Financial Baby Steps

Saving Money For Your Child's Future: A Different View

2008-01-12T08:04:00.000-08:00

A few days ago, I had lunch with a person in the local community whose opinion I respect quite a bit. He has two adult children, only one of which attended college straight out of high school, and both of which run their own business.

What I wanted to know from him was how exactly he raised his children to be such independent, self-motivated, entrepreneurial people. What he told me really surprised me, and it made me think a bit about whether I should be contributing to my children’s 529 plans or doing something different for their future.

When the children were young (under 12), he paid an allowance for household chores. There was a minimum that had to be done to even qualify for the system each week - so they had to do a certain number of tasks just as a baseline. Beyond that, though, they could earn money by doing more chores: dishes, lawn care, and so on.

Meanwhile, he was investing in a mutual fund for each of the children. Each week, he put a small amount into their fund, intending to use it later to help them out.

On each child’s twelfth birthday, he sat down with them and helped them develop a business of their own that they could manage. One of them chose lawn care and snow removal, while the other one chose math tutoring because he was exceptional at math (and had already completed all of the math courses offered in the school district). He provided them both an equal amount of “seed money” out of their fund to get things started - one of them used it to buy a used lawnmower and a snow shovel, while the other bought a printer cartridge and paper to make flyers. He then guided them on their business, acting basically as a free business consultant to them. The only requirement that he placed on the business is that half of the money either had to be reinvested in the business or invested in something else - they could spend the other half.

In both cases, the businesses thrived. The math tutoring child wound up with significantly more in his fund than his brother, but the lawn care/snow removal brother wound up with a lot of equipment. Both learned quite a lot about how to operate a business.

On their eighteenth birthday, they were gifted their funds. After that, the parents provided no more financial support. The person with the lawn care business took that money, bought a lot of ads and some new equipment, and expanded the business. The son with the tutoring business finished his senior year, then went to school to get degrees in both business and civil engineering on a nearly full scholarship, then worked at an engineering firm for six years while that fund still grew, then used it to put out his own shingle. He now runs an engineering firm.

To me, there is a lot of appeal in this plan. It relies heavily in constant fostering of self-reliance and entrepreneurship in your children, but it also gives them the opportunity to choose education if they so wish.

This doesn’t change my desire to save money for my child’s future, it just makes me reconsider putting the money into a 529. That money has tax benefits if used for education, but an extra tax penalty on earnings (10% more than long term capital gains) if used for non-educational purposes. If you assume they’re going to go to college, a 529 is the right way to go, but if they wind up starting their own business right out of high school - which an entrepreneur might - a 529 is a hindrance as compared to a normal fund.

Post courtesy of Trent Hamm

Money Poem From 6th Grader

2007-06-06T17:58:00.000-07:00

A money poem written by a 6th grader for a contest:

M — Millions and millions would be nice.

O — Or maybe you can double that twice!

N — Now that you know you can save in an account.

E — Even if you don't have a grand amount,

Y — You can start a savings account, this way you will never run out!

from Cape Cod Online

College Students Learn Personal Finance From Their Parents

2007-04-12T18:44:00.000-07:00

The majority of college students say they learn the most about personal finance from their parents, but less than half of students say their parents make a consistent conscientious effort to teach them, according to a new survey of over 2,000 students and parents conducted by The Hartford Financial Services Group, Inc. (NYSE: HIG).

Parents of college students have a somewhat different view. Nearly two-thirds (63 percent) of the parents surveyed say they definitely see personal finance education as their responsibility and consistently make the effort to teach their children about it, compared to the only 41 percent of students who say their parents did. About 70 percent of college students cite parents as their primary source of information.

The need for better personal finance instruction for young adults is one issue on which both groups see eye-to-eye: Students and parents agree that college students are not well prepared to deal with the financial challenges that lie ahead. Less than one-quarter of students (24 percent) and only 20 percent of parents say students are very well prepared to deal with the financial challenges that await them after graduation. Moreover, more than three-quarters of students (76 percent) wish they had more help preparing for their financial future, The Hartford survey found.

“These findings highlight the fact that many parents are stepping up to the task of teaching financial basics at home,” said Dr. Susan Coleman, Ansley Professor of Finance at the University of Hartford and advisor to The Hartford’s Playbook for Life financial education program. “At the same time, however, students don’t always get the message the first or even second time around. These concepts, which are new to most young people, require frequent reinforcement at home and elsewhere.”

Dr. Coleman emphasizes that acquiring personal financial expertise is a continuous learning activity that should begin at an early age. Parents can initiate and lead the learning process in any number of ways, but, she adds, “It’s important to invest time and effort on an ongoing basis to reinforce those lessons.” She offers parents the following suggestions for raising financially-savvy young adults:

Model good personal finance behaviors. Be a good role model by setting goals, creating a budget, using credit responsibly, and making saving and investing a regular practice. In other words, live your financial values.

Give children responsibility for their finances. Help your children accept personal responsibility for their financial situation at levels appropriate for their age. Require them to earn an allowance by doing chores and helping out, rather than just giving them money. Don’t buy them everything; instead, teach them to set goals and save for things they want. And don’t be so quick to bail them out – allow them to suffer the consequences of poor financial decisions.

Help students budget in college. For each year of college, help them determine the anticipated expenses – such as tuition, books, food, transportation, clothes and entertainment – for which they will be responsible. Then, determine how they will pay for those expenses – a part-time job, summer work – and make sure anticipated expenses and income match.

Be candid about credit. Have a frank discussion about responsible use of credit cards before your college student gets bombarded with offers at school, and before he or she gets into trouble. Explain that credit should be used for emergencies – not every small purchase. Also, make it clear whether you plan to subsidize that credit card usage, or whether he is on his own.

Discuss career options. Point out that there are different rewards – monetary and non-monetary – associated with different types of careers. It’s not obvious to young people that different career paths bring various economic outcomes and lifestyles.

Seize teachable moments. College breaks and summer vacations provide opportunities for renewed dialogue about personal finance. Recognize and praise responsible financial behavior whenever it’s exhibited.

“Parents play a crucial role in financial literacy because students get the majority of personal finance information from them,” says Dr. Coleman, “Young people value their parents’ experience and look to parents for this kind of information and guidance. But it’s important to recognize that financial expertise is a life-long goal. Many young people are overwhelmed; they think they are supposed to know everything and are bewildered that they don’t. We must keep in mind that financial skills are acquired bit by bit over the course of a lifetime.”

Few students head off to college with any formal instruction in personal finance. According to a study by the National Council on Economic Education, only seven states required personal finance classes in high school in 2004. Moreover, the study found that students entering college get a failing grade on personal finance knowledge, scoring 53 percent (F) on a basic 24-question quiz on economics and personal finance.

Frustration With Aid Applications

2007-03-31T22:46:00.000-07:00

One of the issues with applying for student loans that is often overlooked is the time and frustration that goes along with it. Even at my age, I don't like to become frustrated (and throw a tantrum when I do). The Chicago Tribune has an article on how College aid forms tests families' pain threshold:

If you have just finished applying for financial aid for a college student you might have a few gray hairs.

Filling out a FAFSA—the form required for obtaining low-interest federal loans and college grants and scholarships—is a grueling process. It's so confusing and time-consuming that parents often start to think of their tax return as a walk in the park by comparison.

The good news? There's a bill called "College Aid Made EZ Act" that is intended to make it easier to apply for financial aid by simplifying the Free Application for Federal Student Aid form working its way through Congress. The best option is not having to apply for these loans by saving early, but for those that do, making the process as simple as possible is always a good goal.

14 Ways To Find Financial Aid

2007-03-29T23:48:00.000-07:00

While this is not something that I am going to have to worry about since I'm starting my college savings early, that is not the case for everyone out there. Here are 14 proven ways to get financial aid from NextStudent

1. Search Far and Wide
2. Apply, Apply and Apply
3. Remember Cutoff Dates
4. Go Local
5. Be Careful Where You Put Your Money
6. Network
7. Look into Fellowships and Grants
8. Match up Your Interests
9. Serve Your Country
10. Look to Your Roots
11. Go Rural
12. There’s Always Begging
13. Try Again, Ask Your Parents for Help
14. Don’t Fall Behind

Of course, the best strategy is to start saving early so you don't have to worry about any of this when it's time to go to college ;)

Should Personal Finance Be A General Education Class?

2007-03-28T20:55:00.000-07:00

Even at my young age, I can see the benefits of making personal finance a required course in both high school and college. This was the subject of an piece at the Daily Trojan college newspaper:

While a student can't earn a bachelor's degree from our fair university without taking courses in writing, global cultures and scientific inquiry, the essential subject of personal finance is totally absent from the curriculum. With all due respect to the academy, understanding how to manage money will be far more important to most upon graduation than understanding the sexual rituals of vanishing tribes in Papua New Guinea...

Some may argue that a school nicknamed the "University of Spoiled Children" wouldn't need to educate its students about money because they already have it; however, the problem with many spoiled children is that they've never known how to make it. With expenses reliably placed on parents' credit cards and the word "budget" absent from their vocabularies, students used to relying on an expense account while in school may face a rude awakening when they become independent.

I'm all for basic financial education for all and I hope that this isn't even a topic of discussion when I reach college age.

Personal Finance Courses Popular In College

2007-03-12T21:39:00.001-07:00

Business week has written an article on personal finance courses in college:

Personal-finance classes—for business and non-business majors alike—are in demand among undergrads, who are looking to get a head start on their financial future. Olin's personal-finance course, which is about 10 years old, has grown from 80 students per semester at its start to 200 today.

Let's hope by the time I get there, it is a required class for graduation...

College Personal Finance Classes

2007-03-07T23:59:00.000-08:00

I hope that by the time I get to college that personal finance courses will be a requirement as in this article:

Recent college graduate Erica Brooks wasn't exactly overcome with excitement when she decided to take a course in personal financial planning during her final semester at the University of Missouri-Columbia.

"I thought, 'That's really boring,'" she recalled. "That's what parents are for."

Nearly three years later, Brooks considers those lessons in debt management, retirement planning and prudent spending some of her most valuable college experiences.

It doesn't surprise me even at this early age that real life classes would have a huge impact for those going out into the world on their own for the first time (^_^)

100 Best Values in Public Colleges

2007-01-17T23:16:00.000-08:00

Kiplinger's Financial Magazine has put together the 100 best values in public colleges which is worth taking a look at. Part of learning about finances is getting a good value for the money you spend. While many people don't think much about this when it comes to college, it can mean the difference between leaving college with no debt or a lot of debt.

New Animation Series Teaches Kids About Money

2006-12-03T10:33:00.000-08:00

I'm always happy when I hear about projects to help kids learn to save:

The animated series, titled "Big Time Saver," extols the virtues of prudent money management, including saving for the future - "Don't spend it all ... on sneakers and bling" - establishing a healthy credit record - "Payin' my debt, it's my rep" - and creating a college fund - "All kids of every nation, make a cash donation to your sure foundation, your college education."

The video and two others featuring the popular cartoon characters will debut this week nationally on the Black Family Channel during the children's morning programming.

Post College Personal Finance Crash Course

2006-12-01T22:06:00.000-08:00

While I'm getting ahead of the game and getting my college savings in order, not all are that prepared. For those who didn't prepare and end up with debt coming out of college, here are a few tips to help you that are sound money advice post graduation:

Participate In The Company 401k Plan

Consolidate Your Loans

Be Selective About Which Debt You Pay Off First

Pay Bills On Time

Establish A Health Care Plan

Identify Your Goals

Develop Good Spending Habits

Pay Students To Take College Classes

2006-11-18T19:24:00.000-08:00

Here is an interesting idea: Pay high school students to take college level classes. That is the proposal of the Minnesota Private College Council which is proposing the state spend $100 million over two years to give high school students incentives to take college prep courses. Student would be able to earn up to $5,000 in scholarship money under the proposed program.

I'm all for any program that can help people afford the cost of college. I"m interested to see if this will help students better prepare for college and I'd like to see what type of results a program like this might bring.

41 Tips To Help A Student Get "A" Grades

2006-11-14T13:49:00.000-08:00

While getting my finances in order so that I can pay for college is important, getting good grades and enjoying my studies will also be on the top of my list. I came across this good list of 41 Tips To Help A Student Get "A" Grades. Here are a few of them that I liked:

5. A useful measure to recall the material you have read is to get another person to ask you questions or alternatively ask yourself questions about the material you have read. i.e. What is the main assessment criteria?

14. Try to develop the skills of listening for the important word cues that illustrate or reveal the teacher/speaker’s emphasis. These include words like most important, on the other hand, in addition to etc.

36. It is advisable to try to schedule work or study that demands high levels of concentration, such as taking notes on a specific text in 50 minute time periods. Then have a short break.

State Versus Private: Which Is The Better Buy

2006-10-27T11:50:00.000-07:00

The decision on whether to go to a state or private college is still quite a ways off for me, but the finances involved make for a big decision. Since I'm planning to have all my college funding saved by the time I turn 18, if I choose to go to a college that is less expensive, I will have money left over to begin my life once out of college. I will have to seriously weight the benefits of both options to see what is best.

I started thinking about this from an article in the Philadelphia Inquirer:

Sending a child to a prestigious school is a real accomplishment. But lots of happy and successful people have come out of the state schools. At less than one-third the cost, maybe they're a better buy.

Free Teens and Money Kit

2006-10-27T10:44:00.000-07:00

Talking with my uncle (okay, it really isn't talking yet, but I am blurting out words now and then), I realized that not all kids are lucky enough to have banks in their area or museums to help them learn money skills. If that is the case, you can get some help from the government. The Federal Citizen Information Center offers a free "Teens and Money" package to help teens learn about important money information:

The older your children get, the more they have to deal with real-world challenges like saving money, getting car insurance, and managing credit cards. Help them get ready for adult life with the Teens and Money package.

Order Your Free Package Here

Money Museum Field Trip

2006-10-27T09:58:00.000-07:00

It is not only at the bank where kids like me can learn about how money works. The Children’s Museum of Cleveland (CMC) is launching a new financial literacy school field-trip program to introduce first and second grade school children key money management lessons. CMC’s “Money, My Community and Me” program will also be offered to museum visitors and CMC members as part of its family learning initiative. “Money, My Community and Me” is aimed at helping Cleveland-area students begin to grasp the concepts of financial literacy, budgeting and saving.

According to a A.G. Edwards survey, only about one in four U.S. children (27 percent) have learned about saving and investing through their schools. In addition, more than half of U.S. parents with children in the home have not discussed saving or investing with their children.

The museum field trip will teach:

The basics of earning money as a “member of the community”

How to make choices about spending and saving, through the use of play money and a trip through the “Bridges to Our Community” permanent exhibit area that consists of a bank, grocery store, gas station, bus, hospital and home.

The impact of their spending and saving choices on both immediate purchases and long-term financial goals

The program at the Children’s Museum of Cleveland is also being set up at 17 children’s museums across the country which I hope will help other younf kids like me learn more about money at a young age.

Banking Skills At A Young Age

2006-10-27T09:52:00.000-07:00

I think it's always good when children are encouraged to learn about money, saving and interest. The earlier the better. I have been happy to read about more banks setting up programs for children like this one mentioned in The Signal:

Hundreds of children throughout the Santa Clarita Valley have been getting hands-on practice saving money through a community youth project run by parents through local schools.

Elementary students are able to open an account for only 25 cents through Washington Mutual's School Savings program, and every other deposit - no matter how small - earns a prize.

It would be great to see all communities set up similar programs with banks in their area...

Parents Under Estimating College Aid Their Kids Will Get

2006-10-15T22:11:00.000-07:00

My uncle just read to me about a new study which says that parents are under-estimating the amount of aid their kids will qualify for when they attend college. According to an article at chron.com:

The study found that 87 percent of parents believe scholarships and grants will cover at least part of their children's undergraduate expenses, and nearly three-quarters think their children are "special or unique" enough to win a scholarship.

Financial aid administrators said 92 percent of parents overestimate the amount of scholarship money their children will receive...

This is another reason it pays to start saving for college early. While I will try and get all the aid and scholarships that I can to help pay for college, i want these to supplement what I have saved so I can choose the best way to pay for the education. I'm learning early that getting organized early and saving opens up a lot of opportunities and will give me much more flexibility when it comes to my college education. I hope everyone reading takes the same steps...

Net Worth Update - September 2006

2006-10-01T12:04:00.000-07:00

I finally settled on what to do with all the money that was sitting in cash. I moved $2600.00 to a S&P 500 Index Fund Account for the time being. It isn't in a 529 plan for the time being because we aren't sure what state we will be living in and I can't receive any tax benefits from it for now. We will address that issue when I know where in the US I'll be staying. Another issue is that I have heard that the grandparents have also started college funds and if this is the case, it might be better to have this money not have to go toward education.

There was a bit of change in the numbers of my ING account. The one that I had been using has been taken over by my mom to use for other saving purposes for me and I am now using the one with my uncle. That means the balance has decreased a bit, but the difference went into my cash account.

As noted in the post before, my blog is now generating just over $200 a month in advertising. That will grow my income by 4%+ per month for the near future which I think is an excellent pace. I'm still considering with my uncle other possible ways to generate some money to pad my account a bit more.

I'm still on a good track and hope to continue along as I have been.

Step By Step Plan To Finance College For Any Baby

2006-09-28T03:27:00.000-07:00

I have been hearing a lot about the cost of college and the amount of debt that students are graduating from school with and how this is affecting their finances throughout life. What I find is amazing is that anyone reading this can follow my plan and have their entire college education paid for (or at least a huge portion of it) with very little time or effort. This is my simple plan that has been working wonderfully for me and I believe can work for anyone to create a nice college nest egg by the time you're eighteen years old.

This month I will make over $200 in advertising and I expect to continue to earn that much for the foreseeable future (and in fact believe it will grow as time goes on). Even if it doesn't increase any more, nobody gives another college funding gift to me and I don't earn a cent of interest in the next 17 years, I'll still have about $45,000 for college when it's time for me to go. With interest, increased earnings and gifts from family and friends, I expect to have well over $100,000. The great thing is that anyone of you can have it too if you do the following simple steps:

As soon as you know you're going to exist in this world, start a blog (I consider myself a late starter at 4 months). This doesn't cost a penny if you do like have done and begin the blog on a free service. For long term, you might want to consider getting your own domain (something that I'm considering at the moment), but this is certainly not necessary at the beginning.

Choose a topic to blog about in addition to being a baby. The topic should be one that both you and the person that will be helping you (you may need a bit of help until you get your hand / eye / typing coordination down) enjoy so that the blog will be updated on a fairly regular basis. Then simply start blogging about you and get your opinion out into the blogoshere.

Once the blog is set up, take some time to place ads such a google adsense on your blog. Earmark any money earned through this advertisement medium to go directly toward your college fund. Also set up an area in your sidebar where you can sell advertising text links to advertisers.

Find blogs that you enjoy reading and that have a similar topic to yours and trade links with them if possible. This will help people know that your blog exists and help it get better indexed in search engines.

These are the basics to getting your blog off the ground and putting in place a system where you can begin to earn a fair amount in advertising that will go toward your college fund. It is also a wonderful place to update family and friends on what you're up to and the things you're thinking about.

In addition to setting up the blog to help with college expenses, I would also highly recommend taking the following steps to help increase your college fund even more.

Tell all family and friends that what you really want for special occasions such as birthdays and at Christmas is a small monetary donation for your college fund.

As you outgrow your baby things, have your parents sell them through Craigslist or on eBay and have all earnings from them go toward your college fund.

Sign up for programs like Upromise that will give you free money toward your college education for everyday purchases you make.

Take advantage of all the free and discounted things that manufacturers give to babies and place the savings into your college fund.

The Value Of Money - Museum Program

2006-09-20T00:29:00.000-07:00

I always get a smile on my face (and clap my hands - I'm really into clapping my hands at the moment) when I hear about programs that help to teach children more about money. What could be better than a museum that set up a program specifically to teach children about the value of money:

As part of the "A.G. Edwards - The Value of Money" field trip, grade- school children will learn valuable lessons about money in a fun environment, as well as key money management lessons, including:

How to add coin and dollar values and make change in a game of "What's My Change?"
How to budget, be a wise shopper and manage money through everyday math skills
How to gain insight on basic saving and investing principles
How to write a check

Wouldn't it be great if all museums would set up similar programs for kids to go see and learn?

Coverdell Education Saving Account Changes

2006-09-17T23:29:00.000-07:00

I mentioned earlier that 529 plans had their federal tax deduction permanently extended which nice since it helped those investing in 529 plans to feel more comfortable and not have to worry that these deductions would expire. Unfortunately, the rule changes for education accounts aren't always positive.

For those that have Coverdell Education Saving Accounts, one of the nice advantages is that the money in the accounts can be used for private elementary and high school expenses. Beginning in 2011, this will no longer be the case. Coverdell funds will no longer be able to be used for elementary or high school tuition or related expenses. The money invested in Coverdell saving accounts will still be able to be used for college.

Those who were planning to use their Coverdell account to help with private primary education will need to figure out a new strategy. If you choose to use the Coverdell funds for the private primary education from 2011, the money will lose its tax-free withdrawal status on the earnings and a 10% penalty will be imposed.

More States Offering 529 Tax Breaks

2006-09-13T22:41:00.000-07:00

For may of us young ones, there is more good news regarding 529 plans - more and more states are giving tax deductions to these saving devices as shown in this usatoday article:

Pennsylvania, Maine and Kansas have approved such tax breaks, and a handful of other states are considering similar measures. Previously, these states offered either no tax deduction or a deduction only if a resident contributed to the state's own 529 plan.

But for all my peers living in states that don't currently have, or are planning, state tax breaks, don't get your hopes up. There is a significant tax income loss when the breaks are given that will keep a number of states from offering them.

Little Grad Apology

2006-09-09T01:50:00.000-07:00

I received an apology from Little Grad for spamming this blog which makes me feel a little better about the company. Little Grad is a company like Upromise where you can get cash placed into a college savings plan by purchasing items through retailers that are affiliated with them.

When I first began writing here, I kept getting post from them telling me how great their site was and how I should check it out. The first one was fine, but when I started to get more saying basically the same thing and always a link for me to check them out, I decided it was spam and started deleting them. It got so bad that I had to put the function in where I must approve all ads before I let them get posted now.

I do give them credit for their honesty and that they have stopped encouraging their employees and users from doing so. here is what I received:

Dear Financial Baby Steps,

A friend sent me your post where you expressed being upset at Little Grad for spamming your site with overly zealous/inappropriate endorsements.

I'm sorry this happened. Just to briefly explain why it did; when the company was new, we encouraged new employees and some of our more enthusiastic users to spread the words. (I myself posted once, as I think your site is delightful.)

We've since asked employees and friends to curtail this practice. I wish you continued good fortune on your blogging and other endeavors.

Suzy DeLine,
Little Grad

While it doesn't justify the spamming in the first place, it's nice that they admitted their wrongdoing and apologized...

529 Plans

2006-09-08T11:49:00.000-07:00

While I'm still not sure that a 529 plan is right for me, it is a good plan for a lot of people. One of the most difficult parts of it is trying to figure out the best plans. Savingforcollege has a ranking system for all the 529 plans giving them 1 (lowest) to 5 (highest) caps. This might be a good place to begin your research of 529 plans.

In other 529 plan news, many people were wary of them because the federal tax deduction was set to expire in 2010 and while most people felt that it would be renewed, there was always a chance that it wouldn't be. This is no longer a worry as the Pension Protection Act of 2006 makes the tax benefits for 529 plans permanent.