Tuesday, October 30, 2007

Include your kids!

When I talk to parents about including their kids in what’s going on financially with the household, I get one of three responses:
1) I’m the parent, they’re the child. Money matters is a grown up issue and kids shouldn’t be involved.
2) Why would I want to burden my child with that kind of stress?
3) If I told my kids about the bills we have, they would say it wasn’t their problem as they weren’t the ones to make the decisions about what to buy!

Kids can handle more than you think. People tend to believe that managing money is something you’ll just figure out how to do when you become an adult. But we do nothing to prepare kids for this responsibility as they grow. Don’t let your belief that kids are too immature to handle this kind of information keep them in the dark. They must be prepared for managing money, and the best way to learn that is through their parents.

Stress is a choice. We work so hard to protect and shelter our kids from the trials of life, that we think this is benefiting them some how. Managing money can be a stressful experience, but it’s a necessary life skill. Show your kids how you handle a stressful money situation so they can be prepared to do the same as they get older.

Bring in the mail. The best way to get your kids involved with understanding household finances is to have them bring in the mail. That’s it. Choose the most irresponsible child you have, and make it their new chore to bring in the mail everyday. It’s their job to sort through it and identify the junk. Create a list of expected bills and give that to your child. Have your child check off each bill as it’s received, and keep them all together in a file. When all are received, have him or her bring the file to you so you can pay the bills.

Kids need to see what actually goes on financially to run a household. Let them see that maxed out Visa bill. Show them what bills didn’t get paid because you had to repair the water-heater. Give them an understanding of managing all the paperwork involved with paying bills. This is invaluable life skills that they’ll need in the next few years.

And for the parent that says, “my child would never be responsible enough to manage this task.” I say to you, if they can’t handle this task at the age of 16, how do you expect them to handle it at 23?

Wednesday, September 26, 2007

Paying Bills is not a Money Issue

Paying bills is a task that most people will have to handle sometime in their life. However, the assumption has become that the task is simple, and requires no preparation, training, or even discussion.

In today’s society, the belief is that paying or not paying bills is a money issue. “People who don’t pay their bills, must not have any money, right?” Don’t fall into believing this myth. You’d be surprised how many people with money can’t get their bills paid on time.

Paying bills can be complicated – paying bills has become a more complex task than it was for our parents. With on-line banking, automatic deduction, and debit cards there are many ways to pay bills. Do you understand the rules involved with all these methods?

More bills at a younger age – Years ago, people didn’t have bills until they got married and moved into a house. Nowadays young adults can have a mailbox full of bills before they move out of their parent’s home. Phone bills, car payments, auto insurance, credit cards, student loans, and more. There’s a lot more to manage, and young minds aren’t always prepared for that responsibility.

Banks and credit card companies – yes, these institutions can be a big part of the problem. Companies have caught on that big money can be made from loans - especially the high-risk kind. Banks are more willing to give credit cards and make loans than ever before. The interest rates and fees involved ensure that anyone who doesn’t stay on top of paying their bills can really pay a price.

Paying bills is not a money issue, it's an organizational issue. Staying organized so your bills get paid is a skill that actually needs to be taught.

Friday, August 24, 2007

What should I teach my kids?

This question is what most parents should be asking themselves about personal finance, because the truth is, their kids most likely are not going to learn it in school.

Many parents feel that if they teach their kids to save and they make sure their kids don’t spend too much money, they’ll be okay. Don’t assume that if your kids get a good education, and then a good job and a good salary, they’ll understand how to manage their money. Financial literacy is more than the accumulation of money.
So what are some ways parents can teach kids financial literacy?

Keep your kids on an allowance! Every time I talk to a group of kids I ask how many of them are on an allowance, and very few raise their hands. We’ve moved away from this very informing practice! Kids need to be kept on an allowance, because it teaches them how to budget their money.

If your child is over the age of 12 (and in many cases, even younger), you’re probably giving them money for various activities daily. Figure out how much they spend on a weekly basis, and come up with a flat amount to give them as a weekly or monthly allowance. Let them be responsible for paying for their lunches and snacks, having money for mall trips, and paying for school related activities, like dances.

If they spend all their allowance on some new video game, and don’t have enough left to buy lunch at school, let them learn that they’ll have to pack a lunch or they won’t eat! Giving an allowance forces kids to think about their future (even a weekly future). They’ll have to plan for upcoming expenses and resist temptation to buy things they don’t need. They’ll also learn the benefit of not spending and saving for a big purchase in the future.

Do your kids spend a lot on the internet, downloading music, games, and screensavers? Do they run up phone bills text messaging friends? That should be part of their allowance as well. Don’t give them your credit card number. Pre-paid debit cards are a great tool to help your kids learn to control their spending in today’s cashless society.

Giving your child a certain amount every week on a pre-paid debit card is a great way to implement an allowance. You can buy pre-paid debit cards and phone cards in local drug stores like CVS. There are several pre-paid debit card programs designed just for teens. Many have great tools for parents to allow them to monitor their child’s spending and continually load money on the card. However, many charge fees for these services so read the fine print carefully.

Thursday, July 26, 2007

Teach this stuff in schools!

Why isn't Financial Literacy taught in today's school? This question has been plaguing me since I decided to create Start Money Smart. And many others are asking this same question. There are financial literacy web pages that generate great discussion on the topic. Many people really believe it should be a priority when educating our young people. So why hasn’t it happened? Why isn’t personal finance added to standard curriculums in American schools systems?

Well, I’ve done some research, and here’s what I’ve found…

1. Teens don’t need to know personal finance to go to college! Standard curriculums in schools are already filled with what kids are required to learn. Many schools will tell you there is no room for additional topics. Schools are under great pressure to generate students who are considered “educated”, which really means “prepared for college”. It doesn’t mean “prepared for life”. If it’s not on the MCAS test or an SAT exam, there’s not a lot of justification for teaching the topic in today’s public school system. And the truth is kids don’t need to know personal finance to go to college. However, they’re inundated with credit card applications when they arrive, and given no education on how to deal with them.

2. Our “money” world is changing too fast. If you’re old enough think back and remember what money was like thirty years ago. Credit cards and charge cards were only for the rich. A 25% interest rate on a credit card was considered loan-sharking. Did anyone ever hear of automatic deduction? What about twenty years ago? There were ATM cards, but no debit cards and no one did on-line banking. Okay, so ten years ago? Well, there were very few pre-paid debit cards, and kids were not running up their parent’s phone bill by texting their friends.
Our money world is changing too fast, and we haven’t been able to keep up with educating ourselves on how to handle it. So for those people who still think, it’s up to the parents to educate their kids on personal finance – I’ll argue that most parents don’t know what to teach their children. They haven’t learned the rules themselves yet.

3. We still believe more money will provide the knowledge. I believe our biggest problem with making a change to our educational system is getting over the idea that “If we just make more money, it’ll be okay.” Some of us are working so hard to educate our youth, and to what end? So they can go to good colleges, and get good jobs, and make good salaries. We still believe that if our kids make enough money, they’ll be okay. They’ll some how learn how to balance that checking account. They won’t buy things they can’t afford, because they’ll magically know how to create a budget for themselves. They’ll figure out taxes and what they need to do to pay their bills on time every month.

If we really want to make a difference in increasing financial literacy in America, we have to let go of the idea that being rich solves problems. In many cases it just creates the need for more education.

Monday, June 18, 2007

"Buy now, make no payments for…"

I was reading comments posted on a message board about whether financial literacy needed to be taught in our schools. One of the comments regarding debt was, “Just teach people that they shouldn’t spend what they don’t have.” That person went on to say, “It’s not brain surgery, is it?”

In today’s society there’s an underlying belief that people who get themselves into debt are either too lazy, too dumb, or too spoiled to understand how to stay out of debt. I believe many people are under the impression managing debt is really as simple as “don’t spend what you don’t have.”

Do you know what you have? Many of my clients have no idea how much money they have. There’s more to it than just looking at your annual salary. In fact, your income really tells you nothing about what you have. You have to look at your expenses. And many people don’t take out the time to calculate their expenses. We should all realize, it’s not what you make, it’s what you owe. Two people that both make $60K a year can have very different lifestyles based on their expenses.

Our whole culture is designed to encourage people to spend money you don’t have. Do you think the average American is going to wait until they have the money to buy a new washer and dryer when the old one breaks down? How many people can be convinced to wash their clothes in the sink until they’ve saved up enough to buy a new washer? “Buy now, and make no payments, pay no interest for 12 months!”

Debt doesn’t ruin lives, not managing debt does. This point may be arguable, but I firmly believe it. Being in debt is not causing all the problems with debt in our society. It’s the inability to manage debt that ruins many people. Now, I can believe that this statement can’t be applied across the board. There are many people out there, that don’t have sufficient income to pay their bills. But I’ll argue that even more go shopping when the stack of bills arrive because they can’t deal with the stress. Or people who can’t resist a new pair of shoes or paying the tab on Guy’s Night Out, even though they know they can’t afford it. Just one month of ignoring bills can rack up a huge amount in late fees and interest that could have helped people get out of debt. I’ve learned that stress, denial, and vanity keep people from managing their debt much more than lack of money.

Wednesday, May 16, 2007

Big salary = Big success ??

It's not what you make, it's what you owe! I realized this when I was in my early twenties. I was making about $8.50 an hour working for an insurance company as a Licensing Specialist. Among my crowd, this was considered a very good job and a pretty good salary. However, I couldn't make ends meet. So I went out and got a second job.

When a friend asked me about my salary at the insurance company, her comment was, "Why do you need to work the second job when you make such good money at the insurance company?" My response was, "Well, it's not what you make, it's what you owe?" My friend didn't ask about the amount of debt I was in, and how much money it took to pay my bills each month.

It's amazing how, in our society, we only focus on salaries when we think about financial success. If someone makes $100,000 a year, they must be very successful, right? However, what if that same person has two mortgages, makes payments on two cars, pays credit card bills, auto insurance, electricity, water, gas, cable, internet, telephone, commuting, food, supplies... How much extra do you think they have in their pocket on a Friday night? Don't be surprised if it's not much.

Conversely, someone making $10 an hour that has no debt, lives with their parents, and takes the T to work could have much more extra money to play with.

So what's the point? A big salary doesn't equal financial success. And someone who makes plenty of money is not necessarily going to have more to spend.

Friday, April 13, 2007

Men vs. Women vs. Money

Men understand money better than women - does anyone believe this anymore? We're in the 21st century. A woman is seriously being considered for President of the United States. Is there anyone around that still thinks women can't do everything men can do?

Absolutely. And even if you think you're not one of them, think again.

Men and women still play specific roles in our society. Men are strong - women are beautiful. Men provide children - women raise children. Men make the money - women spend the money. And even though we are flooded with examples of instances where women and men don't reflect these stereotypes - the underlying social assumption is still there. Within many cultures in this country, plenty of people still believe these things. And even if you don't, be prepared that your financial partner does.

Some people are relieved to get into a relationship with someone who makes the money - woman or man. The feeling is that if they make money, they know how to manage money. Since men still make more money than women in this country, most of the time it's the woman gladly stepping aside and letting her male partner handle the bills.

However, regardless of the gender it still takes two to make any relationship work - that includes a financial relationship. Managing your personal finances is not a gender issue.

Thursday, March 8, 2007

Smart people don't have money problems - HA!

An incredibly incorrect assumption made in our society is that people who have financial problems must be uneducated. However, most of my clients are very well educated and manage much responsibility, but they have problems getting bills paid on time every month.

What do you need to pay your bills? Enough money? Enough brains? Enough time? The truth is - all three! However, having money and brains can't do it alone. So many people I know don't allocate enough time to the task of managing their personal finances. In addition to assuming this is common sense, is the assumption that it's simple and will take a minimal amount of effort.
Many people don't want to spend a lot of time thinking about paying bills, so they put their energy elsewhere. The little consequences can really add up for some people. And intelligence has nothing to do with it.

True Story - A friend of mine was the personal assistant for a successful Investment Advisor. She had told me about how her boss had gone on a one week trip out of the country with his family to invest in a real estate opportunity. While he was gone he received the third notice on a $66 water bill he had been neglecting. His family returned on a Saturday morning to find that their water had been turned off. He called the Water Company who explained that they couldn't turn the water on until Monday morning. So on Monday my friend received instructions to drive the money to the Water Company and pay the delinquent bill. On the way, her boss's wife called her to find out how much longer before the water would get turned on. "This is ridiculous," she complained. "He's buying five million dollar condos, and I can't wash my hair!"

Don't make the assumption that sending your kids to a good college will teach them how to get their bills paid. Schools don't teach these topics and they are not common sense!

Wednesday, February 14, 2007

If I just had more money...

The basic assumption is if we just had more money, all our problems would go away. Many parents tell me, "I teach my kids to save their money," thinking that equals "They'll know how to pay their bills." But teaching someone to save is teaching them how to NOT spend money. Paying bills requires knowing how to spend your money, as well as knowing how banks work, how to manage a checking account, and how to be smart about credit cards.

We daydream about buying a new house, new cars, and being able to travel, not realizing the amount of money management that is still necessary with the luxurious lifestyle.
Someone with a high income who lives in a really expensive house can get overwhelmed with all the bills and paperwork involved with maintaining their personal finances just as easily as a person making a low income living in a modest apartment.

I went to visit a client at his home. He had three months of mail piled up on his desk. He said bill collectors call him regularly and he's been trying to stay on top of things, but it's out of control. I sat down and spent an hour and a half organizing his mail and making a list of his bills. When I got to his bank statement, I noticed he had $65,000 in his checking account. I asked him, why he hasn't paid his bills? His response was, "I don't even know what I owe. It takes up all my time just to manage my business!"

Managing your personal finances isn't about how to get more money, it's about managing the money you have.

Thursday, January 4, 2007

Oh, you're teaching Common Sense!

I'm in a local bookstore searching through the Personal Finance section. It's a rather large section so I stand there for a good 30 minutes scanning every book, trying to find one that will cover many of the items that my clients need help with. No luck. I find books on how to get rich quick (or slow), how to invest in the stock market, and how to save for retirement/college education. But these aren't the questions, we need answers to.

"What do I do right now if I don't have enough money to pay my bills?"

"Paying taxes, how does that work?"

"What does it mean to balance a checkbook? Do I need to?"

I have clients of all incomes and backgrounds, and these are the questions they don't ask, but need to.

Most people have to deal with basics of managing their personal finances, but we don't do anything to educate ourselves in these areas. It's assumed that our parents will teach us, or the information is so simple, that we'll just figure it out when we need to. As a result, we've created a whole generation of people who believe this information is common sense.

The more serious issue is that because we all believe this is common sense, we're not asking to be educated. And we, as a culture, have developed a real sense of embarrassment around this topic. If we write out a check incorrectly, or forget to pay the electric bill one month, we don't talk about it. We berate ourselves for not knowing better, and try to do better next time.

Education is the key.