Book review: Make Your Kid a Money Genius (even if you’re not)

October 16, 2017

Beth Kobliner, Simon & Schuster, New York, 2017.

about the author

Beth Kobliner is an authority on personal finance for youth as shown by her successful publications of a NY Times best-seller book (Get a Fiancial Life), staff writer for Money Magazine, and contributing author to national newspapers. She served on President Obama’s Advisory Council on Financial Capability for Young Americans.

In this book she offers financial advice for 6 age groups: pre-school, elementary school, middle school, high school, college, and young adult. Much of her advice is based on academic studies. It’s not a textbook for children.

relevant topics for children

Most parents will discuss any topic except money; yet parents are the principal influence on their kids’ financial behavior. Many of a child’s money habits are set by age 7. This book discribes useful ways (called “teachable moments”) for talking about money with children as they grow from age 3 to young adult. Here are the author’s general comments about relevant topics for all ages:

TRUST: Parents need to build the trust of their pre-school children by following through on parental promises.
PATIENCE: Some children are impulsive, others are patient. Patient people tend to save more money! Pre-schoolers can be taught to wait for things.
CHARITY: Raise a generous child. Sharing time and money allows children to feel grateful for what they have. They are ready to show kindness by age 4. Elementary school children begin to understand the needs of others. Teen volunteers can engage in community service for their school and community. Most college students won’t have spare money, but they can donate their time. It allows them to explore the nonprofit world. Parents should honor their child’s charitable work with the same committment as other achievements in life; but, don’t overpraise their charitable efforts.
ALLOWANCE: It doesn’t matter if you give your elementary school child an allowance, but if you do, don’t make household chores a pre-requisite for receiving the allowance, use the allowance to set spending rules, and give them control of their spending decisions.
WORK: Children need to do unpaid chores and do well in school. Advanced chores such as raking leaves and doing laundry are essential to raising a self-reliant child. Elementary school children want to earn money, in which case the parent decides whether or not to pay the child for special chores. Middle school children are able to earn money. Limit the high school student’s work week to 15 hours; school is more important.
DEBT: Start teaching the basic concepts of debt to pre-school children. Middle school children need to understand the minimum monthly payments of credit card debt and protect themselves from identity theft. High schoolers are interested in car loans and credit cards; prepare them for wise use of credit cards. Parents, don’t buy your child a car or cosign for a car loan! After college, adult children are likely to have student-loan debt, car debt, or credit card debt. Parents should neither dip into their own retirement savings nor cosign for a loan as ways of helping young adults manage debt!
SHOPPING: Children want to buy stuff without limits, so parents need to start setting spending limits on pre-school children and teach the concept of ‘living within your means’. Elementary school children how to avoid being victimized by advertising and peer pressure. Tweens should spend their own money, not their parents’. If a teen prefers to spend for personal items rather than save money, they should learn from mistaken purchases. The ‘money culture’ among college students with different incomes can produce embarassment, resentment, and other strong feelings. Emphasize that college-related expenses are essential and everything else is extra.
SAVING: Parents should not raid their child’s savings. Middle school children should have a supersafe account (e.g., savings account, money market account, or CD). High school students should save for college, it will boost their motivation. Young adults should have an emergency fund and make maximal 401K deposits.
INSURANCE: Insurance is necessary for financial protection against devastating expenses. Most bankruptcies result from unpaid medical bills. Teens should pay for their car insurance and minimize their insurance rate with a good driving record. College students must have health insurance for the rest of their lives.
INVESTING: Don’t postpone the habit of investing in stocks; it’s a good way to protect against inflation. Children should learn the fundamentals and start saving small amounts at a young age. When they are old enough to understand numbers and show an interest in how money ‘grows,’ provide them with numeric examples of compound interest. High schoolers should open a Roth IRA to begin growing money.
COLLEGE: Attending college is the best pathway to earning higher wages compared to entering the workforce with a high school diploma. Middle school is the time to start talking about college and high school is the time to prepare for the college admissions process. High schoolers are advised to save for college; their chores should give way to college prep and testing. Avoid large student loans by chosing a good, inexpensive college and doing a better search for grants and scholarships. There are 3 ways to save for college:

  1. 529 Savings Plan. the earnings are tax-free for educational purposes and there is no income cap for donations. If your child rejects the plan’s participating schools, then rollover the savings to another education account, change the beneficiary to another child, or withdraw the savings with penalties.
  2. Coverdell Account. the earnings are tax-free for educational purposes, but the annual contribution is limited to $2,000 when a married couple earns less than $220,000 annually. The savings can be used for elementary school and high school educational purposes.
  3. Custodial accounts are available at banks and mutual funds. If the child’s earnings exceed $1,050, they are taxed at the child’s tax rate for the next $1,050, then at the parent’s tax rate for higher amounts until age 19 (age 24 for full time students). Colleges count the account balance as the child’s asset and expect 20% of the balance to go toward college expenses. That means less aid for the family.

The college student’s priorities are studies, a paying job [working students feel more invested in their education!], and employment after college. Does your college graduate want to start a career or go to grad school? Parents, don’t jeopardize your financial security to pay for their grad school.

the author’s curriculum and activities for pre-school children

Curriculum

EXPLAIN PATIENCE.  Patience, trust, and generosity are personal traits that facilitate financial success; pre-school training should help develop those traits.  Impulse buying reduces funds for tomorrow’s purchase! Always consider tomorrow’s purchases before buying on impulse.
Teach your children to perservere. Explain that you can’t always get what you want! Advise them to be patient (‘self control’) and wait for something.

EXPLAIN WORK.  Instill a work ethic; chores are a part of life.  Explain how you work to earn money  Convey the idea that a job is a source of pride and dignity

EXPLAIN SHOPPING.  Explain that you have to pay for things in cash (money, check) or card (debit, credit); the credit card is one way to pay (at the risk of incurring debt!).  Teach them to distrust advertising!   Explain how ads are produced with actors, scripts, colors, etc.  Explain the risks of materialism

DISCUSS CHARITY.  Be respectful of families with different levels of household income by explaining that “some people have plenty and others not enough”. Help bring your child closer to people of need by avoiding the terms “poor” and “rich” when discussing family wealth.
Worthy causes? Maybe your child needs guidance. What would they like to change in the world? Who would they like to help?

DESCRIBE THE HISTORY OF INSURANCE.  Ancient shipowners created a fund to pay for losses from shipwrecks. Their bookkeeper became the insurance company.

INTRODUCE INVESTING.  The basic concept of investing is to spend time and effort to produce something good (e.g., turning flour into bread).

Activities

PRACTICE PATIENCE.  Encourage them against skipping to the head of the line.  Discuss a communal effort (e.g., family savings pot) to save for a family reward (pizza, water park, etc.)

LEARN ABOUT WORK.  Perform household chores.  Discuss the jobs of people you know.

DISCUSS CHARITY.  Consider these charities: heifer.org , nokidhungry.org , kaboom.org , nature.org , pencilsofpromise.org , donorschoose.org.

general goals after pre-school

ELEMENTARY SCHOOL. Continue the development of personal traits by adding an adult perspective on respect for other people. School children need to start managing their money and protecting it. They are vulnerable to harmful attack from many directions, including identity theft from their online accounts. Give parental guidance.

MIDDLE SCHOOL. Tweens are vulnerable to marketing campaigns, overspending, and credit card debt. Give parental guidance.

HIGH SCHOOL. Reduce the time spent on household chores. The teen’s main job is graduating from high school with a good education. Teen’s also need to prepare for higher education or entering the workforce. Give parental guidance.

conclusion

Kobliner’s book contains credible advice for the homeshooling of children in financial matters. There is much more information in her book than I’ve been able to summarize in this article. Be sure to visit her web site, “Money as You Grow”, for additional help and perspective (https://www.consumerfinance.gov/consumer-tools/money-as-you-grow/.


Hey Kids, money is important

April 16, 2014

Three reasons for liking money: The best is that it buys things you want at today’s prices. Another reason is that it will buy things in the future. And the third reason is that it represents the trading value of goods and services (1).

Risk

Most people aren’t given a lot of money. They have to earn it and invest it to get rich. They also have to protect it against ‘risk’. Think of risk as your chances of losing money. Here are some easy ways of losing money:

  1. Theft. People may steal your money unless you put it in the bank and keep your bank account’s password a secret.
  2. Overspending. Save money for things that you will need in the future. Otherwise, you are spending too much money. Another way of overspending is to borrow money to buy things that you don’t really need. The best way to avoid overspending is to plan a budget.
  3. Debt. Using a credit card or taking a loan are two different ways of borrowing money from somebody called a lender. Before borrowing the money, you must sign a contract that requires you to repay the lender on time with an extra amount of money called interest. All of the money that you owe is called debt and refusal to repay the lender may eventually prevent you from buying things. Don’t borrow money unless you need it for an important reason (such as education) and use a budget to manage your debt.
  4. Unemployment. Unemployment occurs when people can’t work for money. Avoid unemployment by getting a good education and learning good skills. Don’t drop out of high school before graduation.
  5. Disasters. Accidents, illnesses, wars, and severe weather conditions are disasters that require a lot of money to survive the damage. Adults can buy insurance that will help pay for illness, injuries, and property damage.
  6. Inflation reduces the purchasing power of money.
  7. Citizens are required to pay taxes on the money they earn.

Inflation

Money’s ability to pay for things is called purchasing power. It’s no secret that the purchasing power of money changes over time. Today the price of a Big Mac™ hamburger is nearly five dollars. But 50 years ago, the price of a Big Mac™ hamburger was only 45 cents. What happened over 50 years? The prices of most things went up, including the price of hamburgers. The increase in prices over time is called ‘inflation’.

You can be sure that today’s money will buy less in the future due to inflation. The best way to protect against the effects of inflation is to start investing money as soon as possible.

Investing money

Think of  ‘investing’ as a good way of using money to earn more money. The money that you earn is called a profit or a return. Investing is a lifetime skill worth learning now.

The risk of investing is that you will lose money. If you don’t want to risk losing money, invest in U.S. Government Bonds. The government always repays your money plus a type of return called interest.

Stocks are risky investments that often pay a higher return than U.S. Government Bonds. When you buy shares of a good stock, you must sell them at a higher price to earn the type of return called a capital gain. Try to avoid losing money by selling the shares at a lower price than you paid; that kind of loss is called a capital loss. The longer you wait to sell shares, the better your chance of selling them at a higher price. Some good stocks also pay small amounts of cash called dividends.

Investors who don’t have the time or interest in selecting a good stock can earn the average return from a large group of stocks by purchasing shares of a stock index fund. Investing in a good stock index fund is less risky than investing in a good stock.

Taxes

Investors must pay part of their returns to the Government by paying taxes. Employees are able to pay lower taxes on their returns by investing in tax-deferred and tax-free retirement accounts. If you earn wages as an employee, you may be able to invest in tax-deferred accounts known as the traditional individual retirement account [IRA] and the employer sponsored 401(k) account. Tax-deferred accounts protect you from paying taxes on returns until you start withdrawing money after retirement. You may also be able to invest in tax-free accounts known as the Roth IRA and the Roth 401(k). After you pay regular taxes on your wages, you never pay taxes on money that you withdraw after retirement. Employers, tax advisers, and librarians can provide information that you need to know before using these important retirement accounts.

Making the most of your money

Click into this money management website to get good advice on managing and growing your money.

Copyright © 2014 Douglas R. Knight

References

1. Free exchange. Money from nothing. The Economist, 3/15/2014.


Financial literacy

April 15, 2014

Many U.S. citizens are financially ‘illiterate’ with respect to knowing how to manage and invest money.  Two thirds of U.S. adults don’t use a budget for personal expenses and one third don’t save their money. Only 17 of the 50 U.S. States require schools to teach personal finance in grades K-12 (1, 2).

online resources for youth

MyMoney.gov

links to resources for parents and educators

Council for Economic Education

Jump$tart Coalition for Personal Financial Literacy 

Federal Deposit Insurance Corp.

 

References

1.  Kurt Ludlow, “Americans financially illiterate, poll finds”.  The Columbus Dispatch, pages D1,D6, 4/13/2014.

2.  2014 Financial Literacy Survey.  reported in March, 2014, by the Harris Poll on behalf of the National Foundation for Credit Counseling.


Youth investment clubs

April 8, 2014

Investment clubs are broadly designed to educate members and facilitate their investment activities (1). Among the types of youth clubs are family investment clubs, which allow children and teens to be members, and student investment clubs, which restrict the membership to students (2). Adult clubs generally invest in securities, real estate, private business, or a combination of these investments (3).

Student investment clubs primarily function as learning laboratories for investing in stocks (4-9), running a business (10,11), or understanding finance (11-13). Participation in any of these activities is almost certain to improve students’ investment and money-management skills. Student clubs generally provide simulation games or trading experience.

Simulation games

Stock market simulation games with pretend investment portfolios are especially suited to school clubs of all ages (8,12). Community organizations also sponsor investment clubs, business training, and money management training (6,7). Students of all ages can also participate in online club activities offered by the Future Investors Clubs of America (FICA) (13). The Secret Millionaires Club (10) is an online club that trains young entrepreneurs in the ways of running a business.

Trading experience

Participants in market simulation games may wish to apply their research to buying securities in a personal custodial account (14-16). Some high school (5,8,9) and college (4) clubs purchase securities with real money. When real money clubs are funded by private donors, the profits are retained by the club and may be used for charitable causes (9). When real money clubs are funded by the members, the legal structure is based on custodial accounts for minors (2,14,15) and the tax structure is based on the “kiddie tax” (14). Children at least 14 years of age are required to pay taxes on unearned income over $650 (14). One concern about real money investment clubs is that they teach youth to “trade”, not to “invest” (readers’ comments to Ref. 8).

References

1. Investment clubs and the SEC. U.S. Securities and Exchange Commission. http://www.sec.gov/investor/pubs/invclub.htm

2. Douglas Gerlach, Can Kids Join an Investment Club?
http://www.douglasgerlach.com/clubs/askdoug/kids_and_clubs.html

3. Investment club. http://en.wikipedia.org/wiki/Investment_club .

4. Syracuse University Investment Club, http://www.suinvestmentclub.com/ .

5. Charity student investment project, Grossmont High School. http://grossmont.guhsd.net/index.php/student-organizations/165-student-investment-club

6. Literacy Institute for Financial Enrichment (LIFE). http://www.financialenrichment.org/yip.shtml

7. Teen Investment Club, Indianapolis Jewish Community Center (JCC). http://www.jccindy.org/page.aspx?id=170436

8. Hibah Yousuf, School gives 16-year-olds $100,000 to invest. CNN Money, June 13, 2013. © 2014 Cable News Network, http://money.cnn.com/2013/06/13/investing/high-school-investing-club/

9. David Brancaccio, At a Texas private school, the investment club actually invests. August 27, 2013. Marketplace® Morning Report. http://www.marketplace.org/topics/economy/texas-private-school-investment-club-actually-invests .

10. Secret Millionaires Club, ©2010 A Squared Entertainment LLC. http://smckids.com/episodes/.

11. © Junior Achievement USA®. https://www.juniorachievement.org/web/ja-usa/home

12. The Forsyth Country Day School Investment Club. http://www.fcds.org/academic/upper/upper_school_clubs.asp

13. Future Investors Clubs of America (FICA). http://www.futureinvestorsclub.com/index-programs.cfm

14. Brenda Watson Newmann, 401Kafe.com: Getting Kids Interested in Interest and Investing! Infoplease.com, Copyright © 1996 – 2000 mPower. http://www.infoplease.com/finance/commentary/feature/feature_3kids.html.

15. Gail Sessoms, How to start kids investment. eHow. http://www.ehow.com/how_5088565_start-kids-investment.html

16. Investment clubs for teens. © 1995 – 2014 The Motley Fool. http://www.fool.com/search/solr.aspx?exchange-input=&q=investment+clubs+for+teens&source=ignsittn0000001




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