Free Money Finance

Who Knew Prom was so Expensive?

Here's a piece from the Wall Street Journal that says families with teens going to proms spent an average of $1,139 on the event last year.

All I can say is "wow".

Most of the cost is in the attire (as you might expect), but there are also costs for transportation, flowers, photography, and tickets for the event. They all add up to an average of over $1,100. Which is over $1,000 more than what we spent this past year.

My son went to his prom (called a "Spring Fling") this year with a group of friends. He spent $45 on a ticket and about $50 on clothing. We dropped him off/picked him up. Food was included in the ticket cost -- as was post-event entertainment (they went to a local indoor go-cart/laser tag/entertainment facility -- staying until 1:30 am.) It was a great night for him (he had a blast) and we didn't need to spend a fortune.

I'm not sure how we could have spent a fortune if we wanted to. Perhaps some readers who are prom parents can enlighten me on how the costs get so high.

Anyway, I was surprised the numbers were this high. If they are true, the cost of prom is getting as out of control (relative for what you get) as the cost of weddings.

What did you (or your child) spend on prom this year?

The Ideal Inheritance: Wisdom and Guidance, Not Money

The following is a guest post by Bryan, a personal finance blogger and freelance writer at Gajizmo.com. Bryan graduated from a top-ranked university with a finance degree and has worked in M&A and private equity for 3 years.

As a member of Generation Y, I don’t find money a taboo subject. I discuss my financial plans, investments, long-term goals, and the current status of my business with my parents and siblings on a regular basis. My parents, on the other hand, don’t openly discuss their income or assets, but at least don’t hide every financial statement from us either. Maybe it’s an issue of superstition (that talking about a good financial year will bring a downturn of luck), privacy, or that it is just not something they want to discuss with us. This seems to be the norm in American families, with most leaning closer towards secrecy and discretion. Of more than 100 individuals and families with a net worth of more than $20 million, only about a third of wealthy parents discuss money with their children before the age of 21, according to a study by SEI Private Wealth Management. At this level, wealth is harder to hide, so offspring may be tacitly aware of their family’s financial means, but for others with more modest millionaire status, children may be kept completely in the dark. And I can understand why.

Parents are worried about destroying their children’s motivation, independence, and self-reliance. My father has regularly explained to me that the greatest thing he has ever tried to teach me is survival. When you experience unexpected hardships, monetary or otherwise, the ability to innovate, be resourceful and keep providing for your family and avoid financial failure is an essential life skill. How will a child ever stand on his own two feet if there is a cushion to fall back on? Eventually, the child will realize that every time he falls, someone will be there to save him, so what’s the point of actually trying to do it on his own? If you have children like this, and parents can always recognize the signs, I don’t blame you for not sharing your finances with them. Your kid will likely take up a low-stress job that requires no hard work or mental stimulation, wait for you to pass and then collect their inheritance. Afterwards, they will likely squander your wealth and destroy your legacy, all the while blaming you for ruining their lives. Like King Solomon warned, “An inheritance quickly gained at the beginning will not be blessed at the end.”

Like my parents, I want to be self-made. I don’t want an inheritance and I don’t want a single penny of theirs left behind. In fact, I insist that they spend every cent enjoying the rest of their lives; after all, they’ve worked so hard for it all. The entire concept of working like crazy till you’re 65 and then retiring to enjoy what remains of your life has always baffled me, but that’s a discussion for another time. While I may not want their money, I can’t say I want nothing from them. In fact, I constantly solicit and request their counsel – the wisdom, experiences, and business strategies that have made them successful.

One quote that comes to mind is by Jim Rohn, which he states: “Time is more valuable than money. You can get more money, but you cannot get more time.” Young adults and entrepreneurs can take a bet, make a mistake, learn from it, and make another bet in the future after they've rebuilt their portfolio and savings. Simply put, I can always make more money, but what I can't recover is the lost time that the mistake cost me - time that could have been applied to a more productive task had I been mentored. This is one of the many reasons early stage venture capitalists are so crucial to the success of start-ups.

To overcome this deficit and pave the way for open communication, for my birthday last year, I asked for only one thing – my dad to discuss his investments with me. When he buys a stock, tell me about it and explain the reasoning behind his purchase (though he made a killing on some of my recommendations during the year, he just never told me he actually took my advice until 18 months later). When evaluating a potential business acquisition, what are the financial metrics he focuses on for insight into the company’s future performance.

Unfortunately, as close as we are, he doesn't ever approach me to fulfill my birthday wish. I grew up learning math and science from him, all of which made me excel in school, but for some reason, when it comes to this topic about investments and business decisions, it is like pulling teeth to get him to explain his thoughts. Maybe it has nothing to do with me or how he feels about money. Maybe it’s just the fact that he works hard all day, wants to come home to relax and not think about business.

In the end, I urge anyone who is a parent: the greatest gift you can bestow upon your kids is tangible wisdom applicable to the real world. Whether it is requested or not, just give it. Most of the time, your kids are listening, and even if they don’t immediately respond to or implement it, trust me, it’s on their mind. And lastly, after your kids graduate from college or leave the home, it shouldn’t be an “every man for himself” mentality. If your kids join the work force, talk about office politics, how to maximize their 401K and IRA contributions to minimize tax liabilities, or what kinds of projects to take on to ensure advancement within the company. If they want to buy a home, discuss the importance of calculating property taxes, home insurance, and maintenance. If they plan on investing in the stock market or themselves by starting a business, guide them on the types of research they should undertake before making the leap, the advantages and disadvantages of mutual funds, ETFs, bonds, commodities, and options investing, or choosing Fidelity vs. Vanguard for their index fund needs. More important than helping them with their jump shot or algebra homework in 7th grade, guide them as adults, when the stakes are much higher and the mistakes much costlier.

How do you discuss financial, business, or life issues with your adult children?

Do You Pay Your Kids for Good Grades?

Here's a piece from the Wall Street Journal that debates the pros and cons of paying your kids for getting good grades. So my question for you today is this:

Do you pay your kids for good grades?

We do not pay our kids for grades. However we have set up an incentive plan for our daughter. Here's what happened...

When she was younger she had a Spanish teacher that she didn't like (at a local co-op -- our kids are homeschooled for the classes we can teach, but neither of us knows a foreign language). So as she approached high school, she was adamant that she would not take a foreign language class. Our problem was that our state requires at least two years of foreign language to graduate from high school.

So while our daughter didn't want to take a foreign language, there was something she wanted: an iPad.

Seeing the opportunity, here's what I offered her:

• I would hire a tutor for here.


• She would apply herself to learning Spanish with the goal of passing the CLEP test for college Spanish 1.


• When she passed the CLEP test, I would buy her an iPad.

She loved the idea and we had an agreement!

I found a Spanish tutor on a recommendation from a friend. The tutor was a teacher at a local high school and tutored students on the side. My friend's kids had taken the teacher's classes and loved her.

My daughter hit it off with the teacher and they started meeting every other week when my daughter was in 8th grade. Now at the semester break of her 9th grade year, she's completed high school Spanish 2 and wants to keep going. I'm now hoping to get more than the Spanish 1 CLEP credits out of the deal. :)

One problem we ran into was that it's going to be better for my daughter to take all her Spanish classes and then take the CLEP tests. But that's a couple years down the road. So while she had completed her classes and COULD take the CLEP test, it's better to wait and see if she can pass multiple Spanish CLEP tests (and thus enter college with 6 to 9 credits rather than 3.) But she's basically earned the iPad now -- she's done everything we asked (and according to the teacher would be ready to pass the Spanish 1 CLEP) except for actually passing the test.

So we reached a compromise. We bought her an iPad mini (which she preferred over the iPad). If she passes the Spanish 1 CLEP, then she's already received her payment. If she doesn't, she will reimburse us the cost of the iPad mini from her savings.

BTW, we gave my son the same deal (he's now taking Spanish with the same tutor) and I even had offered to let him pick a class different than Spanish to pass the CLEP for. He doesn't want an iPad, but does want a new phone, so I offered that as an incentive. His response: "Nope. Too much work." :)

Anyway, that's it for my school-incentive efforts. Do any of you have stories of your own in this area?

Teaching Kids Financial Self-Discipline

The following is a guest post from Dr. Craig R. Everett, the author of Toby Gold and the Secret Fortune, an urban fantasy novel that introduces financial literacy principles to children ages nine and up. I will soon be reading this book with my kids.

Financial independence boils down to two main factors.  First, it requires the ability of the individual to spend less than he or she earns, which requires budgeting.  Second, the individual must be able to invest that regular surplus over a prolonged period of time.

Both of these factors depend on one particular character trait: Self-discipline.

Unfortunately, self-discipline is a trait that appears to be in relative short supply in today’s culture.  Kids want everything “now” and for the most part, they get it.  Parents recognize that this is a problem, yet seem unable to address it.  According to a 2002 report by the non-profit group Public Agenda, only 34% of parents feel that they’ve succeeded in instilling the value of self-discipline in their children.  One has to wonder if even those 34% may be fooling themselves.

For parents who are concerned about teaching their kids financial self-discipline, here are a few ideas to try at home:

• Play games that reward waiting.  For example, here is one that is based on the famous “Marshmallow Test” at Stanford in the 1960’s.  Have your child sit at the table and place their favorite treat in front of them.  The first time, start off easy.  Tell them that they can either eat the treat right now, but if they wait 2 minutes, they can have TWO treats.  Then each week, do the game again, but extend the waiting time.  This reinforces the principle that delayed gratification will be rewarded.  For older kids and teens, a variation of this game would be for you to wait for your child to come to you asking for money for something, let’s say a new game or app.  You give the child a choice.  You tell them that they can have the money for the game right now or, if they wait two weeks, they can get two games instead.  The idea is to use the opportunity of them really wanting something to teach them patience.


• Make their allowance conditional on keeping a budget and expense log.   The expense log is critical – kids need to get in the habit of keeping track of exactly how and when they spend their money.  On allowance day, have them show you how much money they have left from the previous week, plus a list of exactly where each penny was spent.  This habit will make effective budgeting a very easy next step.


• Use the time-honored principle of “matching funds” to encourage saving.  For many adults, the only reason they participate in their employer’s 401k program is because the company matches at least a portion of everything they save.  Do the same thing for your kids.  Every week, make a trip to the bank with your child to deposit the money they’ve saved from their allowance and then match it with your own additional contribution.  This gives them an immediate reward for saving, which will strongly reinforce the habit.

These are just a few suggestions worth giving a try.  The overarching principle is to look for any opportunity to reward your child for exercising patience, particularly when it comes to money.  The rewards do not have to be solely financial.  Sincere praise when a child demonstrates a worthy character trait – such as self-discipline – goes a long way. For many kids this is even better than a cash reward.  As a father of five, I can testify to the fact that some techniques work wonders with some kids but not others – even within the same family.  It’s a matter of trial and error to find the approaches that work best with each of your children.

How Much the Average Couple Spends on a Wedding

This piece from my local paper contains a chart listing what an average couple spends on a wedding. I've seen the total numbers previously, but don't recall ever seeing how it breaks down by category. Here is the breakdown for the entire country:

• Overall wedding (excluding honeymoon): $27,021
• Wedding venue (reception hall): $12,116
• Engagement ring: $5,130
• Reception band: $3,122
• Wedding photographer: $2,229
• Florist/decor: $1,894
• Wedding/event planner: $1,753
• Ceremony site: $1,599
• Videographer: $1,486
• Wedding dress: $1,121
• Rehearsal dinner: $1,078
• Reception DJ: $929
• Limousine: $669
• Ceremony musicians: $536
• Wedding cake: $535

As you might imagine, I'm licking my chops at cutting this budget. :)

Anyway, some thoughts from me:

• The main cost of the venue has to be the food associated with it. At $30 per person, the budget above implies 400 people at the reception. I guess if there's alcohol costs and other expenses, then the number of people would be lower. Ways to lower this number: 1) invite fewer people, 2) have the reception at a lower cost place, 3) have the reception on an "off" day (not a Saturday), and 4) have the reception meal be something besides dinner (we had a mid-morning wedding and lunch at our reception.)


• $5k for an engagement ring seems "normal" (compared to what society expects) and "expensive" (based on the fact that it's "just" a ring (please don't scream at me engaged couples). That said, I spent about this amount 20 years ago, but I got a "deal." I knew a jeweler who got me a diamond at wholesale cost. The ring cost me about $5k (from what I remember) and was appraised at $20k (by a different jeweler) a month later. Oh, and $5k was roughly a month's salary for me at that time.


• Ok, so why do you need to have a reception band and a DJ? Isn't one enough? My cousin has his own side business where he shows up with a computer and speakers and can play almost any song anyone requests. I think he charges a few hundred dollars for a night. Hiring someone like him would save a few thousand dollars off the budget above.


• I'm wondering if the photographer and videographer could be combined for savings as well. There's almost $4k tied up in the two of them. You don't want to risk having bad pictures, but it seems like there's money to be saved here even if two people are required.


• $2k for flowers and decor seems a bit high as well. I remember us getting bids from several florists and the costs varied widely. So I would suggest shopping around. I've also heard it said that the minute you mention the flowers are for a "wedding" the price doubles or triples. So call and see what the estimates are if you would simply like to decorate your home. Another idea: look for a grocer who uses flowers as a loss leader. We have a local one that sells long-stem roses at a fraction of the cost the nearest florist does.


• Really? Are we at the point where we need to pay someone almost $2k to plan our weddings? Ugh.


• Spending $1,600 for a wedding site seems crazy to me. We got married in a church and I believe the donation to them was $50. Of course this was back in the day, but still. At worst, lump the site in with the reception place and get a "deal". At best, pick a quaint church where it costs a fraction of the average.


• I've heard that you can rent wedding dresses. I think Costco might also sell them. I'm betting you can get something nice for well below $1,000.


• The rehearsal dinner actually seems like it's a decent price to me.


• The rest is just rounding at this point. We've covered the big money above.

If you want a few more ideas on how to save on a wedding, see these posts:

• How to Have Half a Million Dollars at Retirement by Controlling Wedding Costs


• Save on a Wedding by Having It in the Winter


• Save Money on Wedding Expenses by NOT Telling Suppliers that Your Purchase is for a Wedding


• Save Money on a Wedding by Renting a Wedding Cake

Personally, we're planning on giving our kids a set amount of money and letting them decide whether they would prefer having a wedding or whether they'd like to make a down payment on a house (or spend the money on something else.) Then it's up to them to decide.

By the way, a close friend of mine says that this plan is unfair to my daughter (or overly benefits my son -- however you want to look at it.) He says that since the bride's family is expected to pay for the wedding, any amount we give our daughter would likely go for that. But my son could keep his money from us and allow his future in-laws to pick up the wedding tab, giving him an unfair gift when compared to my daughter. What's your take on this line of reasoning?

Fund a Teenager's Million-Dollar Retirement

The following is a guest post from Marotta Wealth Management.

I (FMF) have started this process with my children. They earn (soccer for my son and pet sitting for my daughter) and I contribute the amount they make into a Roth for them.

We teach teenagers a lot more about sexuality than we do about money. This can confuse them about what they should be learning. Give this article to a teenager and encourage him or her to start a Roth IRA.

For a $4,300 gift spread out over the next seven years plus a little work on the teenager's part, you can fund a teenage child or grandchild's million-dollar retirement. Here's how it's done.

Teenagers can contribute to a Roth IRA to the extent they have earned income. Getting earned income does require some work on their part. They need to keep track of everything they earn. The work has to be real, and the income needs to be reported on their tax form. Many young people long to do real work. Our children began doing paid work at age 14.

Earning money is hard work. But it teaches vocational skills that many college graduates still have not learned. Working teaches adolescents to speak standard English clearly so they can be understood. They learn to communicate with adults in a respectful way. They find out how to plan ahead so they arrive at their job on time and prepared to work. On time means five minutes early, not thirty seconds late. They discover how to take self-improvement and learning skills seriously, improving their self-esteem in the process. And finally, they learn to follow both the letter and the spirit of instructions.

The skills and life lessons that teens gain in early work situations can create just as much if not more satisfaction and self-confidence than doing well in school. And the experience will inspire them to put more effort into their education and perhaps value it more too.

But having finally earned some of their own money, few teenagers want to contribute it all toward their retirement, which to them may seem like an unreal event in the distant future. That's where a parent or grandparent can supply the right incentives. As a powerful motivator, you can offer to fund their IRA with an amount equal to whatever they earn. For example if they earn $615 during the summer, you will give them an additional $615 to fund their Roth IRA. They will work hard to fund their IRA and still have money to spend. It will be well worth the joint family effort.

Contributing $615 each year for seven years and earning 11% will translate to investments worth a million dollars at the end of 56 years. If the process begins at age 14, the value of the Roth IRA will reach a million dollars at age 70.

Starting early makes a huge difference. At the end of the first seven years of saving and investing $615 a year with an 11% rate of return, the portfolio should be earning and reinvesting over $615 per year without any additional contributions. Funding a Roth IRA for 7 years and then stopping actually results in more money than waiting 7 years and then funding it with the same annual amount for the rest of your life. The difference gets more pronounced the longer you delay. Thus contributing $615 between ages 14 and 20 and then stopping is more profitable than starting at age 40 and contributing the maximum $5,000 a year until age 70.

Teenagers are not restricted to $615. The limit for 2012 Roth contributions is $5,000. You must decide how much incentive you can afford to help raise a financially savvy child. Sometimes all the private education and tutoring doesn't do as much good as practical work experience at helping motivate and empower young people to take charge of their own destiny.

Earning $615 only requires working for 82 hours at the $7.50 minimum wage. There are about 360 working hours during the two-month summer vacation. At $14 an hour all summer, an industrious teen might earn more than the $5,000 maximum Roth contribution. So be sure to determine ahead of time how much you are willing to match before offering the incentive of doubling their pay if they contribute to a Roth.

Offering to match their funding with a gift is generous and provides a great 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 of the plan.

Contributions to a Roth account are made after paying tax. If your taxable income is less than $8,700, you owe no tax. Therefore your teenager can put money into a Roth account without paying tax on it. All the appreciation is tax free. And withdrawals in retirement, even withdrawals from a million-dollar portfolio, are also tax free.

Contributing to a Roth account while you are young and your income tax rate is minimal is tax-planning genius. This is a rare opportunity to not pay tax on money and put it where it will never be taxed again. Later in life it will be more difficult to contribute to a Roth account as your marginal tax rate rises. Receiving tax-free growth for life is an added perk of funding your Roth account while you are younger.

Much of what is true for a teenager is true for adults as well. Unless you are at the peak of your income-earning potential, funding a Roth might still be brilliant. And leaving a Roth IRA to the next generation is estate-planning genius because it leaves the next generation a tax-free income for life.

Children need practical experience working, earning, saving and investing. Give them all four, and help them fund their retirement in the process. It may just spark the entrepreneurial spirit in the next generation. Can you afford not to?

How Much Do Your Kids Know About Your Finances?

Here's a Wall Street Journal piece that asks what kids should know about family finances. It highlights the story of a WSJ reporter and her husband who share virtually all their financial information with their kids.

I'm guessing that for most people the answer to what to share or not share depends on the age and maturity of the kids. That said, here's what we do:

• We do not share much of our financial information with our kids. If I had to put a percentage on it, I would guess that we share 10% to 15%. The reasons for this are a combination of: 1) they don't need the information, 2) they aren't interested in it, and 3) knowing wouldn't really help them develop good financial habits of their own.


• We do talk to them frequently about money -- especially the need to earn, save, budget, and give. As you might imagine, their incomes aren't high at this point (both are teenagers), but some of their wants are. So we discuss budgeting and saving as well as the need to earn extra money if they really want an item.


• Many of our conversations about money happen as part of life: while we're making a purchase decision, while we are reviewing various offers/buying alternatives, and even while we are watching TV. These are natural times to address the subject for all of us.


• As they have gotten older, we discuss the topic more and more, but don't really share any more of our personal financial information. Again, I don't really see the benefit in doing so. This hasn't seemed to hamper their development in this area as they are both relatively knowledgeable on the subject of money.

How about you? How much of your financial information do you share with your kids?

More TV Shows That Teach Personal Finances

I've posted a few times on the various TV shows that my family watches that teach some aspect of personal finances. I'd now like to add a few more to the list. They include:

• Income Property -- In this show the host takes a part of a home (usually a basement) that is meant to rent out to tenants but can't be because it's in rough shape. The host gives the owners a couple different design options to choose from. Once they select one, the team overhauls the space and makes it look stunning. Then they get a real estate agent in to estimate the new value of the home as well as the income potential from the newly designed space. It often works like this:

-- Purchase price of entire home: $500,000
-- Redesign cost: $40,000
-- Reappraised value of home (after design change to rental suite): $600,000
-- Expected monthly rent from rental suite: $1,200

So the homeowners benefit in two ways -- the overall value of the home goes up and they have a part of the home that makes them money. My kids and I love the show and almost always discuss the pros and cons of the two options, the impact of the change on the home's final value, and the benefit of having part of the home earn an income. Quite a few money-related conversations occur because of this show.

• Selling LA and Selling London -- Exactly the same as Selling New York (which I mentioned previously), simply different cities. Still expensive and still marvelous homes. We watch this primarily for the unbelieveability factor ("It costs THAT much"???!!!) but also to see the stunning homes. We also often talk about the prices of the homes shown here and how they compare to our part of the country. As you might imagine, the discussion of "where you live has a big impact on your costs/finances" comes up quite often.


• Secret Millionaire -- We encourage our kids to give to help others whenever possible. This show helps in our efforts in two ways: it shows people who are far less fortunate than we are (which is often an eye-opener for the kids) and shows how one person's generosity can make a difference in so many people's lives. There's also the side benefit of seeing the various ways of how someone can accumulate great wealth (the Secret Millionaire). All of these combine into a compelling (yet admittedly sappy) show that we all love to watch.

How about you? Do you like/watch any of these shows? Or are there others you like that teach your family about money?

Inexpensive Ways to Keep Kids Entertained this Summer

US News lists five cheap ways to keep your kids entertained this summer as follows:

1. Afternoon Matinee
2. Local Parks
3. Public Swimming Pools
4. Backyard Game Day
5. Indoor Fun

I like this list, especially the local parks (we have one that has a splash pad, basketball courts, soccer field, tennis courts, and playground equipment about four blocks from our house) and swimming pools (we have an Olympic-sized pool at the high school near our house that costs less than $2 per person to get in to) ideas. We use those quite frequently.

I'd add these to the list:

1. Play with friends. Whatever happened to just getting together with friends to ride bikes, shoot baskets, listen to music, play video games, and the like?

2. Go to church. Our church has all sorts of fun activities for kids (slip and slide night, movie night, sleepover at the church, etc.)

3. Volunteer. Our kids helped run Vacation Bible School for a church near our neighborhood (not our church.) They had a blast helping younger kids have a blast.

4. Attend free (or inexpensive) camps. My son has been to two free three-hour basketball "mini camps" as well as basketball nights where the cost is only $3 for three hours of games.

5. Get a job. My daughter has been pet sitting as the entire neighborhood has been going on vacation. We generally take vacations when others are not, thus saving ourselves both money and hassle.

6. Take a class. Our kids are homeschooled and we keep going during the summers. It's a nice time to have a relaxed schedule but still get a credit or two in. This way we can have a lighter load during the "official" school year. (FYI, our "school" this summer has included a trip to Gettysburg and an upcoming trip to D.C., so we try and keep it both educational AND fun!)

What suggestions do you have for entertaining kids inexpensively this summer?

The Boy Scouts Know Personal Finance

A month or so ago I was traveling on business with a friend who has been a Boy Scouts scoutmaster for 20 years or so. (He started when his son was in Scouts and kept on with it.) I asked him if the Scouts had anything that taught personal finance issues and he said they did -- that it was the "Personal Management" merit badge.

That exact day, as I was traveling, I saw a comment on FMF where a reader mentioned the Personal Management Merit Badge. Since I was hearing about the subject from two different sources, I figured it was a "sign" that I needed to check it out a bit more.

This page gives the details of what's involved in the Personal Management Merit Badge. It requires the following (my summary of just the personal finance requirements -- there are a few that are time management related):

• Choose a major purchase for your family. Determine how you should save for it as well as a shopping strategy.


• Create a personal budget. Compare expected income with expected expenses.


• Discuss general concepts related to money (giving, money and emotions, spending habits, etc.)


• Explain several financial concepts (like risk/return).


• Select stocks and follow/track/explain them.


• Pretend you have $1,000 to invest -- what would you do?


• Understand terms around debt, loans, credit, etc.


• Choose a potential career and research it.

This seems like a pretty good list of items to me. If kids ended up knowing and being able to apply these concepts, I think they would be ahead of about 99% of their peers.

Now mind you that it's not exactly how I would present the material, but I still think it's good. And to facilitate the process, they have a workbook as well.

Here are my questions after looking this over:

• What do you think of the material?


• Is there anything missing?


• Do you think this is something you could use to teach your kids about money?


• Anyone actually had a son in the Scouts (or been through yourself) who got this merit badge? What did he/you think of it?

I'm thinking of taking this info, modifying it, then teaching it to my kids. I'll use your comments to help direct my modifications. :)

More Kids Answer Money Questions

When I posted My Kids Answer Money Questions, I asked FMF readers to ask their kids the same questions and send me the responses. A few did and I want to share those with you today.

The first is from a 12-year-old girl. She's homeschooled, an only child, and her parents will be 50 next year.  Her father (or mother -- I'm not sure which) emailed me and said she went out to dinner with the family last year when they celebrated paying off their mortgage. Plus she used to listen to Dave Ramsey while they drove around in the afternoon. I think I smell a ringer. :) Here are her responses:

• What is money? Money is currency.  It’s what you use to buy stuff.


• Where does money come from? The US mint.  Where else would it come from?


• Name one thing you would buy if you had $100. A real live cat, if Mom would let me.  If Mom wouldn’t let me, then I’d buy (live) chickens.  Or I’d save it for pointe shoes.


• How much money do you think it takes to be considered “rich”? $500,000.


• Would you consider our family “rich”? Yes.  Well, we’re richer than some people.


• What job do you want to do when you grow up? Something that is in the field of dance.  Or a cake decorator or baker.  Or a professional Lego set designer.  Or a wife and mother.


• How much do you think that job will pay? I have no idea.  The dance field probably wouldn’t pay the most but you might get stuff that comes with it (like leotards and dance shoes).  I don’t know how much any of them will pay.


• How much do you think a new house costs? $280,000.  (She remembers going through the neighborhood a few years ago, looking at the “take-mes”.)  But it depends on the size of the house.


• At what age do you think people retire? Whenever they’ve saved up enough money, or when they’ve run out of energy or get fired.


• How much do you think people need to have saved up for retirement? At least $500,000.  It costs a lot to be retired unless you have a pension or something.

Pretty good answers IMO.

Another reader sent in responses from two very young children. Here are the responses:

Daughter, 6 years old

• What is money? Is used to buy stuff.


• Where does money come from?  From the printer.


• Name one thing you would buy if you had $100.  Lots of stuff, like a car.


• How much money do you think it takes to be considered “rich”? Like $2000


• Would you consider our family “rich”?  No, because we don't have a mansion.


• What job do you want to do when you grow up? Become a nurse.


• How much do you think that job will pay? $100 a month


• How much do you think a new house costs?  $2,800


• At what age do you think people retire?  46 yrs old


• How much do you think people need to have saved up for retirement? $100

Son, 4 years old

• What is money? It is made from metal.


• Where does money come from? From the office. 


• Name one thing you would buy if you had $100. A puppy


• How much money do you think it takes to be considered “rich”? $100


• Would you consider our family “rich”? No, because we bought a house.


• What job do you want to do when you grow up? A funny doctor (giggling)


• How much do you think that job will pay? $100 a month


• How much do you think a new house costs? $1 million


• At what age do you think people retire? 100 years old


• How much do you think people need to have saved up for retirement? $100

Ha! These were so much fun to read -- I had a smile on my face with every response!

Finally, here's one from a 13-year-old:

• What is money? That one evil thing that makes the world go around.


• Where does money come from? The idea that there must be something given in return for a service or good.


• Name one thing you would buy if you had $100. A warhammer 40k rule book.


• How much money do you think it takes to be considered “rich”? Material-wise, at least $1,000,000 big ones. Otherwise, if you are successful in life, have ones that love you, and the ability to do things for fun and not for survival.


• Would you consider our family “rich”? Not really, we're technically middle-class.


• What job do you want to do when you grow up? Either a singer/actor, or an astronomer.


• How much do you think that job will pay? Singer/actor, next to nothing if I'm not successful, millions if I am. Astronomer, I would think I'd at least get six figures a year.


• How much do you think a new house costs? On average, anywhere from $300,000


• At what age do you think people retire? Around 50-70, hopefully.


• How much do you think people need to have saved up for retirement? It depends on where you live, but anywhere from $300,000-$800,000 if you're smart with it.

 Very nice indeed! Many of these responses seemed pretty on target to me.

My Kids Answer Money Questions

A few weeks ago JLP from All Financial Matters had his kids answer some money-related questions. I thought it was a fun way to see what kids knew about money, so I asked my kids the same questions. Here are their responses:

FMF’s son – age 16 (my comments are in parentheses)

• What is money? A high grade paper with a mini computer chip in it.


• Where does money come from?  The US national printing warehouse.


• Name one thing you would buy if you had $100. Nike Mercurial Vapor VII (soccer shoes)


• How much money do you think it takes to be considered “rich”? $3,000,000


• Would you consider our family “rich”? Yes.


• What job do you want to do when you grow up? A cleat designer (someone who designs soccer shoes)


• How much do you think that job will pay? $300,000 a year.


• How much do you think a new house costs? $145,125 (He's a bit low for our area, but unfortunately this isn't far off the value of our house at this point in time)


• At what age do you think people retire? 65


• How much do you think people need to have saved up for retirement? $4,000,000

 

FMF’s daughter – age 13

• What is money? Special paper that you can use to buy things.


• Where does money come from? US Mint.


• Name one thing you would buy if you had $100. Something I probably wouldn't need.


• How much money do you think it takes to be considered “rich”? Around $1,000,000.


• Would you consider our family “rich”? Compared to some people.


• What job do you want to do when you grow up? Writer, photographer, interior designer, the list goes on...


• How much do you think that job will pay? Depends on the job. $50,000 a year or higher.


• How much do you think a new house costs? Maybe about $100,000.


• At what age do you think people retire? 60 to 65


• How much do you think people need to have saved up for retirement? $1,000,000 or maybe more. It depends on how long you are planning on living.

I was actually pretty impressed -- they knew far more about money than I thought. I think some of that is because we talk about it often and some is because we watch and discuss financially-related shows (like Income Property, House Hunters International, Shark Tank, and so on.)

So what about your kids -- how do you think they would answer? If you'd like to ask them and email me the answers, I'll post some of them here on FMF.

A Wedding or Retirement?

Here's a piece from Fox Business that talks about parents trying to manage both the cost of paying for a wedding while also saving for retirement and/or dealing with a drop in the value of their investments. And with average wedding spending last year at $25,631, there's reason for taking the issue seriously -- that's a chunk of change!

Here's a summary of the situation:

For parents who already know they can’t afford to give as much to their daughter’s wedding as planned, have the conversation before any planning gets started.

“With the financial crisis we are in and the deterioration of most people’s savings and retirement accounts, those are real conversations we are having and there doesn’t seem to be a lot of pushback. Families are working together to find something more affordable.”

Parents shouldn’t feel like they are letting their children down if they choose to hang onto their savings for retirement rather than putting it toward a wedding.

“Your children will understand. Sit down with them and go over things; let them know how much you have saved for retirement. If a big wedding isn’t in your budget, tell them exactly that. No one needs to go into debt for a party that’s only one day,” says Harrington.

Using cash is one of the best ways to keep wedding spending in check and possibly negotiate a deal in the process, according to Harrington.

Our kids are far from the marrying age, but we've already talked to them -- especially my daughter. We will be providing an amount of cash (a good amount) that she and her fiancé can either use for a blow-out wedding, put it into savings, a combination of both, or anything else. It's up to them how to spend it, but there won't be any more money if they choose the wedding option and go over-board.

I've had several friends who have had weddings for their kids where a budget was set up front, only for it to be exceeded because the couple had to have this or that at the event. Not going to happen to me. I'll provide the money, and then it's up to them to determine how they want to spend it. And I'm hoping that such a large amount will encourage them to save it -- or at least most of it -- as that's my preference anyway.

How about you? What are you planning for your kids' weddings? And what did your parents do for you? (My wife and I paid for our own wedding, but we were older and had established careers by the time we got married.)

How Much Do You Spend on Kids' Birthday Parties?

US News gives some alternatives to pricey kids' birthday parties. This piece made me wonder -- just how much do people spend on birthday parties for their kids? We have some friends that go totally overboard and others that seem to pass them by without much fanfare. Here's what we do:

• Each of our kids gets $100 for his/her birthday.


• They decide what they want to do with the $100 -- have a party, get presents, or pocket the cash.


• Over the years, we've had all of the scenarios accepted.


• The current favorite appears to be "pocket the cash."


• No matter which option is selected, we make the birthday a celebration by always having cake and ice cream as a family, letting the child pick a favorite meal that my wife makes, letting each child pick a place we all go out to eat in celebration, and doing something special as a family such as staying up late to watch movies that the birthday boy/girl has selected. (FYI, the costs for these does not come out of the $100.)

So, that's what we do and how much we spend. What about you?

The New Parents' Guide to Managing Money

The following is a guest post from Elle at Couple Money. 

My husband and I recently became parents for the first time this summer. We have a healthy baby girl and are absolutely loving it. When we first found out we were expecting, like many parents to be, we wanted to get an idea of what we're getting into. One of the first things that struck me was how many people mentioned how expensive kids could be. The good news is that it probably won't cost you as much as the USDA estimates, but raising kids does affect your finances. If you're a first time parent it can be hard to know what you need to do to handle the changes. I wanted to share what has worked for us and what I wish we knew earlier.

Set Your Family's Financial Priorities

Many well meaning family, friends, and strangers will have plenty of advice to give you for your family. I've found some helpful information among the comments, but the truth is only we know what will probably work for our family. While our baby girl is loved by many, we're responsible for taking care of her and no one loves her like we do. The two of you have to sit down and discuss what's important for you as a couple and what's important for you as a family. What goals (financial and other) do you have? When do you want to achieve them? For us, having me being able to work from home was important. That meant, though, that I would cut back on taking on new work for a bit as I adjusted with having a baby at home with me. I also had to save up some to take care of my 'maternity leave'. For the months leading up to the birth, I made sure that money was being allocated to savings so there wouldn't be a huge change to our cash flow.

Hold Off on That College Fund

I've had several people tell me that we should get started with saving for our kid's college fund. They don't want their kids to go into debt for a college education. My husband and I want to set aside a bit of money for college, but we also realized that there are a few financial milestones we need to have in place before we start socking away money for her. The first thing we wanted to do before she arrived was increase our emergency fund. Not knowing how much the first year of baby expenses will cost us made us realize we wanted a bigger buffer. For estimates on a ballpark figure I checked and asked friends who have kids how it went from them. We also took into account our health insurance deductible. While my husband's job offered a partial reimbursement, we planned into the budget that the reimbursement may be delayed. (Happy to say that the company paid it promptly.) We also want to make sure that our retirement contributions weren't going to be sacrificed for the college fund. Some parents may question putting our retirement ahead of our kid's college savings. However we'd rather our kid working for scholarships and grants instead of her going to college for free, but having to financially support us when we get older.

Accept Help and Gifts

I will tell you right now that the best gift we received was the 3 weeks of help we received from our family when we brought the baby home. Our mothers took turns and helped us make the transition. We prepared a few meals, but hardly had to use them the first month because our family and friends took care of it. I will admit I was nervous about having family live with us for an extended time, but it was a blessing. We got to bond with our daughter without stressing out about day to day stuff. We saved a bit of money as well since we didn't have to grab a quick dinner. So if your friends and family offer to help you, please talk it over and consider if it's a good move. It can be a huge stress relief. Accepting help also means that you're open to finding deals by shopping around and being frugal. We've had several friends of ours share some of their favorite places to pick up baby gear and supplies. We have a consignment shop nearby that has fantastic deals on baby items. I've also learned from other personal finance bloggers about the good deals I can for baby items like diapers with Amazon Mom. I've saved 20% compared to local stores and I get it delivered to our place.

Start Planning Ahead

Being a parent means making long term decisions and tough choices, that includes preparing a will, living trust, and life insurance. We want to have enough money in the policies to cover paying off the mortgage and have some money to cover living expenses for a period of time. We've also talked about the possibility of who we would like to be guardian of our daughter should something happen to the both of us. We haven't made a decision on who to ask to cover this precious responsibility, but we're not going to make this decision lightly. Planning ahead for the baby also meant having health insurance for her. My husband checked with his company's Human Resources Department to see what we needed to do to get our daughter covered under his health insurance policy. It meant an increase in premiums, so we had to budget accordingly. I didn't realize how quickly it jumps when you add a child.

Lead By Example

My baby has no idea of our financial circumstance and won't for awhile since she's just an infant, but we still want to lead by example.

• Budgets: We've had a family budget since we were married. Our plan has basically been to keep all our necessary expenses under 1 income and use the second to pay off debt, save, achieve family goals. We'll continue to adjust the budget as our circumstances changes. We will include our daughter in discussion when's she old enough so she can be comfortable dealing with money.
• Giving: We feel that money shouldn't be hoarded; it's merely a tool to use. If the opportunity presents itself to help someone we believe that we should help. We hope our daughter feels the same way and we'll work on being transparent with our giving so she can see the benefits of sharing.
• Saving: Before we make big purchases we save up the cash for it. Yeah, we missed a few great deals, but I don't want our daughter to get into a “buy now, pay later” mentality with her spending. I'd rather she see the effort involved in saving up so she can appreciate yje value of money and her purchases more.

Will we get this right on the first try? No; we understand that we'll make mistakes and have to change up how we teach our daughter based on her own personality and needs.

Thoughts on Becoming Parents

Are we perfect parents? Most definitely not, but we're willing to do our best. One of our goals is that our daughter will be able to be a financially responsible and independent person. I hope some of these tips can help other new parents. This is definitely a topic that needs more input - too many things to mention. I'd love to hear your perspectives on what new parents need to know. What were some of the biggest surprises and lessons you had as a parent? What advice would you pass on to other parents? For me, I'm so excited at how much FUN it can be hanging around our daughter. I also have learned to be more productive with my free time; putting things off is less of an option now.

Child Care Costs are Brutal

Here's a piece from CNN Money that says child care costs are killing parents' finances. Here's how bad the problem is:

The cost of putting two children in child care exceeded median annual rent payments in every state last year, according to the National Association of Child Care Resource & Referral Agencies.

Yes, child care costs have now surpassed housing costs for a good number of people. Ugh.

The CNN piece goes on to detail various families and how much they spend on child care. The list:

How Long Do You Expect to Provide Financial Support to Your College Graduate Child?

USA Today recently asked 500 parents of college graduates how long they expect to provide financial support for their recently graduated children. The results:

• 56% - Up to a year
• 31% - 2 to 4 years
• 13% - More than 5 years

Some thoughts from me:

• It really depends what they mean by "financial support". The question is open for a broad interpretation IMO. For example, is "financial support" $500 per year, $500 per month, or $500 per week? Big difference.


• I didn't get any post-college financial support from my parents. In fact, I didn't get a whole lot of in-college financial support either.


• I'd say that we would be willing to offer some financial support (maybe a thousand dollars or two) for the first year or so to help our kids get established, but nothing I would consider to be a large amount.


• In fact, too much support for adult children can have an undesirable impact. If you look at the seven factors of the millionaire next door, you'll see that #4 is that "their parents did not provide economic outpatient care" (which is basically prolonged financial support for adult children.) So by "helping" them, parents actually made them less likely to become wealthy.

How about you? What's your take on this issue?

Raising Money-Savvy Kids

The following is a guest post from Marotta Wealth Management.

Many people lament that schools don't teach children to be financially responsible. But studies show that book learning doesn't work when trying to teach about finances. Here is a guide for what will give your children the best chance of handling their money well.

Financial responsibility is more about self-discipline than about knowledge. Think of it like dieting or staying physically fit, not solving math problems. It isn't simply information you learn from a book, it is a skill you learn by doing.

I coached soccer for many years and was assistant coach to one of the best. Excellent coaches understand how to design exciting games that teach specific skills. They are able to motivate the players about the game and at the same time teach them the skills they need to be successful.

Training to be financially adept requires the same three methods needed in sports: communication, example and application.

Communication alone is the least effective. Imagine I was teaching you the proper way to kick a soccer ball. In a textbook you read, "Take aim and then look back to the soccer ball as you shoot. Approach slightly from the side. Plant your non-striking foot beside the ball. Strike the middle. Keep the knee of your kicking leg over the ball. Follow through."

If that was the end of the lesson, all players would remain abysmal once they got on the field. Head knowledge isn't enough, and it doesn't help you visualize what is possible. Also, knowing how and why is very different than actually being able to do it.

Most coaching involves simply giving players an example. You do something and you say, "Kick the ball like this." Although "like this" could mean a thousand things, children are very good at abstracting what is important. Similarly, our children can learn financial perspectives and habits simply by growing up in our homes.

Our example as parents gives them a default of what to try first. But unfortunately, most families don't provide a very good model. The average family's finances are appalling. Credit card debt averages $6,500. Half of American families have no retirement accounts. The other half have only saved $35,000.

Getting your own financial house in order is half the battle. The other half is bringing your children into your circle of trust as they mature. Most children feel they are in the dark regarding family finances. My most valuable education came from my mother, who shared every aspect of her household budget with us.

Before age 10, I knew what my father's salary was, the amount of our mortgage and the interest rate we were paying. I knew how much a week's worth of groceries cost and the value of buying term life insurance and investing the difference. Parental actions can be ambiguous, but when they are accompanied with a commentary of values and decision-making skills, they offer sage mentoring.

Communication and example are important, but practice is the key to raising financially savvy children. Given enough time to practice, even children without guidance and good examples will learn from trial and error, just like young soccer players accidentally learn that spinning balls curve.

The physics that causes a lateral deflection of a spinning object are quite complex. But with some trial and error, it is much easier just to learn to do it. Even children with no knowledge of physics can ultimately bend or curve a soccer ball around a wall of players and into the corner of the net.

To raise financially savvy children, give them as much practice time with real money as you can. Encourage your children to make spending decisions as early as possible. Let them make mistakes and learn from them. Give them practice in spending, investing and earning.

They should not be asking you for money. Let them make the tough calls about needs and wants and be forced to choose. If they are not obligated to make hard decisions, you are giving them too much money or not making them pay for enough things. You learned your best life lessons by experience. You cannot teach your children to live within their means if you keep supplementing their means.

Also, they should only be paying for things you are willing for them not to purchase. For example, if you make them pay for a school trip, you must be willing for them to decide not to go. And if they have spent all of their allowance, do not loan them money. Finding that you want to buy something but you have already spent everything is a critical lesson. Make sure your children don't miss it.

Children need experience not only saving, but saving and investing. It takes a while to understand the principle of compounded interest. I thought the lesson was essential enough to cheat and shorten the time horizon. The first time my children had $100, they were allowed to invest the money for one year with an extra 100% return on their money. They could keep whatever they earned plus an additional $100. They were young, and a year was a long time for them.

As part of our firm's quarterly reporting, clients receive a chart showing the net cumulative investment versus the portfolio value, which drives home the power of investing. Even $100 invested teaches the lessons of compounded market rates of return.

Finally, children must learn how an ethic of hard work and persistence produces a financial return. Grit is a better indicator of financial success than IQ. And running a small business requires more persistence than smarts.

My children were allowed to get jobs at age 14 and were eager to do so. That year they also started funding their Roth IRAs and took over more of their everyday spending. They had been prepared and were able to assume much of their own financial independence.

At every age of your children's lives, think through how you can communicate, be an example and give them real-world practice, first at budgeting, then at investing and finally at running a business that provides real value.

Tips for When Kids Move Back Home after College

The book Smart Is the New Rich: If You Cant Afford It, Put It Down lists the following steps to take when kids move back home after college:

• Have a close-ended agreement.
• Pay rent or forced savings for apartment deposit.
• Job search progress reports.
• Have them help run household -- clearly define their contributions and stick to them.

Our kids aren't even in high school yet, so it will be a long time before we face this issue. That said, I'm in agreement with all of these. If our kids moved back after college, we'd want to make sure they were making solid progress on finding a job and/or saving money to get out on their own. In addition, they would be expected to contribute to the running of the house -- either financially, by doing chores, or both. They simply aren't going to be allowed to lie around and have an extended vacation.

Any readers actually been through this -- either as a parent or the student? What did you/your parents do?

When I graduated, I moved back home for a couple months. I already had a job, so I moved back just for a bit because I needed some place to stay in the in-between time. I took a three-week vacation to Europe with some friends from grad school and spent much of the remaining time planning my move and new job, so I wasn't idle for all that long.

Six Steps to Money Smart Kids

The book Smart Is the New Rich: If You Cant Afford It, Put It Down lists six steps to money smart kids as follows:

• Have routine chores for which he or she is not paid.
• A next level of chores for which there is a modest allowance that you monitor.
• Save at least some birthday and holiday money.
• Be raised with high expectations -- you will go to college.
• Not get every material thing he or she wants.
• Open a checking account at a credit union to keep track of their money.

Here's what we do on each of these:

• We have routine chores for which our kids get no pay -- they do them because they are part of the family and we all pitch in on various duties. They do the dishes, some cleaning, and the laundry. We tried a standard allowance for doing these things (as long as they were done well) and it really didn't motivate our kids to do any better, so we eliminated it.
• The next level -- for which they get paid -- includes mowing the lawn, shoveling snow, and helping with special projects like cleaning the garage.
• Our kids save some of all money they get, no matter where it comes from. My son makes good money as a soccer referee and my daughter is starting to do some pet sitting.
• We want our kids to go to college (and will pay for a good portion of it) if what they want to do in life requires a college degree. If not, they won't need to go. That said, we do have an expectation that they are very likely to go.
• Ha! Does any kid ever get everything he/she wants?
• We haven't opened a checking account for either child yet (what age do you do this?) Instead, we act as the bank at home. Our kids give us the money they earn, we write it down on a ledger, and when we are out and they want something, we buy it for them. We then deduct that amount from the ledger.

How about you? Does your family do any of these? Or do you do some things differently?

Should You Pay Kids to Shovel Snow?

Since we're currently in the middle of a blizzard, I thought it would be appropriate to highlight this piece from Kiplinger's that asks if you should pay kids to shovel snow. Specifically, it wants to know if kids should get paid for shoveling neighbors' driveways or whether they should do it as a "neighborly gesture."

Here's my take on the issue:

If my neighbor wants to make a "neighborly gesture," how about dropping by my place once a month or so and giving me a nice, new $20 bill? ;-)

Ok, I couldn't resist. But seriously, should kids be expected to shovel the neighborhood just to be "neighborly"? I don't think so.

That said, we do have some experience with this issue. Some thoughts:

• We pay our kids $10 to shovel our drive and sidewalks if they do the job alone (which my son often does) and it's not too much snow (a couple inches or less). More than 2 inches and we fire up the snowblower (which I run.)
• My son has shoveled a neighbor's driveway when they were gone on vacation (the neighbor likes the driveway to look like it's been used while they are away.) We did this as a kindness for a good friend -- and WE paid our son to do it. There was no cost to the neighbor.
• The other day, our next door neighbor came out to shovel his driveway just as we were about to go inside from doing ours. He was all alone and there were four of us, so we went over and helped him. It took us MAYBE 15 minutes to complete it with him. We didn't ask for or expect payment and he didn't offer. But we did give each of our kids a few bucks for helping.

So I'd say:

• Neighbors should not expect kids to shovel snow just to be neighborly. If the kids want to of their own free will, then fine. But to expect it is out of bounds IMO.
• Yes, it's fine for neighbors to hire kids to shovel their drives -- and not have to pay an outrageous amount. I think the neighbor needs to offer a fair price, but nothing over-the-top. That said, the agreement is between the neighbor and the kid -- is the kid willing to do the job for what the neighbor offers?
• There are times to help out a neighbor with shoveling as well as other things. But I don't think this is a kid-only issue. It's one where the whole family can help (shoveling or whatever)?

What's your take on the issue?

Are Educational Videos for Infants A Waste of Money?

MoneyTalksNews asks if educational videos for infants (you know, the ones you show your small child that are supposed to make them smarter) are a waste of money? Their answer: yes. The details:

The research found children between 12 and 18 months learned almost nothing from infant-learning DVDs designed to improve vocabulary, even after watching them several times a week for a month. So be smart, baby: do a little research before you buy something dumb.

MoneyTalksNews goes on to say that playing with toys that involve multiple senses, listening to music, and talking to small children are better ways of developing them mentally.

We never used these DVDs -- I'm not sure they were out when our kids were young -- but they sound like a WOM to me (FYI, WOM = waste of money.) Anyone have any experiences with them -- pro or con? Are they really worth the cost or not?

11 Money Lessons to Teach Your Kids

Since we've discussed what money skills kids should know before they leave home, I was interested in seeing if the authors of Lessons to My Children: Simple Life Lessons for Financial Success, Wealth, and Abundance agreed with those thoughts. Here are the 11 lessons they list (with some explanation from me where needed):

Lesson 1: Pay yourself first.
Lesson 2: Patience pays. (Save over a long period of time.)
Lesson 3: Write yourself a "reality" check. (You need a budget so you can see what you're really spending.)
Lesson 4: Have a game plan.
Lesson 5: Limit your debt.
Lesson 6: You get what you pay for.
Lesson 7: Balance risk and reward.
Lesson 8: Learn investing 101.
Lesson 9: Assemble your team of experts.
Lesson 10: Being organized pays dividends.
Lesson 11: Ask what your taxes can do for you.

A couple comments from me:

• Pretty basic stuff. Most of the important pieces are covered. Also, this could be a list for anyone wanting/needing to learn about personal finances -- not just kids.
• That said, I don't see anything about careers. It's interesting to me that most personal finance books leave out this fundamental part of managing your finances. Do you think it's because they assume that your career/earning potential is "set"? Or is it some other reason?

Money Skills to Teach Your Kids Before They Leave Home

In The Power to Prosper: 21 Days to Financial Freedom the author suggests some things kids should know about money before they leave home. Her list:

• How to live below their means
• How to budget
• How to save
• How to avoid debt
• How to write a check
• How to balance a checkbook

IMO, this is a pretty good list. I would add the following to it:

• How investments work (and the key factors to making your money grow)
• How to grow your career (and make more money)
• The responsibility to give back -- in time, money, or both
• How to shop for a good deal, evaluate a purchase, and negotiate
• The value of delayed gratification and contentment (I know, MUCH easier said than done.)

Anything else you think should be added?

Three Ways My Parents Put Me on The Road to Fame and Fortune

The following is a guest post from Marina Shifrin, a writer for My Bank Tracker.

To start out I must say I am far from fortune and even further from fame. I am however; a college graduate with flawless credit, a large financial cushion and absolutely no debt or student loans—all thanks to some smart money moves my parents made.

I would like to preface this list by saying my parents did not come from old money. In fact, when my father was 40 he decided to leave all of his possessions in Russia and move my mother and I to America with less than $300 to our name. This being said, I believe people from any financial background or social status can pave the way for their children’s success.

Here are three steps you can take to enable your child with tools for a thriving financial future.

1. Put Your Kids to Work

When I turned 14 my parents lovingly told me that they would provide food and shelter but anything else would be on my bill. At the time, my typical teenage mind thought, “This is like, totally unfair!” All my friends were getting allowances and didn’t have to do anything for it. I soon accepted my fate and started asking around for babysitting jobs. When I got a little bit older I found a waiting job at a local restaurant and in the summer I also worked as a camp counselor. Being able to appreciate the value of a dollar followed me into my adult life. In college I worked many different jobs. Upon graduation, my diverse work experience gave me a competitive resume helped me land a post-collegejob quickly.

Work permits and age limits can differ from state to state. To find out more information check out The U.S. Department of Labor site here.

2. Start Saving Up

As soon as my parents found out how expensive college is, they started looking into different options. Education was put at the top of their priority list and consequently was put at the top of mine. I believe the smartest decision my parents made in regards to college savings was starting a 529 Plan. You can either choose to pre-pay tuition or set up a college savings, both categories have multiple plans under them. A Big benefit to these plans are that they are tax-advantaged meaning they are not subject to federal tax and in some cases state tax.

Encourage your child to do everything he or she can to help with college costs. Just because they are young and may not have money saved up does not mean that they can’t make a big contribution to help with college expenses.

In my household we were taught, What’s mine is yours. This includes college expenses. My parents sat me down before I left for school and explained that they could only cover about two years comfortably. I was never under the impression that my parents had the funding to completely cover the cost of college. Desperate to help pay for college so that I could continue my education, I found work as a Resident Assistant and was able to cover room and board for two years (totaling around $17,000). I also stayed there over the summer and worked while getting residency: knocking off another $10,000 a year. Both of these options helped cover college without incurring college debt.

3. Get a Credit Card

This may seem like strange advice considering the bad relationship America’s youth has with credit cards. Just because your child gets a credit card, does not mean they have to use it.

A debit card has taught me not to spend money unless I have it: a rule that may be difficult to follow with a credit card. At age 18 my parents got a credit card under my name and have been making small purchases (i.e. groceries, gas etc.) on it ever since. I am 22 years old and have never even touched a credit card. I have good credit without the temptations that usually come along with owning a credit card. It is important that your child starts establishing good credit as early as possible for bigger purchases later down the line.

Establishing strong work ethic, good credit, and financial literacywas a big goal in my family. My parent’s push to teach me about money matters at such a young age allowed me to budget my money wisely and achieve many goals that debt would have hindered. I am confident in my future and owe all of that to my parents.

Are you preparing your child for the future?

10 Ways to Get Kids to Save Money

Miserly Moms: Living Well on Less in a Tough Economy lists ten ways to get kids to save money on various purchases as follows:

1. Shop alone as often as possible.
2. Explain that you have a limited amount of money and choices have to be made.
3. While at a store, explain what amount you plan to spend at this particular store.
4. Give them the facts: "I can't afford it."
5. Ask them if they want to use their allowance to buy it.
6. Use the opportunity to help them make choices.
7. For the very persistent (and young), let them pick one item that isn't budgeted.
8. When you are away from the store, let them see or learn about economic lifestyles.
9. If there is a certain item they always ask for, show them how the system works (watch for sales and coupons).
10. Forget those larger-ticket items, I have found two ways to tame them: 1. Tell them to add it to their Christmas list and 2. have them save up their allowance for it.

How about this money saving tip: just say "no!" ;-)

Seriously, here's what we do:

• Our budget isn't so tight that we have to say no to everything. If the kids want something small and we're willing to buy it, we let them get it.
• My wife does try to shop alone as much as possible (and does everything she can to keep me out of the stores as well.) ;-)
• Our kids are at the age where they are starting to earn some money, so we often use the "you can buy it with your own money" answer.

How do you get your kids to save?

Six Things Your Parents Never Taught You About Money

The following is a guest post from Life Cover.

Most parents try to teach their kids about money such as how to make it and how to manage it but only life experience can give us the full picture. With that in mind, here are six things your parents never taught you about money.

6. Hard Come, Easy Go

Making money is hard work. However spending money could not be simpler or easier. Not only are there the things we want to buy for ourselves (whether they be necessities or treats), but when you factor in bills, mortgages and debts and so on - our pocket might as well have holes in them.

5. Just the Tax, Ma’am

There’s only one way for lessons about taxes to stick and that’s by paying them. When you’re a kid, the idea of taxes is hard to wrap your head around. But once out in the real world, taxes become a fact of life. Death and taxes. And sometimes the latter can help bring about the former.

4. Hold The Gratification

The word child must, in some forgotten Latin dialects, mean Instant Gratification. Cravings are continuous when we’re young and patience is pretty hard to come by. Well, who knew it takes money to fulfill those cravings? Sometimes a lot of money. And once you’ve lived the first two items on this list, you know that the carrot on the stick must occasionally stay out of reach a lot longer than we would want.

3. What’s it Worth?

We’ve all heard it, whenever we didn’t want to finish our peas. You remember: “Don’t waste food, there are people starving in Africa.” Remember that one? Well, when the fridge is always full and our allowance isn’t the reason there are groceries in the house, wasting food does not seem like that big a deal. And so we learn how much things like food, shelter, clothes and gadgets are actually worth only when we start paying for them ourselves. Suddenly wasting things we shelled out our hard earned money for isn’t the picnic it used to be.

2. What Do You Want To Do With Your Life?

Astronaut. Fireman. School Teacher. Mailman. The answers to this question roll off the tongue when we’re kids. Realistically, though, the only true answer to this question comes through the benefit of life experience. It’s only after we’ve test driven various jobs do we begin to get an idea of where our destiny lies and whether or not we can earn a living at the job we choose.

1. Happiness, Not For Sale

When we’re kids, it seems obvious that money buys happiness. After all, our needs usually consist of whatever passes in front of our eyes when we’re dragged along on shopping runs. It’s on the store shelf, things in the store cost money, you’ve got to have this doodad or life isn’t worth living, therefore money gets you that item and saves your life. Well, it doesn’t quite work that way in the grown up world, does it?

How to Give Your Kids $25,000 at Graduation

Here's a piece on how one couple gave their kids $25,000 ($25k to each kid) when the kids graduated from college (which they did debt free, BTW). The steps of how they did it:

• When their kids were born, they asked friends and family to give them cash for the kids' future instead of toys and other gifts.
• They invested this money in index funds. 
• When the kids were old enough to work and save, the parents matched every dollar the kids put into their savings.
• The parents kept encouraging the kids to save by showing them how their money was growing.
• Time and compounding were big factors in making this work -- they had 22 years of savings. Told ya time was the most important factor in generating good returns. ;-)
• When the kids graduated from college, the parents transferred the money to them.
• One child spent the money gambling and lost it all. The other threw a really big party for his friends and will be remembered as "the guy who spent $25k in one night!"

Ok, I made up that last bullet point, but the rest are accurate.

After reading over this, I like the general idea behind it (encouraging the kids to save, getting the presents in cash versus toys, letting time work to grow the amount), but I'm not sure about one thing -- giving it to the kids when they get to be 22.

I remember what I was like at 22 and I'm positive I would not have handled $25k very well. Maybe these kids can. But what about waiting until some other milestone like reaching 30 or getting married to give them the money? Wouldn't they be a bit more nature and ready to spend the money wisely?

I can't help but think the "lottery factor" -- what to do with a chunk of change all given at once -- will be at work here. And we all know what happens to many lottery winners who come into big money -- they lose it within a few years.

What's your take on the issue?

Do You Make Kids Pay for Birthday Presents?

Here's an interesting money/parenting question:

Do you make your kids pay for birthday presents when they attend a friend's birthday party?

Through the years, we've always paid for the friend's present when one of our kids attended a birthday party. Our kids didn't have much income and you have to have a present, so we just picked up the tab. And in those days birthday parties were small and far-between.

But things have changed in the past year or so. Namely:

• Our kids are getting invited to several birthday parties on a more-frequent basis -- even by "friends" they aren't that close to.
• The parties are bigger. Many of them are over-night events that start one afternoon and conclude the next morning at noon or so.
• As the kids get older and the parties get bigger, the price of gifts gets higher.
• Our kids now have their own sources of income (especially my son.)

So we recently changed our policy. We decided that we'd pay for half the cost of the friend's gift and that our kids would pay for half themselves. To all of us it seemed like a good compromise.

How about you? What's your policy on paying for this sort of birthday present?

What to Tell Your Kids about Their "Rich" Friends

Here are some interesting thoughts from Stop Acting Rich: ...And Start Living Like A Real Millionaire regarding your kids' "rich" friends:

What happens when your children attend school and/or interact otherwise with kids who display an abundance of expensive consumer products? Your children are likely to ask you why you do not supply them with the same collection of products. Tell them esentially what the parents of [high net worth individuals] told their children:

• Never judge the true quality, the caliber of a person, by what can be purchased.
• Often people who dress and drive as if they are rich are not.
• Try Shakespeare if all else fails: "All that glitters is not gold."

Is it just me or does it seem like every fourth-grader today has an iPhone, mobile video game player of some sort, and a wide array of other toys, games, and "collections"? Just walking around church I can count on one hand the number of kids that doesn't have a cell phone -- and many of them are nicer than my company-provided Blackberry!

We tell our kids that they can have any item we approve of as long as they buy it themselves. Or, if they want, we will pay part of it as part of a birthday or Christmas gift. My daughter used this deal to buy her new camera. We paid for most of it as her "big" birthday present and she kicked in the rest. My son now has enough money to purchase an iTouch (from his soccer refereeing) -- my wife and I are simply trying to decide if we think he'll be responsible with it or not.

How about you? What do you tell your kids when they say their frineds have something (and they'd like you to buy them one)?

Your Money Habits Will Influence Your Children's Money Habits

Here are some interesting thoughts from Stop Acting Rich: ...And Start Living Like A Real Millionaire where he talks about the impact parents have on the money habits of their children:

In America, it is not at all unusual for children from modest means to become high-income-producing adults. Then they are fooled into thinking that all those with the means to do hyperconsume. They are wrong. Most rich people become wealthy and stay that way because they are frugal and are investment, not consumption, oriented. Most of those who have high wealth indices said that they came from families that lived well below their means.

A few thoughts:

1. I don't think it's a surprise to anyone that what parents do influence what their kids think/do.

2. The parent/child money relationship isn't clear to me. It doesn't seem like there's one "if you do this your kids will do this" rule.

3. Personally, I came from a family of modest means and am now a high-income-producing adult. I know for a fact that my upbringing had a huge impact on this (I've ALWAYS wanted to make a good amount of money so that I wouldn't have to be constrained like my parents were.)

4. That said, I didn't develop a lifestyle of hyperconsumption. I think this happened for two reasons: 1) my family always stressed paying your bills and not owing much to anyone and 2) my wife is very fiscally conservative. Any inclination I had to hyperconsume was killed the day we got married. It's interesting that that's the case because my wife was also from a family of modest means and she had her own solid income level when we got married.

5. The "investment versus consumption" orientation mentioned above is an interesting concept. How is it determined that someone is one or the other? Maybe it's how much they spend compared to how much they save. I hope he goes into this a bit more later on in the book.

Take the Money and Run or Have a Big Bash?

A co-worker of mine had a daughter get married a year ago and has a second daughter getting married next summer. He and I were talking about the weddings when he brought up the fact that he and his wife gave both girls the option to take the money they had set aside for a wedding and do whatever they wanted to with it -- they could save it, have a big wedding, or a combination of both.

His first daughter banked 80% of it and had a smaller wedding with the other 20%. The second daughter is spending it all on a huge wedding (and may even go over the budgeted amount.) It was interesting to hear him tell how each young woman reacted to the options and decided what to do with the money.

I've always thought that we'd make a similar offer to our kids. We'd have the same amount saved up for each and they'll have the choice of what to do with the money. I like the flexibility that it gives each of the kids as well as their potential spouse. And, if they choose to take the money and run, such a large amount would get them started off on the right foot financially.

But here's an issue we face -- we have a son and daughter. Now in this country it's traditional for the bride's family to pay for the wedding. So if we offer the same amount to both kids, does this put our daughter at a disadvantage (because she's expected to pay for the wedding from her amount whereas my son isn't expected to do so)? I'd be interested in your thoughts on this subject. It's not a pressing matter (we have a decade or more to sort out the issue), but my conversation with my friend made me wonder about the practicalities of this idea when dealing with different-gender siblings.

And finally, any of you make "take the money or the party" offers to your kids when they got married? If so, how did it work out?

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?