Wednesday, October 26, 2016

Set The Stage For Socking Away Savings In College

Father Son Savings Text Exchange

Just last night, I received this glorious text from one of my sons in college:

“Can you transfer $800 to my savings? I don’t want to spend it.”

Umm. Let me think about tha... YESSSSSS!!!

You see, my son has been working a part time job during the school year. Compensation includes a share of the cash in the tip jar at the end of each shift.

That’s just the kind of money that tends to evaporate in a college environment. The cash is at your fingertips. Tip income feels like an extra “bonus.” Dropping bucks here and there with your buddies is a constant lure. On the other hand, accumulating cash in your wallet, loading it on to your spending card, and requesting your dad to whisk it away to savings seems almost inconceivable.

I have to admit, I’m one proud papa to receive a text like that. I never would have sent a text message like that when I was in college. (Let’s just ignore the fact that text messaging didn’t even exist back then.)

So, how can you set the stage for receiving a similarly glorious text message from your future college student someday? Every parent’s mileage may vary (kids are different!), but here are a few things that certainly increased the odds in my case:

Who knows? If you set the savings stage early, you might just look forward to texts from your college kids about money, instead of dreading them like most parents.

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Tuesday, October 25, 2016

Add Consequences To Allowance With A Chore Fail Chart

Allowance and chore fail system sketch.

You want your kids to get hands-on practice with money management early on.

But your kids are too young to get a real job.

How about paying your youngsters for chores?

No. You expect your kids to complete everyday chores without compensation. After all, that’s part of being a contributing member of your household. Besides, managing a detailed chore chart is one more hassle to cram into your already overloaded parenting regimen.

How about giving your kids an allowance?

No. You don’t like the idea of a hand-out. Besides, blowing off chores should have consequences. Kids shouldn’t get off scot-free when shirking responsibilities.

What to do? Allowance or chore chart?

Try combining a variation of both: a budget-based allowance and a chore “fail” chart.

I describe how you can treat an allowance like a budget instead of a hand-out in the post, Fix The Way You’re Doing Your Kid’s Allowance.

But what’s a chore fail chart? It’s the inverse of a traditional chore rewards chart. Checking an item off a chore fail chart deducts a small penalty from your kid’s account instead of crediting a reward. It serves as claw-back from your kid’s allowance. So, instead of entries like “Made bed: +$0.25” on a chore rewards chart, you have entries like “Did NOT make bed: -$0.25” on a chore fail chart.

The added bonus is less hassle. The regular allowance runs itself, and you only need to interact with a chore fail chart when chores are being ignored instead of completed. Unless your kid is in full-on rebellion mode (teens anyone?), that means checking a lot fewer boxes.

By the way, if you don’t care for the idea of monetary penalties, you can deduct privileges on your chore fail chart instead — like online gaming time. But that can get a little more complicated to track and manage.

The ease of an allowance without the entitlement. The accountability of a chore chart without the hassle. Coupling a budget-based allowance with a chore fail chart might just solve your pay-for-chores versus give-an-allowance dilemma.

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Monday, October 24, 2016

Tell Teens To Take More Risk

Teen taking investment risk.

“Wear your helmet!”

“Don’t text while driving!”

“Watch what you post on social media!”

If you’ve parented a teen, I’m sure you’ve dished out some of those classic admonishments — and then some.

Teens are notorious for risky behavior. It comes with the surging hormones and the under-developed frontal lobe.

But there’s one area that teens need to pump up the risk if they’d like to enjoy a healthy future. Investing.

According to recent research featured in the Wall Street Journal, the biggest money mistake people make in their 20s these days is playing it too safe. They think investing in the market is too risky or too complicated.

Most teens I know never get beyond plunking some money in a traditional savings account, if they save any money at all.

Here’s where you can play a life-changing role starting in high school and extending through college. Try this general gameplan:

  1. Help your teen to get a W-2 paying job. We focused on summer jobs with our kids, but don’t be too quick to dismiss part-time work while in school. Part-time work for full-time students has benefits.
  2. Open a Roth IRA account. You can start with a custodial account for kids under 18. I opened ones for my teens at a local Schwab office, but there are lots of options here.
  3. Contribute some earnings. Convince your kid to stash away some percentage of each paycheck into a savings account or a savings card. At the end of the summer or the year, roll the savings balance over to the Roth as an annual contribution.
  4. Get a family match. Match your child’s contributions if you can or enlist a grandparent to help. The matching turns it into a “Family 401(k).“
  5. Invest the contribution. Don’t just let the contribution sit there in cash. This is where it’s time to accept some medium term risk for long term returns. We’re talking decades. Consider a low cost, well diversified, broad market index fund or ETF.
  6. Rinse and repeat through college. Make it an annual tradition all the way through that college diploma.

You’ll struggle to get past step 3 though if you don’t show your teens some serious payoff. You can run some very impressive scenarios in a very simple spreadsheet. Copy mine here, and play with the numbers.

Sample Teen Roth Projection

For example, let’s say your freshman in high school makes over $1,000 this summer (my 3 middle sons averaged $1,775 each summer so that shouldn’t be a stretch), contributes $500 of it to a Roth, gets the grandparents to match, and invests in a total market index fund like VTI. Then suppose your child continues the ritual every year through senior year in college. Assuming an annual return of 7.38% (the current 10 year annualized return of VTI), your child will turn that $8,000 into over $150,000 by age 60 — just from this little “summer student ritual.”

Even better, if that student ritual turns into a persistent habit of maxing out IRA contributions and sensible investing as an adult, your kid will be sitting on well over a million by retirement. Run the numbers in the spreadsheet.

Now that’s a risk your teen can certainly afford to take.

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Sunday, October 23, 2016

Adopt A Family Money Motto

Motto On A Dollar

What are your family’s core beliefs about money? Can you encapsulate them in just a few words?

Thinking, thinking...

That’s not an easy question to answer off the cuff.

Do you think your other family members would come up with similar words? Is everybody on the same page?

Maybe it’s time to identify and adopt a family money motto.

Google “motto” and you’ll find: “a short sentence or phrase chosen as encapsulating the beliefs or ideals guiding an individual, family, or institution.”

Our family finance site lets users enter mottos for their family members to see whenever they sign in. You can select from a small gallery of classic quotes or enter your own. Here are the 5 most popular mottos from our limited gallery:

  1. “Never spend your money before you have it.” ~Thomas Jefferson
  2. “A penny saved is a penny earned.” ~Benjamin Franklin
  3. “If you think education is expensive, try ignorance.” ~Unknown
  4. “Doing more and more with less and less is one form of being generous. In fact, the easiest way to become rich is by being generous.” ~Robert Kyosaki
  5. “A fool and his money are soon parted.” ~Thomas Tusser

You can find a lot more on our Wise Money Words Pinterest board.

Sometimes a pithy family phrase or quirky go-to saying from a grandparent fits the bill best. Here’s a small sampling culled anonymously from our site:

  • “Pursue your passions. Live within your means.”
  • “We work hard, have some fun, save for a later day and always help others.”
  • “Think before you spend!”
  • “Spend beneath your means so you’ll have the freedom to pursue your passions and help others.”
  • “Thrift, prudence, adventure!”
  • “Earn, save and enjoy life!”
  • “Our family isn’t just crazy. We’re crazy for saving.”
  • “There is enough sunshine for everyone”
  • “Everything affects everything — be smart with every dollar and every dime.”
  • “Dream big dreams, and work as hard as your dreams are big!”
  • “I give and I get and I don’t get upset!”
  • “Save your money ’cause someday your money will save you!”

Or, as one clever user entered: “What’s the motto with you?”

Well? What’s your family money motto?

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Saturday, October 22, 2016

Harness Your Teen's Irrationality To Build Your Family Savings

Teen Savings Jar

Behavioral finance informs us that rational thought doesn’t always govern personal finance decisions. Lots of money behaviors are purely emotional or even seemingly random.

For example, people who could save and know they should save, often just don’t.

That’s why a new crop of apps that save “behind your back” (like Digit) or save based on random emotional triggers (like Tip Yourself) are all the rage recently. The apps transfer money from your spending to your savings account using unscheduled or unconventional triggers.

In that same vein, I have a quirky idea for parents out there. With hormones raging and frontal lobes developing, your teenager is the perfect unpredictable, emotional trigger.

Every time your teen does something irrational, incomprehensible, or irresponsible, transfer a dollar to your savings. Build up your emergency fund, your vacation account, or your family fun money card. If your teen is like most, you’ll be swimming in extra savings in no time!

If you’re going to have to endure a teen’s perplexing behavior, you may as well put some extra money away while you’re suffering through it.


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Friday, October 21, 2016

Use Reimbursements To Teach Teens The Value Of A Dollar (VIDEO)

Reimbursements Video

Video Transcript

Hey, Bill here. As always, thank you for the nice mentions on social media.

Yes, I pay for many of my teens’ everyday expenses. Even though they each have savings from summer jobs. And I’m happy to do so, like many parents.

But, I want to make absolutely sure my teens know exactly how much those everyday items cost. Even if I’m paying for them. Financial ignorance might feel like bliss now, but it sure won’t later.

So, how do I make sure my teens are fully mindful of the money I’m spending on them?

  1. Make them spend it first using their own account, card, or cash.
  2. Make them itemize the expenses.
  3. Make them formally request a reimbursement after subtracting out any items or portions of items we’ve agreed are their responsibility.
  4. Only then will I send them money to cover — or partially cover — the transactions.

So what’s covered? I might fully cover toiletries, partially cover the gym membership, and not cover entertainment at all. You might have an entirely different set of rules. Do what makes sense for your situation.

So, your teens may not be able to afford everyday items yet, but they still need to learn exactly how much those items cost.

Make them active participants in the everyday expenses you’re picking up. That way, your teens will already know — and appreciate — the real value of a dollar when the day comes for everything to be on their nickel.

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Thursday, October 20, 2016

Teach Your Kids It "Pays" To Be Nice

Nice people finish last, right? Nope.

In fact, in many areas, nice people wind up ahead of the game. According to a recent article in the Wall Street Journal, research shows that being nice pays solid dividends in several areas:

  • Work: Nice people get better performance reviews from senior supervisors. Nice people are less likely to be fired.
  • Romance: Nice men are perceived as more attractive. (Sorry, no mention of a corresponding study on women, but I’m willing to bet — or at least choosing to believe — that what’s good for the gander is good for the goose here too!)
  • Happiness: Small daily acts of kindness raise one’s self-judged happiness.

The article goes on to recommend a simple strategy for learning to be nice: imitate a nice person.

So how do we teach our kids to be nice?

Well, we all know who they tend to imitate, don’t we. The apple doesn’t fall far from the tree.

So let your kid catch you doing plenty of nice things. Such as? Smile and be friendly to those around you for starters. Then try a few small random acts of kindness like the ones here.

Before you know it, you’ll be nicer, you're kids will be nicer, and you’ll all be winners at work, in relationships, and in your own mind.

Sounds like a bargain. Being nice costs you nothing yet pays huge dividends. It’s one of those rare cases in real life where everyone really is a winner.

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