Houghton Mifflin expert offers tips to make the most of tax season

April 15 is rapidly approaching. Last-minute tax filers are getting their finances in order, and thinking about what they’re going to do with their refunds. Should they save, invest, pay off debt, or treat themselves? Mark C. Schug, director of the Center for Economics Education at the University of Wisconsin, Milwaukee, and co-author of Houghton Mifflin Social Studies, offers some helpful tax season tips:

Regarding how to best use tax refunds: “The average tax refund this year is about $2,400. Many people regard their tax refund as a time to spend. Others say it is a time to save. I suggest a little of each. It might be great to spend some of the money on a nice dinner out or to buy a new electronic gadget. But the tax refund is also an opportunity to save or pay down debt. Good uses of a tax refund include using it to start an emergency fund. Many people get themselves into credit card trouble because they don’t have an emergency fund to help pay for that unexpected car repair or a trip to the dentist’s office. Paying off or paying down a credit card loan would be great way to save on interest payments. If credit cards are not a problem, making an extra payment on the car loan or home mortgage would be a good idea.”

Regarding how tax season can be a way to teach children the importance of financial planning: “Tax time is a great time to start educating children about money. Families are assessing how they did in the past year and making future financial plans. But, don’t forget to talk to your kids about the basics of spending and saving. Most parents don’t realize that it’s never too early to start teaching their children. Building the habits of saving and investing early can make a big difference in building wealth in the long term.”

Schug adds: “Many adults eventually understand the importance of making good financial choices. This often occurs when people get older, get married, and realize that they have serious financial obligations. Unfortunately, waiting to start saving and investing harms one of the great advantages of saving—allowing lots of time for savings to compound. It would be so much better if we started teaching basic economics and personal finance while kids are still in school. Like any important subject, economics and personal finance should be taught early and often.”

About the financial state of millions of Americans: “Money and financial problems are the No. 1 cause of divorce, a leading cause of suicide, and a main reason for the 105 percent increase in personal bankruptcies experienced in many states. Thirty-two percent of 18- and 19-year-olds have a credit card in their own name. Among college students, credit management is a common problem. A report from the U.S. General Accounting Office shows that most college students have about three credit cards, and 40 percent of them carry credit card debt of $2,748.”

From the April 5-11, 2006, issue

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