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Uncle Scam, Capitalism vs Greed, Water Into Cash, More Elmo: Weekly Family Finance Picks (#44)

We’re constantly scouring the Internet looking for articles related to family finances and teaching kids good personal finance habits. You can visit the FamZoo delicious page to see our ever growing list of family finance bookmarks. We’re up to 1390 now! Each week, we pick our favorite articles from the previous week and post them here.

This week, we stick with the Financial Literacy Month theme for the first two picks and wrap-up with some very specific practical tips for the third (plus Elmo returns in a bonus video):

Is Uncle Sam Smarter than a 5-year-old?

Uncle Sam Preaches Financial Literacy. Really?Kathy serves up a classic, brilliant sketch about the irony of a Financial Literacy Day event in Washington DC (oxymoronic I know). Does it make you laugh? Cry? Both? Read it here.

Financial Literacy For All Is This Generation’s New Civil Rights Issue

John pens a thoughtful — and thought provoking — article about how we’ve “lost our storyline” when it comes to financial literacy in this country. My favorite snippet from the article is:

Capitalism and free enterprise are not bad, but rather the greed is. Financial illiteracy is fuel for greed, and an unreasonable enticement for financial predators.

John cites several initiatives focused on school curriculum which sound great. That said, I think kids need lots of practice to develop their personal finance skills before they hit the “real world” — more hands-on learn by doing opportunities. I also think money and values are intimately intertwined, and, as such, the family must play a prominent role. I hope FamZoo can continue to collaborate with these kinds of curriculum based initiatives to help bring the concepts to everyday life as we did here.

Deal-Seeking Dad: 7 Creative Ways to Teach Kids About Money

Speaking of everyday life, Aaron shares some creative yet practical tips for teaching kids about money and frugal living. My favorite comes courtesy of Donda Combs: pay kids the menu price of a beverage when they go out to dinner and order water instead. To encourage deal seeking, she also pays kids the amount saved by clipping a coupon for something the family regularly buys. Don’t tell your kids about Groupon, or you could be shelling out some serious dough!

See the rest of the clever tips here.

As a follow-on to the Sesame Street financial literacy videos mentioned in last week’s picks, this week’s bonus video features Ron Lieber from the New York Times talking money with Elmo. It’s a fun interview and provides some of the back story on the new Sesame Street series. Enjoy!

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Pave the Road to Retirement For Your Working Teen With A Family 401(k)

Your teen just landed that first summer or part time job. Congratulations!! Now’s the time for your teen to start thinking about...wait for it...retirement! Seriously? Yep, and you can help with one of my all-time favorite family finance tips for parents with teens. Just watch this two minute video or read on.

Dan Kadlec over at MoneyWatch.com calls it the “Family 401(k)”, and I just set one up for 2 of my teens.

It takes only 30 minutes now and yields benefits that last a lifetime. It gets your teens off the couch, teaches ’em the power of compounding, takes full advantage of Roth IRA tax benefits, and gets ’em started on taking control of their financial future. The way things are headed, they’re gonna need to start early.

So what is a Family 401(k)?

It’s where the parents (or grandparents, or rich aunt, or some combo) agree to make contributions to a teen’s Roth IRA. They match some percentage of the teen’s earned income — typically from a summer or part-time job.

It’s like the concept of a real 401(k) where a company makes matching contributions to a retirement account, but in this case it’s the supporting family members making contributions. The teens often don’t make any actual contributions themselves — at least not at first — since most teens don’t have much left from their paycheck after “critical expenses” (yes, tongue firmly in cheek there).

Here are the 4 quick steps:

Step 1: Make a deal.

Mine was: “If you work this summer, I’ll double your money (up to five grand)” That gets their attention. Remember, that’s just my deal — choose whatever percentage makes sense for your situation — maybe even split it between relatives.

Step 2: Show’em the (future) money.

When I say: “OK, the bad news is: you can’t spend it until you’re 59 and a half.” The eyes glaze. But I get the focus back with: “The good news is, by then you could have several hundred thousand bucks squirreled away — maybe even a million.” That’s when my son said “Whoa!” Find a savings calculator and show’em some different scenarios.

Step 3: Set up the Roth IRA

If your teen is already 18 like my oldest, it’s super easy. All online.

Here are the screens I filled out on Sharebuilder.com (see video).

Boom, boom, boom. 15 minutes tops and you’re done.

If your teen is under 18 like my next son down, it’s a little trickier.

You have to set up a custodial account to manage on your teen’s behalf. A lot of the popular financial institutions I tried — Sharebuilder, Fidelity, Vanguard, T Rowe Price — didn’t support that setup.

But Schwab has a really nice, clear program. Fill out the forms online, print, sign, write a check and bring it all into the local Schwab office where Nick got us all set up in less than 5 minutes. You can mail it all in too.

Step 4: Invest

Remember that millionaire bit? That ain’t gonna happen if you leave the deposit in a sweep account. It’s just a few clicks to invest, but the hard part is picking the actual investments. I’m just a Dad and a software geek, not a stock picker, so you’re on your own there. After a little googling around, some work with Sharebuilder’s nice online research tools, and a little chit-chat with the boys about diversification and long-term thinking, I went with something that would just mirror the overall US stock market. Next year, we’ll balance that with an International index fund.

That’s it. You’re done, and you’ll feel really good about it!

Your teens may not thank you now, but they’ll definitely thank you in 40 or 50 years. I hope you’re still around to hear it in person!

P.S. Here are some references that I found helpful:

P.P.S. Disclaimer: this article is for informational purposes only and in no way should be relied upon for financial advice. Be sure to consult your own financial advisor when making decisions regarding your financial management.

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Beyond Tuition, One Hen, Sowing Seeds, Mom vs Candy, Elmo: Weekly Family Finance Picks (#43)

We’re constantly scouring the Internet looking for articles related to family finances and teaching kids good personal finance habits. You can visit the FamZoo delicious page to see our ever growing list of family finance bookmarks. We’re up to 1355 now! Each week, we pick our favorite articles from the previous week and post them here.

April is officially National Financial Literacy Month, so this week’s picks and bonus media focus on financial literacy themes — some traditional, some not so.

College Costs: Tuition Is Just the Beginning

Make a Formal College BudgetLet’s kick it off with a traditional financial literacy theme: budgeting. Your child’s transition to college is a critical time to get serious about budgeting. For most kids, it’s the first time they’ve spent a sustained amount of time outside your home. They quickly discover how many heretofore “hidden” expenses you’ve been picking up on their behalf, not to mention some hefty new expenses that come along with the college territory.

Now that we’re on our second child to make the college transition (just three more to go!), here’s what I recommend:

  • A formal budget — Have your child put together a formal budget proposal for their expenses during the school year. Review it together and make sure it’s written down (either on paper or, better yet, online where you can all easily get to it for reference).
  • A formal reimbursement process — agree upon a formal process for your child to follow when making the inevitable reimbursements for unanticipated expenses. It should be more involved than a 1am phone call or text. The process doesn’t have to be complicated, but it should require your child to formally record their requests so they can be reviewed later. I actually like the idea of it being somewhat inconvenient for your child — friction in this case is a good thing.
  • Review and revise the budget — periodically review the budget and the reimbursement requests outside the budget. Tweak the budget and/or behavior as necessary to account for changes outside their control (rising gas prices) and changes within their control (too many sodas from the dorm vending machine).

Emily’s article gives excellent examples of the unexpected expenses you and your college bound teen can expect. Read it here.

One Hen: How One Small Loan Made a Big Difference

A somewhat overlooked financial literacy theme is entrepreneurship. I stumbled upon this inspiring lesson on how the entrepreneurial spirit and microfinance can fuel the cycle of economic growth. I love the story, and it’s based on a real-life experience. The high quality EconEdLink site is primarily intended for K-12 teachers and their students, but there’s no reason why parents can’t adapt the material for home use. Check out the One Hen lesson and others here.

Smart Money Kids / Sowing Seeds of Philanthropy

And finally, an even more commonly overlooked theme of financial literacy is philanthropy. Tom steers parents who’d like to introduce their kids to philanthropy in the same direction I do: DonorsChoose.org. Read why Tom does here and why I have since 2006 here.

P.S. Two pieces of bonus media this week. First up, this charming Financial Literacy Month local news story in which 5th grader Quindarius sums up the classic tension between a long term noble objective and instant gratification: “I’d like to put money aside to help my mother,” but “I like candy so much, I can’t resist it.”

If you’ve got preschoolers, check out the new Sesame Street “First Steps to Spending, Sharing, and Saving” video content that was released on the web this month. It’s truly wonderful to see financial literacy themes delivered by Elmo and the other classic Sesame street characters who are so familiar to (and beloved by) kids (and parents) everywhere. Check it out here.

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IRS Free File Program: Perfect For Teens With Summer Jobs

Using Free File With Your Working TeenTo minimize tax filing hassle and expense, I usually just include the modest income from my kids on our own tax return. But this year, my teen had a nice summer job with a fair amount of withholding. I decided to look into the cheapest, easiest way to file his own tax return, so he could cash in on his refund. As a “starving” college student constantly bumping up against his budget, he could definitely use the extra beer pizza money.

I googled on “file taxes for free” and stumbled upon the IRS Free File Program. It’s a partnership between the government and commercial tax software companies that was created to encourage more Americans to file taxes electronically. Through the partnership, tax prep companies like Intuit offer versions of their online tax filing programs free of charge to eligible filers. The teen with a typical summer or part time job will probably meet the requirements.

I’ve been a user and fan of TurboTax for many years, so I was delighted to see that they participate in the program with the TurboTax Freedom Edition. I was able to breeze through the program in about 15 to 20 minutes and file my son’s federal and state returns to collect his refund. Unfortunately, California does not sponsor a Free File Program, so we were dinged $14.95 for the state filing, but that didn’t dip into his refund too much.

Here’s a step-by-step slideshow:

The bottom line:

$203 Fed Refund + $34 CA Refund - $14.95 Filing Fee = $222.05

Nice windfall. That’s a lot of beer pizza! For my son, it was all pizza from the past though — the full $222.05 went toward paying off the loan I gave him for his Spring break road trip. Easy come, easy go.

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How We Saved $788.54 at Disneyland

Hey, what happened to the Family Finance Picks this week?

Well, in a word: Disneyland. The (pre-college) kids all had the week off for Spring vacation and a rare break from the usual Hockey/Lacrosse/Soccer routine, so we decided to take a last minute road-trip to Disneyland. The family finance picks will be back in action next week.

How I Saved $788.54 at Disneyland

In the meantime I thought I’d share a few quick tips that saved us a bundle on our trip — over $750 off Disney’s advertised Hotel-Park combo package.

  • Do a little research. I like reading reviews on TripAdvisor. It’s a great way to find out what to expect amenity and price-wise. Read the most recent reviews to avoid unpleasant surprises — like construction at the Disneyland Hotel.
  • Make your own package. Based on our research, we could tell the Disney vacation packages had a bunch of pricey stuff we didn’t care about. So, we dropped the meals (Jamba juices, lunches, and dinners at the Downtown Disney District instead), the character visits (the kids think they’re creepy anyway), and the concierge services (we like self-serve), and we looked for deals on just the individual pieces we wanted — rooms and tickets.
  • Call and ask questions. I’m really hooked on the convenience of booking stuff on the web. It’s so nice to avoid waiting on the phone to speak to a human. Click, click, click and you’re done. But I had some questions about the prices I was seeing on the Disney pages, so I decided to call and ask some direct questions. I’m glad I did. I ended up paying 30% less than what I was seeing on the site.
  • Check for specials. Disney happened to be running a special promotion on 3-Day Park Hopper Tickets, so we picked those up for quite a bit less than what was quoted over the phone. Check their special offers page. (Right now through May 28, there’s a nice spring special on room rates — unfortunately not available at the time we went.)

We’ve always just done daytime excursions to Disneyland in the past, but this time we wanted to check out the convenience of staying right at the park in one of the Disney hotels and catch the nighttime experience. Since TripAdvisor reviews had some complaints about construction at the venerable Disneyland Hotel, we went with the upscale Grand Californian. (Heck, we don’t take many family vacations, so why not?)

Yes, it was pricey, but I have to say it was completely worth it. We had an absolute blast! Every once in a while, you just have to go for it.

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Your Child's ATM, What's That Smell? Weekly Family Finance Picks (#42)

We’re constantly scouring the Internet looking for articles related to family finances and teaching kids good personal finance habits. You can visit the FamZoo delicious page to see our ever growing list of family finance bookmarks. We’re up to 1280 now! Each week, we pick our favorite articles from the previous week and post them here.

The picks for this week are:

Are You Your Child’s A.T.M.?

Don't Be Your Child's ATM. Set Some Limits.63% of today’s kids get extra money from their parents every time they ask for it? Really? “Extra” means money beyond an agreed upon allowance. Hard to believe. According to an unscientific poll by Themint.org, that’s up five-fold from an alleged 12% for kids growing up during the 70s, 80s and early 90s. I say “alleged” because the figures for the older generations were collected from grown-ups recalling how things used to be. I suspect those recollections are a bit tainted by the old “When I was a kid, I walked 10 miles to school in the snow with no shoes on” effect.

What do you think? Could kids these days really be that much more entitled? More importantly, could parents these days really be that much more remiss about setting limits? I hope not. See more on the story and lots of comments here.

Parents really need to take the time to set limits and help kids track spending against a budget. A parent should be the hard nosed family banker, not just a free flowing ATM machine.

Is Formal Personal Finance Education a Failure? Some Thoughts on Improving It

“You make sure your kids change their underwear, right?” asks Trent in his recent post. Hmmm, I haven’t followed up on that recently. Anyway, assuming you do, Trent asserts that you need to be just as vigilant in teaching your kids about personal finance. Why? Well, for one reason, they aren’t learning basic personal finance skills in school. Even if your kids are getting some personal finance instruction in school, it probably isn’t sticking. Trent tells us why, and he offers practical advice for how to make the instruction in schools more effective. It really gets down to real life experiences. Kids need to hear real, relevant stories from others, and they need practice applying the skills themselves in real, everyday situations. See Trent’s thoughtful commentary here.

Personal Finance: Financial literacy course a big hit at Burbank High

Teacher Victoria Stolinski seems to have anticipated Trent’s advice above. Her highschool personal finance course features engaging guest speakers like Bruce Kajiwara who share real experiences and keep things relevant to the highschool audience (sample exercise: estimate what the senior prom will cost you).

Kudos to people like Victoria and Bruce who bring their passion to a critical — but let’s be honest, frequently dull — topic. By doing it right, they’re changing lives. Here’s what 17 year old Tam Nguyen (who works as a dishwasher in a local restaurant) said: "No one ever talked to me about budgeting or saving until I got in this class. This semester has really changed my thinking." Outstanding. Mission accomplished.