Wednesday, May 24, 2017

Show Kids What The S&P 500 Looks Like

S and P Index Map

Today’s Headline:
Financial stocks lifted the S&P 500 as the index notched a fourth consecutive session of gains.

You and your kids hear the names in the headlines almost daily. The DOW. The NASDAQ. The S&P.

“Dad, what’s the S&P?”

“It’s a stock market index.”

“Oh...What’s that?”

“Ummm... Ask your mom.”

The next time it comes up, don’t dodge it. Don’t pass the buck. But, don’t try to explain it either.

Sit your kid down in front of the interactive map at FinViz.com and show her instead.

  1. What are all those little tiles? Each tile is one of the 500 companies in the S&P 500. Fly over a few with the mouse. Recognize any?
  2. Why is the Apple tile called AAPL? Those initials are like the company’s nickname on the stock market. It’s called the ticker symbol.
  3. Why is AAPL so much bigger than the others? The more valuable the company, the bigger the tile. Apple is killing it. (That’s why they’re building a spaceship for their headquarters.) Can you find Starbucks? Disney? Nike? (Hint: Look in the Consumer Goods section. See the groupings and sub-groupings?) How do the company sizes compare? Any surprises?
  4. What do the colors mean? Green means the company got more valuable today. It’s stock price went up. People were willing to pay more for a share of the stock at the end of the day than at the beginning. Red means it’s value went down. Grey means it didn’t change. Mouse over the company’s tile to see a pop-up chart of how the price fluctuated throughout the day. Who are the big losers? The winners? Any surprises? There’s always a mix.
  5. But some of today’s losers seem like great companies. Did they just have a bad day? Use the little pull-down menu on the left to change the time frame to a longer period. Try 1 month, 2 months, 6 months, a year. What do you notice? What companies are green over all the periods? What about the overall color of all the tiles together? How does that change as the periods change? What’s more likely to be green over time: all the tile colors mushed together or one tile chosen at random? Try picking a few to see.
  6. So who picks these 500 companies anyway? Some group of nerdy economists. They get together and choose the 500 large companies they think are most representative of the overall U.S. economy. How do they figure that out? Go ask your mom...

Why does it matter if your kid knows what an index is? Because one of the world’s richest men and greatest investors, Warren Buffett, has some sage advice: invest in a low-cost S&P 500 index fund.

Now your kid knows what the S&P is and why buying all the stocks in it is a smart play (see #5 above).

And when your kid opens a Roth IRA with that first summer job, she’ll know exactly where to invest the funds for the long term. Move over Warren.


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

Wednesday, May 17, 2017

Pre-Negotiate Your Teen’s Summer Paycheck Savings Split

Teen On Job In Rickshaw Bagworks Factory

Parent: “How much did you save from your summer job last year?”

Teen: “Umm, nuthin’.”

Sound familiar?

Time for a preemptive strike before summer rolls around again.

As Warren Buffett says, “Do not save what is left after spending, but spend what is left after saving.”

So, negotiate a savings split deal ahead of time.

If your teen agrees to save 27.68% of every paycheck this summer, you will agree to do one or more of the following...

OK, so that last one is more of a mandate than a negotiation. It reminds me of Chris Rock’s definition of allowance.

With the negotiation (or mandate) firmly in place, make sure your teen has separate spending and savings accounts (or cards) ready to go.

When the job starts, help your teen automate the paycheck split if possible. Many employers support splitting direct deposits percentage-wise between multiple accounts. If not, turn on activity alerts for your teen’s main account so you’ll know to manually transfer the right percentage to savings as soon as each deposit hits.

The added payoff for these summer paycheck splitting experiences? Your teen will be more likely to get an early jump on employer matched retirement savings plans later as a young adult. It will just feel natural. Smart move.

So, what should your teen do with all the accumulated savings at the end of the summer?

Start a Roth IRA, of course.

Then, 50 years from now when someone asks your teen: “How much did you save from your summer jobs?”

The answer could very well be: “Oh, about a hundred thousand dollars.”

Compounding over decades for the win!


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

Thursday, May 11, 2017

Clean Up Your Kid's Spotty Bill Payment Record

Teen with Spotify decline transaction.

51.8% of Spotify’s attempts to bill kids on FamZoo prepaid cards failed in the last 90 days. Yep. Over half. Yikes.

The reason for the vast majority of those failed attempts? Insufficient funds on the card.

Here are the full stats for the Spotify billing attempts:

48.2% Successfully billed. Golf clap.
43.7% Billed amount exceeds card balance.
3.0% Billed to lost card.
3.0% Incorrect card expiration date entered.
1.2% Incorrect card security code entered.
0.9% Failed address verification.

By comparison, in the same 90 days, 98.4% of Chipotle purchases were successful. Hmmm.

Clearly, lots of kids aren’t ready to plan ahead (beyond their next burrito) and responsibly handle a recurring billing arrangement.

But who cares? FamZoo prepaid cards don’t charge any overdraft fees. What’s the harm?

The harm is the habit.

Kids who develop a habit of missing online subscription payments now might be cavalier about missing regular rent payments later. Or student loan payments. Or credit card payments.

That means late fees, mounting debt, and tanking credit scores.

All bad.

So, make sure you’re nipping your kid’s bad payment habit at the bud. Here’s how:

  1. Add responsibility for a recurring payment. Put your kid in charge of handling a regular monthly payment — Spotify, Netflix, a share of the family data plan. Don’t forget to increase your child’s budget based allowance to accommodate the increased fiscal responsibility. Remind your child to maintain a buffer on the card to safely handle the billing when it hits.
  2. Assess a penalty for misses. Review your child’s transactions each month or set up real-time activity alerts so you know when payments have failed. When they do, tack on a penalty. Consider it an overdraft fee from the Bank of Mom or Dad. Missed payments need to hurt.
  3. Insist on a proven track record. Is your teen claiming readiness for a checking account or access to a credit card? Your teen will need to prove it first. Six straight months with zero subscription payment failures feels like a good prerequisite.

Remember, a spotty Spotify record now might mean a spotty credit score later. Make sure your kid faces the music early.


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

Wednesday, May 3, 2017

Help Kids Squeeze More Than Money Out Of A Lemonade Stand

Squeezing lemonade.

I know it’s Spring because the lemonade stand deposits are trickling into kids’ accounts at FamZoo.com. A typical entry for an 8 year old reads:

4/24/2017 Cash deposit from lemonade stand $7.00

The deposits from last lemonade stand season — typically late March through September — yielded these fun facts:

  • The average lemonadepreneur was 11 years old.
  • Earnings deposits peaked in June and September.
  • Deposit sizes for transactions containing the keywords “lemonade” and “stand” fell within these ranges:
    Min: $0.50
    Max: $56.10
    Average: $11.47
    Median: $7.00

But lemonade stands aren’t just about lining your kid’s pockets with extra spending money. Don’t let your kid miss out on these additional golden opportunities:

  • Understand the equation: profit = sales - expenses. Don’t gloss over the expenses part. If you let your kids just bank the total sales, you’ll be robbing them of a valuable business lesson on profitability. Show them how to estimate expenses and create an initial budget. Let them know you’ll be fronting the seed capital, but they’ll be reimbursing you for expenses afterwards.
  • Learn sales and marketing techniques. For classic examples, see what Chris taught his 6 year old daughter about getting outside her comfort zone and attracting customers in his thoughtful post: Grown Up Lessons From A Lemonade Stand. At minimum, your kid will meet some new people. That alone is a good thing.
  • Develop some grit. Kids get bored and frustrated when initial strategies fail or sales hit a lull. Chris’ daughter did. But he helped her refine her approach and stick with it. End result: “the lemonade stand was her favorite part of the day.” Good lesson.

So this year, help your kid squeeze more than money out of that lemonade stand.


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

Wednesday, April 26, 2017

Make Teens Bank The Deductible Before Driving

Teen driver.

Have a teen nearing driving age? Susan N. shared this brilliant personal finance tip on Facebook:

“We required our teens to have the deductible in the bank before they could drive our cars. Only one (so far) has had to pay the deductible.”

A teen “Driving Deductible Fund” is a smart idea for at least three reasons:

  1. It gives your teen some shared financial skin in the game — even when your teen won’t be purchasing a separate car. A financial stake fosters appreciation, accountability, and, in this case, caution! If your deductible is huge, consider mandating a reasonable fraction instead.
  2. It provides a mini education in how insurance works. Your teens will suddenly become keenly interested in the ins and outs of insurance policy deductibles if they actually have to save up for one before getting their hands on your wheels. (If your kids are younger or have no interest in driving, try setting up a family phone insurance company to deliver the lesson instead.)
  3. It’s a great way to introduce the best practice of maintaining an emergency fund. Just think how much less consumer debt we’d have if people learned about emergency funds in their teens!

So, what if you’re lucky enough to have a teen who navigates to young adulthood without exhausting the fund? Roll it over to a general emergency fund or, if your teen is eligible, a Roth IRA.

Even throw in a parent match to sweeten the pot. After all, your kid’s good driving spared you some expenses and a whole lot of parental stress.


Check out these related car finance tips for educating teen drivers:


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

Thursday, March 30, 2017

Fully Fund Your Working Teen’s Roth IRA

Teen holding free Roth money from Mom and Dad.

Did your teen pull down a paycheck last summer or during the school year?

Then, it’s time for you to establish a Family 401(k).

Here’s the quick recipe:

  1. Open a Roth IRA account for your teen (custodial account if under 18).
  2. Contribute up to the max possible. That’s usually the total of what your teen brought home since most earn less than $5,500 (or whatever the current IRS Roth contribution limit is).
  3. Invest in a low cost index fund. VTI is my personal go-to choice.
  4. Review, rinse and repeat each year.

Decades from now, your adult child will be sitting on a sizable nest egg — even if your kid falls off the contribution wagon during young adulthood. Compounding over the long haul is that powerful.

But there’s one big problem, you say.

It’s step #2. Your teen already blew all those paychecks on fast food, online games, and streaming music. There’s no money left over to contribute.

Now what?

Just gift the contribution money to your teen. If you can’t cover it, hit up the grandparents, aunts and uncles.

Huh? Why should you just hand over free Roth contributions to your teen? Isn’t that sending all the wrong messages?

Not in my book. Think about it.

Even if you as the parent gift the entire contribution, here’s why it’s a neat way to pass money to your kids while signaling all the right messages:

  • It’s contingent on getting a job and bringing home a paycheck.
  • It shows the power of patient investing and tax free growth.
  • It’s a great excuse to talk to your kid about investing every year.
  • It increases the probability your child will quickly jump on future matching opportunities, like an employee 401(k) plan.
  • It puts your kid solidly on the path to a financially independent future.

The bottom line: funding (and even fully funding) your teen’s Roth IRA now is a lot healthier than plopping a large lump sum in your kid’s lap later when you kick the bucket.


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

Wednesday, March 22, 2017

Cut Your Kid In On A Share Of The Coin Jar

Coin Jar With Share Note From Dad

While researching anonymous transaction data on our family finance site today, I stumbled across this delightful deposit for a 7 year old:

03/20/2017 $8.62 For counting Dad’s coins

I love it! Use your spare change jar to creatively engage your youngster in some personal finance basics.

Offer your kid a deal. If she stacks your spare coins into neat little $1 piles, you’ll let her keep a hefty share.

Convert her piles into crisp dollar bills, or deposit the equivalent sum right into her account.

She’ll be surprised how much money accumulates in a change jar over time. I bet $8.62 was an exciting windfall for that 7 year old.

It’s an important personal finance lesson: even micro savings can add up to significant sums over time.

In fact, if the sum is anything north of trivial, encourage your child to split the bounty between spend, save, and give buckets. (See tips on choosing the right percentages here.) Separating funds into purpose-driven partitions is an effective money management technique. Help your child form the habit early.

So, don’t let your change jar just sit there collecting coins. Use it to dispense some valuable financial wisdom to your kids.

P.S. Got teens? Try setting up a swear jar, and let the proceeds flow to the family instead!


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