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.
Discipline with Gift Cards August 24, 2008
Posted by Tracy Gullett in Responsibility, Spending, Sports & Hobbies.add a comment
G didn’t have a birthday party this summer, so before school starts next week, her mom helped plan an afternoon outing with a few of her friends to play mini-golf and have some pizza. Even though we tried to make it clear that G didn’t need any gifts, a couple of the girls figured this was her birthday celebration and brought her some nice presents anyway.
One gift was a $15 gift certificate to a sporting goods store. G is a bit of a tomboy, in that she absolutely refuses to wear dresses, she wants to be a race car driver, and her main savings goal is to buy a Chevy Avalanche when she turns 16. With that in mind, a sporting goods gift certificate is a pretty thoughtful gift for our 9-year-old girl.
We went shopping tonight to give G a chance to spend her gift card. She decided not to take her spending money along, since she has been working so hard to accumulate it for that Nintendo DS (I still haven’t been able to talk her out of it). She is planning to sign up for volleyball this Fall, so she wanted to use the gift card to buy a nice, new volleyball. When we looked through the store, however, the least expensive ball they had was priced at $19.99. Had she brought her spending money with her, we would have had no problem with her adding five or six bucks of her own money to the gift card so she could buy the ball. Since she didn’t bring her cash – a wise move to keep her from spending more than she intended – what do you think she did?
Nope – wrong-o!
She didn’t even ask us. I don’t think it even occurred to her. She’s gotten used to the way things work in our family. Mom and Dad cover necessities and the occasional treat, and things the kids want, they buy with money they earn. I can’t say this happens every time. Once in a while, they want something so bad that they have to at least ask the question. But “no” means “no” and we very seldom hear any begging.
So, the volleyball gets put off to a later time. We know they’re sold for a lower price at other stores. And besides, Mom and Dad might spring for a new volleyball eventually. We haven’t even been asked yet. It was her idea to buy it herself.
Surveying the store, G found a shirt that she liked pretty well and could afford to buy with the card. But then she found something that she was actually excited about buying – and could afford to buy with the card. She decided to go with some accessories for her Crocs sandals. She picked out one package at $9.99 and one at $2.49 and had to stop at that point because if she added another one, the sales tax would put her over the $15 limit. As I turned to my wife to ask whether she thought we should cover the tax so she could get another package (I struggle with my own discipline at times. Okay, all the time.), G skipped off toward the checkout register, happy as could be and not concerned that she wasn’t getting her full $15 worth.
Setting ground rules, applying them consistently, and talking through the reasons behind them with kids makes it possible for the kids to learn self-discipline so that parents don’t have to apply discipline quite so often. Rather than returning home with parents irritated and kid disappointed, we all came home feeling like we had a fun family outing.
Raising Funds for Sports and Hobbies August 20, 2008
Posted by Tracy Gullett in Responsibility, Sports & Hobbies.add a comment
There is some great advice for hobbyists over at Get Rich Slowly today. It got me thinking about the hobbies and extra-curricular activities kids – particularly tweens and teens – get involved with and how expensive they can be. Whether competitive sports like gymnastics, hockey and go-kart racing, or hobbies such as R/C cars, model airplanes and rockets, when we find something our children really seem to enjoy, we want to do all we can to feed their enthusiasm.
Now, I’m all for parents footing the bill for the entry-level sports. When single-digit-aged kids are trying different sports, musical instruments, and other activities to see what they might like, we should try to provide that opportunity. What kid is going to get intense about earning money to play a sport they might not know anything about?
We may be doing a disservice to our older kids, however, if we don’t involve them in the financial aspect of a more advanced or competitive hobby or sport. These activities offer an opportunity to teach our kids methods they can use as adults to finance pursuits about which they are passionate, such as the photography example in the GRS article. We don’t need to reinforce a sense of entitlement by paying their way forever. This is a great opportunity for your kids to develop their interpersonal communication, presentation, and persuasion skills.
Kids don’t have to wait for someone else to come up with a fundraising campaign and they certainly don’t need to go from door-to-door begging people to help them out. Turn their entrepreneurial side loose and help them create a funding strategy. Of course, if they are representing an organization like a sports team or school, they should always present their ideas for approval prior to implementing them.
Here are a few fundraising ideas. If you have others, leave a comment or send me an e-mail!
Work for It
Find jobs to do within your household or in your neighborhood. Offer to clear the weeds out of the neighbors’ landscaping (be sure to have the neighbors define “weeds” before starting). Cut grass, wash windows, or clean out garages. Seasonal employment or extra hours if they already have a job are some more traditional ways to earn some extra cash.
Sell a Quality Product
The girls’ volleyball team in our school district just came by last week selling discount cards for local businesses. We already patronize these businesses, and the cards were of real value to us. Make it something of value, though. Don’t come to my door selling magazines I don’t want for a higher price than I would pay through a direct subscription. In the case of a craft hobby, some of the products created can be sold to raise money as well.
Community Sponsorship
Many local businesses want to support local youth groups and individuals. It helps them promote their involvement in the community and makes their customers feel better about doing business with them. A screenprinting shop, for example, could provide some or all uniforms for your group – with their logo placed prominently. In exchange for their sponsorship, though, they expect quality representation. Those uniforms should be neat and clean at the start of each event. Also, kids should only propose sponsorship arrangements with businesses and organizations that they and their parents believe in and would recommend even if the businesses weren’t providing support.
Product Promotion/Advertising
Whereas sponsorship tends to target other competitors and their families that attend local events, some higher-profile events that attract larger crowds can attract more traditional advertisers. If you’re involved in racing, a local body shop may want you to display a banner in your pit area promoting their painting and lettering services. This type of cash advertising can apply to any spectator-driven event.
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.
Rockin’ Robin and Juicy Fruit July 26, 2008
Posted by Tracy Gullett in Responsibility, Saving, Spending.add a comment
We’ve all seen kids – maybe even our own – who just don’t appreciate the things they’re given or respect other people’s “stuff.” When she gets off a bicycle and just drops it to the concrete, or he can’t get to level 6 of a video game and throws the Nintendo DS across the room… I can almost guarantee that these aren’t items that the kid paid for with money they earned. They might have been gifts, hand-me-downs, or they may not even be their own property. Our initial reaction (I’ve been guilty of this) may be to ask “Do you know how much that thing COSTS?” Well, no, they don’t. It didn’t cost them anything! If that one breaks, they’ll just get a new one, right?
Separating gifts from earnings is very important. If we consistently buy our kids the things they want, it makes the “real” gifts (birthdays, holidays, etc.) less special. And if gift items are special, it’s more likely that they’ll be treated with the same level of respect that earned items are. Besides necessities, we limit the things that we buy for our kids just because they want it.
Our 9-year-old has been asking for a guitar for a couple of years. When we started the checklist and envelope systems, she knew right away what her first savings goal would be – an electric guitar. She wrote it right on the front of her Saving envelope. Every week, she would put half of the money she earned into the envelope and count up the balance. We had taken a trip to a guitar studio to get some ideas, so she had a rough idea of how much the guitar would cost. It took her 8 months to gather enough cash – long enough that we felt confident that it was something she really wanted because her enthusiasm hadn’t waned. After a trip to another guitar store, she was all set. She knew the guitar she wanted. She’d held it in her hands and plucked the strings a little – having no idea how to play it. This was it.
“Dad, can I buy it today?”
“Do you have your cash?”
“No.”
“Well, then there’s your answer.”
I could almost feel the knot in her stomach – the knot you get when the thing you want is right in front of you and you can’t reach it. We’d have to come back another time. And we did so about a week later. She brought her cash and was on a mission. She got the guitar, an amp, a tuner, a cord, and a beginner guitar book. The kid could not have been more proud of what she’d gotten – what she’d earned. She wanted to play that thing all the time. She wanted to sign up for private lessons (Mom and Dad are paying for these – we’re not complete tyrants.) And she’s been practicing diligently and improving much quicker than I imagined someone with those little bitty hands could. What once sounded like “bing… bing, bing, bing, TWANG!” has evolved into a nice little melody to which I can whistle, hum, or even sing along. “Rockin’ Robin – tweet! tweet! tweet! – Rockin’ Robin – tweet! tweedle-e-deet!” I believe that if it weren’t for those 8 months of planning and saving – if we had just bought her a guitar when she asked for it – the frustration of “bing, bing, bing” would have overtaken the enthusiasm and we would have a 6-string dust collector that would end up on our upcoming garage sale.
The appreciation of earned stuff vs. stuff that is handed to a kid isn’t just limited to big-ticket items or long-term goals. Even the most simple things can be very rewarding – especially for the littler folks. I got home from work the other day, pulled into the garage, and walked in the door to find our 5-year-old, M, right in front of me. She was practically jumping up and down, she was so excited. My wife had taken the girls on a mundane trip to the drug store to pick up a few things. M had a hankerin’ for some gum, and her mom’s gum wasn’t the kind she wanted. So as they got ready to leave for the store, M grabbed her princess wallet (her version of a “spending envelope”) and clutched it close to her as they drove into town.
Scanning the huge rack of candy and gum, she found what it was she wanted – a package of Juicy Fruit gum. She waited in line, plunked it down on the counter, and paid $1.25 in cash out of her wallet. As soon as she was back in the van and into her booster seat, she had a piece of that gum in her mouth and was chomping away. I’ll bet that was the best gum she’d ever tasted. Thus the excitement when Daddy got home. She’s very proud of those 17 sticks of chewing satisfaction. This presents another opportunity for parenting – Teaching the value of sharing with Dad. 
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.
