Talking to your kids about an economic crisis

by Elisabeth Donati | May 12, 2008 | Financial Literacy Articles for Parents, Uncategorized

Article Overview

We’ve been getting a lot of calls and inquiries from those of you with kids and grand kids about what’s going on in our world right now. People want to know how to talk to
their kids about what is happening with our financial situation.

The younger they are, the less I suggest you tell them in terms of specifics. They need to be reassured that everything in life is cyclical and that nature has a tendency to work things out in the end. This situation is no different (if we’d just let it work itself out, that is). Show them graphs of how the stock market has gone up and down over time. Do a Google search for stock market history and learn how it works together.

dThe older they are, the more they are looking for facts, figures, what to think, how to feel or respond to all the news they are reading and all the chatter they are hearing from so many sources it’s hard to keep track. As I’ve said many times, I find it best to ask them how they are feeling, what they are seeing, what they think about what’s going on. Have a conversation with them and do your best to keep from having a one-sided lecture on the ‘crisis’ at hand.

My take on the whole thing is not as alarming as most people’s. I have learned that the less I ‘react’ to any given situation, the more educated and rational the decisions and choices I make. I believe this situation is no different.

This morning, mcnbc posted an article entitled: Financial fears trickle down to kids, written by Melissa Schorr.  I encourage you to read the article to see what others are suggesting and then do what feels right for you and your family.

My last suggestion is to turn OFF that Boob Tube! What we focus on expands and the more we listen to how awful it is, the more awful we are going to feel about it. Use this time instead to have conversations with your kids about how they can earn money, how they can save and invest it, talk about business ideas they may have, help them write up a little business plan, etc. I can guarantee it’s a far better use
of your time. Who knows, perhaps the whole family, working together, will come up with a great internet business idea, make tons of money and be able to help others around them that aren’t quite so fortunate.

And I have to end with suggesting that my book, The Ultimate Allowance, will give you all kinds of tips, trick and information on how to create money savvy kids out of those beautiful youngsters of yours!

Lots of Financial Literacy Statistics to Ponder

by Elisabeth Donati | Apr 12, 2008 | Financial Literacy Articles for Parents, Uncategorized

Attorney Advice…No Charge

What Parents are Saying

• 56% of parents believe high school graduates are totally unprepared to manage their personal finances responsibly.
• Only 30% of parents said their child’s high school offered a course on practical money skills.
• 78% of parents said their high school student does not have a budget.
• 57% of parents put no restrictions on how their child can spend the money they are given.
• Over half of the parents surveyed, 62%, require their teens to save at least some of what they earn.
• Out of parents surveyed, 53% said their children generally spend the money they earn on food and entertainment.
• Only 37% of parents said their family will have an itemized back-to-school budget, 61% will not.

American Teenagers:

• As a cohort spent over $172 billion in 2001, equal to Mexico’s yearly exports. (1)
• Average expenditures: $104/ week; $5,408/year (1)
• Teens surveyed by Teenage Research Unlimited reported spending 98% of their money, rather than saving it. (1)
• Children’s spending has roughly doubled every ten years for the past three decades, and tripled in the 1990s. (23)
• More than 1 in 5 youths ages 12 to 19 have their own credit cards or have access to parents’ credit cards, and 14% have debit cards. (1)
• 40% of students are likely to buy a pair of jeans (or something similar) they really want even if they do not have the money to pay for it. 22% percent would pay for it with a credit card. (2)
• One in three carry credit cards, even more have an ATM card(4)
• High School graduates stand to earn over $1 million in adulthood-without adjusting for inflation (5)
• Nearly half of all high school students nationwide have a part time job (16)
• Of the 4,000 students who took the Jump$tart personal finance survey in 2002, 68.1% received failing scores. (21)
• 50% of high school graduates do not go to college and enter the workplace directly. (20)
• By 2004, people from 16 to 22 will comprise the majority of online shoppers despite the fact that they are ill-prepared to manage their money.

American Families:

• Outstanding non-secured consumer debt rose from $805 billion in 1990 to $1.65 trillion in 2001. (13)
• 40% of Americans say they live beyond their means. (20)
• The personal savings rate as a percentage of GDP decreased from 7.5% in the early 80’s to 2.4% in 2002 During World War II, Americans were saving more than 24%. (12)
• The U.S. has the lowest personal savings rate of any major industrialized nation. (35)
• The percentage of income used for household debt (payments, including mortgages, credit cards, and student loans) rose to the highest level in more than a decade in 2001 and remained at 14% in 2002. (13)
• Approximately 10,000,000 Americans, the ‘unbanked,’ are not using mainstream, insured financial institutions. (36)
• Nearly 5% of consumers are late with their credit card payments. (14)
• 48% of credit card owners only pay their minimum monthly payment each month. (30)
• Credit card spending jumped 8.1% in the 1^st half of 2002.
• Average U.S. credit card debt per household is on the rise: from $2,985 in 1990 to $8,562 in 2002, with an average interest rate of 14.71%. (15), (27)
• More than half of American families are not saving enough to preserve their standard of living in retirement.
• Between 1983 and 1998, 2/3rds of the defined benefit or traditional pension plans in the US were terminated. (17)
• Half of all Americans are living paycheck to paycheck. (19)
• Christmas 2001 was the highest level of consumer debt in US history. (19)
• Median pre-tax household income fell by more than $900 from $43,162 in 2000 to $42,228 in 2001. Income dropped everywhere but the top. (19)
• More than half of American workers between the ages of 45 and 54 did not have any kind of retirement account in 1998. Data compiled in 2000 showed half of those in the 55 to 64 age range had balances of less than $33,000. (22)
• 66% of Americans don’t pay off their entire credit card bill each month. (25)
• 69% of Americans plan to work in their retirement years. (28)
• Life expectancy in the US recently reached a record high, with an average lifespan of 74.1 years for men and 79.5 years for women. (32)
• One in four women currently retires on an income below the poverty level. (33)
• Over the next 40 years, the number of women over 85 is expected to at least triple, with 3/4ths of this population single, divorced, or widowed. (33)
• There are nearly 7,000 mutual funds to choose from. (29)
• The net worth of the average middle-class American household after accounting for debt is less than $10,000. (31)
• 50.8% of college-age adults agree with this statement: “I have experienced repeated, unsuccessful attempts to control, cut back or stop excessive money use.” (34)
• 64.8% of college-age adults agree with this statement: I experience a mood change (high or low) just before or after a shopping event. (34)

College Students:

• Persons entering college are offered an average of 8 credit cards the first week of school.
• 55% of college students acquire their first credit card during their first year of college, and 83% of college students have at least one credit card. (11)
• 45% of college students are in credit card debt, the average credit card debt being $3,066. (11)
• Undergraduates students carry an average of three credit cards (6).
• Graduating students have an average of $20,402 in combined education loan and credit card balances. (6)
• 20% of graduating college students have $10,000 or more in non-school related credit card debt. (26)
• An increased number of college student borrowers feel more burdened by their education debt, with about 25% of the borrowers perceiving themselves as having significant problems (6)
• Students who came from low-income families (defined as Pell Grant recipients) report feeling more burdened by their debt than non-Pell recipients, when controlling for all other factors. This is a change from previous studies when there was no significant difference in attitudes between low-income and non-Pell recipients. (6)
• 28% of students with a credit card roll over debt each month (7)
• University administrators state that they lose more students to credit card debt than to academic failure (8)
• In 2001, the credit industry issued more than 5 billion solicitations to consumers, including college students. (18)
• Only 59% of college graduates agree that the benefits of incurring student loans are worth it overall. (6)
• Students double their average credit card debt-and triple the number of credit cards in their wallets-from the time they arrive on campus until graduation. (6)
• College students borrowed in the 90s what they borrowed in the 60s, 70s and 80s combined.
• Credit card companies usually offer credit limits to college students between $500 and $3000, with higher interest rates than nonstudents, between 18% and 20%. (25)

Bankruptcies, Defaults and Forclosures:

• The US has recently seen an over 50% increase in bankruptcies among people under age 25 (fastest growing age range for bankruptcies). Bankruptcy filings for this age group were at an all time high in 2000, numbering almost 150,000, which is a tenfold increase in just five years. (4)
• Non-business bankruptcy filings increased again in 2002 totaling 1,539,111. (9)
• Non-business bankruptcy filings accounted for the overwhelming majority (97.6%) of all bankruptcy cases filed in calendar year 2002. (9)
• Home forclosures in 2002 reached the highest rate in 30 years. (11)
• Mortgage delinquencies have surged to their highest level since 1992.
• More young adults filed for bankruptcy than graduated from college in 2001. (35)
• Financial Literacy Education
  • Only 21% of students between the ages of 16 and 22 say they have taken a personal finance course through school. (2)
  • Only 26% of 13 to 21 year olds reported their parents actively taught them how to manage money. (2)
  • Only 7% of parents say their child understands financial matters well (2)
  • 94% of students ages 16-22 say they are likely to turn to their parents as a financial information source (2)
  • 30% of youth report that their parents rarely or never discuss saving and investing with them. 47% say their parents rarely or never discuss household budgeting with them (2).
  • 61% of parents say that parents and schools should share the responsibility for teaching children about financial education (2).
  • Research has shown that as little as 10 hours of personal financial education positively affects students spending and savings habits. (10)
  • A Consumer Reports survey of 12-year-olds found that 28% didn’t know that credit cards are a form of borrowing, 40% didn’t know that banks charge interest on loans, 34% didn’t know that you can’t tell how good a product is by how much it’s advertised. (24)

  Adults & Parents:

  1. Nearly two-thirds of American adults and students didn’t know that in times of inflation money loses its value. (2)
  2. Half of the adults and almost two-thirds of the students didn’t know that the stock market provides a value for ordinary people to buy stock. (2)
  3. One quarter of American adults confused “budget deficit” with “national debt”. (2)
  4. Only a quarter of Americans feel very well informed about managing household finances. (4)
  5. Among parents with children five or older, only 26% feel well prepared to teach their kids about basic personal finances. (4)
  6. 80% of parents believed that schools provided classes on money management and budgeting. (8)
  7. The Financial Educational Survey done by Capital One found that: (9)
  • More than 70 percent of parents say they have spoken with their teens about credit and using credit cards wisely, while less than 44 percent of the teenaged children of those respondents say their parents have talked to them about credit cards.
  • 54 percent of parents rate their teenager’s knowledge about managing money as “good” or “excellent,” while an overwhelming 78 percent of the teenaged children of those respondents rated their knowledge as merely average or even poor.
  8. A research commissioned by Northwestern Mutual reveals the following: (11)
  • 43% of parents believe that schools should be doing more to teach kids about money.
  • Almost half of all parents say they don’t set a good example when it comes to handling their own money and are not capable of properly teaching their children.
  • 70% of parents say that most kids in the US today feel a sense of entitlement- that they just expect to have whatever it is they want whenever they want it.
  • 57% of parents say most kids do not understand the value of money.
  • 41% of parents say adults never learned how to manage money properly.
  • 22% of parents think most parents are incompetent or inadequate when it comes to teaching their kids about money.

  
  Students:

  1. The third annual back-to-school survey from Capital One found that: (10)
  • 87 percent of college students and 90 percent of high school students rely on their parents for financial guidance.
  • 98 percent of college students and 90 percent of high school students say they have learned about money management through their own experiences with money. Additionally, 53 percent of collegians and 43 percent of high school students claim to have learned something about money management through talking with friends.
  • 70 percent of college students surveyed say their parents have not given them tips or advice about spending wisely while shopping for school supplies.
  • Capital One’s survey found more than 70 percent of middle school and high school students say they perform odd jobs to earn extra money. Additionally 72 percent of college students have a regular full or part-time job.
  2. 64% of consumers ages 18 to 24 don’t even know the interest rates they pay on their credit cards. (13)
  3. In the Jump$tart Coalition survey, 25.7% of the students without any bank account scored lower (46.1%) than those who have a savings account (51.7%), a checking account (50.5%), and both savings and checking accounts (50.2%). (28)
  4. In the Jump$tart Coalition survey, only 26% of 13- to 21- year-olds reported that their parents actively taught them how to manage money. (28)

  
  Other:

  1. 98% of banks responding to this year’s Consumer Bankers Association’s survey said they sponsor financial literacy programs and/or support such efforts through partnerships. (14)
  2. The number of states with personal finance standards or guidelines drops from 40 states to 31 states from 2000 to 2002. (3)
  3. Only 4 states require students to complete a course that includes personal finance before graduating from high school in 2002. (3)
  4. In 2002, just 17 states that have personal finance standards require schools to implement these standards. (3)

  American Kids & Teenagers
  

  1. American children, teens and young adults earned about $211 billion in 2003, down from $231 billion in 2002. (22)
  2. In 2003, Teens spent $175 billion, averaging $103 per week. (6)
  3. In 2003, 8-to-14-years-olds, so-called “tweens”, spent $39 billion a year. (23)
  4. The average adolescent spends about $264 a month. (24)
  5. 11 % of teens 12-19 have their own credit card, an additional 10% have access to a parent’s credit card. (5)
  6. 16% of teens 12-19 have their own ATM cards, and 21 % have their own checking accounts. (5)
  7. Over one-third of the 2002 students surveyed have an ATM card. (28)
  8. Nearly 75% of students surveyed have a saving and/or checking account with a bank. (28)
  9. Children’s spending has roughly doubled every 10 years for the past three decades and tripled in the 1990s. Kids ages 4-12 spent 2.2 billion in 1968 and 4.2 billion in 1984. By 1994 the figure increased to 17.1 billion, and by 2002 their spending exceeded $40 billion. Kids’ direct buying power is expected to exceed 51.8 billion by 2006. (25)

  Undergraduate & Graduate Students
  

  1. A 2001 Credit Card Usage Analysis by Nellie Mae includes the following: (15)
  • 83% of undergraduate students have at least one credit card; a 24% increase since 1998.
  • Average credit card balance is $2,327; a 15% decrease from the 2000 average.
  • Median credit card balance is $1,770; a 43% increase above the median in 2000.
  • 21% of undergraduates who have cards, have high-level balances between $3,000 and $7,000; a 61% increase over the 2000 population.
  • Graduating students have an average of $20,402 in combined education loan and credit card balances.
  • Students residing in the Northeast use credit cards the least, while Midwesterners carry the highest average credit card balances.
  • Students double their average credit card debt – and triple the number of credit cards in their wallets – from the time they arrive on campus until graduation.
  • Although freshmen have the lowest rate of card possession among undergraduates, 54% carry a credit card. The percentage of students with at least one card increases to 92% in sophomore year.
  • Only 23% of freshmen, on the other hand, have a student loan.
  • Average number of credit cards per college student is 4.25. Forty-seven percent of students with credit cards have at least four cards, up from 32% in 2000 and 27% in 1998.
  • 6% of college students have more than $7,000 in credit card debt.
  2. Results of the 2002 National Student Loan survey by Nellie Mae include the following: (16)
  • Over 70% of students who borrow to pay for their higher education agree that student loans were very or extremely important in allowing them access to education after high school.
  • 58% of students said student loans were very or extremely important in allowing them to attend the college of their choice; and, of the students who attended graduate school, 72% said student loans were very or extremely important in allowing them to pursue graduate studies.
  • The average undergraduate debt is $18,900 in 2002, up 66% from $11,400 since 1997.
  • Those who attended privatefour-year colleges borrowed most (average $21,200/median $18,400), followed by those who attended public four-year colleges (average $17,100/median $16,200), next were those who attended vocational/technical school (average $15,000/median $11,900), and those borrowing the least attended public two-year institutions (average $8,700/median $7,700).
  • Students attending graduate school borrow, on average, an additional $31,700 beyond their undergraduate borrowing, an increase of 51% since 1997. The median debt level for graduate school borrowing is $23,700, an increase of 72% since 1997.
  • In 2002, the average monthly payment on undergraduate debt is $182, vs. $161 in 1997. This 13% increase in monthly payments is much lower than the 66% increase in undergraduate education debt.
  • In 2001, 4.7 million students borrowed an average of $3,500 under the subsidized Stafford Loan program, and 3.4 million (including some of the same students) borrowed an average of $4,100 in unsubsidized Stafford Loans.
  • 27% of the respondents report having used credit cards to help finance their education. This group had an average credit card balance of $3,400 when they finished school.
  • The typical (median) borrower devotes about 8% of monthly income to debt repayment, and only 6% of income to repaying undergraduate loans. The mean payment-to-income ratios of 11.6% for total debt and 9% for undergraduate debt are high enough to cause many borrowers to feel burdened by their obligations.
  3. About 45% of college students carry a credit debt of $3,066 on average. (21)
  4. 72 percent of college students have a regular full or part-time job. (10)
  5. Almost half of college students with credit cards have paid a fee for late payment, and 7% have had a credit card canceled because of late payments. (26)

  American Families
  General:

  1. Over 40% of families live off of 110% of their incomes. (27)
  2. Nearly six out of 10 Americans are racing to make changes in their financial situation so they’ll have enough income when they retire. (4)
  3. 85% of adults agree that young adults today lack the basic skills to successfully manage their finances, 49 percent say youth think they are more likely to become millionaires by staring in a reality TV series than by learning how to budget and save wisely and 75% of teens rely on their parents for personal finance information. (18)
  4. 60% of American adults are more likely to turn to family members for advice rather than a financial professional. (12)
  5. A greater understanding and familiarity with financial markets and institutions will lead to increased economic activity and growth. (21)

  
  Debt:

  1. The average credit card balance for the age between 45 and 64 is $6,094. (30)
  2. If you are between ages 45 and 64, chances are that you have twice as much debt as other Americans, not in this age bracket. (30)
  3. The average citizen is drowning in debt; and 75% of credit card holders have maxed out at least one credit card during the past year. (31)
  4. The percentage of income used for household debt payments, including mortgages, credit cards, and student loans, rose to the highest level in more than a decade in 2001 and remained above 13% in 2003. (21)
  5. It can takes decades to pay off a $3,000 credit card balance if you pay only the minimum each month. (13)

  
  Saving & Investment:

  1. Only 20% of Americans were very confident about making good investment decisions. (1)
  2. 23% of Americans do not save anything at all on a monthly basis for long-term goals such as retirement or a child’s education. (12)
  3. Personal savings as a percentage of personal income decreased from 7.5% in the early 1980s to 2.3% in the first 3 quarters of 2003. (21)
  4. Between 25,000,000 and 56,000,000 adults are unbanked, i.e., not using mainstream, insured financial institutions. (21)
  5. Americans on average had socked away only $40,000 in retirement savings and 25% of those surveyed had no retirement account at all. (20)
  6. More than half of American workers between the ages of 45 and 54 did not have any kind of retirement account in 1998. (32)

  
  Bankruptcies, Defaults and Foreclosures
  

  1. Nearly 500,000 people over age 50 were forced to file for personal bankruptcy in 2002. (29)
  2. Personal Bankruptcies were up 19% in 2002 over 2001. (2)
  3. The fastest growing group declaring bankruptcy is young adults age 20 to 24. (26)
  4. Consumer bankruptcy filings in 2003 hit a record of nearly 1.7 million, or an average of nearly one in every seven households over the past decade. The bad debt costs the average U.S. family more than $500 annually through higher consumer prices. (7)
  5. In just 20 years, from 1981-2001, the number of women filing petitions for bankruptcy increased 662%. (19)
  6. If the trend of increased bankruptcies continues, more than 5 million families with children will file for bankruptcy by the end of this decade. (17)
  7. More people this year will file for bankruptcy than will graduate from college. And more Americans will file for bankruptcy than divorce. (17)
  8. Personal Bankruptcies nearly doubled in the past decade. (21)

  
  Students:

  1. The third annual back-to-school survey from Capital One found that: (10)
  • 87 percent of college students and 90 percent of high school students rely on their parents for financial guidance.
  • 98 percent of college students and 90 percent of high school students say they have learned about money management through their own experiences with money. Additionally, 53 percent of collegians and 43 percent of high school students claim to have learned something about money management through talking with friends.
  • 70 percent of college students surveyed say their parents have not given them tips or advice about spending wisely while shopping for school supplies.
  • Capital One’s survey found more than 70 percent of middle school and high school students say they perform odd jobs to earn extra money. Additionally 72 percent of college students have a regular full or part-time job.
  2. 64% of consumers ages 18 to 24 don’t even know the interest rates they pay on their credit cards. (13)
  3. In the Jump$tart Coalition survey, 25.7% of the students without any bank account scored lower (46.1%) than those who have a savings account (51.7%), a checking account (50.5%), and both savings and checking accounts (50.2%). (28)
  4. In the Jump$tart Coalition survey, only 26% of 13- to 21- year-olds reported that their parents actively taught them how to manage money. (28)

  
  Other:

  1. 98% of banks responding to this year’s Consumer Bankers Association’s survey said they sponsor financial literacy programs and/or support such efforts through partnerships. (14)
  2. The number of states with personal finance standards or guidelines drops from 40 states to 31 states from 2000 to 2002. (3)
  3. Only 4 states require students to complete a course that includes personal finance before graduating from high school in 2002. (3)
  4. In 2002, just 17 states that have personal finance standards require schools to implement these standards. (3)

  American Kids & Teenagers
  

  1. American children, teens and young adults earned about $211 billion in 2003, down from $231 billion in 2002. (22)
  2. In 2003, Teens spent $175 billion, averaging $103 per week. (6)
  3. In 2003, 8-to-14-years-olds, so-called “tweens”, spent $39 billion a year. (23)
  4. The average adolescent spends about $264 a month. (24)
  5. 11 % of teens 12-19 have their own credit card, an additional 10% have access to a parent’s credit card. (5)
  6. 16% of teens 12-19 have their own ATM cards, and 21 % have their own checking accounts. (5)
  7. Over one-third of the 2002 students surveyed have an ATM card. (28)
  8. Nearly 75% of students surveyed have a saving and/or checking account with a bank. (28)
  9. Children’s spending has roughly doubled every 10 years for the past three decades and tripled in the 1990s. Kids ages 4-12 spent 2.2 billion in 1968 and 4.2 billion in 1984. By 1994 the figure increased to 17.1 billion, and by 2002 their spending exceeded $40 billion. Kids’ direct buying power is expected to exceed 51.8 billion by 2006. (25)

  Undergraduate & Graduate Students
  

  1. A 2001 Credit Card Usage Analysis by Nellie Mae includes the following: (15)
  • 83% of undergraduate students have at least one credit card; a 24% increase since 1998.
  • Average credit card balance is $2,327; a 15% decrease from the 2000 average.
  • Median credit card balance is $1,770; a 43% increase above the median in 2000.
  • 21% of undergraduates who have cards, have high-level balances between $3,000 and $7,000; a 61% increase over the 2000 population.
  • Graduating students have an average of $20,402 in combined education loan and credit card balances.
  • Students residing in the Northeast use credit cards the least, while Midwesterners carry the highest average credit card balances.
  • Students double their average credit card debt – and triple the number of credit cards in their wallets – from the time they arrive on campus until graduation.
  • Although freshmen have the lowest rate of card possession among undergraduates, 54% carry a credit card. The percentage of students with at least one card increases to 92% in sophomore year.
  • Only 23% of freshmen, on the other hand, have a student loan.
  • Average number of credit cards per college student is 4.25. Forty-seven percent of students with credit cards have at least four cards, up from 32% in 2000 and 27% in 1998.
  • 6% of college students have more than $7,000 in credit card debt.
  2. Results of the 2002 National Student Loan survey by Nellie Mae include the following: (16)
  • Over 70% of students who borrow to pay for their higher education agree that student loans were very or extremely important in allowing them access to education after high school.
  • 58% of students said student loans were very or extremely important in allowing them to attend the college of their choice; and, of the students who attended graduate school, 72% said student loans were very or extremely important in allowing them to pursue graduate studies.
  • The average undergraduate debt is $18,900 in 2002, up 66% from $11,400 since 1997.
  • Those who attended private four-year colleges borrowed most (average $21,200/median $18,400), followed by those who attended public four-year colleges (average $17,100/median $16,200), next were those who attended vocational/technical school (average $15,000/median $11,900), and those borrowing the least attended public two-year institutions (average $8,700/median $7,700).
  • Students attending graduate school borrow, on average, an additional $31,700 beyond their undergraduate borrowing, an increase of 51% since 1997. The median debt level for graduate school borrowing is $23,700, an increase of 72% since 1997.
  • In 2002, the average monthly payment on undergraduate debt is $182, vs. $161 in 1997. This 13% increase in monthly payments is much lower than the 66% increase in undergraduate education debt.
  • In 2001, 4.7 million students borrowed an average of $3,500 under the subsidized Stafford Loan program, and 3.4 million (including some of the same students) borrowed an average of $4,100 in unsubsidized Stafford Loans.
  • 27% of the respondents report having used credit cards to help finance their education. This group had an average credit card balance of $3,400 when they finished school.
  • The typical (median) borrower devotes about 8% of monthly income to debt repayment, and only 6% of income to repaying undergraduate loans. The mean payment-to-income ratios of 11.6% for total debt and 9% for undergraduate debt are high enough to cause many borrowers to feel burdened by their obligations.
  3. About 45% of college students carry a credit debt of $3,066 on average. (21)
  4. 72 percent of college students have a regular full or part-time job. (10)
  5. Almost half of college students with credit cards have paid a fee for late payment, and 7% have had a credit card canceled because of late payments. (26)

  American Families
  General:

  1. Over 40% of families live off of 110% of their incomes. (27)
  2. Nearly six out of 10 Americans are racing to make changes in their financial situation so they’ll have enough income when they retire. (4)
  3. 85% of adults agree that young adults today lack the basic skills to successfully manage their finances, 49 percent say youth think they are more likely to become millionaires by staring in a reality TV series than by learning how to budget and save wisely and 75% of teens rely on their parents for personal finance information. (18)
  4. 60% of American adults are more likely to turn to family members for advice rather than a financial professional. (12)
  5. A greater understanding and familiarity with financial markets and institutions will lead to increased economic activity and growth. (21)

  
  Debt:

  1. The average credit card balance for the age between 45 and 64 is $6,094. (30)
  2. If you are between ages 45 and 64, chances are that you have twice as much debt as other Americans, not in this age bracket. (30)
  3. The average citizen is drowning in debt; and 75% of credit card holders have maxed out at least one credit card during the past year. (31)
  4. The percentage of income used for household debt payments, including mortgages, credit cards, and student loans, rose to the highest level in more than a decade in 2001 and remained above 13% in 2003. (21)
  5. It can takes decades to pay off a $3,000 credit card balance if you pay only the minimum each month. (13)

  
  Saving & Investment:

  1. Only 20% of Americans were very confident about making good investment decisions. (1)
  2. 23% of Americans do not save anything at all on a monthly basis for long-term goals such as retirement or a child’s education. (12)
  3. Personal savings as a percentage of personal income decreased from 7.5% in the early 1980s to 2.3% in the first 3 quarters of 2003. (21)
  4. Between 25,000,000 and 56,000,000 adults are unbanked, i.e., not using mainstream, insured financial institutions. (21)
  5. Americans on average had socked away only $40,000 in retirement savings and 25% of those surveyed had no retirement account at all. (20)
  6. More than half of American workers between the ages of 45 and 54 did not have any kind of retirement account in 1998. (32)

  
  Bankruptcies, Defaults and Foreclosures
  

  1. Nearly 500,000 people over age 50 were forced to file for personal bankruptcy in 2002. (29)
  2. Personal Bankruptcies were up 19% in 2002 over 2001. (2)
  3. The fastest growing group declaring bankruptcy is young adults age 20 to 24. (26)
  4. Consumer bankruptcy filings in 2003 hit a record of nearly 1.7 million, or an average of nearly one in every seven households over the past decade. The bad debt costs the average U.S. family more than $500 annually through higher consumer prices. (7)
  5. In just 20 years, from 1981-2001, the number of women filing petitions for bankruptcy increased 662%. (19)
  6. If the trend of increased bankruptcies continues, more than 5 million families with children will file for bankruptcy by the end of this decade. (17)
  7. More people this year will file for bankruptcy than will graduate from college. And more Americans will file for bankruptcy than divorce. (17)
  8. Personal Bankruptcies nearly doubled in the past decade. (21)
  9. 
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     1. Teenage Research Unlimited, 2001.
     2. Youth and Money Survey, ASEC,1999 and/or 2001.
     3. National Longitudinal Survey of Youth
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     6. Nellie Mae, 2002
     7. Nellie Mae, 2000
     8. Utah Mentor, 2003: The Voice Digital News, 2003
     9. American Bankruptcy Institute, 2003
     10. NEFE, 1998
     11. Senate Resolution 48, 2003.
     12. Bureau of Economic Analysis (NIPA), 2003.
     13. Federal Reserve, 2003.
     14. The Nilson Report
     15. CardWeb.com
     16. Financial Literacy 2010
     17. EBRI, 2002.
     18. Consumer Federation of America
     19. John Bryant, Silver Rights Movement.
     20. Fort Worth Business Press 2002.
     21. Jump$tart Coalition, 2002.
     22. Lakeland Ledger, 2002.
     23. Northern Virginia Parent, 2003.
     24. Consumer Reports
     25. Centre Daily Times, 2002.
     26. Milwaukee Journal Sentinel, 2003.
     27. NFCC 2002.
     28. AARP 2002.
     29. Moneycentral.com, 2002.
     30. >VISA 2000.
     31. Consumercredit.com, 2002.
     32. US Dep’t. of Health and Human Services, 2002.
     33. Investing for Women, 2002.
     34. MyVesta 2002,
     35. ABA Education Foundation
     36. Bureau of National Affairs
     37. Boston Research Group
     38. NCEE
     39. NCEE, April 2003, Survey of The States, P14
     40. FleetBoston
     41. Teenage Research Unlimited (TRU)
     42. Teenage Research Unlimited (TRU), Jan 9, 2004, www.teenresearch.com/PRview.cfm?edit_id=168
     43. National Retailers Federation, Jan 28, 2004, Retailers: Attach Bankruptcy Reform to Ag Bill, http://www.nrf.com/content/default.asp?folder=press/release2004&file=bankruptcyag0104.htm&bhcp=1
     44. George Chamberlin, Oct 15, 2003, “Kids need to learn about money, too”, North Country Times
     45. Capital One and Consumer Action, Oct 23, 2003, Financial Educational Survey,http://phx.corporate-ir.net/phoenix.zhtml?c=70667&p=irol-newsArticle2&ID=462192&highlight=parents
     46. Capital One, July 29, 2003, Third Annual Back-to School Survey, http://phx.corporate-ir.net/phoenix.zhtml?c=70667&p=irol-newsArticle2&ID=436171&highlight=parents
     47. Northwestern Mutual, October 2003, “Teaching Kids About Money” Parent Survey Summary
     48. Northwestern Mutual, 2000, “Money Maladies”, http://www.northwesternmutual.com/corporate/contentassets/pdfs/money_maladies.pdf
     49. My Vesta Organization
     50. Consumer Bankers Association (CBA), April 14, 2003, CBA’s 2003 Financial Literacy Survey, http://www.cbanet.org/news/Press%20Releases/Financial_literacy/2003_financial_literacy_release.htm
     51. Nellie Mae, April 2002, Undergraduate Students and Credit Cards, P1, 2, http://www.nelliemae.com/library/ccstudy_2001.pdf
     52. Nellie Mae, February 6, 2003, College on Credit: How Borrowers Perceive their Education Debt, Page v, vi, 1, 29, http://www.nelliemae.com/library/nasls_2002.pdf
     53. Natalie Ghidotti, Feb 2004, “In too deep”, Little Rock Family, P9
     54. Visa USA
     55. Harvard University, 2001, 2001 Consumer Bankruptcy Project
     56. Merrill Lynch, August 2003, Retirement Preparedness Survey
     57. Senator Akaka
     58. Harris Interactive
     59. MarketResearch.com
     60. Coinstar Inc
     61. Packaged Facts, 2002, The U.S. Kids Market”
     62. Alejandro Cabezut, Jan 25, 2004, Laredo Morning Times
     63. Observer, Jan 12, 2004
     64. Dr. Lewis Mandell
     65. Steven N. Taieb, Esq., Bottom Line-Personal, Nov 1, 2003
     66. Steven N. Taieb, Esq., Bottom Line-Personal, Nov 1, 2003
     67. Summit Daily News, Oct 23 2003
     68. Stanley H. Breitbard, Journal of accountancy, Dec 2003

How to teach your kids to be millionaires

by Elisabeth Donati | Apr 12, 2008 | Financial Literacy Articles for Parents, Uncategorized

Whoever came up with the saying “money does not grow on trees” should be fired. I assume they either didn’t read or agree with Benjamin Franklin who said “money is of a prolific generating nature.”

Wouldn’t it be wiser to use the “money and trees” saying to motivate kids and young adults to become disciplined savers and investors?

It’s a perfect metaphor to help explain the compounding principle. Just ask kids to picture orchards and orchards filled with trees, filled with fruit, filled with seeds, which all started from one seed.

After all, compound interest is one of the most-compelling and persuasive tools available to encourage short-term sacrifice for long-term gain. Furthermore, disciplined savers and investors are rarely free spenders, thus accomplishing both objectives.

Money’s ability to compound is of one its’ most intriguing and beneficial features. Compounding does not discriminate. Its magical characteristics work for anyone who chooses to employ it, regardless of their ethnic, economic or social background.

The concept is so powerful, Steve Rosen, Kansas City Star Kids and Money columnist, wrote that it’s possible over a lifetime to become a millionaire while earning minimum wage. As incredible as that sounds, the math bears it out.

One of my favorite ice breakers to help initiate a conversation regarding this astounding principle is by asking the old question, “would you rather have $10,000 or a penny a day doubled for 30 days?” It turns out that a penny a day doubled for 30 days adds up to more than 10 million dollars! Of course, no investment doubles daily, but it’s a fun way to introduce this important concept.

Another great ice breaker is to ask how many times a dollar would have to double in order to reach a million dollars? The answer is 20. You can then add to the fun by asking “how much money a person would have after ten doublings of the dollar?” The answer is $1,024. Half the work amazingly equals less than one tenth of one percent of the benefits. What a huge error it would be to become distracted and disrupt the doublings at this point, say to purchase an X Box, a Home Video System or some other “necessary” item.

The largest doubling is the last doubling, which is worth $524, 288 and is equal to the sum of the first 19 doublings. However, the twentieth and last doubling isn’t possible without the first and smallest doubling, from one to two.

When something compounds, it grows at a much more rapid rate than one expects. Time is a major ingredient in the compound interest formula, so the longer money remains deposited or invested, the greater and more magical the compounding effect. This explains how it’s possible to become a millionaire over a lifetime while earning minimum wage.

Let me provide you a few examples of this principle in action.

If an 18-year-old saves $100 per month and earns 6% until the age of 65, he or she will have accumulated $313,187, while only investing $56,400. However, if he or she delays the decision until age twenty five, he or she will accumulate only $199,149, while investing $48,000. The difference is $114,038.

If the saver happens to earn a higher return of 9%, which is possible but requires more risk, than the difference in either deferring or being unaware of the decision is even more consequential — $420,417. The 18-year-old would accumulate $888,549 versus $468,132 for the 25-year-old. The actual dollar difference in what they would have invested would be $8,400. Whether they earned 6% or 9%, earning an additional $114, 038 or $420,417 by starting sooner rather than later is a smart way to accumulate money.

Simply stated compound interest allows the saver to earn interest on interest as opposed to just interest on principal. For example, assume money deposited for one year earns one hundred dollars in interest. During year two, the original money deposited will earn another year’s worth of interest or an additional one hundred dollars. However, during year two, the one hundred dollars of interest earned in year one also earns interest, catalyzing the compounding effect.

Fortunately, you don’t necessarily have to be able to explain this principle in order to use it as a motivational tool. All you have to do is expose kids to a compounding chart or calculator. You can find charts in personal finance books and financial calculators online. I suggest the online calculators because you can personalize saving and investment projections, which will add more motivational fuel to the fire. Or you can always ask your local credit union or bank manager for help.

In summary, the sooner one starts, the less it takes to reach one’s goals. So, if it is security and riches you want to create, start saving and investing early, not late.

Sam X Renick is the author of two financial books for children: It’s a Habit, Sammy Rabbit! and Will Sammy Ride the World’s First Space Coaster?; he also produced the music CD titled Get in the Habit!; and is the founder of The It’s a Habit! Company, Inc., (www.itsahabit.com), a socially conscious corporation dedicated to providing parents and educators with wholesome, entertaining and educational tools that help them encourage children to develop good habits, especially saving money.

Did You Know?

Did you know splurging on a $3 coffee drink daily for a 15 year old is a one million-dollar life time decision? The same can be said for drinking two, 16-ounce bottles of designer water daily versus purchasing store bought water by the gallon. Ditto sodas purchased by the can or 20 ounce bottles versus by the liter.

What other million dollar habits and decisions do you see kids making?

Top 10 Financial Planning Tips for Having a Baby

by Elisabeth Donati | Apr 12, 2008 | Financial Literacy Articles for Parents, Uncategorized

1. Create a Written Financial Plan

Acquire a financial plan, perhaps an eFinplan financial plan at eFinplan.com. Until now, financial plans were only available to those who could afford substantial fees ($2000 to $5000) per year. For a fraction of that cost you can create a road map to help you figure out your present financial condition and plan how to reach your destination. People don’t plan to fail—they fail to plan. Having a baby is not only the perfect opportunity to create a plan for you. It is a necessity, to help your survive one of the busiest and most enjoyable times of your life.

2. Create a Debt Reduction and a Monthly Cash Flow Budget Plan

Make a plan to reduce debt, and commit to incurring no new debt. Your eFinplan financial plan allows you to identify large future purchases and plan for them. This way you can earmark savings for the things you will want and need, instead of buying them on credit.

If you don’t have a budget, it is a necessity that you create one now. You will want to estimate the new expenses for day care, baby sitting, food, diapers, neo-natal medical care, etc. Be sure to calculate changes to your income if one of you may quit their job or cut back to part-time. You may run ‘what-if’ scenarios in your financial plan to determine the impact of each decision.

3. Update Wills and Beneficiary Arrangements

When you have children, it is essential that you put your plans into writing in case either parent were to die. In addition, change life insurance and retirement plan beneficiary arrangements to reflect your new estate plans after discussion with your financial and legal advisors.

4. Update Life and Long -Term Disability Insurance

When you have children, your need for life and long-term disability insurance will increase. Your eFinplan financial plan will help you determine whether there are any deficiencies in your insurance needs. The eFinplan website Learning Center contains educational information about insurance that you may find useful. Use your financial plan as a discussion tool as you meet with your trusted insurance provider.

5. Know Your Health Insurance Benefits

Study your health insurance policies to know exactly what your possible out-of-pocket costs are going to be for prenatal and postnatal care, and birth. Carefully study your policy so that you use the right in-network doctors and hospitals. Also, some people actually time pregnancies so that their deductibles are met within a coverage year. For example if you had paid medical deductibles and co-insurances in one coverage year for tonsil removal, it may be to your financial advantage to have pregnancy in the same coverage year. Obviously, this is not always possible.

6. Know Your Maternity-Leave Benefits

Study your employment manual to know your company’s policies for maternal and paternal time off. Some companies have to comply with certain legal requirements. In addition, you may be able to use some sick and vacation time. You may want to try to time the pregnancy is such a way to maximize time-off and medical benefits. For example, if you have the baby at the end of the year, you might be able to use some time-off benefits from both calendar years.

7. Day Care and Baby Sitting

If you are going to use a day-care center or a private baby-sitter be sure to investigate the cost early on in the pregnancy, and include those numbers in your budget projections.

8. Budget for Essential Baby Buys

Create an inventory list of necessities such as changing tables, diaper pales, bottles, breast pumps, monitors, child car seats to mention a few. It is amazing that anyone ever raised children without all of the latest conveniences that are now deemed necessities. Hopefully, you will have a nice baby shower to provide the essentials. If not, and you are on a tight budget, you might need to receive safe hand-me-downs or shop for bargains or at thrift stores. Never buy a used car seat as it may have been damaged or it may be too old to meet current safety standards. Also, check safety standards for used cribs.

9. You Don’t Have to Buy Everything

You will feel the pressure to be perfect parents, to buy everything to help you be the best parents and raise the best kids in the safest environment, capturing every moment. Make wise decisions about what you really need. The process of determining needs versus wants for you child will continue for about the next 18 years. It seems as if the inventors just keep inventing the latest camera, learning tool or safety device. Remember, these are not all necessities, and you will still be a good parent even if you don’t have the latest of everything. Some of the happiest adults I know grew up in modest income families, while some of the least productive adults are those that grew up with every privilege.

10. Use Advisors

Life is complex, and the only way to sort through the confusing maze is to utilize experts. Find and use trusted professional advisors: legal, tax, insurance, investment, and financial. Regarding time-off and medical benefits be sure to read your benefits books and consult with your insurance advisor, employee benefits or human resources personnel for guidance.

Summary

Having a baby is one the most joyful times of your life, and is a wonderful opportunity to plan together what you want for your child, family, and future.
Laura D. Irwin is CFO and co-founder of eFinplan, LLC. She has a degree in Communication, but her life’s joy has been raising her two children. She can be reached at lirwin@efinplan.com.

Kent E. Irwin is CEO and founder of eFinplan, LLC. He is also a Chartered Financial Consultant (ChFC), a Chartered Advisor in Philanthropy (CAP) and a Chartered Life Underwriter (CLU). He can be reached at kirwin@efinplan.com. For more information about eFinplan, go to the website www.efinplan.com.

The 3 Best Reasons for Giving Your Allowance are Practice, Practice Practice

by Elisabeth Donati | Apr 12, 2008 | Financial Literacy Articles for Parents, Uncategorized

We’ve all heard, and probably said, that practice makes perfect. while most of us know there’s no such thing as perfect, there is, however, learning to do the best you can with what you have to work with and what you know at any particular time.

If you’re like most parents, you know deep down in the recesses of your mind, that you have to at least attempt to teach your kids how to use money wisely. Often when the topic of kids and money or teens and money comes up in conversation, many parents admit they just don’t don’t what to do to teach their children how to manage money.

The question is, How to you teach your kids how to handle money and not have it cost you a futune or lead to constant fighting over money?

This is where the confusion often kicks in…you only know what you’ve experienced in the realm of financial knowledge and that may not be the best place to start. The most important thing is simply start somewhere.

At some point in their children’s lives, most parents usually consider giving their children an allowance of one type or another. The challenge lies in determining which type of allowance to give.

There’s the “giving an allowance just because” method, the “giving an allowance and making them do chores method:, there’s the “giving them an allowance for grades method” and there’s the free for all method where you keep trying different things and eventually throw up your hands because nothing seems to be working.

At this point most parents opt for the ‘pray it all works out somehow’ method. Sometimes it does; sometimes it doesn’t.

What if there was a way to truly empower your children with the tools and information they needed to move out and stay out, except for visits, of course?

What if giving your child an allowance could actually save you money instead of costing you extra money?

Well, there is such a method, but before you start using this powerful system, let’s look at why it works.

Experience is the best teacher:

Most of us have discovered over the years that we learn best when we’ve experienced something first hand. It’s a nice idea to learn from other people’s mistakes and be motivated by other people’s triumphs but the fact remains…if we do it ourselves, we get the visceral lesson and there’s no better or longer lasting lesson than that!

Letting your children learn about money is exactly the same thing. You can’t TEACH them how to spend money wisely but you sure can put them in situations where they experience how to do it wisely (or not, as the case my be:-).

Imagine that your child wants to be a professional basketball player but you never giving him a basketball to dribble or throw, never giving him time on the court to practice, oh yeah, never give him a coach, and, oh yeah, never teaching him the rules to the game. This is what money is like for most young adults. They are rarely given a chance to learn how to use it wisely. Most of them learn how to spend it really well. Spending it, however, doesn’t lead to financial success or freedom!

Learning to do more than simply spend money is why providing your child with an allowance is so critical. Practice is how lessons are learned and habits are formed. There is a saying that says, “Repetition is the mother of skill.” If this is true, then only through the actual practice of using money will a child truly learn to use this resource wisely. That’s why allowances are important. No practice, no lessons. No lessons, no skill. No skill, well?, we know what happens when there’s no skill. You have a society that’s deep in debt with no knowledge of how it got there or how to get out.

Practice, Practice, Practice:

It’s up to parents to provide the financial practice our kids need to go it on their own successfully. And it’s that what you really want? There’s no prouder moment than when you realize your child is a full-grown adult who is fully responsible for himself and his family.

With the right type of allowance (we’ll get to that in a bit), your child will experience the three important aspects of financial practice, all with their inherent lessons woven in.

Remember that human beings are typically motivated in two ways:

1. We move away from pain (the most prevalent).

2. We move toward pleasure.

Let’s look at how an allowance can prepare your kids for real life through these two constructs: pain and pleasure.

Practice learning from poor choices.

There’s nothing like making a painful mistake to teach you a lesson. The most valuable lessons we ever learn come from making decisions that didn’t turn out in our favor.

Once they’ve make a financial choice that was somehow painful and unacceptable to them, they generally steer clear of that choice in the future.

Practice learning from making wise choices.

Most of our most vivid memories are attached to moments in our life where we did good, conquered an obstacle, reached a goal and the like. Wise financial choices have a powerful way of making lasting impressions on us.

Think back right now on your past to a time when you made a wise decision or choice with money. (If you can’t remember one, this is all the more reason to get your kids on a powerful allowance system as soon as possible.) It’s probably something you have repeated several times since then.

Examples are buying, remodeling and selling a piece of property for a profit, investing in a great stock that went up in value and you sold it for a nice profit, starting a business with a great idea that eventually became the way you made your living and became financially independent.

All of these examples are why people end up in real estate, business or the stock market as their primary method of investing. Success leads to pleasure, pleasure leads to a propensity toward becoming an expert in a certain area and expert status leads one, directly or indirectly, into different careers and lifestyles.

Practice learning as a matter of repetition.

It’s hard to do something wrong over and over and over again. For most people, once you’ve done something wrong, especially if you’ve done it wrong more than once, it’s time either give up, try harder or get help and coaching.

When children are put in charge of their own financial affairs at an early enough age, let’s say 6-8 years old, they have more than a decade to figure out what works and what doesn’t work. This is why it’s so important to start providing opportunities for practice with money as soon as the child is ready.

Please note that some children never appear ready. They never ask for money, never ask for stuff, and don’t want to be responsible. At some point this type of child must be put in charge of their finances or they may never move out! And that’s not usually in the generally accepted parent-child contract!

So how do you give your child an allowance that works without it costing your a bloody fortune? Simple, you take the money you’re already spending ON your child raising them, and you run a lot of that money THROUGH them instead.

We’re not talking about running rent, basic food, insurance and stuff like that; we’re talking clothes, hair bows, sports equipment, school supplies, books, entertainment, and the other stuff of life that they could easily be put in charge of.

The intention of this type of allowance is that by the time they are 18 and move away from home, they are 100% responsible for everything they need to survive on their own, and hopefully, a few of the things they want to make life enjoyable.

In addition to running some of the money your use to pay for their basic needs through them, along this path you’re going to encourage your children to start making their OWN money as well.

This is not as challenging as you may think at first. Children are little entrepreneurs in the making; they are idea magnets. It’s their job. They see opportunities everyone IF they have a parent, guardian or mentor to open their eyes to the opportunities in the first place.

The Ultimate Allowance: How to Get Started

It’s pretty simple to start this type of allowance. Simply get out a piece of paper and your favorite pen, sit down with your child and start looking at all of the expenses you are now shelling out for directly.

Depending on your child’s age and level of maturity, decide together what items you will start putting them in charge of purchasing. Decide together how often you’ll provide this allowance (weekly, biweekly, monthly) and talk about what might happen in terms of making poor choices (consequences are better if they know them before hand), coming up short or even losing money.

Talk about what could happen if they make great choices. Knowing they get to celebrate with a movie or ice cream, gold stars on a nice clean poster board, a small bonus for cutting costs (make it as life like as you can) all can help motivate them to make better choices.

Ask Don’t Tell:

Please do not ‘tell’ your child that you are going to start giving them an allowance and ‘this is the way it works.’ Consider this a financial rite of passage so to speak and enroll them in the excitement of being able to fend for themselves, be in charge of their own destiny, become the CEO of their own lives!

Just like adults, we despise being told what to do. We generally feel really good when we’re honestly enrolled into something exciting, especially if there’s something in it for us. You know your child best—their buttons, their passions, what move them. Spend time thinking about how best to enroll your child in the idea of being self-sufficient and in control. You may be surprised at how willing they are to take on this next exciting challenge.

Nothing is more powerful that being fully responsible for your own life. Using the right allowance strategy will provide the essential, and critical, financial practice your children need, before they move out on their own, to do, be, have and create anything they want in their lives.

What more could a proud parent ask for? Sit back and feel the glow knowing you’re doing everything you can to prepare your child for success, whatever that ends up meaning to them. Feels great, doesn’t it?

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Kids and Credit Cards

by Elisabeth Donati | Mar 12, 2008 | Financial Literacy Articles for Parents, Uncategorized

The resounding answer to this question is “NO” they do not! Ask youself this simple question, “Did I need a credit card when I was young?” I’m pretty sure the answer will be another NO.

The next question I always here from parents is, “But our kids need to be developing credit, don’t they?” And my stern answer is, “They will develop credit organically, just like we did. We don’t need them to have to be responsible for more than they are capable of earlier than they need to.”

For lots of reasons, our kids are growing up earlier and earlier and my personal opinion is that it isn’t a good thing. Let’s let them be kids for a while longer. They are already exposed to sex and drugs and stress and busy parent’s lives and expectations well beyond their capabilities, why add one more unnecessary thing, especially one that carries with it so much shame, guilt and responsibility when done incorrectly..

The facts are pretty straight forward and I refrain from quoting figures and statistics but, ccording to this week’s (May 22, 2006) Time Magazine, in an article called, The ABCs of Money, by Wendy Cole, the average credit card debt of Americans ages 18 to 24 doubled to nearly $3,000! And even though 4 out of 5 of these kids have never had a single personal money management class in high school, the article stated more than half have ATM cards (looks like a credit card with training wheels to me) and more than half of the kids surveyed (5775) had already bounced a check!

I say, Where are the Parents in this scenario? Who’s taking responsibility for preparing our youth to not only handle money responsibly but build the wealth it takes to be financially secure and live life to its fullest? Who’s setting the example here for the whole nation? I know I can get a bit fiesy here but at some point we have to step in as parents and make sure, one way or another, that our kids learn how money works. Yet, even before they can do that, most parents admit to us that THEY don’t even have a clue. So, where do I go with the ‘setting the example’ thing? Straight to our government (which remember are simply people who are allowing us to be in debt way past our proverbial eyeballs) that’s where. And one things I stress the kids and adults I talk to now is that it’s our responsibility as citizens to start demanding balanced budgets. Afterall, if even our Uncle (Sam that is) can spend far more than he makes with little if any painful ramifications, why can the rest of us follow suit. Oh yeah, that’s right. We do!

So, let’s get b ack to the crazy notion that your kids NEED a credit card to esablish credit and my contention that they DO NOT. How are they going to establish credit then? Well, think back to how you and I did it?

Over time (high school and college hopefully but at least high school) they will buy bigger and bigger ‘things’ (we call this piddlycrap in our camps if it isn’t a passive income producing asset) and some of those things they can choose to buy ‘on terms’. In addition, most of them at one time or another in their 20’s (if not before) will buy a car and need to finance part of it. This is how WE slowly developed credit when we were young and it’s the best way for our kids to do while they are young.

Another thing you can do, if you must, is put your child on one of your existing credit card accounts–American Express for example. This way your child actually begins to have a little credit tied to his or her name. It’s important to call and talk to your credit card company in detail about this because they are all different.

And lastly, if you’ve absolutely decided that you have to give your child a CC, then take the time to educate them on interest (and remember, it’s compound interest working against them not for them), extra fees, two-cycle billing (ah, don’t know about two cycle billing? Email us and we’ll fill you in!). One of the most important things to get across to them is that they are spending someone else’s money and they must pay that person (cc company) back the amount they ‘borrowed’ plus a rental fee (interest) if they don’t pay it back in full each month. College kids are charging huge amounts of money and they aren’t making money to even begin to warrant the payments.

The second thing you must show them is how that interest they’ll be paying will add up over time and quickly at that. Show them how a simple item like a pair of $50 pair of jeans (if there is still such a thing) will end up costing them twice what they originally paid for them.

For more information, simply type in ‘credit card education’ into Google and you’ll be amazed at what comes up. Here’s a couple of great resources:

Young Money Website

Beware of Student Credit Cards