Monthly Archives: July 2010

Children of the Recession: How to Insulate Kids From Financial Fears

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With unemployment and foreclosure numbers climbing, chances are high that you have friends or family members affected by this recession. When a close friend or family member loses their home, or their job (or both), it is frightening on several levels. You begin to wonder if the same could happen to you. This fear of economic uncertainty causes anxiety in many children, too.

Child looking out a window by D Sharon Pruitt on Flickr

My parents divorced when I was very young, and I don’t have many specific memories of them arguing, except over money. Unfortunately, that’s a common memory for many kids, especially when economic times are tough. While it is impossible to shield kids from all that goes on around them, I happen to believe money worries are one of those things we should not share with kids. There are a number of ways to do that – some very specific, and some more subtle.

Don’t Fight About Money in Front of Kids

This one seems the most obvious. When it comes to transferring anxiety over money to your children, there is no faster way than to fight over it with your partner. Asking couples not to argue over money at all is a little unrealistic, so when differences arise, at least try to do it in private and out of earshot of your kids.

Spenders and savers are bound to clash, but when they fight in front of kids they give kids something to worry about beyond Mom and Dad fighting. Will we run out of money? Is Dad losing his job? Will we have to move? Will we have money for food? Even if parents are unsure about the answers themselves, they owe it to their kids to exude confidence when it comes to money. If things really do get bad, emphasize that no matter what, you’ll all be together and that home is where you make it – wherever that may be.

Avoid Language Like “We Can’t Afford That” or “We’re Poor”

This is one I’ve had to relearn myself. When kids ask to buy things, and money is tight, I try to rationalize with them instead of simply saying, “we can’t afford it.” Tell kids that instead of spending money on toys this week, you need to focus on buying some basic things like food and gasoline for the car. Ask them to come along to the grocery store to help pick out a few favorites. If you simply say you can’t afford something, kids will begin to wonder what else you can’t afford, and this could cause worry.

I will not allow anyone in our house to use the word “poor” when describing our economic situation – even when times were pretty lean in our own household. We might have been broke, but we certainly weren’t poor. It’s more than semantics. The word poor seems to connote inferiority, or having some unfortunate circumstance. We suffered from neither. We simply spent more money than we earned and had to live on far less to turn things around. We may have been stupid, but we weren’t poor!

Now, let’s shift away from things not to do around kids, and focus on some positive things to teach kids to help them with their own financial futures.

Start Teaching Kids About Money

When I was growing up, money was taboo. Parents would no more rather talk about money with their children than their love life. While this is still true to an extent, I think most of us have recognized that kids need to be more aware about the potential financial pitfalls out there than we were.

Start giving kids an allowance to budget their savings, spending and giving. Help them open a savings account and begin to teach the mechanics of a bank account – completing deposit slips, balancing a checkbook and explaining how compound interest works.

As kids get older introduce them to increasingly more complicated topics like investing, borrowing money, insurance, etc. By the time they are teenagers they should have a good grasp on Personal Finance 101 topics to better prepare them for life.

Encourage Saving Over Spending

As adults, we know it is prudent to put back a sizable emergency fund of several months (I actually recommend a full year) of basic, household expenses. Because kids are not responsible for everyday expenses, it is hard to get this message across to them. Instead of focusing on saving money for emergencies, teach kids to save money for opportunities.

Here is a very subtle example. Saturday night I took my son to Toys R Us. He had accumulated allowance money, along with a birthday gift card or two. I helped him find a few things in his price range, and naturally, he wanted it all, which would have wiped out his savings.

I gently reminded him of events coming up where he might like to have some money, and explained if he spent all his money today he would get no more until he received his next allowance. He came to the conclusion on his own that saving some back for a future opportunity was a good idea. He put back all but one toy and we left with cash in hand – I was a proud frugal dad!

Foster Entrepreneurialism in Your Kids

My parents and grandparents were probably a lot like yours – they worked 40-50 hours a week, punched a clock and recharged over the weekends. After doing this for several decades they were given a cheap retirement gift, maybe a small pension, and a retirement send-off. Well, times have changed.

The recession has underscored the importance of developing an entrepreneurial streak at a young age. Chances are very slim that your child will graduate college, pick one job and stay there for 40 years. More likely, there will be many jobs with many employers, and many periods of being “between jobs” in their lifetime. Wouldn’t it be great if they developed a “side hustle” to get them through those periods of unemployment, or to supplement their full-time income all along?

Perhaps you enjoy building things and have turned your one-time hobby into a side hustle building decks and fences on the weekends. Get your kids involved in the process as they grow older, and perhaps you can pass along a valuable trade. Even if they become accountants or fire fighters, having the knowledge and experience of a trade to fall back on could be incredibly valuable to them over a lifetime.

The point is not to stifle your kids ideas by forcing them into some ideal career path you have selected for them. Allow them to cultivate their own ideas. Over the next few decades, personal branding, and the branding of individual ideas will likely be hotter than any particular industry. Think about it – iPhone apps may be the next lemonade stand!

In a way, social media, and new media, have greatly expanded the opportunities for kids to create new products, explore new ideas and push new content into the mainstream. It’s never been a better time to have an entrepreneurial mindset, and fostering that in your children at an early age is invaluable.

Weekly Roundup: Designer Sunglasses Worth It?

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I suspect you knew my answer before reading this one. Clearly, I do not think designer sunglasses are worth the price. In fact, I normally buy fairly cheap sunglasses because, given my history with sunglasses, they have a high likelihood of being sat on, dropped from my head or otherwise crushed before the end of summer. At least when this happens I only feel bad about being out $15 instead of $200 (or more).

I know there are other considerations such as UV protection, prescription lenses, etc, but I have to believe cheap sunglasses do just as good a job. What side of the sunglasses argument do you fall: cheapo shades or designer all the way?

The Frugal Roundup

Warren Buffett:  “This Economy is Coming Back.” I sure hope Buffett is right! I’m still not sold on the idea the worst is behind us, but as more companies report positive earnings you have to think eventually that has to translate to more employment. (via The Daily Crux)

How to Prepare For and Rock a Behavioral Job Interview. Here is a great post if you are looking for a job or just changing careers. Many companies (and hiring managers) are starting to go this route for interviews. (@The Art of Manliness)

Buying a New Car May Actually Be Cheaper Than a Used Car. Jeremy takes a look at one of the more heated debates in personal finance. (@Gen X Finance)

True Trick to Save Money on Appliances. Most appliances operate much more efficiently when cleaned. This is especially true of things like air conditioners (change those dirty filters) and refrigerators. (@Budgeting in the Fun Stuff)

Cheap Wedding Ideas On a Small Budget. I guess it’s about halfway through wedding season, but this would be a great post for someone planning one within the next year or two. (@The Digerati Life)

Worth More Than Money: Taking a Detour on the Road to Riches. Sometimes you may need to push pause on your financial recovery to do what’s important. (@Get Rich Slowly)

Best of the Rest

Yet another shameless plug for the Frugal Dad Facebook Fan page. Sorry, but we are just 20 fans away from 1,000! Will you help me spread the word?

The Secret to Getting Out of Debt: Forget Snowballs and Interest Rates

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I was in debt for nearly ten years, and for ten years I tried every debt elimination method known to mankind. I was like the overweight person who has tried every diet, but years later finds themselves more overweight than when they started.

The last two years of my personal journey to debt freedom something finally clicked. It didn’t matter how I ordered my debts, how many half payments I made, how many times I transferred balances from card to card chasing a lower rate, or how many times I consolidated my credit card balances. The only thing that was going to get me out of debt was boosting my income.

The 70-Hour Workweek

If you don’t do something radical to improve your income, you will be in debt forever. I hate to break that news to those still in debt who spend their nights creating elaborate repayment plans while dropping Netflix memberships to create an extra $15 to throw towards a $37,000 credit card balance. That’s like trying to dip out the ocean with a teaspoon. You obviously need a much bigger spoon.

So how does one go about increasing their income – particularly those already busting their butt 50 hours a week in a full-time job, trying to be a devoted spouse, a parent to their kids and run a household? The answer:  more work.

For a short period of time you need to find more work. Easier said than done, particularly in an economy where unemployment is high and even part-time jobs are scarce. I started my final push to debt freedom in December 2007, so I understand just how bad timing can be. But you can’t use the broader economy as your excuse to staying in debt, limiting your opportunities and stifling your dreams of financial independence.

Exactly what am I saying here? I’m saying you need to work another 20-30 hours a week earning money for the sole purpose of repaying debt. I don’t care what you do (as long as it is legal), but maximize those 20-30 hours to earn as much as possible.

Part-time retail work at minimum wage may not be the answer. Starting your own business may require capital – something you probably don’t have much of if you are in debt. At great risk of sounding like a back-of-the-magazine ad, I highly recommend considering a low-cost opportunity you can do from home. Maybe something related to your full-time gig that doesn’t conflict with your full-time gig.

If you are a teacher, consider tutoring at night and on the weekends. If you are a programmer, consider doing some freelance work. If you like doing yard work, offer to mow lawns for friends and neighbors. And no matter what you decide, start a blog and write about it – landscaping, programming, child care, pet sitting, delivering pizza – all interesting topics that you can develop into an interesting blog if you put your personal touch on it.

I was interested in finance and frugality. I used to work in the financial industry. I also enjoyed writing. It only seemed natural to declare my side hustle writing about finances (after mowing lawns and part-time work wasn’t yielding enough money to make significant dents in our debts).

Idle Hands are Useless at Paying Off Debt

So that’s not quite how the saying goes, but comparing debt to the devil’s workshop was a stretch (then again, maybe not). The point is that while you are sleeping in, watching television, or “just relaxing,” you are essentially wasting time that could be spent developing a second income stream to pay off debt.

I know you work hard, and you have a family, and you deserve a break. You can rest after you are debt free. For now, you need to work.

After starting Frugal Dad, I made a goal to get up every morning at 4:30am to answer emails, comment on other blogs, write new content, research and do anything else I could do to help build my blog before heading off to my full-time job. Those three hours each weekday morning were some of the most productive times of my life. I was completely focused on my mission.

On lunch breaks, I carried a memo pad and pen and brainstormed ideas for topics. At night, after the kids were in bed, I set things up for the next day, reviewed daily statistics, etc. On the weekend, I carved out a few hours dedicated to trying to get ahead for the next week. I banked a couple posts, cleared my inbox and read 20 other blogs in the personal finance niche to stay current.

It wasn’t easy. My first month blogging I earned $33.88 – that’s only a fraction more than a dollar a day. But I pushed ahead. In six months, I had earned a total of $4,600 (after taxes) to go towards debt repayment. Now I was getting somewhere.

I stayed at it for two more years from that point, and my family just recently celebrated debt freedom. I can’t say it was easy. There were a couple times I wanted to quit. There were many setbacks. There were more than a couple times we were tested with a medical emergency, or something breaking, but we just refused to stop until we got back to zero.

Snowballs, Interest Rates and Spending are Still Important

The order you pay back your debts with the money you earn from your 70-hour workweek is still important. And of course, if you don’t reduce, or at least hold firm, your spending, you will simply spend all this new money and remain in debt (I like to describe this as running faster on the treadmill while someone increases the speed – you’ll sweat a lot harder, but get nowhere).

There are risks associated with working a 70-hour workweek. It puts a strain on your physical health. Relationships may be strained as well. Your social aptitude will suffer. You won’t have a clue who won American Idol, that Lost is finally over, or who’s playing in the Superbowl. It’s alright; you can catch up later and you can always use an pay off our mortgage early, though not quite as hard). We own our cars free and clear. We have an emergency fund for the first time in our lives. We are beginning to learn about investing and savings products that we could never afford. And most importantly, we have options.

Debt has a way of trapping you – in bad jobs, in bad relationships, in bad locations. It’s a suffocating financial cancer that eats away at your future dollars, and your current enjoyment. It adds immeasurable risk to your life. It is not to be ignored for another moment.

You simply cannot win, financially, while you keep debt around. Draw a line in the sand today – no more new debt…ever. Make a plan to boost your income. Make a plan to reduce your expenses. Throw every single extra dollar that comes into your life towards that debt. You aren’t throwing it away, you are investing it in your financial future.

Ask the Readers: What To Do With Loose Change?

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Today’s Ask the Readers post comes from Andy, a recent college graduate who managed to pay off student loans before graduating in May. Here’s his question excerpted from our email exchange:

I’ve already established a Roth IRA this summer and am now looking into some other things for passive income generation. One thing that keeps popping up in my head is my “piggy bank.” Although it is actually in the shape of a giant Coca-Cola bottle, it was something I got for a birthday when I was a toddler, and throughout my childhood I would put any spare change into it. At some point I got smart and took out all of the quarters, so it’s just pennies, nickels, and dimes.

When I started driving and finding use of change (the dreaded $5.08 or similar “hate to break a dollar for that” tab at Taco Bell!), my deposit rate decreased rapidly. And through college, I somewhat forgot about it since I was away. Now I’m home, on the verge of moving to a new state for graduate school, and I’m remembering how I always wanted to do something grand with my saved up change. I do not have an official count, but the last time I counted it was around $130 and that was probably prior to getting a car and a job (because without either, what else does a kid have to do but count his life-size Coke-bottle full of change?). My estimation is it is probably nearer to $170 now.

So my question for you is do you have any ideas that could be an adventurous way to spend my savings, something that would be a cool story to tell my kids one day, so something other than “Yeah, I put the money into my first couch” or “I used it for my first month’s rent.” I am open to investing it, though it isn’t a huge sum of money. I’ve been sitting on this money for 20 years, so I’m also not opposed to letting it sit somewhere (earning interest or some kind of dividend, though) for long-term. That might make the story even more interesting for my future kids if it turned into a larger quantity than anticipated.

Andy, first of all, congratulations on your recent debt-free graduation! Paying off student loans is a tall order, and doing it before graduating is practically unheard of–way to go!

Your question of what to do with the Coca Cola bottle full of change is certainly an interesting one. In some ways, it would be easier to answer your question had you asked me how to spend/invest $1,000. I realize it is only $170, but that $170 represents a lot of childhood dreams rattling around in a big bottle. What would your seven-year old self tell the current you to do with the money?

I’ll brainstorm a few ideas here, and then I’ll turn it over to Frugal Dad readers and ask for their input. They’re a creative bunch, and will no doubt provide some inspiration.

Ideas for Andy: Spending $170 from a Lifetime Collection of Change

  1. Open a brokerage account and buy 3 shares of The Coca-Cola Company stock (KO). This one occurred to me as you described the change saved in a “life-size Coca-Cola bottle.” KO recently closed at $52.40, which should allow you to buy three shares plus a commission. KO’s yield hovers around 3.3%, which means your investment will pay dividends for years to come, and if reinvested, could one day grow to a handsome sum. (Full disclosure – I own KO stock and have a mild addiction to their soft drinks)
  2. Buy a cheap round-trip plane ticket to a city you’d like to visit. For $170, you can often find a cheap flight special at a travel site like Orbitz (here’s a link to their flights for less than $200). If you live close to a departing city, consider a short drive and fly somewhere you’ve always wanted to visit. Now that would be a cool story to the kids one day!
  3. Open a Smarty Pig savings account. Smarty Pig is now offering one of the highest interest rates around, 2.15% APY at the time of this writing.
  4. Invest in yourself. With $170, you could probably hire a personal trainer for a few sessions, get your teeth whitened, get a new haircut to boost your confidence, or buy a new coat and tie for a future interview session. Now, I don’t know you personally, so I don’t know if any of these apply, but you get the idea.
  5. Give it away. You could very easily find a local shelter to donate money, food, blankets, or any combination of items. I also like what Secret Santa used to do – make giving even more personal. Call your church or local family services office and ask if they know of a family you could “sponsor” with a week of groceries, gas in their tank and a little extra spending money. If you prefer to wait until the holidays, your $170 could go a long way towards giving a family in need a nice Christmas.

Whatever you decide to do, my best advice is to make it as personal and memorable as possible. After you finish graduate school and start your career, you will have many more “$170 opportunities,” but I guarantee you none will be as memorable as this one. Make it count, and best of luck with graduate studies.

Frugal Dad readers, what other ideas to you have for Andy?