Free Money Finance

Money Tips for New Grads

The Wall Street Journal lists five money lessons for new grads as follows:

1. Savings matter. Whether you call it rainy-day money, an emergency fund or just reserves, having cash in the bank is important at any time, but it's especially comforting and crucial these days.

2. Find the fine print. Look at agreements and contracts as though you were on a scavenger hunt for key facts. Knowing the significant details will help you make better decisions and avoid much grief later on.

3. Focus on the total cost. If you want to keep more of your hard-earned money for yourself, calculate the full cost including interest and fees before weighing the monthly bill.

4. Debt is the great divide. While debt can be useful, more often than not, debt is a continuing drag on our finances that limits our choices and separates the haves and have-nots.

5. There is a permanent record. It's not your academic transcript that will stick with you, but how you manage your money. Credit scores, calculated by credit bureaus based on how much debt you have and how well you manage it, will follow you through your adult life. Over time, that score will affect how much you can borrow, the interest rate you'll pay, whether you can rent the apartment you want and sometimes whether you get a certain job.

Here's my take on these:

1. Of course. Save as much as you can as soon as you can (not just for an emergency fund but for retirement and other future needs as well.) The sooner you start, the more time compounding can work in your favor.

2. Ok, so looking at the fine print is a good tip, but I'm not sure it would have made the top five of my suggestions for new grads.

3. I almost lost out on a good deal because I wasn't looking at total costs. Good tip.

4. Funny how all the "debt can be good" people have gone underground since the recession, huh? Sure, they still say that college debt is ok (which it is IMO as long as the debt load matches expected income and it doesn't run amuck), but the mortgage debt people are certainly quiet these days. :-)

5. It seems to me that credit scores are becoming more and more important in our financial system, and I bet people will be paying more attention to them in the future.

So what would I tell new grads? Simple. I'd give them my three steps to becoming rich and recommend they read Free Money Finance every day. :-)

What would you tell a new grad to help him out financially?

Who Are Kid's Gifts Really For?

This is a guest post from MLR @ My Life ROI. If you like this post, check out his website or subscribe to his feed.

You know the scenario… you are having a birthday party for your baby girl. She just turned two! She looks adorable in her little sundress and all of your family is there. Cousins, aunts, uncles, grandparents… ALL of them. You have already had dinner, pinned the tail on the donkey, run around the yard, and ate dessert. That birthday cake was great!

And the best part comes after the cake. Everyone loves a cute little kid. And for her birthday some people gave her toys, some people gave her some more cute clothes, and yet others gave checks, gift cards, cash, or bonds.

As the parent you are now placed in an interesting situation. Your daughter is two-years old and does not have the capacity to decide what she would like to do with her gifts, at least the ones with monetary value. She will most likely figure out what to do with the toys and clothes! So you have a few options:

Daddy needs some new jeans

Your daughter is two… what could she use the money for? A hundred dollars for you can help out a lot more than a hundred dollars for a toddler. So what kinds of things could you spend money on?

• Living beyond your means! Go get a new DVD player. Or if you have the player get a stack of DVD’s. Whatever, put it towards that new laptop you have been eyeing! Whatever it is, it is something you need!

• Support a vice! You are addicted to cigarettes. It isn’t your fault and they are getting so expensive. You need a bailout and it’s coming from your baby.

• Fill up your minivan with gas! Did you not drive your daughter to your mom’s house for her birthday party? She owes you gas money then. What’s fair is fair.

• Outback Steakhouse! Seems your daughter decided it would be sweet to treat the family to a dinner at Outback. Pass the bloomin’ onions, please?

• Get some new clothes. Gotta look good for the interview tomorrow. How does a red Trump tie look with this suit, honey?

In all seriousness, this raises an interesting dilemma. Is there anyone here who decides to spend their child’s gift money on themselves or the family? Do you think the rationale that you pay thousands to support your child from birth to adulthood justifies the spending of this money?

If you are one of the people who does this, what do you spend the money on?

Little Miss Pocket looks promising

Or perhaps people gave you the checks, gift cards, or cash because they weren’t sure what your daughter needed. This excites you as it means you get to go shopping for her!

• Take a trip to Kids R’ Us! It’s that time of the year again, it’s a new season! Not only that but boy is she growing quick! Go buy her some new cute clothes.

• Get your fun on with her at Toys R’ Us. She keeps crying over the new Polly Pocket and Barbie Convertible so you might as well use this gift money to get her the toys. Or for the more advanced child perhaps they will enjoy a little Grand Theft Auto. And if not, hey, you might play every now and then.

• Take a trip to Sesame Place! Sesame Place is a Sesame Street themed amusement park. This park in particular is a Pennsylvania park, but I am sure there are similar things elsewhere. This would be an amazing amount of fun for your child! Even more if he or she is allowed to bring a friend!

Whatever way you choose to spend the money this option means you are definitely letting your child reap the benefit of the gift. My assumption is that this is the more popular decision that parents make… but I could be wrong!

However, do you ever think to yourself that your child already has enough material possessions and you don’t want to promote consumerism? I think I would be THAT dad… sorry!

Bank it and let her decide

Well, if you are THAT dad, what option is left? You could take that cash, check, or bond and bank it for your daughter. How should we bank it?

• Savings Account, everyone needs one! I agree and the act of setting up a savings account will bear much more fruit than the labor you put in. If you stick with the lesson you could make sure she always deposits portions of her gifts and allowances so that the idea of saving x% is engrained into her outlook on money. After ten to fifteen years he or she may have a pretty nice sized bank account and the ability to handle their own finances once they leave for college. One word of caution, though. I wouldn’t place too much money in the savings account for your child. The financial aid formula assumes the students themselves will contribute about 35% of their assets towards costs and the parents need to put up 6% of their savings. Savings accounts will count as your child’s asset, thus heavily weighting the formula and increasing the burden on your child. By inflating your child’s assets they will lose money on financial aid. This is very important if you are planning for the future.

• Roth IRA or Coverdell Education Savings Account (formerly Education IRA)! They allow you to invest in mutual funds, stocks, or bonds. Any contributions made are after-tax and grow tax-free. Typically account maintenance fees are minimal and contribution minimums are also minimal. As long as the money is used for elementary, secondary, or higher education expenses the money is not taxed again when it is distributed. That’s right… elementary or secondary! Your child will most definitely need money in their elementary and secondary years. College can be a toss-up so that is a nice feature. CESA’s are more for school purposes and Roth IRA’s for general purpose. Either way, it would be a nice gesture.

• Section 529 Plan! Section 529 plans do NOT count as a student’s assets when it is calculated for financial aid. Come college time your child will appreciate this. If you want to go one step further have your parents (your child’s grandparents) set the account up in their name. By doing this the Section 529 won’t be counted in your assets either when financial aid is being figured out. That means more money for your child when it gets time for college and the dreaded FAFSA. If your child decides to forego college you could always roll the 529 over into another beneficiary so that you do not lose the money.

The three options I chose are obviously very future oriented. And I think that is the right outlook to take for your child. If you have the option of using $50 to get a Tickle Me Elmo or putting that same $50 into a 529 or Coverdell hopefully the latter seems more appealing! You will thank yourself when it comes time to pay the tuition bill.

Would you choose from these three options if you were thinking about putting the money away for your child? If not, what would you choose?

Conclusion

There is obviously no definitive answer to my original question… Who are kid’s gifts for? But in choosing what to do with the money, the chosen option should ideally be beneficial to both you and the child. It should not be a huge burden to you that you are putting money away. After all, you weren’t budgeting for these gifts, were you? What you choose to do with your child’s money can have a large impact, though, so don’t take it too lightly!

In the end I think this is a very personal decision and I am sure everyone approaches it a little bit differently. I would like to hear some of your input, readers.

Financial Steps New Parents Need to Take

Almost every time I mention how expensive pets are, someone will comment something like, "You should write about how expensive kids are! They're way more costly." That's true, though it's not a fair comparison. It's like saying "homes are more expensive than cars." Duh. "Kids are more expensive than pets" is in the same league as the home-cars comparison. And before someone says it, pets are NOT a substitute for kids (or anything like them for that matter -- other than they are both living beings.) But I digress.

Anyway, I have written about how expensive kids are (BTW, check out this link to see if you can afford a baby). Now here's an article from MSN Money that talks about how expensive kids are and lists the financial steps parents need to take to prepare for them. They are:

• Start saving to build a cash cushion -- grow your emergency fund

• Create wills and define powers of attorney

• Review/update your insurance coverage

• Decide how to balance career/work with a child (and determine if one parent will stop working or work less)

• Don't try to "keep up with the Joneses" spending-wise

Overall, these seem to be good tips to me. There are a whole host of additional suggestions/thoughts from me in my kids and money category -- you may want to check out the posts there for more tips.

The bottomline is that kids ARE expensive (a HUGE expense) and you need to plan accordingly before you have them. What do I mean by "plan accordingly"? Basically, you need to do the same things you'd do before any major purchase (save up, re-look at finances, set priorities, etc.) These steps are even more important when you're talking about kids because you're dealing with human lives -- you can't simply walk away (like people are these days with bad mortgages) if things get tough financially.

The Biggest Raise You'll Ever Get

I found this piece from Money magazine (and its funny title) to be quite an interesting take on a personal finance issue. So what do they say is the biggest raise you'll ever get? The summary:

The oldest of my three children started college this year, prompting me to flash forward to the day when my kids have all left home and the expenses of child rearing - from piano lessons to orthodontics, summer camp to undergrad tuition - are firmly behind me.

Yes, this time of life may be bittersweet. Reduced expenses will come with the emotional baggage of living in an empty nest and experiencing a few more aches and pains from aging. Financially, though, this turning point may amount to the biggest pay raise you or I will ever get.

Yes, kids are expensive and once they are off and on their own, it IS likely that your finances will be in a position to improve greatly. It's a wonderful time to kick the pay off all debt/save more/invest more plans into hyper-drive.

Then again, you don't need to wait so long to get a raise. Instead, plan to ask for raises at work on a regular basis. And when should you ask? When you can show that you deserve a raise.

Three Money Mistakes Parents Make

Kiplinger's list three money mistakes parents make as follows:

1. Caving in to kids' every request -- and then some.

2. Neglecting to give kids guidance on managing money.

3. Failing to make kids work for their money.

My take on these three:

1. We do not cave in to every request by any means, but every parent knows how often kids ask for stuff and how difficult it is to say no in some cases. We're probably better than most at saying no, but we still have our challenging times.

2. Our kids have a lot of financial guidance -- and will get more as time goes on and they can handle/understand it.

3. We have a two-tier system in our house. Level one contains tasks that are done simply because you are part of the family (doing wash, vacuuming, mowing the lawn) while level two is made up of tasks that the kids get paid for (an extra big snow shoveling project, special clean up projects, etc.) It's never very much money (our kids are still impressed by a few dollars) and seems a reasonable way to reward them for hard work and show them a real-life association between work and money.

Are Kids a Form of Insurance?

I was thinking the other day about a relative who doesn't have any children. She and her husband are in their 70's and in decent health, though eventually they are bound to need some "help" from someone, right? But who do they go to since they don't have children? Other family members? Friends?

I got to thinking of myself in this situation 30 years or so from now. Upon whom will I depend? Most likely it will be my kids. Then I got to thinking -- is having kids a form of insurance (BTW, if it is, it's an expensive form of insurance)? Not that you'd have children just for this purpose, but in having them, are you insuring yourself a bit from future uncertainties? Is having kids a way to help make sure there will always be someone to take care of you? Or are those days long gone -- the days when older family members moved in with younger family members who took care of them?

Interested in your thoughts on this issue.

Money Games for Kids

The Wall Street Journal lists a few games that teach kids money-related principles. It's a short list and I'm not really sure there's much there, so I thought I'd ask you for ideas.

I've stated before that my kids like the Game of Life and I like it because they learn some valuable money-management principles along the way. But other than Life and Monopoly, I'm at a loss for some great games or software that teaches kids money principles while they also have a fun time playing.

So I come to you with this question: do you know of any money games that both teach financial principles and are a load of fun for kids?

What's the Tooth Fairy Pay at Your House?

This post talks about how much the tooth fairy pays and got me to thinking about the issue. So I thought I'd ask: what does she pay at your house?

We don't "do" the tooth fairy (never did) or other imaginable characters (Santa Claus, Easter bunny, etc.) at our house, but we do give the kids $1 for a lost tooth (I offered $2 for a tooth if they'd let me pull it out, but I haven't had any takers.) Our kids are almost out of the tooth-losing age range (unfortunately they're entering the much more expensive "braces period" with their teeth), so we'll soon be able to eliminate our $1 expenditures on the TF soon.

So, what does the Tooth Fairy (or some sort of replacement) pay at your house?

One Thing I Want My Kids to Know About Money

The Money Blog Network is doing a group writing project this week on what we want our kids to know about money. This is my contribution.

I've written a ton on what I think kids need to know about money including Essential Money Skills to Teach Kids, Principles Parents Must Teach Their Children If They Ever Want to Get Rid of Them!, and Eight Personal Finance Subjects Schools Should Teach. I wanted this post to be a bit different, so I decided to list the one thing I want my kids to know about money. Here it is:

Money is a great servant, but a terrible master.

In other words, I want them to know the basic principles of managing their money and learn how to use it for their own (and others') benefit. I don't want them being a slave to money -- driven to earn more at almost any cost, materialistic and always "needing" more, not helping out others who are less fortunate, consumed by debt, and so on. Instead, I want them to understand how money works so they can direct it versus it directing them.

So, what are the keys to making money your servant? Actually, it just requires three simple steps.

Essential Money Skills to Teach Kids

I ran into a couple interesting pieces lately featuring lists of what you should teach your kids about money management. Here's Kiplinger's list of what kids should know before they leave home:

1. How to manage a cash allowance.
2. How to manage a checking account (and an ATM or debit card).
3. How to save for a goal.
4. How to discover the magic of compounding.
5. How to get out of debt (or not).
6. How to compare prices.

For comparison purposes, here's Bankrate's list:

1. Balance a checkbook
2. Budget money
3. Finance college
4. Establish credit
5. Identify wants vs. needs
6. Deal with debt
7. Pay taxes
8. Consider all costs
9. Save for the future
10. Stretch a dollar

They basically cover the same issues (no surprise there) but both are pretty good lists in my opinion. I'm in the process of developing a series to teach my kids the basics of personal finance and here's what my initial list looks like:

1. How to make money
2. Smart shopping and spending less than you earn
3. How to budget
4. Debt and credit cards
5. Taxes
6. Investing (stocks, bonds, compounding, mutual funds)
7. Practical issues (balancing a checkbook, paying bills, filing taxes, etc.)

If I was teaching adults I'd add insurance and estate planning issues to the list as well, but I'm not sure my kids are ready for those issues.

What do you think of these lists (especially mine)? Am I missing anything?

Four Alternatives to Summer Jobs for Teens

The Street list four alternatives to summer jobs for teens as follows:

1. Learn E-Commerce. Take the summer to learn how to sell items online.

2. Create your own job. Yard work, mowing lawns, house-sitting or babysitting are just a few of the many services you can offer that will allow you to earn some extra money.

3. Volunteer. If a cause or project is dear to your heart, volunteer to help with it. In addition to making a difference, volunteer activities and the experience that comes with them will look great on both college and job applications.

4. Apprenticeship or Internship. If you have the desire to learn some specialized skills or learn more about a certain career, volunteer to be an apprentice or offer to do a free internship. In return for your work, you'll get skills in an area of interest that can launch you onto a career. It will also give you a great opportunity to find out if that is really what you want to do before spending time and money and discovering it's really not for you.

This seems like an excellent list to me. My kids aren't old enough yet to follow/need this advice, but I'm filing this one away for future reference.

Here are some of my thoughts on each of these ideas:

1. If my kids were old enough to write some quality stuff, I'd pay them to write some posts for Free Money Finance.

2. A couple other ideas: walking pets and pet sitting while people travel. You can make $15 to $20 per day -- not bad for a kid.

3. Lots of opportunities at church to volunteer, especially in the youth camps held every summer.

4. Excellent, excellent idea. If you can't get a job somewhere, certainly don't waste the summer -- get some much needed experience.

Any other ideas I missed?

Can You Afford a Baby?

Interesting concept -- setting up a quiz to see if a baby is affordable. Not really that scientific/comprehensive, but the thoughts are in the right direction -- namely highlighting the fact that part of deciding to have kids is the economic impact on families.

20-Something's Moving Back Home

The Wall Street Journal says that 20-something's are starting to move back home. They also note that it's a growing trend, one expected to continue for quite some time, and that parents seem to like it for the most part. The highlights:

More young adults are returning home to live with their parents in their 20s, and a surprising number of parents are content about it. Based on a new collection of studies, the deepest look so far at the failure-to-launch trend, the pattern is likely to persist. And as it becomes more widespread, researchers say, the stigma traditionally linked to young adults' living at home will fade.

More upper- and middle-income parents, including many who felt pressed for time when their children were growing up, aren't ready to be "finished with them" by their 20s, says Katherine Newman, a Princeton University sociology professor and one of the project's 20 researchers. Also, as more students attend college at older ages, parents are coming to regard the 20s as a time of self-discovery.

Alan Robbins, St. Louis, says he hasn't minded having his daughters home for a while post-college. Alison, 25, a fitness specialist, just moved out after two years at home spent working and saving money for a car and furniture. Diana, 22, moved home after graduating last weekend, enabling her to participate in a master's degree program while teaching third grade. Both pay most of their expenses.

The proportion of 18- to 34-year-olds living with their parents has risen by an estimated five percentage points since 1980, to roughly 34%, says Aaron Yelowitz, an associate professor of economics at the University of Kentucky and a contributor to the collection of studies "The Price of Independence," published by the Russell Sage Foundation.

Here's how I'm thinking of this issue for our family:

1. I'd be fine if my kids wanted to live with us for a few years after college. It would help them get settled, save and/or pay off school debt, and allow them a bit more time to grow up.

2. If they do move in with us, there will be rules they'll have to abide by. And if they don't like them, then they can choose to move on.

3. Furthermore, I will expect them to pay for their fairshare of the expenses. We'll probably cover part of their expenses, but I can see them contributing something for utilities, food, and the like. Maybe we'll even charge them a minimal amount of rent just to get them used to making a monthly payment.

How about you? Anyone out there with kids who have moved back in after school? Or maybe they haven't yet but you've considered the issue. What's your take?

Do You Use Money to Discourage Bad Behavior?

We've discussed allowances for kids several times. But we've always done it in the context that kids perform some task or sets of tasks and get a financial reward as a result. But what about the opposite of that? What about taking money away from kids if they do something wrong? Here's a piece from the Wall Street Journal that highlights this situation:

This issue emerged recently when I went to pay my son his monthly allowance. Amy looked at our son, raised an eyebrow and said, "I don't think he gets it all this month. He lost some of it." My son sheepishly agreed.

It turns out Amy had docked our 11-year-old's pay for a few recent transgressions I wasn't familiar with -- such as mouthing off about a homework assignment and failing on a couple of occasions to retrieve the garbage can.

The author then goes back and forth talking about the pros and cons of using a deduction from an allowance as a punishment. His wife thinks it's ok for money to be deducted for bad actions, but he doesn't. Here are some of their thoughts as to why and why not this is a good practice: 

To Amy, our son shouldn't receive money "just because he's cute and was born. I have to work for my money, and he has to work for his. An allowance isn't an entitlement. He needs to know there are things he has to do, otherwise he loses his allowance."

When I reminded her that her boss doesn't take away her paycheck for missteps, she said, "Sorry, but in my world his allowance has to be tied to something. Otherwise, he's going to think that money just comes to you for no reason, and at 25 he's going to be asking us for hundreds of dollars because we set the expectation when he was younger that we give him money just because."

To me, on the other hand, an allowance is a tool to teach kids money-management skills. Period. It is not a carrot wielded to mold behavior. I tried that early on, when my son was much younger, rescinding his allowance for misbehaving in school. It was a disaster; he learned to lie about his transgressions to protect his money.

As a result, I have come to believe that using an allowance as discipline is counterproductive. Among other things, it makes money too important: How can you teach your child that life isn't all about money if your disciplinary efforts send the message that it is?

Moreover, revoking an allowance has no practical application in life. As I told Amy, it isn't as if your boss withholds your salary because you screwed up a project or fought with a colleague. And what happens if your child feels she already has enough money on hand? The threat of losing what she's not interested in gaining has no hope of altering her behavior.

We've started to take away money for various inappropriate actions and it's having a pretty positive impact. My son had developed a bad habit of biting on the sides of his mouth (it was a nervous reaction.) We kept telling him to stop, that he could hurt himself, yada, yada, yada. No success. Then we started charging him $1 for every time we caught him biting his mouth. $5 in fines and he's now almost completely cured of the habit. Don't tell me money isn't a powerful motivator.

The piece goes on to suggest that instead of charging money for bad habits against a person (i.e. being mean to your sister), that the offender should have to serve his sister by making her bed or some sort of other task. This isn't a bad idea either and we use it as well. Our son has had to make our daughter's bed for a week before and she's had to do his dish chores for a week as well. These punishments generally work well, but they're not really suited for "crimes" performed solo -- like the biting your mouth example above. In those cases, a monetary fine seems both appropriate as well as effective.

What's your take on the issue?

Principles Parents Must Teach Their Children If They Ever Want to Get Rid of Them!

The following is an excerpt from the book DoesYour Bag Have Holes.

It is becoming more and more common for adult children to live at home. Census figures indicate that more than 80 million so-called “empty nesters” now find themselves with at least one grown child living at home (Roberta Rand, “When Adult Children Move Back Home,” Focus on the Family). The common parental expectation of having an “empty nest” has given way to the reality of a “crowded nest.” A 2005 survey revealed that 25% of the college graduating class of 2006 expected to live at home after graduating (Sheila J. Curran, “The Adult-Child Comes Homes,” Duke University News, July 21, 2006).

I believe one of the reasons there is an increase in the number of adult children living at home is because parents give their children to much. Many parents make the mistake of providing damaging financial assistance to their children. Their motives are usually good. They want to help their children by paying for their college, and helping them get started in life or assist when a financial need rises. Unfortunately, the result is often opposite to the one desired. Instead of helping the children become self-sufficient, they become dependant. Instead of sparking initiative and discipline, the children become idle and indulgent. Instead of being achievement oriented, they become entitlement oriented. Instead of becoming grateful, they become demanding. “Children who always get what they want will want as long as they live” (Fred G. Gosman, Spoiled Rotten, (New York: Villard, 1992) p. 32). Research has shown that “in general, the more dollars adult children receive [from their parents] the fewer they accumulate, while those who are given fewer dollars accumulate more” (Thomas J. Stanley, William D. Danko, The Millionaire Next Door, (New York: Simon & Schuster, 1996) p. 142-143).

Another reason is that children are not learning to work. Since parents are providing financially for all their children’s needs, they no longer have to get summer jobs. In 2007, for the first time on record the majority of U.S. teenagers were not working or looking for work at the beginning of the summer. Only 49% of teens age 16 to 19 were working or looking for work in June 2007, a steep decline from the 68% of teens working or looking for work in June 1978 (Barbara Hagenbaugh, “More Than Half of Teens Forgo Summer Jobs,” USA Today, July 9, 2007).

So what do you do when children ask for financial help? Let me share with you a story. When I was starting one of my first businesses, one of my business partners and mentors was a multimillionaire. My business was growing but struggled to turn a profit. I continued to work hard but things were getting tougher and tougher for me financially. I went to my rich partner and asked for a small monthly salary or a loan to help me get by until the business was profitable. He declined to give me any assistance. I was frustrated and said, “You are making millions a year and I am struggling to stay alive. Please help me.” He looked at me and I could tell he wanted to help me. He was close to giving in to my plea when he replied, “If I take away your struggle, I will also take away your victory.” He then shared the following story:

“There was a young boy who came across a caterpillar hanging in a cocoon. He went to see the cocoon several times each day waiting for the butterfly to emerge. After a few days, the young boy began to see the cocoon move as the caterpillar struggled to emerge from the cocoon. The boy wanted to help the caterpillar so he ran home and got a pair of scissors. He returned and carefully cut open the cocoon and out fell a partially developed butterfly. This caterpillar would never fly as a butterfly. The young boy innocently killed the caterpillar he was trying to help.” At the time, I didn’t find this advice helpful, but today I am grateful to a wise partner and mentor who resisted the temptation to cut open my cocoon.

If you protect your children from struggle and responsibility, you will also prevent them from growing. If you help too much, you will make them helpless. Living off others is a form of bondage—for if you take from a person his responsibility to care for himself, you also take from him the opportunity to be free. Do not give your kids money, give them financial education. It costs a lot less and will develop the productive, self-sufficient children you desire.

Eight Personal Finance Subjects Schools Should Teach

The Street says that 40 states include personal finance to some extent in their educational standards or guidelines, according to the National Council on Economic Education. But the devil is in the details. They say that this may look good, but actually very little financial education is taking place. They state that "only nine states require a course with personal finance content to be offered and only seven states require students to take a personal finance course in high school to graduate (Georgia, Idaho, Illinois, Louisiana, Missouri, South Dakota and Utah)."

I was surprised to find that even this many states offered a personal finance option for students. It would be REALLY interesting to see what they taught -- the courses were on target or about as worthless as a shop class.

Anyway, the Street then lists eight personal finance subjects that schools should teach:

1. Realities of Credit Cards
2. How to Budget
3. The Importance of Saving
4. The Meaning of Frugality
5. How to Invest
6. Basics of Real Estate
7. Retirement Issues
8. Finer Points of Entrepreneurship

Obviously it's a list of personal finance basics, but it's a very good list in my opinion. I think I'll use it as a teaching guide for my kids.

See anything missing?

How to Keep Your Child's Identity Safe

Here's a guest post from Family Secure, a service from Experian that alerts parents of key changes in their credit file and their children’s that could be a sign of identity theft.  The product has a $2 million guarantee. They had asked me to review their site and instead I asked them to provide a guest post that would tell Free Money Finance readers what they should do about protecting their child from identity theft. Here's what they had to say:

Identity theft has become an increasingly common problem in the last few years.  A recent survey conducted last year by the Federal Trade Commission reported that there were 8.3 million victims of identity theft in 2005.

What many people do not know is that child identity theft – stealing a minor’s personal information and establishing lines of credit in his/her name – is also increasing at an alarming rate.  Some sources estimate that up to 500,000 children per year become victims of identity theft. In many instances, parents and children don’t realize that the child’s identity has been stolen until he or she applies for credit much later in life. By this time, the child’s credit history is already tarnished. 

A 2007 Experian-Gallup poll showed that while 72 percent of the respondents felt it would be “very easy” or “somewhat easy” to steal a child’s identity, 68 percent knew “only a little” to “nothing at all” about child identity theft.

Instances of child identity theft will likely continue to grow as minors become more active online and on other information sharing platforms. Parents should consider the following precautions to help protect their children from becoming victims of identity theft.

• Educate children about the importance of keeping personal information private. Teach them to come to you should any person or organization ask for their social security number and address.

• Closely monitor a child’s online activity.  Many sites ask for personal information such as last name, address, etc., which can open the door for identity thieves. 

• Monitor the type of mail a child receives. Credit card advertisements, unexplained merchandise or collection notices could all be indications of identity theft.  Also, the more mailing lists a child’s name is on, the more exposed he or she is to identity theft. Whenever possible, sign up for items like magazine subscriptions under your own name rather than your child’s name.   

• Think twice before giving out a child’s social security number.  Giving a child’s social security number is voluntary even when directly requested. When signing children up for programs such as daycare, basketball camp, etc or filling out medical forms at a doctor’s office, parents do not need to provide social security numbers. If someone insists he needs a child’s social security number, parents can ask why the number is needed, how the number will be used, what law requires them to provide a social security number and what the consequences are if you refuse.

• Don’t give out even the last four digits of a child’s social security number. These last four numbers can be easily used to obtain the full social security number, creating numerous opportunities for a child’s identity to be stolen. 

• Do not let children carry their social security card in their wallet.  Keeping their card locked in a deposit box ensures that their social security number will not be compromised if their wallet is misplaced or stolen.

Another Interesting Idea for Teaching Kids About Money

Here's a very interesting/compelling idea someone suggested on my post titled Interesting Ideas for Teaching Kids About Money:

I say give them (kids) an allowance of $500 bucks a month. At the end of the month give them an itemized statement (like a paycheck) deducting $480 for boarding, food and clothes and let [them] spend the $20 as they like. That should get them in the real world mindset.

Ha! I couldn't help but think this might actually work. What do you think?

Interesting Ideas for Teaching Kids About Money

Jonathan Clements has some unusual and interesting ideas for teaching kids about money including the following:

• Let's say you give your kids $5 a week in pocket money. When it's next time to fork over their allowance, offer them a choice: They can have the usual $5 right away -- or they can have $7, equal to a whopping 40% more, if they're willing to wait a week.

• Try varying the form of their pocket money. One week, give them five singles. The next week, give them a $5 bill. You will likely find your children are slower to spend the $5 bill.

• When her two kids mention things they want, Ms. Becker adds the items to each child's wish list. A few days or weeks later, she goes over the lists with her kids -- and sees which items they still want to buy with their own money or receive as birthday or holiday gifts. "When they were little, it surprised me that, by Friday, they sometimes couldn't remember a specific toy they so desperately wanted on Tuesday," Ms. Becker says.

• When Hannah went on her first school field trip, I gave her $5 and told her I wanted the change. She returned with a bag of trinkets and a few pennies. On the next trip, I gave her $5 again. But this time, I told her she could keep any money that was left over. She came back with $5.

All of these were new to me and each of them sparked some potential I'd like to explore with our kids. In particular, I like the first and third ideas. I plan to discuss them with my wife and try them out on a couple of unsuspecting children. ;-)

BTW, Jonathan Clements is the same guy who suggested asking kids whether they'd like a soda when eating out or if they'd prefer to have the $1 it would cost instead. His kids went from soda fiends to dollar junkies and lovers of water. ;-)

How about you? Do you have any interesting tips for teaching kids about money?

Did You Consider the Cost of Children Before Having Them?

Here's an interesting discussion on the costs of kids. It covers the issue of whether or not couples consider costs as part of the decision to have or not have children. I would guess that most people do NOT consider the cost before having kids, but given the expense involved, it's reasonable to think that many (most?) should.

We had our kids later in life and so our finances were fairly firm before our first child -- we "knew" we could support the expenses associated with having a child. That said, we didn't go to the trouble of calculating the costs and weighing them before we had either of our children.

How about you?  Did you consider (or are you considering) finances in deciding to have your first child or ones after that?

How Much Do You Spend on Your Kids' Birthday Parties?

Here's an interesting money-related question:

How much do you spend on your kids' birthday parties?

We were fairly poor when I was a kid, but my mom always made a big deal out of my birthday. We went to a local restaurant, had lunch, ice cream and cake with about 10 of my friends, and, of course, opened presents. It was a great time and one I always looked forward to each year.

Our kids have more of a birthday week -- depending on the day their birthday actually falls. If it's during the week, we usually celebrate at home with treats and presents, then do something fun with the family and/or friends on the weekend. And, of course, there are always more treats. :-)

This year we'll be at my parent's house during my son's birthday so I can only imagine what my mom will have planned. That said, it won't be anything like a Florida couple just celebrated. They spent $3,000 on a birthday party for a one-year-old. Some details:

At the end of the song, he blew out a candle on his castle shaped cake, complete with turrets. Earlier there were pony rides and a magician. Kids whacked a pinata as their parents sipped mimosas and partook of the Mexican buffet.

Jackie Deutsch, the party's publicist, is a longtime friend who provided her services for free and flew in from Atlanta. She said that although she has no children, she enjoys events like this one because of the chance to interact with kids.

Ok, when a party is big enough to have its own publicist, I think it's a bit too big. Maybe that's just me.

Anyway, including the presents, treats, and any special events (eating out, going to a movie, visiting a local fun center, etc.), we probably spend around $100 for each child's birthday.

How about you? What do you spend?

Great Allowance Idea

I was at church a couple weeks ago when John Maxwell spoke. He suggested what I thought was a GREAT idea for paying your kids an allowance:

Pay them to read books.

He said it was one of the greatest things his parents did when he was growing up. The details of his suggestion:

1. An allowance wasn't given for family chores. You did chores because you were part of the family and no one got paid for them.

2. The parents would pick out a book and tell the kids how much they'd earn to read it.

3. After the kids read the book, they'd discuss it with their parents. Once the parents were sure the kids actually did read the book, they would get paid.

My wife and I talked about this and think it is a very good way to encourage kids to read. Our kids are already good readers, but we'd like to see them challenged a bit more in what they are reading -- and this should help us do it.

What do you think of the idea?

10 Commandments of Personal Finance, Commandment #8: Thou Shalt Teach Your Children to Handle Money Wisely

Bankrate offers a list of the 10 commandments of personal finance that I'll be sharing with all of you as well as providing my thoughts on their selections. The commandment for today:

VIII. Thou shalt teach your children to handle money wisely

"However," Sweeney says "if you're not handling money wisely, it's hard to teach your children to do so. You have to set a good example."

Ha!

It's sad, but true -- you can't teach your kids something that you don't know! Get your finances in order first, then pass your good habits on to the next generation.

For related thoughts on this topic from Free Money Finance, see these posts:

• Teach Your Kids How to Handle Money

• Checklist: What Your Child Should Know About Money Before Moving Out

• We Need to Teach Our Kids the Basics of Personal Finance

Click here to read part 9 of this series.

Click here to read part 1 of this series.

How Much Do You Pay Your Babysitter?

I was listening to a financial podcast while walking the treadmill the other day and they discussed the issue (briefly) of pay for babysitters. A few of the questions they raised:

• Base pay -- What is the going rate for sitters? Do you pay more for more kids watched? Does the age(s) of the child(ren) determine the pay rate?

• Pay raises -- How often should a regular sitter get a pay raise?

• Tips -- Should you tip a sitter in addition to the base pay?

• Bonuses -- Should you give an annual bonus to a sitter?

• Tasks -- What else should the sitter do besides watch the kids? Housework? Cooking? Caring for pets?

I'll address these questions for our family in a later post, but don't want to give them now for fear of influencing the discussion. So, anyone have any thoughts on these issues?

Serious Financial Questions

I recently received an email from a friend with the subject line "serious financial questions." When I opened it up, here's what she asked:

1.  How much allowance (if any) did you get as a kid?

2.  How much did the tooth fairy give per tooth?

I thought it was funny! ;-)

When I was a kid -- somewhere around World War I (or so my kids think) -- I didn't get an allowance. Why would I -- I didn't do anything to earn one? (I literally didn't do much around the house other than mow the lawn.) I did have my own job starting from age 16 on though, so that's where I got my spending money.

And when I was little, the tooth fairy paid $0.25 per tooth. I remember trying to get a few extra teeth to fall out sooner so I could buy a new Hot Wheels car. ;-)

What about you? Did you get an allowance? What did the tooth fairy pay you?

How to Decide Who Gets Your Kids When You Die

I know, I know. This is a real downer of a subject. But money talk can't be all smiles and laughter -- you have to deal with some really hard issues some of the time. And since we'd all probably agree that our kids are MORE important than money, considering the subject of who they go to in case of your death is certainly time well spent.

MSN Money has a few thoughts on how to decide who gets your kids when you die. A few of their suggestions I found worthwhile:

• Lower your expectations. Be real: Is there anyone on the planet, including your spouse, whose parenting skills are perfect in your eyes? So why are you expecting perfection from a guardian? What you want is someone who will love your kids and raise them with the values that are most important to you.

• Widen your net. Many people pick family members to be their children's prospective guardians, but that's not the only option. Good friends, especially those who already have kids, might be a better choice in some situations. A neighbor could be a workable option for an older child who might otherwise have to be uprooted and moved across the country.

• Pick someone "for now." It's OK to have a "placekeeper" guardian, somebody who'll do in a pinch or whom you fully plan to replace eventually. Children and relationships change, and you can alter your will later to name someone else.

• Keep the money separate. Occasionally, there are folks who are great with money and great with kids, but the skill sets don't necessarily go together. It's perfectly acceptable, and often preferred, to choose someone other than the guardian as trustee of the kids' assets (any money, property and life insurance proceeds they'll inherit should you die).

We've applied several of these in our will including:

• We picked friends as the primary guardians. They have kids, share our same values, and are about the same age as we are. Everyone in both of our families are either too young/old, not good with kids, or wouldn't be decent parents. So we talked to this couple friend of ours, got their permission, and put them in our will.

• We put our money for the kids in the hands of my parents (in other words, someone separate from the guardians.) As the article notes, people who are great with kids aren't necessarily great with money -- not that my parents are either, but at least we'll have a couple people involved in managing how the kids are provided for.

• When we made our will a few years back (we're due for an update), we set an executor (a family member) who was older and likely not going to outlive us. This was the "placekeeper" noted about above and at our will's next updating, we'll probably decide to assign a new executor.

For more on the issue of wills and planning how your estate is distributed, see these posts:

• Benefits of a Will

• You Still Need a Will

• What Happens When You Die Without a Will

Kids and Money

Business Week has a major feature on the cost of kids. I thought I'd highlight a few of the articles in this series and give you the key thoughts from each of them.

Here's an interesting fact from Managing Financial Ties to Your Kids:

Researchers at the University of Michigan's Institute for Social Research reported in 2004 that 34% of adults between the ages of 18 and 34 receive financial assistance from their parents, and that the average total contribution during those 17 years is $38,340.

Ok, I can see how 18-22 (college) or 18-24 (college and graduate school) fit in here, and maybe they are the bulk of the numbers. But into your 30's? Really?

Then there's this from Is Raising Kids a Fool's Game?:

All of that sounds nice, but what's it going to cost me? The Agriculture Dept.'s latest survey found that households in the top-third income bracket (with average pretax income of $118,200) will spend $289,380 by their child's 18th birthday—or about $17,000 a year (in 2006 dollars).

Considering extras like sports equipment, summer camps, private school, Disney vacations, and a full-time nanny, raising a child through age 17 could cost $1 million or more.

Ha! It looks like Business Week was trying to be sensational here. $1 million? Are they serious? Yeah, I guess if little miss smarty pants has $20k tuition at a private school from kindergarten through high school you can pay that much, but who really does this?

How to Pay for Kids is a bit more realistic saying:

Children born in the U.S. today will cost their parents more than $338,000, on average, by the time they graduate from a public college. That's according to BabyCenter.com, based on College Board and Agriculture Dept. data. Send your precious offspring to a private university, and you can expect to shell out an additional $70,300 for tuition.

No mention of the $1 million here. Still, kids are expensive. This piece also gives some decent thoughts on the main costs of kids and how to handle them.

I love the idea discussed in IRAs for Kids: It's Never Too Soon. The highlights:

The demise of traditional pension plans, uncertainties about the future of Social Security, and the increasing reliance on 401(k)-type plans to finance retirement are all good reasons to expose your children to the idea of retirement savings at an early age, many financial experts agree. What's more, with the potential of 50 years of compounding returns, even a modest amount of money in an IRA now can turn into very big bucks.

Imagine it -- 50 years of compounding returns. I'm salivating! (FYI, I've discussed a similar idea -- a couple times.)

The key issue is that the child needs to have income to contribute to an IRA. I have one friend who's found his granddaughter a gig as a model in a series of baby ads. She makes the money (for a few days' work) and he contributes to an IRA for her.

Finally, Strategies for the "Sandwich Generation" covers how to manage the costs of taking care of kids and the costs of taking care of parents. Here are some thoughts on the latter:

The costs for the Sandwich Generation can add up, even if your parents have been saving for their own future care. That's because they're living longer, maybe into their 90s, thanks to better medicines and health care, and the cost for that care is rising.

The estimated average cost for a nursing home stay was around $64,000 a year—or about $176 per day—for a semi-private room, according to the 2005 MetLife Market Survey of Nursing Home & Home Care Costs. A private room runs just over $74,000, or $203 per day.

Assisted living at home can run more than $38,000 a year, or $19 per hour for a home health-care aid. The survey found that these costs can be higher in larger metropolitan areas. The average stay in a nursing home is about 2.5 years, but that can vary.

Overall, lots of good stuff (though some of it might be a bit overblown) on dealing with kids and money. If you want more on this topic, see these posts:

• Adoptionomics, Part 1: Why is Adoption So Expensive?

• Teach Your Kids How to Handle Money

• Ten Principles for Teaching Children about Money

Adoptionomics, Part 3: Temporary Tightwad Tactics to Offset Adoption Fees

The following is a guest post from Laura Christianson, author of The Adoption Decision: 15 Things You Want to Know Before Adopting and The Adoption Network. For more information about Laura and adoption, visit her website.

Did you know that 93 percent of Americans eat pizza at least once a month, and the average person eats 23 pounds of pizza each year?

Did you know that the average Starbucks customer visits their cafés six times per month, and that 57 percent of the U.S. adult population drinks coffee each day?

Most of us don’t think twice about purchasing little “extras” each week—lattes, newspapers, and video rentals.

If you’re willing to temporarily live without some of those luxuries, and funnel the money you would have spent into a special “adoption fund,” you can save half the money you’ll need to adopt a child within one year.

Consider cutting back on the following:

• Fast food.  Limit fast-food purchases to once a week. Potential savings: $400/year

• Alcoholic beverages. When you eat out, order tap water instead of alcoholic beverages or soda. Potential savings: $470/year

• Movies and videos. Rent movies on DVD as opposed to seeing first-run flicks in the theater. Potential savings: $550/year

• Mobile phone minutes. If you don’t use all your allotted minutes each month, consider switching to a plan that offers fewer minutes. Potential savings: $240/year

• Paperback books. Rather than purchasing one new paperback each month, buy used books, or check out books from the public library. Potential savings: $144/year

• Newspapers and magazines. Save 80 percent off the newsstand price by subscribing to the daily newspaper and one or two of your favorite magazines. Potential savings: $420/year

• Cable TV. Order the basic cable package at $15 per month, rather than the $40 per month, expanded package. Potential savings: $1,300/year

• Automatic deposits. Perhaps the most effective way to sock away a substantial sum in a short time frame is to automatically deposit 1 percent of your paycheck into an adoption fund. If your monthly paycheck totals $5,000, immediately begin depositing $50 per month. Potential savings: $600/year

Letting go of life’s little luxuries may make you cringe. But if you’re committed to providing a permanent home for a child who needs a family, you can make it happen. You’ll be surprised at how quickly the small sacrifices you make will result in thousands of dollars in savings that you can apply toward adopting a child.

Click here to read part 1 of this series.

Adoptionomics, Part 2: Resources to Help You Offset Adoption Costs

The following is a guest post from Laura Christianson, author of The Adoption Decision: 15 Things You Want to Know Before Adopting and The Adoption Network. For more information about Laura and adoption, visit her website.

You’ve decided to adopt a child, and you estimate it’s going to cost $25,000. You earn $56,000 per year. How are you going to come up with that much cash?!

Adoption professionals—many of whom are adoptive parents themselves—realize that adopting is a financial hardship for many parents. Agencies often offer some form of financial assistance or are willing to reduce their fees.

When you’re interviewing prospective adoption service providers, ask them the following questions:

• Do you offer sliding-scale fees based on my family income?
• Do you offer interest-free adoption loans or subsidies if I adopt a child with special needs?
• Do you partner with a financial institution to offer a low-interest line of credit?
• Do you offer adoption grants?
• Do you offer any other kind of financial assistance?

Workplace Benefits

In addition to obtaining financial aid from your adoption service provider, you can take advantage of workplace benefits. A growing number of employers offer adoption assistance, ranging from full- or partially-paid adoption leave to financial aid packages that cover legal fees, agency and placement fees, and even birth mother medical costs.

Tax Credit

If you have a modified adjusted gross income of $210,820 or less, you may be eligible to receive a federal adoption tax credit of up to $11,390 for qualified adoption expenses. This credit is not available in a step-parent adoption, but may be available if you are adopting the child of a domestic partner. The tax credit is not a deduction, but rather, a true credit that reduces the amount of tax you owe, dollar for dollar. As you might expect, the tax credit law contains permutations that would take pages to explain, so check with the IRS or your tax advisor for complete information.

Subsidies

If you plan to adopt a child with special needs, you may be able to take advantage of federally- and state-funded adoption subsidies. Keep in mind that you must apply for these subsidies before your child’s adoption is finalized.

Grants

Adoption foundations award grants to parents who are already deep into the adoption process and have exhausted other means of obtaining financial assistance. Grants, which range from several hundred to several thousand dollars, are intended to help families over the last financial hurdle.

Faith Communities

Many houses of worship have “adoption ministries,” “orphan ministries,” or “waiting child ministries.” They provide grants and discretionary funds to assist parents with adoption fees. In some cases, adoptive parents do not need to be members in order to apply for assistance.

Patience and persistence are the keys to obtaining financial assistance for adoption. Think outside the box, and don’t be afraid to ask for help.

Click here to read the next post in this series: Temporary Tightwad Tactics to Offset Adoption Fees

Click here to read part 1 of this series.

Adoptionomics, Part 1: Why is Adoption So Expensive?

The following is a guest post from Laura Christianson, author of The Adoption Decision: 15 Things You Want to Know Before Adopting and The Adoption Network. For more information about Laura and adoption, visit her website.

Have you thought about adopting a child, but gotten scared off by rumors of exorbitant adoption fees?

Adopting doesn’t have to be an impossible dream. During this three-part series, you’ll discover some practical steps you can take to make adopting a child a dream come true.

• In Part 1, you’ll learn how much adoption costs, and why.
• In Part 2, you’ll learn about resources that will help you offset adoption costs.
• In Part 3, you’ll learn “tightwad tactics” that will help you save half the money you need to adopt within one year.

Adoption fees vary drastically, depending on the type of adoption you pursue. Public agency adoption generally has no fees or extremely low fees, because state-run agencies usually place children who are age 3 or older, are part of a sibling group, are an ethnic minority, or have medical, developmental, or emotional challenges stemming from abuse or neglect.

Private or independent adoption (illegal in some states), in which prospective adoptive and birth parents find one another directly, is generally less expensive than working with a private adoption agency. However, there’s also a greater financial risk for adoptive parents. If a pregnant woman decides to parent, you will probably not receive a refund on money you paid for her medical bills and/or living expenses.

Fees are all over the board for licensed private-agency adoption. Fees for domestic infant adoption usually range from $15,000 to $30,000 and fees for international adoption typically range from $10,000 to $40,000.

What do adoption fees pay for?

Some people mistakenly assume adoptive parents “buy” their children. Child trafficking, while illegal, is rampant worldwide, as unethical “baby brokers” try to make a quick buck off of trading a child as a commodity.

The fees adoptive parents pay help prevent child trafficking. Adoption fees fund a variety of professional services and enable an adoption to progress safely and legally. Here are a few of those services:

• Reviewing application to adopt
• Locating children available for adoption
• Locating prospective birth parents
• Professional counseling, education, and training for birth and adoptive families
• Pre- and post-placement visits to the adoptive home by an adoption social worker
• Paperwork processing

If you’re deciding which type of adoption to pursue, collect data from a variety of public and private agencies, adoption facilitators, adoption attorneys, and adoption social workers. Ask them for a written explanation of their services and exactly what their fees will and will not cover. When you find an adoption professional with whom you feel comfortable—both emotionally and financially—go for it!

Click here to read part 2 of this series: Resources to help you offset adoption costs.

Teach Your Kids How to Handle Money

Here's an article from CNN Money that suggests parents should give their adult kids time with a financial planner as a gift. Ok, in some cases, maybe this is a good idea (such as when there's limited to no communication between parents and children). But how about this as a different solution:

Teach your kids how to handle money yourself.

Of course, this requires that you know something about how to handle your personal finances, a stumbling block for many Americans (no "spending more than you earn," "carrying balances on credit cards," and "buying whatever you like" is not what I had in mind.) No, I'm talking about simple, basic money principles that, if applied, can make your children much better off. This isn't rocket science. Simply learn the basics, apply them to your life, then teach your kids the same thing. Pretty simple actually.

Our kids are still fairly young, but we're already talking to them about topics such as how much things cost versus the value of them, how to shop smartly, earning a living, and the like. We still have a long way to go, but some of their recent comments show that it's starting to sink in. As such, I'll be skipping the financial planner wedding/graduation/birthday gift idea and will be giving the gift of financial knowledge to my kids myself.

Checklist: What Your Child Should Know About Money Before Moving Out

I'm currently on vacation. This post has been written courtesy of Chief Family Officer, one of the blogs I regularly read. Enjoy!

Before you children move out or go off to college, they should know the following things about money:

• How credit cards work. They should understand how credit card issuers make money, what an interest rate is, and the value of paying off balances in full each cycle.

• How to balance a checkbook. They may prefer doing this online, but the bottom line is that they need to know how to keep track of the money in their checking accounts so they don't overdraw their funds.

• What the deductions on their paychecks are. They should understand that although they may be getting paid $10 per hour, they will not be depositing that full amount into their bank account - rather, some of their earnings will disappear into voids known as FICA, Medicare, and federal and state tax coffers.

• What a Roth IRA is and why they should invest in one.

• How to live beneath their means and why it's important.

• The importance of an emergency fund.

• Health insurance basics like what a copay is and the importance of finding out whether their doctor is in-network before they choose a health plan.

• What an index fund is.

• To ask for help if there's something they don't understand.

Four Financial Mistakes Parents Make

Here's a piece from Smart Money that lists four financial mistakes parents make. Their list:

1. Ignoring their retirement.
2. A bedroom for everyone.
3. Keeping up with the Joneses' kids.
4. Not teaching them about money.

My thoughts on these:

1. We should all consider saving for retirement first and saving for college second. After all, you can borrow for college but not for retirement.

2. Ha! This seems to me more like a comment that people are buying homes they can't afford. Instead, they should be following my formula for buying a house.

3. This isn't just a problem for parents -- it's a problem for all sorts of people. Forget the Joneses. They're ending up in debt and living off relatives anyway. ;-)

4. I agree, but who's going to teach the parents about finances so they can teach the kids? So many parents don't know a thing about personal finance, so where can the kids get GOOD financial teaching?

We Need to Teach Our Kids the Basics of Personal Finance

Lots of great and thoughtful comments on my post titled Can We Please Have Some More Personal Responsibility in Our Finances? that dealt with the subprime mortgage issue now facing our nation. The discussion centered around who was to blame (the borrowers, the lenders, the government -- or all of them). But what struck me was that several of the commenters noted that the borrowers likely entered into the deal because of financial ignorance. For instance, consider this comment:

It's easy to speak of the basic principles of financial being simple, yet I know few people who know them. My parents were good people, successful, and highly educated, yet they never taught me about credit cards. And the only money lessons we had in school were counting it and balancing a checkbook. I had to seek out that info, and even then it was only out of need, not desire. I didn't know I needed to learn about money until I was in such financial disarray I had no choice. So I don't think it's a matter of most people are just lazy and flat-out refuse to learn about finance. I think the majority of folks don't even realize they don't know anything until it's too late.

And this one as well:

I think it's more about the lack of financial literacy than anything else. A large portion of this country just doesn't know about money and haven't been taught or have learned on their own. This makes them vulnerable to these types of things like subprime loans or payday advances with huge interest rates.

I agree that this is part of the issue in this case, though I think it's far from the major reason. But that's for another post.

I think it's interesting that a few days later I found the Federal Reserve Chairman recommending we all teach our kids the basics of personal finances. Here's why:

A nationwide survey last year found that on average, high school seniors got a flunking grade when it came to financial literacy. They answered correctly only 52.4 percent of questions about personal finance and economics.

So, if we all teach our kids the basics of personal finances, we can't necessarily save them from making a bad decision like taking a subprime mortgage, but it's very likely that we can help them avoid some pretty bad financial decisions throughout their lives.

For more thoughts on kids and money, see these links:

• Ten Principles for Teaching Children about Money

• Most Teens Expect to Be Wealthy, But Have Little Knowledge to Make It Happen

• How to Get Kids to Save Money

Most Teens Expect to Be Wealthy, But Have Little Knowledge to Make It Happen

I recently received an email from Charles Schwab (the company, not the person) about a new survey they just completed. It's on teens and their attitudes about money. Here's the part that I found most interesting:

Highly motivated by money, eight in 10 teens ages 13-18 agree that "it's important to me to have a lot of money in my life," and nearly three-quarters (73 percent) believe they'll be earning "plenty of money" when they're out on their own. In fact, American teens confidently predict a future in which, based on the career that interests them most, they will be earning an average annual salary of $145,500 (boys expect $173,000 vs. girls, $114,200). The reality: Only five percent of the U.S. population currently earns a six-figure income, and the average national wage stands at approximately $40,000.

Welcome to the world of money, teenagers of America. You're right in line with everyone else -- you think you'll make more than you really will, you think you'll spend less than you really do, and you think you won't rack up tons of debt, which you will do. It's the American way of thinking -- home most of us got introduced to personal finance! ;-)

And, yes, today's teenagers also believe they know how to handle money. Also from the study:

Nearly two thirds (62 percent) of American teens ages 13-18 believe they are prepared to deal with the adult financial world after high school, and a similar majority (63 percent) say they are knowledgeable about money management, including budgeting, saving and investing. Yet when probed on the specifics of their financial knowledge, they reveal gaps that do not correspond with their confidence. For example, fewer than half consider themselves knowledgeable about how to budget money (41 percent), how to pay bills (34 percent), how credit card interest and fees work (26 percent) or whether a check cashing service is good to use (24 percent). Not surprisingly, even fewer teens know how income taxes work (14 percent) or what a 401(k) plan is (13 percent).

Really? A gap between what they think they can do and what they actually have knowledge on? Shocking!!!!

My best tips to them: check out The 10 Best Money Moves You Can Make. Click through all the links and read the posts until you totally understand them. Then, it's time for you to start your real financial education. Read as many books on the subject as you can (or regularly visit money websites if books are too old-school for you) and talk to successful money managers you know to learn from them. After you do these things, then you're ready to face the world with enough knowledge to at least survive financially. From there, keep learning (both from websites, books, and others as well as from your own experience.) Sure, you'll make some mistakes, but if you have a solid knowledge of basic financial principles, you shouldn't get into financial disasters.

Raising Money Savvy Teens

Here's an article courtesy of Marotta Asset Management on how to teach your teens to be money savvy:

Many parents are concerned about raising their children to be financially savvy. If you want to raise kids who can create and manage wealth, there are a handful of key life skills every child should practice. Every kid should practice living within a budget before leaving home, not after. One way to provide opportunities for real world lessons at home is to give your children some oversight of the family budget.

Just as your children need opportunities in order to develop their athletic and academic abilities, they also need opportunities to develop their money management skills. Involving your children in the family finances now will set the precedents they will most likely follow as adults. While each family has to determine what level of involvement is appropriate, here are some general principles that I've found helpful in raising money-savvy teens.

First, share as much as possible about your family's finances. This is very difficult for many parents. Some fear that their children will demand more spending money once they know how much mom and dad make each month. Others are embarrassed that they can't make ends meet, even though they have a good income. Whatever the reason, more harm can come from excluding your children than from talking openly about family money matters.

Children need to see the workings of their own family's finances in order to keep from being completely foolish with their own money. Ask your children how much money they will need to have to retire at age 65 and keep their current standard of living. Most parents and children can only guess at this figure, but the answer is many millions of dollars. That's reason enough to get your kids off to a good start.

Financial decisions are also opportunities to discuss motives, which in turn instill values. A frugal father could just be mean and stingy, or he could be preparing a retirement nest egg that will take care of his wife until age 100, long after he is gone. Without knowing the motive behind his actions, children can easily assume the worst.

Even a parent's weaknesses and mistakes can be learning opportunities for their children. I have met very few people who haven't made at least one or two large financial mistakes. If you are open and honest about these mistakes, the negative example can be turned into a positive lesson for your children.

Also, if a family is having difficulty with their finances, teenage children can help. Getting the entire family to change habits and budget wisely is essential when trying to get out of debt, curb spending, or increase savings.

Finally, the best way for children of any age to get experience with finances is to give them real responsibility handling money. Children cannot learn how to be responsible with money without having a safe way of being irresponsible. I suggest that, as early as children are ready, they be given the slice of the family's budget that most directly affects them. By the time they are teenagers, they could be handling much of the money that effects their lives.

With young children, they can handle the money that is spent on games, toys and entertainment. Having to save in order to buy something that they want teaches invaluable lessons. Learning to avoid impulse buying by waiting one or two weeks before making a big purchase is one habit only learned through experience.

Another advantage of giving responsibility to your children is that it eliminates the whining and nagging for you to buy them more stuff. If your children are responsible for the game and toy budget, then they have to save up enough money to purchase that new game they want.

Parents need to be organized enough to know what amount of money is being spent in each portion of their budget in order to give their children the right amount of money. If parents help their children understand the principles of budgeting while they are young and they will be able to handle larger amounts of money when they reach their teen years.

In their teen years children can take on their own clothing budget. Many children stop wanting those expensive outfits as soon as they know that any money they save is theirs to keep and spend somewhere else.

Children can also be involved in the family's generosity. They can be included in the family conversation about what charities to contribute to and discuss what good is done by those organizations. As they are given their own money, a portion can be set aside for them to learn generosity by choosing the organizations they want to support.

By the time children are teenagers, they should have different budget categories that they spend their money on, including savings and investments. Trying to balance all of these difference categories is what budgeting is all about. By putting a given percentage of monthly "income" into each category children learn the important lesson of proportional living.

Part of being responsible includes keeping an account of where money is being spent. This is also a good discipline to learn. Whatever spending they can't account for each month could be deducted from the next month's allowance. Keeping track of their spending will give them the skills necessary to live well within their means later in life.

Here are some suggested categories, and a sample budget for teenagers:

• 15% Clothes
• 10% Entertainment (games, electronics, books, CDs)
• 5% Birthday gifts
• 10% Christmas gifts
• 7% Recreation (movies, eating out, socializing)
• 18% Educational and vocational pursuits
• 10% Big purchases
• 10% Charitable giving
• 15% Save and invest

It pays to talk with your children and offer them opportunities to practice being financially savvy. Give them a chance to fail while the consequences are not too dire, and they will grow competent to handle larger amounts as they come into adulthood.

How I Plan to Make My Kids Multi-Millionaires on $1,000 a Year

Here's a simple investing fact:

• Given enough time and the benefits of compounding anyone can become rich on almost any amount of money invested.

For instance, consider this:

1. My kids are young -- having 60 or so years before they reach retirement age.

2. If they invest $1,000 per year for 60 years and earn 10% on their money (after taxes), they end up with over $3 million when they retire.

3. Now if they earn some money in those years (which I'm assuming they will -- eventually), they can put the money in a tax-advantaged account like a 401k or a Roth IRA and make themselves earn even more.

4. But best of all, let's say my wife and I give them each $1,000 a year to invest until they get out of college at 22. At which point they start investing themselves -- let's say $500 more per year for every year until they reach $5,000 a year invested (a number that's certainly not out of the realm of reason for many people) which they keep up until they retire. And they do the majority of their saving in tax-0advantaged accounts that allow them to earn 11% on average through the years. How much do you think they'll have at retirement? $8.6 million.

What if they're super savers and can sock away $10,000 a year? Or $15,000 a year? I think you all get the point -- start early enough, invest as much as you can and work to get the best return possible and you will become wealthy.

Now someone's going to chime in the comments and say something like, "Yeah, but when they retire, $8.6 million will be worth a lot less than it is now." There's always a kill-joy, half-glass-empty person like this in the crowd. ;-)

Yes, it's true that $8.6 million will be worth less in 60 years than it is now. A lot less, in fact. That said, salaries will also be higher as time goes on, making it much, much easier for future generations to sock away $10,000 a year, $20,000 a year, or even more. Inflation impacts the value of the savings, but it also increases wages, so $8.6 million is no longer a pipe dream, but instead becomes something strong savers can blow by if they want to.

Raising Money Savvy Kids -- Control Your Spending

Here are some excellent thoughts on raising money savvy kids courtesy of Marotta Asset Management:

One of the critical concerns of generational wealth management is raising young people to be financially savvy. Many have written to say that they read and discuss this column at the dinner table with their children. If you want to raise kids who can create and manage wealth, there are a handful of critical rules that are foundational.

Here's the main one: Postpone spending.

In economics, "deferred consumption" is the very definition of wealth and capital. So defer your consumption. Everything you don't spend today is wealth. Only what you don't spend today is available for investing. And since money makes money, what you don't spend today can provide a lifetime of income to spend in the coming days.

Wealth is what you save, not what you spend.

Being a millionaire isn't that difficult. On average, U.S. stock investments earn 10% each year. If your investments earn 10% a year, and you contribute $100 per month, you will have a million dollars in a little over forty-five years. So, if you start saving when you are twenty, you can retire a millionaire at sixty-five.

A hundred dollars a month isn't that much. Lots of things cost about $100 a month. Live without that nice cell phone plan and retire with an extra million dollars. Go without high speed internet and you'll have another million to add to it. Reduce your eating out budget by $100 and you'll have a million more dollars. Avoid the average family's credit card interest and you'll have a million extra bucks by the time you retire.

Most of the younger generation is under the false impression that wealth is based on the luck of a big salary. Nothing could be further from the truth. According the book The Millionaire Next Door by Thomas J. Stanley, the affluent tend to answer 'yes' to these three questions: 1.) Were your parents very frugal? 2.) Are you frugal? 3.) Is your spouse more frugal than you are?

So how did they build their wealth? According to The Millonaire Next Door they did it slowly, living well below their means and investing about 20% of their household income each year. And because money makes money, over time, they grew gradually richer and richer.

Imagine you purchase a pair of shoes for $50 every year. The person that makes do with the old ones and only buys shoes every other year will be able to save and invest the difference. After seven years, their savings will be earning enough interest to pay for a new pair of shoes every other year. After eleven years, the interest from the investment will pay for the cost of buying new shoes every year, forever. Being frugal early in life produces great wealth later in life.

Because of the affluence of American culture, it is difficult to learn to distinguish between needs and wants. Very few purchases are needs. Other than food, shelter and clothing, everything else is optional. In the United States, we show our extravagance even in these three essentials.

Practically speaking, you can learn to postpone spending one purchase at a time. When our children were very young, we required them to wait one week before spending money on a toy. Often, after waiting a week, they wanted a different toy instead. Then, they had to wait another week for that purchase. Simply learning to delay and avoid impulse buying can cut your spending in half.

Reuse, recycle, or do without. Turn down all those extra features and services and start on your way to real wealth. Postpone spending, and save and invest instead. 

How to Make Your Child a Millionaire

Here's an interesting piece from Money Central on how to make your child a millionaire. The details:

A newborn has nothing but time -- and that's something this strategy exploits to the fullest. Let's say a 30-year-old manages to save up and then invest a lump sum of $10,000. At an annual return of 8%, by the time she's 65, that $10,000 will have grown to nearly $150,000. Not bad, right?

But then compare it to what a 5-year-old could make from the same $10,000. The extra 25 years of growth would give him over $1 million by age 65. A newborn would need just $6,700, less than the cost of a decent used car.

This is all about the power of compounding, folks. Take some money and a lot of time and you can become very, very wealthy. It's just the formula I detailed in How to Get Rich in Three Easy Steps.

That said, I'm still constantly amazed by the power of compounding and how much of a difference it can make. I'm just starting to see some really big benefits from compounding personally as my portfolio is now in a position where compounding is really kicking in. It's a nice friend to have on your side. ;-)

The article goes on to highlight what kids at various ages need to invest in order to be millionaires by age 65. It gives three alternatives: a lump-sum investment, a monthly investment until age 18, and a monthly investment until age 65. Here are the results for the various age levels:

Newborn

• Lump sum invested now to be a millionaire at 65: $6,721
• Monthly contribution until age 18 to become a millionaire at 65: $56
• Monthly contribution until age 65 to become a millionaire at 65: $38

Age 5

• Lump sum invested now to be a millionaire at 65: $9,875
• Monthly contribution until age 18 to become a millionaire at 65: $98
• Monthly contribution until age 65 to become a millionaire at 65: $57

Age 10

• Lump sum invested now to be a millionaire at 65: $14,511
• Monthly contribution until age 18 to become a millionaire at 65: $200
• Monthly contribution until age 65 to become a millionaire at 65: $85

Age 15

• Lump sum invested now to be a millionaire at 65: $21,321
• Monthly contribution until age 18 to become a millionaire at 65: $662
• Monthly contribution until age 65 to become a millionaire at 65: $127

Very, very, very interesting -- and compelling -- information. Imagine socking away $6,721 when your child is born, knowing he/she would be a millionaire at age 65. I know, $1 million would not be worth as much then as now, but it still would be a decent amount for such a small initial investment. Besides, what if instead of $6,721, you set aside $20,000? Or $30,000? That's when the pot at 65 would be REALLY big money!

It's More Blessed to Give than Receive

Even non-Christians are familiar with the teaching of Jesus that says "it's more blessed to give than receive." The actual quote is from the book of Acts, chapter 20 and verse 35:

In everything I did, I showed you that by this kind of hard work we must help the weak, remembering the words the Lord Jesus himself said: `It is more blessed to give than to receive.'"

We try to teach our kids about giving all year around, but Christmas presents a special time for us to remind them (and ourselves) that it is truly more blessed to give than receive. We do this through an event that has become a tradition in our house (we've now done it for three years in a row.) Here's what we do:

1. We get a copy of the Samaritan's Purse 2006 Christmas Gift Catalog. They usually mail us one since we're on their list.

2. Each child is given an amount to give away. My wife and I get the same amount too. This year, each person got $125.

3. Each person looks through the catalog and decides on how he/she wants to give away his/her money. There are lots of choices. For instance, you can:

• Buy an Airline Ticket to Save a Child’s Life

• Help a Child Learn to Read & Write 

• Provide Life-Saving Food

• Supply a Thirsty Family with Clean Water

• Change a Life through Vocational Training

In all, there are 38 different ways to give.

4. Then, once we have each allocated our money, we go through the book and see what everyone gave to (we write our names next to our gifts) and talk about it. It's a fun time to focus on others, the joy of giving, and our children's thoughts on why they decided to give to certain needs.

Of course, this simple event can involve any charity. In fact, I know several families who do something similar around the more well-known event put on by Samaritan's Purse, Operation Christmas Child. It's a great cause as well. In fact, any gift to Samaritan's Purse is put to good use -- which is the reason they get a top rating from Charity Navigator.

So, if you're looking to give rather than receive this season, you might want to consider something similar. Then again, maybe you have your own giving tradition. If so, please share it in the comments below.

More on the Financial Tsunami Waiting for Us All

I should have known it. The minute I write about The Bermuda Triangle (Plus One) of Personal Finance, I find a couple more articles on the subject.

For those of you not up-to-speed on what I'm talking about, I'm addressing the intersection of four major financial events that are happening to today's middle-aged adults. These are:

• Saving for retirement
• Caring for aging parents
• Paying for college
• Kids moving back home after graduating college

The first article I want to highlight discussing this issue is one by Suze Orman. She focuses on people who are dealing with both their children moving back home as well as caring for aging parents. Here's her advice for how to handle the first part of this issue:

Regardless of why the kids are back, the absolute worst move you can make is to welcome them without any financial expectations.

Charge rent. Insist that your child set up an automatic payment from their own checking account into a special savings account you set up. That savings account becomes their housing account. You aren't pocketing the money for yourself -- you're helping (OK, forcing) your child to save for a goal: being able to buy their first home, or more likely, at least have enough of a housing fund to cover some of their rental costs.

As for how much to charge, it should be a percentage of their take-home pay -- at least 25 percent.

You should also set a timeline for when they'll move out. Don't wait until you're at the breaking point; you don't want to have this conversation under the cloud of frayed nerves.

I absolutely love this advice. This is what I'll plan to do if our kids ever try to move back into the house. That is if they can get in once we have the locks changed. ;-)

Next, here are some of her thoughts on caring for your parents. Specifically, she suggests you discuss the issue of care with your parents and gives this advice on how to frame the conversation:

"Mom and Dad, I've been working on making sure I have the right documents in place to ensure my family is OK if anything were to happen to me. I'm wondering if you have everything in place, so that when the time comes I can carry out your wishes exactly the way you intend. That's so important to me. I want to make sure I can take care of you, and take care of your estate when the time comes, exactly as you want everything to be handled. And for that to happen, I need to make sure you have the right documents set up in the right way."

Suze then details what these "right documents" are -- so click through on the link above if you'd like more details.

The second article deals with the even more daunting (at least financially) issue of saving for retirement and college at the same time. Every piece I've ever read on this subject has the same advice -- and this one is no different:

I recommend that people avoid trying to do too much and, instead, adopt a realistic saving plan that focuses on the most important goals first and then moving on to secondary ones.

So which goals are most important and which are secondary? Well, ultimately that's a personal decision. But if you look at this issue in terms of what strategy has the best overall chances of securing your family's current and future financial security, I think the following three-step approach makes sense for most people.

• Have an emergency fund.
• Put as much as possible in retirement accounts.
• Once you know you're on track for retirement, you can start to think about other goals, such as saving for a child's education.

Basically, the thought is that only you can provide for your retirement. On the other hand, your kids can get scholarships and other financial aid to go to college, they can borrow money to do so, other family members may help pay for schooling, etc. If you don't save for your retirement, no one else is there to help you out.

I'm in general agreement with this thinking, but I'd add a couple comments:

• My preference is that people would control their spending enough to be able to save for retirement and save a good amount for college. This may mean they need to either control spending or earn more income. (or both!)

• There are tons of ways to save on college costs that can make it much more affordable. You can get financial aid or scholarships, take steps to save 50% on college, save money by studying abroad, or take any number of steps to save on college.

The (Financially) Blind Leading the Blind

Here's a depressing quote if I ever saw one. It's from the October 2006 issue of Kiplinger's and says:

In a survey by USAA, 86% of teens say that parents are their most helpful source of information about money. Meanwhile, 49% of parents say their money management skills range from "okay" to "terrible."

Frankly, I think that too many parents are giving themselves too much credit. Based on what I've seen, more than 49% are much worse that what is indicated here.

Is it any wonder so many young adults get into financial trouble? They look to their parents for financial advice, get and act on it, and then they're soon in the same mess their parents are in.

The answer: parents need to learn how to handle their money and then put this learning into practice. Then they need to teach them to their children. A place to start? The 10 Best Money Moves You Can Make.

Ten Principles for Teaching Children about Money

Here's a piece courtesy of Marotta Asset Management that offers ten principles for teaching children about money. Their thoughts:

As Americans try to spend less and go on a budget this provides an opportunity to teach the next generation financial principles they may never have seen in the prosperous years they have been alive. Here are ten principles for teaching children about money:

1. Talk about money. Every time money is involved, parents have a chance to teach their children the values and analysis behind their actions. Money should never be the primarily topic of discussion, but it is one of the most important topics through which we communicate our wisdom and values to our children. Every purchase, investment, or donation can be a time to teach your children something about your values.

2. Talk openly about money. Parent makes a mistake when they keep information from their children. The only way children learn what is a good deal and what is too expensive is by the experience of what their family earns and what items cost. Hiding this information robs children of the financial education they need.

3. Talk factually about money. Many parents have strong emotions about money based on their childhood experiences. These emotions are always transmitted to children. Instead of helping children, they can cripple children from growing to make sound financial decisions

4. Require chores; pay for optional work. Everyone in the family has to help complete the work that needs to be done. If you want to pay your children, only pay them for optional work they can choose to do or not to do.

5. Provide children an allowance they can make real choices with. Talk about money is important, but children need real-world lab experience to understand the consequences of their decisions. Consider giving them an allowance large enough so that they can purchase some of their own needs. Then continue to give them honest advice, and help them ask the right questions to make wise decisions based on their values.

6. Help children prioritize purchases. Ask them if this purchase is better than other purchases they are considering making.

7. Help children comparison shop. Help them consider issues such as cost, quality, and convenience.

8. Require children wait before making large purchases. Adults should wait at least a month whenever they are making a large purchase. Children shouldn't be expected to wait that long. Here is a good rule of thumb: Children should be required to wait as many days as they are old in years before being allowed to make a large purchase (over a week's allowance). There is always tomorrow and over half the time they won't remember what attracted them to it in the first place. Developing this habit will help make them resistant to impulse buying.

9. Don't use money as a punishment. Your priority should be helping to give your values to your children, not buy their outward behavior.

10. Don't loan your children money. If their desired purchase is something they should be saving for, let them save for it. If you want to buy it for them for the value of the experience, buy it for them. The principles are "If they want it, they have to save for it. If you want them to have it, you will buy it for them." Loaning your children money for items they want teaches them they aren't responsible and they don't have to prioritize.

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It's an interesting list, but I can't say that I agree with it all. Here are my thoughts on each of the suggestions:

1-3. These are really all the same tip to me. We talk to our kids about money regularly. After about the tenth time on an issue, they start to "get it." ;-)

4. We do this. Everyone does a certain amount of chores just because he/she is a member of the family. Extra chores gets extra money.

5. We have a somewhat small allowance ($5 per week), but the work requirements aren't that hard. For the "big money," the kids can take on special assignments (raking leaves, etc.). In addition, they get plenty of money for birthdays, Christmas, etc., so they always have the opportunity to make real choices with their money.

6. Easier said than done -- but we try!

7. See #6.

8. Our kids usually save up for a big purchase and that takes some time. As a result, the waiting time is automatically built in.

9. I disagree. Money can be used as both a punishment ("you broke your sister's toy and you need to buy her a new one") and a reward ("you did an extra special job on the lawn so I'm giving you a bonus.")

10. We only loan them money when we know they have it in their bank. For instance, they may want something at the store and decide to buy it with their own money. We pay for it at the store, then they reimburse us when we get home.

That said, I will someday loan my kids money and expect them to pay me back. I hope it serves as a lesson on what banks, credit card issuers, etc. will be like when the kids grow up and borrow from them.

Fund a Teenager’s Retirement as a Multi-millionaire for Only $18,000!

As I've said before, there are only three simple steps you need to take to be rich. This article talks about them all -- suggesting that if you get your kids to save early enough they can retire wealthy. The article has been provided to Free Money Finance courtesy of Marotta Asset Management. Here goes:

We teach teenagers ten times more about sexuality than money. Many get the wrong message about what we expect them to be engaged in. Give this article to a teenager and encourage them to start a Roth IRA.

For an $18,000 gift over the next six years plus a little work on the teenager’s part you can completely fund a teenage child or grandchild's retirement in the multi-millions. Here’s how it’s done:

They can contribute to a Roth IRA to the extent they have earned income. Getting earned income requires some work on their part. They need to keep track of everything they earn. The work has to be real work and the income needs to be reported on their tax form. Contributions to a Roth IRA are after taxes, so a good time to start a Roth is after age 14 when they are no longer taxed at their parents’ rate.

The maximum contribution for a Roth IRA is $3,000 for 2003. Teenagers who have earned that much money often have other ideas for its use than funding their retirement. That’s where a parent or grandparent can offer the right incentives. You can offer to give to them any amount that they earn and use to fund a Roth IRA between 14 and 19 years old. They will work hard to fund their IRA and still have the money to spend. If they work very hard and earn $3,000 each year it will cost you $18,000 over the next six years. It will be worth the effort on both your parts.

Contributing $18,000 in the first six years and earning 11% will result in investments worth over a million dollars at the end of 39 years. If the process is started at age 14, the value of the Roth IRA will pass a million dollars at age 56, and be worth nearly 9 million at age 72!

Starting early makes a big difference. At the end of the first six years of $3,000 investments, the portfolio should be earning and reinvesting over $3,000 per year. That means that funding a Roth IRA for 6 years and then stopping results in more money than waiting until the seventh year, and funding it for the rest of your life! And if you start at age 14 and continue to contribute $3,000 each year, you will own results in a 18 million dollar portfolio at age 72 earning nearly two million dollars a year.

Teenagers don’t need to earn and contribute the maximum each year to benefit. Even funding a Roth IRA with $700 over six years starting at age 14 will result in a portfolio of over two million dollars at age 72. This incentive would only cost $4,200. Offering to match their funding with a gift is generous and provides an incentive for them to plan and save for their future, but families with less income can mentor their children through the process without matching their contribution. A financial planner can help set up the accounts, manage the investments, and explain the principles to the teens involved.

Everything that is true for a teenager is true for adults as well, so don’t forget to fund your own! Roth IRAs can be funded until April 15 using income earned in the previous year. The highest wage earners are not eligible to fund Roth IRAs, but their children, who file separately, are eligible. Because of their benefits, funding your Roth IRA should be one of your highest priorities.

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1. Spend less than you earn.
2. Invest the savings.
3. Do it for a long time.

Those are the simple keys to becoming wealthy. Helping you kids do the first two early in life will set them up for a financially secure future.

How to Get Kids to Save Money

Here are a few suggestions from Kiplinger's on how to get kids to save money:

One way to encourage them to save is to give them a goal, preferably one they can accomplish in a manageable amount of time. For the younger children that could be a coveted toy, a jersey from their favorite team, a new baseball glove, even an outing with Gramps. For the 13-year-old, it could be a new computer or a school trip.

Once kids are teenagers, you can expand on those early lessons and hit them with the best trick in the book: the magic of compound interest. More than any other lesson, using a calculator to show how fast money grows seems to make a big impression on teenagers and young adults.

Not bad suggestions.

Here's how we do it:

1. Any money our kids get go into three jars: giving, spending, and saving.

2. The giving jar is a mandatory 10% of everything they get and goes to our church. They can put in more if they like (which they both always do), but 10% is the minimum.

3. From there, they can decide how to split up the remaining money into the spending and saving jars. It's usually about a 50/50 split after all the giving is done.

4. The spending money is then used for immediate, "I want this now" sort of purchases that are usually relatively low cost. For example, each of the kids recently spent about $10 to buy a super soaker water gun. Before that, my son bought a new basketball he wanted.

5. The savings jar is for longer-term goals -- items that are usually much higher in value. For instance, my son recently saved to pay part of a new bike he wanted (we paid the rest). He's currently saving for a video game system (assuming he can get the approval from my wife). I'm not sure what my daughter is currently saving for at this time.

We haven't yet started making them put away some money for college, though we'll probably start that soon. As I've said before, they will be responsible for paying half their way to college, so they need to get started!

Raising Money-Wise Kids

Here are some suggestions for raising money-wise kids from, of all places, Schwab. Their suggestions:

• Give your children an allowance and encourage them to use it for their discretionary purposes. It's one thing for a child to say, "Mommy, I want that toy." It's quite another for her to reach into her own pocket to pay for it. This teaches her how to place value on money. And when they get to age nine or 10, you can use the allowance to teach them about budgeting and making choices.

• Talk with them about financial trade-offs. Explain why you're forgoing an expensive vacation in order to put some money away for the future, for example.

• Give them an incentive to save. One way to do this is to match their savings dollars. For example, you might add fifty cents to every dollar they put in their savings accounts.

• Let them help with simple household financial management. At the grocery store, for example, have your kids comparison shop for paper towels. Older kids can help you with the administrative tasks of bill-paying, so they can see how much money it takes to run a household.

• Teach them to be generous. Help them find a charity or cause they care about, and encourage them to give their time as well as their money, through volunteer opportunities.

My thoughts on each of these:

1. We don't have an official allowance policy, but it's time we get one. Even without an allowance though, our kids seem to do ok when it comes to generating money (birthdays, grand parents, payments for special tasks around the home, etc.)

2. We talk about financial trade-offs all the time. We also mention financial consequences (like those resulting from hanging off a moving garage door.)

3. I especially like the savings matching idea -- especially since our kids are going to pay for part of their college expenses.

4. We have worked with our kids a lot to comparison shop (I know, no surprise there, huh?) and it seems like they are starting to "get it."

5. We're hitting a home run on this one. Our kids regularly give away 20% or so of what they collect. We even have to "watch" my daughter or she'll give it all away. ;-)

A Rich Legacy

Here's a very interesting piece from Yahoo. The author remembers the financial lessons her dad taught her and how they mean so much to her now as she raises and teaches her own kids. Here are the key lessons:

1. Thrills are truly cheap.

2. Everyone chips in.

3. Be generous and honest.

4. Space is secondary.

5. Bribery will not permanently damage your children.

6. People are more important than material objects.

If you want to be inspired by a story about money, click through and read this one. You can just feel the way this family learned about money in an environment that nurtured and encouraged them at the same time.

For more about kids and money, see these links from Free Money Finance:

• How to Teach Your Kids about Money


• How to Educate Kids on Money Matters, Nine Tips for Teaching Teens, Tweens about Fiscal Responsibility


• 10 Money Tips for Soon-to-be Parents

How to Teach Your Kids about Money

I've had many people bemoan the fact that they weren't taught any money management principles either at home or in school while they were growing up -- they had to learn them on their own. I fall into this camp as well. My mom was a single parent for much of my childhood and she didn't really know much about handling money (other than how to stretch it like rubber). And school? My best money-related education was pitching quarters against the wall (which, BTW, would get you a trip to the Office if you were caught).

Someone needs to do something about this situation. If we can teach today's kids about money, hopefully they'll be much better off -- or at least better able to manage -- than many of us were. I'm excited that someone as influential as David Bach is taking on this project (see my interview with him where he mentions that this is next on his agenda). However, in my opinion, school money education is not the main avenue for teaching our kids. I'm in agreement with this piece from Market Watch that says financial literacy begins at home. Here are their thoughts:

The most critical lessons of financial literacy often are best taught at home, simply by allowing the kids to watch things that usually happen behind closed doors.

Let the children watch you pay the bills and balance the checkbook. Have them see you deposit money, and not just using your credit or debit cards, so that they understand that money has to go in before it can come out.

Have them involved in a family survey of just how much money is being spent each month, and for what. Then involve them in discussions of how you might cut spending and what you might do with increased savings.

Too many kids think money comes from a bank machine; they don't recognize all of the basic costs involved with running a household (or just the costs involved in having a first dorm room or apartment). Make sure they understand how to open and close accounts -- because they won't know much about security deposits -- and understand the value of paying bills on time.

I agree with this 100% -- in theory. The practicality, however, is a bit more complicated.

Why? Because by watching his/her parents and how they handle money, the average child will learn:

• How to spend more than they make
• How not to save
• How to rack up a bunch of debt
• How to get a bad loan

I could go on and on, but I think you get the picture. Today's parents must first educate themselves, then apply what they've learned and THEN they'll be able to teach their children the proper ways to handle money. I'm hopeful that Free Money Finance be one source that can help them do this.

Comments: How to Educate Kids on Money Matters, Nine Tips for Teaching Teens, Tweens about Fiscal Responsibility

Here is a GREAT comment/story I received in response to my post titled How to Educate Kids on Money Matters, Nine Tips for Teaching Teens, Tweens about Fiscal Responsibility:

Thank heavens, it is never too late, and you don't have to have much money, to teach them a great lesson.

When my son was 20 he and his girlfriend moved back "home" to my house. They had not been successful at finding jobs, and "... well, lets just move in with my folks..." he said.

After watching them sleep-in til noon and read the classifieds for a week, while I worked my three menial jobs, I said I would hire each of them at $50 a week for an 8-hour day, 5-day week.

Their JOB was to get a real job. We planned their days so they could see how to get a job and enjoy it at the same time.

They each had a job within two weeks. Then we each put 5% of our pre-tax income into a regular savings account to be split three ways when they moved out. We had $500 each, a year later. Too bad I didn't know about other investment opportunities then.

Now I am hiring my granddaughter, and starting earlier.

Thanks for your encouraging words.

Great, great, great story!!!!!! Thanks for sharing it!!

How to Educate Kids on Money Matters, Nine Tips for Teaching Teens, Tweens about Fiscal Responsibility

My kids are still young (at the stage of learning to count money, make change, etc.) yet we take every opportunity to teach them the basics of handling money. Like lots of other kids, they have a bank where they put long-term savings (like a new bike), short-term savings (like a new game), and giving (where my daughter puts most of her money). We also talk about the price of items while shopping, the impact of advertising, etc. A couple months ago we even videotaped them answering the question: where do we get money to eat, pay for our house, and so on? Their answers were hilarious!!!!

This piece from MSNBC gives nine tips for teaching children about money. Before we get to those, let's cover a few of their quotes that I thought were particularly interesting:

“Financial awareness is now key at an earlier age because young kids are becoming more aware of consumer issues, and marketers are responding to them,” said Brent Neiser, director of collaborative programs at the National Endowment of Financial Education (NEFE) in Denver. “Cell phones for 8-year-olds is a perfect example. Companies are trying to capture market share and brand affinity at an earlier age than ever before. That results in young kids making spending decisions earlier, but they’re still not learning how to save for the long term.”

And it certainly doesn’t help when they see the typical financial skills of their elders: The U.S. savings rate is at an all-time low, bankruptcies are at near-record highs and the average household has $9,000 in credit-card debt.

Ha! They've got that right! Many of today's parents didn't learn much from their parents regarding money -- and what they did learn was not that great. (I know, there are exceptions -- don't kill me in the comments.)

In addition, kids aren't learning much at school -- but things are starting to change:

Personal finance education for kids has not been too high on the priority list for schools or states, but that is now changing. Only 12 states require students to take a course about basic finances to graduate high school, but another 12 have pending legislation. Texas is the biggest and most recent state to mandate the requirement starting this fall.

David Bach talked about his desire to help kids learn about money in the third part of my interview with him (scroll to the end). It's a good cause to get behind.

The article goes on to give a thought all parents need to consider:

Still, like with most lessons, children should be learning the big ones at home. Parents need to lead by example, even if that means cleaning up their own financial act, said Foster. “It’s like smoking and telling your kids not to smoke. If you want to make them save, learn about investing and pay their credit card off every month, you need to do that too. If you do something different, that defeats the purpose.”

Yep. Kids won't do what you say, they'll do what you do.

Finally, here are MSNBC's nine tips for teaching children about money:

1. Don’t teach, just talk.
2. Get them a piggybank – or a spending account.
3. Give them a goal.
4. Monitor their use of plastic.
5. Have a “Family Money” night.
6. Tone down the consumerism.
7. Use extracurricular activities.
8. Turn them into investors and donors.
9. Make them work for it.

My thoughts on these:

1. Good point. Be natural and just share what you know.

2. As I said, we have one for each child.

3. We have goals: my son is saving for a bike while my daughter is saving for...what is it again she's saving for?

4. My oldest is 9. Needless to say, we don't have credit cards for either of them.

5. Good idea! I like this one a lot.

6. As you might imagine, we're not big spenders in our house anyway. ;-)

7. I haven't seen many of these opportunities. However, the kids did play Life the other day -- it made my daughter realize that you can't make much being an artist. ;-)

8. We've got the donor part down -- investing will come soon.

9. Of course. They need to learn that money is made/earned, not a right for just "being".

Any tips you can share with the rest of us? I'd love to learn something new that works well.