Teach Kids to Set Financial Goals – Video

Here’s the next in my Kids and Money video series:  Setting Personal Financial Goals

The Mystery Charge – A Teachable Moment

The cell phone bill came in.  It was a little higher than usual, not by much, but enough to get me looking for the reason why. 

I consider the cell phone bill a fixed expense.  Technically, it’s not since there is always the possibility that we could go over minutes at which point the charges skyrocket.  I know this.  Two teenage boys with their first girlfriends and, well, let’s just say they finally understood what I meant by girls can be expensive

But even so, we pretty consistently pay around $98/month, give or take a few pennies.  So it’s a fixed expense in my budget.

Both boys pay for their portion of the bill.  John and I take care of the family plan charge which leaves the boys with their $10 extra line charge and $5 unlimited texting fee.  That plus taxes and surcharges and the kids each owe me $17.04 monthly.  It’s a steal, really.

I located the extra charge.  It was for $5.99 and showed up under Ryan’s portion of the bill.  Ryan recently upgraded to a new phone.  His second in three years.  That’s what happens when kids have to pay for their own stuff.  They discover that they really don’t need the whiz-bang latest technology.  The old stuff works just fine, thank you very much.

Since the rest of us were not charged this fee, I figured it had something to do with Ryan’s new phone.  But instead of me picking up the phone to figure out what was going on, I decided it was time for Ryan to handle his own inquiries.  He’s 15 and quite capable.   He was also quite willing.  Again, when you have to pay for your own stuff, a $5.99 charge is worth looking into.

So he dialed the number and talked with the representative.    Here’s what he found out:  Apparently, out of the goodness of their hearts (it wasn’t in the contract), TMobile decided to enroll him in their insurance plan for his new phone.  It was $5.99 a month and would cover the cost of a new phone minus the $40 deductible (he’s familiar with deductibles) should he lose his.  He asked me what he should do.

“Have you ever lost your phone before?” I asked him.

“No,” he replied.

“Well, there’s always the chance that you will.  Is it worth it to you to pay six dollars a month on top of a $40 deductible should you lose your phone?   That’s up to you to decide.” 

I could tell he was thinking really hard about it.  He had his old phone for three years and never lost it.  He’d been scared that he had a couple of times, but we always found it.  Besides, his new phone cost him $150 plus taxes.  Minus the deductible, that would leave $110 that he was insuring at $6/month.  He decided it wasn’t worth shelling out the additional money. 

He finished his conversation with the representative who reversed the charges for him.  But the lesson is not over.  When the next bill comes in, I’ll have him confirm that it was reversed.  

Dealing with this sort of thing is definitely not fun.  It’s time-consuming and a hassle.  But I’m thrilled that both boys are at the age where they are capable enough to handle these on their own.  It puts them one step closer to being ready to go out in the world on their own…and do okay.  Sort of a bittersweet moment for me.

How Does a 15-year old Save for a Car?

Ryan just bought a car. And she’s a beauty, too. 2002 baby blue Toyota Prius with only 57,000 miles. Owned by a 91-year old grannie who used it mostly to drive to church and back. No kidding. Problem is, Ryan can’t drive it; never mind he doesn’t have his license. He barely has his permit. And taking an online course to get his permit happened after he bought the car.

How does a 15-year old with no permit end up with a pretty snappy car sitting at the bottom of the driveway? It starts with a plan.

When Ryan was 11 years old he got his first job. He delivered papers once a week after school. Most of that money went directly into his savings account. Although he was responsible for all his discretionary spending, there wasn’t a whole lot he spent money on. John and I customized his interest rate (KidsSave was a great help in this area), so that the more he saved, the more he ended up with. This was a great incentive. But an even greater incentive was the offer his grandmother gave him. She would match him dollar for dollar on his first car.

Over the years he added soccer reffing, teaching math centers, and yard work for our neighbor to his list of jobs. He also did the occasional lemonade and root beer float stand. Then there were his buys and sells on ebay. Again, most of it went into his savings account. Although I have to mention here, just in case you may think he never enjoys spending money, he bought his own $350 mountain bike, an ipod touch, golf clubs and other pretty pricey items. He knows when to save and he knows when to spend.

But my main point is that, when you have a goal in mind, when you know what you want and have figured out the steps to get there, it’s easier to keep your eyes on the target. That’s the power of goal setting. It keeps us focused. Even when you’re eleven years old.

Four years later the perfect opportunity presented itself. We live near a community college which doubles as a used car lot on the weekends. Nathan and Ryan, just playing around on the computer one day, discovered that a used Prius would be on the lot. A Prius is exactly what Ryan wanted. He’s my little eco-friendly kid.

The stars seemed to be aligning for him. About six months ahead of when he had planned on buying a car, it was an opportunity not to be missed. An opportunity on a variety of levels. This was his first major negotiation and he wanted to do it himself. So John and I prepped him. He needed to know exactly what his maximum offer would be. Start low, move up.

The owner, through her grandson, was asking $10,000. Ryan went in at $8800. They came back at $9200 which was exactly what Ryan had hoped. He had just made his first deal.

After registration and taxes, the total came to $9796. Split with his grandmother, Ryan’s share was $4898. He paid in cash. That’s how a committed 15-year old buys his first car.

Teaching our kids to set personal financial goals when they are young is so important. It starts with the little things…a video game then a bike then an ipad. They learn it’s possible and begin saving for the bigger things. To see how it’s done, check out this video:

Kids Earning Money? Set Up a Roth IRA

I took Nathan and Ryan to our broker this morning to discuss Roth IRAs. Both boys have jobs and I thought it was time to have them begin thinking about their retirement. John and I decided to match any money they made this summer, dollar for dollar, and, well, my boys have never been known to turn down free money. They were all in.

I could have easily set up their custodial accounts online but I wanted the boys to have the experience of meeting with an expert. Besides, I’m not all that familiar with Roth IRAs, I had a few questions to ask, and I wanted them to learn right alongside me.

Our broker started by asking the boys what they already knew about Roth IRAs. Nathan volunteered that it was a retirement account that they wouldn’t be able to touch until they were 65 (turns out it’s 59 1/2). Ryan offered the fact that taxes were taken out before the money gets deposited into the account allowing for the money to be drawn tax-free later on. I was proud of both of them for being able to discuss the basics of these types of accounts.

I know it’s hard for many kids to even entertain the notion that one day they will be retired. It’s even harder to get them to begin to prepare for it. I’ve been lucky in this area with Nathan and Ryan. They’ve sat in enough of my money classes to know that they are in the best position now to set themselves up for financial freedom later in life. A little sacrifice now can pay greatly later.

When our broker started talking about the compounding effect of money, and having money work for them, Nathan and Ryan started to smile. They know all about it. In fact, once kids see the power of compound interest, they’re usually quite interested in making those sacrifices.

We then got into risk management. The question posed both boys was What would you do if your account value dropped by 10%? Sell, stay put, or buy more? It was an interesting question and I was curious what each would say…although I already knew.

Ryan said he’d buy more. Nathan said he’d stay put. Ryan has made a killing on his stock picks this year; he’s a little bit more of a risk-taker. Nathan is simply not willing to lose money if he has a choice. This fits in with the next question: When are you looking to retire? Under any other circumstances this would have been an odd question to pose a 15- and 17-year old. But we were in his office to discuss retirement, so it was totally appropriate.

Ryan wants to have the option of retiring when he’s 40. Nathan said he probably wouldn’t retire any time before 55. With this information, our broker created personal target funds for each of them. Then he printed them out. That alone was worth the 45 minutes in his office. The boys were fascinated with these pieces of personalized information and devoured them in the car ride home. Very cool.

And me, all I could think about in that car ride was how I was jyped of information when I was a teenager. Had I known then what I know now, I’d have left that office in my flip flops ready to head out to the beach and work on my tan.

Money Reflections

Excerpted from Beyond the Piggy Bank, a 15-Day Challenge

One of the goals for this Challenge is to develop healthy attitudes about money in our children. Since YOU have the greatest impact on what your kids learn about money, it’s important to take a little time to reflect honestly on the money messages you are sending them.

Ask yourself the following questions. To help clarify your thoughts, you may want to write your responses down on paper.

~What is my attitude towards money?
~Is money a good thing, a bad thing, am I indifferent about money, does money annoy me, is more money better, do I complain about money a lot…
~Why do I feel this way about money?
~What attitude about money are my kids observing in me?
~Which money personality reflects me the most?

–Worrier: I’m always fretting about money
–Carefree Spender: I love spending money. I’ll deal with the consequences later…maybe.
–Penny Pincher/Hoarder: I’m not worried about money, I just don’t like spending any.
–Giver: I’m always buying stuff for my friends and giving them money. I’ll worry about myself later.
–Saver: Yippee! I get to balance my checkbook and maybe put some more into my Roth IRA.
–Avoider: Honestly, do I really have to think about managing my money?

~What are the pluses about my money personality? What are the minuses? How can I improve the minuses?
~How do my kids see me manage money? Am I happy with that? If not, how can I change?
~How would I like my kids to manage money when they are older?
~What money attitude would I like my kids to have as adults?

Once you reflect on and understand more about your own personal feelings towards money, you are in a better position to help your kids develop healthy money attitudes.

Teaching Kids to Set Financial Goals

Long story short, kids who know how to delay gratification tend to grow up to be adults with higher paying jobs, have happier relationships, are physically healthy, and are persistent in their pursuits. Let me know if you want the details to this longitudinal research.

Using money, we have an unbelievable way to help our kids learn to delay gratification. It’s all about setting personal financial goals.

There are three types of goals kids can set:

~to purchase a specific item
~to save a certain amount of money
~to reach a certain account balance

Giving kids a reason to set a financial goal is important. This gives them an incentive and a concrete reason to save. Goals, like saving for a coveted toy, are more tangible to young kids. Tweens and teens can begin to work towards saving a certain amount of money which is can then be used as their investing money. Kids LOVE the idea of doing something as grown-up as investing. And if they see how much money can grow over time due to compound interest, they’re usually quite excited to get saving.

Goal duration should be short for young 5-6 year olds, maybe a week or two. These kids need to be successful in reaching their first goal because it will encourage them to set another one. As they get older, increase the time. You may even want to consider matching them dollar for dollar. Not only is this a good motivator, but it allows them to reach “pricier” goals faster.

Another strategy for getting your kids to reach their goal is to introduce them to some Above-and-Beyond jobs. These are jobs that your kids can do around the house to earn extra money. This has the added benefit of teaching kids the value of a dollar as when they work for money, it tends to have greater meaning.

Having kids set financial goals is the foundation needed for them to be ready to set goals such as saving for a car, or for college, or (it’s baaack) saving for a down-payment on a house. That’s a lot of delayed gratification! But it’s so worth it. You’re teaching your child life skills so necessary in today’s society!

And achieving a financial goal that they set out to do gives kids such a sense of personal satisfaction. It’s a joy to watch as a parent. Let’s not deny our kids (and us!) this opportunity.

Selling on Ebay, A Teenager’s Message

I asked my son, Ryan, to write about his experiences earning some additional money by selling things on ebay. Here is what he wrote, unedited by his mother!

~

Ebay can be a great tool to making money, anyone can do it, too. Kids, adults, it doesn’t matter! I’m Ryan, 15 years old, and I have used ebay since I was 12 to make money, mainly because I was too young to get a job.

Ebay is extremely easy to use and can be used to make yourself a small fortune. For example, I have bought and sold items that I’ve gotten from my friends and garage sales and sold them for much more than what I paid for. I recently bought an Ipod Touch for $100 from one of my friends, and sold it on ebay for $150. That’s a 50% gain! I have also sold items I’ve purchased from garage sales for almost 4 times what I paid for them. In all, I have probably MADE about $300 from ebay, and plan to make much more in the future.

It’s really quite simple to make an ebay account and get started on the road to success. Just click “register” on the ebay homepage and punch in all the info. That’s required. Then, you’re ready to sell! To sell your first item, on the homepage, go to “sell”, “sell an item”, and then find, and describe your item in a way to try to sell it, list features, accessories, etc. I strongly recommend setting a reserve price, the amount of money you’re least willing to sell the item for. To do this, you must be in the advanced settings of the description process. It’s considered an upgrade so you will have to pay a little to do this, but it’s not much.

Also, I highly recommend having a “buy it now” price, a price that you’re willing to sell it instantly, without the auction process. It is always good to have both.

After you’re done, you’re ready to list your item and make some money!

When you earn money from ebay, it is always great to save your money, you do not have to just spend it. I have already invested in mutual funds and the stock market, plus I have a savings account. Save away!

BTW, if you purchase something from someone on ebay, it is always good to leave feedback, good or bad. People rely on having positive feedback, so make sure you leave them feedback about what you thought about buying from them.

Teaching Money Values

We impart our values to our kids through our words and our actions. Mostly our actions. Take a moment to reflect on the things you value. Integrity, compassion, honesty, persistence, courage, patience… Now think about an action that can be associated with each one. For example, returning the unpaid can of tuna you discovered in the shopping cart ~ honesty. Or volunteering to speak at the board meeting even though the thought of speaking in front of people makes you mildly ill ~ courage. 🙂

Now think about the kind of values you want your kids to live by when they grow up. Since kids do most of their learning through observation (they’re quite good at it!), it’s important to think about the messages your behavior is sending. Are you living the values that you want to help define your kids as adults?

The Money Connection: Our values are also imparted to our kids through the way we handle our money. We teach generosity when we share with those less fortunate than us. We teach responsibility and delayed gratification when we put a little of our money aside for the future. And when we splurge on a fancy dinner out we teach that it’s good to enjoy, as well.

Conversely, shopping impulsively teaches kids that the value of a dollar is not important. Not to mention the messages sent about lack of self-discipline. And holding too tightly onto money teaches kids that experiencing life is not important.

So take time every now and then to reflect on the choices you make on a daily basis. Because how you live life is how you live your values.

The Other Literacy…Financial Literacy

We all know that literacy, the ability to read and write, is an important life skill.  It’s so important that we often create an environment at home to reflect this.  We start reading to our kids from an early age, years before they know how to read themselves.  We surround our kids with all kinds of reading materials from books, to magazines, to newspapers, to grocery lists. 
 
And then, to underscore the importance of reading even more, we read in front of them.  Yup, we pick up the newspaper or magazine and absorb the words on the pages while our kids are watching.
 
When they begin to read on their own, we ask them questions about the plot and characters. 
 
At school, monthly book orders are sent home and assemblies bring in authors who talk about how they write their books.  We even reward kids with stickers on classroom charts or refrigerators at home reflecting pages read. 
 
It’s hard to grow up in an environment such as this and miss the message that reading and writing is important.  

The Money Connection:   There’s another type of literacy which is just as important that isn’t quite as integrated into our environment.  Financial literacy.  Simply stated, financial literacy is the ability to effectively and comfortably deal with issues relating to money in a way that benefits us.  It’s important for things such as budgeting, understanding credit, and investing.  

We need to be just as passionate about our kids learning financial literacy as we are about teaching them reading and writing literacy.  But since financial literacy in the elementary and middle school curriculum is not where it should be, we’re going to need to do double-duty at home.  Without obsessing about money, this simply means that we need to be aware of opportunities to sneak in a few life lessons.
 
Here is a starter list of ways to create an environment where learning about money is simply a natural part of your everyday routine, thus underscoring its importance: 

1. Talk about money from an early age – how it is earned, how there is a limited supply, the importance of making good spending choices, how to be a good consumer, etc.

2. Just like a book is the tool we use to teach kids how to read, money is the tool we use to teach kids how to become good money managers.  Give your kids money on a regular basis (an allowance is the most popular way) and then have them be responsible for their discretionary spending.

3. Create a list of extra jobs kids can do around the house to earn additional money.

4. Share your savings goals with your kids and have them create their own.

5. Have tweens and teens keep track of their spending in a registry so they get an idea of where their money goes as well as learn how to keep a running balance.

6. As an incentive to get your child to save, offer to match their savings dollar for dollar.

7. Always look for teachable moments, such as being out shopping, to tie in important money ideas.

Kids learn to become good readers through reading.  By the same token, kids learn to be good money managers through doing money.  Providing your kids with money to manage and initiating on-going money discussions at home will help build the financial foundation so necessary for success in today’s society.

Getting Kids EXCITED About Saving Money

When Ryan was seven years old, John and I discovered he had a spending problem. As serious as a seven year old can have. It was all about Pokemon cards. Each week he would drain his money on the cute cards in hopes of striking it rich with a rare Charzard.

But not wanting that spending problem to grow into a bad spending habit, we decided to introduce Ryan to compound interest. We wanted to see if the idea of money growing on itself (because he saved it), would have an impact on him. We also wanted to have the idea of saving his money come directly from him.

So we sat him down at the computer, along with his brother Nathan who was a terrific saver already, and plugged 10% monthly interest (parents can do that!) into a spreadsheet. The graph that was generated on the initial $100 we set up, shocked him. Then on came the lightbulb when he realized that saving his money would mean he would end up with even more money. He was a believer. It was this moment that began our work on KidsSave.

Compound interest. Einstein, a very smart dude, called it the eighth wonder of the world. He also called it the greatest force in the universe. And if anyone should know about the universe and force, it’d be Einstein.

And it was compound interest, interest that grows on itself, that made Ryan the saver he is today.

So I’ve put together two videos to illustrate the power of compounding so that you can show your kids this “magic” and get them just as excited as Ryan got. Of course, you could also use our kids’ savings and money management software, KidsSave, as it was the very first thing we designed for the program.

Here’s my most recent video. It’s on the Rule of 72. Don’t know the beauty of the Rule of 72? Then take a peek. It’s pretty amazing. And if it gets your kids excited about saving, let me know!

And after you watch the video, ask your kids what would happen if they invested $2000 instead of $1000…

Watch this VERY COOL video.