can make the transition to becoming independent much easier since - as many young adults will learn - it can be difficult to take on financial commitments if you don't have a good credit history. Lenders, insurers and others may use your credit history as a factor in determining whether to offer you their products and what rates to charge. The more likely it seems that you will make timely payments and employ other similar financial habits, based on your credit score, the more likely it is that the business or provider will offer you more favorable terms.

It's impossible to establish a good credit history overnight. A good credit record can only result from years of creditworthy habits and behavior. The good news is, the time and energy you put into establishing a positive credit history can result in a higher credit score that over time can save you on interest charges and other expenses.

According to a 2010 Annie E. Casey Foundation report, a good credit history could enable an average borrower to save up to $250,000 in interest and other expenses over the course of their lifetime.

As teenagers begin to think about beginning life on their own, the following steps can help them establish a strong credit history and begin a habit of responsible financial practices that will benefit them throughout their lives.

Become an authorized user on a parent's credit card account.
This enables students to build credit in their name without the risks tied to having a card in their name only. It's a good idea in the beginning to set limits on card usage and make sure they see the monthly bill to understand how small purchases can add up to large balances.

Get a secured credit card.
A secured credit card uses money placed in an account as collateral. The credit level will be based on income, ability to pay and the amount of your cash collateral deposit. A secured credit card can help you build or re-establish your credit. However, if you default on any payments, the card issuer may keep your deposit. So making monthly payments on time is just as crucial with a secured credit card as with a traditional card.

Make small purchases on a credit card.
This will allow you to build a steady payment history. Just make sure that all purchases are paid before the due date.

Pay all your bills on time.
Just one late payment report from a creditor can harm a credit score so a reliable payment history is very important to maintaining a good credit score.

Never carry a balance forward on a credit card.
When the credit card bill arrives, pay the balance in full before the due date. If you carry a balance forward, the added interest increases the amount you will pay for items charged to the card.

Don't apply for multiple credit cards at one time.
Every time you apply for a credit card, or loan, your credit history receives a hard inquiry. Too many of these can negatively impact your credit.

Don't close unused or paid-off credit cards.
The unused credit can actually benefit your credit utilization ratio, which is the amount of outstanding balances on all credit cards, divided by the sum of each card's limit.

Never use a credit card for something you cannot afford.
If you can't afford to pay cash for an item today, you should avoid committing your future earnings by putting the expense on a credit card. Failing to pay the full balance when it is due, can result in additional interest expenses.

Teachable Moments

Sit down with your teenagers and make a plan for establishing a strong credit score. A good place to start is by discussing the importance of keeping an eye on your credit report. Show them how to get a free copy of their credit report by visiting annualcreditreport.com. While you are there, request a copy of your report and review the information on it with your teenager.

As you have this discussion, look at your own credit habits to make sure you also practice responsible credit card usage and are setting a good example.

Building a strong credit score takes time, but the long-term benefits and financial opportunities for the future make it worth the effort.