Tag Archives: teenagers and savings

Saving vs. Spending & Getting Financial Advice

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Who do you want your kids or grandkids to get financial information from?

Breaking news: Your kids or grandkids will not listen to you – sorry. It’s wrong, it’s sad, but it’s true – and you already know that. So it’ll be from an advertisement or something they find online. Both of those are from companies who have a vested interest in selling your kids or grandkids. If that sounds true, go to Mosaic or Amazon and get them a copy of the Money Tools book. Mosaic has a bunch of signed copies and at least you have some assurance the content isn’t selling anyone anything! You’re also welcome to go to my website (yourmoneybook.com) and click on the radio stories to send them the link to our grad stories, or print something out for them.

Let me give you an example: Mike Riley is the former quarterback of the Edmonton Eskimos – he’s now with the BC Lions, but still well respected in Edmonton. So a local investment firm has signed him to promote their investment seminars. In their radio ad Mike Riley says he’ll be “sharing my secret financial strategies…” WHAT? He may be a great football player, but who on earth would listen to him on investments? Would your dentist then fix your car or your hairdresser renovate your house? Besides, there is no such thing as a ‘secret investment strategy’ – honestly.

Investing, or saving versus spending, is an even harder concept for 20 somethings to believe. For most anyone under age 30 is rather like our view on climate change. There’s a need, we understand that, but there isn’t the urgency, and we certainly aren’t moved enough to pay much of a price for doing anything.

Why? Because the payoff seems too far down the road. Ask anyone in their 50s or 60s how important retirement savings are. You’ll get a far different answer than from someone in their 20s facing the decision of the Vancouver concert versus putting the money away into investments. For both climate change, not growing your savings, or a host of other issues, there isn’t enough of a motivation to do much this week, this month, or this year.

Intellectually, every 20 something can be taught that 100 bucks saved today turns into more than $10,000 in retirement. But the opportunity cost (fancy economics term of losing the potential) isn’t painful enough today. Oh, it sure will be down the road, but it’s not a choice 90% of us make or made in our 20s. The big problem is that a 20 year old needs to save for 47 years and 12 months a year. That’s 1,128 paydays where they’ll be tested on spending vs. savings and I guarantee that 90% of them will fail that test month after month and for years!

If nothing else, make anyone in your family that’s between 16 and 25 read the two page chapter in the Money Tools book on page 167 on how to become a teenage millionaire. Yes, it really is two pages. Understanding how car loans, credit cards, student loans, etc. work is a bonus – but those two pages can change their entire life if they just knew what to do – and how to do it.

George Boelcke – Money Tools & Rules book – yourmoneybook.com

Three Must-Do Tips for Any Grad

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Ah, it’s grad season for two groups: those graduating from high school and heading into the work world or university, as well as those just now graduating from university.

When I ask any adult when they were last debt free, the answer is almost always that they haven’t been debt free since they were your age. When they were 18 or 19 – and they’ve been in debt since then. Sad but true – that’ll be you.

Getting wealthy comes much easier if you learn to say “I can’t afford it,” and spend less than you earn. When you were still in high school, you probably had a summer job or other income. You worked hard, had a goal of what you wanted to do with that money, saved like a dog, and paid cash for stuff. Plus, because you had so little money, you were careful how you spent it, right?

But now you have a paycheque, and access to borrowed money, which includes student loans and a credit card. So you’ve forgotten how to get rich already and you’re just getting going. Let me remind you again and maybe, just maybe, you’ll do these things to actually get rich, instead of just making that your 40-year dream:

Pay cash for stuff

Don’t buy crap you can’t afford and don’t need

Save ten percent of your money

Maybe someone in your family will print this out for you. Maybe someone cares enough to go over to Mosaic and get you the It’s Your Money book. Maybe I’ll see you at the top, or maybe I’ll get an e mail from you in five years or so to help you with some of your financial mess.

If you’re graduating from high school, it’s a valuable investment to establish credit. Read the chapter on how to do that and the credit card chapter to understand the rate, perks and limit traps that you’ll be dodging a lifetime.

Plus, leave your credit card at home – don’t pack it in your wallet. The first time you charge a consumable such as gas or food on your credit card and do not pay it in full when the statement arrives you’re in financial trouble. From there, it’ll just get worse. Miss paying off your balance and it’s twice as hard the following month when the balance has likely doubled. Then, the credit card companies have won and have you hooked for the next few decades.

If you’re just graduating from university, I bet you’re sick of living like a poor student and ready for some major spending. The biggest financial damage is done in the first year following graduation. Get the job, get the paycheque, but if you can delay gratification and live like a poor student for one more year, you’ll have an incredible amount of money saved in that year. Once you turn on the spending tap you aren’t going to be able to turn it off again – so just delay it one year.

Finally, there was a great article on the ten choices you’ll regret in 10 years. It includes avoiding change, trying to impress others, and giving up when the going gets tough. I’ll post the link on the yourmoneybook.com site. You should add one more: Not learning from your financial mistakes by denying them…

http://www.trueactivist.com/ten-choices-you-will-regret-in-10-years/

Why 14-Year Olds Have More Money Than Their Parents

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If you’re the average family and have teenagers, there’s a good chance your son or daughter is wealthier than you are. You’ve had a few decades to build up your savings or investments while they’ve had a year or two.

So how is that possible? That’s easy: They don’t have access to credit and can’t borrow their way to prosperity. Sure, you the parent have more actual cash – at least the day after payday – but you’re also paying out most of it for debts that you incurred long ago. Your teenager doesn’t have that. Everything they earn they get to keep.

If a teenager really wants that $500 sick snowboard that you’re not willing to pay for, they’ll first whine and complain and have a fit. It’s not fair, they gotta have it, and you ought to buy it. When that wave is done, most kids will get super motivated and focused if their motivation is strong enough and they don’t get the lazy or easy way out. They’ll typically do whatever it takes to save and to work. Whatever: Shoveling snow, mowing lawns, babysitting – whatever is necessary. If that’s their drive, they will save the money.

Most adults on the other hand, won’t take that part time job, do a budget, or drastically cut back our expenses to get out of debt, to buy a newer vehicle for cash, or pay for some renovations or even our holidays. Nope, we don’t do it – we have an easier and lazier way to accomplish any of that: We pull out the credit card, or use our line of credit.

There’s a difference – it’s like night and day. Going broke and borrowing, which is just delayed pain, versus the hard work right now to have what we really want.

Ah, to be a motivated teenager again…

Your Kids Are Watching and Learn From You

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Don’t underestimate how much your kids learn from your behavior with money, credit, debt, budgeting, impulse purchasing, and savings. It’s all about your behavior with money, and very little about what you say. Since 80% of teenagers never take a class on finance or credit, you’re it. What you do today is what they’ll likely adopt for the rest of their lives.

Next time you (or your child’s grandparents) are looking for a present for an eight year old (or older) consider buying them a couple of shares of stock in their favorite company. If they love a certain game, clothing line, or shoe company, one or two shares of the company stock will have them become interested in more than just the product.

It’ll give you a great way to have them look at the stock price each month, watch what happens when a new product is released, or search the company web site for any announcements. Your son, daughter, niece, or nephew now has a gift that keeps on giving and teaching. When you’ve piqued their interest in following the stock and learning some basics, you can easily expand the lessons to include mutual funds. That’s when the lessons of diversification, risk, and more come to light. At that point, you can also consider matching any of their savings to buy more mutual funds as a huge incentive to start saving. It’ll be the biggest gift you can give, and it’ll pay off for their lifetime.

If you have a teenager in the house, it’s critical you teach them about credit. An easy way is to give them a make-belief credit card to use or abuse as they see fit. Give them a piece of paper with their name on it, a credit limit, and an interest rate. Make the rate one percent per month, it’s a great credit card rate and easy for you to calculate. Give them their allowance like normal and allow them to charge on their card up to its limit. Don’t harp on what they owe and don’t write it down for them (you just keep track yourself). It’s the same way your credit card company treats you. At the end of the month, give them a note with the old balance from the month before and the new charges. Add the one percent interest and a minimum payment of 10% that comes right off their allowance.

Take it as far as you’d like, but there are lots of important life, credit, prioritization, and debt lessons in this exercise. Soon, your son or daughter will be at their limit, they’ll have payments, and interest keeps growing. They may not be making any progress on reducing the balance,, their allowance is being eaten up by something they spent months ago, but they can’t go in arrears.

Or, perhaps your son or daughter immediately sees the convenience, and also the danger of credit cards. Take the exercise seriously and don’t give in to the first whining that your teenager is now broke and it’s your fault. After all, in a few years this game will become very real, very quickly, and involve lenders who couldn’t care less about anything, as long as they are paid and making a profit.

Graduate Your Teen As a Millionaire

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Let’s face it, often our spending today comes with huge debts and monthly payments in the future, and they’re the biggest killers of our dreams and financial freedom.

So how do we avoid those debt traps for our kids? 85% of teenagers never take a course on credit or finances. That means they haven’t got much of a hope of being financially successful from the get-go.

The first thing most teenagers do when leaving the home is to take on a car payment, get a credit card, pay rent, and often have a student loan. But if you have teenager that’s about to leave the home, here’s a deal you can make that’ll insure their financial freedom for the rest of their life.

If the deal works out, they can spend every dollar the make for life. All the credit card debt, the cool car and whatever, because they’re already rich! Your teenager can spend every dollar they earn for the rest of their life – anytime and any amount.

Sounds irresponsible? Not at all – because that’s only half of the deal. The other half is that in order to do this, the only thing your teenager has to do is to save $10,000 by their 20th birthday. Nothing more – nothing less. After that, without getting into debt, or touching these savings, they can literally spend every dollar they make.

It’s the magic of compounding and works with something called the Rule of 72. It’s critical to know this, and to use it to your advantage, no matter what your age. Simply take your rate of return and divide it by 72 – that’s how long it’ll take for your savings to double. So at a 7% rate, it’ll double every 10 years, while a 10% rate will double it every seven years.

Do some lateral thinking of how you can achieve this. Maybe you can charge them rent and keep that in a savings account for them. Some people match whatever the teenager saves to a certain amount. There’s all kinds of ways you can make them focus on it and make it happen.

Why can’t we this as adults? Simple: Because we didn’t save the money when we were younger. The longer you wait, the less time our money has to double up and double up again. If we want the money when we’re 65 years old and start saving at age 50, our savings will only double a couple of times, so we have to save a lot more.

But your 20-year old just has to sit back with all the time in the world and watch his or her savings double again and again until it reaches $1.3 million at age 67, using a 10% rate, and it all started with a one-time saving of $10,000.

Oh, if only we had done this when we were their age. But one more thing: Because they’re teenagers, I’d recommend there’d be two signatures on the account – just in case they get the urge to take some money out…

The Rule of 72: At 10% it’s 72 divided by 10 = money doubles every 7 years
At 11% it’s 72 divided by 11 = money doubles ever 6 ½ years

At age Amount now saved through compounding interest just at a 10% rate
20… 10,000
27… 20,000
34… 40,000
41… 80,000
48… 160,000
55… 320,000
62… 640,000
67… 1,280,000

THAT is the best graduation present I can think of, and it’s not hard to do at all.