Financial literacy is generally understood to be the ability to make informed judgments and to make effective decisions regarding the use and management of money. (1)
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Here are links to several financial literacy quizzes. They might give you an idea of your level of understanding of the general principles of financial literacy.
Now that you have a basic understanding of your level of financial literacy, let’s explore some general concepts and one specific to clergy that by increasing our knowledge and understanding can contribute to a higher level of financial literacy.
Values and Priorities
Write down what’s important to you and then prioritize these from most important to least important. How do your values and priorities inform your finances? Have you thought about philanthropy? How do your values and priorities model stewardship to your friends, colleagues and those who look to you for spiritual guidance? Here are links to several values clarification exercises that might be beneficial:
Here are links to resources for understanding the connection between faith, money and philanthropy:
Lilly Family School of Philanthropy Lake Institute on Faith & Giving
Budgeting, Saving and Managing Money
Budgets are a necessary evil. They’re the only practical way to get a grip on your spending – and to make sure your money is being used to reflect the values and priorities you have identified. Establishing and operating according to a budget is sound business practice. It is also sound personal finance practice. Having a budget is central to managing your money and your ability to save money. There are numerous free resources for creating a budget. In the section titled Financing Your Studies at Brite, we have provided links to a Monthly Budget Schedule and a Spending Worksheet that have been developed with seminary students in mind. Here are some general links to information regarding budgeting and managing money.
Forbes: Practically Painless Guide to Managing Money
Mapping Your Future: Manage Your Money
Credit/Debt
A debt is something that is owed or one is bound to pay to another. Credit can be good or bad. It’s all about how you handle it. Before you decide on accessing credit, carefully consider all of the factors and weigh them against your personal needs and values. Keep in mind the cumulative effect of credit and debt – the amount due on that credit card each month is added to the monthly amount needed for rent, utilities, food, education expenses, etc. And, even if a loan (debt) is deferred, it still must be paid back and at some time in the future, that monthly amount will be added to your other monthly expenses. Here are some links to help you understand credit and debt and the importance of your credit score.
Bankrate: How Credit Scores Work
Consolidated Credit: Types of Debt
Risk Management (Insurance)
You can’t completely eliminate risk – physical, emotional, spiritual, or financial – but, in many situations it is possible to manage it, and in some cases protect yourself from a variety of risks. In the context of financial literacy, risk management includes understanding the wide variety of insurance protections that are available to meet your personal needs. Included in this area are health insurance, automobile insurance, renters and homeowners insurance, life insurance, identity theft insurance, etc. It also includes managing investment risk, but that is our next topic. Because of the intricacies of and variability in legal requirements regarding insurance, it is best to work with a trusted professional in determining your level of risk and the level of protection that meets your needs. Here are some links to more information about financial risk management and insurance.
Investing
Investing might seem out-of-place in a financial resource for graduate students. The truth is, investing can be as simple as a savings account and as elaborate as a managed portfolio including stocks, bonds and real estate. There’s another truth about investing – there are no guarantees! However, understanding the basics of investing can be helpful now and in the future, to you and your family – and to the institutions you serve. We’re only providing one link here – to the Investor.gov site of the U.S. Securities and Exchange Commission.
Retirement
Retirement as we understand it today – the time when a person stops employment completely – is a relatively recent concept. Semi-retirement – reducing work hours – is becoming more common. Many people choose to retire when they are eligible for private or public pension benefits, although some are forced to retire when physical conditions no longer allow the person to work (by illness or accident) or as a result of decisions by others that make employment either no longer possible (downsizing, lay-offs, termination) or no longer enjoyable.
It sounds trite, but – it is never too early to start planning for your retirement, regardless of how you envision it. Many denominations have retirement/pension plans of some kind and you are encouraged to contact your denomination’s plan administrator for information. Some even have special accommodations for students.
Here are some links to help you understand retirement, especially financial planning related to it.
UMC General Board Pension and Health Benefits
Pension Fund of the Christian Church (Disciples of Christ)
Pension Board, United Church of Christ
Episcopal Church, Church Pension Group
Comparison Shopping
Comparison shopping is the practice of comparing prices in advance of making a purchase in order to achieve the best deals and pricing on merchandise and services. While many people use comparison shopping techniques for large ticket items, the practice can be beneficial for every-day shopping. Comparison shopping engines appear and disappear frequently. Here are some general guides to CSEs (note: Always beware “pop-up” ads that could re-direct you to unwanted websites or even infect your computer with malware. Best practice is to close those pop-ups):
Recognizing Conflicts of Interest
A conflict of interest is a situation in which a person has a duty to more than one person or organization, but cannot do justice to the actual or potentially adverse interests of both parties. Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved.
Sound confusing? Not really. In the area of finances, any agent not specifically and exclusively working for you could potentially have a conflict of interest. This could include real estate agents (sales or rentals), insurance agents, investment brokers, salespersons working on commission, loan officers, even that bank offering you a credit card. Without full disclosure, it is not always easy to recognize or to understand such a conflict. It is wise to always ask who the agent’s primary client is so that you can carefully evaluate the information being provided to you.
The old adage, “buyer beware” might sound a little paranoid, but it is good financial advice.
Avoiding Scams
“Scam artist” and “con artist” are terms that refer to individuals and/or groups who take advantage of your situation, feelings and allegiances to separate you from your money and/or property, even your identify. Unfortunately, advances in technology and the growing availability of personal information have made their “artistry” easier.
Millions of people are victims of fraud every year. Criminals often combine sophisticated technology with tricks and gimmicks to get people to send money or give out personal information. They add new twists to old schemes and pressure people to make important decisions on the spot. One thing that never changes: they follow the headlines — and the money.
Here are some other resources to help you identify and avoid “cons” and “scams”:
OnGuardOnline.Gov: Avoiding Online Scams
National Counsel on Aging: 22 Tips for Avoiding Scams & Swindles
Identity theft is a growing problem. Here’s some guidance on how to avoid it:
Consumer.Gov: Avoiding Identity Theft
Seeking Advice
Nobody is an expert on everything. Acknowledging our limitations regarding things financial is not a weakness, it’s a strength. Those of us who aren’t experts on financial literacy and economic well-being will need advice in order to improve our financial literacy, avoid costly mistakes and maximize our economic well-being. Where we go and who we ask for advice can make a difference in the quality of that advice and the applicability of that advice to our unique situation. Financial advising, money management services, tax preparation services, investment services and other services related to financial literacy are available – usually for a fee.
Many of the links provided elsewhere for information on individual topics in financial literacy also provide information on more specific questions you might have.
Don’t be afraid to ask trusted friends and family members about the sources of their information. In the end, we will be held personally accountable for the decisions and choices we make regarding our economic well-being. Being informed is the best approach.
Taxes
This final topic applies to just about everyone, but clergy need to be aware of some special considerations. These considerations also impact the financial practices of the congregations, agencies and institutions they serve as clergy. Some of those employers are more aware of the special tax situation regarding clergy than others. Some are completely unaware and you might be the one to inform them.
The basic context that creates these special considerations is that for purposes of Social Security and Medicare taxes, clergy (ordained, commissioned and licensed) who are employed by a church or faith-based agency or institution as clergy, are considered self-employed. They are required to complete special sections of federal (and some state) tax forms and to pay the full federal rate of 15.3% on their adjusted income (cash salary, housing allowance/value of parsonage, interest, business, etc.). The flip-side of this is that those congregations, agencies and institutions are not allowed to withhold that amount and make payments on behalf of clergy. At the minister’s request, they can withhold income tax and make those payments on behalf of clergy.
The other primary tax implication is that, for income tax purposes, clergy are allowed to exclude the cost of their housing (rent/mortgage, utilities, repairs, furnishings, etc.) from their reported gross income as long as their employer has an official document indicating an amount of the housing allowance. That document must be approved by the employer in advance of the calendar year in which the exemption is used. It can be modified during the calendar year for the remainder of the year, but it cannot be made retroactive.
These tax considerations have implications for negotiating compensation packages. Some employers will provide a partial Social Security Offset payment equal to 7.65% of gross taxable income. While it becomes part of that taxable income, it serves as a reminder to those employers that they are required to pay that amount for all other employees and it reduces the tax burden on the minister.
The complexities of taxes and negotiating compensation packages are too great for this site. However, there are resources available and we are providing links to some of those. Again, many denominations provide guidance on these issues and you are encouraged to take advantage of those resources.
Here are links to some resources on clergy taxes:
IRS Topic 417: Earnings for Clergy
MMMB: Overview of Clergy Taxes
Here are links to some resources on negotiating compensation packages:
Ask A Young Clergy Woman: Salary Negotiation