Saturday, November 11, 2017

Make a Money In 'N Out Spreadsheet With Your Teen

Teen With Money In N Out Pie Charts

For many kids, money can be a bit too easy come, easy go — especially in today’s digital world.

But tracking and categorizing money thoughtfully will always be a key life skill. Dollars deserve a purpose whether digital or not. So how do we get our kids to be more mindful of money as it ebbs and flows?

Build a Money In ’N Out Spreadsheet with your child. It’s a simple tool for pinpointing the sources for money coming in and the purposes for money going out.

Here’s a recipe I used with my son in college:

  1. Import last month’s transactions. Most prepaid cards or bank cards have a way to export transactions, so this step is often just a quick cut and paste. If your teen uses cash, then have her manually enter every transaction in the spreadsheet for the current month.
  2. Add “Money In” columns. Sit down together and figure out the main types of income. Create columns for each. In our case, money coming in was either:
  3. Add “Money Out” columns. For money coming out, let you child suggest the key categories of spending as you browse the transactions together. Less is more here, so steer it toward high level groupings. We ended up with:
    • eating out,
    • eating in,
    • health,
    • gaming, and
    • phone.
    The right categories will depend upon what your child is responsible for purchasing directly. If your teen has very few transactions, that’s probably a sign you need to relinquish more purchasing responsibility. Either create some appropriate budget-based allowances or use a reimbursement strategy, or both.
  4. Copy the transaction amount into the right in or out column. For each transaction row, copy the amount into the appropriate income or spending column. In rare cases, you may need to split the amount between spending columns. But if you’re doing that a lot, your categories are probably too granular. Keep it simple — like the In-N-Out menu.
  5. Sum up the totals. Add a final row that sums up the amount column, the income columns, and the spending columns. The sum of the amount column will indicate the net change for the month. If it’s negative, more was spent than earned during the period.
  6. Make in ’n out pie charts. Create an “in” pie chart for the income totals, and an “out” pie chart for the spending totals. Any surprises?

  7. Have a non-judgmental discussion. Here’s where you want to be long on listening and short on lecturing. Let your child make the observations. Offer constructive alternatives, like maybe a parent bounty for taking a bag lunch instead of eating out.

I created a Money In N Out spreadsheet template in Google Docs that you can copy and adjust to your liking. Check it out here.

Try the exercise with your teen, and see if it takes the money coming and going in a more mindful direction.


Want to turn these tips into action? Check out FamZoo.com.

Thursday, November 2, 2017

Plot Your Longest Market Losing Streak Since High School

Boy making loser hand gesture.

My longest market losing streak since high school is pretty epic.

If I had invested $5,000 in the S&P 500 on January 1, 2000, it would have been worth less than that for 12 years in a row. Ouch.

But, as Tom Petty said, “Even the losers get lucky sometimes.” Especially if they wait long enough in the market. By October 2017, that original $5,000 investment would have turned into $8,976.49. Not too shabby!

But, remember, Tom also said, “The waiting is the hardest part.

Here’s a simple spreadsheet exercise you can use to convince your teens (or your spouse or even yourself) to invest patiently in the market — even when the going gets tough.

Plot your hypothetical market winning and losing streaks dating all the way back to high school.

My spreadsheet shows what would happen to an investment in the S&P 500 from a given year til now for every year since my freshman year in high school. That was 1976 in case you were wondering.

This is one of those rare times where the older you are, the better it gets. So, if you’re a young parent, you may want to use grandpa or grandma as a reference point instead.

Here’s how to make a spreadsheet like mine in Google Docs:

  1. Find a source of historical S&P 500 data. I found mine here at multpl.com.
  2. Add a price column for every year since the beginning of high school. Pro tip: I was able to do this very quickly by copying the data table entries on multpl.com from the top down to the 1976 entry, pasting them vertically into a temporary sheet, sorting the data by date descending, selecting the sorted data, creating a new sheet, and using Edit > Paste Special > Paste Transposed to lay out the data horizontally across the sheet. Beats the heck out of typing!
  3. Define an annual contribution. Insert a couple rows up at the top, enter an amount for your fixed annual contribution size, and use Data > Named Ranges... to assign the amount to a name (like “contrib”). Then you can use that name in your formulas.
  4. Enter rows representing the investment performance for each year. Find the column for the starting year, and enter the initial contribution amount as the formula “=contrib”.

    Fill out the remaining columns with the formula that calculates the value of the investment a year later by using the historical price data up above. My price data is in row 4, so the formula for the first anniversary of my initial investment in cell B5 looks like: “=A5+((B$4-A$4)/A$4)*A5”.

    The cool thing is I can now just select that cell along with all the cells to its right and type Control-r to copy the formula across the row. Now I’ll see the value of the initial investment each year from inception to present day.

    I repeat this for each successive row starting one column over to the right each time until I get to the current year. At the end, it looks like an upside down ramp.

  5. Add conditional formatting to call out winning and losing years. A winning year is when the current cell’s value is greater than the initial contribution. Make those cells green. Otherwise, make the cell red to mark a losing year. You can create the conditional formatting rules from the Format > Conditional formatting... menu entry.
  6. Add running totals across the bottom. Summing the rows for each column will give the total value of all investments for each year across the bottom. I like to compare that with what would happen if I had just kept the contributions in cash the whole time.

Check out my win/loss plot.

Step back and admire all that green. It dominates. And, at the moment, there isn’t a single row that hasn’t turned green ultimately.

At the bottom right, compare the total ending value of the investments versus just stashing the same contribution in cash year after year. In my case: $1,719,627.25 vs $210,000.00.

Wow.

By the way, I’m ignoring dividends and expenses to keep things simple. With or without them, the point remains loud and clear: Dollar cost averaging plus low cost index funds for the win!

Despite an occasional epic losing streak, your simple market win/loss spreadsheet will prove to your kids that patient, consistent investing kicks cash’s backside over the long run.

All the more reason to start your teen’s Family 401(k) asap!


Want to turn these tips into action? Check out FamZoo.com.

Friday, October 20, 2017

Show Teens The Top Of the Stock Market

An elusive mountain summit.

The stock market can be a mighty dry topic for teens. That’s a shame, because jumping in early is a huge advantage.

So, you’ll need a compelling hook to capture attention and make your key points stick. Points like: don’t miss out by trying to time the market.

Try this clever teaching prop. It’s a picture of the history of the “top” of the market. It’s a classic I see floating around the Internet periodically in one form or another.

Visual. Amusing. Instructive. A teen teaching trifecta!

This picture makes it pretty darn clear that nobody knows for sure when the top of the market will come.

And even if this is the top of the market now, the odds are pretty darn good it won’t be down the road. Like decades from now when your teenager is 59 and a half.

You know, the age your teen will start selling off those index funds in that killer Roth IRA you set up.

Wait, what? You’ve been holding off on plunking your teen’s Roth contributions into an index fund? Well, it would be dumb to start Junior off at the top of the market, right?

Study that picture again.

Whether the market is at the top, the bottom, or somewhere in between, just jump in. And keep jumping in every year.


Want to turn these tips into action? Check out FamZoo.com.

Thursday, October 12, 2017

Get Real Family Finance Tips From These Five Finalists

Tired of reading the same old puff pieces on kids and money in the mainstream media? Instead of boring platitudes from “experts” (some of whom haven’t even raised kids!), how about some real insights from real parents in the new media trenches?

Start with these five Family Finance finalists for this year’s Plutus Awards for independent financial publishers. I’ve picked a representative post or podcast from each to help you dive in:

  1. Chief Mom Officer: Cell Phone For Kids — Why My Kids Don’t Have One (And a Tell-All Interview).

    Does your kid need a cell phone? Would you cover its cost? Most parents answer “yes” and “yes” — especially by the time a kid is 12. Not Chief Mom Officer. She and her kids (10 and 14) challenge the new normal. Find out why going against the grain might make sense in your family too. Whether you agree or not, there’s plenty of good food for thought here.

  2. Montana Money Adventures: 3 by 3: Minimalism with Kids.

    Ms. Montana describes a clever toy rotation scheme for encouraging moderation in younger kids. The year long experiment has helped her kids derive more joy from less, lengthen their attention spans, increase creativity, decrease fighting, and reduce clutter. They’ve become mini minimalists. Sound like magic? See how she did it.

  3. Mama Fish Saves: Why Tough Summer Jobs Beat Summer School For Teens.

    After reading this, you’ll want to ship your kids off to a tobacco farm instead of summer school. Well, maybe. Chelsea shares five important life lessons she learned working long, tough hours during the summer. Every kid could benefit from a session at the School of Hard Knocks. See why you might want to enroll your teen next summer.

  4. Couple Money: 4 Ways Parents Can Teach Their Kids About Money.

    Elle hosts one of the few podcasts squarely focused on family finances. Her episode with yours truly is a good place to start your binge listening streak. Naturally, we discuss teaching kids good money habits. Listen in as we share our favorite systems, tips, and stories.

  5. Catherine Alford: Reflections on 7 Years of Blogging & Turning 30!

    Wrangling kids. Agonizing between building out a risky but flexible home-based side hustle versus returning to the steady but inflexible 9 to 5. Holding down the home fort while your partner slogs through long hours at a demanding workplace. Wrestling with health issues. Balancing it all through midlife can be pretty overwhelming. Impersonal self-help platitudes from main stream media aren’t worth much. Real stories from real people like Cat might just be the gold you’re looking for. Plus, you can actually talk to her in the comments. Bonus.

So, if you really want to learn more about family finance, skip the mainstream puff and pick the independent plums. More educational. Less boring.


Want to turn these tips into action? Check out FamZoo.com.

Friday, October 6, 2017

Shell Out Parent-Paid Interest To Encourage Saving

Girl with savings interest text.

You’ve already heard me harp on the virtues of aggressive parent-paid interest. (If not, see here.) It’s my favorite technique for getting kids fired up about saving and thinking twice about spending: “Look at that sweet interest deposit I just got on my card! I’m going to build up my balance so I can earn even more.” Music to my ears.

I decided to run some numbers on our family finance site today to see just how much interest parents are shelling out in a typical month.

Last month, kids who received parent paid interest on their prepaid cards earned an average of $3.74. Nice! Infinitely more motivating than a traditional savings account.

One kid raked in a whopping $60. How? The kid’s parents offer a super sweet deal: 1% of the the current card balance per week capped at a maximum payout of $12. Now that’s aggressive! The kid bagged 5 maximum payments in the month because September had 5 Saturdays this year. Bonus!

OK, so $60 a month is over the top for most families, but $3.74 isn’t.

That steady drumbeat of encouraging text messages just might cement a lifelong savings habit.

Worth a try, don’t you think?

Here’s the discouraging news: only 4.3% of the kids using our cards in September earned parent-paid interest.

So, here I am harping on it again. Time to step up and shell out, parents.


Want to turn these tips into action? Check out FamZoo.com.

Wednesday, September 27, 2017

Motivate Kids To Maintain Value With A Trade-In Deal

Trade-in value graph on a broken phone.

I remember the time my oldest son thrashed an expensive laptop shortly after I bought it for him. Man, did that grind my gears.

I made him pay for the replacement by garnishing his allowance for 18 months. The lesson stuck. That replacement lasted a very long time.

That was an effective, yet reactive measure to teach my son to take care of his possessions. A proactive measure would have been better. Less wasteful.

Fellow youth financial literacy advocate, Amanda Grossman, has an effective proactive solution. She expands on a shared skin-in-the-game technique David Owen wrote about in his book The First National Bank of Dad, which happens to be one of my favorite books on teaching kids the value of money (the other being Ron Lieber’s The Opposite of Spoiled). For the details on Amanda’s solution and some great David Owen quotes, check out her recent post: Genius Hack to Get Your Kids to Take Better Care of Their Belongings.

In short, the recipe is:

  • Show your child how the resale value of a used item varies considerably with its condition.
  • Make a deal with your child to share a percentage of the proceeds when the item is eventually resold.

The key is to do this up-front, not after the fact. That’s what creates the incentive to take care of the item from the beginning.

As a concrete example, my youngest son and I just looked up the trade-in value of a 32GB Apple iPhone 7 on Gazelle.com. Here’s what we found:

Phone Condition Trade-in Value
Really Broken: doesn’t power on. $75
Fairly Broken: significant damage, but powers on. $110
Good: makes calls, no cracks or major scratches. $280
Flawless: looks and works like brand new. $310

It’s helpful to draw a bar chart to put the values in clear perspective.

To be honest, we were a bit surprised to see how much the broken phones fetched. I was hoping they’d be closer to zero to further bolster my point. Nonetheless, good to know in case his phone gets thrashed by an event beyond his control.

We both noticed the leap in value transitioning from broken to good. That’s the supporting point I was looking for. We discussed how the bar is probably pretty high to qualify for “Good” status and noted how close it was to “Flawless”. No cracks, no major scratches, no major scuffs. That can get pretty subjective, so best to shoot high when maintaining the phone’s condition. Music to my ears.

Looks like I won’t be needing to garnish my youngest son’s wages to replace a thrashed phone prematurely. Instead, he’s looking forward to a future windfall on a high value trade-in.


Want to turn these tips into action? Check out FamZoo.com.

Thursday, September 21, 2017

Spur More Money Talk With Tech, Not Less

Mobile phone with money speech bubble.

“I worry these automated apps and debit cards will cause me to have fewer thoughtful money conversations with my kids.”

I hear that a lot. And it drives me nuts.

(It almost makes me as crazy as: “Don’t give your kid a debit card, use cash instead.” Nonsense. See my counterarguments here and here.)

The automation fear is frustrating because the effect of a well-designed family finance app is precisely the opposite. Thoughtful automation spurs more parent-child conversations about money, not fewer.

And, as Ron Lieber says: “Every conversation about money is also about values.” So, that’s a good thing.

Just because the manual mechanics are eliminated for things like:

  • remembering to deliver regular allowance,
  • accounting for chores or odd jobs,
  • calculating parent-paid interest,
  • and tracking transactions,

doesn’t mean the conversation disappears too.

In fact, it’s when the mechanics are not automated that the parents eventually fail to follow through, and the system collapses. No follow-through means no system means no conversations. Automation fixes that.

The app’s automated audit trail and real time alerts proactively prompt an ongoing stream of money discussions with your child:

“I see you made 6 cents in interest for the week. Let’s talk about how the incredible power of compound interest is putting your savings to work.”
“I see you spent $3.99 at a specialty tea shop. Let’s talk about whether it’s worth paying that much. Maybe, maybe not.”
“I see a $23.50 ATM transaction. Let’s talk about how that $3.50 fee is a 17.5% tax on your $20 withdrawal, and how to avoid it next time.”
“I see 20% of your allowance is still going to paying off that loan I made you for the latest iPhone. Let’s talk about whether you’d make the same choice next time. Maybe there’s some extra work you can do to pay it off faster.”
“I see your Spotify payment was declined again. Let’s talk about how that would cost you a $35 overdraft fee on a bank debit card and the importance of keeping a cushion in your account.”
“I see your donation to the disaster relief agency went through. I’m so proud of you. Let’s talk about how you picked the place to donate.”
“I see your payment to me for your share of the family cell phone plan came through today. Painful isn’t it? Let’s talk about finding a cheaper option.”
“I got your annual clothing budget proposal notification. Let’s talk about a compromise on the line item for jeans. Oh, and you forgot to include underwear.”
“I got your money request notification just now. Let’s discuss why you’re running short of funds before I approve or deny the request.”

Those are all good, thoughtful conversations to have. Regularly. Small steps and repetition are key ingredients to building good habits.

Without automation, your only consistent money conversation with your kid might just be:

“Dad, why do you keep forgetting my allowance?”

Want to turn these tips into action? Check out FamZoo.com.