Archive for the ‘economy’ Category

In every parent‘s life there comes a time when they need to sit their child down and have a serious talk about life. Some parents make a big deal and production about it, buying visual aids and showing their kids the tools that they use. Other parents pretend that this isn’t happening, or at least that it isn’t happening yet, all the time realizing that they are risking their children having to learn the facts from people who don’t have their best interests in mind, or even worse, from the streets.

Of course the above holds true for many sensitive and difficult subjects, but only one can truly rise to the level of being called “THE TALK”. We’re talking about finances here.

Earlier, at the beginning of summer, we discussed some choices about how to handle the idea of allowances for kids. You can read about them HERE, HERE, or even HERE. Some parents thought that this was the end of the story, and not something way closer to the beginning. The truth is, your kids are going to need to learn how best to handle serious issues like the smart use of credit, planning for the future, making and sticking to budgets, and even how to deal with life when your plans blow up on you. This is when it can get a little messy for parents and their children alike. Hopefully I can give you a few tips to make this less difficult on everyone.

You really can be too young: Many of the bloggers out there and some of the “gurus” will tell you that your kids are never too young to learn about these issues. Well, that’s not exactly true. I’m all for teaching kids about money issues in ways that are age and developmentally appropriate. I could try to talk to my 6-year-old nephew about the finer points of an interest-only mortgage, but I’m sure he’s more interested in seeing what his nostrils look like when you shine a flashlight through them (That may not be strictly true, but I always get a kick from the flashlight thing). You should stick to basics that you can deliver in small enough chunks that they can understand, but with just enough detail that you don’t lose them. If you just can’t help yourself and you absolutely need to talk about topics that are probably over their head, the best way is by teasing the more advanced topics in the course of the more basic (and appropriate) lessons.

A little mystery is better than total disclosure: Remember the first time you heard, saw, heard about, learned, or discovered that your parents had sex (that is if your parents have had sex, unlike my parents, who never have and never will, thankyouverymuch)? Yeah, you don’t want to put your kids through that when it comes to money issues. Some parents might struggle to keep their finances healthy. Having kids, in and of itself, is an expensive proposition, but by no means the only reason parents might not want to divulge too much. Maybe they made some bad choices, maybe life got a little hairy, but the kidlets don’t need all the details. If you want to purge your soul, see your clergy, a psychologist, a bartender, or whoever, but don’t burden your kids with too much detail into your own finances.

Try to let your kids guide the direction of the conversation: Just like the other “talk”, one area where parents frequently screw up is by misunderstanding the questions that their children may have. A kid might ask where babies come from, and a parent will start the conversation with, “Well, sometimes Daddies make special drinks for Mommies that help Mommies get sleepy…,” when all the kid wants to hear is “from the hospital”. No kid wants to hear the first story. No adult wants to hear that (with the exception of some members of the local police, but that is another story altogether.) Kids have an amazing ability to communicate to adults what they are ready to grasp. Sadly, adults generally suck at interpreting what the kids are saying. My best advice here is to ask a lot of questions about what kids are curious about or need help understanding. Give them a broad, basic answer, followed by some more questioning to see if that helps to answer their questions, and then a more detailed response. Lather, rinse, repeat as necessary.

Showing is better than telling: Kids get lectured at enough at school. I personally make sure of that. They learn very early on how to tune out when they feel another lecture coming on. Try to avoid adding to the lectures they will have to sit through by developing activities that will help them see what happens. There are games on the internet that can be used in a pinch, but these are generic, and might not be the best fit for your child. Of course, this will mean that you have to be engaged with your child, but most parents who are planning on teaching them about personal finance are probably already pretty well engaged already.

And finally,

Be prepared: Before you get to the point where you need to have “the talk”, be prepared with the accurate information and some ideas about how you would answer questions. This means you might need to invest a little time and a little money on reading materials. You’re reading Finance For Youth: The Blog
already, so that is a good start! Another place where you will get good information that is definitely not over someone’s head is by reading my book, Finance For Youth: The Book, available through www.finance4youth.com. Am I saying that my stuff is the only stuff you should read? Absolutely! However, I know that would be incredibly unlikely, so I suggest that you supplement F4Y products with products from your second favorite personal finance person.

Having “the talk” is going to be strange. There is no way around it, but it doesn’t have to be so uncomfortable that you postpone it until it is too late. Remember, postponing leads to your kids needing your money long after they should be on the way to creating their own lives, and nobody wants that.  Also remember that if you get stuck having to give the talk, and it gets awkward, you can always just tell your spouse that your kid ate the pie!

 

 

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FIRST, I told you about my parents‘ views on giving an allowance. To recap, they didn’t believe in giving money to children. They paid for everything we needed, but keeping money on our own was an exercise in creativity, subterfuge, and even on occasion shenanigans. Looking back, I think they might have been on to something because the majority of their children are gainfully employed and work our asses off for every cent we have. We also have learned to be savvy about protecting what is valuable to us. So, there are trade-offs to be made, but overall not a bad solution.

LAST WEEK, we talked about the concept of paying kids an allowance based on chores they do around the house. We found out that some of the biggest personal finance people out there like this idea. I, in typical Wil fashion, didn’t like that idea at all. Generally, I’m against turning family members into employees to the household. I think there are chores that need to be done at home, and offering kids money to do what they should be doing anyways just invites lazy, self-centered children in the future. It creates children that grow up to be gold diggers.

So what is left? Well, one argument that I’ve heard a lot about is just to pay kids an allowance because you want to pay them an allowance. No strings attached. This seems like the most honest approach. You don’t want your kids to go and earn money on the streets, where you plan on them learning about sex and drugs, so you want to keep them from opening that lemonade stand or selling pictures of their teenaged sister to the boys at school (wasn’t that an actual plot line in some 80’s movie?). You also don’t want to raise those aforementioned lazy self-centered little bastards, but you do want to start teaching your children how to handle the money they have wisely. So why haven’t I endorsed this method yet?

We’ve learned throughout history that money is a lot of things. Money has been attributed to each of the following things:

-Time

-Root of all evil

-Power

-Makes the world go round

-Talks

Later on in life, we learn that money has value, and part of teaching anybody how to handle money is to teach them to not make deals where both parties don’t benefit. Going back a couple weeks, my parents avoided making deals. They had expectations, and consequences for not meeting those expectations. One could argue, and I wouldn’t disagree, that we benefitted when we met those expectations because we didn’t have to suffer the consequences and we generally got stuff. My parents benefitted because their expectations were met which gave them a sense of pride in their children.

 

In the second example, the benefits are pretty well pronounced. They get stuff done, we get money. Simple, tidy.

 

In the last example, you take away the value of money for your children. If they don’t learn that money has value now, they will not understand that it has value later in life either. You actually create the opposite of a gold digger. You create children who don’t understand the concept of earning money.

 

After all that, after three weeks of talking about allowances, each method of determining how to pay allowances has serious, fatal flaws. It turns out that they all suck to one extent or another! So what is a parent to do?

Never fear, I’m here to help.

In order to most effectively handle the issue of children’s allowances, you need to do some hard work. That’s right; I said YOU have to do some hard work. First, you need to establish minimum standards that you expect your little ones to meet. These standards need to be appropriate for both age and developmental level. Second, you need to clearly communicate these expectations to your child so that there is absolutely no doubt. Whether you need a whiteboard chart to be posted on the fridge, or you need your older child to sign a contract acknowledging the minimum standards in grades, behavior, housework and chores, community involvement or any other criteria, make sure your kids understand what is the least you will accept.

Second, you need to establish privately what is the value you will ascribe to exceeding your minimum standards. For example, let’s say I’m slightly less stringent than AMY CHUA
when it comes to academics. I only expect my kids to earn B- or higher. That’s their baseline. Now, my kid decides to overachieve and earn a B+. I might pay for that, if he has met all my other standards. Similarly, I expect my child to make her bed every day as the bare minimum in housework (I’m so much nicer to my imaginary daughter than my imaginary son; he has to clean the grout between shower tiles!). If she makes her bed and washes dishes (which isn’t assigned to anybody already), that might be worth something to me. The amount you pay must also be appropriate for your child’s age, developmental level, and your expendable, discretionary income.

Third, you need to communicate your pricing scheme to your children, but make it clear that they have to meet the bare minimum in all areas before any allowance can be earned. Your goal is to teach kids that some things just need to be done as part of their daily routine, just like in adult life, but other things will be done for money. Eventually, kids will start doing additional work on their own, in order to earn extra money. Ideally, they will approach you and negotiate a price that is fair to you and to them for certain things. Sometimes that price is zero, indicating that you believe that they should just do whatever as a matter of course, but others will be worth money.

Fourth, you have to be consistent. That doesn’t mean that you can’t increase your expectations, but until you do so, you have to pay the same amount for the same work every time.

Fifth, you have pair any money going to your child with solid education as to what to do with that money. Many people believe in giving to a church or a charity. If that is your thing, you need to educate your child as to the importance of doing so and the reasons why you are making them do so. Part of that education must include some level of allowing the child to make decisions on what they want to do with their money. I have no problem with telling your kid that they can spend only 10% of their allowance on frivolous things, but that should come with guidance that they don’t have to spend that 10% each payday, and that they can choose to save that money for something big that you wouldn’t necessarily buy for them yourself.

Doing this will start your child on a path to becoming financially independent and fiscally literate without spoiling them or forcing them to hide their money and their decisions from you.

 

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Last week, I told you how my family dealt with the topic of allowances (Spoiler alert: They didn’t!), and gave some possible outcomes of that treatment. I’ve talked to a couple parents that do the same thing for much the same reasons. But there are other sides as well.

The most popular stance is, “pay allowances, but tie them to doing chores around the house” which does seem to make sense. The rationale here is simple. We are training our kids to understand that they earn money when they do a good job.

When asked, this is what Dave Ramsey had to say about allowances back in December of 2010:

I don’t do allowances for anyone. The word “allowance” sounds way too much like welfare to me. We put our kids on commission at an early age. If they worked, they got paid. If they didn’t work, they didn’t get paid. We put a little dry-erase board on the refrigerator and listed all the jobs they had to do during the week, with a dollar amount next to each one. When you did a certain job, you were paid that amount.

Keep in mind, though, kids shouldn’t get paid for every little thing they do around the house. There are some jobs they should have to do just because they’re part of the family, or because mom or dad tells them to do that job. Some of these jobs should have a higher purpose, too. As a parent, you want to find as many teachable moments for your kids as possible.

Once they’ve earned their money, sit down with them and divide it into three separate envelopes: one for saving, one for spending, and one for giving. This way, they get to learn about these three important things while they’re learning how to work.

Teaching kids that there’s an emotional connection between work and money is one of the best things you’ll ever do as a parent. If they learn this when they’re five, chances are they won’t be clueless and financially irresponsible when they’re 55!

—Dave

Suze Orman says:

If you have children, and you give them an allowance, I think you’re making a big mistake. Here’s how I think you should do it: There should be a list of chores around the house that they just have to do because they live in the house. Anything above and beyond those chores- if they do it- oh, you should pay them to do that work! Forget the allowance, pay them for work. I want you to be money minded so that you can save more and worry less.

Now, I know that it sounds like they are saying not to pay allowances at all, but if you really dig in there, they aren’t saying any such thing. What they are saying is that you should peg their allowance to the chores or work they do around the house.  There is some upside to this.  Maybe you get your teenaged kids to mow the lawn, wash the cars, or do other things that you might pay someone to do anyways.  Maybe they learn a valuable lesson that will stay with them into adulthood.  That sounds suspiciously like what we want for our children, right? 

So is there any down side to this idea? Well, look at this possibility. If you pay your kids for some chores and not for others, which ones are going to get done? Even if you say ‘all’, which ones will get done better?  But then, if you pay for all the chores, indiscriminately, you run the risk of socializing your kid into believing that it is right for them to only do something if there is a monetary incentive for them to do so. If that isn’t a problem for you, then it do it!

While I’m not a huge fan of this method (actually, I think it pretty well sucks, if you really want to know my feelings), I can’t say that it doesn’t work when used correctly.  I can also see the argument as it comes from a mother who doesn’t work outside the house, but counts on getting her spending money to do the things she needs to do.  If she is getting paid in this manner, how can it not make sense to pay her kids in the same fashion?  In fact, that argument is part of why I don’t like this method.  Personally, I consider it work when someone gets paid from outside the family.  I don’t like the implications of a man (and let’s face it, it usually is a man who works outside the house) who works outside the house paying his wife to take care of the house.  I think that cheapens all the work that she does, and lets him off the hook to support her as he promised to do when he married her.  When it comes to kids, you are paying them to contribute to the family dynamic.  I don’t like what that allows them to not do.

Next week, we talk about the parents teenaged me would have wanted.  These are the parents that just give allowances because they can!  In the mean time, this reminds me of a pushy kid trying to get paid for the work he did at home.  I generally call them twerps!

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This is Jocelyn Lam. She is a fifth grade student at Camino Grove Elementary school in Arcadia, Ca. Arcadia is about 10-15 miles away from downtown Los Angeles, and one of many communities that is close to where I personally live. Jocelyn is a sweet, caring, generous young woman who should be looked to as an inspiration.

Here’s her story:

As is happening in public schools and districts across the country, influential teachers are “teaching” their students about the current budget issues in the state. Jocelyn’s teacher, Todd Weber, said something that caused Jocelyn to donate her entire life savings of $300.00 dollars. Incidentally, her brother also donated $177.00, and other students are also donating money to the school. Jocelyn included a letter with her donation:

Dear Super Indendant (sic) and Board Members,

Hi. My name is Jocelyn Lam. I’ve heard that 65 positions will be laid off and ten of them are from my school! This really breaks my heart. Those teachers had taught me a lot. They guided me to fifth grade. If it weren’t for them, I wouldn’t be here right now writing this letter. They changed my life.

I save all this money I earned from chores and high grades. Now I want to donate all this money to save the teachers. I really hope this $300 will help save the teachers who are about to be laid off. I also hope that this is enough to save more than one teacher. PLEASE put this money to good use. I beg you! SAVE THE TEACHERS!

Sincerely,

Jocelyn Lam

As a teacher, this act of kindness and charity from a student is inspirational. To think that this child is willing to give up every bit of money to her name in an effort to save the teachers she so obviously loves and treasures really pulls at the heart-strings. It is a reminder of why we do what we do. Quite honestly, if this doesn’t affect you, you are heartless. On the other hand, the adults involved remind me of why I personally do this blog, and why I personally teach the way I do, and why I stand against the unions that control many of the teachers. I’m left with many questions. Here are just a couple big ones.

Just what did Mr. Weber tell his students that motivated them to donate everything they have?    I’m not going to try to put words in Mr. Weber’s mouth here. I will say that I don’t teach the politics of the union, the teachers, or the school district to my kids. I will answer direct questions in an honest manner, making sure that I do not try to convince my students that my opinion is fact. I will give both sides of the argument, explain my position as well as the opposing position, and clearly tell the kids that both sides have merit. For example, if a student asked me about teacher lay-off’s, I would tell the student that the state is constitutionally required to spend certain percentages of revenues (taxes) on schools. Since the recent budgetary crisis, which started really impacting life about five years ago, the actual dollar amount that goes towards public schools has decreased. The districts have to adjust to the lesser income; much like many families have had to do, and make changes to how they spend the money they have, again like many families have done. Some of the possible solutions are unpleasant to certain groups involved in the decision-making process. The unions, the district, and the state government are all debating the best way to proceed. I don’t make a values judgment on either side. I think that any teacher who does otherwise is acting under a conflict of interests. These teachers need to understand that their job is to teach impressionable children first and only. The adult political stuff has no place in the classroom.

Did Mr. Weber use Jocelyn’s misguided generosity as a teachable moment for thrift, savings, and prudent investment?    Again, I don’t know what Mr. Weber said or did beyond what is in the news story. I can only say what I would do in his position. I would thank her for her donation, send or take it to the office, and have her money returned to her parents. Then I would talk about the importance of budgeting, living within that budget and establishing an emergency fund. Since Jocelyn provided the catalyst, we could have a great question on these issues that would be tailored to a fifth grade level. It appears that the school accepted the donation which opens up several cans of worms for them if they are perceived to be selling grades, favored status, or anything else of value to Jocelyn, or if they are indeed soliciting money from students by virtue of indoctrination and intimidation, which seems to be the case.

Look, at the end of all of this, Jocelyn’s $300.00 won’t even pay for the large pinky-ring of a union leader. It is a sweet gesture, and Jocelyn should be applauded, but the gesture was misguided. I know that many parents have talked about donating to their school to help protect the teachers’ jobs. I’ve heard parents talk about it. They ask me about it. I don’t think that’s the best way for parents to spend their money. Parents have a lot to spend their money on already, and this is not their responsibility. We all pay for public school already, the stakeholders just need to learn to work within the budget, just like you do, just like I do, and just like little Jocelyn will in a very short time.

And now, a few words on the reality of the situation from union member sean combs.

 

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Okay, I’ll admit that we keep and reuse those snap-lid containers that lunch meat comes in. They come in handy. Sometimes you have leftovers or want to transport food. Sure, you could use Tupperware, but then you risk not getting your container back. I know you could buy these containers from Glad or some other company, but why? I bought the lunch meat, isn’t that enough?

I’ll even cop to keeping some napkins that come with fast food. They give you a ton of napkins (only with food where you don’t need a ton of napkins, you order Bar-B-Que and you get like one napkin, but that is another rant)! I keep some in my car, in the glove box, and we have some at home.

I don’t think either of these things are a big deal. These are small ways in which you can be more frugal that don’t hurt. But I’ve also read about people who do frugality in the extreme.

Some ideas that I read that made me cringe:

Tell nearly everyone that you are going out of town this Christmas and will not return until after New Year‘s Day. Then buy most of your gifts during the after-Christmas sales. So Santa is on vacation, getting some sun, but he’ll be back? That’s not frugal, that’s being a dick!

How about this idea instead? Shop at the after-Christmas sales and buy stuff for next year. You still save money, but you get to keep this picture out of your head.




 
 

 
 

For mere pennies a day, you can feed yourself with dog food. And you will probably be healthier, as this diet is probably better than 95 percent of the typical North American diet.

Okay, I know Rachel Ray makes some truly yummo food, but I’m thinking this might not be the best idea. Sure, my friend is telling me that this is good advice, but I’ve been fooled into taking bad bets before. Besides, Can you imagine inviting a special someone over for dinner and this is what they get? (I mean a plate of dog food, not a flirty puppy, who wouldn’t want a puppy that flirts with you?)


 
Instead of buying toilet paper, I use yesterday’s newspaper.

What am I, some sort of parakeet? Seriously, this could be a good idea, but it just doesn’t go far enough. Why buy a newspaper when you could do one better and grow a tree with large leaves? Good for you and for the environment. Or why not come up with some other creative way to take care of things? (I’m sorry, but my next idea was disgusting and made me throw up a little in my mouth. I will save you pictures of my idea.) 

There are thousands of other ways that extreme people can save money if they really try. Look, nobody has a problem with you hoarding condiments from fast food places. I’m not begrudging you for picking up every penny you see on the ground, although I still remember that scene from Empire Records where one of the kids hot-glued quarters to the floor and some dumb kid was trying to pick them up. Hell, I know a guy who washes plastic forks and spoons, and he’s friggen rich! My point is that the whole point of living frugally is to have more money in the future so you can live a better life. The point isn’t to live so miserably that you are a pain in the ass to yourself and your loved ones. In Economics, we call it opportunity cost. I can either eat dog food, or kiss my wife. I can’t do both. Think about what you are giving up in order to live frugally. Is it worth the price?



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Pop Quiz!

What are these things? If you said ‘credit cards’, you would be correct. Of course, I would have also accepted ‘debt’, ‘something to avoid abusing’, ‘something highly addictive’, and ‘chick magnet’.

I don’t want to needlessly labor over how these little guys work. I think we all get it; you want something that you can’t afford to pay for right at the moment, you use one of these things. In a little while, you get a bill for the item(s) you bought. You pay for the item and a little extra for the privilege of getting what you want immediately.

These things are tools. They have their uses. For young people, I suggest that these uses are few. They are great for paying for something that you don’t have enough money for right now!!
They are great for making purchases online for books or music, or whatever.

What they aren’t:

I’ve heard other PF people make the argument that these tools are good emergency funds. Well, in a very large sense they are, but when people don’t have an actual emergency fund with actual money, they run a huge risk of destroying themselves financially. For example, my friend here was riding his unicycle to work. If you’ve ever ridden a unicycle, you realize that they are treacherous to stay on. Well, my friend gets in a little fender-bender. Nothing serious, but he will have to miss out on some work while he heals. If he is using his credit card as his only emergency fund, he had better hope that he can get back to work within the month. He might go back even before he is fully ready, because those bills will come in whether he’s ready or not. Without an actual cash back-up, he starts missing payments, his card gets shut down, and now my friend is injured and with no money.

Another mistake people make with credit cards is that they use them to increase their “wealth” by avoiding paying bills. Here’s how this one works: I want to go on vacation. I pay for my vacation on a credit card. When the bill comes in, I charge it to another credit card. My first card thinks I’ve paid it, but now I owe the same money on my new card. Some people will keep this shell game going on for as long as they can, and many people will tell you about all the benefits they are getting, such benefits come at a high price. All it takes is for you to forget one payment, and all the miles or cash back or whatever is gone. Plus, you’re carrying a balance when you don’t need to.

At the end of the day,

Credit cards can be helpful tools, or they can become an anchor around your neck as you try to bail yourself out of deep financial water. Whichever you choose, make sure that you control what your credit cards are, and don’t let them control your finance.  In the end, they are whatever you say they are.

 

 

 

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