Free Money Finance

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 w