Thursday, July 27, 2017

Replace Chore Charts With Money Requests To Promote A Proactive Work Ethic

Boy washing car

It’s a dog-eat-dog work world out there!

Workers need to be proactive problem solvers and savvy negotiators to thrive in today’s increasingly entrepreneurial, gig-oriented economy.

So, how do we encourage those skills in our kids early on?

Try ditching the parent-driven allowance and chore systems. Put the kids in charge instead.

That’s what we’re seeing some families do on our family finance site.

Parents are putting the onus on the kids to:

  1. Identify work that needs to be done around the house.
  2. Do the work.
  3. Negotiate payment.

How do I know? I sifted through some recent (anonymous) money request data from FamZoo.com. Here’s a sampling:

Child Request Parent Response
$10.00

“Mowed lawn front and back.”

Approved $10.00.

“Thank you!”

$16.00

“Monday: Worked 3 hrs Add $1 because I put G*** to sleep in the bed. Total owed: $16.”

Approved $16.00.

(Nicely played with the proactive bonus work.)

$2.00

“I helped T*** with the plants, and I am awesome so I deserve it anyways.”

Approved $2.00.

“Lucky I didn’t decline.”

(Looks like a shot across the bow from Mom to polish up those negotiating skills!)

$10.00

“I helped you with gardening stuff yesterday for 3 hours... ($2.50/hour + $2.50 for no whining!)”

Approved $10.00.

“Thank you! I couldn’t get done so quickly without you!!! And the No Whining is SO NICE ;).”

(Clever touch with the no-whining surcharge.)

$5.00

“I helped clean up the pool deck.”

Approved $15.00.

“You worked really hard. Thank you for all of your help! You deserve $15 instead of $5. Love, Dad”

(Ka-ching! Over-delivery scores the big payoff!)

$250.00

“I would like this because I am the best human being on this planet. No one can ever out do my awesomeness or be as good as me! (Plus I also really want a laptop and a phone and a shopping spree) Please keep this notified in your mind! Warm Regards, Your Favorite child of all times.”

Declined. $0.00.

(As they say, talk is cheap. No results, no money!)

These parents don’t have to remember to make allowance payments or set up chore schedules. If the kids need money, the ball is in their court. The rules are simple: Identify work that needs to be done, do it, and negotiate your own compensation.

Sounds like a pretty appealing system, doesn’t it?

Forcing kids to be proactive problem solvers and savvy negotiators today will give them a leg up in the business world tomorrow — from dog-eat-dog to top dog.


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

Thursday, July 20, 2017

Build Your Teen's Credit Score With A Secured Card

Teen holding secured credit card.

Your kids will probably be caught off guard the first time someone inquires about their credit history. For my kids, it was that first apartment rental in college. So building a solid credit score early can be a smart move. It’s also an important part of your child’s financial education.

Prepaid debit cards are excellent financial training wheels for kids and teens. They’re safe and accessible. But they don’t build a credit history.

Credit cards build a credit history. But safe and accessible for teens? Not so much.

Teens can do a lot of serious financial damage with a credit card in a very short period of time. Like when a kid racked up $7,625.88 on his parent’s credit card playing Xbox games.

Legally, a teen can’t get a credit card as an independent cardholder until age 18. But even then, most teens won’t qualify. They have to be able to demonstrate a sufficient steady source of income outside of Mom or Dad. Most can’t meet that bar.

You could add your teen as an authorized user on your own credit card, or you could co-sign for your teen on a separate card. But both routes put your own credit history (and budget) at risk.

Consider a secured credit card instead.

A secured card requires an up-front deposit. That security deposit dictates the credit limit on the card. Often they’re the same amount. If your kid falls behind, the card issuer can dip into the deposit to cover delinquent payments or late fees. When the card is closed or upgraded to a regular credit card, the security deposit (less any delinquent obligations) will be returned. The rules on this will vary and are spelled out in the cardholder agreement, like this one from Discover.

But before applying for the secured card, consider imposing two prerequisites for your teen:

  1. A sustained responsible track record with a debit card. If your teen can’t pass the No-Decline Challenge, he isn’t ready.
  2. The security deposit in hand. Make your teen come up with the security deposit, not you. If your teen can’t save the few hundred dollars required, she isn’t ready.

With the prerequisites met, you can check out sites like Magnify Money to compare secured credit card offerings. At the moment, the top pick is the Discover it Secured Credit Card.

I culled through the user reviews of the Discover card and found a few things to look out for:

  • Applying might be a hassle. “Applying for the card is like enlisting in the military, all the documentation required is ridiculous.”
  • Slow payment posting can cause unexpected declines. “The fact that it takes 10 days to adjust your available balance after the payment is taken out of my checking account, is a killer for me.” That means your teen could be bumping up against the card limit and getting purchases declined well after a balance payment is made.
  • Stinginess with limit increases. “I figured my limit would be increased as I use it and time passes but nothing has changed.”
  • Lengthy graduation period. “I have to wait a whole year to be converted to an unsecured card.”

To circumvent any issues with card limits and ensure your teen can pay the card off in full every month with low utilization, I recommend a hybrid strategy:

  1. Use the secured card in conjunction with a prepaid card.
  2. Put a few predictable or fixed recurring billings on the secured credit card that fall well below its limit and can be comfortably paid off each month.
  3. Leave the remaining discretionary spending on the prepaid card to stay on budget and avoid any risk of debt.

On budget. No debt. A solid credit score. Your teen is set.

And your teen’s eventual landlord won’t be coming after you as the cosigner for the rent either. Bonus.


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

Thursday, July 13, 2017

Base Your Kid’s Movie Theater Budget On Real Data

Kid at movie theater.

Will a twenty cover your kid’s typical movie theater outing?

It should comfortably do the job in most cases.

How do I know? Whenever a kid carrying a FamZoo card makes a purchase at a movie theater, the transaction is tagged with a Merchant Category Code (or MCC) of 7832. Assuming kids don’t hit the theater more than once a day, I can tally up all the transactions with an MCC of 7832 in a single day for a given (anonymous) kid to see what the total spend for each visit was. Then I can look across all such visits in a time period to get some interesting aggregate data.

Here’s what I found for June, the peak theater month for FamZoo card carrying kids:

The average spent per theater visit was $19.22.

The percentage of visits requiring a five, ten, twenty dollar bill or more were:

$5 or less 8.3%
$10 or less (but over $5) 19.2%
$20 or less (but over $10) 37.8%
Over $20 34.6%

Some other fun facts:

  • 15 years old was the average age for kids making a movie theater purchase.
  • 91 cents was the minimum purchase made in a visit. Weird, what in the heck can you buy for 91 cents at a movie theater?!
  • $81.16 was the maximum spent. Let’s hope some friends were included in that one!
  • 62.8% made just one purchase in the theater, presumably because the ticket was on mom/dad, or they stayed away from the snack bar.
  • The maximum number of purchases in a visit was 7. Wow. Hungry?!

So, if your kid is figuring movie costs into a discretionary spending budget, $20 sounds like a reasonable round number to use per visit. Or, if you’re funding a one-off excursion, you might state up front that anything over $20 is your kid’s responsibility. (It’s the old premium price rule technique.)

Either way, a twenty should cover your kid’s next theater visit.


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

Wednesday, July 5, 2017

Review 529 Statements With Your Teen Every Quarter

High school grad headed to college.

How much does your teen know about the 529 account you opened for college savings?

Nothing?

Or, maybe you’ve mentioned it once or twice, but you aren’t sure it really registered.

That’s the norm. Pretty dry stuff for a teenager.

I have a radical suggestion.

Review your 529 statements with your teen. And do it every quarter.

Yes, your initial sessions will be received with eyeball rolls, yawns, or worse. But keep up the good fight.

Through your consistent and repetitive efforts, your teen will gradually learn the following:

  1. How much college costs. Circle the ending balance on the latest statement. Your teen’s eyes may light up the first time. Mine’s did. Now, ask your teen to name a favorite university. Google the annual tuition. Divide your current balance by the tuition figure. That’s how many years you can afford right now. Buzz kill.
  2. Where it makes sense to apply. Armed with the sobering perspective from step 1, your teen will naturally start thinking more carefully about where it makes sense to apply. Maybe starting in community college would be appropriate. Maybe it’s time to look into scholarships. Did your teen know there are scholarships for just about every interest? Even drawing ducks. Who knew?
  3. How saving and investing works. This one will take some time to soak in, so be patient and start simple.

    Note how much money you’ve contributed to the account this period. Talk about how you’ve worked college savings into the family budget. If your contributions are automated, point out how that makes it easy to stay on track. If relevant, talk about how relatives have graciously contributed too.

    Now zero in on the Investment Summary section. Talk about how the 529 funds don’t just sit there. You’ve put the money to work through investing.

    Talk about how, early on when college was still far off, you had a pretty decent percentage in a low cost stock market index fund. That gave you a good shot at growing the money over time, even if the market went up and down a bit along the way. Circle the Total Portfolio Earnings entry to highlight that growth to date. Explain that now, with college getting closer, you’re shifting funds out of the market to reduce risk.

    Here’s where, over several 529 review sessions, you can communicate incredibly valuable lessons about basic investing principles in a relevant, tangible, repetitive way.

  4. What a tax-advantaged account is. When you circle the portfolio earnings, scribble the words “tax fee” nearby each time. That’s one of the special things about a 529. The investments grow tax free. This will remind your kid to always be on the lookout for tax-advantaged investment opportunities — like that Roth IRA account you helped your teen open with that first summer job. Right?!
  5. What a qualified withdrawal is. Circle the Withdrawals line item. Explain that it may be zero now, but eventually you’ll be seeing how much is being pulled out each quarter to pay for school. Keep reiterating that the withdrawals are for qualified expenses only! Tuition? Yep. Books? Yep. Spring Break? Nope. Withdraw funds for the wrong thing, and you’ll be looking at some nasty penalties. Good to know.
  6. Gratitude. If you stick with your 529 reviews, this could be the biggest bonus of all. You might start hearing some crazy talk from your teen, like: “I need to take this college thing more seriously.” And, perhaps: “I really appreciate what you’re doing here.” Or, possibly even: “Maybe I should start putting part of my summer paycheck in the 529.” Stranger things have happened!

So, that’s 6 valuable lessons your teen can learn from reviewing 529 statements for 15 minutes every 3 months. Tough to beat those quarterly returns. Ready to make the investment?


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