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Get A Head Start On The New Year With Better Money Habits

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As we move on from the height of the holiday spending season, I will risk being what my teenage son calls a "buzzkill" by asking: Do you have healthy money habits?

If you are like most, you're not paying much attention to your credit card balances -- even though recent Bank of America data show that consumers are reaching for their credit or debit cards more often, spending 5 percent more than a year ago.

And we do have more money to spend this year. The Bureau of Economic Analysis reports higher spending and disposable income compared to a year ago, with core personal expenditures more than 2 percent higher in the third quarter of 2013.

Like too much eggnog, overindulgence leads to remorse, especially the financial kind. Anyone who has ever tried to go on a diet knows that it is much harder to start a new routine than to maintain one, leading to a situation in January where millions of Americans will likely find themselves treading into debt and not knowing what to do. This leads to higher stress, depression, and as Arianna Huffington wrote, added strain that inhibits our ability to concentrate on what's most important: our families, or as she calls it, our "human capital."

While the majority of Americans agree that money skills are important and would much rather stay out of debt, many feel their lack of financial education has contributed to poor financial decisions. They are intimidated by the onslaught of information about personal finance and fancy terminology, which signifies that effective financial education is critical now more than ever. As Ben Bernanke observed, financial education supports not only individual well-being, but also the economic health of our nation.*

That's why Bank of America partnered with Khan Academy to create, a resource that helps Americans understand fundamental financial issues with simple, informal and fun videos to make financial topics easier to understand. It's rooted in the assumption that some of the best advice starts by encouraging good habits.

Here are a few to remember as 2014 draws near:

  • If you're a procrastinator with holiday shopping still to do, create a holiday budget and stick to it. Add in money for yourself: The NRF found that 57 percent of people will shop for themselves.
  • Responsible debt management is key to financial stability. Know what's in your bank account and avoid overdraft fees. And if you're using credit cards to pay for holiday purchases, understand how interest rates work.
  • Certain types of credit are riskier than others. For example, see how obtaining funds through payday lending can create longer-term issues.
  • Get in the habit of paying more than the minimum payment on credit cards. Paying just the minimum due can cost you more than what your original purchase was worth. See how paying just a few extra dollars per month can make a big difference in reducing your debt.
  • Signed up for too many store cards? Don't close them! You end up hurting your credit score by reducing your debt-to-limit ratio and limiting the age and mix of your credit. If this sounds confusing, learn more about what goes into credit by watching this recent video discussion with Sal Khan and leading credit experts.
  • Teach your kids how to shop for the holidays. Give them a budget. If they're done with their shopping, give them extra credit by giving them an annual budget that includes shopping for next year. Also consider "credit on training wheels" options, such as secured credit cards that can be pre-loaded with a set dollar amount.

Training yourself on smarter financial habits is the last thing that most people want to do this time of year, and no wonder. Most classroom-style attempts at financial education have few aspirational elements, and have not made the connection to a higher goal. But while most people yawn at the prospect of, say, credit score education, they perk up if this knowledge will give them the chance to be homeowners. Better Money Habits tries to make that connection clear, because the more our education produces eligible homeowners, or responsible credit-card holders, or better budgeters, the healthier the overall economy.

But let's start small. Getting into the habit of reviewing a budget, a credit report, or a credit card statement is a good first step.

Here's to a happy, prosperous, and debt-free year.

*Ben S: Bernanke, A Teacher Town Hall Meeting, Federal Reserve Board, Washington, D.C. August 7, 2012