Today’s Recommended Reading September 9, 2008
Posted by Tracy Gullett in Education.1 comment so far
Today at FOXBusiness, there was a great article by Lauren Covello talking about the importance of personal finance education for kids. As the article points out, teens are spending much more than ever, but “teenagers seem to be understanding less when it comes to their finances.” Ms. Covello cites research by an organization called Jump$tart, formed in late 1995, that believes financial education should start in Kindergarten. I couldn’t agree more!
Check out the article and feel free to discuss in our comment section.
Forget Financial Education. More Government Regulation! August 26, 2008
Posted by Tracy Gullett in Education, Responsibility.add a comment
CNNMoney.com posted a story today containing a Q&A with an associate professor from Loyola Law School. Lauren Willis suggests, among other things, that teaching basics of personal finance – like budgeting – is a “waste”. According to her, “Financial literacy classes give people the illusion that they can successfully manage their finances. So rather than seek help, they end up making worse decisions.” Apparently, she thinks there’s no way that ordinary people are intelligent enough to learn how to handle their money. If they do believe they can manage their own finances, it’s only an “illusion.”
Her suggestion?
Willis would like to have politicians regulate what types of financial products advisors offer to their clients. She wants advisors to be required to offer a “default product that is safe.” Okay, let’s see congress define the parameters around that!
This kind of thinking is totally infuriating. We don’t need the government to force anything on us, whether it’s a certain type of financial education or the types of financial products available to us. But a basic financial education is incredibly important, and should not be dismissed as hopeless. If we don’t understand the fundamental principles of personal finance, we have no ability to make the decisions that will allow us to earn, save, and prosper over time.
401(kid) Matching Funds August 15, 2008
Posted by Tracy Gullett in Education, Saving.add a comment
To reinforce the kids’ willingness to save their money for a major goal, my wife and I began offering a 401(kid) plan to our daughters. Each of our girls has their own account at ING Direct, which is where most of the monetary gifts they received when they were infants was deposited. They never really had that money, so it didn’t mean much to them. We wanted to make it more meaningful by putting a face on it. Or a grille, maybe.
Both girls thought it would be cool to save for a car – 9-year-old G wants a Chevy Avalanche, and M, age 5, wants a “slug bug.” We made a deal that we would do a dollar-for-dollar match for any money they would transfer to their ING account, with a cap of $500 per year (just in case either of them gets too ambitious). Any money that went to ING would stay there and would only be withdrawn in order to buy their car when they are 16.
There is a lot of educating we can build around this, including the principle of compound interest, the self-discipline it takes to reach a long-term goal, and the euphoric feeling one gets when a major goal is reached and the payoff is achieved. There’s quite a difference between signing loan papers and plunking down cash money.
Besides the teaching opportunity and the eventual payoff for the young’ns, my wife and I figure that this plan will save us some money in the long run as well.
I’ll provide updates on their progress from time to time, as well as the lessons they’ve learned along the way.
They’re Listening! August 14, 2008
Posted by Tracy Gullett in Education, Spending.add a comment
This is just a quick update on G’s quest for the Nintendo DS. We were in a Best Buy store tonight to pick up a replacement for our recently retired cordless phone. While there, we took a detour to check out the DS Lites – y’know, just in case there was a half-off sale or something.
After thoroughly drooling over the game consoles (at the full $129.95 price), cases, accessories, and games, it was time to head out. G stopped me as we left the aisle and said, “Dad, I’ve saved about 110 dollars in spending money. Can you give me the extra 20 so I can buy a Nintendo DS tonight?”
I let out a jolly chuckle and delivered a flat “No.” She was okay with that. She understood there was no way that was going to happen, but she couldn’t help herself – she had to ask the question. I don’t blame her. Her shoulders drooped a bit as she said “Okay.”
A few minutes later, though, she surprised me with another question. As we entered the checkout “corral”, she said, “Dad?” (My girls always say “Dad” before they ask or tell me something, even if I’m the only other person in the room. I don’t know why.)
Yes?
Will stores like Best Buy bargain on stuff?
Woah! My 9-year-old wants to haggle with Best Buy? This is great! I’ve told her in the past that we don’t always have to take things at face value. We can negotiate. We can make offers. We can bargain with people. In response, I’ve received a lot of head nods and Okays. But, good grief, she was actually LISTENING! She was going to talk them out of that twenty bucks.
I gave her a quick answer as we walked up to the cashier to pay for the cordless phone. I told her they likely wouldn’t deal with her on a DS. After leaving the store, I explained in more detail, citing the popularity of the item she wants and that the store has no reason to make a bargain when there are so many customers that are more than willing to pay their full asking price. In retrospect, I should have let her try anyway.
I also told her the story about a friend and me shopping for a new flat-panel TV the day before the Superbowl last winter. After searching through the store’s inventory, my friend decided that one of the display models, which was already marked down, was a perfect fit for his needs. Since it was an otherwise out-of-stock item and was already out of the box, he was able to negotiate a price significantly less than the already marked-down price. My point was that the store’s willingness to negotiate depends on the item and circumstances, so she shouldn’t be afraid to ask
I told her one other thing as well – How proud I was that she had even thought of asking the question. Is there any better feeling than when you realize that the lessons you’re trying to teach are actually being learned?
Be thoughtful and careful when speaking to your kids. They’re listening!
Save Money – Hire Your Kid! August 7, 2008
Posted by Tracy Gullett in Earning, Education, Responsibility.add a comment
Lots of people are constantly looking for ways to cut back on their spending. There seems to be a wave of debt reduction and frugality working its way across American society, perhaps partially – but not largely – due to the recent downturn in the credit market and the rapidly increasing cost of energy. This is a good thing. When people are looking internally to see what they can do within their own household to increase income and decrease spending, it is an encouraging sign that we may be moving back toward a society of self-reliance and rugged individualism. Well, a guy can dream, right?
My favorite method of cutting spending, since I author a blog about raising financially fit kids, is to hire our own kids for jobs around the house. There are so many benefits to doing this that I’m sure I’ll have to break it up into several posts.
Primarily, having our kids earn money by providing services to the family household helps them build the skills they’ll need to achieve and maintain financial freedom after they’ve left the nest. Negotiation, accountability, and even project management skills can be acquired and become second-nature to our kids as they progress toward adulthood. Plus, more stuff would presumably get done around the house! Putting the kids in charge of some jobs like washing dishes, vacuuming the carpet, or doing the laundry means that the parents will have a bit more time to devote to other tasks that may be neglected otherwise.
While doing all this character building and productivity boosting, we parents can actually save money by hiring our kids! How can paying our kids save us money? Well, if our kids aren’t earning their own income and we don’t want to deprive them of a few luxuries in life, who pays for those luxuries? The parents do, of course. We may be laying out $30 this month for a shirt that they can’t live without, and $50 next month for that new PlayStation game they’ve seen advertised a hundred times and simply must have. This kind of sporadic spending typically results in significantly more money being spent over time than a parent might realize. Sure, you could have a category in your own household budget for these items and turn down the kids’ requests if the money isn’t there, but why not put the decision-making on them and avoid being the bad guy in the process?
Since we began the checklist and envelope system with our kids, we have mostly stopped buying the “wants”, and they have mostly stopped asking for them. My wife and I added a line item to our household budget called “Kid Commission” where we set aside a bi-weekly $20 for our 9-year-old and $10 for our 5-year-old. This is the maximum amount they can earn by doing their checklist jobs (G earns 50 cents for each completed job, and M earns a quarter for each). Every two weeks, I withdraw $30 from the bank and put it into a commission envelope. At the end of each week when we have Pay Day, I use the cash from the envelope to pay them.
After several weeks, I noticed something interesting. The girls hadn’t been earning their maximum potential, and the Kid Commission envelope still had $40 in it after I had paid the girls for that week. Then I realized I hadn’t done the bi-weekly deposit into the envelope either, so there was another $30 still sitting in the budget (i.e. in the bank). That’s a total of $70 (I did the math in my head) that most likely would have been spent if we weren’t paying our kids based on performance or were just buying them stuff as they asked for it.
Granted, 70 bucks over the course of a couple of months might not be a huge fortune, but as long as the Kid Commission envelope remains funded well enough to handle Pay Day, the $15/week that normally gets added to the commission budget will be redirected to our family emergency fund, which we’re building up to help us weather some career shifts that may be on the horizon.
Now, would I rather have the girls both earn their full commission every week? Absolutely! But that’s totally up to them, and I believe they are learning some great lessons through the pay-for-performance system we’ve put in place. For now, the steady budgeting and results-based pay is allowing more of our money to stay in the bank and multiply!
Being Our Kids’ Financial Advisor August 3, 2008
Posted by Tracy Gullett in Education, Spending.add a comment
When it comes to financial matters, parenting is a bit like being a good investment advisor. We provide information, suggest courses of action, advise what we would do if we were making the decision… and then get the heck out of the way and let the kid decide. And like a good investment advisor, we don’t let our clients do anything that’s just totally against their best interest.
G has wanted a Nintendo DS for quite a while now. Her friends have them, her cousins have them, and she wants one too. She’s saved her commission money, earned extra money, and has frequently counted it up to see how close she is to her goal. As of now, she is about half-way there.
The game system is priced at $129.95 just about anywhere we look. However, we recently discovered that no actual games are included at that price – just the console. Browsing through the Sunday newspaper ads, we found that games range anywhere from $15 to $50 each. So, including a single game, plus sales tax, she will need to spend about 20% more than the $130 she had originally planned. Even after she buys the console and the first game, at the rate she has been earning commission money lately, it’s going to take quite a long time to fill her spending envelope with enough money to buy that second game.
Putting myself in her position, I can’t justify putting that amount of money into a single pursuit. I shared my views with G, and she was obviously not happy about it. At this point, she is still fully convinced that the DS is where her money should be spent. And this is her money – that she legitimately earned and designated for spending – so I can’t veto her final decision when she makes it to her goal.
Of course, if she was considering something like a “My First Flamethrower” or a “Junior Accupuncture Kit,” I would be the bad guy and overrule her. But if she thinks video games are where she wants to invest her money (Mom and Dad will review and approve the actual games), and she continues to fund her Saving and Giving envelopes, then I’ll leave it up to her. If she later finds that she never has money to spend on anything else and that the game system wasn’t everything she thought it would be, then that will be a good life lesson that I hope would stay with her.
One of the best effects that is caused by saving toward a goal is that when you reach the goal, you may find that the goal has changed. You allow yourself the opportunity to really evaluate the importance of what it is you are working toward. By allowing our kids to make financial decisions early in life, we give them the opportunity to make mistakes. If handled properly, these mistakes turn into lessons they can use later in life when the stakes are much higher.
The Lemonade and Cookie Stand August 2, 2008
Posted by Tracy Gullett in Earning, Education, Responsibility.1 comment so far
I wrote earlier about my own early business experience I got with the help of my parents. Since my wife and I don’t farm for a living, we needed to come up with a different product to help our kids get a taste of entrepreneurship. This weekend, we helped the girls set up a lemonade and cookie stand during our neighborhood garage sale.
The girls helped their mom and grandma bake cookies the night before the sale. The main decisions were up to them – type of cookie (chocolate, white chocolate, and butterscotch chip combo), flavor of drink (pink lemonade), and design of their sign. The two of them created their own sign with a sheet of poster board and markers. G, age 9, wrote “Lemonade and Cookies – 25 cents Each,” and M, age 5, added the word “YUMMY” on each side. The extra flair of the word “Yummy” received several comments from customers.
They worked together to create a collections and delivery process that would involve them both so that they could split profits evenly. I was impressed with how much thought they put into it, and even more impressed that they actually worked well together and stayed focused on their jobs for the most part.
At the end of the first day, the girls had earned $26 and had only 18 of their 89 cookies left. G has now saved nearly half of the money she needs for a Nintendo DS, and M is planning to buy a stand for her ukulele in the near future.
Goals > Plans > Action > Reward. These are the kinds of lessons that we hope the kids will retain and expand upon as they grow into self-sufficient, financially free adults.
Parents as Financial Teachers July 23, 2008
Posted by Tracy Gullett in Education.add a comment
How many times have you thought to yourself, “I wish they would have taught me how to handle money back in school”? I’ve never heard anyone say they got a great education in personal finance from their school system. Either the schools don’t teach it, or they don’t teach it in an engaging way that sticks with the students.
Please don’t misunderstand me here – I’m not saying it is the responsibility of the schools to teach it. The best place to learn good money handling skills is at home. As parents, we absolutely must prepare the future adults in our household to earn, save, give, and spend responsibly. A very effective way to teach these skills to our youngsters is to allow them to closely observe as we handle our own money dealings. From paying the monthly bills to buying a vehicle to making charitable donations, our kids should be able to watch, ask questions, and even offer input into the financial happenings in our lives. Not only does this help prepare them for the future, but it also serves to help us keep on track. If we can’t – or don’t want to – explain to our kids why we’re doing something with our money, then we should consider whether we’re really doing a smart thing.
We also need to have discussions around borrowing and the risks associated with it. Too many young adults enter the “real world” saddled with so much debt that they can barely tread water for the first 10 or 15 years. Think about that for a minute: A person can spend a quarter or more of their prime earning years just paying off the debt they accumulated with one loan application or by establishing a pattern of borrowing. It makes my stomach turn.
Whether your kids are 5 or 15, have them sit with you the next time you make a financial decision. Talk to them about it. Explain it to them. Listen to their questions and give thoughtful answers. You may just end up talking yourself out of a bad deal, and in the process pass along a lesson to that future adult sitting next to you.
Early Business Experience July 10, 2008
Posted by Tracy Gullett in Education, Responsibility.add a comment
My parents started my brother and I on a path to success at a fairly young age – I’d say somewhere around 10 years old. I’m not even sure they realized that they were doing it – They were probably just looking for ways to keep us out of trouble and to let us earn some of our own money so we’d quit taking theirs!
One opportunity we were given was the chance to raise our own livestock – specifically pigs. Luckily, we lived on a farm. Otherwise this little experiment may have caused some raised eyebrows among the neighbors. Anyway, my brother and I were each given the opportunity to buy a few pigs from my parents, take care of them as they grew, and then sell them when it was bacon time. My brother, who has always been a little more motivated than me, jumped at the chance to earn some extra coin. As I recall, he made a tidy little profit and was able to buy some cool stuff that I wasn’t able to match. Good lessons were learned by both of us. My brother learned that his hard work literally paid off. And I learned… well, that my brother’s hard work literally paid off. Raising hogs was never my cup of tea, but eventually I did do some things to earn money, including selling sweet corn at a roadside stand.
The sweet corn stand at the end of our driveway felt like my own little business enterprise. We lived along a highway that was a main traffic route for the local Maytag factory. Every weekday, after the day shift whistle blew at 3:30, the cars would head my direction. I had a large sign propped up by the mailbox that read “CORN $1.00/doz” and that was apparently enough to bring ‘em in. I had a small wagon load of corn straight out of the field, and would bag it up for my customers and collect my payments. To go beyond customer expectations, I would throw in a 13th ear of corn to make it a baker’s dozen. That phrase seemed weird to me – Why would a baker be dealing with corn?
Although I wasn’t familiar with the term at the time, this was also my first exposure to outsourcing. My dad would plant the corn in the Spring and both of my parents were usually out in the corn field picking the corn by hand and restocking my inventory as quickly as they could. I handled the front office: marketing, sales, and collections. For all their sweat and hard work, each of my parents earned a trip out to McDonald’s at the end of the season. The rest of the revenue was mine to keep. With a couple hundred bucks in my pocket, that $10 at McDonald’s was still tough to part with. All of a sudden, we were spending MY money! Even to a kid, it’s always makes you think about it a little more when you’re spending your own money.
Pigs and corn may not be the right businesses for your kids, but there are many, many other opportunities for kids to earn their own money and get a little business experience in the process. Having a garage sale? Put the kiddos out front with cookies and drinks. Even if they’re store-bought items, they can still make a decent profit if they set the price right. If your neighborhood, like mine, doesn’t have a recycling program, your kid could be the environmental entrepreneur your area needs!
Planting the seed of self-reliance through business at an early age can lead to a more secure financial life for the future adults in your life. Try some ideas and share them with us by commenting on this post. Good luck!
Financial Responsibility Leads to Personal Responsibility July 3, 2008
Posted by Tracy Gullett in Education, Responsibility.add a comment
The most immediate goal of teaching our kids how to handle money is to make sure they don’t end up living off our retirement income with us. 
But if the lessons really sink in with them, they will also help strengthen their feeling of personal responsibility.
Understanding how income is earned and how spending revolves around a budget puts kids – and adults – into a mindset of accountability. This leads them away from the “Why me?” and “It’s not fair!” victim mentality, and makes them think in terms of “How can I improve my own situation?” This is a very, very important evolution in thought process that many adults have not made due to the lack of financial education in the primary and secondary school system.
Accountability leads to other desired behaviors, such as being able to stand up and accept the consequences when one has done something wrong. For example, in the age-old baseball-through-the-window scenario, a child with a solid financial education will be more likely to admit to the mistake and offer to pay for the damage, whereas a child who thinks money and property are handed out as requested may tend to do whatever is necessary to avoid getting in trouble. And the good thing about the financially responsible kid is that he will likely have the money to pay!
This being my first post, I would appreciate feedback on the content and its presentation. I look forward to your comments. There is much more to come!
Happy Independence Day, everyone!
